----

----

| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|---------------------------------------------------------------------------------------------------|

|  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|----------------------------------------------------------------------------------------------------|

| Commission File Number 000-52247 |
|---------------------------------------|

| Delaware                                                            |   | 20-3200738                                |
|---------------------------------------------------------------------|--------|-------------------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (I.R.S. Employer Identification No.) |

| 96 Windsor Street, West Springfield, Massachusetts |   | 01089      |
|----------------------------------------------------|--------|------------|
| (Address of principal executive offices)           |   | (Zip Code) |

| Large accelerated filer  ̈ |   | Accelerated filer  ̈ |   | Non-accelerated filer  ̈ (Do not check if a smallerreporting company) |   | Smaller reporting company x |
|-------------------------------------|--------|-------------------------------|--------|-------------------------------------------------------------------------------------|--------|----------------------------------|

----

| PART I—FINANCIAL INFORMATION |   |                                                                                                                                                     |
|------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |   |                                                                                                                                                     |
| Item 1.                       |   | Financial Statements                                                                                                                                     |   |   |
|                               |   |                                                                                                                                                     |   |   |
|                               |   | Condensed Consolidated Statements of Income for the three months ended March 31, 2011 and 2010 (unaudited)                                          |   | 4 |
|                               |   |                                                                                                                                                     |   |   |
|                               |   | Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010                                                   |   | 5 |
|                               |   |                                                                                                                                                     |   |   |
|                               |   | Condensed Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income for the three months ended March 31, 2011 (unaudited) |   | 6 |
|                               |   |                                                                                                                                                     |   |   |
|                               |   | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)                                      |   | 7 |
|                               |   |                                                                                                                                                     |   |   |
|                               |   | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                                         |   | 8 |
|                               |   |                                                                                                                                                     |   |   |
| Item 2.                       |   | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                                    |   | 14 |
|                               |   |                                                                                                                                                     |   |   |
| Item 3.                       |   | Quantitative and Qualitative Disclosures About Market Risk                                                                                               |   | 17 |
|                               |   |                                                                                                                                                     |   |   |
| Item 4.                       |   | Controls and Procedures                                                                                                                                  |   | 17 |
|                               |   |                                                                                                                                                     |   |   |
| PART II—OTHER INFORMATION    |   |                                                                                                                                                     |
|                               |   |                                                                                                                                                     |
| Item 1.                       |   | Legal Proceedings                                                                                                                                        |   | 17 |
|                               |   |                                                                                                                                                     |   |   |
| Item 1A.                      |   | Risk Factors                                                                                                                                             |   | 17 |
|                               |   |                                                                                                                                                     |   |   |
| Item 2.                       |   | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                              |   | 18 |
|                               |   |                                                                                                                                                     |   |   |
| Item 3.                       |   | Defaults Upon Senior Securities                                                                                                                          |   | 18 |
|                               |   |                                                                                                                                                     |   |   |
| Item 4.                       |   | [Removed and Reserved]                                                                                                                                   |   | 18 |
|                               |   |                                                                                                                                                     |   |   |
| Item 5.                       |   | Other Information                                                                                                                                        |   | 18 |
|                               |   |                                                                                                                                                     |   |   |
| Item 6.                       |   | Exhibits                                                                                                                                                 |   | 19 |
|                               |   |                                                                                                                                                     |   |   |
| Signatures                         |   | 20                                                                                                                                                       |

