----

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UNITEDSTATES

| (Mark      One) |   |
|-----------------|--------|

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

| For      the quarterly period ended September 30,  2009 |
|--------------------------------------------------------------|

| OR |
|----|

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

| For      the transition period      from                             to                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 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 o |   | Accelerated      filer o |   | Non-accelerated      filer o (Do      not check if a smaller reporting company) |   | Smaller      reporting company ý |
|-------------------------------------|--------|-------------------------------|--------|-------------------------------------------------------------------------------------------|--------|--------------------------------------------|

----

----

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| PART      I—FINANCIAL INFORMATION |   |                      |
|-----------------------------------------|--------|---------------------------|
|                                    |   |                      |   |   |
| Item 1.                            |   | Financial      Statements |   |   |
|                                    |   |                      |   |   |

|   |   | Condensed      Consolidated Statements of Operations (unaudited) for the three months      ended September 30, 2009 and 2008                                        |   | 4      |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                                     |   |   |
|   |   | Condensed      Consolidated Statements of Operations (unaudited) for the nine months      ended September 30, 2009 and 2008                                         |   | 5      |
|   |   |                                                                                                                                                                     |   |   |
|   |   | Condensed      Consolidated Balance Sheets as of September 30, 2009 (unaudited) and      December 31, 2008                                                     |   | 6      |
|   |   |                                                                                                                                                                     |   |   |
|   |   | Condensed      Consolidated Statements of Changes in Stockholders' Equity and      Comprehensive Loss for the nine months ended September 30, 2009      (unaudited) |   | 7      |
|   |   |                                                                                                                                                                     |   |   |

|                                 |   | Condensed      Consolidated Statements of Cash Flows (unaudited) for the nine months      ended September 30, 2009 and 2008 |   | 8      |
|--------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                 |   |                                                                                                                             |   |   |
|                                 |   | Notes      to Condensed Consolidated Financial Statements (unaudited)                                                            |   | 9      |
|                                 |   |                                                                                                                             |   |   |
| Item 2.                         |   | Management's      Discussion and Analysis of Financial Condition and Results of      Operations                                  |   | 18     |
|                                 |   |                                                                                                                             |   |   |
| Item 3.                         |   | Quantitative      and Qualitative Disclosures About Market Risk                                                                  |   | 22     |
|                                 |   |                                                                                                                             |   |   |
| Item 4T.                        |   | Controls      and Procedures                                                                                                     |   | 22     |
|                                 |   |                                                                                                                             |   |   |
| PART      II—OTHER INFORMATION |   |                                                                                                                             |
|                                 |   |                                                                                                                             |   |   |
| Item 1.                         |   | Legal      Proceedings                                                                                                           |   | 22     |
|                                 |   |                                                                                                                             |   |   |
| Item 1A.                        |   | Risk      Factors                                                                                                                |   | 22     |
|                                 |   |                                                                                                                             |   |   |
| Item 2.                         |   | Unregistered      Sales of Equity Securities and Use of Proceeds                                                                 |   | 23     |
|                                 |   |                                                                                                                             |   |   |
| Item 3.                         |   | Defaults      Upon Senior Securities                                                                                             |   | 23     |
|                                 |   |                                                                                                                             |   |   |
| Item 4.                         |   | Submission      of Matters to a Vote of Security Holders                                                                         |   | 24     |
|                                 |   |                                                                                                                             |   |   |
| Item 5.                         |   | Other      Information                                                                                                           |   | 24     |
|                                 |   |                                                                                                                             |   |   |
| Item 6.                         |   | Exhibits                                                                                                                         |   | 24     |
|                                 |   |                                                                                                                             |
| Signatures                           |   | 25                                                                                                                               |

----

PART I—FINANCIAL INFORMATION

 Unless thecontent otherwise requires, all references to "we", "us", the “Company" or“Cyalume" in this quarterly report on Form 10-Q refers to CyalumeTechnologies Holdings, Inc.

----

|                                                                     |   |                    |       |   |               |   |       | Predecessor        |   |
|--------------------------------------------------------------------------|--------|-------------------------|------------|--------|--------------------|--------|------------|--------------------|--------|
|                                                                     |   | For the      Three |       |   | For      the Three |   |       | For      the Three |   |
|                                                                     |   | Months      Ended       |       |   | Months      Ended  |   |       | Months      Ended  |   |
|                                                                     |   | September      30,      |       |   | September      30, |   |       | September      30, |   |
|                                                                     |   | 2009                    |       |   | 2008               |   |       | 2008               |   |
| Revenues                                                                 |   | $                       | 9,860      |   |               | $      | —    |               |   | $ | 10,833 |   |
| Cost      of goods sold                                                  |   |                    | 5,938      |   |               |   | —    |               |   |   | 5,411 |   |
| Gross      profit                                                        |   |                    | 3,922      |   |               |   | —    |               |   |   | 5,422 |   |
|                                                                     |   |                    |       |   |               |   |       |               |   |   |   |   |
| Other      expenses (income):                                            |   |                    |       |   |               |   |       |               |   |   |   |   |
| Sales      and marketing                                                 |   |                    | 791        |   |               |   | —    |               |   |   | 738 |   |
| General      and administrative                                          |   |                    | 887        |   |               |   | 225        |               |   |   | 1,210 |   |
| Research      and development                                            |   |                    | 487        |   |               |   | —    |               |   |   | 306 |   |
| Interest,      net                                                       |   |                    | 673        |   |               |   | (287       | )                  |   |   | 1,221 |   |
| Interest      – related party                                      |   |                    | 16         |   |               |   | 2          |               |   |   | — |   |
| Amortization      of intangible assets                                   |   |                    | 878        |   |               |   | —    |               |   |   | 659 |   |
| Other,      net                                                          |   |                    | 16         |   |               |   | —    |               |   |   | 59 |   |
| Total      other expenses (income)                                       |   |                    | 3,748      |   |               |   | (60        | )                  |   |   | 4,193 |   |
|                                                                     |   |                    |       |   |               |   |       |               |   |   |   |   |
| Income      before income taxes                                          |   |                    | 174        |   |               |   | 60         |               |   |   | 1,229 |   |
| Provision      for (benefit from) income taxes                           |   |                    | (151       | )      |               |   | 2          |               |   |   | 517 |   |
| Net      income                                                          |   | $                       | 325        |   |               | $      | 58         |               |   | $ | 712 |   |
|                                                                     |   |                    |       |   |               |   |       |               |   |   |   |   |
| Net      income per common share:                                        |   |                    |       |   |               |   |       |               |   |   |   |   |
| Basic                                                                    |   | $                       | 0.02       |   |               | $      | 0.01       |               |   |   |   |   |
| Diluted                                                                  |   | $                       | 0.02       |   |               | $      | —    |               |   |   |   |   |
|                                                                     |   |                    |       |   |               |   |       |               |   |   |   |   |
| Weighted      average shares used to compute net income per commonshare: |   |                    |       |   |               |   |       |               |   |   |   |   |
| Basic                                                                    |   |                    | 15,352,478 |   |               |   | 9,375,000  |               |   |   |   |   |
| Diluted                                                                  |   |                    | 15,418,949 |   |               |   | 11,944,844 |               |   |   |   |   |

