---

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

|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934    
|  | For the fiscal year ended December 31, 2010                                              
|  |                                                                                          
|  | OR                                                                                       
|  |                                                                                          
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934
|  | For the transition period from ____________ to ____________                              

|                                                      
|------------------------------------------------------
|Commission file number: 001-33207                     
|                                                      
|Universal Power Group, Inc.                           
|(Exact name of registrant as specified in its charter)

|                                          |                    
|----------------------------------------- | -------------------
|TEXAS                                     | 75-1288690         
|(State or other jurisdiction of           | (I.R.S. Employer   
|incorporation or organization)            | Identification No.)
|                                          |                    
|1720 Hayden Drive, Carrollton, Texas      | 75006              
|(Address of principal executive
 offices) | (Zip Code)         

(469) 892-1122(Registrants
telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last
report)

Securities registered pursuant to Section 12(b)
of the Act:

|                              |  |                                             
|----------------------------- |  | --------------------------------------------
|Common Stock, $0.01 Par Value |  | NYSE Amex                                   
|                              |  |                                             
|(Title of Each Class)         |  | (Name of each exchange on which
 registered)

Securities
registered pursuant to Section 12(g) of the Act: None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act                              Yes
o   No þ

Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act.               Yes o   No þ

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

Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).                     
                
                 
  Yes o   No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.          
                       
          þ

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


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

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

The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was $7,493,330 based on the price at which the
common equity was last sold on the NYSE Amex as of June 30, 2010, 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 23, 2011 was 5,020,000.

DOCUMENTS INCORPORATED BY REFERENCE
None

---

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TABLE OF CONTENTS

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

2

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FORWARD-LOOKING STATEMENTS

This
report includes forward-looking statements as the term is defined in the
Private Securities Litigation Reform Act of 1995 or by the U.S. Securities and
Exchange Commission in its rules, regulations and releases, regarding, among
other things, all statements other than statements of historical facts
contained in this report, including statements regarding our future financial
position, business strategy and plans and objectives of management for future
operations. The words believe, may, estimate, continue, anticipate,
intend, should, plan, could, target, potential, is likely,
will, expect and similar expressions, as they relate to us, are intended to
identify forward-looking statements. We have based these forward-looking
statements largely on our current expectations and projections about future
events and financial trends that we believe may affect our financial condition,
results of operations, business strategy and financial needs. These
forward-looking statements are subject to a number of risks, uncertainties,
assumptions and other factors, described in Risk Factors and elsewhere in
this report, which could adversely affect our business and financial
performance. In addition, our past results of operations do not necessarily
indicate our future results. Finally, the third-party logistics services
business and the battery and related power accessory supply and distribution
business are highly competitive and rapidly changing. New risk factors emerge
from time to time and it is not possible for us to anticipate all the relevant
risks to our business. We cannot assess the impact of all such risks on our
business or the extent to which any risk, or combination of risks, may cause
actual results to differ materially from those contained in any forward-looking
statements.

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

PART I

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

Corporate History

We
were organized in July 1968 under the laws of Texas. Our principal executive
office is located at 1720 Hayden Drive, Carrollton, Texas 75006, and our
telephone number is (469) 892-1122. Our web address is www.upgi.com. We have one active
subsidiary, Monarch Outdoor Adventures dba Monarch Hunting, which is located at
6112 West Pioneer Parkway (Highway 303), Arlington, Texas 76013, incorporated
in Texas, and two inactive wholly owned subsidiaries incorporated in Texas.
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 and Zunicom sold 1,000,000 shares of our common stock in an
underwritten initial public offering (IPO) reducing Zunicoms ownership
interest in us to 40%. Notwithstanding the fact that Zunicom no longer owns a
controlling interest in us, it still has significant influence.

Available Information

Our
website address is www.upgi.com.
We are not including the information contained on our website as part of, or
incorporating it by reference into, this annual report on Form 10-K. We make
available free of charge through our website our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments
to those reports as soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and Exchange
Commission (the SEC). You may read and copy any materials we file with the
SEC at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains
reports, proxy and information statements, and other information regarding
issuers such as us that file electronically with the SEC. The website address
is www.sec.gov.

Business Overview

We
are (i) a leading supplier and distributor of batteries, related power
accessories and security 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, related power accessories and security
accessories under various manufacturer brands, private labels and our own
proprietary brands. We are one of the leading domestic distributors of sealed,
or maintenance-free, lead-acid batteries (SLA batteries). Our principal
product lines include:

| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | batteries of a wide variety
 of chemistries, battery chargers and related accessories;                                               
| |   |                                                                                                                                      
| |  | portable battery-powered products,
 such as jump starters and 12-volt DC power accessories;                                          
| |   |                                                                                                                                      
| |  | security system components,
 such as alarm panels, perimeter access controls, horns, sirens, speakers,
 transformers, cable and wire.

3

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

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

Third Party Logistics

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

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

Industry Background

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

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

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

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Outsourcing non-core activities. Businesses are increasingly relying on
 third-party logistics providers for non-core activities, such as sourcing and
 procurement, warehousing, assembling, kitting, shipping and distribution, so
 as to focus on their core competencies.                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Globalization of trade. As barriers to international trade are
 reduced or eliminated, businesses are increasingly sourcing their parts,
 supplies and raw materials from the most competitive suppliers throughout the
 world. Businesses often find themselves getting involved in logistical
 matters with which they are unfamiliar and often face unforeseen added
 overhead and other logistic costs, which take away from their competitive
 edge and bottom-line income. We believe with continued globalization,
 businesses will increasingly turn to and rely on third-party logistics
 providers for their sourcing, warehousing, inventory management and
 distribution needs.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Increased competition. Increasing competition means businesses have
 to operate more efficiently. Businesses benefit by using third party
 logistics providers who already have established infrastructures, sourcing
 relationships and greater efficiencies.                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Increased reliance on technology. Advances in technology are placing a premium
 on decreased transaction time and increased business-to-business activity.
 Businesses recognize the benefits of being able to transact commerce
 electronically.                                                                                                                                                                                                                                                                                                                                                                                                                                          

Our Products and Services

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

| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Batteries. We
 are one of the leading domestic distributors of SLA, absorbent glass mat and
 gel batteries, all of which have been designated as non-hazardous by the U.S.
 Department of Transportation. We

4

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

5

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

Growth Strategy

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

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand our logistics service offerings. We are dedicating more resources to market
 our logistic and supply chain capabilities. We believe that one of the most
 efficient ways to attract new customers and expand relationships with
 existing customers is to expand our logistics service. We continue to add to
 our offerings and explore other value-added solutions such as freight
 forwarding and shipping, customs and brokerage, real-time visibility,
 electronic order entry and rapid order processing.                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Enhance information technology capabilities. We provide a customized web portal interface
 for our customers allowing them to easily place orders online with access to
 and management of their fulfillment needs. We believe that in the coming
 years an increasing number of transactions in this industry will be processed
 online. As a result, we plan to expand further 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
meeting the increasing standards in quality control programs and traceability
procedures. As a result, our distribution facility has successfully completed
procedure and quality audits and earned certification under the international
quality standard of ISO 9001:2000. The International Standards Organization
(ISO), created by the European Economic Community (EEC), established this
quality standard. The ISO created uniform standards of measuring processes,
traceability, procedures and quality control in order to assist and facilitate
business within the EEC. This voluntary certification is a testimony of our
commitment to consistently provide products that enhance customer satisfaction
and the assurance of conformity to customer and applicable regulatory
requirements.

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

Customers

Our
customers include OEMs, contract electronics manufacturers, distributors,
retailers and electronics manufacturing service providers that serve a broad
range of industries including: automotive, marine, sports and recreation,
medical mobility and other medical equipment, security and surveillance,
consumer goods and electronics, telecommunications and solar. Our customer list
includes over 2,990 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 ADT Security Services (ADT Security Services), formerly Broadview
Security, Inc., for whom we function as a supply chain manager throughout the
United States and Canada. In 2010, ADT Security Services accounted for
approximately 28% of our net sales. ADT Security Services is our only customer
that accounted for more than 10% of our net sales. The initial term of our
agreement with ADT Security Services expired in November 2010, but it renew automatically
for successive one-year term until either party terminates the agreement by
giving the other party 120-days prior written notice.

We
expect that demand for our services and, consequently, our results of
operations will continue to be sensitive to domestic and global economic
conditions and other factors we cannot directly control. As such, our focus
will remain on diversifying product lines, service offerings, expanding our
relationship with our current customers and adding new accounts through our
field and in-house sales and marketing teams.

6

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Sources and Availability of Products

We
purchase products from both domestic and foreign manufacturers. In 2010, we
purchased products from over 200 suppliers. During 2010, approximately 35% of
our purchases were from domestic suppliers and 65% were from foreign suppliers.
Approximately 54% of our 2009 purchases were from domestic suppliers and 46%
were from foreign suppliers. In addition, even though we purchase approximately
75% of our batteries from a single source, we believe that if that relationship
were to terminate we would be able to re-source those products from other
suppliers quickly, although our costs may be higher.

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

Competition

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

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

Distribution

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

We
are increasingly finding that manufacturers, particularly foreign
manufacturers, are competing against us, marketing and selling their products
directly to OEMs, distributors and retailers, importers, brokers and e-commerce
companies. Foreign manufacturers, particularly those located in low-cost
jurisdictions such as Latin America and Asia, generally have a price advantage
but most lack the market expertise and value-added offerings that we offer.

Third
Party Logistics

In
the third-party logistics business, we compete with traditional logistics
service providers. In general, many of these companies provide freight
transportation services but could also provide supply chain management
solutions. In comparison, we provide limited in-house freight transportation
services. This could make us a less attractive alternative to some potential
customers. However, we do engage freight forwarding companies to work with us
on consolidating and securing price competitive freight transportation
services. We also compete directly with large overnight shipping companies who
have begun to market themselves as supply chain management service providers.

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

| |   |                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Well-established sourcing contacts. Our established relationships with qualified
 manufacturers in Asia, principally China, enable us to provide our customers
 with competitive pricing, reliable quality and timely shipments.                                                        
| |   |                                                                                                                                                                                                                                                                                         
| |  | Key customer relationships. Over the last two years we have served more
 than 2,990 customers, from sole proprietors and small businesses to many
 large, well-known national, regional and local distributors and retailers.                                                           
| |   |                                                                                                                                                                                                                                                                                         
| |  | Extensive inventory permits prompt response to customer needs. We stock a broad range of products according
 to customer and seasonal needs. With extensive inventory covering 75 classes
 of products and approximately 3,000 SKUs, we can satisfy most customer
 demands immediately.
| |   |                                                                                                                                                                                                                                                                                         
| |  | National distribution. Our primary logistics center and warehouse
 facility is strategically located in the Dallas, Texas metroplex; regional
 logistics centers are located in Atlanta, Georgia and Las Vegas, Nevada.                                                                 

7

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | As a result, we can deliver
 products to almost any location in the continental United States within 24 to
 48 hours.                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Value-added services. We
 offer additional services not commonly provided by other third-party
 logistics or supply chain service providers, such as sourcing, custom
 kitting, battery pack assembly, product development, private labeling and
 coordinating customers with licensed EPA approved handlers for their battery
 recycling efforts.                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Broad industry experience; experienced management and support
 professionals. We have
 been in business for more than 40 years and have extensive knowledge of our
 markets and products. We also have a dedicated and experienced management
 team coupled with an excellent support staff.                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Reputation for quality. Since our inception, we have built a
 reputation based on the quality of our products, the timeliness of our
 deliveries and our responsiveness to customer needs. We believe that our
 commitment to customer satisfaction and our sourcing expertise have helped us
 in the industry as a premier supplier of batteries and related power
 accessories. We have been ISO 9001:2000 certified since October 2003.

Marketing and Sales

We
employ marketing, sales and sales support to actively pursue new business
opportunities and to retain and grow existing accounts. We also engage outside
sales representatives. We use a variety of techniques to market our products
including: (i) direct marketing through personal visits to customers by
management, sales and sales representatives; (ii) general advertising, sales
referrals and marketing support from component manufacturers; (iii)
telemarketing; (iv) participation in industry tradeshows; and (v) our website.
We are pursuing more advertising including direct mail, additional trade and
magazine publications and online advertising as our product offerings and
customer base determine.

Customer
retention and strengthening current relationships to participate in new
business opportunities is important to us, and we emphasize this throughout our
organization. We continue to emphasize the development of national and global
accounts while aggressively targeting local accounts where we can leverage our
array of services. The larger, more complex accounts typically have many
requirements ranging from very detailed standard operating and product approval
procedures to customized information technology integration requirements. We
believe our consistent growth, cost optimization and adaptability to customer
needs has enabled us to more effectively compete for and obtain many new
accounts.

Intellectual Property

We
own a number of trademarks, trade names, service marks and service names, some
of which are registered. These marks and names include the following: Adventure
Power®, Universal Battery®, All in One®, Batteries & Beyond®, Charge N
Start®, Starter-Up, UB Scootin®, UNILOK®, Let Us Power You® and UPG. We
believe that these marks are important and have helped us develop a brand
identity in certain markets and in connection with certain products. We also
license Energizer® on an exclusive and non-exclusive basis from Eveready
Battery Company.

