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<SEC-DOCUMENT>0000950152-08-002100.txt : 20080319
<SEC-HEADER>0000950152-08-002100.hdr.sgml : 20080319
<ACCEPTANCE-DATETIME>20080319135714
ACCESSION NUMBER:		0000950152-08-002100
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	20071231
FILED AS OF DATE:		20080319
DATE AS OF CHANGE:		20080319

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ULTRALIFE BATTERIES INC
		CENTRAL INDEX KEY:			0000875657
		STANDARD INDUSTRIAL CLASSIFICATION:	MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690]
		IRS NUMBER:				161387013
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-20852
		FILM NUMBER:		08698878

	BUSINESS ADDRESS:	
		STREET 1:		2000 TECHNOLOGY PARKWAY
		CITY:			NEWARK
		STATE:			NY
		ZIP:			14513
		BUSINESS PHONE:		3153327100

	MAIL ADDRESS:	
		STREET 1:		2000 TECHNOLOGY PARKWAY
		CITY:			NEWARK
		STATE:			NY
		ZIP:			14513
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>l30016ae10vk.htm
<DESCRIPTION>ULTRALIFE BATTERIES, INC.    10-K
<TEXT>
<HTML>
<HEAD>
<TITLE>Ultralife Batteries, Inc.    10-K</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 10-K</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(Mark One)

</DIV>
<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>Annual report pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the fiscal year ended December&nbsp;31, 2007</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the transition period from</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission file number 0-20852</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>ULTRALIFE BATTERIES, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Delaware
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">16-1387013</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of <BR>
incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer<BR>
Identification No.)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">2000 Technology Parkway, Newark, New York
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">14513</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top" nowrap>Registrant&#146;s telephone number, including area code: (315)&nbsp;332-7100
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; line-height: 150%; margin-left: 4%; margin-right: 4%; margin-top: 6pt">Securities registered pursuant to Section 12(b) of the Act:
</DIV>






<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Title of each class <BR>
Common Stock, par value $0.10 per share
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Name of each exchange on which registered<BR>
The Nasdaq Stock Market, LLC</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Securities registered pursuant to Section&nbsp;12(g) of the Act: None</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in
Rule&nbsp;405 of the Securities Act. Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if the Registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes
<FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the Registrant (1)&nbsp;has filed all reports required to be filed
by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or
for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days. Yes
<FONT face="Wingdings">&#254;</FONT> No <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if disclosure of delinquent filers pursuant to Item&nbsp;405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrant&#146;s knowledge, in
definitive proxy or information statements incorporated by reference in Part&nbsp;III of this Form 10-K
or any amendment to this Form 10-K <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer (as defined in Rule&nbsp;12b-2 of the Act).
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%"></TD>
    <TD width="2%"></TD>
    <TD width="22%"></TD>
    <TD width="2%"></TD>
    <TD width="22%"></TD>
    <TD width="2%"></TD>
    <TD width="25%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Large accelerated filer <FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Accelerated filer <FONT face="Wingdings">&#254;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Non-accelerated filer <FONT face="Wingdings">&#111;</FONT>
<FONT style="white-space: nowrap">(Do not check if a smaller reporting company</FONT></TD>
    <TD>&nbsp;</TD>

<TD align="center" valign="top"><FONT style="white-space: nowrap" >Smaller Reporting Company</FONT> <FONT face="Wingdings">&#111;</FONT></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the Registrant is a shell company (as defined by Rule&nbsp;12b-2 of
the Exchange Act). Yes  No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;30, 2007, the aggregate market value of the Common Stock of Ultralife Batteries, Inc.
held by non-affiliates of the Registrant was approximately $109,000,000 (in whole dollars) based
upon the closing price for such Common Stock as reported on the NASDAQ National Market System on
June&nbsp;29, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;1, 2008, the Registrant had 17,318,682 shares of Common Stock outstanding, net of
728,690 treasury shares.
</DIV>
<DIV align="center" style="font-size: 10pt; margin-top: 12pt">DOCUMENTS INCORPORATED BY REFERENCE</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Part&nbsp;III Ultralife Batteries, Inc. Proxy Statement &#151; Certain portions of the Registrant&#146;s
Definitive Proxy Statement relating to the June&nbsp;5, 2008 Annual Meeting of Shareholders are
specifically incorporated by reference in Part&nbsp;III, Items 10-14 herein, except for the equity plan
information required by Item&nbsp;12 as set forth therein.
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">ITEM</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">PAGE</TD>

</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
<TR><TD>&nbsp;</TD></TR>

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">PART I 1 Business </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#102">1A Risk Factors </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#103">1B Unresolved Staff Comments </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">24</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#104">2 Properties </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#105">3 Legal Proceedings </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#106">4 Submission of Matters to a Vote of Security Holders </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">PART II 5 Market for Registrant&#146;s Common Equity, Related Shareholder
Matters and Issuer Purchases of Equity Securities </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#108">6 Selected Financial Data </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#109">7 Management&#146;s Discussion and Analysis of Financial Condition and
Results of Operations </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#110">7A Quantitative and Qualitative Disclosures About Market Risk </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#111">8 Financial Statements and Supplementary Data </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#112">9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">88</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#113">9A Controls and Procedures </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">88</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#114">9B Other Information </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">PART
III 10 Directors, Executive Officers and Corporate Governance </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#116">11 Executive Compensation </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#117">12 Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#118">13 Certain Relationships and Related Transactions, and Director Independence</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#119">14 Principal Accountant Fees and Services </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">PART IV 15 Exhibits, Financial Statement Schedules </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#121">Signatures </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">97</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exhibits </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">98</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l30016aexv10w48.htm">EX-10.48</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l30016aexv10w49.htm">EX-10.49</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l30016aexv10w50.htm">EX-10.50</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l30016aexv21.htm">EX-21</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l30016aexv23w1.htm">EX-23.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l30016aexv23w2.htm">EX-23.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l30016aexv31w1.htm">EX-31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l30016aexv31w2.htm">EX-31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l30016aexv32w1.htm">EX-32.1</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Private Securities Litigation Reform Act of 1995 provides a &#147;safe harbor&#148; for
forward-looking statements. This report contains certain forward-looking statements and
information that are based on the beliefs of management as well as assumptions made by and
information currently available to management. The statements contained in this report relating to
matters that are not historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, future demand for our products and services,
addressing the process of U.S. military procurement, the successful commercialization of our
products, general economic conditions, government and environmental regulation, finalization of
non-bid government contracts, competition and customer strategies, technological innovations in the
non-rechargeable and rechargeable battery industries, changes in our business strategy or
development plans, capital deployment, business disruptions, including those caused by fires, raw
materials supplies, environmental regulations, and other risks and uncertainties, certain of which
are beyond our control. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially from those
forward-looking statements described herein as anticipated, believed, estimated or expected or
words of similar import. See Risk Factors in Item&nbsp;1A of this report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As used in this report, unless otherwise indicated, the terms &#147;we&#148;, &#147;our&#148; and &#147;us&#148; refer to
Ultralife Batteries, Inc. and include our wholly-owned subsidiaries, Ultralife Batteries (UK)&nbsp;Ltd.,
McDowell Research Co., Inc., ABLE New Energy Co., Limited and its wholly-owned subsidiary ABLE New
Energy Co., Ltd, RedBlack Communications, Inc. (formerly Innovative Solutions Consulting, Inc.),
Stationary Power Services, Inc. and Reserve Power Systems, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dollar amounts throughout this Form 10-K Annual Report are presented in thousands of dollars,
except for per share amounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>General</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer products and services ranging from portable and standby power solutions to
communications and electronics systems. Through our engineering and collaborative approach to
problem solving, we serve government, defense and commercial customers across the globe. We
design, manufacture, install and maintain power and communications systems including: portable and
standby power systems, communications and electronics systems and accessories, and custom
engineered systems, solutions and services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We sell our products worldwide through a variety of trade channels, including original
equipment manufacturers (&#147;OEMs&#148;), industrial and retail distributors, national retailers and
directly to U.S. and international defense departments. We enjoy strong name recognition in our
markets under our Ultralife<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> Batteries, McDowell Research<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>,
RedBlack<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> Communications, Stationary Power Services<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP>, Reserve Power Systems
and ABLE<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> brands. We have sales, operations and product development facilities in North
America, Europe and Asia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We report our results in four operating segments: Non-Rechargeable Products, Rechargeable
Products, Communications Systems (formerly named Communications Accessories) and Design and
Installation Services (formerly named Technology Contracts). The Non-Rechargeable Products segment
includes: lithium 9-volt, cylindrical and various other non-rechargeable batteries, including
seawater-activated batteries. The Rechargeable Products segment includes: rechargeable batteries,
charging systems, uninterruptable power supplies and accessories, such as cables. The
Communications Systems segment includes: power supplies, cable and connector assemblies, RF
amplifiers, amplified speakers, equipment mounts, case equipment and integrated communication
system kits. The Design and Installation Services segment includes: standby power and
communications and electronics systems design, installation and maintenance activities and revenues
and related costs associated with various development contracts. We look at our segment performance at the gross margin level, and we do not
allocate research and development or selling, general and administrative costs against the
segments. All other items that do not specifically relate to these four segments and are not
considered in the performance of the segments are considered to be Corporate charges. (See Note 10
in the Notes to Consolidated Financial Statements.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continually evaluate various ways to grow, including opportunities to expand through
mergers, acquisitions and business partnerships. On May&nbsp;19, 2006, we acquired 100% of the equity
securities of ABLE New Energy Co., Ltd. (&#147;ABLE&#148;), an established manufacturer of lithium batteries
located in Shenzhen, China. The total consideration for the acquisition was a combination of cash
and equity. The initial cash portion of the purchase price was $1,896 (net of $104 in cash
acquired), with an additional $500 cash payment contingent on the achievement of certain
performance milestones,
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">payable in separate $250 increments, when cumulative ABLE revenues from the
date of acquisition attain $5,000 and $10,000, respectively. In August&nbsp;2007, the $5,000 cumulative
revenues milestone was attained, and as such, we have recorded the first $250 contingent cash
payment. The equity portion of the purchase price consisted of 96,247 shares of our common stock
valued at $1,000, and 100,000 stock warrants valued at $526, for a total equity consideration of
$1,526. (See Note 2 in the Notes to Consolidated Financial Statements for additional information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;3, 2006, we finalized the acquisition of substantially all the assets of McDowell
Research, Ltd. (&#147;McDowell&#148;), a manufacturer of military communications accessories located in Waco,
Texas. Under the terms of the acquisition agreement, the purchase price of approximately $25,000
consisted of $5,000 in cash and a $20,000 non-transferable, subordinated convertible promissory
note to be held by the sellers. In addition, the purchase price was subject to a post-closing
adjustment based on a final valuation of trade accounts receivable, inventory and trade accounts
payable that were acquired or assumed on the date of the closing, using a base value of $3,000.
The final net value of these assets, under our contractual obligation under the acquisition
agreement, was $6,389, resulting in a revised purchase price of approximately $28,448. On November
16, 2007, we finalized a settlement agreement with the sellers of McDowell, which resolved various
operational issues that arose during the first several months following the acquisition that
significantly reduced our profit margins. The settlement agreement reduced the overall purchase
price by approximately $7,900, by reducing the principal amount on the convertible note from
$20,000 to $14,000, and eliminating a $1,889 liability related to the Purchase Price Adjustment
formula. In addition, the interest rate on the convertible notes was increased from 4% to 5% and
we made prepayments totaling $3,500 on the convertible notes. In January&nbsp;2008, the convertible
notes were converted in full into 700,000 shares of our common stock. (See Note 2 in the Notes to
Consolidated Financial Statements for additional information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;28, 2007, we finalized the acquisition of all of the issued and outstanding
shares of common stock of Innovative Solutions Consulting, Inc. (&#147;ISC&#148;), a provider of a full range
of engineering and technical services for communication electronic systems to government agencies
and prime contractors located in Hollywood, Maryland. In January&nbsp;2008, we renamed ISC to RedBlack
Communications, Inc. (&#147;RedBlack&#148;). The initial cash purchase price was $943 (net of $57 in cash
acquired), with up to $2,000 in additional cash consideration contingent on the achievement of
certain sales milestones. The additional cash consideration is payable in up to three annual
payments and subject to possible adjustments as set forth in the stock purchase agreement. (See
Note 2 in the Notes to Consolidated Financial Statements for additional information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2007, we completed the acquisition of all of the issued and outstanding shares
of common stock of Stationary Power Services, Inc. (&#147;SPS&#148;), an infrastructure power management
services firm specializing in engineering, installation and preventative maintenance of standby
power systems, uninterruptible power supply systems, DC power systems and switchgear/control
systems for the telecommunications, aerospace, banking and information services industries located
in Clearwater, Florida. Under the terms of the stock purchase agreement, the initial purchase price
of $10,000 consisted of $5,889 (net of $111 in cash acquired) in cash and a $4,000 subordinated
convertible promissory note to be held by the seller. In addition, on the achievement of certain
post-acquisition sales milestones, we will issue up to an aggregate amount of 100,000 shares of our
common stock. (See Note 2 in the Notes to Consolidated Financial Statements for additional
information.)
</div>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On November&nbsp;16, 2007, we completed the acquisition of all of the issued and outstanding shares
of common stock of Reserve Power Systems, Inc. (&#147;RPS&#148;), an affiliate of SPS, and a supplier of lead
acid batteries primarily for use by SPS in the design and installation of standby power systems.
Under the terms of the stock purchase agreement, the initial purchase price consisted of 100,000
shares of our common stock, valued at $1,383. In addition, on the achievement of certain
post-acquisition sales milestones, we will pay the sellers, in cash, 5% of sales up to the sales in
the operating plan, and 10% of sales that exceed the sales in the operating plan, for the remainder
of the calendar year 2007 and for calendar years 2008, 2009 and 2010. The additional contingent
cash consideration is payable in annual installments, and excludes sales made to SPS, which
historically have comprised substantially all of RPS&#146;s sales. (See Note 2 in the Notes to
Consolidated Financial Statements for additional information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our website address is www.ultralifebatteries.com. We make available free of charge via a
hyperlink on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after
such material is electronically filed with or furnished to the Securities and Exchange Commission
(&#147;SEC&#148;). We will provide copies of these reports upon written request to the attention of Peter F.
Comerford, Secretary, Ultralife Batteries, Inc., 2000 Technology Parkway, Newark, New York, 14513.
Our filings with the SEC are also available through the SEC website at www.sec.gov or at the SEC
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling 1-800-SEC-0330.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Non-Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We manufacture and/or market a family of lithium-manganese dioxide (Li-MnO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB>)
non-rechargeable batteries including 9-volt, HiRate<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#210;</FONT></SUP> cylindrical, and Thin
Cell<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#210;</FONT></SUP>, in addition to magnesium silver-chloride seawater-activated batteries, and
other chemistries and form factors. We also manufacture and market a family of lithium-thionyl
chloride (Li-SOCl<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB>) non-rechargeable batteries produced by our ABLE operating unit.
Applications for our 9-volt batteries include: smoke alarms, wireless security systems and
intensive care monitors, among many other devices. Our HiRate and Thin Cell lithium
non-rechargeable batteries are sold primarily to the military and to OEMs in industrial markets for
use in a variety of applications including radios, automotive telematics, emergency radio beacons,
search and rescue transponders, pipeline inspection gauges, portable medical devices and other
specialty instruments and applications. Military applications for our non-rechargeable HiRate
batteries include: man-pack and survival radios, night vision goggles, targeting devices, chemical
agent monitors and thermal imaging equipment. Our lithium-thionyl chloride batteries, sold under
our ABLE brand as well as various private label brands, can be used in a wide variety of
applications including utility meters, security devices, electronic meters, automotive electronics
and geothermal devices. We also manufacture seawater-activated batteries for specialty marine
applications. We believe that the chemistry of lithium batteries provides significant advantages
over other currently available non-rechargeable battery technologies. These advantages include:
lighter weight, longer operating time, longer shelf life, and a wider operating temperature range.