----

----

| ITEM 1. | Financial Statements |
|--------------|----------------------|

|                                                                 |   | For the Three |       |   | For the Three |   |
|----------------------------------------------------------------------|--------|-------------------------|------------|--------|-------------------------|--------|
|                                                                 |   | Months Ended       |       |   | Months Ended       |   |
|                                                                 |   | March 31,          |       |   | March 31,          |   |
|                                                                 |   | 2011                    |       |   | 2010                    |   |
| Revenues                                                             |   | $                       | 9,074      |   |                    | $      | 8,885 |   |
| Cost of goods sold                                                   |   |                    | 4,555      |   |                    |   | 4,602 |   |
| Gross profit                                                         |   |                    | 4,519      |   |                    |   | 4,283 |   |
|                                                                 |   |                    |       |   |                    |   |   |   |
| Other expenses (income):                                             |   |                    |       |   |                    |   |   |   |
| Sales and marketing                                                  |   |                    | 1,062      |   |                    |   | 788 |   |
| General and administrative                                           |   |                    | 1,434      |   |                    |   | 1,513 |   |
| Research and development                                             |   |                    | 499        |   |                    |   | 382 |   |
| Interest expense, net                                                |   |                    | 599        |   |                    |   | 665 |   |
| Interest expense – related party                               |   |                    | 17         |   |                    |   | 16 |   |
| Amortization of intangible assets                                    |   |                    | 402        |   |                    |   | 456 |   |
| Other expenses (income), net                                         |   |                    | 53         |   |                    |   | (10 | ) |
| Total other expenses                                                 |   |                    | 4,066      |   |                    |   | 3,810 |   |
|                                                                 |   |                    |       |   |                    |   |   |   |
| Income before income taxes                                           |   |                    | 453        |   |                    |   | 473 |   |
| Provision for income taxes                                           |   |                    | 181        |   |                    |   | 312 |   |
| Net income                                                           |   | $                       | 272        |   |                    | $      | 161 |   |
|                                                                 |   |                    |       |   |                    |   |   |   |
| Net income per common share:                                         |   |                    |       |   |                    |   |   |   |
| Basic                                                                |   | $                       | 0.02       |   |                    | $      | 0.01 |   |
| Diluted                                                              |   | $                       | 0.00       |   |                    | $      | 0.01 |   |
|                                                                 |   |                    |       |   |                    |   |   |   |
| Weighted average shares used to compute net income per common share: |   |                    |       |   |                    |   |   |   |
| Basic                                                                |   |                    | 15,752,302 |   |                    |   | 15,406,550 |   |
| Diluted                                                              |   |                    | 19,545,963 |   |                    |   | 15,447,245 |   |

----

|                                                                                                                             |   | March 31,  |    |   |                  |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|---------|--------|-----------------------|--------|
|                                                                                                                             |   | 2011(unaudited) |    |   | December 31,2010 |   |
| Assets                                                                                                                           |   |            |    |   |                  |   |
| Current assets:                                                                                                                  |   |            |    |   |                  |   |
| Cash                                                                                                                             |   | $               | 7,042   |   |                  | $      | 4,086 |   |
| Accounts receivable, net of allowance for doubtful accounts of $79 and $62 at March 31, 2011 and December 31, 2010, respectively |   |            | 3,227   |   |                  |   | 1,925 |   |
| Inventories, net                                                                                                                 |   |            | 10,837  |   |                  |   | 9,920 |   |
| Deferred income taxes                                                                                                            |   |            | 817     |   |                  |   | 931 |   |
| Prepaid expenses and other current assets                                                                                        |   |            | 385     |   |                  |   | 429 |   |
| Total current assets                                                                                                             |   |            | 22,308  |   |                  |   | 17,291 |   |
|                                                                                                                             |   |            |    |   |                  |   |   |   |
| Property, plant and equipment, net                                                                                               |   |            | 8,663   |   |                  |   | 8,509 |   |
| Goodwill                                                                                                                         |   |            | 51,244  |   |                  |   | 51,244 |   |
| Other intangible assets, net                                                                                                     |   |            | 20,636  |   |                  |   | 20,912 |   |
| Due from related party                                                                                                           |   |            | 2,304   |   |                  |   | — |   |
| Other noncurrent assets                                                                                                          |   |            | 248     |   |                  |   | 286 |   |
| Total assets                                                                                                                     |   | $               | 105,403 |   |                  | $      | 98,242 |   |
|                                                                                                                             |   |            |    |   |                  |   |   |   |
| Liabilities and Stockholders’ Equity                                                                                       |   |            |    |   |                  |   |   |   |
| Current liabilities:                                                                                                             |   |            |    |   |                  |   |   |   |
| Current portion of notes payable                                                                                                 |   | $               | 1,598   |   |                  | $      | 1,453 |   |
| Accounts payable                                                                                                                 |   |            | 2,937   |   |                  |   | 2,185 |   |
| Accrued expenses and other current liabilities                                                                                   |   |            | 2,106   |   |                  |   | 2,362 |   |
| Income tax payable                                                                                                               |   |            | 984     |   |                  |   | 700 |   |
| Total current liabilities                                                                                                        |   |            | 7,625   |   |                  |   | 6,700 |   |
|                                                                                                                             |   |            |    |   |                  |   |   |   |
| Notes payable, net of current portion                                                                                            |   |            | 22,345  |   |                  |   | 22,715 |   |
| Notes payable due to related parties                                                                                             |   |            | 1,148   |   |                  |   | 1,131 |   |
| Deferred income taxes                                                                                                            |   |            | 8,013   |   |                  |   | 8,147 |   |
| Other noncurrent liabilities                                                                                                     |   |            | 2,759   |   |                  |   | 531 |   |
| Total liabilities                                                                                                                |   |            | 41,890  |   |                  |   | 39,224 |   |
|                                                                                                                             |   |            |    |   |                  |   |   |   |
| Commitments and contingencies                                                                                                    |   |            | — |   |                  |   | — |   |
|                                                                                                                             |   |            |    |   |                  |   |   |   |
| Stockholders' equity:                                                                                                            |   |            |    |   |                  |   |   |   |
| Preferred stock, $0.001 par value; 1,000,000 shares authorized, no shares issued or outstanding                                  |   |            | — |   |                  |   | — |   |
| Common stock, $0.001 par value; 50,000,000 shares authorized; 16,743,553 and 15,748,570 shares issued and outstanding            |   |            | 17      |   |                  |   | 16 |   |
| Additional paid-in capital                                                                                                       |   |            | 93,203  |   |                  |   | 89,452 |   |
| Accumulated deficit                                                                                                              |   |            | (29,508 | )      |                  |   | (29,780 | ) |
| Accumulated other comprehensive loss                                                                                             |   |            | (199    | )      |                  |   | (670 | ) |
| Total stockholders’ equity                                                                                                 |   |            | 63,513  |   |                  |   | 59,018 |   |
| Total liabilities and stockholders' equity                                                                                       |   | $               | 105,403 |   |                  | $      | 98,242 |   |