Warranties

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

Government Regulation and Environmental Matters

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

All
of our SLA batteries are non-hazardous Class 60 batteries, and therefore are
not subject to laws, rules and regulations that deal with the handling of
hazardous materials. However, we do offer to our customers as a value-added
service, coordination of used SLA battery recycling. Our lithium batteries are
designated as Class 9 or hazardous. We work with manufacturers certified in
handling and packaging these batteries.

Employees

At
December 31, 2010, we had 91 employees, all of whom were full-time. We do not
have collective bargaining agreements with respect to any of our employees. We
have not experienced any work stoppages, and we believe we have good relations
with our employees.

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

In
addition to other information in this Form 10-K, the following risk factors
should be carefully considered in evaluating our business, including our
financial statements and the notes to those statements, and us. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not presently known to us, or that we currently deem
immaterial, could negatively impact our business, results of operations or
financial condition in the future. If any of the following risks and
uncertainties develops into actual events, it could have an

8

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

Risks Relating to Our Business

The
recession has adversely affected our operating results.

For
the year ended December 31, 2010, net sales declined compared to the prior
year. We cannot assure you that we will be able to reverse the declining sales
trend in the current year, or continue to increase income under those
circumstances. If we do not, the price of our common stock could decline.

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

For
the years ended December 31, 2010 and 2009, ADT Security Services accounted for
28% and 36% of our net sales, respectively. At December 31, 2010, our ADT
Security Services receivable represented approximately 13% of our total
accounts receivable, all of which was within the terms of our agreement
(generally 30 days). If ADT Security Services were to terminate its
relationship with us or significantly reduce the level of business it does with
us, it could have an adverse impact on our operating results. In addition, any
adverse developments in ADT Security Services business could have an adverse
impact on our financial condition. This customer concentration could adversely
affect the market price of our stock.

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

Our
working capital requirements are significant. To fund our operations we rely on
cash flow from operations and a $30.0 million working capital revolving credit
facility. At December 31, 2010, the outstanding balance on our credit line was
$16.3 million compared to $15.2 million at December 31, 2009. At those dates,
our total liabilities, including accounts payable, were $25.4 million and $30.4
million, respectively. The credit facility restricts us in many ways and these
restrictions, as well as the amount of the debt we carry at any one time, may
have an adverse impact on our business.

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

Second,
the agreement contains customary negative covenants restricting our ability to
take certain actions without the lenders consent, including incurring
additional indebtedness, transferring or encumbering assets, paying dividends
or making certain other payments, and acquiring other businesses. Upon certain
specified events of default, including failure to pay, bankruptcy, breach of
covenants and breach of representations and warranties the lender could
accelerate the due date for the repayment of the loan.

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

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

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

We depend on a limited number of suppliers.
Any disruption in our ability to purchase products from our suppliers or any
drastic changes in the prices we pay for our products could adversely affect
our gross margins and profitability, which could have an adverse impact on our
operating results.

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

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We
have two principal suppliers; one accounted for 45% and 33% of our inventory
purchases in 2010 and 2009, respectively, including a majority of our battery
purchases; and the other accounted for 25% and 40% of our inventory purchases
in 2010 and 2009, respectively. If our relationship with these suppliers were
to terminate for any reason, the price we pay for batteries and other products,
the quality of our products and the timeliness of our shipments may be
adversely affected, which could then adversely affect our ability to meet
customer expectations and damage our reputation.

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

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

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

For
the years ended December 31, 2010 and 2009, we purchased approximately 65% and
46%, respectively, of our products through foreign sources, predominantly in
China. In some instances, particularly when we are dealing with a new supplier,
we are required to finance the tooling cost that the factory incurs to meet our
requirements. We are at risk if the factory cannot deliver the goods to us. The
following could adversely affect our ability to sell certain products:

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

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

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

Although
we record all of our transactions in U.S. dollars, adverse currency
fluctuations could make components manufactured abroad more expensive, cause
shortages due to unfavorable export conditions or cause our foreign suppliers
to limit exports to the United States. Significant changes in the value of the
Chinese reminibi in relation to the U.S. dollar have increased the cost of
goods and raw materials for Chinese manufacturers, which they are incorporating
into the price of goods that we purchase from them. As a result, we cannot
assure you that currency fluctuations will not have a material adverse effect
on our operating results in the future.

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

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

We
cannot predict the timing or the severity of the cycles within our industry. In
particular, it is difficult to predict how long and to what levels any industry
upturn or downturn and/or general economic weakness will last or what impact
terrorism, war, or other factors may have on our industry. The electronic
components distribution industry historically been affected by general economic
downturns. These economic downturns have often had an

10

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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 that could have a
significant negative impact on our results. We have supported in the past and
expect in the future to support new technologies and emerging markets. If these
new technologies and emerging markets are not widely accepted, our operating
results could suffer significantly. Our operating results have significantly
fluctuated in the past, and will likely fluctuate in the future, because of
these market changes and factors.

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

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

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

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

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

We
compete with numerous, well-established companies, many, if not most of which
are larger and have greater capital and management resources. In addition, we
are increasingly finding that manufacturers, particularly foreign
manufacturers, are competing against us. We compete primarily based on price,
inventory availability, scope of services, quality of products and services,
delivery time and customer relationships. We expect competition to intensify in
the future. To the extent our competitors have superior financial resources,
they may be better able to withstand price competition and implement extensive
promotional programs. They may also be able to offer a broader range of
services.

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

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

We
manage our product distribution in the continental United States through our
operations in Carrollton, Texas and two regional logistics centers located in
Atlanta, Georgia and Las Vegas, Nevada. A serious disruption, such as earthquakes,
hurricanes, 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 us to
reopen or replace a distribution center. As a result, any such disruption could
have a material adverse effect on our business.

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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. Any claim, with
or without merit, could result in significant litigation costs and diversion of
resources, and could require us to enter into royalty and licensing agreements,
all of which could have a material adverse effect on our business. We may be
unable to obtain such licenses on commercially reasonable terms, or at all, and
the terms of any offered licenses may not be acceptable to us. If forced to
cease using such intellectual property, we may not be able to develop or obtain
alternative technologies. An adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us from manufacturing, using, or selling certain of our products, which could
have a material adverse effect on our business.

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

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

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

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

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

12

---



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

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

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

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

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

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

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

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

Risks Related to Our Stock

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

Since
our stock began trading in December 2006, daily trading volume has been
erratic. An active trading market in our common stock may never develop. An
illiquid market makes it more difficult for you to sell our stock should you
desire or need to do so. Even more, the market price of our securities may be
volatile, fluctuating significantly in response to a number of factors, some of
which are beyond our control. These factors include:

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

13

---



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

Zunicom
directly owns approximately 41% of our outstanding common stock. William Tan,
our chairman, is also the chairman of Zunicom. Ian Edmonds, our president,
chief executive officer, interim chief financial officer, a member of our board
of directors (the Board) and the son-in-law of Mr. Tan, is also a member of
the board of directors of Zunicom. As a result, Zunicom has significant
influence over all matters requiring approval by our stockholders, including
the election and removal of directors, any proposed merger, consolidation or
sale of all or substantially all of our assets and other corporate
transactions. This concentration of influence could be disadvantageous to other
stockholders with different interests, which could result in reducing our
profitability. In addition, this concentration of share ownership, and the
appearance of conflicts, even if such conflicts do not materialize, may
adversely affect the trading price for our common stock because investors often
perceive disadvantages in owning stock in companies with a significant
concentration of ownership among a limited number of shareholders.

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

Sales
of a substantial number of shares of our common stock in the public markets, or
the perception that these sales may occur, could cause the market price of our
stock to decline and could materially impair our ability to raise capital through
the sale of additional equity securities. We have 5,020,000 shares of common
stock issued and outstanding and an additional 2,300,000 shares of common stock
reserved for future issuance as follows:

| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 2,000,000
 shares reserved for issuance under our 2006 Stock Option Plan, of which
 1,381,842 are issuable upon exercise of outstanding options having a weighted
 exercise price of $6.65; and
| |   |                                                                                                                                                                                                
| |  | 300,000
 shares underlying warrants issued to the underwriters of our initial public
 offering (IPO).                                                                                        

However,
since our IPO, shares of our common stock have been thinly-traded in the
public market. Future sales, or even the possibility of future sale by us of
additional equity securities, may cause a decline in the market price of our
common stock.

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

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

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

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

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

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

14

---



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

None.

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

Our
executive offices are located in Carrollton, Texas.

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

On
April 30, 2008, we entered into a 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 2009 through August
2010 was $14,151 per month; and from September 2010 through August 2011 will be
$14,718.

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

On
September 10, 2010, we entered into a lease agreement for 22,800 square feet of
warehouse space in Hapeville, Georgia a suburb of Atlanta. The lease term is
from October 2010 through January 31, 2014. Rent for October 2010 through
February 2011 is $0 per month; March 2011 through September 2011 is $5,890 per
month; October 2011 through September 2012 is $6,061 per month; October 2012
through September 2013 is $6,251 per month and October 2013 through January
2014 is $6,441 per month.

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

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

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

PART II

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

Our
common stock is listed on the NYSE Amex under the symbol UPG. The following
table sets forth for the periods indicated the high and low sale prices per
share for our common stock, as reported on NYSE Amex.

|                 |  |             |      |     |   |      | 
|---------------- |  | ----------- | ---- | --- | - | ---- | 
|                 |  | Sale Prices |     
|                 |  |             |     
|                 |  | High        |      | Low |  
|                 |  |             |      |     |  
|Fiscal year 2010 |  |             |      |     |  
|First
 Quarter   |  | $           | 4.25 |     | $ | 3.04 | 
|Second
 Quarter  |  | $           | 3.57 |     | $ | 2.35 | 
|Third
 Quarter   |  | $           | 3.75 |     | $ | 1.96 | 
|Fourth
 Quarter  |  | $           | 3.94 |     | $ | 2.87 | 
|                 |  |             |      |     |   |      | 
|Fiscal year 2009 |  |             |      |     |   |      | 
|First
 Quarter   |  | $           | 3.24 |     | $ | 1.00 | 
|Second
 Quarter  |  | $           | 2.42 |     | $ | 1.09 | 
|Third
 Quarter   |  | $           | 2.90 |     | $ | 1.62 | 
|Fourth
 Quarter  |  | $           | 3.73 |     | $ | 1.83 | 

On
March 23, 2011, the closing price of our common stock was $4.28.

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 23, 2011, the Company had 5,020,000 shares of common stock issued and
outstanding held by seven shareholders of record.

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

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

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

Our
key operating results for 2010 include the following:

| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | Net sales
 for the 2010 year were slightly down by 3.5%, while gross profit margin
 increased 1.1% to 18.5% from 17.4% in 2009.

15

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net
 operating income was $5.1 million in 2010 compared to net operating income of
 $2.1 million in 2009; the $3.0 million increase was attributable primarily to
 settlement expenses of $2.5 million and increase sales in the core business.
 On a non-GAAP basis, after adjusting 2009 results for the settlement
 expenses, non-GAAP operating income for 2010 is 10.2% higher than the
 comparable amount in the corresponding 2009 period. (See Reconciliation of
 GAAP Operating Income and Income Before Provision for Income Taxes to
 non-GAAP Operating Income and Income Before Provision for Income Taxes
 (Unaudited) below.)
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Inventory
 levels increased by $1.9 million in 2010 to meet customer requirements in the
 first half of 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Accounts
 receivable decreased by approximately $1.3 million, accounts payable
 decreased by approximately $4.4 million and our line of credit increased by
 $1.1 million since end of year 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                             

Our
2010 net sales from batteries, related power accessories and other products
increased 19.4% to $72.8 million from $61.0 million for 2009. Net sales from
ADT Security Services and its authorized dealers decreased to $34.4 million,
down 31.4% compared to $50.2 million for 2009. We believe this decrease is due
to the changes within ADT Security Services from Tyco Internationals
acquisition of Broadview Security Systems.

We
believe the decline in net sales in 2010 over 2009 reflects the change in
consumer spending throughout the global economy. In addition to taking steps to
manage the difficult economic conditions, we are also focusing on developing
higher-margin products and markets and diversifying our markets to minimize our
exposure to the broader economy. We expanded our battery, charger and power
accessory lines to better meet the evolving needs of our customers and
ultimately, the end-user. We will continue to capitalize on favorable industry
trends, such as the growing demand for productivity, mobility and portability
in the consumer electronics industry.