----

|                                                                                  |   |                   |       |   |               |   |       | Predecessor        |   |
|---------------------------------------------------------------------------------------|--------|------------------------|------------|--------|--------------------|--------|------------|--------------------|--------|
|                                                                                  |   | For the      Nine |       |   | For      the Nine  |   |       | For      the Nine  |   |
|                                                                                  |   | Months      Ended      |       |   | Months      Ended  |   |       | Months      Ended  |   |
|                                                                                  |   | September      30,     |       |   | September      30, |   |       | September      30, |   |
|                                                                                  |   | 2009                   |       |   | 2008               |   |       | 2008               |   |
| Revenues                                                                              |   | $                      | 24,443     |   |               | $      | —    |               |   | $ | 31,686 |   |
| Cost      of goods sold                                                               |   |                   | 14,374     |   |               |   | —    |               |   |   | 15,201 |   |
| Gross      profit                                                                     |   |                   | 10,069     |   |               |   | —    |               |   |   | 16,485 |   |
|                                                                                  |   |                   |       |   |               |   |       |               |   |   |   |   |
| Other      expenses (income):                                                         |   |                   |       |   |               |   |       |               |   |   |   |   |
| Sales      and marketing                                                              |   |                   | 2,322      |   |               |   | —    |               |   |   | 2,532 |   |
| General      and administrative                                                       |   |                   | 3,489      |   |               |   | 637        |               |   |   | 3,520 |   |
| Research      and development                                                         |   |                   | 1,295      |   |               |   | —    |               |   |   | 984 |   |
| Interest,      net                                                                    |   |                   | 1,925      |   |               |   | (899       | )                  |   |   | 3,715 |   |
| Interest      – related party                                                   |   |                   | 45         |   |               |   | 4          |               |   |   | — |   |
| Amortization      of intangible assets                                                |   |                   | 2,612      |   |               |   | —    |               |   |   | 1,968 |   |
| Other,      net                                                                       |   |                   | 79         |   |               |   | —    |               |   |   | (1,038 | ) |
| Total      other expenses (income)                                                    |   |                   | 11,767     |   |               |   | (258       | )                  |   |   | 11,681 |   |
|                                                                                  |   |                   |       |   |               |   |       |               |   |   |   |   |
| Income      (loss) before income taxes                                                |   |                   | (1,698     | )      |               |   | 258        |               |   |   | 4,804 |   |
| Provision      for (benefit from) income taxes                                        |   |                   | (755       | )      |               |   | (18        | )                  |   |   | 1,754 |   |
| Net      income (loss)                                                                |   | $                      | (943       | )      |               | $      | 276        |               |   | $ | 3,050 |   |
|                                                                                  |   |                   |       |   |               |   |       |               |   |   |   |   |
| Net      income (loss) per common share:                                              |   |                   |       |   |               |   |       |               |   |   |   |   |
| Basic                                                                                 |   | $                      | (0.06      | )      |               | $      | 0.03       |               |   |   |   |   |
| Diluted                                                                               |   | $                      | (0.06      | )      |               | $      | 0.02       |               |   |   |   |   |
|                                                                                  |   |                   |       |   |               |   |       |               |   |   |   |   |
| Weighted      average shares used to compute net income (loss) per common      share: |   |                   |       |   |               |   |       |               |   |   |   |   |
| Basic                                                                                 |   |                   | 15,089,909 |   |               |   | 9,375,000  |               |   |   |   |   |
| Diluted                                                                               |   |                   | 15,089,909 |   |               |   | 11,896,460 |               |   |   |   |   |

----

Cyalume TechnologiesHoldings, Inc.