----

|                                                                                                                 |   | Common Stock    |       |   | Additional |   |    |           |   |   | AccumulatedOther   |   |   | Total             |    |   |                      |   |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------|------------|--------|------------|--------|---------|----------------|--------|--------|--------------------|--------|--------|-------------------|---------|--------|---------------------------|--------|
|                                                                                                                 |   | Numberof Shares |       |   | Amount     |   |    | Paid-InCapital |   |   | AccumulatedDeficit |   |   | ComprehensiveLoss |    |   | Stockholders’Equity |   |   | ComprehensiveIncome |   |
| Balance at December 31, 2010                                                                                    |   |                 | 15,748,570 |   |       | $      | 16      |           |   | $      | 89,452             |   |   | $                 | (29,780 | )      |                      | $      | (670 | ) |   | $ | 59,018 |   |   | $ | — |   |
| Shares issued – private placement                                                                              |   |                 | 871,823    |   |       |   | 1       |           |   |   | 3,377              |   |   |              | — |   |                      |   | — |   |   |   | 3,378 |   |   |   | — |   |
| Shares issued – cashless option exercise                                                                       |   |                 | 450        |   |       |   | — |           |   |   | —            |   |   |              | — |   |                      |   | — |   |   |   | — |   |   |   | — |   |
| Shares issued – cashless warrant exercise                                                                      |   |                 | 6,060      |   |       |   | — |           |   |   | —            |   |   |              | — |   |                      |   | — |   |   |   | — |   |   |   | — |   |
| Share-based compensation                                                                                             |   |                 | 123,250    |   |       |   | — |           |   |   | 394                |   |   |              | — |   |                      |   | — |   |   |   | 394 |   |   |   | — |   |
| Repurchase and retirement of common stock                                                                            |   |                 | (6,600     | )      |       |   | — |           |   |   | (27                | )      |   |              | — |   |                      |   | — |   |   |   | (27 | ) |   |   | — |   |
| Adjustment to the accounting for warrants issued in July 2010 in conjunction with issuance of subordinated term loan |   |                 | —    |   |       |   | — |           |   |   | 7                  |   |   |              | — |   |                      |   | — |   |   |   | 7 |   |   |   | — |   |
| Foreign currency translation adjustments                                                                             |   |                 | —    |   |       |   | — |           |   |   | —            |   |   |              | — |   |                      |   | 437 |   |   |   | 437 |   |   |   | 437 |   |
| Unrealized gain on cash flow hedges, net of taxes of $(19)                                                           |   |                 | —    |   |       |   | — |           |   |   | —            |   |   |              | — |   |                      |   | 34 |   |   |   | 34 |   |   |   | 34 |   |
| Net income                                                                                                           |   |                 | —    |   |       |   | — |           |   |   | —            |   |   |              | 272     |   |                      |   | — |   |   |   | 272 |   |   |   | 272 |   |
| Comprehensive  income                                                                                      |   |                 | —    |   |       |   | — |           |   |   | —            |   |   |              | — |   |                      |   | — |   |   |   | — |   |   | $ | 743 |   |
| Balance at March 31, 2011                                                                                       |   |                 | 16,743,553 |   |       | $      | 17      |           |   | $      | 93,203             |   |   | $                 | (29,508 | )      |                      | $      | (199 | ) |   | $ | 63,513 |   |   |   |   |   |