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

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

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

|                                                                            |  |                              |       
|--------------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                            |  | Financial Summary (Non-GAAP) |       
|                                                                            |  | (unaudited)                  |       
|                                                                            |  | December 31,                 |       
|                                                                            |  |                              |       
|                                                                            |  | 2010                         |       
|                                                                            |  |                              |       
|                                                                            |  | (dollars in thousands)       |       
|                                                                            |  |                              |       
|                                                                           
|Operating income and income
 before provision for income taxes as reported: |  |                              |       
|Operating expenses                                                          |  | $                            | 14,769
|Settlement accrual                                                          |  |                              |      
|                                                                            |  |                              |       
|Total operating expenses                                                    |  |                              | 14,769
|                                                                            |  |                              |       
|Operating income                                                            |  |                              | 5,131 
|Other expense, net                                                          |  |                              | (679  
|                                                                            |  |                              |       
|Income before provision for income taxes                                    |  |                              | 4,452 
|                                                                            |  |                              |       
|Non-GAAP measures to
 exclude settlement expenses from operating expenses:  |  |                              |       
|Settlement accrual                                                          |  |                              |      
|                                                                            |  |                              |       
|Non-GAAP operating income                                                   |  | $                            | 5,131 
|                                                                            |  |                              |       
|                                                                            |  |                              |       
|Non-GAAP income before provision for income
 taxes                          |  | $                            | 4,452 
|                                                                            |  |                              |       

Results of Operations Year Ended December 31,
2010 Compared to December 31, 2009

The
following table compares our consolidated statement of operations data for the
years ended December 31, 2010 and 2009. The trends suggested by this table may
not be indicative of future operating results, which will depend on various
factors including the nature of revenues (sales of batteries and other power
accessory products versus logistics or value added services) and the relative
mix of products sold (batteries versus other power supply products), as well as
the state of the general economy.

16

---



In addition, acquisition could
also affect our operating results in future periods.

|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|---------------------------------------- |  | -------------------------------- | ------- | ------- |  | ------ | -- | ------- | ------- | - |  | ----- | --
|                                         |  | For the years ended December 31, |        
|                                         |  |                                  |        
|                                         |  | 2010                             |         | 2009    | 
|                                         |  |                                  |         |         | 
|                                         |  | Amount                           |         | Percent |  | Amount |    | Percent |        
|                                         |  |                                  |         |         |  |        |    |         |        
|                                         |  | (dollars in thousands)           |        
|Net sales                                |  | $                                | 107,257 |         |  | 100.0  | %  | $       | 111,171 |   |  | 100.0 | % 
|Cost of sales                            |  |                                  | 87,356  |         |  | 81.5   | %  |         | 91,798  |   |  | 82.6  | % 
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Gross profit                             |  |                                  | 19,901  |         |  | 18.6   | %  |         | 19,373  |   |  | 17.4  | % 
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Operating expenses                       |  |                                  | 14,769  |         |  | 13.8   | %  |         | 14,715  |   |  | 13.2  | % 
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Settlement accrual                       |  |                                  |        |         |  | 0      | %  |         | 2,529   |   |  | 2.3   | % 
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Total operating expenses                 |  |                                  | 14,769  |         |  | 13.8   | %  |         | 17,244  |   |  | 15.5  | % 
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Operating income                         |  |                                  | 5,131   |         |  | 4.8    | %  |         | 2,129   |   |  | 1.9   | % 
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Interest expense, net                    |  |                                  | (681    | )       |  | (0.6   | %) |         | (953    | ) |  | (0.9  | %)
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Other income/expense                     |  |                                  | 2       |         |  |       |    |         | (3      | ) |  |      |   
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Income before provision for income taxes |  |                                  | 4,452   |         |  | 4.2    | %  |         | 1,173   |   |  | 1.1   | % 
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Provision for income taxes               |  |                                  | (1,562  | )       |  | (1.5   | %) |         | (1,308  | ) |  | (1.2  | %)
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   
|Net income (loss)                        |  | $                                | 2,890   |         |  | 2.7    | %  | $       | (135    | ) |  | (0.12 | %)
|                                         |  |                                  |         |         |  |        |    |         |         |   |  |       |   

Net
sales

Net sales for the year ended December 31,
2010 were $107.3 million compared to $111.2 million for the period in 2009, a
decrease of $3.9 million, or 3.5%. Net sales from batteries and related power
accessories increased $11.8 million to approximately $72.8 million in 2010 from
$61.0 million in 2009, or 19.4%. Net sales from ADT Security Services and its
authorized dealers, was $34.4 million for 2010 compared to $50.2 million in the
2009 period, a decrease of $15.7 million, or 31.4%. We believe this decrease is
due to the changes imposed by Tyco International when it acquired Broadview
Security Systems.

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 $87.4
million for the year ended December 31, 2010, compared to $91.8 million in the
comparable 2009 period, a decrease of $4.4 million, or 4.8%. Cost of sales as a
percentage of sales decreased to 81.5% in the 2010 period from 82.6% for 2009.
This cost decrease was attributable to reduced volatility on raw material costs
and improved efficiencies across our supply chain, and a decrease in sales to
ADT Security Services and its authorized dealers. Our overall gross margin for
the year ended December 31, 2010, was approximately 18.5% compared to a gross
margin of 17.4% for the comparable period in 2009.

Settlement
expenses

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

Operating
expenses

Operating
expenses for 2010 decreased approximately 14.4% to approximately $14.8 million
from $17.2 million for 2009. The decreased operating expenses of $2.5 million
in 2010 was attributable to there being no settlement costs for 2010 (as
described above), increases of $0.2 million for facilities costs, $0.4 million
in personnel and related costs, and $0.1 million in marketing and trade show
costs, but offset by decreases of $0.1 million in costs related to being a
public company, of $0.2 million bad debt expense, and $0.2 million in other
expenses such as insurance costs and legal fees.

Operating
income

Operating
income for the year ended December 31, 2010 increased $3.0 million, or 141%, to
approximately $5.1 million compared to approximately $2.1 million the
comparable period in 2009. Non-GAAP operating income for the 2010 period was
$5.1 million, a 10.2% increase over the $4.7 million from 2009.

Interest
expense

Our
interest expense totaled $0.7 million for the year ended December 31, 2010
compared to $1.0 million for the year ended December 31, 2009. For the year
ended December 31, 2010 the average outstanding loan balance on

17

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our line of credit was $13.5
million, compared to $12.6 million for the year ended December 31, 2009. The
decrease is primarily attributable to the repayment of Zunicom notes in
December 2009.

Liquidity

We
had cash and cash equivalents of $0.2 million and $2.1 million at December 31,
2010 and 2009, respectively.

Net
cash used in operating activities was $2.9 million through December 2010 compared
to cash provided by operating activities of $5.9 million for 2009. The net cash
used in operating activities during 2010 is due primarily to a decrease in
accounts payable of approximately $4.4 million, an increase of $2.7 million in
inventories, a decrease in accrued settlement accrual of $1.0 million, and an
increase in income tax receivable/payable of $0.7 million which is offset by
net income of $2.9, non-cash charges for depreciation, amortization, provision
for bad debts and obsolete inventory, loss on disposal of property, deferred
income taxes and stock based compensation expense of $2.0 million, and a
decrease in accounts receivable of $1.0 million.

Net
cash used in investing activities was $0.1 million through December 2010
compared to $0.05 million for 2009. The cash used during 2010 was primarily for
purchases of property and equipment.

Net
cash provided by financing activities during 2010 was $1.2 million compared to
$4.1 million used by financing activities for 2009. The net cash provided by
financing activities for 2010 was due to $1.1 million net change in our line of
credit.

On
December 16, 2009, we entered into a credit agreement with Wells Fargo to
provide us with a new revolving credit facility. The agreement with Wells Fargo
provides that we may borrow up to $30.0 million, with the possibility that we
can increase the line to $40.0 million if we can satisfy certain defined
criteria. All of our assets secure our obligations under the agreement. Our
borrowing availability depends on our level of accounts receivable and
inventory. For each borrowing, we have the option to choose a Base Rate or
Eurodollar loan. Interest on Base Rate Loans is payable quarterly and
interest on Eurodollar Loans is generally payable monthly or quarterly as
selected by the Company. The annual rate of interest payable on Base Rate and
Eurodollar loans fluctuate depending upon a number of factors, all as described
in the Agreement. At December 31, 2010, the interest rate was 2.56%. The
Agreement terminates on July 30, 2013.

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

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

At
December 31, 2010, approximately $16.3 million was outstanding under the line
of credit and approximately $3.9 million remained available for borrowings
under the line of credit based on the borrowing formula.

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

Capital Resources

At
December 31, 2010, we did not have any material commitments for capital
expenditures. We may enter into various commitments during 2011 if expansion
opportunities arise. We will disclose material items in press releases and
other appropriate filings as they develop. We have no off balance sheet
financing arrangements.

INTERNATIONAL CURRENCY FLUCTUATION

The goods that we purchase
from Asia are subject to international currency fluctuations. We do not believe
that the fluctuation in currency presents a serious threat to its operations.

18

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CRITICAL ACCOUNTING POLICIES

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

Revenue Recognition

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

We
are a distributor who purchases both finished goods and components from
domestic and international suppliers. We add value to products and components
by packaging them in customer specified kits or tailor made units that are
convenient for the customer to order and ship. Additionally, we have several
customers that require specific battery pack assemblies. We obtain batteries
and components and reconfigure finished goods based upon customer
specifications. We refer to this process as battery pack assemblies. We
recognize sales of finished goods at the time the customer takes title to the
product.

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

Income Taxes

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

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

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

Accounts Receivable

Trade
accounts receivable are stated at the amount we expect to collect. We maintain
allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. Management considers the
following factors when determining the collectability of specific customer
account: 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 remains outstanding after we have 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

19

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periodic evaluations, based
upon business trends, to identify specifically obsolete, slow moving and
non-salable inventory.

Stock-Based Compensation

We
account for stock options under accounting provisions that require the
recognition of the fair value of stock-based compensation. Under these fair
value recognition provisions, we estimate stock-based compensation cost at the
grant date based on the fair value of the awards expected to vest and
recognized as expense ratably over the requisite service period of the award.
We have used the Black-Scholes valuation model to estimate fair value of our
stock-based awards, which requires various judgmental assumptions, including
estimating stock price volatility, forfeiture rates and expected life. Our
computation of expected volatility is based on a combination of historical and
market-based implied volatility. In addition, we consider many factors when
estimating expected forfeitures and expected life, including types of awards,
employee class and historical experience. If any of the assumptions used in the
Black-Scholes model change significantly, stock-based compensation expense may
differ materially in the future from that recorded in the current period.

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

Management,
including our 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.Management is responsible for establishing and
maintaining adequate internal control over financial reporting (as defined in
rule 13a-15(f) under the Exchange Act). Management assessed the effectiveness
of our internal control over financial reporting as of the Evaluation Date. 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. Management has concluded that, as of the
Evaluation Date, our internal control over financial reporting is effective
based on these criteria.

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.

20

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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,
2011 are as follows:

|                     |  |     |  |                                                                                    
|-------------------- |  | --- |  | -----------------------------------------------------------------------------------
|Name                 |  | Age |  | Positions                                                                          
|                     |  |     |  |                                                                                    
|Ian Colin
 Edmonds   |  | 39  |  | Chief
 Executive Officer, President, Interim Chief Financial Officer and a Director
|Mimi Tan             |  | 37  |  | Senior Vice
 President Business Development and Marketing and Corporate Secretary  
|Julie
 Sansom-Reese  |  | 48  |  | Senior Vice
 President of Finance and Treasurer                                    
|Ramin Salehi         |  | 37  |  | Senior Vice
 President of Operations                                               
|William Tan          |  | 67  |  | Chairman of
 the Board                                                             
|Leslie
 Bernhard     |  | 66  |  | Director                                                                           
|Robert M.
 Gutkowski |  | 62  |  | Director                                                                           
|Hyun (Joyce)
 Park   |  | 39  |  | Director                                                                           

| | 
| | 
| | 

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

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

JULIE
SANSOM-REESE has been employed by us since 1986. She was our chief financial
officer from 1991 to October 2007 and is now serving as our senior vice
president of finance. She served as chief financial officer for Zunicom, Inc.
from 1992 through July 1997 and was appointed interim chief financial officer
of Zunicom in November 1999 and assumed that role on a permanent basis from
November 2000 through December 2006. She also served as chief financial officer
of AlphaNet from October 2003 through December 2006. Ms. Sansom-Reese earned a
Bachelor of Arts in Business from Texas Tech University in May 1986.          RAMIN
SALEHI is the Senior Vice President of Operations where he is responsible for
setting the strategic and operational direction of the company. Mr. Salehi
joined the company in 1997 and prior to his current role he oversaw the
companys Supply Chain and Information Systems infrastructure. Mr. Salehi holds
a Bachelor of Science degree with a concentration in Computer Systems Design
from University of Houston-Clear Lake.

Non-Employee Directors

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

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

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

21

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1991 until 1994,
he was president of Madison Square Garden, Inc. where he was responsible for
the operations of the New York Knickerbockers basketball team, the New York
Rangers hockey club and MSB Communications, which included the MSG Television
Network. Mr. Gutkowski was a member of the board of directors of EuroTrust A/S,
(Nasdaq: EURO) from May 2004 through May 2006.

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

Board Composition

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

Disclosure of Director Qualifications

Mr.
Tan is an international businessman and investor with extensive contacts
throughout the Far East, which is where we source most of our products. In
addition, Mr. Tan is chairman and chief executive officer of Zunicom, our
largest shareholder.

Mr.
Edmonds is our principal executive officer and principal financial officer. As
such, he is active in every aspect of our day-to-day operations and strategic
planning. His thorough and extensive knowledge of our operations and financial
situation, his personal relationship with all of our major customers, suppliers
and other strategic partners and his knowledge and familiarity with our
employees makes him highly qualified to serve on the board.