Our non-rechargeable batteries also have relatively flat voltage profiles, which provide stable
power. Conventional non-rechargeable batteries, such as alkaline batteries, have sloping voltage
profiles that result in decreasing power output during discharge. While the price for our lithium
batteries is generally higher than alkaline batteries, the increased energy per unit of weight and
volume of our lithium batteries allow longer operating times and less frequent battery replacements
for our targeted applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues for this segment for the year ended December&nbsp;31, 2007 were $80,262 and segment
contribution was $17,747.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our range of lithium ion and lithium polymer rechargeable batteries and
chargers offer substantial benefits, including the ability to design and produce lightweight
batteries in a variety of custom sizes, shapes, and thickness. We market lithium ion and lithium
polymer rechargeable batteries comprised of cells manufactured by qualified cell manufacturers.
Our rechargeable products can be used in a wide variety of applications including communications,
medical and other portable electronic devices. The chemistry of lithium ion and lithium polymer
batteries provides significant advantages over other currently available rechargeable batteries.
These advantages include lighter weight, longer operating time, longer time between charges and a
wider operating temperature range. Conventional rechargeable batteries, nickel metal hydride and
nickel cadmium, are heavier, have lower energy and require more frequent charging. Additionally,
we offer lead-acid batteries and uninterruptable power supplies for the standby power market.
Products include standby batteries and uninterruptable power supplies for use in
telecommunications, banking, aerospace and information services industries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues for this segment for the year ended December&nbsp;31, 2007 were $16,756 and segment
contribution was $3,578.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Communications Systems</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2006, as a result of the acquisition of McDowell, we formed a new segment, Communications
Accessories, which was renamed Communications Systems in 2007. We design and manufacture a line of
power solutions and accessories to support military communications systems including power
supplies, power cables, connector assemblies, RF amplifiers, amplified speakers, equipment mounts,
case equipment and integrated communication systems. Products include field deployable systems,
which operate from wide-ranging AC and DC sources using a basic building block approach, allowing
for a quick response to specialized applications. All systems are packaged to meet specific
customer needs in rugged enclosures to allow their use in severe environments. We market these products to all branches of the U.S.
military, approved foreign defense organizations, and U.S. and international prime defense
contractors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues for this segment in the year ended December&nbsp;31, 2007 were $37,140 and segment
contribution was $6,693.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Design and Installation Services</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fourth quarter of 2007, as a result of the acquisitions of RedBlack and SPS, we renamed
our Technology Contracts segment to Design and Installation Services. These services include the
design, installation, integration and maintenance of both communications electronics and standby
power systems. We also seek to fund part of our efforts to
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">identify and develop new applications for our products and to advance our technologies through contracts with both government agencies
and third parties. We have been successful in obtaining awards for such programs for both
rechargeable and non-rechargeable battery technologies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues for this segment in the year ended December&nbsp;31, 2007 were $3,438 and segment
contribution was $756. We continue to obtain contracts that are in parallel with our efforts to
ultimately commercialize products that we develop. Revenues in this segment may vary widely each
year, depending upon the quantity and size of contracts obtained.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Corporate</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We allocate revenues and cost of sales across the above business segments. The balance of
income and expense, including but not limited to research and development expenses, and selling,
general and administrative expenses, are reported as Corporate expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no revenues for this category in the year ended December&nbsp;31, 2007 and corporate
contribution was a loss of $28,973.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations and
the 2007 Consolidated Financial Statements and Notes thereto for additional information. For
information relating to total assets by segment and revenues for the last three years by segment,
see Note 10 in the Notes to Consolidated Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>History</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We were formed as a Delaware corporation in December&nbsp;1990. In March&nbsp;1991, we acquired certain
technology and assets from Eastman Kodak Company (&#147;Kodak&#148;) relating to its 9-volt lithium-manganese
dioxide non-rechargeable battery. In December&nbsp;1992, we completed our initial public offering and
became listed on NASDAQ. In June&nbsp;1994, we formed a subsidiary, Ultralife Batteries (UK)&nbsp;Ltd.
(&#147;Ultralife UK&#148;), which acquired certain assets of the Dowty Group PLC (&#147;Dowty&#148;) and provided us
with a presence in Europe. In May&nbsp;2006, we acquired ABLE, an established manufacturer of lithium
batteries located in Shenzhen, China, which broadened our product offering and provided additional
exposure to new markets. In July&nbsp;2006, we finalized the acquisition of substantially all the
assets of McDowell, a manufacturer of military communications accessories formerly located in Waco,
Texas, which enhanced our channels into the military communications area and strengthened our
presence in global military markets. In September&nbsp;2007, we acquired ISC, located in Hollywood,
Maryland, which we renamed RedBlack in January&nbsp;2008, an engineering and technical services firm
specializing in the design, integration, and fielding of mobile, modular, and fixed-site
communication and electronic systems. The acquisition provided a natural extension to our
communications systems business and opened another channel of distribution for our broad portfolio
of communications systems, accessories and portable power products. In November&nbsp;2007, we acquired
SPS and RPS, affiliated companies both located in Clearwater, Florida. SPS is an infrastructure
power management services firm specializing in the engineering, installation and preventive
maintenance of standby power systems, uninterrupted power supply systems, DC power systems and
switchgear/control systems for the telecommunications, aerospace, banking and
information services industries. RPS supplies lead acid batteries for use in the design and
installation of standby power systems. The SPS acquisition furthered our transformation to a
value-added power solutions, accessories and engineering services company serving a broad spectrum
of government, defense and commercial markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Products, Services and Technology</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Non-Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A non-rechargeable battery is used until discharged and then discarded. The principal
competing non-rechargeable battery technologies are carbon-zinc, alkaline and lithium. We
manufacture a range of non-rechargeable battery products based on lithium-manganese dioxide,
lithium-thionyl chloride and magnesium-silver chloride technologies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our non-rechargeable battery products are based predominantly on lithium-manganese dioxide and
lithium-thionyl chloride technologies. Our only non-lithium-based non-rechargeable product is our
magnesium-silver chloride battery, also known as a seawater-activated battery. We believe that the
chemistry of lithium batteries provides significant advantages over currently available
non-rechargeable battery technologies, which include: lighter weight, longer operating time, longer
shelf life, and a wider operating temperature range. Our non-rechargeable batteries also have
relatively flat voltage profiles, which provide stable power. Conventional non-rechargeable
batteries, such as alkaline batteries, have sloping voltage profiles that result in decreasing
power outage during discharge. While the prices for our lithium batteries
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">are generally higher than commercially available alkaline batteries produced by others, we believe that the increased
energy per unit of weight and volume of our batteries will allow longer operating time and less
frequent battery replacements for our targeted applications. As a result, we believe that our
non-rechargeable batteries are price competitive with other battery technologies on a price per
watt-hour basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our non-rechargeable products include the following product configurations:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>9-Volt Lithium Battery. </I>Our 9-volt lithium battery delivers a unique combination of high
energy and stable voltage, which results in a longer operating life for the battery and,
accordingly, fewer battery replacements. While our 9-volt battery price is generally higher than
conventional 9-volt carbon-zinc and alkaline batteries, we believe the enhanced operating
performance and decreased costs associated with battery replacement make our 9-volt battery more
cost effective than conventional batteries on a cost per watt-hour basis when used in a variety of
applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We market our 9-volt lithium batteries to OEM, distributor and retail markets including
industrial electronics, safety and security, medical and music/audio. Significant applications
include: smoke alarms, wireless alarm systems, bone growth stimulators, telemetry devices, blood
analyzers, ambulatory infusion pumps, parking meters, wireless audio devices and guitar pickups. A
significant portion of the sales of our 9-volt battery is to major U.S. and international smoke
alarm OEMs for use in their long-life smoke alarms. We also manufacture our 9-volt lithium battery
under private label for a variety of U.S. and international companies. Additionally, we sell our
9-volt battery to the broader consumer market through national and regional retail chains and
Internet retailers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we manufacture the only standard size 9-volt battery warranted to last 10
years when used in ionization-type smoke alarms. Although designs exist using other battery
configurations, such as three 2/3 A or 1/2 AA-type battery cells, we believe that our 9-volt
solution is superior to these alternatives. Our current 9-volt battery manufacturing capacity is
adequate to meet forecasted customer demand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cylindrical Batteries. </I>Featuring high energy, wide temperature range, long shelf life and
operating life, our cylindrical cells and batteries, based on both lithium-manganese dioxide and
lithium-thionyl chloride technologies, represent some of the most advanced lithium power sources
currently available. We market a wide range of cylindrical non-rechargeable lithium cells and
batteries in various sizes under both the HiRate<SUP style="font-size: 85%; vertical-align: text-top"> </SUP>and ABLE brands, which include: D, C, 5/4 C, 1/2 AA, 2/3 A and other sizes,
which are sold individually as well as packaged into multi-cell battery packs, including our
leading BA-5390 military battery, which is an alternative to the Li-SO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB> BA-5590 battery,
which is the most widely used battery in the U.S. armed forces for portable applications and is
manufactured and sold by our competitors. Our BA-5390 battery provides 50% to 100% more energy
(mission time) than the BA-5590, and it is used in approximately 60 military applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We market our line of lithium cells and batteries to the OEM market for commercial, military,
medical, automotive, asset tracking and search and rescue applications, among others. Significant
commercial applications include pipeline inspection equipment, autoreclosers and oceanographic
devices. Asset tracking applications include RFID (Radio Frequency Identification) systems. Among
the military uses are manpack radios, night vision goggles, chemical agent monitors, and thermal
imaging equipment. Medical applications include: AED&#146;s (Automated External Defibrillators),
infusion pumps and telemetry systems. Automotive applications include: telematics, tire-pressure
monitoring and engine electronics systems. Search and rescue applications include: ELT&#146;s
(Emergency Locator Transmitters) for aircraft and EPIRB&#146;s (Emergency Position Indicating Radio
Beacons) for ships.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Thin Cell Batteries. </I>We manufacture a range of thin lithium-manganese dioxide batteries under
the Thin Cell brand. Thin Cell batteries are flat, lightweight batteries providing a unique
combination of high energy, long shelf life, wide operating temperature range and light weight.
With their thin prismatic form and a high ratio of active materials to packaging, Thin Cell
batteries can efficiently fill most battery cavities. We are currently marketing these batteries to
OEMs for applications such as wearable medical devices, theft detection systems, and RFID devices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Seawater-Activated Batteries. </I>We produce a variety of seawater-activated batteries based on
magnesium-silver chloride technology. Seawater-activated batteries are custom designed and
manufactured to end user specifications. The batteries, which can be stored almost indefinitely,
are activated when placed in salt water, which acts as the electrolyte allowing current to flow. We
market seawater-activated batteries to naval and specialty OEMs for applications including
sonobuoys, underwater defense systems, air-sea rescue equipment, airborne surveillance drones and
meteorological radiosondes.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Rechargeable Products</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In contrast to non-rechargeable batteries, after a rechargeable battery is discharged, it can
be recharged and reused many times. Generally, discharge and recharge cycles can be repeated
hundreds of times in rechargeable batteries, but the achievable number of cycles (cycle life)
varies among technologies and is an important competitive factor. All rechargeable batteries
experience a small, but measurable, loss in energy with each cycle. The industry commonly reports
cycle life in the number of cycles a battery can achieve until 80% of the battery&#146;s initial energy
capacity remains. In the rechargeable battery market, the principal competing technologies are
nickel-cadmium, nickel-metal hydride, lithium-ion and lithium-polymer-based batteries.
Rechargeable batteries can be used in many applications, such as military radios, laptop computers,
mobile telephones, portable medical devices, wearable devices and many other commercial, military
and consumer products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Three important parameters for describing the performance characteristics of a rechargeable
battery suited for today&#146;s portable electronic devices are design flexibility, energy density and
cycle life. Design flexibility refers to the ability of rechargeable batteries to be designed to
fit a variety of shapes and sizes of battery compartments. Thin profile batteries with prismatic
geometry provide the design flexibility to fit the battery compartments of today&#146;s electronic
devices. Energy density refers to the total electrical energy per unit volume stored in a battery.
High energy density batteries generally are longer lasting power sources providing longer operating
time and necessitating fewer battery recharges. Lithium batteries, by the nature of their
electrochemical properties, are capable of providing higher energy density than comparably sized
batteries that utilize other chemistries and, therefore, tend to consume less volume and weight for
a given energy content. Long cycle life is a preferred feature of a rechargeable battery because
it allows the user to charge and recharge many times before noticing a difference in performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Energy density refers to the total amount of electrical energy stored in a battery divided by
the battery&#146;s weight and volume as measured in watt-hours per kilogram and watt-hours per liter,
respectively. High energy density and long achievable cycle life are important characteristics for
comparing rechargeable battery technologies. Greater energy density will permit the use of
batteries of a given weight or volume for a longer time period. Accordingly, greater energy
density will enable the use of smaller and lighter batteries with energy comparable to those
currently marketed. Long achievable cycle life, particularly in combination with high energy
density, is suitable for applications requiring frequent battery recharges, such as cellular
telephones and portable computers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Lithium Ion and Lithium Polymer Cells and Batteries. </I>We offer a variety of lithium ion and lithium
polymer cells and batteries. Additionally, we offer battery packs made from single and multiple
lithium ion and lithium polymer cells. These products can be used in a wide variety of
applications including communications, medical and other portable electronic devices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Lead-Acid Batteries. </I>We offer a variety of lead-acid batteries primarily for use in the
design and installation of standby power systems. These products include standby batteries and
uninterruptable power supplies for use in telecommunications, banking, aerospace and information
services industries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Battery Charging Systems and Accessories. </I>To provide our customers with complete power system
solutions, we offer a wide range of rugged military and commercial battery charging systems and
accessories including smart chargers, multi-bay charging systems and a variety of cables.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Communications Systems</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our McDowell unit designs and manufactures power solutions and accessories to support military
communications systems including power supplies, RF amplifiers, battery chargers, amplified
speakers, equipment mounts, case equipment and integrated communication systems. We specialize in
field deployable power systems, which operate from wide-ranging AC and DC sources using a basic
building block approach, allowing for a quick response to specialized applications. We package all
systems to meet specific customer needs in rugged enclosures to allow their use in severe
environments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer a wide range of military communications accessories designed to enhance and extend
the operation of communications equipment such as vehicle-mounted, manpack and handheld
transceivers. Our communications accessories include the following product configurations:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Integrated Systems. </I>Our integrated systems include: SATCOM on the Move (SOTM); ruggedized
deployable case systems; multiband transceiver kits and HF transceiver kits; briefcase power
systems; dual transceiver cases; enroute communications cases; four radio cases; and tactical
repeater systems. These systems give communications operators everything that is needed to provide
reliable links to support C4I (Command, Control, Communications, Computers and Information
systems).
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Power Systems. </I>Our power systems include: universal AC/DC power supplies with battery backup
for tactical manpack and handheld transceivers; Rover III power supplies; interoperable power
adapters and chargers; portable power systems; tactical combat and AC to DC power supplies for
encryption units, among many others. We can provide power supplies for virtually all tactical
communications devices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>RF Amplifiers. </I>Our RF amplifiers include: 20 and 100-watt multiband (30 &#151; 512 MHz) and 50 watt
VHF RF (30 &#151; 90 MHz) amplifiers. These amplifiers are used to extend the range of manpack and
handheld tactical transceivers and can be used on mobile or fixed site applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Design and Installation Services</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our design and installation services focus on standby power system design, installation and
maintenance, integrating communications equipment and power systems for maximum mobility and
optimum customer utility. These include equipment installations in commercial, military and law
enforcement application, including vehicles for satellite communications, engineering services,
upgrading current fleet vehicles and integrated logistics and project management support.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Communications and Electronics. </I>Our communications and electronics services include the
design, integration, fielding and life cycle management of portable, mobile and fixed-site
communications systems. Capabilities include engineering, rapid prototyping, systems integration
and logistics support.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Standby Power. </I>Our standby power services provide mission critical solutions to a broad range
of applications in the telecommunications, aerospace, banking and information services industries
involving the installation and preventive maintenance of standby power systems, uninterrupted power
supply systems, DC power systems and switchgear/control systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Technology Contracts. </I>Our technology contract activities involve the development of new
products or the advancement of existing products through contracts with both government agencies
and third parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Sales and Marketing</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We employ a staff of sales and marketing personnel in North America, Europe and Asia. We sell
our current products and services directly to commercial customers, including OEMs, as well as
government and defense agencies in the U.S. and abroad and have contractual arrangements with sales
agents who market our products on a commission basis in particular areas. While OEM agreements and
contracts contain volume-based pricing based on expected volumes, industry practices dictate that
pricing is rarely adjusted retroactively when contract volumes are not achieved. Every effort is
made to adjust future prices accordingly, but the ability to adjust prices is generally based on
market conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also distribute our products through domestic and international distributors and retailers.