----

|                                                                              |   | For the Three |   |   | For the Three |   |
|-----------------------------------------------------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|
|                                                                              |   | Months Ended       |   |   | Months Ended       |   |
|                                                                              |   | March 31,          |   |   | March 31,          |   |
|                                                                              |   | 2011                    |   |   | 2010                    |   |
| Cash flows from operating activities:                                             |   |                    |   |   |                    |   |   |   |
| Net income                                                                        |   | $                       | 272    |   |                    | $      | 161 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |                    |   |   |                    |   |   |   |
| Depreciation of property, plant and equipment                                     |   |                    | 257    |   |                    |   | 164 |   |
| Amortization                                                                      |   |                    | 494    |   |                    |   | 540 |   |
| Provision for deferred income taxes                                               |   |                    | (95    | )      |                    |   | 109 |   |
| Stock-based compensation expense                                                  |   |                    | 394    |   |                    |   | 472 |   |
| Other non-cash expenses                                                           |   |                    | 77     |   |                    |   | 57 |   |
| Changes in operating assets and liabilities:                                      |   |                    |   |   |                    |   |   |   |
| Accounts receivable                                                               |   |                    | (1,278 | )      |                    |   | (867 | ) |
| Inventories                                                                       |   |                    | (777   | )      |                    |   | (314 | ) |
| Prepaid expenses and other current assets                                         |   |                    | 49     |   |                    |   | 44 |   |
| Accounts payable and accrued liabilities                                          |   |                    | 439    |   |                    |   | 723 |   |
| Income taxes payable, net                                                         |   |                    | 231    |   |                    |   | 3 |   |
| Net cash provided  by operating activities                              |   |                    | 63     |   |                    |   | 1,092 |   |
|                                                                              |   |                    |   |   |                    |   |   |   |
| Cash flows from investing activities:                                             |   |                    |   |   |                    |   |   |   |
| Purchases of long-lived assets                                                    |   |                    | (336   | )      |                    |   | (463 | ) |
| Net cash used in investing activities                                             |   |                    | (336   | )      |                    |   | (463 | ) |
|                                                                              |   |                    |   |   |                    |   |   |   |
| Cash flows from financing activities:                                             |   |                    |   |   |                    |   |   |   |
| Repayment of notes payable                                                        |   |                    | (328   | )      |                    |   | (1,030 | ) |
| Payments to reacquire and retire common stock                                     |   |                    | (27    | )      |                    |   | — |   |
| Proceeds from issuance of common stock                                            |   |                    | 3,378  |   |                    |   | — |   |
| Net cash provided by (used in) financing activities                               |   |                    | 3,023  |   |                    |   | (1,030 | ) |
|                                                                              |   |                    |   |   |                    |   |   |   |
| Effect of exchange rate changes on cash                                           |   |                    | 206    |   |                    |   | (42 | ) |
| Net increase (decrease) in cash                                                   |   |                    | 2,956  |   |                    |   | (443 | ) |
| Cash, beginning of period                                                         |   |                    | 4,086  |   |                    |   | 2,003 |   |
| Cash, end of period                                                               |   | $                       | 7,042  |   |                    | $      | 1,560 |   |

----

| 1. | BASIS OF PRESENTATION |
|----|-----------------------|

| 2. | BACKGROUND AND DESCRIPTION OF BUSINESS |
|----|----------------------------------------|

| 3. | NEW ACCOUNTING PRONOUNCEMENTS |
|----|-------------------------------|

----

| 4. | INVENTORIES |
|----|-------------|

|                           |   | March 31,2011 |   |   | December 31,2010 |   |
|--------------------------------|--------|--------------------|--------|--------|-----------------------|--------|
| Raw materials                  |   | $                  | 5,837  |   |                  | $      | 5,539 |   |
| Work-in-process                |   |               | 3,896  |   |                  |   | 3,356 |   |
| Finished goods                 |   |               | 1,248  |   |                  |   | 1,227 |   |
|                           |   |               | 10,981 |   |                  |   | 10,122 |   |
| Less: Reserve for obsolescence |   |               | (144   | )      |                  |   | (202 | ) |
|                           |   | $                  | 10,837 |   |                  | $      | 9,920 |   |

| 5. | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
|----|-----------------------------------------------|

| Derivative Instrument     |   | Balance Sheet Location       |   | Fair Value |   |
|---------------------------|--------|------------------------------|--------|------------|--------|
| Interest rate swaps       |   | Other noncurrent liabilities |   | $          | (284   | ) |
| Currency forward contract |   | Other noncurrent liabilities |   |       | (14    | ) |