Ms.
Bernhard is an accomplished businesswoman who is the chief executive officer of
one public reporting company and chairman of another, where she had previously
served as the chairman of the audit committee. As such, Ms. Bernhard
understands corporate governance, public company financial statements and
procedural issues. Given her experience and knowledge, Ms. Bernhard played an
important role in our transition from a private company to a public company and
continues to be an active and reliable board member.

Mr.
Gutkowski has had a successful business career with public reporting companies.
He was also instrumental in smoothing our transition from a private to a public
company. In addition, Mr. Gutkowski has extensive contacts throughout the
business and investment community. His leadership skills and insights into our
business have been instrumental in helping shape the direction of our company.

Ms.
Park has an extensive accounting and financial background. As a senior bank
executive, she brings extensive insight into our financial strategy and banking
relationships, which is one of our most important strategic relationships.
Given her experience and knowledge, we have designated Ms. Park as our audit
committee financial expert.

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

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

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

Board Meetings

The
Board met four times during 2010. A majority of the directors attended all of
the meetings of the Board. All persons who were directors during 2010 attended
at least 75% of these meetings. Absent special circumstance, each director is
expected to attend the annual meeting of shareholders.

Audit Committee. The Audit Committee
members consist of Robert M. Gutkowski, who serves as chairperson, and Joyce
Park. The Board has determined that Joyce Park 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;

22

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

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

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

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

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

Compensation Committee Interlocks and Insider Participation

None
of our executive officers serves as a member of the Board or compensation
committee, or other committee serving an equivalent function, of any other
entity that has one or more of its executive officers serving as a member of
the Board or Compensation Committee. None of the persons who are members of our
Compensation Committee has 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 at www.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, 2010, there have been no untimely filings of such
required forms.

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

Summary of Compensation

The
following table sets forth certain information with respect to compensation for
the years ended December 31, 2010 and 2009, earned by or paid to our chief executive
officer and our two other most highly compensated executive officers whose
total compensation exceeding $100,000 for the year ended December 31, 2010,
which are referred to as the Named Executive Officers.

We
recorded compensation expense in our Financial Statements for the year ended
December 31, 2010 with respect to the awards included in this table since the
awards were effective and fully vested at the end of 2010.

23

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Summary Compensation Table

|                                        |  |  |      |      |  |             |  |  |                  |  |                     |  |  |                               |  |  |            |   |  |  |  |        |     |  |  |  |         |  | 
|--------------------------------------- |  |  | ---- | ---- |  | ----------- |  |  | ---------------- |  | ------------------- |  |  | ----------------------------- |  |  | ---------- | - |  |  |  | ------ | --- |  |  |  | ------- |  | 
|Name & Principal Position               |  |  | Year |      |  | Salary
 ($) |  |  | Cash
 Bonus
 ($) |  | Option
 Awards
 ($) |  |  | All
 Other
 Compensation
 ($) |  |  | Total
 ($) |  
|                                        |  |  |      |      |  |             |  |  |                  |  |                     |  |  |                               |  |  |            |  
|Ian Edmonds                             |  |  |      | 2010 |  |             |  |  | 250,000          |  |                     |  |  | 423,065                       |  |  |            |  |  |  |  | 42,703 | (2) |  |  |  | 715,768 |  | 
|                                        |  |  |      |      |  |             |  |  |                  |  |                     |  |  |                               |  |  |            |   |  |  |  |        |     |  |  |  |         |  | 
|President,
 CEO, Interim CFO(1)         |  |  |      | 2009 |  |             |  |  | 234,298          |  |                     |  |  | 384,521                       |  |  |            |  |  |  |  | 11,010 | (2) |  |  |  | 629,829 |  | 
|                                        |  |  |      |      |  |             |  |  |                  |  |                     |  |  |                               |  |  |            |   |  |  |  |        |     |  |  |  |         |  | 
|Mimi Tan                                |  |  |      | 2010 |  |             |  |  | 168,036          |  |                     |  |  | 127,000                       |  |  |            |  |  |  |  | 5,809  | (3) |  |  |  | 300,845 |  | 
|SVP of Business Development & Marketing |  |  |      | 2009 |  |             |  |  | 168,036          |  |                     |  |  | 65,000                        |  |  |            |  |  |  |  | 5,547  | (3) |  |  |  | 238,583 |  | 
|                                        |  |  |      |      |  |             |  |  |                  |  |                     |  |  |                               |  |  |            |   |  |  |  |        |     |  |  |  |         |  | 
|Ramin Salehi                            |  |  |      | 2010 |  |             |  |  | 145,380          |  |                     |  |  | 128,000                       |  |  |            |  |  |  |  | 5,522  | (3) |  |  |  | 278,902 |  | 
|SVP of
 Operations                      |  |  |      | 2009 |  |             |  |  | 121,150          |  |                     |  |  | 65,000                        |  |  |            |  |  |  |  | 5,260  | (3) |  |  |  | 191,410 |  | 
|                                        |  |  |      |      |  |             |  |  |                  |  |                     |  |  |                               |  |  |            |   |  |  |  |        |     |  |  |  |         |  | 

|    |                                                                                                                                                         | 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                                        
|(1) | Appointed
 Interim CEO, President and CFO on January 21, 2009. On June 1, 2009, he
 became the permanent CEO and President but remained as Interim CFO.
|(2) | Car lease,
 medical insurance and long-term disability insurance payments.                                                                             
|(3) | Medical
 insurance and long-term disability insurance payments.                                                                                        

Employment Agreements and Arrangements

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The
 Company has an employment agreement (the Agreement) effective as of June 1,
 2009 (the Effective Date), with Ian Edmonds, its President and Chief
 Executive Officer. The current employment term ends on May 31, 2015. However,
 beginning on June 1, of each year the term automatically extends for an
 additional year unless either party provides at least 180 days prior written
 notice to the other of its election not to extend the term by another year.
 Under the Agreement, Mr. Edmonds earns a base salary of $250,000 per annum
 plus an annual cash bonus equal in amount to seven and one-half percent (7
 1/2%) of the Companys net income before provision for income taxes, as
 adjusted, provided it meets or exceed the annual targeted performance levels
 established by our Compensation Committee for each year. Mr. Edmonds is
 entitled to participate on the same basis as other senior executives in any
 of our benefit plans or programs available to them. In addition, the
 Agreement also provides, generally, that during the employment term and for
 the two-year period immediately following the end of such term, Mr. Edmonds
 shall not compete with us, solicit any of our employees for hire by an
 unaffiliated entity or knowingly release any of our confidential information,
 without the prior approval of our Board.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Outstanding Equity Awards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|The
 following table sets forth certain information with respect to outstanding
 equity awards at December 31, 2010 with respect to the Named Executive
 Officers. At December 31, 2010, there were no unvested stock awards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Outstanding Equity Awards at Fiscal Year-End

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

|    |                                                 | 
|--- | ----------------------------------------------- | 
|    |                                                
|(1) | Options are
 fully vested at December 31, 2006.
|(2) | Options are
 fully vested at December 31, 2007.

Compensation of Directors

Our
independent directors receive the following compensation:

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

24

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Stock
 options 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, 2010.

|                     |  |                               |        |                   |   |         |                          |  |       |        |     |  |  |        | 
|-------------------- |  | ----------------------------- | ------ | ----------------- | - | ------- | ------------------------ |  | ----- | ------ | --- |  |  | ------ | 
|Name                 |  | Fees
 Earned or
 Paid in Cash |        | Option
 Awards(1) |   |         | All
 Other
 Compensation |  | Total |       
|                     |  |                               |        |                   |   |         |                          |  |       |       
|William Tan          |  | $                             |       |                   | $ |        |                          |  | $     | 5,674  | (2) |  |  | 5,674  | 
|Leslie
 Bernhard     |  |                               | 64,675 |                   |   | 7,417(1 | )                        |  |       | 15,000 | (3) |  |  | 87,092 | 
|Robert M.
 Gutkowski |  |                               | 13,550 |                   |   | 7,417(1 | )                        |  |       | 14,993 | (2) |  |  | 35,960 | 
|Joyce Park           |  |                               | 16,225 |                   |   | 7,417(1 | )                        |  |       |       |     |  |  | 23,642 | 

|    |                                                                                                                                   | 
|--- | --------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                  
|(1) | 2010 expense
 as calculated for a stock option grant covering 10,000 shares of our common
 stock in accordance with FASB ASC 718.
|(2) | Includes
 medical insurance through company plans.                                                                               
|(3) | Consulting
 fees for services rendered after September 30, 2010.                                                                 

|         |                                                                                               
|-------- | ----------------------------------------------------------------------------------------------
|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 23, 2011 (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)                    |  |  |      | * | 
|Ramin Salehi                              |  |                                              | 7,000     | (6)                    |  |  |      | * | 
|Leslie Bernhard                           |  |                                              | 30,000    | (6)                    |  |  |      | * | 
|Robert M. Gutkowski                       |  |                                              | 30,000    | (6)                    |  |  |      | * | 
|Hyun (Joyce) Park                         |  |                                              | 20,000    | (6)                    |  |  |      | * | 
|All Directors and Named                   |  |                                              | 2,856,370 | (7)                    |  |  | 49.0 | % | 
|Executive Officers as a group (7 persons) |  |                                              |           |                        |  |  |      |   | 
|                                          |  |                                              |           |                        |  |  |      |   | 
|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                  |  |                                              | 634,492   |                        |  |  | 12.7 | % | 
|2360 W Joppa Rd, Ste 226                  |  |                                              |           |                        |  |  |      |   | 
|Lutherville, MD 21093                     |  |                                              |           |                        |  |  |      |   | 
|                                          |  |                                              |           |                        |  |  |      |   | 
|L. O. Heidtke (9)                         |  |                                              | 282,442   |                        |  |  | 5.6  | % | 
|201 4th Avenue,
 North, Ste. 1950         |  |                                              |           |                        |  |  |      |   | 
|Nashville, TN 37219                       |  |                                              |           |                        |  |  |      |   | 
|                                          |  |                                              |           |                        |  |  |      |   | 
|Julian Tymczysz                           |  |                                              | 280,137   |                        |  |  | 5.6  | % | 
|11 King George St.                        |  |                                              |           |                        |  |  |      |   | 
|Greenwich, London SE10                    |  |                                              |           |                        |  |  |      |   | 
|United Kingdom                            |  |                                              |           |                        |  |  |      |   | 

|  |                 | 
|- | --------------- | 
|  |                
|* | Less than 1.0%.

25

---



|    |                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Unless indicated otherwise,
 all addresses for officers and directors are c/o Universal Power Group, Inc.,
 1720 Hayden Road, Carrollton, TX 75006.                                                                                                                                                                                                                     
|(2) | Except as otherwise
 indicated and subject to applicable community property and similar laws, we
 assume that each named person has the sole voting and investment power with
 respect to his or her shares, other than shares subject to options.                                                                                                                      
|(3) | Percent of Class is based
 on the 5,020,000 shares outstanding as of March 23, 2011. 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.                                                                                                                                                                                                                       
|(9) | Mr. Heidtke is the General
 Partner of MidSouth Investment Fund, LP, the record owner of the shares.                                                                                                                                                                                                                                                                    

As
of March 23, 2011, we are not aware of any pledges of our common stock, which
may at a subsequent date result in a change in control of the company.

Equity Compensation Plan Information

The
following table summarizes the options granted under the Plan as well as
options and warrants granted outside the Plan as of December 31, 2010. The
shares covered by outstanding options are subject to adjustment for changes in
capitalization stock splits, stock dividends and similar events.

|                                                            |  |  |                                                                                                 |           |                                                                                 |  |   |                                                                                                                                                 |  |  |  |                 |  | 
|----------------------------------------------------------- |  |  | ----------------------------------------------------------------------------------------------- | --------- | ------------------------------------------------------------------------------- |  | - | ----------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | --------------- |  | 
|                                                            |  |  | Equity Compensation Plan Table                                                                  |          
|                                                            |  |  |                                                                                                 |          
|                                                            |  |  | Number
of securities to be
issued upon exercise of
Outstanding options,
warrants and rights
(a) |           | Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) |  |   | Number
of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c) | 
|                                                            |  |  |                                                                                                 |           |                                                                                 |  |   |                                                                                                                                                 | 
|Equity
 Compensation Plans Approved By Security Holders     |  |  |                                                                                                 |           |                                                                                 |  |   |                                                                                                                                                 |  |  |  |                 |  | 
|Grants under the 2006 Stock
 Option Plan                    |  |  |                                                                                                 | 1,381,842 |                                                                                 |  | $ | 6.65                                                                                                                                            |  |  |  | 598,158         |  | 
|                                                           
|Equity Compensation Plans Not Approved By Security
 Holders |  |  |                                                                                                 |           |                                                                                 |  |   |                                                                                                                                                 |  |  |  |                 |  | 
|Warrants (1)                                                |  |  |                                                                                                 | 300,000   |                                                                                 |  | $ | 8.40                                                                                                                                            |  |  |  | Not
 applicable |  | 
|Common Stock Options (2)                                    |  |  |                                                                                                 | 20,000    |                                                                                 |  | $ | 7.00                                                                                                                                            |  |  |  | Not
 applicable |  | 
|                                                            |  |  |                                                                                                 |           |                                                                                 |  |   |                                                                                                                                                 |  |  |  |                 |  | 
|                                                           
|Total                                                       |  |  |                                                                                                 | 1,701,842 |                                                                                 |  | $ | 6.96                                                                                                                                            |  |  |  | 598,158         |  | 

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

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

Policies and Corporate Governance

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

Transactions with Related Parties

From
January 1, 2010 through December 31, 2010 we did not engage in related party
transactions.