Our sales are generated primarily from customer purchase orders. We have several long-term
contracts with the U.S. government and companies within the automotive industry. These contracts do
not commit the customers to specific purchase volumes, nor to specific timing of purchase order
releases, and they include fixed price agreements over various periods of time. We do not believe
our sales are seasonal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2007, sales to U.S. and non-U.S. customers were approximately $79,300 and $58,300, respectively. (See
Note 10 in the Notes to Consolidated Financial Statements.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Non-Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have targeted sales of our non-rechargeable products to manufacturers of security and
safety equipment, automotive telematics, medical devices, search and rescue equipment, specialty
instruments, point of sale equipment and metering applications, as well as users of military
equipment. Our strategy is to develop sales and marketing alliances with OEMs and governmental
agencies that utilize our batteries in their products, commit to cooperative research and
development or marketing programs, and recommend our products for design-in or replacement use in
their products. We are addressing these markets through direct contact by our sales and technical
personnel, use of sales agents and stocking distributors, manufacturing under private label and
promotional activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We seek to capture a significant market share for our products within our targeted OEM
markets, which we believe, if successful, will result in increased product awareness and sales at
the end-user or consumer level. We are also selling our 9-volt battery to the consumer market
through retail distribution. Most military procurements are done directly by the specific
government organizations requiring products, based on a competitive bidding process. For those
military
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">procurements that are not bid, the procurements are typically subject to an audit of the
product&#146;s underlying cost structure and associated profitability. Additionally, we are typically
required to successfully meet contractual specifications and to pass various qualification testing
for the products under contract by the military. An inability by us to pass these tests in a
timely fashion could have a material adverse effect on our business, financial condition and
results of operations. When a government contract is awarded, there is a government procedure that
allows for unsuccessful companies to formally protest the award if they believe they were unjustly
treated in the government&#146;s bid evaluation process. A prolonged delay in the resolution of a protest, or a
reversal of an award resulting from such a protest could have a material adverse effect on our
business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2007, we had three major customers for our military products, the U.S. Department of
Defense, the U.K. Ministry of Defence and Raytheon Company. Direct sales to the U.S. Department
of Defense comprised approximately 14% of our revenue in 2007, 20% in 2006, and 25% in 2005.
Direct sales to the U.K. Ministry of Defence comprised approximately 12% of our revenue in 2007, 7%
in 2006, and 6% in 2005. Direct sales to Raytheon Company comprised approximately 13% of our
revenue in 2007, 3% in 2006, and 1% in 2005. We believe that the loss of these customers could
have a material adverse effect on us. We believe that we have a good relationship with these
customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been successfully marketing our products to military organizations in the U.S. and
other countries. These efforts have resulted in us winning significant contracts. For example, in
December&nbsp;2004, we were awarded 100% of the Next Gen II Phase IV battery production contracts by the
U.S. Defense Department to provide five types of non-rechargeable lithium-manganese dioxide
batteries to the U.S. Army. Combined, these batteries comprise what is called the Rectangular
Lithium Manganese Dioxide Battery Group. The government awarded 60&nbsp;percent to our U.S. operation
and 40&nbsp;percent to our U.K operation. The contract provides for order releases over a five-year
period with a maximum potential value of up to $286,000. In January&nbsp;2005, a competitor of ours
filed a protest with the U.S. government of our award of the Next Gen II Phase IV contract with the
U.S. military, and in April&nbsp;2005 the protest was denied by the government, allowing us to proceed
with the qualification process for the batteries under this contract. In January&nbsp;2006, our
BA-5390A battery with State of Charge Indicator, one of the five battery types under this contract,
passed the qualification process, allowing for future orders of this approved battery. Ultimate
orders under this contract are dependent upon the demand for these batteries by end users and
inventory stocking strategies, among other things. Through December&nbsp;31, 2007, we have received
orders for deliveries under this contract totaling $15,900. In February&nbsp;2005, we were awarded a
five-year production contract by the U.S. Defense Department, with a maximum total potential of
$15,000, to provide our BA-5347/U non-rechargeable lithium-manganese dioxide batteries to the U.S.
military. The contract value represented 60&nbsp;percent of a small business set-aside award. In March
2005, a competitor contested this award and in August&nbsp;2005, the competitor&#146;s protest was denied.
Production deliveries began in the first quarter of 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007 and 2006, our backlog of non-rechargeable products was approximately
$15,300 and $15,700, respectively. The majority of the 2007 backlog was related to orders that are
expected to ship throughout 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have targeted sales of our rechargeable batteries and charging systems through OEM
customers, as well as distributors and resellers focused on our target markets. We seek design wins
with OEMs, and believe that our design capabilities, product characteristics and solution
integration will drive OEMs to incorporate our batteries into their product offerings, resulting in
revenue growth opportunities for us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continue to expand our marketing activities as part of our strategic plan to increase sales
of our rechargeable products for commercial, military and communications applications, as well as
hand-held devices, wearable devices and other electronic portable equipment. A key part of this
expansion includes increasing our design and assembly capabilities as well as building our network
of distributors and value added distributors throughout the world.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007 and 2006, our backlog related to rechargeable products was approximately
$7,500 and $5,900, respectively. The majority of the 2007 backlog was related to orders that are
expected to ship throughout 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Communications Systems</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have targeted sales of our communications systems, which include power solutions and
accessories to support military communications systems such as battery chargers, power supplies,
power cables, connector assemblies, RF amplifiers, amplified speakers, equipment mounts, case
equipment and integrated communication systems, to military OEMs and military organizations
including the U.S. Department of Defense. We sell our products directly and through authorized
distributors to OEMs and to military organizations in the U.S. and internationally.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been successfully marketing our products to military organizations and OEMs in the
U.S. and internationally. These efforts have recently resulted in a number of significant
contracts for us. For example, in September&nbsp;2007, we were awarded a $24,000 contract from Raytheon
Company to produce and supply SATCOM-On-The-Move (SOTM)&nbsp;satellite communications systems for
installation on Mine Resistant Ambush Protected (MRAP)&nbsp;armored vehicles. In December&nbsp;2007, we
received orders valued at $62,000 and $40,000, respectively, from a U.S. defense contractor to
supply advanced communications systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007 and 2006, our backlog related to communications systems orders was
approximately $115,500 and $12,800, respectively. The majority of the 2007 backlog was related to
orders that are expected to ship throughout 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Design and Installation Services</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continue to expand our sales and marketing activities to increase sales of our design and
installation services for communications electronics systems and standby power applications. We
provide our services directly to military organizations, government agencies and commercial
customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007 and 2006, our backlog related to design and installation services was
approximately $3,600 and $-0-, respectively. The majority of the 2007 backlog was related to
services that are expected to be performed throughout 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Patents, Trade Secrets and Trademarks</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely on licenses of technology as well as our patented and unpatented proprietary
information, know-how and trade secrets to maintain and develop our commercial position. Although
we seek to protect our proprietary information, there can be no assurance that others will not
either develop the same or similar information independently or obtain access to our proprietary
information, despite our efforts to protect such proprietary information. In addition, there can
be no assurance that we would prevail if we asserted our intellectual property rights against third
parties, or that third parties will not successfully assert infringement claims against us in the
future. We believe, however, that our success is more dependent on the knowledge, ability,
experience and technological expertise of our employees, as opposed to the legal protection that
our patents and other proprietary rights may or will afford.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We hold twelve patents in the U.S. and foreign countries. Our patents protect technology that
makes automated production more cost-effective and protect important competitive features of our
products. However, we do not consider our business to be dependent on patent protection.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003, we entered into an agreement with Saft Groupe S.A. to license certain tooling for
certain BA-5390 battery cases. The licensing fee associated with this agreement is essentially one
dollar per battery case sold. The total royalty expense reflected in 2007 was $13. This agreement
expires in the year 2017.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our employees in the U.S. and all our key employees involved with our technology in
England and China are required to enter into agreements providing for confidentiality and the
assignment of rights to inventions made by them while employed by us. These agreements also contain
certain noncompetition and nonsolicitation provisions effective during the employment term and for
varying periods thereafter depending on position and location. There can be no assurance that we
will be able to enforce these agreements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are registered trademarks or trademarks of ours: Ultralife<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#226;</FONT></SUP>,
Ultralife Thin Cell<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#226;</FONT></SUP>, Ultralife HiRate<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#226;</FONT></SUP>, Ultralife
Polymer<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#226;</FONT></SUP>, The New Power Generation<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#210;</FONT></SUP>,
LithiumPower<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#210;</FONT></SUP>, SmartCircuit<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#210;</FONT></SUP>, PowerBug<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#210;</FONT></SUP>, We Are
Power<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-family: Symbol">&#210;</FONT></SUP>, ABLE<FONT style="font-family: Symbol">&#212;</FONT>, RedBlack&#153;, Reserve Power Systems&#153;, Stationary Power Systems&#153;,
McDowell Research<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, Max Juice For More Gigs<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, and Litron&#153;.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Manufacturing and Raw Materials</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We manufacture our products from raw materials and component parts that we purchase. We have
ISO 9001:2000 certification for our manufacturing facilities in Newark, New York, Abingdon,
England, and Shenzhen, China. In addition, our manufacturing facilities in Newark, New York and
Shenzhen, China are ISO 14001 certified.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect that in the future, raw material purchases will fluctuate based on the timing of
customer orders, the related need to build inventory in anticipation of orders and actual shipment
dates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Non-Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Newark, New York facility has the capacity to produce in excess of nine million 9-volt
batteries per year, approximately fourteen million cylindrical cells per year and approximately
500,000 thin cells per year. Our manufacturing facility in Abingdon, England is capable of
producing more than two million cylindrical cells per year. This facility also manufactures
seawater-activated batteries and assembles customized multi-cell battery packs. Capacity, however,
is also related to individual operations and product mix changes can produce bottlenecks in an
individual operation, constraining overall capacity. Our ABLE operating unit in Shenzhen, China is
capable of producing more than three million cylindrical cells per year. We have acquired new
machinery and equipment in areas where production bottlenecks have resulted in the past and believe
that we have sufficient capacity in these areas. We continually evaluate our requirements for
additional capital equipment, and we believe that the planned increases in our current
manufacturing capacity will be adequate to meet foreseeable customer demand. However, with
unanticipated growth in demand for our products, demand could exceed capacity, which would require
us to install additional capital equipment to meet these incremental needs, which in turn may
require us to lease or contract additional space to accommodate needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We utilize lithium foil as well as other metals and chemicals to manufacture our batteries.
Although we know of only three major suppliers that extrude lithium into foil and provide such foil
in the form required by us, we do not anticipate any shortage of lithium foil or any difficulty in
obtaining the quantities we require. Certain materials used in our products are available only from
a single source or a limited number of sources. Additionally, we may elect to develop relationships
with a single or limited number of sources for materials that are otherwise generally available.
Although we believe that alternative sources are available to supply materials that could replace
materials we use and that, if necessary, we would be able to redesign our products to make use of
an alternative product, any interruption in our supply from any supplier that serves currently as
our sole source could delay product shipments and adversely affect our financial performance and
relationships with our customers. Although we have experienced interruptions of product deliveries
by sole source suppliers, none of such interruptions has had a material adverse effect on us. All
other raw materials utilized by us are readily available from many sources.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use various utilities to provide heat, light and power to our facilities. As energy costs
rise, we continue to seek ways to reduce these costs and will initiate energy-saving projects at
times to assist in this effort. It is possible, however, that rising energy costs may have an
adverse effect on our financial results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total carrying value of our non-rechargeable products inventory, including raw materials,
work in process and finished goods, amounted to approximately $14,800 as of December&nbsp;31, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the raw materials and components utilized for our rechargeable batteries are
readily available from many sources. Although we believe that alternative sources are available to
supply materials that could replace materials we use, any interruption in our supply from any
supplier that serves currently as our sole source could delay product shipments and adversely
affect our financial performance and relationships with our customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Newark, New York facility has the capacity to produce significant volumes of rechargeable
batteries, as this segment generally assembles battery packs and chargers and is limited only by
physical space and is not constrained by manufacturing equipment capacity. In addition, our
facility in Abingdon, England has the capacity to produce significant volumes of rechargeable
batteries and chargers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total carrying value of our rechargeable products inventory, including raw materials, work
in process and finished goods, amounted to approximately $11,500 as of December&nbsp;31, 2007.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Communications Systems</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, we believe that the raw materials and components utilized by us for our
communications accessories and systems, including RF amplifiers, power supplies and integration
kits, are available from many sources. Although we believe that alternative sources are available
to supply materials that could replace materials we use, any interruption in our supply from any
supplier that serves currently as our sole source could delay product shipments and adversely
affect our financial performance and relationships with our customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Newark, New York facility has the capacity to produce significant volumes of communication
accessories, as this segment generally assembles products and is limited only by physical space and
is not constrained by manufacturing equipment capacity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Woodinville, Washington facility has the capacity to produce significant volumes of RF
amplifiers, as this operation generally assembles products and is limited only by physical space
and is not constrained by manufacturing equipment capacity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total carrying value of our communications systems inventory, including raw materials,
work in process and finished goods, amounted to approximately $7,500 as of December&nbsp;31, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Design and Installation Services</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the raw materials and components utilized for our standby power installations
are readily available from many sources. Although we believe that alternative sources are
available to supply materials that could replace materials we use, any interruption in our supply
from any supplier that serves currently as our sole source could delay product shipments and
adversely affect our financial performance and relationships with our customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total carrying value of our design and installation services inventory, including raw
materials, work in process and finished goods, amounted to approximately $1,300 as of December&nbsp;31,
2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Research and Development</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We concentrate significant resources on research and development activities to improve upon
our technological capabilities and to design new products for customers&#146; applications. We conduct
our research and development in Newark, New York, Shenzhen, China and Woodinville, Washington.
During 2007, 2006 and 2005 we expended approximately $7,000, $5,100 and $3,800, respectively, on
research and development. We expect that research and development expenditures in the future will
be modestly higher than those in 2007, as new product development initiatives will drive our
growth. As in the past, we will continue to make funding decisions for our research and
development efforts based upon strategic demand for customer applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Non-Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continue to develop non-rechargeable cells that broaden our product offering to our
customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rechargeable product portfolio continues to grow as our customers&#146; needs continue to grow
for portable power. We support these needs through designing rechargeable batteries and charging
solutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Communications Systems</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2006, we acquired McDowell, which provides a variety of communications accessories to the
military market. We have redesigned a number of McDowell&#146;s products to meet the ever-changing
customer demands. There has been a significant emphasis to add a line of amplifiers to support the
customers&#146; requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Design and Installation Services</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The U.S. government sponsors research and development programs designed to improve the
performance and safety of existing battery systems and to develop new battery systems. In 2003,
we were awarded the initial phase of a government-sponsored contract for battery charging systems.
We successfully completed the contract during 2003. In
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">December&nbsp;2003, we were awarded a Small Business Innovative Research (SBIR)&nbsp;contract for the development of a polymer battery. The
development phase of this contract was completed in mid-2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we work to receive contracts with military contractors and commercial customers.