|                                                                                                                                                                                                |   | September      30,2009(unaudited) |    |   | December 31,2008 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------|-----------------------|--------|
| Assets                                                                                                                                                                                              |   |                              |    |   |                  |   |
| Current      assets:                                                                                                                                                                                |   |                              |    |   |                  |   |
| Cash                                                                                                                                                                                                |   | $                                 | 1,831   |   |                  | $      | 3,952 |   |
| Accounts      receivable, net of allowance for doubtful accounts of $217 and $452 at      September 30, 2009 and December 31, 2008, respectively                                                    |   |                              | 4,542   |   |                  |   | 3,508 |   |
| Inventories,      net                                                                                                                                                                               |   |                              | 9,734   |   |                  |   | 11,447 |   |
| Income      taxes refundable                                                                                                                                                                        |   |                              | 377     |   |                  |   | 701 |   |
| Deferred      income taxes                                                                                                                                                                          |   |                              | 425     |   |                  |   | 317 |   |
| Prepaid      expenses and other current assets                                                                                                                                                      |   |                              | 204     |   |                  |   | 195 |   |
| Total      current assets                                                                                                                                                                           |   |                              | 17,113  |   |                  |   | 20,120 |   |
|                                                                                                                                                                                                |   |                              |    |   |                  |   |   |   |
| Property,      plant and equipment, net                                                                                                                                                             |   |                              | 8,250   |   |                  |   | 7,882 |   |
| Goodwill                                                                                                                                                                                            |   |                              | 58,452  |   |                  |   | 60,896 |   |
| Other      intangible assets, net                                                                                                                                                                   |   |                              | 49,908  |   |                  |   | 49,426 |   |
| Other      noncurrent assets                                                                                                                                                                        |   |                              | 138     |   |                  |   | 188 |   |
| Total      assets                                                                                                                                                                                   |   | $                                 | 132,861 |   |                  | $      | 138,512 |   |
|                                                                                                                                                                                                |   |                              |    |   |                  |   |   |   |
| Liabilities      and Stockholders’ Equity                                                                                                                                                     |   |                              |    |   |                  |   |   |   |
| Current      liabilities:                                                                                                                                                                           |   |                              |    |   |                  |   |   |   |
| Lines      of credit                                                                                                                                                                                |   | $                                 | 3,300   |   |                  | $      | 3,500 |   |
| Current      portion of notes payable                                                                                                                                                               |   |                              | 4,120   |   |                  |   | 3,621 |   |
| Accounts      payable                                                                                                                                                                               |   |                              | 3,450   |   |                  |   | 3,230 |   |
| Accrued      expenses and other current liabilities                                                                                                                                                 |   |                              | 2,451   |   |                  |   | 2,550 |   |
| Common      stock subject to mandatory redemption                                                                                                                                                   |   |                              | — |   |                  |   | 1,123 |   |
| Notes      payable and advance due to related parties                                                                                                                                               |   |                              | 9       |   |                  |   | 64 |   |
| Income      taxes payable                                                                                                                                                                           |   |                              | 7       |   |                  |   | 5 |   |
| Total      current liabilities                                                                                                                                                                      |   |                              | 13,337  |   |                  |   | 14,093 |   |
|                                                                                                                                                                                                |   |                              |    |   |                  |   |   |   |
| Notes      payable, net of current portion                                                                                                                                                          |   |                              | 22,626  |   |                  |   | 25,581 |   |
| Notes      payable due to related parties, net of current portion                                                                                                                                   |   |                              | 1,048   |   |                  |   | 1,000 |   |
| Deferred      income taxes                                                                                                                                                                          |   |                              | 7,801   |   |                  |   | 9,237 |   |
| Derivatives                                                                                                                                                                                         |   |                              | 127     |   |                  |   | 163 |   |
| Asset      retirement obligation, net of current portion                                                                                                                                            |   |                              | 156     |   |                  |   | 128 |   |
| Total      liabilities                                                                                                                                                                              |   |                              | 45,095  |   |                  |   | 50,202 |   |
|                                                                                                                                                                                                |   |                              |    |   |                  |   |   |   |
| 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; 15,360,925 and      13,719,035 shares issued and outstanding at September 30, 2009 and      December 31, 2008, respectively |   |                              | 15      |   |                  |   | 14 |   |
| Additional      paid-in capital                                                                                                                                                                     |   |                              | 87,410  |   |                  |   | 87,348 |   |
| Retained      earnings                                                                                                                                                                              |   |                              | 286     |   |                  |   | 1,229 |   |
| Accumulated      other comprehensive income (loss)                                                                                                                                                  |   |                              | 55      |   |                  |   | (281 | ) |
| Total      stockholders’ equity                                                                                                                                                               |   |                              | 87,766  |   |                  |   | 88,310 |   |
| Total      liabilities and stockholders' equity                                                                                                                                                     |   | $                                 | 132,861 |   |                  | $      | 138,512 |   |

----

Cyalume Technologies Holdings, Inc.

|                                                                                                                                    |   | Common      Stock          |       |   | Additional |   |    |           |   |   | Accumulated      Other |   |   | Total                            |    |   |                            |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|------------|--------|------------|--------|---------|----------------|--------|--------|------------------------|--------|--------|----------------------------------|---------|--------|---------------------------------|--------|
|                                                                                                                                    |   | Number      of Shares |       |   | Amount     |   |    | Paid-InCapital |   |   | Retained      Earnings |   |   | Comprehensive      Income (Loss) |    |   | Stockholders’      Equity |   |   | Comprehensive      Income (Loss) |   |
| Balance      at December 31, 2008                                                                                                  |   |                       | 13,719,035 |   |       | $      | 14      |           |   | $      | 87,348                 |   |   | $                                | 1,229   |   |                            | $      | (281 | ) |   | $ | 88,310 |   |   | $ | — |   |
| Exercise      of warrants                                                                                                               |   |                       | 5,500      |   |       |   | — |           |   |   | 27                     |   |   |                             | — |   |                            |   | — |   |   |   | 27 |   |   |   | — |   |
| Exercise      of warrants - cashless                                                                                                    |   |                       | 1,630,143  |   |       |   | 1       |           |   |   | (1                     | )      |   |                             | — |   |                            |   | — |   |   |   | — |   |   |   | — |   |
| Common      stock repurchased                                                                                                           |   |                       | (32,903    | )      |       |   | — |           |   |   | (263                   | )      |   |                             | — |   |                            |   | — |   |   |   | (263 | ) |   |   | — |   |
| Common      stock awarded (not yet issued) for acquisition-related      services                                                        |   |                       | —    |   |       |   | — |           |   |   | 180                    |   |   |                             | — |   |                            |   | — |   |   |   | 180 |   |   |   | — |   |
| Common      stock issued for acquisition-related services                                                                               |   |                       | 15,000     |   |       |   | — |           |   |   | 45                     |   |   |                             | — |   |                            |   | — |   |   |   | 45 |   |   |   | — |   |
| Common      stock issued to extinguish notes payable                                                                                    |   |                       | 17,150     |   |       |   | — |           |   |   | 82                     |   |   |                             | — |   |                            |   | — |   |   |   | 82 |   |   |   | — |   |
| Share-based      compensation expense - warrants awarded to director                                                                    |   |                       | —    |   |       |   | — |           |   |   | 110                    |   |   |                             | — |   |                            |   | — |   |   |   | 110 |   |   |   | — |   |
| Share-based      compensation expense - options awarded under the 2009 Omnibus Securities      and Incentive Plan                       |   |                       | —    |   |       |   | — |           |   |   | 98                     |   |   |                             | — |   |                            |   | — |   |   |   | 98 |   |   |   | — |   |
| Share-based      compensation expense - common stock issued to non-employee      consultant                                             |   |                       | 7,000      |   |       |   | — |           |   |   | 25                     |   |   |                             | — |   |                            |   | — |   |   |   | 25 |   |   |   | — |   |
| Share-based      compensation expense - common stock awarded (not yet issued) under the      2009 Omnibus Securities and Incentive Plan |   |                       | —    |   |       |   | — |           |   |   | 38                     |   |   |                             | — |   |                            |   | — |   |   |   | 38 |   |   |   | — |   |
| Stock      registration costs                                                                                                           |   |                       | —    |   |       |   | — |           |   |   | (279                   | )      |   |                             | — |   |                            |   | — |   |   |   | (279 | ) |   |   | — |   |
| Foreign      currency translation adjustments                                                                                           |   |                       | —    |   |       |   | — |           |   |   | —                |   |   |                             | — |   |                            |   | 314 |   |   |   | 314 |   |   |   | 314 |   |
| Unrealized      gain on cash flow hedges, net of taxes of $14                                                                           |   |                       | —    |   |       |   | — |           |   |   | —                |   |   |                             | — |   |                            |   | 22 |   |   |   | 22 |   |   |   | 22 |   |
| Net      loss                                                                                                                           |   |                       | —    |   |       |   | — |           |   |   | —                |   |   |                             | (943    | )      |                            |   | — |   |   |   | (943 | ) |   |   | (943 | )  |
| Comprehensive      loss                                                                                                                 |   |                       | —    |   |       |   | — |           |   |   | —                |   |   |                             | — |   |                            |   | — |   |   |   | — |   |   | $ | (607 | ) |
| Balance      at September 30, 2009                                                                                                 |   |                       | 15,360,925 |   |       | $      | 15      |           |   | $      | 87,410                 |   |   | $                                | 286     |   |                            | $      | 55 |   |   | $ | 87,766 |   |   |   |   |   |