On
January 21, 2009 we entered into a Separation Agreement with Randy Hardin, our
former president and CEO and the beneficial owner of more than 5% of our common
stock as of March 23, 2011, in connection with the termination of his
employment with us. Under the Separation Agreement, we agreed to continue to
pay Mr. Hardin his annual base salary of $242,000 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.

26

---



Director Independence

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

In
determining director independence, the Board applies the independence standards
set by NYSE Amex. In its application of such standards, the Board takes into
consideration all transactions with independent directors and the impact of
such transactions, if any, on any of the independent directors ability to
continue to serve on the Board. To that end, for the fiscal year ended 2010,
the Board considered all the fees paid to the independent directors disclosed
below in Item 11  Executive Compensation  Compensation of Directors, and
determined that those transactions were within the limits of the independence
standards set by NYSE Amex and did not impact their ability to continue to
serve as independent directors.

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

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

Audit
Fees. Fees billed for service rendered by BKD LLP for the audit of the
financial statements and for the reviews of our Form 10-Q filings were
approximately $155,000 for 2010 and $40,000 for 2009. 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 $0 for 2010 and approximately
$140,000 for 2009.

Audit-Related
Fees. None

Tax
Fees. Aggregate fees billed for permissible tax services rendered by BKD LLP
consisted of $44,000 for 2010 and $14,000 for 2009. These amounts include tax
consulting, preparation of federal and state income tax returns and franchise
tax returns. Aggregate fees billed for permissible tax services rendered by KBA
Group LLP consisted of approximately $0 for 2010 and approximately $70,000 for
2009. 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 BKD LLP for review of our
annual proxy statements and Form 8-K filings were approximately $1,500 for 2010
and $0 for 2009.

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                                                  
| |     |          |                                                                   |                                                                                                           
| |     |          |                                                                  | Consolidated
 Balance Sheets as of December 31, 2010 and 2009                                             
| |     |          |                                                                   |                                                                                                           
| |     |          |                                                                  | Consolidated
 Statements of Operations for the years ended December 31, 2010 and 2009                     
| |     |          |                                                                   |                                                                                                           
| |     |          |                                                                  | Consolidated
 Statement of Changes in Shareholders Equity for the years ended December 31,
 2010 and 2009
| |     |          |                                                                   |                                                                                                           
| |     |          |                                                                  | Consolidated
 Statements of Cash Flows for the years ended December 31, 2010 and 2009                     
| |     |          |                                                                   |                                                                                                           
| |     |          |                                                                  | Notes to
 Consolidated Financial Statements                                                               
| |     |          |                                                                   |                                                                                                           
| |     | 2.       | Financial Statement Schedules  See response to Item 15(c) below.
| |     |          |                                                                   |                                                                                                           
| |     | 3.       | Exhibits.  See response to Item 15(b) below.                    
| |     |          |                                                                   |                                                                                                           
| | (b) | Exhibits

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

|             |  |                                                                                                               
|------------ |  | --------------------------------------------------------------------------------------------------------------
|Exhibit
 No. |  | Description                                                                                                   
|             |  |                                                                                                               
|3(i)         |  | Amended and Restated
 Certificate of Formation (including Amended and Restated Articles of
 Incorporation) (1)
|3(ii)        |  | Amended and Restated
 Bylaws (1)                                                                              
|4.1          |  | Specimen stock certificate
 (1)                                                                               
|4.2          |  | Form of representatives
 warrant (1)                                                                         

27

---



|          |  |                                                                                                                                                                                              
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1(a)** |  | Form of 2006 Stock Option
 Plan (1)                                                                                                                                                          
|10.1(b)   |  | Form of Stock Option
 Agreement (1)                                                                                                                                                          
|10.1(c)** |  | Amendment to the 2006
 Stock Option Plan (6)                                                                                                                                                 
|10.2      |  | Separation Agreement
 between UPG and Randy Hardin (2)                                                                                                                                       
|10.3**    |  | Form of Ian Edmonds
 Employment Agreement (7)                                                                                                                                                
|10.7      |  | Real Property Lease for
 1720 Hayden Drive, Carrollton, Texas (1)                                                                                                                            
|10.8      |  | Real Property Lease for
 11605-B North Santa Fe, Oklahoma City, Oklahoma (1)                                                                                                                 
|10.9      |  | Real Property Lease for
 Las Vegas, Nevada (1)                                                                                                                                               
|10.10     |  | Real Property Lease for
 Atlanta, GA *                                                                                                                                                       
|10.11     |  | Termination Agreement with
 Stan Battat d/b/a Import Consultants (3)                                                                                                                         
|10.12     |  | Third Party
 Logistics & Purchase Agreement, dated as of November 3, 2008, with Brinks
 Home Security, Inc., (currently ADT Security Services (formerly Broadview
 Security), Inc.) (4)      
|10.13     |  | Credit
 Agreement with Wells Fargo Bank, National Association (8)                                                                                                                            
|10.14     |  | Security
 Agreement with Wells Fargo Bank, National Association (8)                                                                                                                          
|23.1      |  | Consent of
 Independent Registered Public Accounting Firm*                                                                                                                                   
|31.1      |  | Certification
 of the Principal Executive Officer pursuant to Section 302 of the
 Sarbanes-Oxley Act of 2002*                                                                                
|31.2      |  | Certification of the
 Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002*                                                                                
|32.1      |  | Certification of the
 Principal Executive Officer and Principal Financial Officer Pursuant to 18
 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002*

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

(c)
Other Financial Statement Schedules.

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

28

---



Signatures

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

| |                              |                   
| | ---------------------------- | ------------------
| | Date: March
 31, 2011       
| |                             
| | Universal
 Power Group, Inc.
| |                             
| | By:                          | /s/ Ian
 Edmonds  
| |                              |                   
| |                              | Ian Edmonds       
| |                              | President
 and CEO

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

|                        |  |                                                                                                                     |  |                
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | ---------------
|Signature               |  | Capacity                                                                                                            |  | Date           
|                        |  |                                                                                                                     |  |                
|                       
|/s/ Ian Edmonds         |  | Chief
 Executive Officer, Interim Chief Financial Officer and Director (Principal
 Executive and Financial Officer) |  | March 31,
 2011
|                        |  |                                                                                                                    
|Ian Edmonds             |  |                                                                                                                    
|                        |  |                                                                                                                     |  |                
|/s/ William Tan         |  | Chairman of
 the Board                                                                                              |  | March 31,
 2011
|                        |  |                                                                                                                    
|William Tan             |  |                                                                                                                    
|                        |  |                                                                                                                     |  |                
|/s/ Robert M. Gutkowski |  | Director                                                                                                            |  | March 31,
 2011
|                        |  |                                                                                                                    
|Robert M. Gutkowski     |  |                                                                                                                    
|                        |  |                                                                                                                     |  |                
|/s/ Leslie Bernhard     |  | Director                                                                                                            |  | March 31,
 2011
|                        |  |                                                                                                                    
|Leslie Bernhard         |  |                                                                                                                    
|                        |  |                                                                                                                     |  |                
|/s/ Hyun (Joyce) Park   |  | Director                                                                                                            |  | March 31,
 2011
|                        |  |                                                                                                                    
|Hyun (Joyce) Park       |  |                                                                                                                    

29

---



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

DECEMBER 31, 2010

F-1

---



INDEX TO FINANCIAL STATEMENTS
UNIVERSAL POWER GROUP, INC.

|                                                                                                          |  |      | 
|--------------------------------------------------------------------------------------------------------- |  | ---- | 
|                                                                                                          |  | Page | 
|                                                                                                          |  |      | 
|Report of Independent Registered Public
 Accounting Firm                                                  |  | F-3 
|Consolidated Balance Sheets at December 31,
 2010 and 2009                                                |  | F-4 
|Consolidated Statements of Operations for
 the years ended December 31, 2010 and 2009                     |  | F-6 
|Consolidated Statement of Changes in
 Shareholders Equity for the years ended December 31, 2010 and 2009 |  | F-7 
|Consolidated Statements of Cash Flows for
 the years ended December 31, 2010 and 2009                     |  | F-8 
|Notes to Consolidated Financial Statements                                                                |  | F-10

F-2

---



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Audit
Committee, Board of Directors and Stockholders
Universal Power Group, Inc.
Dallas, Texas

We
have audited the accompanying consolidated balance sheets of Universal Power
Group, Inc. and subsidiaries (the Company) as of December 31, 2010 and 2009
and the related consolidated statements of operations, changes in shareholders
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements
based on our audits.

We
conducted our audits in accordance with 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, an audit 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. Our audits also included
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Universal Power
Group, Inc. as of December 31, 2010 and 2009, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

/s/BKD LLP
Dallas, Texas
March 31, 2011

F-3

---



UNIVERSAL POWER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS

|                                                                                            |  |              |            |      |   |            |  
|------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---- | - | ---------- | -
|                                                                                            |  | December 31, |           
|                                                                                            |  |              |           
|                                                                                            |  | 2010         |            | 2009 |  
|                                                                                            |  |              |            |      |  
|CURRENT ASSETS                                                                              |  |              |            |      |   |            |  
|Cash and cash equivalents                                                                   |  | $            | 215,375    |      | $ | 2,059,475  |  
|Accounts receivable:                                                                        |  |              |            |      |   |            |  
|Trade, net of allowance for doubtful
 accounts of $656,989 and $452,200                     |  |              | 10,189,716 |      |   | 11,440,179 |  
|Other                                                                                       |  |              | 25,607     |      |   | 13,561     |  
|Inventories  finished goods, net of
 allowance for obsolescence of $1,155,852 and $756,671 |  |              | 32,893,837 |      |   | 30,977,213 |  
|Current deferred tax asset                                                                  |  |              | 1,564,433  |      |   | 1,475,157  |  
|Prepaid expenses and other current assets                                                   |  |              | 1,237,047  |      |   | 1,064,152  |  
|                                                                                            |  |              |            |      |   |            |  
|Total current assets                                                                        |  |              | 46,126,015 |      |   | 47,029,737 |  
|                                                                                            |  |              |            |      |   |            |  
|PROPERTY AND EQUIPMENT                                                                      |  |              |            |      |   |            |  
|Logistics and distribution systems                                                          |  |              | 1,834,124  |      |   | 1,807,069  |  
|Machinery and equipment                                                                     |  |              | 991,260    |      |   | 984,918    |  
|Furniture and fixtures                                                                      |  |              | 467,632    |      |   | 385,940    |  
|Leasehold improvements                                                                      |  |              | 408,128    |      |   | 388,334    |  
|Vehicles                                                                                    |  |              | 199,992    |      |   | 222,549    |  
|                                                                                            |  |              |            |      |   |            |  
|Total property and equipment                                                                |  |              | 3,901,136  |      |   | 3,788,810  |  
|Less accumulated depreciation and
 amortization                                             |  |              | (2,561,314 | )    |   | (1,940,715 | )
|                                                                                            |  |              |            |      |   |            |  
|Net property and equipment                                                                  |  |              | 1,339,822  |      |   | 1,848,095  |  
|                                                                                            |  |              |            |      |   |            |  
|OTHER ASSETS                                                                                |  |              | 127,018    |      |   | 313,754    |  
|NON-CURRENT DEFERRED TAX ASSET                                                              |  |              | 17,784     |      |   | 214,314    |  
|                                                                                            |  |              |            |      |   |            |  
|TOTAL ASSETS                                                                                |  | $            | 47,610,639 |      | $ | 49,405,900 |  
|                                                                                            |  |              |            |      |   |            |  