For example, in February&nbsp;2004, we announced that we received a development contract from General
Dynamics valued at approximately $2,700. The contract was for lithium non-rechargeable and lithium
ion rechargeable batteries, as well as vehicle and soldier-based chargers for the Land
Warrior-Stryker Interoperable (LW-SI) program. In 2005, we received an added scope award of this
project, increasing the total project to approximately $4,000. Additionally, purchase orders have
been received for the products developed under this contract as the batteries have become
commercialized. In 2005, we were awarded various development contracts, including the development
of a rechargeable battery for a portable radio. In 2006, we completed the General Dynamics
contract work and were awarded several small development contracts for rechargeable product
development and new generation high-powered cells.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2008, we entered into a technology partnership with Mississippi State University
(&#147;MSU&#148;) to develop fuel cell-battery portable power systems enabling lightweight, long endurance
military missions. The development of this power system is to be performed under a $1,600 program
that was awarded by a U.S. Defense Department agency to MSU as the prime contractor. MSU has
awarded us a $475 contract to participate in this program as a subcontractor. Under the contract,
we will oversee the development, testing, approval and manufacturing of prototypes of a new compact
military battery to be used with handheld tactical radios, building on its ongoing development work
under the Land Warrior System Stryker Interoperable Program. In addition, we are establishing a
development and assembly operation in a 14,000 square-foot facility located in West Point,
Mississippi to manufacture products coming out of the technology partnership and other of our
products. We plan to commence operations in the first half of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Safety; Regulatory Matters; Environmental Considerations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of the materials utilized in our batteries may pose safety problems if improperly
used. We have designed our batteries to minimize safety hazards both in manufacturing and use.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transportation of non-rechargeable and rechargeable lithium batteries is regulated by the
International Civil Aviation Organization (&#147;ICAO&#148;) and corresponding International Air Transport
Association (&#147;IATA&#148;) Dangerous Goods Regulations and the International Maritime Dangerous Goods
Code (&#147;IMDG&#148;), and in the U.S. by the Department of Transportation&#146;s Pipeline and Hazardous
Materials Safety Administration (&#147;PHMSA&#148;). These regulations are based on the United Nations
Recommendations on the Transport of Dangerous Goods Model Regulations and the United Nations Manual
of Tests and Criteria. We currently ship our products pursuant to ICAO, IATA and PHMSA hazardous
goods regulations. New regulations that pertain to all lithium battery manufacturers went into
effect in January&nbsp;2008, and additional regulations will go into effect in 2009 and 2010. The
regulations require companies to meet certain testing, packaging, labeling and shipping
specifications for safety reasons. We have not incurred, and do not expect to incur, any
significant costs in order to comply with these regulations. We comply with all current U.S. and
international regulations for the shipment of our products, and we intend and expect to comply with
any new regulations that are imposed. We have established our own testing facilities to ensure
that we comply with these regulations. If we are unable to comply with the new regulations,
however, or if regulations are introduced that limit our ability to transport our products to
customers in a cost-effective manner, this could
have a material adverse effect on our business, financial condition and results of operations.
Our RPS lead acid products have been tested and have been deemed to meet all requirements as
specified in 49CFR 173.159 (d)&nbsp;for exception as hazardous material classification. Our RPS lead
acid batteries have been tested and have been deemed to meet all requirements as specified in the
special provision 238 for determination of &#147;Non-Spillable&#148; and are not subject to the provision of
49CFR 173.159 (d).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The European Union&#146;s Restriction of Hazardous Substances (&#147;RoHS&#148;) Directive places
restrictions on the use of certain hazardous substances in electrical and electronic equipment. All
applicable products sold in the European Union market after July&nbsp;1, 2006 must pass RoHS compliance.
While this directive does not apply to batteries and does not currently affect our military
products, should any changes occur in the directive that would affect our products, we intend and
expect to comply with any new regulations that are imposed. Our commercial chargers are in
compliance with this directive. Additional European Union Directives, entitled the Waste
Electrical and Electronic Equipment (&#147;WEEE&#148;) Directive and the Directive on Batteries and
Accumulators and Waste Batteries and Accumulators, impose regulations affecting our non-military
products. These directives require that producers or importers of particular classes of electrical
goods are financially responsible for specified collection, recycling, treatment and disposal of
past and future covered products. These directives assign levels of responsibility to companies
doing business in European Union markets based on their relative market share. These directives
call on each European Union member state to enact enabling legislation to implement the directive.
As additional European Union member states pass enabling legislation
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">our compliance system should be sufficient to meet such requirements. Our current estimated costs associated with our compliance
with these directives based on our current market share are not significant. However, we continue
to evaluate the impact of these directives as European Union member states implement guidance, and
actual costs could differ from our current estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;China&#146;s &#147;Management Methods for Controlling Pollution Caused by Electronic Information
Products Regulation&#148; (&#147;China RoHS&#148;) provides a two-step, broad regulatory framework including
similar hazardous substance restrictions as are imposed by the European Union&#146;s RoHS Directive, and
apply to methods for the control and reduction of pollution and other public hazards to the
environment caused during the production, sale, and import of electronic information products
(&#147;EIP&#148;) in China affecting a broad range of electronic products and parts, with an implementation
date of March&nbsp;1, 2007. Currently, only the first step of the regulatory framework of China RoHS,
which details marking and labeling requirements under Standard SJT11364-2006 (&#147;Marking Standard&#148;),
is in effect. However, the methods under China RoHS only apply to EIP placed in the marketplace in
China. Additionally, the Marking Standard does not apply to components sold to OEM&#146;s for use in
other EIP. Our sales in China are limited to sales to OEM&#146;s and to distributors who supply to
OEM&#146;s. Should our sales strategy change to include direct sales to end-users, our compliance
system is sufficient to meet our requirements under China RoHS. Our current estimated costs
associated with our compliance with this regulation based on our current market share are not
significant. However, we continue to evaluate the impact of this regulation, and actual costs could
differ from our current estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;National, state and local laws impose various environmental controls on the manufacture,
transportation, storage, use and disposal of batteries and of certain chemicals used in the
manufacture of batteries. Although we believe that our operations are in substantial compliance
with current environmental regulations, there can be no assurance that changes in such laws and
regulations will not impose costly compliance requirements on us or otherwise subject us to future
liabilities. There can be no assurance that additional or modified regulations relating to the
manufacture, transportation, storage, use and disposal of materials used to manufacture our
batteries or restricting disposal of batteries will not be imposed or how these regulations will
affect us or our customers, that could have a material adverse effect on our business, financial
condition and results of operations. In 2007, we spent approximately $327 on environmental
controls, including costs to properly dispose of potentially hazardous waste.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since non-rechargeable and rechargeable lithium battery chemistries react adversely with water
and water vapor, certain of our manufacturing processes must be performed in a controlled
environment with low relative humidity. Our Newark, New York and UK facilities contain dry rooms
as well as specialized air-drying equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Non-Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our non-rechargeable battery products incorporate lithium metal, which reacts with water and
may cause fires if not handled properly. In the past, we have experienced fires that have
temporarily interrupted certain manufacturing operations. We believe that we have adequate fire
insurance, including business interruption insurance, to protect against fire losses in our
facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our 9-volt battery, among other sizes, is designed to conform to the dimensional and
electrical standards of the American National Standards Institute, and the 9-volt battery and a
range of 3-volt cells are recognized under the Underwriters Laboratories, Inc. Component
Recognition Program.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Rechargeable Products</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are not currently aware of any regulatory requirements regarding the disposal of lithium
polymer or lithium ion rechargeable cells and batteries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our lead acid batteries are recovered from our customers and delivered to a permitted lead
smelter for reclamation following applicable federal, state and local regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Communications Systems</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are not currently aware of any other regulatory requirements regarding the disposal of
communications accessories.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Design and Installation Services</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our RPS lead acid products have been tested and have been deemed to meet all requirements as
specified in 49CFR 173.159 (d)&nbsp;for exception as hazardous material classification. Our RPS
batteries have been tested and have been deemed to meet all requirements as specified in the
special provision 238 for determination of &#147;Non-Spillable&#148; and are not subject to the provision of
49CFR 173.159 (d).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Corporate</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Please refer to the description of the environmental remediation for our Newark, New York
facility set forth in Item&nbsp;3, Legal Proceedings of this report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Competition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in the battery and communications systems markets is, and is expected to remain,
intense. The competition ranges from development stage companies to major domestic and
international companies, many of which have financial, technical, marketing, sales, manufacturing,
distribution and other resources significantly greater than ours. We compete against companies
producing batteries as well as those offering standby power installation services, and companies
producing communications systems, design and installation services. We compete on the basis of
design flexibility, performance and reliability. There can be no assurance that our technology and
products will not be rendered obsolete by developments in competing technologies that are currently
under development or that may be developed in the future or that our competitors will not market
competing products that obtain market acceptance more rapidly than ours.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, although other entities may attempt to take advantage of the growth of the
battery market, the lithium battery industry has certain technological and economic barriers to
entry. The development of technology, equipment and manufacturing techniques and the operation of
a facility for the automated production of lithium batteries require large capital expenditures,
which may deter new entrants from commencing production. Through our experience in battery
manufacturing, we have also developed expertise, which we believe would be difficult to reproduce
without substantial time and expense in the non-rechargeable battery market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in the standby power market is concentrated among a number of suppliers and
installers ranging from small distributors who purchase, resell and install products manufactured
by others to major battery and power supply manufacturers, which have financial, technical,
marketing, sales, manufacturing, distribution and other resources significantly greater than those
of ours. We compete on the basis of product and installation design, functionality, flexibility,
performance and reliability. There can be no assurance that our technology and products will not
be rendered obsolete by developments in competing technologies that are currently under development
or that may be developed in the future or that our competitors will not market competing products
that obtain market acceptance more rapidly than ours.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Employees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of February&nbsp;2, 2008, we employed a total of 1,092 permanent and temporary employees: 76 in
research and development, 909 in production and 107 in sales and administration. Of the total, 745
are employed in the U.S., 53 in Europe and 294 in Asia. None of our employees is represented by a
labor union. We consider our employee relations to be satisfactory.
</DIV>

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<A name="102"></A>
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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1A. RISK FACTORS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>A decline in demand for products or services using our batteries or communications systems could
reduce demand for our products or services.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A substantial portion of our business depends on the continued demand for products or services
using our batteries and communications systems sold by our customers, including OEM&#146;s. Our
success depends significantly upon the success of those customers&#146; products or services in the
marketplace. We are subject to many risks beyond our control that influence the success or failure
of a particular product or service offered by a customer, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competition faced by the customer in its particular industry,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>market acceptance of the customer&#146;s product or service,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the engineering, sales, marketing and management capabilities of the customer,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>technical challenges unrelated to our technology or products faced by the customer
in developing its products or services, and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the financial and other resources of the customer.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For instance, in the years ended December&nbsp;31, 2005, 2006, 2007, 32%, 27% and 17% of our
revenues, respectively, were comprised of sales of our 9-volt batteries, and of this, approximately
21%, 47% and 41%, respectively, pertained to sales to smoke alarm OEMs. If the retail demand for
long-life smoke alarms decreases significantly, this could have a material adverse effect on our
business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Our customers may not meet the volume requirements in our supply agreements.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We sell most of our products and services through supply agreements and contracts. While
supply agreements and contracts contain volume-based pricing based on expected volumes, industry
practices dictate that pricing is rarely adjusted retroactively when contract volumes are not
achieved. Every effort is made to adjust future prices accordingly, but the ability to adjust
prices is generally based on market conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Our growth and expansion strategy could strain or overwhelm our resources.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rapid growth of our business could significantly strain management, operations and technical
resources. If we are successful in obtaining rapid market growth of our products and services, we
will be required to deliver large volumes of quality products and increased levels of services to
customers on a timely basis at a reasonable cost to those customers. For example, the large
contracts received from the U.S. military for our batteries using cylindrical cells could strain
the current capacity capabilities of our manufacturing facilities and require additional equipment
and time to build a sufficient support infrastructure. This demand could also create working
capital issues for us, as we may need increased liquidity to fund purchases of raw materials and
supplies. We cannot assure, however, that business will grow rapidly or that our efforts to expand
manufacturing and quality control activities will be successful or that we will be able to satisfy
commercial scale production requirements on a timely and cost-effective basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a strategy to grow our business through the acquisition of complementary businesses or
through business partnerships, for example joint ventures, in addition to organic growth. Our
inability to acquire such businesses, or increased competition for such businesses which could
increase our acquisition costs, could adversely affect our growth strategy and results of
operations. In addition, our inability to improve the operating margins of businesses we acquire
or operate such acquired businesses profitably or to effectively integrate the operations of those
acquired businesses could also adversely affect our business, financial condition and results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2006 we acquired McDowell and ABLE, and in 2007 we acquired ISC, SPS and RPS, which added
new facilities and operations to our overall business. We experienced some initial operational
challenges at McDowell that required a greater amount of management&#146;s time to resolve than we
expected. The integration of recent, and future, acquisitions could place an increased burden on our management
team which could adversely impact our ability to effectively manage these businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also will be required to continue to improve our operations, management and financial
systems and controls in order to remain competitive. The failure to manage growth and expansion
effectively could have an adverse effect on our business, financial condition, and results of
operations.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our acquisitions and business partnerships may not result in the revenue growth and profitability
that we expect. In addition, we may not be able to successfully integrate our acquisitions.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are integrating our acquisitions into our business and assimilating their operations,
services, products and personnel with our management policies, procedures and strategies. We
cannot be sure that we will achieve the benefits of revenue growth and profitability that we expect
from these acquisitions or that we will not incur unforeseen additional costs or expenses in
connection with the integration of these acquisitions. To effectively manage our expected growth,
we must continue to successfully manage our integration of these companies and continue to improve
our operational and information technology systems, internal procedures, accounts receivable and
management, financial and operational controls to accommodate these acquisitions. If we fail in
any of these areas, our business could be adversely affected.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The U.S. and foreign governments can audit our contracts with their respective military and
government agencies and, under certain circumstances, can adjust the economic terms of those
contracts.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of our business comes from sales of products and services to the U.S.
and foreign governments through various contracts. These contracts are subject to procurement laws
and regulations that lay out policies and procedures for acquiring goods and services. The
regulations also contain guidelines for managing contracts after they are awarded, including
conditions under which contracts may be terminated, in whole or in part, at the government&#146;s
convenience or for default. Failure to comply with the procurement laws or regulations can result
in civil, criminal or administrative proceedings involving fines, penalties, suspension of
payments, or suspension or disbarment from government contracting or subcontracting for a period of
time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have had certain &#147;exigent&#148;, non-bid contracts with the U.S. government that have been
subject to an audit and final price adjustment and have resulted in decreased margins compared with
the original terms of the contracts. As of December&nbsp;31, 2007, there were no outstanding exigent
contracts with the U.S. government. As part of its due diligence, the U.S. government has
conducted post-audits of the completed exigent contracts to ensure that information used in
supporting the pricing of exigent contracts did not differ materially from actual results. In
September&nbsp;2005, the Defense Contracting Audit Agency (&#147;DCAA&#148;) presented its findings related to the
audits of three of the exigent contracts, suggesting a potential pricing adjustment of
approximately $1,400 related to reductions in the cost of materials that occurred prior to the
final negotiation of these contracts. We have reviewed these audit reports, have submitted our
response to these audits and believe, taken as a whole, the proposed audit adjustments can be
offset with the consideration of other compensating cost increases that occurred prior to the final
negotiation of the contracts. While we believe that potential exposure exists relating to any
final negotiation of these proposed adjustments, we cannot reasonably estimate what, if any,
adjustment may result when finalized. In addition, in June&nbsp;2007, we received a request from the
Office of Inspector General of the Department of Defense (&#147;DoD IG&#148;) seeking certain information and
documents relating to our business with the Department of Defense. We are cooperating with the DoD
IG inquiry and have furnished the requested information and documents. At this time we have no
basis for assessing whether we might face any penalties or liabilities on account of the DoD IG
inquiry. The aforementioned DCAA-related adjustments could reduce margins and, along with the
aforementioned DoD IG inquiry, could have an adverse effect on our business, financial condition
and results of operation.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We are subject to the contract rules and procedures of the U.S. and foreign governments.