----

|                                                                                               |   | For      the NineMonths      EndedSeptember      30,2009 |    | For      the NineMonths      EndedSeptember      30,2008 |   | PredecessorFor      the NineMonths      EndedSeptember      30,2008 |   |
|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|---------|----------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
| Cash      flows from operating activities:                                                         |   |                                                     |    |                                                     |   |                                                                |   |   |   |   |
| Net      income (loss)                                                                             |   | $                                                        | (943    | )                                                        | $      | 276                                                                 |   | $ | 3,050 |   |
| Adjustments      to reconcile net income (loss) to net cash provided      by operating activities: |   |                                                     |    |                                                     |   |                                                                |   |   |   |   |
| Depreciation      of property, plant and equipment                                                 |   |                                                     | 479     |                                                     |   | —                                                             |   |   | 651 |   |
| Amortization                                                                                       |   |                                                     | 3,446   |                                                     |   | —                                                             |   |   | 2,216 |   |
| Provision      for deferred income taxes                                                           |   |                                                     | (1,009  | )                                                        |   | —                                                             |   |   | 1,056 |   |
| Expense      associated with share-based awards                                                    |   |                                                     | 271     |                                                     |   | —                                                             |   |   | — |   |
| Other      non-cash expenses                                                                       |   |                                                     | 357     |                                                     |   | —                                                             |   |   | 254 |   |
| Changes      in operating assets and liabilities:                                                  |   |                                                     |    |                                                     |   |                                                                |   |   |   |   |
| Accounts      receivable                                                                           |   |                                                     | (1,024  | )                                                        |   | —                                                             |   |   | (1,091 | ) |
| Inventories                                                                                        |   |                                                     | 953     |                                                     |   | —                                                             |   |   | (2,183 | ) |
| Prepaid      expenses and other current assets                                                     |   |                                                     | (9      | )                                                        |   | 85                                                                  |   |   | 304 |   |
| Deferred      acquisition costs                                                                    |   |                                                     | — |                                                     |   | (275                                                                | )      |   | — |   |
| Accounts      payable and accrued liabilities                                                      |   |                                                     | (22     | )                                                        |   | 51                                                                  |   |   | (620 | ) |
| Income      taxes payable, net                                                                     |   |                                                     | 329     |                                                     |   | (85                                                                 | )      |   | (2,270 | ) |
| Accrued      interest on notes payable to related parties                                          |   |                                                     | — |                                                     |   | 14                                                                  |   |   | — |   |
| Net      cash provided by operating activities                                                     |   |                                                     | 2,828   |                                                     |   | 66                                                                  |   |   | 1,367 |   |
|                                                                                               |   |                                                     |    |                                                     |   |                                                                |   |   |   |   |
| Cash      flows from investing activities:                                                         |   |                                                     |    |                                                     |   |                                                                |   |   |   |   |
| Payments      to trust account                                                                     |   |                                                     | — |                                                     |   | (399                                                                | )      |   | — |   |
| Purchases      of long-lived assets                                                                |   |                                                     | (449    | )                                                        |   | —                                                             |   |   | (1,212 | ) |
| Net      cash used in investing activities                                                         |   |                                                     | (449    | )                                                        |   | (399                                                                | )      |   | (1,212 | ) |
|                                                                                               |   |                                                     |    |                                                     |   |                                                                |   |   |   |   |
| Cash      flows from financing activities:                                                         |   |                                                     |    |                                                     |   |                                                                |   |   |   |   |
| Repayment      of advances from and notes payable to related parties                               |   |                                                     | — |                                                     |   | (150                                                                | )      |   | — |   |
| Payments      for common stock subject to redemption                                               |   |                                                     | (1,123  | )                                                        |   | —                                                             |   |   | — |   |
| Net      repayment of line of credit                                                               |   |                                                     | (200    | )                                                        |   | —                                                             |   |   | — |   |
| Payments      of Predecessor notes payable                                                         |   |                                                     | — |                                                     |   | —                                                             |   |   | (2,428 | ) |
| Repayment      of long-term notes payable                                                          |   |                                                     | (2,633  | )                                                        |   | —                                                             |   |   | — |   |
| Payments      to reacquire and retire common stock                                                 |   |                                                     | (263    | )                                                        |   | —                                                             |   |   | — |   |
| Payment      of stock registration costs                                                           |   |                                                     | (279    | )                                                        |   | —                                                             |   |   | — |   |
| Payment      of deferred financing costs                                                           |   |                                                     | (75     | )                                                        |   | —                                                             |   |   | — |   |
| Refund      of debt issue costs                                                                    |   |                                                     | 10      |                                                     |   | —                                                             |   |   | — |   |
| Proceeds      from exercises of warrants                                                           |   |                                                     | 27      |                                                     |   | —                                                             |   |   | — |   |
| Net      cash used in financing activities                                                         |   |                                                     | (4,536  | )                                                        |   | (150                                                                | )      |   | (2,428 | ) |
|                                                                                               |   |                                                     |    |                                                     |   |                                                                |   |   |   |   |
| Effect      of exchange rate changes on cash                                                       |   |                                                     | 36      |                                                     |   | —                                                             |   |   | 30 |   |
| Net      decrease in cash                                                                          |   |                                                     | (2,121  | )                                                        |   | (483                                                                | )      |   | (2,243 | ) |
| Cash,      beginning of period                                                                     |   |                                                     | 3,952   |                                                     |   | 570                                                                 |   |   | 5,743 |   |
| Cash,      end of period                                                                           |   | $                                                        | 1,831   |                                                     | $      | 87                                                                  |   | $ | 3,500 |   |