----

|                                                                 |   | Gain (Loss)      |    |   | Gain (Loss)      |   |    | Gain (Loss)          |   |
|----------------------------------------------------------------------|--------|-----------------------|---------|--------|-----------------------|--------|---------|---------------------------|--------|
|                                                                 |   | In AOCL (1) |    |   | Reclassified (2) |   |    | in Earnings (3) |   |
| Derivatives designated as cash flow hedging relationships: |   |                  |    |   |                  |   |    |                      |   |
| Interest rate swaps, net of taxes of $(19)                           |   | $                     | 34      |   |                  | $      | — |                      |   | $ | — |   |
| Derivatives not designated as hedging instruments:                   |   |                  |    |   |                  |   |    |                      |   |   |   |   |
| Forward currency contracts                                           |   | $                     | — |   |                  | $      | — |                      |   | $ | 14 |   |

|   | (1) | Amount recognized in accumulated other comprehensive loss (AOCL) (effective portion and net of taxes) during the three months ended March 31, 2011. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Amount of gain (loss) originally recorded in AOCL but reclassified from AOCL into earnings during the three months ended March 31, 2011. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Amount of gain (loss) recognized in earnings on the derivative (ineffective portion and amount excluded from effectiveness testing) reported in other expenses (income), net on the condensed consolidated statement of income for the three months ended March 31, 2011. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. | INCOME TAXES |
|----|--------------|

| 7. | NET INCOME PER COMMON SHARE |
|----|-----------------------------|

----

|                                                                                           |   | Three Months Ended March 31, |       |
|------------------------------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                                           |   | 2011                         |       |   | 2010 |   |
| Basic:                                                                                         |   |                         |       |   |   |   |
| Net income (in thousands)                                                                      |   | $                            | 272        |   |   | $ | 161 |   |
| Weighted average shares                                                                        |   |                         | 15,752,302 |   |   |   | 15,406,550 |   |
| Basic income per common share                                                                  |   | $                            | 0.02       |   |   | $ | 0.01 |   |
| Diluted:                                                                                       |   |                         |       |   |   |   |   |   |
| Net income (in thousands)                                                                      |   | $                            | 272        |   |   | $ | 161 |   |
| Adjustments to net income assuming convertible notes payable are converted to common stock:    |   |                         |       |   |   |   |   |   |
| Reversal of interest expense on convertible notes payable (in thousands)                       |   |                         | 234        |   |   |   | — |   |
| Write off of unamortized costs of issuing convertible notes payable (in thousands)             |   |                         | (768       | ) |   |   | — |   |
| Adjustments’ estimated effect on provision for income taxes (in thousands)               |   |                         | 321        | (1) |   |   | — |   |
| Income available to common stockholders for diluted net income per common share (in thousands) |   |                         | 59         |   |   |   | 161 |   |
| Weighted average shares                                                                        |   |                         | 15,752,302 |   |   |   | 15,406,550 |   |
| Effect of dilutive potential common share equivalents                                          |   |                         | 3,793,661  |   |   |   | 40,695 |   |
| Weighted average shares, as adjusted                                                           |   |                         | 19,545,963 |   |   |   | 15,447,245 |   |
| Diluted income per common share                                                                |   | $                            | 0.00       |   |   | $ | 0.01 |   |

|   | (1) | Assumes an effective tax rate of approximately 40%. |
|--------|-----|-----------------------------------------------------|

|                 |   | Three Months Ended March 31, |      |
|----------------------|--------|--------------------------------------------------|-----------|
|                 |   | 2011                                             |      |   | 2010 |   |
| Options and warrants |   |                                             | 4,653,588 |   |   |   | 6,310,756 |   |

| 8. | COMMITMENTS AND CONTINGENCIES |
|----|-------------------------------|

----

|   | · | Strategic development and implementation as well as consultation to our chief executive officer on a regular basis as per his reasonable requests; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Identifying strategic partners with companies with which Selway has relationships and access. In this connection, Selway will focus on building partnerships with companies in Israel, Singapore, India and Europe. The focus will be on the expansion of our munitions business; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Advise and support us on our investor relations strategy; |
|--------|--------|-----------------------------------------------------------|

|   | · | Advise and support our future fund raising, including identifying sources of capital in the United States; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

|   | · | Support our mergers and acquisitions strategy and play an active role in our due diligence and analysis. |
|--------|--------|----------------------------------------------------------------------------------------------------------|

| 9. | FAIR VALUE |
|----|------------|

|   | Level 1 | Quoted prices for identical assets or liabilities in active markets to which we have access at the measurement date. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------|

|   | Level 2 | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | Level 3 | Unobservable inputs for the asset or liability. |
|--------|---------|-------------------------------------------------|