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

F-4

---



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

|                                                                                                                                    |  |              |            |      |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---- | - | ---------- | -
|                                                                                                                                    |  | December 31, |           
|                                                                                                                                    |  |              |           
|                                                                                                                                    |  | 2010         |            | 2009 |  
|                                                                                                                                    |  |              |            |      |  
|CURRENT LIABILITIES                                                                                                                 |  |              |            |      |   |            |  
|Line of credit                                                                                                                      |  | $            | 16,323,528 |      | $ | 15,174,305 |  
|Accounts payable                                                                                                                    |  |              | 7,559,445  |      |   | 11,971,502 |  
|Income taxes payable                                                                                                                |  |              | 25,588     |      |   | 698,654    |  
|Accrued liabilities                                                                                                                 |  |              | 456,418    |      |   | 384,976    |  
|Current portion of settlement accrual                                                                                               |  |              | 733,540    |      |   | 955,730    |  
|Current portion of capital lease and note
 obligations                                                                              |  |              | 25,906     |      |   | 25,535     |  
|Current portion of deferred rent                                                                                                    |  |              | 52,672     |      |   | 92,040     |  
|                                                                                                                                    |  |              |            |      |   |            |  
|Total current liabilities                                                                                                           |  |              | 25,177,097 |      |   | 29,302,742 |  
|                                                                                                                                    |  |              |            |      |   |            |  
|LONG-TERM LIABILITIES                                                                                                               |  |              |            |      |   |            |  
|Settlement accrual, less current portion                                                                                            |  |              | 241,490    |      |   | 985,027    |  
|Capital lease and note obligations, less
 current portion                                                                           |  |              | 25,183     |      |   | 50,606     |  
|Deferred rent, less current portion                                                                                                 |  |              |           |      |   | 36,103     |  
|                                                                                                                                    |  |              |            |      |   |            |  
|Total long-term liabilities                                                                                                         |  |              | 266,673    |      |   | 1,071,736  |  
|                                                                                                                                    |  |              |            |      |   |            |  
|TOTAL LIABILITIES                                                                                                                   |  |              | 25,443,770 |      |   | 30,374,478 |  
|                                                                                                                                    |  |              |            |      |   |            |  
|COMMITMENTS AND CONTINGENCIES SHAREHOLDERS
 EQUITY                                                                                 |  |              |            |      |   |            |  
|Common stock - $0.01 par value, 50,000,000
 shares authorized, 5,020,000 and 5,000,000 shares issued and outstanding,
 respectively |  |              | 50,200     |      |   | 50,000     |  
|Additional paid-in capital                                                                                                          |  |              | 16,075,771 |      |   | 15,951,626 |  
|Retained earnings                                                                                                                   |  |              | 6,205,127  |      |   | 3,314,887  |  
|Accumulated other comprehensive loss                                                                                                |  |              | (164,229   | )    |   | (285,091   | )
|                                                                                                                                    |  |              |            |      |   |            |  
|Total shareholders equity                                                                                                          |  |              | 22,166,869 |      |   | 19,031,422 |  
|                                                                                                                                    |  |              |            |      |   |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                          |  | $            | 47,610,639 |      | $ | 49,405,900 |  
|                                                                                                                                    |  |              |            |      |   |            |  

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

F-5

---



UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                               |  |                          |             |      |   |             |  
|-------------------------------------------------------------- |  | ------------------------ | ----------- | ---- | - | ----------- | -
|                                                               |  | Years Ended December 31, |            
|                                                               |  |                          |            
|                                                               |  | 2010                     |             | 2009 |  
|                                                               |  |                          |             |      |  
|Net sales                                                      |  | $                        | 107,256,461 |      | $ | 111,170,726 |  
|Cost of sales                                                  |  |                          | 87,355,871  |      |   | 91,797,823  |  
|                                                               |  |                          |             |      |   |             |  
|Gross profit                                                   |  |                          | 19,900,590  |      |   | 19,372,903  |  
|                                                               |  |                          |             |      |   |             |  
|Operating expenses                                             |  |                          | 14,769,442  |      |   | 14,714,680  |  
|Settlement expenses                                            |  |                          |            |      |   | 2,529,345   |  
|                                                               |  |                          |             |      |   |             |  
|Total operating expenses                                       |  |                          | 14,769,442  |      |   | 17,244,025  |  
|                                                               |  |                          |             |      |   |             |  
|Operating income                                               |  |                          | 5,131,148   |      |   | 2,128,878   |  
|                                                               |  |                          |             |      |   |             |  
|Other income (expense)                                         |  |                          |             |      |   |             |  
|Interest expense (including $0 and $310,000
 to Zunicom, Inc.) |  |                          | (681,213    | )    |   | (953,251    | )
|Other, net                                                     |  |                          | 2,187       |      |   | (2,623      | )
|                                                               |  |                          |             |      |   |             |  
|Total other expense, net                                       |  |                          | (679,026    | )    |   | (955,874    | )
|                                                               |  |                          |             |      |   |             |  
|Income before provision for income taxes                       |  |                          | 4,452,122   |      |   | 1,173,004   |  
|Provision for income taxes                                     |  |                          | (1,561,882  | )    |   | (1,308,193  | )
|                                                               |  |                          |             |      |   |             |  
|Net income (loss)                                              |  | $                        | 2,890,240   |      | $ | (135,189    | )
|                                                               |  |                          |             |      |   |             |  
|                                                               |  |                          |             |      |   |             |  
|Net income (loss) per share                                    |  |                          |             |      |   |             |  
|Basic                                                          |  | $                        | 0.58        |      | $ | (0.03       | )
|                                                               |  |                          |             |      |   |             |  
|Weighted average shares outstanding                            |  |                          |             |      |   |             |  
|Basic                                                          |  |                          | 5,001,753   |      |   | 5,000,000   |  
|                                                               |  |                          |             |      |   |             |  
|                                                               |  |                          |             |      |   |             |  
|Net income (loss) per share                                    |  |                          |             |      |   |             |  
|Diluted                                                        |  | $                        | 0.58        |      | $ | (0.03       | )
|                                                               |  |                          |             |      |   |             |  
|Weighted average shares outstanding                            |  |                          |             |      |   |             |  
|Diluted                                                        |  |                          | 5,016,816   |      |   | 5,000,000   |  
|                                                               |  |                          |             |      |   |             |  

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

F-6

---



UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years ended December 31, 2010 and 2009

|                                                                                               |  |              |           |                             |   |                    |  |                                        |            |                     |   |           |   |   |          |   |   |          |   |   |            |  
|---------------------------------------------------------------------------------------------- |  | ------------ | --------- | --------------------------- | - | ------------------ |  | -------------------------------------- | ---------- | ------------------- | - | --------- | - | - | -------- | - | - | -------- | - | - | ---------- | -
|                                                                                               |  | Common Stock |           | Additional Paid-in
 Capital |   | Retained
 Earnings |  | Accumulated Other
 Comprehensive
 Loss |            | Comprehensive
 Loss |   |           |  
|                                                                                               |  |              |           |                             |   |                    |  |                                        |           
|                                                                                               |  | Shares       |           | Amount                      |   |                    |  |                                        |            | Total               |  
|                                                                                               |  |              |           |                             |   |                    |  |                                        |            |                     |   |           |   |   |         
|Balances at January 1, 2009                                                                    |  |              | 5,000,000 |                             | $ | 50,000             |  | $                                      | 15,529,783 |                     | $ | 3,450,076 |   | $ | (319,526 | ) | $ |         |   | $ | 18,710,333 |  
|Stock-based compensation expense                                                               |  |              |          |                             |   |                   |  |                                        | 36,969     |                     |   |          |   |   |         |   |   |         |   |   | 36,969     |  
|Gain on settlement of Zunicom, Inc. notes payable, net of income taxes
 of $102,558            |  |              |          |                             |   |                   |  |                                        | 199,083    |                     |   |          |   |   |         |   |   |         |   |   | 199,083    |  
|Cumulative tax effect of tax adjustment recorded as a capital
 contribution from Zunicom, Inc. |  |              |          |                             |   |                   |  |                                        | 185,791    |                     |   |          |   |   |         |   |   |         |   |   | 185,791    |  
|Net change in fair value of hedging instrument, net of income taxes of
 $146,868               |  |              |          |                             |   |                   |  |                                        |           |                     |   |          |   |   | 34,435   |   |   | 34,435   |   |   | 34,435     |  
|Net loss                                                                                       |  |              |           |                             |   |                    |  |                                        |            |                     |   | (135,189  | ) |   |          |   |   | (135,189 | ) |   | (135,189   | )
|                                                                                               |  |              |           |                             |   |                    |  |                                        |            |                     |   |           |   |   |          |   |   |          |   |   |           
|Comprehensive loss                                                                             |  |              |          |                             |   |                   |  |                                        |           |                     |   |          |   |   |         |   |   | (100,754 | ) |   |           |  
|                                                                                               |  |              |           |                             |   |                    |  |                                        |            |                     |   |           |   |   |          |   |   |          |   |   |            |  
|Balances at December 31, 2009                                                                  |  |              | 5,000,000 |                             |   | 50,000             |  |                                        | 15,951,626 |                     |   | 3,314,887 |   |   | (285,091 | ) |   |         |   |   | 19,031,422 |  
|Stock-based compensation expense                                                               |  |              |          |                             |   |                   |  |                                        | 84,945     |                     |   |          |   |   |         |   |   |         |   |   | 84,945     |  
|Stock options exercised                                                                        |  |              | 20,000    |                             |   | 200                |  |                                        | 39,200     |                     |   |          |   |   |         |   |   |         |   |   | 39,400     |  
|Amortization of hedging instrument carrying value                                              |  |              |          |                             |   |                   |  |                                        |           |                     |   |          |   |   | 120,862  |   |   |         |   |   | 120,862    |  
|                                                                                               |  |              |           |                             |   |                    |  |                                        |            |                     |   |           |   |   |          |   |   |          |   |   |            |  
|Net income                                                                                     |  |              |          |                             |   |                   |  |                                        |           |                     |   | 2,890,240 |   |   |         |   |   |         |   |   | 2,890,240  |  
|                                                                                               |  |              |           |                             |   |                    |  |                                        |            |                     |   |           |   |   |          |   |   |          |   |   |            |  
|Balances at December 31, 2010                                                                  |  |              | 5,020,000 |                             | $ | 50,200             |  | $                                      | 16,075,771 |                     | $ | 6,205,127 |   | $ | (164,229 | ) | $ |         |   | $ | 22,166,869 |  
|                                                                                               |  |              |           |                             |   |                    |  |                                        |            |                     |   |           |   |   |          |   |   |          |   |   |            |  

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

F-7

---



UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                            |  |                          |            |      |   |            |  
|--------------------------------------------------------------------------- |  | ------------------------ | ---------- | ---- | - | ---------- | -
|                                                                            |  | Years Ended December 31, |           
|                                                                            |  |                          |           
|                                                                            |  | 2010                     |            | 2009 |  
|                                                                            |  |                          |            |      |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |  |                          |            |      |   |            |  
|Net income (loss)                                                           |  | $                        | 2,890,240  |      | $ | (135,189   | )
|Items not requiring (providing) cash                                        |  |                          |            |      |   |            |  
|Depreciation and amortization                                               |  |                          | 809,317    |      |   | 802,454    |  
|Provision for doubtful accounts                                             |  |                          | 228,361    |      |   | 415,808    |  
|Provision for obsolete inventory                                            |  |                          | 770,000    |      |   | 599,145    |  
|Deferred income taxes                                                       |  |                          | 107,254    |      |   | (196,857   | )
|Loss (gain) on disposal of property and
 equipment                          |  |                          | (2,000     | )    |   | 2,623      |  
|Stock-based compensation                                                    |  |                          | 84,945     |      |   | 36,969     |  
|Changes in operating assets and
 liabilities, net of effect of acquisition: |  |                          |            |      |   |            |  
|Accounts receivable  trade                                                 |  |                          | 1,022,102  |      |   | 592,626    |  
|Accounts receivable  other                                                 |  |                          | (12,046    | )    |   | 36,742     |  
|Inventories                                                                 |  |                          | (2,686,624 | )    |   | 5,945,535  |  
|Income taxes receivable/payable                                             |  |                          | (673,066   | )    |   | 867,328    |  
|Prepaid expenses and other current assets                                   |  |                          | (172,895   | )    |   | (183,624   | )
|Other assets                                                                |  |                          |           |      |   | (60,716    | )
|Accounts payable                                                            |  |                          | (4,412,057 | )    |   | (4,448,443 | )
|Accrued liabilities                                                         |  |                          | 192,304    |      |   | (222,367   | )
|Settlement accrual                                                          |  |                          | (965,728   | )    |   | 1,940,758  |  
|Deferred rent                                                               |  |                          | (75,470    | )    |   | (98,159    | )
|                                                                            |  |                          |            |      |   |            |  
|Net cash provided by (used in) operating
 activities                        |  |                          | (2,895,363 | )    |   | 5,894,633  |  
|                                                                            |  |                          |            |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |  |                          |            |      |   |            |  
|Purchase of property and equipment                                          |  |                          | (134,884   | )    |   | (56,761    | )
|Proceeds from sale of equipment                                             |  |                          | 2,000      |      |   | 1,000      |  
|Escrow deposit                                                              |  |                          |           |      |   | 900,000    |  
|Net cash paid in Monarch acquisition                                        |  |                          |           |      |   | (892,000   | )
|                                                                            |  |                          |            |      |   |            |  
|Net cash used in investing activities                                       |  |                          | (132,884   | )    |   | (47,761    | )
|                                                                            |  |                          |            |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |  |                          |            |      |   |            |  
|Net activity on line of credit                                              |  |                          | 1,149,223  |      |   | 822,530    |  
|Exercise of stock options                                                   |  |                          | 39,400     |      |   |           |  
|Payments on capital lease and note
 obligations                             |  |                          | (4,476     | )    |   | (16,454    | )
|Payment on notes to Zunicom, Inc.                                           |  |                          |           |      |   | (4,919,667 | )
|                                                                            |  |                          |            |      |   |            |  
|Net cash provided by (used in) financing
 activities                        |  |                          | 1,184,147  |      |   | (4,113,591 | )
|                                                                            |  |                          |            |      |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS                       |  |                          | (1,844,100 | )    |   | 1,733,281  |  
|Cash and cash equivalents at beginning of
 year                             |  |                          | 2,059,475  |      |   | 326,194    |  
|                                                                            |  |                          |            |      |   |            |  
|Cash and cash equivalents at end of year                                    |  | $                        | 215,375    |      | $ | 2,059,475  |  
|                                                                            |  |                          |            |      |   |            |  
|                                                                            |  |                          |            |      |   |            |  
|SUPPLEMENTAL DISCLOSURES                                                    |  |                          |            |      |   |            |  
|Income taxes paid                                                           |  | $                        | 2,103,659  |      | $ | 871,052    |  
|                                                                            |  |                          |            |      |   |            |  
|Interest paid                                                               |  | $                        | 436,522    |      | $ | 972,784    |  
|                                                                            |  |                          |            |      |   |            |  