----

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

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

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

----

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

|                |   | September      30,2009 |   |   | December      31,2008 |   |
|---------------------|--------|------------------------|--------|--------|-----------------------|--------|
| Raw      materials  |   | $                      | 4,945  |   |                  | $      | 5,822 |   |
| Work-in-process     |   |                   | 2,874  |   |                  |   | 3,484 |   |
| Finished      goods |   |                   | 1,915  |   |                  |   | 2,141 |   |
|                |   | $                      | 9,734  |   |                  | $      | 11,447 |   |

----

| 5. | GOODWILL |
|----|----------|

| Balance      on December 31, 2008                                                                |   | $      | 60,896 |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Finalization      of the fair value of intangible assets                                         |   |   | (2,024 | )      |
| Finalization      of the fair value of property, plant & equipment                           |   |   | (372   | )      |
| Additional      Acquisition costs recognized                                                     |   |   | 435    |   |
| Adjustments      to deferred taxes associated with tangible and intangible asset      valuations |   |   | (549   | )      |
| Changes      due to foreign currency translation adjustments                                     |   |   | 66     |   |
| Balance      on September 30, 2009                                                               |   | $      | 58,452 |   |

| 6. | NOTES      PAYABLE |
|----|--------------------|

|   | · | Waived      the requirement that CTI be in compliance as of June 30, 2009 with certain      financial covenants contained in the Original Credit      Agreement; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |                                                                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------|
|   | · | Changed      the maturity date of the line of credit from December 19, 2011 to December      31, 2010; |
|   |   |                                                                                                   |

|   | · | Increased      the Base Rate charged on the line of credit by an Applicable Margin, which      is defined in the Loan Amendment; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   |   |                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|
|   | · | Reduced      the maximum management fee that CTI may pay to Cyalume from $125,000 per      quarter to $21,000 per month; |
|   |   |                                                                                                                     |

|   | · | Increased      the maximum allowable Leverage Ratios for the months of September 2009      through December 2009 and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|

|   |   |                                           |
|--------|--------|------------------------------------------------|
|   | · | Added      a minimum quarterly EBITDAcovenant. |

|   | · | Waived the requirement that CTI be      in compliance as of September 30, 2009 with the service coverage and leverage      ratio covenants      contained in the Original Credit Agreement, as amended by the Loan      Amendment; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                               |

|   | · | Requires that all net proceeds      from any new subordinated debt or equity offerings be used to pay-down      senior debt; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                         |

|   | · | Requires the Company to receive at      least $3.0 million in new subordinated debt or equity offering before      April 30, 2010; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                               |

|   | · | Set new schedules of required      ratios for maximum senior leverage, minimum fixed charge coverage and      minimum total debt service coverage ratios and set new quarterly EBITDA      targets to take effective December 31, 2009 and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                       |

|   | · | Requires the Company to maintain      $1.0 million cash on the consolidated balance  sheet. |
|--------|--------|---------------------------------------------------------------------------------------------|

| 7. | NOTES      PAYABLE AND ADVANCE DUE TO RELATEDPARTIES |
|----|------------------------------------------------------|

----

| 8. | DERIVATIVE      INSTRUMENTS AND HEDGING ACTIVITIES |
|----|----------------------------------------------------|

| Derivative      Instrument     |   | Balance      Sheet Location                                                  |   | Fair      Value |   |
|--------------------------------|--------|------------------------------------------------------------------------------|--------|-----------------|--------|
| Currency      forward contract |   | Accrued      expenses and other current liabilities (current    liabilities) |   | $               | (3     | ) |
| Interest      rate swaps       |   | Derivatives      (noncurrent liabilities)                                    |   |            | (127   | ) |

|                                                    |   | Gain      (Loss) |    |   | Gain      (Loss)      |   |    | Gain      (Loss)     |   |
|---------------------------------------------------------|--------|------------------|---------|--------|-----------------------|--------|---------|----------------------|--------|
|                                                    |   | In      AOCI (1) |    |   | Reclassified      (2) |   |    | in      Earnings (3) |   |
| Derivatives      designated as cash flow hedges:        |   |             |    |   |                  |   |    |                 |   |
| Interest      rate swaps                                |   | $                | (96     | )      |                  | $      | — |                 |   | $ | — |   |
| Derivatives      not designated as hedging instruments: |   |             |    |   |                  |   |    |                 |   |   |   |   |
| Currency      forward contracts                         |   | $                | — |   |                  | $      | — |                 |   | $ | (3 | ) |

| (1) | Amount      recognized in accumulated other comprehensive income (loss) (AOCI)      (effective portion and net of taxes) during the three months ended      September 30, 2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                    |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Amount      of gain (loss) originally recorded in AOCI but reclassified from AOCI into      earnings during the three months ended September 30,  2009. |
|   |                                                                                                                                                    |