These rules and procedures create significant risks and uncertainties for us that are not usually
present in contracts with private parties.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will continue to develop battery products, communications systems and services to meet the
needs of the U.S. and foreign governments. We compete in solicitations for awards of contracts.
The receipt of an award, however, does not usually result in the immediate release of an order and
does not guarantee in any way any given volume of orders. Any delay of solicitations or
anticipated purchase orders by, or future failure of, the U.S. or foreign governments to purchase
products manufactured by us could have a material adverse effect on our business, financial
condition and results of operations. Additionally, in these scenarios we are typically required to
successfully meet contractual specifications and to pass various qualification-testing for the
products under contract. Our inability to pass these tests in a timely fashion, as well as meet
delivery schedules for orders released under contract, could have a material adverse effect on
our business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When a government contract is awarded, there is a government procedure that permits
unsuccessful companies to formally protest such award if they believe they were unjustly treated in
the evaluation process. As a result of these protests, the government is precluded from proceeding
under these contracts until the protests are resolved. A prolonged delay in the resolution of a
protest, or a reversal of an award resulting from such a protest could have a material adverse
effect on our business, financial condition and results of operations.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>A significant portion of our revenues is derived from certain key customers.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of our revenues is derived from contracts with the U.S. and foreign
militaries or OEMs that supply the U.S. and foreign militaries. In the years ended December&nbsp;31,
2005, 2006 and 2007, approximately 45%, 47%, and 67% respectively, of our revenues were comprised
of sales made directly or indirectly to the U.S. and foreign militaries. We have three major
customers: the U.S. Department of Defense, that comprised 25%, 20%, and 14% of our revenue in the
years ended December&nbsp;31, 2005, 2006 and 2007, respectively; the U.K. Ministry of Defence, that
comprised 6%, 7%, and 12% of our revenue in the years ended December&nbsp;31, 2005, 2006 and 2007,
respectively; and Raytheon Company, that comprised 1%, 3%, and 13% of our revenue in the years
ended December&nbsp;31, 2005, 2006 and 2007, respectively. There were no other customers that comprised
greater than 10% of our total revenues in those years. While sales to these customers were
substantial during 2007, we do not consider these customers to be significant credit risks.
Government decisions regarding military deployment and budget allocations to fund military
operations may have an impact on the demand for our products and services. If the demand for
products and services from the U.S. or foreign militaries were to decrease significantly, this
could have a material adverse effect on our business, financial condition and results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generally do not distribute our products to a concentrated geographical area nor is there a
significant concentration of credit risks arising from individuals or groups of customers engaged
in similar activities, or who have similar economic characteristics. Two customers comprised 42%
of our trade accounts receivables as of December&nbsp;31, 2007. There were no other customers that
comprised greater than 10% of our total trade accounts receivables as of December&nbsp;31, 2007. One
customer comprised 22% of our total trade accounts receivables as of December&nbsp;31, 2006. There
were no other customers that comprised greater than 10% of our total trade accounts receivables as
of December&nbsp;31, 2006. We do not normally obtain collateral on trade accounts receivable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Our efforts to develop new commercial applications for our products could fail.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we are involved with developing certain products for new commercial applications, we
cannot assure that volume acceptance of our products will occur due to the highly competitive
nature of the business. There are many new product and technology entrants into the marketplace,
and we must continually reassess the market segments in which our products can be successful and
seek to engage customers in these segments that will adopt our products for use in their products.
In addition, these companies must be successful with their products in their markets for us to gain
increased business. Increased competition, failure to gain customer acceptance of products, the
introduction of competitive technologies or failure of our customers in their markets could have a
further adverse effect on our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>We may incur significant costs because of the warranties we supply with our products.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to our battery products, we typically offer warranties against any defects due to
product malfunction or workmanship for a period up to one year from the date of purchase. With
respect to our communications systems products, we typically offer up to a four-year warranty. We
also offer a 10-year warranty on our 9-volt batteries that are used in ionization-type smoke
alarms. We provide for a reserve for these potential warranty expenses, which is based on an
analysis of historical warranty issues. There is no assurance that future warranty claims will be
consistent with past history, and in the event we experience a
significant increase in warranty claims, there is no assurance that our reserves will be
sufficient. This could have a material adverse effect on our business, financial condition and
results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We are subject to certain safety risks, including the risk of fire, inherent in the manufacture and
use of lithium batteries.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the high energy inherent in lithium batteries, our lithium batteries can pose certain
safety risks, including the risk of fire. We incorporate procedures in research, development,
product design, manufacturing processes and the transportation of lithium batteries that are
intended to minimize safety risks, but we cannot assure that accidents will not occur or that our
products will not be subject to recall for safety concerns. Although we currently carry insurance
policies which cover loss of the plant and machinery, leasehold improvements, inventory and
business interruption, any accident, whether at the manufacturing facilities or from the use of the
products, may result in significant production delays or claims for damages resulting from
injuries. While we maintain what we believe to be sufficient casualty liability coverage to
protect against such occurrences, these types of losses could have a material adverse effect on our
business, financial condition and results of operation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>We may incur significant costs because of known and unknown environmental matters.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;National, state and local laws impose various environmental controls on the manufacture,
transportation, storage, use and disposal of batteries and of certain chemicals used in the
manufacture of batteries. Although we believe that our operations are in substantial compliance
with current environmental regulations and that, except as noted below, there are no environmental
conditions that will require material expenditures for clean-up at our present or former facilities
or at
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">facilities to which we have sent waste for disposal, there can be no assurance that changes
in such laws and regulations will not impose costly compliance requirements on us or otherwise
subject us to future liabilities. There can be no assurance that additional or modified
regulations relating to the manufacture, transportation, storage, use and disposal of materials
used to manufacture our batteries or restricting disposal of batteries will not be imposed or how
these regulations will affect us or our customers, that could have a material adverse effect on our
business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In conjunction with our purchase/lease of our Newark, New York facility in 1998, we entered
into a payment-in-lieu of tax agreement, which provides us with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, a consulting firm performed a Phase
I and II Environmental Site Assessment, which revealed the existence of contaminated soil and
ground water around one of the buildings. We have submitted various work plans to the New York
State Department of Environmental Conservation (&#147;NYSDEC&#148;) regarding further environmental testing
and sampling in order to determine the scope of any additional remediation. We subsequently met
with the NYSDEC in March&nbsp;2006 to discuss the results. On June&nbsp;30, 2006, the Final Investigation
Report was delivered to the NYSDEC by our outside environmental firm. In November&nbsp;2006, the NYSDEC
completed its review of the Final Investigation Report and requested additional groundwater, soil
and sediment sampling. A work plan to address the additional investigation was submitted to the
NYSDEC in January&nbsp;2007 and was approved in April&nbsp;2007. Additional investigative work was performed
in May&nbsp;2007. A preliminary report of results was prepared by our outside environmental consulting
firm in August&nbsp;2007, and a meeting with the NYSDEC and the New York State Department of Health
(&#147;NYSDOH&#148;) took place in September&nbsp;2007. As a result of this meeting, NYSDEC and NYSDOH have
requested additional investigation work. A work plan to address this additional investigation was
submitted to and approved by the NYSDEC in November&nbsp;2007. Additional investigation work was
performed in December&nbsp;2007 and we are awaiting the results of the work from our environmental
consulting firm. The results of the additional investigation requested by the NYSDEC may increase
the estimated remediation costs modestly. At December&nbsp;31, 2007, we have reserved $85 for this
matter. The ultimate resolution of this matter may result in us incurring costs in excess of what
we have reserved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The future regulatory direction of the European Union&#146;s Restriction of Hazardous Substances
(&#147;RoHS&#148;) and Waste Electrical and Electronic Equipment (&#147;WEEE&#148;) Directives, as they pertain to our
products, is uncertain. Their potential impact to our business would become material if battery
packs were to be included in new guidelines and we were unable to procure materials in a timely
manner. Other associated risks related to these directives include excess inventory risk due to
a write off of non-
compliant inventory. We continue to monitor the regulatory activity of the European Union to
ascertain such risks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;China&#146;s &#147;Management Methods for Controlling Pollution Caused by Electronic Information
Products Regulation&#148; (&#147;China RoHS&#148;) provides a two-step, broad regulatory framework, including
similar hazardous substance restrictions as are imposed by the European Union&#146;s RoHS Directive, and
apply to methods for the control and reduction of pollution and other public hazards to the
environment caused during the production, sale, and import of electronic information products
(&#147;EIP&#148;) in China affecting a broad range of electronic products and parts, with an implementation
date of March&nbsp;1, 2007. Currently, only the first step of the regulatory framework of China RoHS,
which details marking and labeling requirements under Standard SJT11364-2006 (&#147;Marking Standard&#148;),
is in effect. However, the methods under China RoHS only apply to EIP placed in the marketplace in
China. Additionally, the Marking Standard does not apply to components sold to OEMs for use in
other EIP. Our sales in China are limited to sales to OEMs and to distributors who supply to OEMs.
Should our sales strategy change to include direct sales to end-users, our compliance system is
sufficient to meet our requirements under China RoHS. Our current estimated costs associated with
our compliance with this regulation based on our current market share and strategy are not
significant. However, we continue to evaluate the impact of China RoHS, and actual costs could
differ from our current estimates.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Any inability to comply with changes to the regulations for the shipment of our products could
limit our ability to transport our products to customers in a cost-effective manner.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transportation of non-rechargeable and rechargeable lithium batteries is regulated by the
International Civil Aviation Organization (&#147;ICAO&#148;) and corresponding International Air Transport
Association (&#147;IATA&#148;) Dangerous Goods Regulations and the International Maritime Dangerous Goods
Code (&#147;IMDG&#148;) and in the U.S. by the Department of Transportation&#146;s Pipeline and Hazardous
Materials Safety Administration (&#147;PHMSA&#148;). These regulations are based on the United Nations
Recommendations on the Transport of Dangerous Goods Model Regulations and the United Nations Manual
of Tests and Criteria. We currently ship our products pursuant to ICAO, IATA and PHMSA hazardous
goods regulations. New regulations that pertain to all lithium battery manufacturers went into
effect in January&nbsp;2008, and additional regulations will go into effect in 2009 and 2010. The
regulations require companies to meet certain testing, packaging, labeling and shipping
specifications for safety reasons. We comply with all current U.S. and international regulations
for the shipment of our products, and we intend and expect to comply with any new regulations that
are imposed. We have established our own testing facilities to ensure that we comply with these
regulations. If we are unable to comply with the new regulations, however, or if regulations are
introduced that limit our ability to transport our
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">products to customers in a cost-effective
manner, this could have a material adverse effect on our business, financial condition and results
of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Our supply of raw materials and components could be disrupted.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain materials and components used in our products are available only from a single or a
limited number of suppliers. As such, some materials and components could become in short supply
resulting in limited availability and/or increased costs. Additionally, we may elect to develop
relationships with a single or limited number of suppliers for materials and components that are
otherwise generally available. Due to our involvement with supplying military products to the
government, we could receive a government preference to continue to obtain critical supplies to
meet military production needs. However, if the government did not provide us with a government
preference in such circumstances, the difficulty in obtaining supplies could have a material
adverse effect on our business, financial condition and results of operations. Although we believe
that alternative suppliers are available to supply materials and components that could replace
materials and components currently used and that, if necessary, we would be able to redesign our
products to make use of such alternatives, any interruption in the supply from any supplier that
serves as a sole source could delay product shipments and have a material adverse effect on our
business, financial condition and results of operations. We have experienced interruptions of
product deliveries by sole source suppliers in the past, and we cannot guarantee that we will not
experience a material interruption of product deliveries from sole source suppliers in the future.
Additionally, we could face increasing pricing pressure from our suppliers dependent upon volume,
due to rising costs by these suppliers that could be
passed on to us in higher prices for our raw materials, which could have a material effect on our
business, financial condition and results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Any inability to protect our proprietary and intellectual property could allow our competitors and
others to produce competing products based on our proprietary and intellectual property.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success depends more on the knowledge, ability, experience and technological expertise of
our employees than on the legal protection of patents and other proprietary rights. We claim
proprietary rights in various unpatented technologies, know-how, trade secrets and trademarks
relating to products and manufacturing processes. We cannot guarantee the degree of protection
these various claims may or will afford, or that competitors will not independently develop or
patent technologies that are substantially equivalent or superior to our technology. We protect
our proprietary rights in our products and operations through contractual obligations, including
nondisclosure agreements with certain employees, customers, consultants and strategic partners.
There can be no assurance as to the degree of protection these contractual measures may or will
afford. We have had patents issued and have patent applications pending in the U.S. and elsewhere.