----

| 10. | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|-----|--------------------------------------------------|

|         |   | Three Months Ended March 31, |   |
|--------------|--------|--------------------------------------------------|--------|
|         |   | 2011                                             |   |   | 2010 |   |
| Interest     |   | $                                                | 469    |   |   | $ | 628 |   |
| Income taxes |   | $                                                | 33     |   |   | $ | 202 |   |

|                                                                                                                 |   | Three Months Ended March 31, |   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                                                                                 |   | 2011                                             |   |   | 2010 |   |
| Adjustment to the accounting for warrants issued in July 2010 in conjunction with issuance of subordinated term loan |   | $                                                | 7      |   |   | $ | — |   |
| Litigation award payable accounted for as a receivable due from related party                                        |   |                                             | 2,292  |   |   |   | — |   |

----

| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|--------------|---------------------------------------------------------------------------------------|

----

----

----

| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|--------------|------------------------------------------------------------|

| ITEM 4. | CONTROLS AND PROCEDURES |
|--------------|-------------------------|

| ITEM 1. | LEGAL PROCEEDINGS |
|--------------|-------------------|

----

| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|---------|-------------------------------------------------------------|

| Period                             |   | Total Numberof SharesPurchased |    |   | AveragePricePaid perShare |   |    | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms |   |   | MaximumNumber (or ApproximateDollar Value) ofShares that Mayyet be Purchasedunder the Plansor Programs |   |
|------------------------------------|--------|------------------------------------------|---------|--------|--------------------------------|--------|---------|----------------------------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                               |   |                                     |    |   |                           |   |    |                                                                                                                 |   |   |                                                                                                                                                          |   |
| January 1 to January  31 |   |                                     | — |   |                           |   | — |                                                                                                                 |   |   | —                                                                                                                                                       |   |   | $ | — |   |
| February 1 to February 28          |   |                                     | — |   |                           |   | — |                                                                                                                 |   |   | —                                                                                                                                                       |   |   |   |   |   |
| March 1 to March 31                |   |                                     | 6,600   | (1)    |                           | $      | 4.05    |                                                                                                                 |   |   | —                                                                                                                                                       |   |   |   | — |   |

|   | (1) | 6,600 shares of our common stock were repurchased from employees of CTI. These shares were a portion of the shares that these employees received relating to stock awards that vested in January 2011. These shares were purchased to provide these employees with cash to pay personal income taxes arising from the stock awards. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
|--------------|---------------------------------|

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

| ITEM 5. | OTHER INFORMATION |
|--------------|-------------------|

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| ExhibitNumber |   | Description                                                                                                                             |
|---------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
| 4.1           |   | Registration Rights Agreement dated March 18, 2011. (1)                                                                                 |
| 10.1          |   | Share Purchase Agreement dated March 18, 2011. (1)                                                                                      |
| 31.1          | *      | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                 |
| 31.2          | *      | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                 |
| 32.1          | *      | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

| * | Filed herewith. |
|---|-----------------|

| (1) | Incorporated by reference to the Current Report on Form 8-K dated March 18, 2011 and filed with the Commission March 21, 2011. |
|-----|--------------------------------------------------------------------------------------------------------------------------------|

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|              |   | Cyalume Technologies Holdings, Inc. |
|-------------------|--------|-------------------------------------|
|              |   |                                |
| Date: May 9, 2011 |   | By:                                 | /s/  DEREK DUNAWAY |
|              |   |                                |   |
|              |   |                                | Derek Dunaway, Chief Executive Officer |
|              |   |                                |  (Principal Executive Officer) |
|              |   |                                |   |
| Date: May 9, 2011 |   | By:                                 | /s/  MICHAEL BIELONKO |
|              |   |                                |   |
|              |   |                                | Michael Bielonko, Chief Financial Officer |
|              |   |                                | (Principal Financial Officer and |
|              |   |                                | Chief Accounting Officer) |

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