| (3) | Amount      of gain (loss) recognized in earnings on the derivative (ineffective      portion and amount excluded from effectiveness testing) reported in other      expenses (income) on the condensed consolidated statement of operations      for the three months ended September 30,2009. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                            |   | Gain      (Loss) |    |   | Gain      (Loss)      |   |    | Gain      (Loss)     |   |
|-----------------------------------------------------------------|--------|------------------|---------|--------|-----------------------|--------|---------|----------------------|--------|
|                                                            |   | In      AOCI (1) |    |   | Reclassified      (2) |   |    | in      Earnings (3) |   |
| Derivatives      designated as cash flow hedges: relationships: |   |             |    |   |                  |   |    |                 |   |
| Interest      rate swaps                                        |   | $                | 22      |   |                  | $      | — |                 |   | $ | — |   |
| Derivatives      not designated as hedging instruments:         |   |             |    |   |                  |   |    |                 |   |   |   |   |
| Currency      forward contracts                                 |   | $                | — |   |                  | $      | — |                 |   | $ | (3 | ) |

| (1) | Amount      recognized in accumulated other comprehensive income (loss) (AOCI)      (effective portion and net of taxes) during the nine months ended      September 30, 2009. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Amount      of gain (loss) originally recorded in AOCI but reclassified from AOCI into      earnings during the nine months ended September 30,  2009. |
|   |                                                                                                                                                   |

| (3) | Amount      of gain (loss) recognized in earnings on the derivative (ineffective      portion and amount excluded from effectiveness testing) reported in other      expenses (income) on the condensed consolidated statement of operations      for the nine months ended September 30,2009. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9. | SHARE-BASED      AWARDS |
|----|-------------------------|

|   | · | The      75,000 restricted common shares to non-employee consultants (including      45,000 earned by our current Chief Executive Officer as a consultant to      Vector prior to becoming our Chief Executive Officer) are to be issued as      payment for services rendered in conjunction with the Acquisition. The      fair value of this award was determined to be $225,000 using the quoted      market price of the common stock on March 3, 2009 of $3. This is recorded      as an increase to goodwill related to the Acquisition on the accompanying      condensed consolidated balance sheet as of September 30, 2009. These      restricted shares will vest over a 3-year period with no provision      requiring continued employment orservice. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      100,333 restricted common shares to officers and other management are (i)      compensation for their services in 2009, (ii) earned based on meeting      board-determined performance goals and (iii) require continued employment      over the 3-year vesting period. The fair value of the award was determined      to be $151,000 using the quoted market price of the common stock on March      3, 2009 of $3 and applying appropriate estimated forfeiture      rates. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      9,000 restricted common shares to our executive officers and other      management are (i) compensation for their services during 2008, (ii) were      earned based on meeting board-determined goals and (iii) require continued      employment over the 3-year vesting period. The fair value of the award was      determined to be $27,000, using the quoted market price of the common      stock on March 3, 2009 of $3. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Remaining      restricted common shares totaling 10,000 have been reserved for future      awards. |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | · | The      200,000 restricted options to our Chief Executive Officer are (i)      compensation for his services in 2009, (ii) earned based on meeting      board-determined performance goals and (iii) require continued employment      over the 3-year vesting period. The 82,500 options to directors are      compensation for their services as directors that will vest immediately.      The award’s fair value of $386,000 was determined using the Black-Scholes      pricing model. The following assumptions were used to value the      award: |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Risk-free      interest rate                                         |   |          | 2.93  | % |
|----------------------------------------------------------------------|--------|---------------|-------|---|
| Expected      term                                                   |   | 10      years |
| Expected      volatility  (1)                              |   |          | 34.11 | % |
| Expected      forfeitures for options to our chief executive officer |   |          | 50    | % |
| Expected      forfeitures for options to our directors               |   |          | 0     | % |
| Dividend      yield                                                  |   |          | 0     | % |

| Risk-free      interest rate                           |   |         | 1.87  | % |
|--------------------------------------------------------|--------|--------------|-------|---|
| Expected      term                                     |   | 5      years |
| Expected      volatility  (1)                |   |         | 25.98 | % |
| Expected      forfeitures for options to our directors |   |         | 0     | % |
| Dividend      yield                                    |   |         | 0     | % |

| Risk-free      interest rate            |   |          | 3.67  | % |
|-----------------------------------------|--------|---------------|-------|---|
| Expected      term                      |   | 10      years |
| Expected      volatility  (1) |   |          | 33.99 | % |
| Expected      forfeitures               |   |          | 50    | % |
| Dividend      yield                     |   |          | 0     | % |

|   |  (1) | Because      our common stock did not have a trading history that was representative of      an operating company as of the date of the award, the expected volatility      assumption was derived using historical data of another public company      operating in our industry. We believe the volatility estimate calculated      from that company is a reasonable benchmark to use in estimating the      expected volatility of our common stock; however, that estimated      volatility may not necessarily be representative of the volatility of the      underlying securities in thefuture. |
|--------|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 10. | RESTRUCTURING      COSTS |
|-----|--------------------------|

| Balance      on December 31, 2008  |   | $      | 229     |   |
|------------------------------------|--------|--------|---------|--------|
| Cash      payments                 |   |   | (229    | )      |
| Balance      on September 30, 2009 |   | $      | — |   |

| 11. | INCOME      TAXES |
|-----|-------------------|

| 12. | NET      INCOME (LOSS) PER COMMON SHARE |
|-----|-----------------------------------------|

|                                        |   | Three      Months Ended September 30, |       |   | Nine      Months Ended September 30, |   |
|---------------------------------------------|--------|---------------------------------------|------------|--------|--------------------------------------|--------|
| Basic:                                      |   | 2009                                  |       |   | 2008                                 |   |   | 2009 |   |   | 2008 |   |
| Net      income (loss) (in thousands)       |   | $                                     | 325        |   |                                 | $      | 58 |   |   | $ | (943 | ) |   | $ | 276 |   |
| Weighted      average shares                |   |                                  | 15,352,478 |   |                                 |   | 9,375,000 |   |   |   | 15,089,909 |   |   |   | 9,375,000 |   |
| Basic      income (loss) per common share   |   | $                                     | 0.02       |   |                                 | $      | 0.01 |   |   | $ | (0.06 | ) |   | $ | 0.03 |   |
| Diluted:                                    |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss) (in thousands)       |   | $                                     | 325        |   |                                 | $      | 58 |   |   | $ | (943 | ) |   | $ | 276 |   |
| Weighted      average shares                |   |                                  | 15,352,478 |   |                                 |   | 9,375,000 |   |   |   | 15,089,909 |   |   |   | 9,375,000 |   |
| Effect      of dilutive securities          |   |                                  | 66,471     |   |                                 |   | 2,569,844 |   |   |   | — | (1) |   |   | 2,521,460 |   |
| Weighted      average shares, as adjusted   |   |                                  | 15,418,949 |   |                                 |   | 11,944,844 |   |   |   | 15,089,909 |   |   |   | 11,896,460 |   |
| Diluted      income (loss) per common share |   | $                                     | 0.02       |   |                                 | $      | — |   |   | $ | (0.06 | ) |   | $ | 0.02 |   |