We cannot assure (1)&nbsp;that patents will be issued from any pending applications, or that the claims
allowed under any patents will be sufficiently broad to protect our technology, (2)&nbsp;that any
patents issued to us will not be challenged, invalidated or circumvented, or (3)&nbsp;as to the degree
or adequacy of protection any patents or patent applications may or will afford. If we are found
to be infringing third party patents, there can be no assurance that we will be able to obtain
licenses with respect to such patents on acceptable terms, if at all. The failure to obtain
necessary licenses could delay product shipment or the introduction of new products, and costly
attempts to design around such patents could foreclose the development, manufacture or sale of
products.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The loss of key personnel could significantly harm our business, and the ability and technical
competence of persons we hire will be critical to the success of our business.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of the specialized, technical nature of our business, we are highly dependent on
certain members of our management, marketing, engineering and technical staff. The loss of these
employees could have a material adverse effect on our business, financial condition and results of
operations. In addition to developing manufacturing capacity to produce high volumes of batteries,
we must attract, recruit and retain a sizeable workforce of technically competent employees. Our
ability to pursue effectively our business strategy will depend upon, among other factors, the
successful recruitment and retention of additional highly skilled and experienced managerial,
marketing, engineering and technical personnel, and the integration of such personnel obtained
through business acquisitions. We cannot assure that we will be able to retain or recruit this
type of personnel. An inability to hire sufficient numbers of people or to find people with the
desired skills could result in greater demands being placed on limited management resources which
could have a material adverse effect on our business, financial condition and results of
operations.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We are subject to competition from other manufacturers and suppliers of portable and standby
batteries, communications systems and services.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compete with other manufacturers and suppliers of non-rechargeable and rechargeable
portable and standby batteries, communications systems and services. We cannot assure that we will
successfully compete with these manufacturers and suppliers, many of which have substantially
greater financial, technical, manufacturing, distribution, marketing, sales and other resources.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Our products could become obsolete.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for our products is characterized by changing technology and evolving industry
standards, often resulting in product obsolescence or short product lifecycles. Although we
believe that our products are comprised of state-of-the-art technology, there can be no assurance
that competitors will not develop technologies or products that would render our technologies and
products obsolete or less marketable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of the companies with which we compete have substantially greater resources than us, and
some have the capacity and volume of business to be able to produce their products more efficiently
than we can at the present time. In addition, these companies are developing or have developed
products using a variety of technologies that are expected to compete with our technologies. If
these companies successfully market their products in a manner that renders our technologies
obsolete, there will be a material adverse effect on our business, financial condition and results
of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>We are subject to foreign currency fluctuations.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain manufacturing operations in the North America, Europe and Asia, and we export
products to various countries. We purchase materials and sell our products in foreign currencies,
and therefore currency fluctuations may impact our pricing of products sold and materials
purchased. In addition, our foreign subsidiaries maintain their books in local currency, and the
translation of those subsidiary financial statements into U.S. dollars for our consolidated
financial statements could have an adverse effect on our consolidated financial results, due to
changes in local currency relative to the U.S. dollar. Accordingly, currency fluctuations could
have a material adverse effect on our business, financial condition and results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our ability to use our Net Operating Loss Carryforwards in the future may be limited, which could
have an adverse impact on our tax liabilities.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007, we had approximately $83,700 of net operating loss carryforwards, or
NOLs, available to offset future taxable income. We continually assess the carrying value of this
asset based on the relevant accounting standards. As of December&nbsp;31, 2007, we reflected a full
valuation allowance against our net deferred tax asset and have reflected a net deferred tax asset
of $0 in the United States and in the United Kingdom due to our current assessment that it is more
likely than not to not be realized. As we continue to assess the realizability of our deferred tax
assets, the amount of the valuation allowance could be reduced. In addition, certain of our NOL
carryforwards are subject to U.S. alternative minimum tax such that carryforwards can offset only
90% of alternative minimum taxable income. Achieving our business plan targets, particularly those
relating to revenue and profitability, is integral to our assessment regarding the recoverability
of our net deferred tax asset.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have determined that a change in ownership, as defined under Internal Revenue Code
Section&nbsp;382, has occurred. As such, the domestic net operating loss carryforward will be subject to
an annual limitation estimated to be in the range of approximately $12,000. This limitation did not
have an impact on income taxes determined for 2007. Such a limitation could result in the
possibility of a cash outlay for income taxes in a future year when earnings exceed the amount of
net operating loss carryforwards that can be used by us.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our quarterly and annual results and the price of our common stock could fluctuate significantly.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future operating results may vary significantly from quarter to quarter and from year to
year depending on factors such as the timing and shipment of significant orders, new product
introductions, delays in customer releases of purchase orders, delays in receiving raw materials
from vendors, the mix of distribution channels through which we sell our products and services and
general economic conditions. Frequently, a substantial portion of our revenue in each quarter is
generated from orders booked and fulfilled during that quarter. As a result, revenue levels are
difficult to predict for each quarter. If revenue results are below expectations, operating
results will be adversely affected as we have a sizeable base of fixed overhead costs that do not
fluctuate much with the changes in revenue. Due to such variances in operating results, we have
sometimes failed to meet, and in the future may not meet, market expectations or even our own
guidance regarding our future operating results.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the uncertainties of quarterly and annual operating results, future
announcements concerning us or our competitors, including technological innovations or commercial
products, litigation or public concerns as to the safety or commercial value of one or more of our
products may cause the market price of our common stock to fluctuate substantially for reasons
which may be unrelated to our operating results. These fluctuations, as well as general economic,
political and market conditions, may have a material adverse effect on the market price of our
common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>We may be unable to obtain financing to fund ongoing operations and future growth.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we believe that our revenue growth projections and our ongoing cost controls will allow
us to generate cash and achieve profitability in the foreseeable future, there is no assurance as
to when or if we will be able to achieve our projections. Our future cash flows from operations,
combined with our accessibility to cash and credit, may not be sufficient to allow us to finance
ongoing operations or to make required investments for future growth. In addition, recent
significant orders have required us to ramp up our supply chain quickly, and this will result in a
need for additional working capital. We may need to seek additional credit or access capital
markets for additional funds. There is no assurance that we would be successful in this regard.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have certain debt covenants that must be maintained in accordance with the provisions of
our credit facility. There is no assurance that we will be able to continue to meet these debt
covenants in the future. If we default on any of our debt covenants and we are unable to
renegotiate credit terms in order to comply with such covenants, this could have a material adverse
effect on our business, financial condition and results of operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we believe relations with our lenders are good and have received waivers as necessary in
the past, there can be no assurance that such waivers will always be obtained when needed. In such
case, we believe we have, in the aggregate, sufficient cash, cash generation capabilities from
operations, working capital and financing alternatives at our disposal, including but not limited
to alternative borrowing arrangements and other available lenders, to fund operations in the normal
course for the foreseeable future. If we are unable to achieve our plans or unforeseen events
occur, we may need to implement alternative plans to provide us with sufficient levels of liquidity
and working capital. While we believe we could complete our original plans or alternative plans,
if necessary, there can be no assurance that such alternatives would be available on acceptable
terms and conditions or that we would be successful in our implementation of such plans.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The re-payment of the debt outstanding under our credit facility and the vesting of options under
certain of our equity compensation plans may both be accelerated if any single shareholder owns
more than 30% of our stock. Currently, our largest shareholder owns
in excess of 25% of our stock.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our largest single shareholder is Grace Brothers, Ltd., which, as of its most recent Schedule
13D/A filing, beneficially owned 26.3% of our issued and outstanding shares of common stock. On
June&nbsp;6, 2007, Mr.&nbsp;Bradford T. Whitmore, general partner of Grace Brothers, Ltd., became a member of
our Board of Directors. If Grace Brothers, Ltd. were to increase its ownership to more than 30%,
it would be deemed a &#147;change in control&#148; for purposes of our credit facility administered by JP
Morgan Chase and for purposes of options granted under our 2004 Amended and Restated Long Term
Incentive Plan, or LTIP. If a &#147;change in control&#148; were to occur, our commercial lenders would be
able to demand payment of all amounts outstanding under our existing credit facility and the
vesting of all outstanding options granted under our LTIP would be accelerated resulting in a
significant expense being charged against our income for the period during which the &#147;change in
control&#148; occurred, all of which would have a material, adverse effect on our business, financial
condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Our operations in China are subject to unique risks and uncertainties.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operating facility in China presents risks including, but not limited to, political
changes, civil unrest, labor disputes, currency restrictions and changes in currency exchange
rates, taxes, duties, import and export laws and boycotts and other civil disturbances that are
outside of our control. Any such disruptions could have a material adverse effect on our business,
financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>We may be unable to adequately maintain and monitor our internal controls over financial reporting.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain and monitor various internal control processes over our financial reporting.
Whenever we acquire a new business or operations, we need to integrate those operations with our
existing control processes, which can prove to be a challenge if the acquired business had not been
required to have such controls in effect. We are in the process of
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">integrating our recently acquired companies into our business and assimilating their operations, services, products and
personnel with our management policies, procedures and strategies. While we work to ensure a
stringent control environment, it is possible that we may fail to adequately maintain and monitor
our various internal control processes over our financial reporting. Any such failure could result
in internal control deficiencies that might be considered to be material weaknesses. Such material
weaknesses in internal controls would be indicative of potential factors that affect the
reliability of our financial statements and other reported financial information and impact the
financial results we report.
</DIV>
<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1B. UNRESOLVED STAFF COMMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. PROPERTIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, we own two buildings in Newark, New York comprising approximately
250,000 square feet. In February&nbsp;1998, we entered into a lease/purchase agreement with the local
county authority with respect to our 110,000 square foot manufacturing building in Newark, New
York, the adjacent building of approximately 140,000 square feet and approximately 65 acres of
contiguous land. Pursuant to the lease, we delivered a down payment in the amount of $440 and paid
the local governmental authority annual installments in the amount of $50 through December&nbsp;2001
decreasing to approximately $30 annually for the periods commencing December&nbsp;2001 and ending
December&nbsp;2007. Upon expiration of the lease in December&nbsp;2007, we took ownership of the facility.
In addition, we lease approximately 35,000 square feet in a facility based in Abingdon, England. We
lease approximately 19,900 square feet in a facility located in Waco, Texas. We lease
approximately 130,000 square feet in four buildings in Shenzhen, China. We lease approximately
14,000 square feet in a facility located in West Point, Mississippi. We lease approximately 7,200
square feet in a facility located in Woodinville, Washington. We lease 12,614 square feet in a
facility located in Clearwater, Florida. We lease approximately 2,650 square feet in a facility
located in Alpharetta, Georgia. We lease approximately 15,000 square feet in Hollywood, Maryland.
All locations, with the exception of the Alpharetta, Georgia location, consist of administrative
offices, manufacturing and production facilities and an
engineering department. The Alpharetta location consists of a warehouse and administrative
offices. The Shenzhen location includes dormitory facilities. Our research and development
efforts for our battery products are conducted at our Newark, New York and Shenzhen, China
facilities, while our research and development efforts for our communications accessories are
conducted at our Newark facility and our research and development efforts for our amplifier
products are conducted at our Woodinville facility. Our corporate headquarters are located in the
Newark facility. We believe that our facilities are adequate and suitable for our current needs.
However, we may require additional manufacturing space if demand for our products continues to
grow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We lease a facility in Abingdon, England. The term of the lease was extended and continues
until March&nbsp;24, 2013. It currently has an annual rent of GBP163 (approximately $325 as of
December&nbsp;31, 2007) and is subject to review every five years based on current real estate market
conditions. The next five-year review is scheduled for March&nbsp;2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently lease one building in Waco, Texas, from a former related party. The lease term
is month to month and has a base monthly rent of $10.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We lease four buildings in an industrial park in Shenzhen, China. The lease term expires on
January&nbsp;31, 2009. The lease has a base monthly rent of RMB132 (approximately $18 as of
December&nbsp;31, 2007). Under the terms of the lease, we have a right of first refusal to purchase
the premises described in the lease from the landlord.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We lease a facility in West Point, Mississippi. The lease term commences on the completion of
the renovation work, which is currently expected to occur in the second quarter of 2008 and shall
continue for a period of three years. The lease has a base annual rent of approximately $57.
Under the terms of the lease, we have the right to extend the lease for three additional one-year
terms at our discretion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We lease a facility in Woodinville, Washington. The lease term commenced on December&nbsp;1, 2007
and expires on November&nbsp;30, 2010. The lease has a base monthly rent of approximately $6 for months
1-12, approximately $7 for months 13-24 and approximately $7 for months 25-36. In addition to the
base monthly rent, we are obligated to pay monthly operating expenses, which are currently
estimated to be approximately $2.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently lease a facility in Clearwater, Florida, from a related party. The lease term
expires on November&nbsp;15, 2010. The lease has a base monthly rent of approximately $12. In addition
to the base monthly rate, we are obligated to pay the real estate and personal property taxes
associated with the facility. Under the terms of the lease, we have the right to
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">extend the lease for one additional three-year term. The base monthly rent applicable for such an extended term is
approximately $12.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently lease a facility in Alpharetta, Georgia. The lease term commenced on October&nbsp;1,
2007 and expires on October&nbsp;31, 2010. The lease has a base monthly rent of approximately $1. The
base rent is increased by 4% on each anniversary of the commencement date of October&nbsp;1, 2007. In
addition to the base monthly rent, we are obligated to pay monthly operating expenses at the
greater of less than $1 per month or our 3.2% pro-rata share of the total operating expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently lease a facility in Hollywood, Maryland. The lease term expires on June&nbsp;30,
2008. The lease has a base monthly rent of $12, plus monthly common area charges and real estate
taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On occasion, we rent additional warehouse space to store inventory and non-operational
equipment.
</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. LEGAL PROCEEDINGS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to legal proceedings and claims that arise in the normal course of business.
We believe that the final disposition of such matters will not have a material adverse effect on
the financial position or results of our operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In conjunction with our purchase/lease of our Newark, New York facility in 1998, we entered
into a payment-in-lieu of tax agreement, which provides us with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, a consulting firm performed a Phase
I and II Environmental Site Assessment, which revealed the existence of contaminated soil and
ground water around one of the buildings. We retained an engineering firm, which estimated that
the cost of remediation should be in the range of $230. In February&nbsp;1998, we entered into an
agreement with a third party which provides that we and this third party will retain an
environmental consulting firm to conduct a supplemental Phase II investigation to verify the
existence of the contaminants and further delineate the nature of the environmental concern. The
third party agreed to reimburse us for fifty percent (50%) of the cost of correcting the
environmental concern on the Newark property. We have fully reserved for our portion of the
estimated liability. Test sampling was completed in the spring of 2001, and the engineering report
was submitted to the New York State Department of Environmental Conservation (&#147;NYSDEC&#148;) for review.
NYSDEC reviewed the report and, in January&nbsp;2002, recommended additional testing. We responded by
submitting a work plan to NYSDEC, which was approved in April&nbsp;2002. We sought proposals from
engineering firms to complete the remedial work contained in the work plan. A firm was selected to
undertake the remediation and in December&nbsp;2003 the remediation was completed, and was overseen by
the NYSDEC. The report detailing the remediation project, which included the test results, was
forwarded to NYSDEC and to the New York State Department of Health (&#147;NYSDOH&#148;). The NYSDEC, with
input from the NYSDOH, requested that we perform additional sampling. A work plan for this portion
of the project was written and delivered to the NYSDEC and approved. In November&nbsp;2005, additional
soil, sediment and surface water samples were taken from the area outlined in the work plan, as
well as groundwater samples from the monitoring wells. We received the laboratory analysis and
met with the NYSDEC in March&nbsp;2006 to discuss the results. On June&nbsp;30, 2006, the Final
Investigation Report was delivered to the NYSDEC by our outside environmental firm. In November
2006, the NYSDEC completed its review of the Final Investigation Report and requested additional
groundwater, soil and sediment sampling. A work plan to address the additional investigation was
submitted to the NYSDEC in January&nbsp;2007 and was approved in April&nbsp;2007. Additional investigation
work was performed in May&nbsp;2007. A preliminary report of results was prepared by our outside
environmental consulting firm in August&nbsp;2007 and a meeting with the NYSDEC and NYSDOH took place in
September&nbsp;2007. As a result of this meeting, NYSDEC and NYSDOH have requested additional
investigation work. A work plan to address this additional investigation was submitted to and
approved by the NYSDEC in November&nbsp;2007. Additional investigation work was performed in December
2007 and we are awaiting the results from our environmental consulting firm. The results of the
additional investigation requested by the NYSDEC may increase the estimated remediation costs
modestly. Through December&nbsp;31, 2007, total costs incurred have amounted to approximately $195,
none of which has been capitalized. At December&nbsp;31, 2007 and December&nbsp;31, 2006, we had $85 and
$35, respectively, reserved for this matter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A retail end-user of a product manufactured by one of our customers (the &#147;Customer&#148;), made a
claim against the Customer wherein it asserted that the Customer&#146;s product, which is powered by one
of our batteries, does not operate according to the Customer&#146;s product specification. No claim has
been filed against us. However, in the interest of fostering good customer relations, in September
2002, we agreed to lend technical support to the Customer in defense of its claim. Additionally,
we assured the Customer that we would honor our warranty by replacing any batteries that may be
determined to be defective. Subsequently, we learned that the end-user and the Customer settled
the matter. In February&nbsp;2005, we entered into a settlement agreement with the Customer. Under the
terms of the agreement, we have agreed to provide replacement batteries for product determined to
be defective, to warrant each replacement battery under our standard warranty terms and conditions,
and to provide the Customer product at a discounted price for shipments made
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->25<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">prior to December&nbsp;31, 2008 in recognition of the Customer&#146;s administrative costs in responding to the claim of the retail
end-user. In consideration of the above, the Customer released us from any and all liability with
respect to this matter. Consequently, we do not anticipate any further expenses with regard to
this matter other than our obligation under the settlement agreement. As of December&nbsp;31, 2007, we
no longer have an accrual in the warranty reserve related to anticipated replacements under this
agreement, due to the lack of actual claims for replacements during the past few years. Further,
we do not expect the ongoing terms of the settlement agreement to have a material impact on our
operations or financial condition.
</DIV>
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->26<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 5. MARKET FOR REGISTRANT&#146;S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Market Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Common Stock is included for quotation on the Global Market System of the National
Association of Securities Dealers Automated Quotation System (&#147;NASDAQ&#148;) under the symbol &#147;ULBI.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the quarterly high and low closing sales prices of our Common
Stock during 2006 and 2007:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">Closing Sales Prices</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">High</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Low</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quarter ended April&nbsp;1, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quarter ended July&nbsp;1, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quarter ended September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.79</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quarter ended December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quarter ended March&nbsp;31, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quarter ended June&nbsp;30, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quarter ended September&nbsp;29, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.57</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quarter ended December&nbsp;31, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.19</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Holders</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of January&nbsp;14, 2008, there were 414 registered holders of record of our Common Stock.