F-8

---



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

|                                                                                                  |  |   |   |  |   |         | 
|------------------------------------------------------------------------------------------------- |  | - | - |  | - | ------- | 
|NONCASH
 FINANCING AND INVESTING ACTIVITIES:                                                      |  |   |   |  |   |         | 
|Property and
 equipment acquired through capital leases or notes payable                          |  | $ |  |  | $ | 86,066  | 
|                                                                                                  |  |   |   |  |   |         | 
|Cumulative
 tax effect of Unicap adjustment treated as a capital contribution from
 Zunicom, Inc. |  | $ |  |  | $ | 185,791 | 
|                                                                                                  |  |   |   |  |   |         | 
|Gain on
 settlement with Zunicom, Inc.                                                            |  | $ |  |  | $ | 301,641 | 
|                                                                                                  |  |   |   |  |   |         | 

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

F-9

---



UNIVERSAL POWER
GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE A. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Universal
Power Group, In. (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 Las Vegas, Nevada and Atlanta, Georgia. The Companys customers are
primarily located in the United States. A small portion of the Companys sales
is to customers located in the United Kingdom, Australia, Ireland, China and
Canada.

Until
December 20, 2006, the Company was a wholly owned consolidated subsidiary of
Zunicom, Inc. (Zunicom), a Texas corporation, whose stock is quoted 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 3,000,000 shares of its common
stock, including 1,000,000 shares owned by Zunicom (the IPO). As a result of
the IPO, Zunicoms interest in the Company was reduced to 40%. Zunicom no
longer owns a controlling interest in UPG; however, as the largest shareholder,
Zunicom does have significant influence over UPG.

On
January 8, 2009, the Company formed a limited liability company under the name
Monarch Outdoor Adventures LLC d/b/a Monarch Hunting (Monarch), through which
it acquired all of the tangible and intangible assets of a business for
approximately $892,000. Monarch is a manufacturer and retailer of high-quality
hunting products including battery and solar powered deer feeders, hunting
blinds, stands and accessories. Monarch is located in Arlington, Texas and has
customers throughout the United States. Monarchs revenue and assets are not
material to the consolidated financial statements.

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.

Consolidation

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

Accounts Receivable

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

Inventories

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

The
Company is a significant supplier for ADT Security Services (ADT Security
Services), formerly Broadview Security, Inc. In order to meet its obligations
to ADT Security Services, the Company maintains certain required inventory
levels at all times. Inventory held related to the Companys relationship with
ADT Security Services, primarily components for security systems, totaled
approximately $8.6 million and $13.2 million at December 31, 2010 and 2009,
respectively. Upon expiration of its third-party logistics agreement with the
Company, ADT Security Services is obligated to purchase from the Company all
remaining inventory held by the Company or in transit from suppliers purchased
by the Company to fulfill its obligations to ADT Security Services.

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 term of the
lease, whichever is shorter.

F-10

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Income Taxes

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

Long-Lived Assets

Long-lived
assets are reviewed when events or changes in circumstances indicate that their
carrying value may not be recoverable. If an impairment indicator exists, the
Company compares the future undiscounted cash flows of such assets to their
carrying value. If the carrying value exceeds the future undiscounted cash
flows, the assets are written down to their fair value using discounted cash
flows. There were no indicators of impairment during the years ended December
31, 2010 and 2009.

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. 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 is being amortized
as an offset to rent expense over the remaining term of the related lease.

Revenue Recognition

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

The
Company is a distributor and 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 third party logistics
agreement with ADT Security Services. The Company purchases, handles, assembles
and delivers security and installation components to ADT Security Services and
to its authorized dealers. Revenues from drop shipment transactions and
pursuant to the ADT Security Services agreement are recognized on a gross basis
at the time the customer takes title to the product, based on an analysis of
the criteria defined for gross revenue reporting. Specifically, (i) the Company
is the primary obligor; (ii) the Company has general and physical loss
inventory risk; (iii) the Company has credit risk; (iv) in most cases, the
Company has discretion in supplier selection and product specifications; and
(v) the Company has reasonable latitude within economic constraints to
negotiate prices and terms with its customers.

Post Shipment Obligations

The
Company offers its customers a limited warranty for replacement of finished
goods that do not function properly. Generally, the limited warranty period
ranges from 90 days to three years. 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, 2010 and 2009, the Company has a warranty reserve of
approximately $10,000.

Advertising costs

Advertising
costs are charged to operations when incurred. Advertising expense totaled
approximately $480,000 and $376,000 for the years ended December 31, 2010 and
2009, respectively.

Shipping and Handling Costs

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

F-11

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Earnings (loss) Per Share

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

Diluted
earnings (loss) per common share are computed by dividing net income (loss) 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, 2010 1,381,842 stock options and 300,000 warrants
are excluded from the calculation of diluted earnings per share because they
are anti-dilutive. For the year, ended December 31, 2009 1,391,842 stock
options and 300,000 warrants are excluded from the calculation of diluted
earnings per share because they are anti-dilutive.

Fair Value of Financial Instruments

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

Stock-Based Compensation

Stock-based
compensation expense recognized in the statements of operations during the
years ended December 31, 2010 and 2009 includes compensation expense for fully
vested stock options and the amortization of partially vested stock-based
payment awards. Stock options are valued based on their grant date fair value.
Forfeitures are estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.

Non-Employee Stock Options and Warrants

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

Derivative

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

Taxes Collected from Customers and Remitted
to Governmental Authorities

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

Use of Estimates and Assumptions

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

Segment and Geographic Information

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

Reclassifications

Certain
prior period amounts have been reclassified to conform to current period
presentation.

F-12

---



UNIVERSAL POWER GROUP, INC. 
NOTES TO FINANCIAL STATEMENTS

NOTE C. INVENTORIES

Inventories
consist of the following:

|                                |  |              |            |      |   |            |  
|------------------------------- |  | ------------ | ---------- | ---- | - | ---------- | -
|                                |  | December 31, |           
|                                |  |              |           
|                                |  | 2010         |            | 2009 |  
|                                |  |              |            |      |  
|Battery and related inventory   |  | $            | 19,556,924 |      | $ | 14,684,429 |  
|Security related inventory      |  |              | 9,757,186  |      |   | 14,279,758 |  
|Electronic components inventory |  |              | 4,556,030  |      |   | 2,435,877  |  
|Hunting related inventory       |  |              | 179,549    |      |   | 333,820    |  
|Inventory obsolescence reserve  |  |              | (1,155,852 | )    |   | (756,671   | )
|                                |  |              |            |      |   |            |  
|                                |  | $            | 32,893,837 |      | $ | 30,977,213 |  
|                                |  |              |            |      |   |            |  

NOTE D. LINE OF CREDIT

On
December 16, 2009, the Company entered into a Credit Agreement with Wells Fargo
for a $30 million revolving credit facility. Maximum borrowings under the
facility may be increased to $40 million if the Company satisfies certain pre-defined
conditions. Borrowings under the facility are secured by a first priority lien
on all of the Companys assets. Borrowing availability under the facility
depends on the level of the Companys accounts receivable and inventory. For
each borrowing, the Company has the option to choose a Base Rate or Eurodollar
loan, as defined. Interest on Base Rate loans is payable quarterly and interest
on Eurodollar loans is generally payable monthly or quarterly as selected by
the Company. The annual rate of interest payable on Base Rate and Eurodollar
loans fluctuate depending upon a number of factors. At December 31, 2010, all
outstanding borrowings under the credit facility were accruing interest at the
rate of 2.56% per annum. The Credit Agreement terminates on July 30, 2013.

The
Credit Agreement contains customary negative covenants restricting the
Companys ability to take certain actions without Wells Fargos consent,
including incurring additional indebtedness, transferring or encumbering
assets, paying dividends or making certain other payments, and acquiring other
businesses. If there is an event of default, including failure to pay,
bankruptcy, breach of covenants and breach of representations and warranties,
all amounts outstanding under the credit facility will become immediately due
and payable. In addition, the Company must maintain certain financial covenants
on a quarterly basis.

At
December 31, 2010, approximately $16.3 million was outstanding under the credit
facility out of a maximum availability of approximately $20.2 million based on
the borrowing formula, which is equal to 80% of the Companys eligible accounts
receivable and a percentage of eligible inventory.

Interest Rate Swap

In
connection with entering into the Credit Agreement, the Company terminated the
Interest Swap Agreement (ISA) it had with its previous lender and,
consequently, discontinued hedge accounting as of December 16, 2009. The
Company continues to incur interest expense commensurate with its original
hedged risk and there is currently no indication that interest payments on the
hedged transaction would not continue. Therefore, the realized losses related
to the ISA will not be recognized immediately and will remain in accumulated
other comprehensive income (loss). These losses are reclassified into interest
expense over the original contractual term of the ISA from December 16, 2009
through July 5, 2012.

NOTE E. NOTES PAYABLE TO ZUNICOM, INC.

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

During
the years ended December 31, 2010 and 2009 the Company paid interest totaling
$0 and $310,000, respectively, to Zunicom with respect to these notes.

NOTE F. CAPITAL LEASE AND NOTE OBLIGATIONS

Capital lease and note
obligations consists of the following:

|                                                                                                                                                                                                                                       |  |              |         |      |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- | - | ------- | -
|                                                                                                                                                                                                                                       |  | December 31, |        
|                                                                                                                                                                                                                                       |  |              |        
|                                                                                                                                                                                                                                       |  | 2010         |         | 2009 |  
|                                                                                                                                                                                                                                       |  |              |         |      |  
|Various capital lease and note obligations payable in monthly
 installments through April 2013. The monthly payments, including interest,
 range from $234 to $634. These obligations are secured by the related underlying equipment. |  | $            | 51,089  |      | $ | 76,141  |  
|Less current portion                                                                                                                                                                                                                   |  |              | (25,906 | )    |   | (25,535 | )
|                                                                                                                                                                                                                                       |  |              |         |      |   |         |  
|Long-term portion of capital lease and note obligations                                                                                                                                                                                |  | $            | 25,183  |      | $ | 50,606  |  
|                                                                                                                                                                                                                                       |  |              |         |      |   |         |  

F-13

---



UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE G. INCOME TAXES

The
Company files income tax returns in the U.S. federal jurisdiction and various
states. With a few exceptions, the Company is no longer subject to U.S. state
and local income tax examinations by tax authorities for years before 2007.

In
2009, the Company has recorded a deferred tax asset in the amount of $185,791
related to the tax effect of a cumulative inventory capitalization adjustment.
This adjustment was recorded as a capital contribution from Zunicom. as the
resulting deferred tax asset recorded for the this estimated adjustment relates
to tax years in which the Company filed a consolidated tax return with its
former parent.