| (1) | Since      we experienced a loss during this period, common shares issuable upon      exercise of convertible securities were excluded from the loss per share      calculation because the effect would be  antidilutive. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|     |   |   | For      The Periods Ended September 30, |   |
|----------|--------|--------|------------------------------------------|--------|
|     |   |   | 2009                                     |   |   |   | 2008 |   |
| Warrants |   |   | 4,370,256                                |   |   |   | — |   |
| Options  |   |   | 1,855,000                                |   |   |   | 1,462,500 |   |

| 13. | COMMITMENTS      AND CONTINGENCIES |
|-----|------------------------------------|

| 14. | 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.                                                                                             |

----

| 15. | SUPPLEMENTAL      DISCLOSURE OF CASH FLOW INFORMATION |
|-----|-------------------------------------------------------|

|              | Nine      Months Ended September 30, |   |   | PredecessorFor      the Nine Months Ended September 30, |   |
|-------------------|--------------------------------------|--------|--------|---------------------------------------------------------|--------|
|              | 2009                                 |   | 2008   |                                                    |   | 2008 |   |
| Interest          |                                 | $      | 1,495  |                                                    |   | $ | — |   |   | $ | 3,207 |   |
| Income      taxes |                                 |   | 608    |                                                    |   |   | — |   |   |   | 2,046 |   |

|                                                                                                               |   | Nine      Months Ended September 30, |   |   | PredecessorFor      the Nine Months Ended September 30, |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|---------------------------------------------------------|--------|
|                                                                                                               |   | 2009                                 |   |   | 2008                                                    |   |   | 2008 |   |
| Increase      in the Acquisition date fair value of intangible assets (a reduction of      goodwill)               |   | $                                    | 2,024  |   |                                                    | $      | — |   |   | $ | — |   |
| Increase      in the Acquisition date fair value of property, plant & equipment (a      reduction of goodwill) |   |                                 | 372    |   |                                                    |   | — |   |   |   | — |   |
| Accrual      of costs directly related to the Acquisition (an increase to      goodwill)                           |   |                                 | 435    |   |                                                    |   | — |   |   |   | — |   |
| Reduction      of goodwill resulting from subsequent recognition of deferred      taxes                            |   |                                 | 549    |   |                                                    |   | — |   |   |   | — |   |
| Remeasurement      of asset retirement obligation                                                                  |   |                                 | 26     |   |                                                    |   | — |   |   |   | — |   |
| Extinguishment      of notes payable due to related parties by issuing common      stock                           |   |                                 | 82     |   |                                                    |   | — |   |   |   | — |   |

| 16. | SUBSEQUENT      EVENTS |
|-----|------------------------|

|   | 1) | Strategic      development and implementation as well as consultation to our chief      executive officer on a regular basis as per his reasonable      requests; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | 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 munitionsbusiness; |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | Advise      and support us on our investor relations  strategy; |
|--------|----|-----------------------------------------------------------------|

|   | 4) | Advise      and support our future fund raising, including identifying sources of      capital in the United States; and |
|--------|----|--------------------------------------------------------------------------------------------------------------------------|

|   | 5) | Support      our mergers and acquisitions strategy and play an active role in our due      diligence and analysis. |
|--------|----|--------------------------------------------------------------------------------------------------------------------|

----

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

----

|   | · | Waived      the requirement that CTI be in compliance as of June 30, 2009 with certain      financial covenants contained in the Original Credit      Agreement; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Changed      the maturity date of the line of credit from December 19, 2011 to December      31, 2010; |
|--------|--------|--------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                   |

|   | · | Increased      the Base Rate charged on the line of credit by an Applicable Margin, which      is defined in the Loan Amendment; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                             |

|   | · | Reduced      the maximum management fee that CTI may pay to Cyalume from $125,000 per      quarter to $21,000 per month; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                     |

|   | · | Increased      the maximum allowable Leverage Ratios for the months of September 2009      through December 2009 and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                 |

|   | · | Added      a minimum quarterly EBITDAcovenant. |
|--------|--------|------------------------------------------------|

|   | · | Waived the requirement that CTI be      in compliance as of September 30, 2009 with the service coverage and leverage      ratio covenants      contained in the Original Credit Agreement, as amended by the Loan      Amendment; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                               |

|   | · | Requires that all net proceeds      from any new subordinated debt or equity offerings be used to pay-down      senior debt; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                         |

|   | · | Requires the Company to receive at      least $3.0 million in new subordinated debt or equity offering before      April 30, 2010; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                               |

|   | · | Set new schedules of required      ratios for maximum senior leverage, minimum fixed charge coverage and      minimum total debt service coverage ratios and set new quarterly EBITDA      targets to take effective December 31, 2009 and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                       |

|   | · | Requires the Company to maintain      $1.0 million cash on the consolidated balance  sheet. |
|--------|--------|---------------------------------------------------------------------------------------------|

----

----

| ITEM 3. | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK |
|--------------|----------------------------------------------------------------|