Based upon information from our stock transfer agent, management estimates that there are
approximately 7,000 beneficial holders of our Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recent Sales of Unregistered Securities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Dividends</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have never declared or paid any cash dividend on our capital stock. We intend to retain
earnings, if any, to finance future operations and expansion and, therefore, do not anticipate
paying any cash dividends in the foreseeable future. Any future payment of dividends will depend
upon our financial condition, capital requirements and earnings, as well as upon other factors that
the Board of Directors may deem relevant. Pursuant to our current credit facility, we are
precluded from paying any dividends.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->27<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 6. SELECTED FINANCIAL DATA</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The financial results presented in this table include results from the last five calendar years
ended December&nbsp;31, 2007, 2006, 2005, 2004 and 2003.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SELECTED FINANCIAL DATA</B><BR>
(In Thousands, Except Per Share Amounts)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000">Year Ended December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2003</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statement of Operations Data:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">137,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">93,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">98,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">79,450</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of products sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,354</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,096</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,505</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,610</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment of long lived assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating and other expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,115</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,957</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,902</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,981</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest (expense)/income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,184</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,298</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(636</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(482</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(520</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on insurance settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on McDowell settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Write-off of UTI investment and note
receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,951</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain from forgiveness of debt/grant</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">781</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(318</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">311</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income/(loss) before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,753</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,856</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,553</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision-current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision/(benefit)-deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21,136</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21,104</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,447</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)&nbsp;per share-basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.30</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)&nbsp;per share-diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.30</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average shares outstanding-basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,132</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average shares outstanding-diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,917</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2003</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance Sheet Data:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and available-for-sale securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">882</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Working capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,702</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">122,048</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">97,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">80,757</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">81,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">52,352</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total long-term debt and capital
lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">63,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">62,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">63,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">34,430</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->28<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 7. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Private Securities Litigation Reform Act of 1995 provides a &#147;safe harbor&#148; for
forward-looking statements. This report contains certain forward-looking statements and
information that are based on the beliefs of management as well as assumptions made by and
information currently available to management. The statements contained in this report relating to
matters that are not historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, future demand for our products and services,
addressing the process of U.S. military procurement, the successful commercialization of our
products, general economic conditions, government and environmental regulation, finalization of
non-bid government contracts, competition and customer strategies, technological innovations in the
non-rechargeable and rechargeable battery industries, changes in our business strategy or
development plans, capital deployment, business disruptions, including those caused by fires, raw
materials supplies, environmental regulations, and other risks and uncertainties, certain of which
are beyond our control. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially from those described
herein as anticipated, believed, estimated or expected. See Risk Factors in Item&nbsp;1A of this report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion and analysis should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial information in this Management&#146;s Discussion and Analysis of Financial Condition
and Results of Operations is presented in thousands of dollars, except for per share amounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>General</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer products and services ranging from portable and standby power solutions to
communications and electronics systems. Through our engineering and collaborative approaches to
problem solving, we serve government, defense and commercial customers across the globe. We
design, manufacture, install and maintain power and communications systems including: portable and
standby power systems, communications and electronics systems and accessories, and custom
engineered systems, solutions and services. We sell our products worldwide through a variety of
trade channels, including original equipment manufacturers (&#147;OEMs&#148;), industrial and retail
distributors, national retailers and directly to U.S. and international defense departments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We report our results in four operating segments: Non-Rechargeable Products, Rechargeable
Products, Communications Systems and Design and Installation Services. The Non-Rechargeable
Products segment includes: lithium 9-volt, cylindrical and various other non-rechargeable
batteries, including seawater-activated batteries. The Rechargeable Products segment includes:
rechargeable batteries, charging systems, uninterruptable power supplies and accessories, such as
cables. In 2006, as a result of the acquisition of McDowell, we formed a new segment,
Communications Accessories, which was renamed Communications Systems in 2007. The Communications
Systems segment includes: power supplies, cable and connector assemblies, RF amplifiers, amplified
speakers, equipment mounts, case equipment and integrated communication system kits. In the fourth
quarter of 2007, as a result of the acquisitions of RedBlack and SPS, we renamed our Technology
Contracts segment to Design and Installation Services. The Design and Installation Services
segment includes: standby power and communications and electronics systems design, installation and
maintenance activities and revenues and related costs associated with various development
contracts. We look at our segment performance at the gross margin level, and we do not allocate
research and development or selling, general and administrative costs against the segments. All
other items that do not specifically relate to these four segments and are not considered in the
performance of the segments are considered to be Corporate charges. (See Note 10 in the Notes to
Consolidated Financial Statements.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continually evaluate ways to grow, including opportunities to expand through mergers,
acquisitions and business partnerships. On May&nbsp;19, 2006, we acquired 100% of the equity securities
of ABLE New Energy Co., Ltd. (&#147;ABLE&#148;), an established manufacturer of lithium batteries located in
Shenzhen, China. The total consideration given was a combination of cash and equity. The initial
cash portion of the purchase price was $1,896 (net of $104 in cash acquired), with an additional
$500 cash payment contingent on the achievement of certain performance milestones, payable in
separate $250 increments, when cumulative ABLE revenues from the date of acquisition attain $5,000
and $10,000, respectively. In August&nbsp;2007, the $5,000 cumulative revenues milestone was attained,
and as such, we have recorded the first $250 contingent cash payment. The equity portion of the
purchase price consisted of 96,247 shares of our common stock, valued at $1,000, and 100,000 stock
warrants valued at $526, for a total equity consideration of $1,526. (See Note 2 in Notes to
Consolidated Financial Statements for additional information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;3, 2006, we finalized the acquisition of substantially all of the assets of McDowell
Research, Ltd. (&#147;McDowell&#148;), a manufacturer of military communications accessories located in Waco,
Texas. Under the terms of the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->29<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">acquisition agreement, the purchase price of approximately $25,000
consisted of $5,000 in cash and a $20,000 non-transferable, subordinated convertible promissory
note to be held by the sellers. In addition, the purchase price was subject to a post-closing
adjustment based on a final valuation of trade accounts receivable, inventory and trade accounts
payable that were acquired or assumed on the date of the closing, using a base value of $3,000.
The final net value of these assets, under our contractual obligation under the acquisition
agreement, was $6,389, resulting in a revised purchase price of approximately $28,448. On November
16, 2007, we finalized a settlement agreement with the sellers of McDowell, which resolved various
operational issues that arose during the first several months following the acquisition that
significantly reduced our profit margins. The settlement agreement reduced the overall purchase
price by approximately $7,900, by reducing the principal amount on the convertible note from
$20,000 to $14,000, and eliminating a $1,889 liability related to the Purchase Price Adjustment
formula. In addition, the interest rate on the convertible notes was increased from 4% to 5% and
we made prepayments totaling $3,500 on the convertible notes. In January&nbsp;2008, the convertible
notes were converted in full into 700,000 shares of our common stock. (See Note 2 in Notes to
Consolidated Financial Statements for additional information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;28, 2007, we finalized the acquisition of all the issued and outstanding shares
of common stock of Innovative Solutions Consulting, Inc. (&#147;ISC&#148;), a provider of a full range of
engineering and technical services for communication electronic systems to government agencies and
prime contractors located in Hollywood, Maryland. In January&nbsp;2008, we renamed ISC to RedBlack
Communications, Inc. (&#147;RedBlack&#148;). The initial cash purchase price was $943 (net of $57 in cash
acquired), with up to $2,000 in additional cash consideration contingent on the achievement of
certain sales milestones. The additional cash consideration is payable in up to three annual
payments and subject to possible adjustments as set forth in the stock purchase agreement. (See
Note 2 to Consolidated Financial Statements for additional information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2007, we completed the acquisition of all of the issued and outstanding shares
of common stock of Stationary Power Services, Inc. (&#147;SPS&#148;), an infrastructure power management
services firm specializing in engineering, installation and preventative maintenance of standby
power systems, uninterruptible power supply systems, DC power systems and switchgear/control
systems for the telecommunications, aerospace, banking and information services industries located
in Clearwater, Florida. Under the terms of the stock purchase agreement, the initial purchase price
of $10,000 consisted of $5,889 (net of $111 in cash acquired) in cash and a $4,000 subordinated
convertible promissory note to be held by the seller. In addition, on the achievement of certain
post-acquisition sales milestones, we will issue up to an aggregate amount of 100,000 shares of our
common stock. (See Note 2 in the Notes to Consolidated Financial Statements for additional
information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2007, we completed the acquisition of all of the issued and outstanding shares
of common stock of Reserve Power Systems, Inc. (&#147;RPS&#148;), an affiliate of SPS, and a supplier of
lead acid batteries primarily for use by SPS in the design and installation of standby power
systems. Under the terms of the stock purchase agreement, the initial purchase price consisted of
100,000 shares of our common stock, valued at $1,383. In addition, on the achievement of certain
post-acquisition sales milestones, we will pay the sellers, in cash, 5% of sales up to the sales in
the operating plan, and 10% of sales that exceed the sales in the operating plan, for the remainder
of the calendar year 2007 and for calendar years 2008, 2009 and 2010. The additional contingent
cash consideration is payable in annual installments, and excludes sales made to SPS, which
historically have comprised substantially all of RPS&#146;s sales. (See Note 2 in the Notes to
Consolidated Financial Statements for additional information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent to our fourth quarter 2007 earnings release dated February&nbsp;28, 2008, we
reclassified certain short-term liabilities related to the term loan component of our credit
facility to long-term liabilities as of December&nbsp;31, 2007. As a result, our Consolidated Balance
Sheet as of December&nbsp;31, 2007 has been adjusted accordingly, resulting in a decrease of $1,167 in
current liabilities and a corresponding increase in long-term liabilities. The Consolidated
Statement of Operations was not impacted by this adjustment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, we do not experience significant seasonal sales trends in any of our operating
segments, although sales to the U.S. Defense Department and other international defense
organizations can be sporadic based on the needs of those particular customers.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->30<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Twelve Months Ended December&nbsp;31, 2007 Compared With the Twelve Months Ended December&nbsp;31, 2006</I>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">12 Months Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Increase /</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">12/31/2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">12/31/2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(Decrease)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">137,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">93,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">44,050</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of products sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,719</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,331</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating and other expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,573</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,957</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,758</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other (expense)&nbsp;income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,859</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(796</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,655</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,753</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,413</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision/(benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23,658</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (loss)/income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,071</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (loss)/income per share &#151; basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (loss)/income per share &#151; diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average shares outstanding-basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,316,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,906,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">410,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average shares outstanding-diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,557,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,906,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">651,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid  #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Revenues</I></B>. Total revenues for the twelve months ended December&nbsp;31, 2007 amounted to $137,596,
an increase of $44,050, or 47% from the $93,546 reported for the twelve months ended December&nbsp;31,
2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-Rechargeable product sales increased $12,483, or 18%, from $67,779 last year to $80,262
this year. The increase in revenues was mainly attributable to an increase in sales of batteries
to international defense organizations, an increase in demand from automotive telematics customers,
and a full year contribution from ABLE which was acquired in mid-2006, offset in part by lower
9-volt battery revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rechargeable product revenues decreased $989, or 6%, from $17,745 last year to $16,756 this
year. The decrease in revenues was attributable to a strong prior year in which we shipped a large
order of batteries and chargers for an IED jammer application.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of communications systems increased $29,707, or 400%, from $7,433 last year to $37,140
this year. This increase in revenues was mainly attributable to a growing demand for advanced
communications systems and kits sold to government/defense customers, including systems such as
SATCOM-On-The-Move and other systems that provide a person with the ability to significantly extend
the range of a communications radio. In addition, since McDowell was acquired in July&nbsp;2006, only a
partial year&#146;s results were included in 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Design and Installation Services revenues increased $2,849, or 484%, from $589 last year to
$3,438 this year. This increase in revenues was mainly attributable to the added contributions
from the acquisitions of RedBlack in September&nbsp;2007 and SPS in November&nbsp;2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Cost of Products Sold. </I></B>Cost of products sold increased $32,719, or 43%, from $76,103 for the
year ended December&nbsp;31, 2006 to $108,822 for the year ended December&nbsp;31, 2007, primarily as a
result of the increase in revenues. Consolidated cost of products sold as a percentage of total
revenue decreased from 81% for the twelve months ended December&nbsp;31, 2006 to 79% for the year ended
December&nbsp;31, 2007. Correspondingly, consolidated gross margins were 21% for the year ended
December&nbsp;31, 2007, compared with 19% for the year ended December&nbsp;31, 2006, generally attributable to higher sales and
production volumes and a more favorable sales mix of higher margin products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Non-Rechargeable products segment, the cost of products sold increased $6,594, from
$55,921 in the year ended December&nbsp;31, 2006 to $62,515 in 2007, mainly related to higher sales and
production volumes. Non-Rechargeable gross margins for 2007 were $17,747, or 22%, an increase of
$5,889 from 2006&#146;s gross margin of $11,858, or 17%. This increase in gross margin was mainly
attributable to shipments of higher margin products to international customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Rechargeable products segment, the cost of products sold decreased $745, from $13,923
in 2006 to $13,178 in 2007. Rechargeable gross margins for 2007 were $3,578, or 21%, a decrease of
$244 from 2006&#146;s gross margin of $3,822, or 22%. This decrease in gross margin was the result of
the decline in sales volumes and a modest change in sales mix.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->31<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Communications Systems segment, the cost of products sold increased $24,785, from
$5,662 in 2006 to $30,447 in 2007, reflective of the increase in revenues. Communications Systems
gross margins for 2007 were $6,693, or 18%, a decrease from 2006&#146;s gross margin of $1,771, or 24%.
The decrease in gross margin percentages was mainly related to operational issues incurred at our
Waco, Texas operation shortly after the acquisition of McDowell in July&nbsp;2006 that resulted in the
procurement of premium cost inventory, increasing our Cost of goods sold during 2007 as this
inventory was sold to customers. As a result of manufacturing inefficiencies at that facility, we
relocated the Waco operations to our Newark, New York facility during the third and fourth quarters
of 2007, to instill better processes and manufacturing disciplines. The actual costs associated
with this relocation were relatively modest, amounting to approximately $156. In addition, we
encountered certain inefficiencies in our manufacturing process during the fourth quarter as we
ramped up our production operation to begin to fulfill certain large orders we received during the
latter portion of 2007 for advanced communications systems, as we increased our workforce and
trained new people on processes, procedures and systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Design and Installation Services cost of sales increased $2,085, from $597 for the year ended
December&nbsp;31, 2006, to $2,682 in 2007. Design and Installation Services gross margins for 2007 were
$756, or 22%, an increase from 2006&#146;s gross margin of ($8), or (1)%. This increase was mainly due
to varying margins realized under different technology contracts, in addition to the contribution
from RedBlack and SPS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Operating and Other Expenses. </I></B>Total operating expenses increased $8,573, from $20,400 for the
year ended December&nbsp;31, 2006 to $28,973 for the year ended December&nbsp;31, 2007. Overall, operating
expenses as a percentage of sales decreased to 21% in 2007 from 22% reported the prior year.
Research and development costs were $7,000 in 2007, an increase of $1,903, or 37%, over the $5,097
reported in 2006. This increase was mainly due to greater investments in the development of
various new products, including products resulting from our acquisitions and support for a broader
base of products. In addition to the research and development line shown in Operating Expenses, we
also consider our efforts associated with technology contracts for which we are paid (revenues and
related costs are included in the Design and Installation Services segment), to be related to key
product development efforts. Selling, general, and administrative expenses increased $6,670, or
44%, to $21,973, mainly related to costs associated with acquired companies and costs associated
with providing a significantly higher level of support to enhance the growth prospects of these
acquisitions, including increased personnel-related costs, and higher professional fees incurred
and corporate costs required to support a broader, more diverse business. Included in research and
development and selling, general and administrative expenses is $2,317 for 2007 in amortization
expense associated with intangible assets related to our acquisitions ($1,290 in selling, general
and administrative expenses and $1,027 in research and development costs), an increase of $1,118
from the prior year amount of $1,199, driven by the timing of the acquisitions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Income (Expense). </I></B>Interest expense (net)&nbsp;increased $886, from $1,298 for the year ended
December&nbsp;31, 2006 to $2,184 for the year ended December&nbsp;31, 2007. This change was mainly related
to higher interest on convertible debt and higher borrowings under our revolving credit facility.