Deferred
tax assets and liabilities consist of the following:

|                                       |  |              |           |      |   |           |  
|-------------------------------------- |  | ------------ | --------- | ---- | - | --------- | -
|                                       |  | December 31, |          
|                                       |  |              |          
|                                       |  | 2010         |           | 2009 |  
|                                       |  |              |           |      |  
|Deferred tax
 assets, current:         |  |              |           |      |   |           |  
|Inventory obsolescence                 |  | $            | 392,990   |      | $ | 257,268   |  
|Inventory capitalization               |  |              | 686,450   |      |   | 641,907   |  
|Allowance for doubtful accounts        |  |              | 86,159    |      |   | 45,595    |  
|Accrued liabilities                    |  |              | 61,310    |      |   | 59,999    |  
|Interest rate swap                     |  |              | 88,117    |      |   | 146,866   |  
|Settlement accrual                     |  |              | 249,407   |      |   | 323,522   |  
|                                       |  |              |           |      |   |           |  
|Total deferred tax assets, current     |  |              | 1,564,433 |      |   | 1,475,157 |  
|Deferred tax
 assets, non-current:     |  |              |           |      |   |           |  
|Intangible assets                      |  |              | 86,254    |      |   | 38,751    |  
|Settlement accrual                     |  |              | 82,106    |      |   | 334,909   |  
|Stock-based compensation               |  |              | 871,514   |      |   | 842,632   |  
|Property and equipment                 |  |              | (253,766  | )    |   | (233,654  | )
|Valuation allowance                    |  |              | (768,324  | )    |   | (768,324  | )
|                                       |  |              |           |      |   |           |  
|Total deferred tax assets, non-current |  |              | 17,784    |      |   | 214,314   |  
|                                       |  |              |           |      |   |           |  
|                                       |  |              |           |      |   |           |  
|Net deferred
 tax assets               |  | $            | 1,582,217 |      | $ | 1,689,471 |  
|                                       |  |              |           |      |   |           |  

The
Companys provision for income taxes is comprised as follows:

|                                       |  |                          |           |      |   |           |  
|-------------------------------------- |  | ------------------------ | --------- | ---- | - | --------- | -
|                                       |  | Years Ended December 31, |          
|                                       |  |                          |          
|                                       |  | 2010                     |           | 2009 |  
|                                       |  |                          |           |      |  
|Current
 federal income tax expense    |  | $                        | 1,378,963 |      | $ | 1,442,621 |  
|Current
 state income tax expense      |  |                          | 75,665    |      |   | 62,429    |  
|Deferred
 income tax expense (benefit) |  |                          | 107,254   |      |   | (196,857  | )
|                                       |  |                          |           |      |   |           |  
|Provision
 for income taxes            |  | $                        | 1,561,882 |      | $ | 1,308,193 |  
|                                       |  |                          |           |      |   |           |  

The
Companys income tax expense differed from the statutory federal rate of 34
percent as follows:

|                                                      |  |                          |           |      |   |           |  
|----------------------------------------------------- |  | ------------------------ | --------- | ---- | - | --------- | -
|                                                      |  | Years Ended December 31, |          
|                                                      |  |                          |          
|                                                      |  | 2010                     |           | 2009 |  
|                                                      |  |                          |           |      |  
|Statutory
 rate applied to income before income taxes |  | $                        | 1,513,721 |      | $ | 398,821   |  
|Amounts not
 deductible for income tax purposes       |  |                          | 38,086    |      |   | 96,923    |  
|State income
 taxes, net of federal income tax effect |  |                          | 49,939    |      |   | 62,429    |  
|Change in
 valuation allowance                        |  |                          |          |      |   | 768,324   |  
|Other                                                 |  |                          | (39,864   | )    |   | (18,304   | )
|                                                      |  |                          |           |      |   |           |  
|Income tax
 expense                                   |  | $                        | 1,561,882 |      | $ | 1,308,193 |  
|                                                      |  |                          |           |      |   |           |  

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

As
of December 31, 2010 and 2009, management could not determine based on weighing
of objective evidence that it is more likely than not that all of the deferred
tax asset with respect to stock compensation cost would be realized. As a
result, as of December 31, 2010 and 2009, a valuation allowance of $768,324 was
recorded to reduce that deferred tax asset to the amount that is more likely
than not to be realized

NOTE H. STOCK-BASED COMPENSATION

Stock options

2006
Equity Incentive Compensation Plan

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

F-14

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UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE H. STOCK-BASED COMPENSATION (CONTINUED)

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

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

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

In
June 2007, the Companys shareholders approved an additional 250,000 common
shares issuable under the Plan. In August 2008 the Companys shareholders
approved an additional 500,000 common shares issuable under the Plan. A total
of 2,000,000 shares of the Companys common stock, representing 40% of the
total number of shares issued and outstanding at December 31, 2010, 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, 2010, 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, 2010 there are 1,381,842 options outstanding
under the Plan and 618,158 options are available for future grants.

Valuation Assumptions

The
fair values of option awards granted under the Plan were estimated at the grant
date using a Black-Scholes option pricing model with the following assumptions
for the fiscal years ended December 31, 2010 and 2009:

|                                        |  |      |       |      |   |       |  
|--------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|                                        |  | 2010 |       | 2009 |  
|                                        |  |      |       |      |  
|Weighted
 average assumptions used:     |  |      |       |      |   |       |  
|Expected dividend yield                 |  |      | 0.00  | %    |   | 0.00  | %
|Risk-free interest rate                 |  |      | 2.40  | %    |   | 3.87  | %
|Expected volatility                     |  |      | 80.81 | %    |   | 25.00 | %
|Expected life (in years)                |  |      | 5     |      |   | 5     |  
|Weighted
 average grant date fair value |  | $    | 2.24  |      | $ | 0.59  |  

Volatility
for the year ended December 31, 2010 is computed using the volatility of the
Companys common stock since its IPO transaction in late 2006. Volatility for
the year-ended December 31, 2009 was estimated using the historical volatility
of the Dow Jones Small Cap Non-Durable Household Companies, which was
representative of the Companys size and industry. 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, 2010 and 2009
was as follows:

|                                          |  |                  |           |                                 |   |      | 
|----------------------------------------- |  | ---------------- | --------- | ------------------------------- | - | ---- | 
|                                          |  | Number of Shares |           | Weighted Average
Exercise Price |  
|                                          |  |                  |           |                                 |  
|Options
 outstanding at January 1, 2009   |  |                  | 1,336,114 |                                 | $ | 6.79 | 
|Granted                                   |  |                  | 40,000    |                                 |   | 1.97 | 
|Canceled, forfeited or expired            |  |                  | (4,272    | )                               |   | 7.00 | 
|Options
 outstanding at December 31, 2009 |  |                  | 1,371,842 |                                 |   | 6.65 | 
|Granted                                   |  |                  | 30,000    |                                 |   | 3.47 | 
|Exercised                                 |  |                  | (20,000   | )                               |   | 1.97 | 
|Options
 outstanding at December 31, 2010 |  |                  | 1,381,842 |                                 | $ | 6.65 | 
|                                          |  |                  |           |                                 |   |      | 

F-15

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UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE H. STOCK-BASED COMPENSATION (CONTINUED)

Stock
Options Outstanding and Exercisable

The
following summarizes stock options outstanding under our 2006 Stock Option Plan
at December 31, 2010:

|                                     |              |                                 |           |                                                            |     
|------------------------------------ | ------------ | ------------------------------- | --------- | ---------------------------------------------------------- | ----
|Options
 Outstanding and Exercisable
|                                    
|Exercise
 Prices                     |              | Number of
 Options
 Outstanding |           | Weighted
 Average
 Remaining
 Contractual Life
 (in years)
|                                     |              |                                 |           |                                                           
|$                                    | 3.47         |                                 | 30,000    |                                                            | 9.77
|                                     | 1.97         |                                 | 20,000    |                                                            | 8.55
|                                     | 3.81         |                                 | 56,250    |                                                            | 7.62
|                                     | 4.48         |                                 | 40,000    |                                                            | 5.97
|                                     | 7.00         |                                 | 1,235,592 |                                                            | 5.97
|                                     |              |                                 |           |                                                            |     
|$                                    | 1.97 - $7.00 |                                 | 1,381,842 |                                                            | 6.16

At
December 31, 2010, the aggregate intrinsic value of options outstanding and
exercisable was $41,000.

At
December 31, 2010, all outstanding options under the Plan were fully vested and
exercisable with no remaining unrecognized compensation expense.

Non-Employee
Stock Options

On
March 21, 2007, the Company issued stock options to non-employees to purchase
20,000 shares of the Companys common stock at an exercise price of $7.00 per
share vesting over the next three years and expiring December 19, 2016. These
stock options remain outstanding as of December 31, 2010.

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 before
December 19, 2011. All warrants remain outstanding as of December 31, 2010.

Restricted
Stock

On June 25, 2007, Zunicom issued 645,133
shares of restricted stock to certain employees of UPG for past and future
services. The Company is amortizing the fair value of these shares as
compensation expense over the 48 month vesting period. During 2009, 227,229 of
these shares were forfeited when the Chief Executive Officer terminated
employment. 417,904 shares remain outstanding at December 31, 2010.
Approximately $61,000 of compensation expense related to these shares was
recorded during 2010 and 2009. There is approximately $31,000 of unrecorded
expense remaining as of December 31, 2010 which will be recognized as
compensation expense through July 2011.

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.

Effective
July 1, 2010, the FDICs insurance limits were permanently increased to
$250,000. Pursuant to legislation evocated in 2010, the FDIC will fully insure
all non-interest bearing accounts beginning December 31, 2010 through December
31, 2012, at all FDIC insured institutions. At December 31, 2009, 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, 2010 and 2009, the Company had receivables due from ADT Security
Services which comprised approximately 13% and 32%, respectively of total trade
receivables. During the years ended December 31, 2010 and 2009, ADT Security
Services accounted for 28% and 36%, respectively, of net sales. The loss of ADT
Security Services would materially decrease the Companys net sales.

A
significant portion of the Companys inventory purchases are from two
suppliers, representing 45% and 25% for the year ended December 31, 2010, and
33% and 40% for the year ended December 31, 2009, respectively. The Company
purchased approximately 35% and 54%, of its inventory from domestic sources
with the remainder purchased from international sources, predominately China,
for the years ended December 31, 2010 and 2009, respectively. In addition, even
though we purchase approximately 45% of our batteries from a single source, we
believe that if that relationship were to terminate we would be able to
re-source those products from other suppliers quickly, although our costs may
be higher.

NOTE J. SETTLEMENT AGREEMENT

In
March 2009, in an effort to improve efficiencies within its sourcing channels,
the Company entered into an agreement with its primary independent sourcing
agent canceling its relationship with that agent. Under the agreement,

F-16

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UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE J. SETTLEMENT AGREEMENT (CONTINUED)

the Company
agreed to pay its former sourcing agent a total of $2.565 million, including
amounts owed with respect to purchases prior to the cancellation of the
relationship, over a three-year period. The sourcing agent assigned to the
Company all of the 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. At December 31, 2010 and 2009,
there was approximately $975,000 and $1,941,000, respectively, recorded as
settlement accrual in the accompanying balance sheets that are due and payable
to the agent pursuant to this agreement. The Company recorded the entire
settlement amount as settlement expense during 2009 and an aggregate of $89,000
will be expensed as interest over the term of the agreement.

NOTE K. COMMITMENTS AND CONTINGENCIES

Licensing

During
2009, the Company entered into a licensing agreement for the development and
sale of automotive battery chargers and maintainers, automotive jump-starters
and power inverters. During the term of the agreement, the Company will pay a
royalty of a defined percentage on net sales of licensed products as defined in
the agreement. The Company is subject to an annual minimum royalty guarantee
(the Royalty Guarantee) for the last two twelve-month periods of the initial
term (January 1, 2011 thru December 31, 2012) of $250,000 for each year and for
an automatic renewal period of two years after the expiration of the initial
term. The Royalty Guarantee shall be paid in equal parts, quarterly in the same
manner as royalties due under the agreement. If the actual royalty for any
calendar quarter is less than the Royalty Guarantee due for that quarter, the
Company will make up the shortfall. For the years ended December 31, 2010 and
2009, there was approximately $33,000 and $0, respectively, incurred pursuant
to this agreement.

Litigation

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

Operating Leases

The
Company leases certain office and warehouse facilities and various vehicles and
equipment under non-cancelable operating leases, some with escalating payment
and free rent clauses with various maturity dates through 2018. Minimum future
payments on all leases for real and personal property as of December 31, 2010
are as follows:

|                           |  |   |           | 
|-------------------------- |  | - | --------- | 
|Years Ending
 December 31, |  |   |           | 
|                           |  |   |           | 
|2011                       |  | $ | 988,048   | 
|2012                       |  |   | 863,413   | 
|2013                       |  |   | 227,318   | 
|2014                       |  |   | 121,819   | 
|2015                       |  |   | 104,106   | 
|Thereafter                 |  |   | 249,600   | 
|                           |  |   |           | 
|                           |  | $ | 2,554,304 | 
|                           |  |   |           | 

Rent
expense for the years ended December 31, 2010 and 2009 totaled approximately
$1,063,000 and $1,025,000, respectively.

Employment Agreements and Arrangements

The
Company has an employment agreement (the Agreement) effective as of June 1,
2009 (the Effective Date), with Ian Edmonds, its President and Chief
Executive Officer. The current employment term ends on May 31, 2015. However,
beginning on June 1, of each year the term is automatically extended by an
additional year unless either party provides at least 180 days prior written
notice to the other of its election not to extend the term by another year.
Under the Agreement, Mr. Edmonds earns a base salary of $250,000 per annum plus
an annual cash bonus equal in amount to seven and one-half percent (7 1/2%) of
the Companys net income before provision for income taxes, as adjusted,
provided it meets or exceed the annual targeted performance levels established
by our Compensation Committee for each year. Mr. Edmonds is entitled to
participate on the same basis as other senior executives in any of our benefit
plans or programs available to them. In addition, the Agreement also provides,
generally, that during the employment term and for the two-year period
immediately following the end of such term, Mr. Edmonds shall not compete with
us, solicit any of our employees for hire by an unaffiliated entity or
knowingly release any of our confidential information, without the prior
approval of our Board.

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

F-17

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UNIVERSAL POWER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE K. COMMITMENTS AND CONTINGENCIES (CONTINUED)

under the
Separation Agreement to the Company, approximately $513,000, was recorded as an
expense in the first quarter of 2009. At December 31, 2010, there was
approximately $21,000 recorded as settlement expenses in the accompanying
balance sheet that are due and payable pursuant to the Separation Agreement.

NOTE L. BUSINESS COMBINATION

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

NOTE M. 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, 2010 and 2009.

F-18

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