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

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

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

----

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

| Period                                  |   | Total      Number of Shares Purchased |    |   |  Average      Price Paid per Share |   |    | Total      Number of Shares Purchased as Part of Publicly Announced Plans or      Programs |   |   | Maximum      Number (or Approximate Dollar Value) of Shares that May yet be      Purchased under the Plans or Programs |   |
|-----------------------------------------|--------|---------------------------------------|---------|--------|-----------------------------------------|--------|---------|--------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|--------|
| January      1 to January  31 |   |                                  | 32,903  | (1)    |                                    | $      | 7.97    |                                                                                       |   |   | —                                                                                                                     |   |   | $ | — |   |
| February      1 to February 28          |   |                                  | — |   |                                    |   | — |                                                                                       |   |   | —                                                                                                                     |   |   |   | — |   |
| March      1 to March 31                |   |                                  | — |   |                                    |   | — |                                                                                       |   |   | —                                                                                                                     |   |   |   | — |   |
| April      1 to April 30                |   |                                  | — |   |                                    |   | — |                                                                                       |   |   | —                                                                                                                     |   |   |   | — |   |
| May      1 to May 31                    |   |                                  | — |   |                                    |   | — |                                                                                       |   |   | —                                                                                                                     |   |   |   | — |   |
| June      1 to June 30                  |   |                                  | — |   |                                    |   | — |                                                                                       |   |   | —                                                                                                                     |   |   |   | — |   |
| July      1 to July 31                  |   |                                  | — |   |                                    |   | — |                                                                                       |   |   | —                                                                                                                     |   |   |   | — |   |
| August      1 to August 31              |   |                                  | — |   |                                    |   | — |                                                                                       |   |   | —                                                                                                                     |   |   |   | — |   |
| September      1 to September 30        |   |                                  | — |   |                                    |   | — |                                                                                       |   |   | —                                                                                                                     |   |   |   | — |   |

| (1) | The      shares were repurchased from members of management. These shares were a      portion of the shares that certain members of CTI’s management received      relating to the December 19, 2008 acquisition of CTI. Our Board of      Directors voted at its January 13, 2009 meeting to honor a pre-Acquisition      verbal commitment to repurchase 20% (or 32,903) of such shares to provide      the holders of those shares with cash to pay personal income taxes arising      from exchanging their shares of GMS Acquisition Partners for Cyalume      common stock during the acquisition ofCTI. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | Waived      the requirement that CTI be in compliance as of June 30, 2009 with certain      financial covenants contained in the Original Credit      Agreement; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                             |

|   | · | Changed      the maturity date of the line of credit from December 19, 2011 to December      31, 2010; |
|--------|--------|--------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                   |

|   | · | Increased      the Base Rate charged on the line of credit by an Applicable Margin, which      is defined in the Loan Amendment; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                             |

|   | · | Reduced      the maximum management fee that CTI may pay to Cyalume from $125,000 per      quarter to $21,000 per month; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                     |

|   | · | Increased      the maximum allowable Leverage Ratios for the months of September 2009      through December 2009 and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                 |

|   | · | Added      a minimum quarterly EBITDAcovenant. |
|--------|--------|------------------------------------------------|

|   | · | Waived the requirement that CTI be      in compliance as of September 30, 2009 with the service coverage and leverage      ratio covenants      contained in the Original Credit Agreement, as amended by the Loan      Amendment; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                               |

|   | · | Requires that all net proceeds      from any new subordinated debt or equity offerings be used to pay-down      senior debt; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                         |

|   | · | Requires the Company to receive at      least $3.0 million in new subordinated debt or equity offering before      April 30, 2010; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                               |

|   | · | Set new schedules of required      ratios for maximum senior leverage, minimum fixed charge coverage and      minimum total debt service coverage ratios and set new quarterly EBITDA      targets to take effective December 31, 2009 and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                       |

|   | · | Requires the Company to maintain      $1.0 million cash on the consolidated balance  sheet. |
|--------|--------|---------------------------------------------------------------------------------------------|

----

| ITEM 4. | SUBMISSION      OF MATTERS TO A VOTE OF SECURITYHOLDERS |
|--------------|---------------------------------------------------------|

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

Therewere no changes to the procedures by which security holders may recommendnominees to our Board of Directors during the three months ended September 30,2009.

|   | 1) | Strategic      development and implementation as well as consultation to our chief      executive officer on a regular basis as per his reasonable      requests; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | 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 munitionsbusiness; |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | Advise      and support us on our investor relations  strategy; |
|--------|----|-----------------------------------------------------------------|

|   | 4) | Advise      and support our future fund raising, including identifying sources of      capital in the United States; and |
|--------|----|--------------------------------------------------------------------------------------------------------------------------|

|   | 5) | Support      our mergers and acquisitions strategy and play an active role in our due      diligence and analysis. |
|--------|----|--------------------------------------------------------------------------------------------------------------------|

| ExhibitNumber |   | Description                                                                                                                                                                                                                    |
|---------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1          |   | Employment      agreement of Edgar Cranor, Technology Vice President, Cyalume      Technologies, Inc. (1)                                                                                                                      |
|          |   |                                                                                                                                                                                                                           |
| 10.2          |   | First      Amendment to Credit Agreement and Limited Waiver, effective September 1,      2009, among CTI, Cyalume and TD Bank, N.A. under the Revolving Credit and      Term Loan Agreement dated as of December 19, 2008. (2) |
|          |   |                                                                                                                                                                                                                           |
| 10.3          | *      | Management Agreement between Cyalume      Technologies Holdings, Inc. and Selway Capital,      LLC.                                                                                                                            |
|          |   |                                                                                                                                                                                                                           |
| 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 of2002.                                                                               |

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

| (1)    | Incorporated      by reference to the Current Report on Form 8-K dated July 17, 2009 and      filed with the Commission July 22, 2009. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                   |

| (2) | Incorporated      by reference to the Current Report on Form 8-K dated September 11, 2009      and filed with the Commission September 23,  2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------|

----

SIGNATURES

|                         | Cyalume      Technologies Holdings, Inc. |                                        |
|------------------------------|------------------------------------------|---------------------------------------------|
|                         |                                     |                                        |   |
| Date:      November 23, 2009 | By:                                      | /s/  DEREK      DUNAWAY           |   |
|                         |                                     | Derek      Dunaway, Chief Executive Officer |   |
|                         |                                     | (Principal      Executive Officer)          |   |

|                         |   |                                           |   |
|------------------------------|--------|------------------------------------------------|--------|
| Date:      November 23, 2009 | By:    | /s/  MICHAEL      BIELONKO           |   |
|                         |   | Michael      Bielonko, Chief Financial Officer |   |
|                         |   | (Principal      Financial Officer)             |   |

----