We recorded a gain on the McDowell settlement of $7,550 as a result of a negotiated reduction in
the purchase price that was finalized in November&nbsp;2007 (see Note 2 for additional information).
Miscellaneous income/expense amounted to income of $493 for 2007 compared with income of $311 for
2006. This income was primarily due
to foreign currency exchange gains, and the increase related mainly to the strengthening of
the U.K. pound sterling compared with the U. S. dollar.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Income Taxes. </I></B>We reflected a tax provision of $77 for the twelve-month period ended December
31, 2007 compared with $23,735 in the same period of 2006. At the end of 2006, we recorded a full
valuation allowance on our net deferred tax asset, due to the determination that it was more likely
than not that we would not be able to utilize these benefits in the future. At December&nbsp;31, 2007,
we continue to recognize a full valuation allowance on our net deferred tax asset, as we believe
that it is more likely than not that we will not be able to utilize these benefits in the future.
(See Notes 1 and 8 for additional information.) We continually monitor the assumptions and
performance results to assess the realizability of the tax benefits of the U.S. and U.K. net
operating losses and other deferred tax assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Net Income. </I></B>Net income was $5,583, or $0.36 per basic and diluted common share, for the year
ended December&nbsp;31, 2007 compared with a net loss of $27,488, or $1.84 per basic and diluted common
share, for the year ended December&nbsp;31, 2006, primarily as a result of an improvement in the
operating loss due to improved profit margins on revenues and overall increase in sales volumes,
the recognition of a non-operating gain on the McDowell settlement, and the recognition of a full
valuation allowance against our deferred tax asset in 2006 that did not reoccur in 2007. Average
common shares outstanding used to compute diluted earnings per share increased from 14,906,000 in
2006 to 15,557,000 in 2007, mainly due to stock option exercises, the dilutive impact from
unexercised options and warrants, and the partial-year impact of the limited public offering
completed in November&nbsp;2007 where an additional 1,000,000 shares were issued.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->32<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Twelve Months Ended December&nbsp;31, 2006 Compared With the Twelve Months Ended December&nbsp;31, 2005</I>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">12 Months Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Increase /</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">12/31/2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">12/31/2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">(Decrease)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">93,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,045</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of products sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,860</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,185</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating and other expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,240</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,957</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,902</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other (expense)&nbsp;income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(796</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(954</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,753</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,856</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision/(benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,246</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (loss)/income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(23,143</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (loss)/income per share &#151; basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.30</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.54</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (loss)/income per share &#151; diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.30</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.54</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average shares outstanding-basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,906,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,551,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="right">355,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average shares outstanding-diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,906,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,551,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp; &nbsp; &nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Revenues</I></B>. Total revenues for the twelve months ended December&nbsp;31, 2006 amounted to $93,546,
an increase of $23,045, or 33% from the $70,501 reported for the twelve months ended December&nbsp;31,
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-Rechargeable product sales increased $9,270, or 16%, year-over-year, driven mainly by an
increase in sales of automotive telematics backup batteries and higher sales of 9-volt batteries,
as well as $2,694 attributable to the addition of ABLE in May of 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rechargeable product revenues rose $7,678, or 76%, from $10,067 to $17,745, mainly due to
higher shipments of multi-cell lithium ion rechargeable battery packs and charger systems, sold
primarily to government customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of communications systems amounted to $7,433 in 2006 reflecting sales of various
products related to McDowell, which was acquired in July&nbsp;2006. We had no comparable sales in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Design and installation services revenues, consisting of technology contracts, decreased
$1,336 to $589 for the year ended December&nbsp;31, 2006, mainly due to the completion of work on our
development contract with General Dynamics.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Cost of Products Sold. </I></B>Cost of products sold increased $17,860 from $58,243 for the year
ended December&nbsp;31, 2005 to $76,103 for the year ended December&nbsp;31, 2006, primarily as a result of
the increase in revenues. Consolidated cost of products sold as a percentage of total revenue
decreased from 83% for the twelve months ended December&nbsp;31, 2005 to 81% for the year ended December
31, 2006. Correspondingly, consolidated gross margins were 19% for the year ended December&nbsp;31,
2006, compared with 17% for the year ended December&nbsp;31, 2005, mainly attributable to margin
improvements in Rechargeable product sales in addition to margins generated in communications
systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Non-Rechargeable products segment, the cost of products sold increased $8,295, from
$47,626 in the year ended December&nbsp;31, 2005 to $55,921 in 2006, mainly related to higher production
volumes and shipments. As a percent of total non-rechargeable battery sales, the cost of
non-rechargeable products sold for the year ended December&nbsp;31, 2006 was 83%, an increase over the
81% reported for the year ended December&nbsp;31, 2005. The corresponding non-rechargeable gross
margins were 17% in 2006 and 19% in 2005. Gross margins in 2006 were adversely impacted as costs in the second half of the year were
higher than expected due to certain operating inefficiencies in our 9-volt operations that have
subsequently been resolved, in addition to a shift in sales mix.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Rechargeable products segment, the cost of products sold increased $5,172, from $8,751
in 2005 to $13,923 in 2006. Rechargeable gross margins for 2006 were $3,822, or 22%, an increase of
$2,506 over 2005&#146;s gross margin of $1,316, or 13%. This improvement in gross margin was
attributable to higher sales volumes and a more favorable sales mix.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of products sold in Communications Systems amounted to $5,662 in 2006, reflecting a gross
margin of 24%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Design and installation services cost of sales, consisting of technology contracts, decreased
$1,269, from $1,866 for the year ended December&nbsp;31, 2005, to $597 in 2006. This decline in costs
was related to a decrease in revenue in the segment.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->33<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Design and installation services cost of sales as a percentage of revenue was 101% for the year ended December&nbsp;31, 2006, compared with 97%
for the year ended December&nbsp;31, 2005. Correspondingly, gross margins were a 1% loss in 2006
compared with a 3% profit in 2005. This margin decline was mainly due to adjustments in the
estimated costs to complete our contracts with General Dynamics and Harris RF Communications as
these projects transition from development to production.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Operating and Other Expenses. </I></B>Total operating expenses increased $5,240, from $15,160 for the
year ended December&nbsp;31, 2005 to $20,400 for the year ended December&nbsp;31, 2006. Excluding the impact
of expensing stock options of $1,286 ($1,193 in selling, general, and administrative expenses and
$93 in research and development charges) related to the adoption of FAS 123R in 2006, operating
expenses increased $3,954. Amortization expense associated with the recognition of intangible
assets related to the acquisitions of ABLE and McDowell created $1,199 ($580 in selling, general,
and administrative expenses and $619 in research and development charges) in additional operating
expenses, and ongoing operating expenses from the newly acquired companies added approximately
$3,100 of operating expenses in 2006. Research and development charges increased $1,346 to $5,097
in 2006 due to added development costs associated with the addition of McDowell&#146;s R&#038;D expenses and
the amortization of intangible assets in 2006. In addition to the R&#038;D line shown in Operating
Expenses, we also consider our efforts for technology contracts included in our Design and
Installation Services segment to be related to key product development efforts. Selling, general,
and administrative expenses increased $3,894 to $15,303. Excluding the impact of expensing stock
options, selling, general, and administrative expenses increased $2,701 primarily related to
additional operating costs associated with the newly acquired entities, in addition to integration
costs and the amortization of intangible assets in 2006. Overall, operating and other expenses as
a percentage of sales were 22% in 2006, consistent with 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Income (Expense). </I></B>Interest expense (net)&nbsp;increased $662, from $636 for the year ended
December&nbsp;31, 2005 to $1,298 for the year ended December&nbsp;31, 2006. This change was mainly related
to interest on the $20,000 convertible note issued to partially finance the McDowell acquisition in
July&nbsp;2006, lower interest income on lower invested cash, and higher interest rates associated with
our outstanding bank debt. During 2006, we recorded a $191 gain from an insurance settlement
related to the finalization of an insurance claim for our U.K. operation. (See Note 13 for
additional information.) Miscellaneous income/expense amounted to income of $311 in 2006 compared
with an expense of $318 for 2005. This change resulted mainly from changes in foreign currency
exchange rates, related primarily to the translation impact of our U.S. dollar-denominated loan
with our UK subsidiary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Income Taxes. </I></B>We reflected a tax provision of $23,735 for the twelve-month period ended
December&nbsp;31, 2006 compared with $489 in the same period of 2005. At the end of 2004, based on our
assessment, a deferred tax asset was recorded to the expected future tax benefit to be received
relating to our U.S. operations. This was due to our profitable track record and expected
continued profitability; the asset was recorded since it was determined to be more likely than not
to be realized. We continually assess the carrying value of this asset based on relevant
accounting standards. In the fourth quarter of 2006, our assessment concluded that we needed to
reestablish a full valuation allowance against this deferred tax asset. The reestablishment of
this valuation allowance generated a $24,116 non-cash charge to income taxes in the
fourth quarter of 2006. As we reestablish a pattern of profitability, we will continue to
reassess the need for a valuation allowance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included in the 2005 provision is a $1,456 impact from a change in the New York State income
tax law in the second quarter of 2005, which caused a reduction to the associated deferred tax
asset. In April&nbsp;2005, legislation was enacted in New York State that changed the apportionment
methodology for corporate income from a &#147;three factor formula&#148; comprised of payroll, property and
sales, to one which uses only sales. This change is to be phased in beginning in 2006, and the
change is fully effective for the tax year 2008 and thereafter. It is expected that this
legislative change, when fully implemented, will result in a reduction in our New York State
effective tax rate from approximately 2.46% to 0.03%. Excluding the New York State tax provision,
the 2005 benefit related mainly from the year-to-date loss before income taxes for U.S. operations.
(See Notes 1 and 8 for additional information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Net Loss. </I></B>Net loss was $27,488, or $1.84 per basic and diluted common share, for the year
ended December&nbsp;31, 2006 compared with a net loss of $4,345, or $0.30 per basic and diluted common
share, for the year ended December&nbsp;31, 2005, primarily as a result of the non-cash charge to income
taxes in 2006. Average common shares outstanding used to compute basic earnings per share
increased from 14,551,000 in 2005 to 14,906,000 in 2006, mainly due to stock option and warrant
exercises in 2006.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Adjusted EBITDA</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In evaluating our business, we consider and use Adjusted EBITDA, a non-GAAP financial measure,
as a supplemental measure of our operating performance. We define Adjusted EBITDA as net income
(loss)&nbsp;before net interest expense, provision (benefit)&nbsp;for income taxes, depreciation and
amortization, plus/minus expenses/income that we do not consider reflective of our ongoing
operations. We use Adjusted EBITDA as a supplemental measure to review
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->34<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and assess our operating performance and to enhance comparability between periods. We also believe the use of Adjusted
EBITDA facilitates investors&#146; use of operating performance comparisons from period to period and
company to company by backing out potential differences caused by variations in such items as
capital structures (affecting relative interest expense and stock-based compensation expense), the
book amortization of intangible assets (affecting relative amortization expense), the age and book
value of facilities and equipment (affecting relative depreciation expense) and other significant
non-cash, non-operating expenses or income. We also present Adjusted EBITDA because we believe it
is frequently used by securities analysts, investors and other interested parties as a measure of
financial performance. We reconcile Adjusted EBITDA to net income (loss), the most comparable
financial measure under U.S. generally accepted accounting principles (&#147;U.S. GAAP&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use Adjusted EBITDA in our decision-making processes relating to the operation of our
business together with U.S. GAAP financial measures such as income (loss)&nbsp;from operations. We
believe that Adjusted EBITDA permits a comparative assessment of our operating performance,
relative to our performance based on our U.S. GAAP results, while isolating the effects of
depreciation and amortization, which may vary from period to period without any correlation to
underlying operating performance, and of non-cash stock-based compensation, which is a non-cash
expense that varies widely among companies. We provide information relating to our Adjusted EBITDA
so that securities analysts, investors and other interested parties have the same data that we
employ in assessing our overall operations. We believe that trends in our Adjusted EBITDA are a
valuable indicator of our operating performance on a consolidated basis and of our ability to
produce operating cash flows to fund working capital needs, to service debt obligations and to fund
capital expenditures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The term Adjusted EBITDA is not defined under U.S. GAAP, and is not a measure of operating
income, operating performance or liquidity presented in accordance with U.S. GAAP. Our Adjusted
EBITDA has limitations as an analytical tool, and when assessing our operating performance,
Adjusted EBITDA should not be considered in isolation, or as a substitute for net income (loss)&nbsp;or
other consolidated statement of operations data prepared in accordance with U.S. GAAP. Some of
these limitations include, but are not limited to, the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Adjusted EBITDA (1)&nbsp;does not reflect our cash expenditures or future requirements
for capital expenditures or contractual commitments; (2)&nbsp;does not reflect changes in,
or cash requirements for, our working capital needs; (3)&nbsp;does not reflect the
interest expense, or the cash requirements necessary to service interest or principal
payments, on our debt; (4)&nbsp;does not reflect income taxes or the cash requirements for
any tax payments; and (5)&nbsp;does not reflect all of the costs associated with operating
our business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future, and Adjusted
EBITDA does not reflect any cash requirements for such replacements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>while stock-based compensation is a component of cost of products sold and
operating expenses, the impact on our consolidated financial statements compared to
other companies can vary significantly due to such factors as assumed life of the
stock-based awards and assumed volatility of our common stock; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other companies may calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->35<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compensate for these limitations by relying primarily on our U.S. GAAP results and using
Adjusted EBITDA only supplementally. Adjusted EBITDA is calculated as follows for the periods
presented:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 0px solid #000000"><B>Years ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">636</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: income tax provision (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">489</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: depreciation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,181</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: amortization expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: stock-based compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: gain on McDowell settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,550</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjusted EBITDA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,621</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(39</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
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</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Liquidity and Capital Resources</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Cash Flows and General Business Matters</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, cash and cash equivalents totaled $2,245. During the twelve months
ended December&nbsp;31, 2007, we generated $1,569 of cash from operating activities as compared to
generating $151 of cash for the twelve months ended December&nbsp;31, 2006. The cash from operating
activities generated during 2007 was mainly attributable to our pre-tax income of $5,583, plus an
addback for non-cash expenses of depreciation, amortization and stock-based compensation of $8,327,
offset by a deduction of $7,550 for the non-cash gain from the McDowell settlement agreement.
Approximately $6,114 of cash was used for working capital due mainly to an increase in inventories
that resulted from sizeable orders for communications systems in the latter part of 2007. The cash
generated from operating activities of $151 during 2006 was mainly attributable to a pre-tax loss
of $3,753, offset by an addback for non-cash expenses of depreciation, amortization and stock-based
compensation of $6,346. As discussed previously, we recorded a $23,735 charge in the fourth
quarter of 2006 related to a full reserve for our deferred tax asset, which had no impact on cash.
Changes in working capital in 2006 were modest, as increases in receivables and inventories were
offset by increases in payables and other liabilities, net of the impact from acquisitions. The
increase in receivables in 2006 was related to the timing of shipments toward the end of 2006, and
the increase in payables was related to higher inventory levels needed to meet production
requirements and timing of payments to suppliers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2007, we used $10,751 of cash in investing activities, $2,073 of which was used to purchase
fixed assets, and $8,678 of which was used in connection with the acquisitions of RedBlack and SPS,
as well as a contingent purchase price payout related to the ABLE acquisition. During 2007, we
generated $10,427 in net funds from financing activities. The financing activities included
inflows of $13,936 from the issuance of stock and stock option exercises, including $12,622 that
resulted from a limited public offering in November&nbsp;2007 where we issued one million new shares of
common stock, and $3,308 from revolver loan borrowings, offset by principal payments on our term
loan, capital leases, and debt we assumed from acquisitions of $6,817.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we booked a full reserve for our deferred tax asset during the fourth quarter of 2006
and continue to carry this reserve as of December&nbsp;31, 2007, we continue to have significant U.S.
NOLs available to us to utilize as an offset to taxable income. As of December&nbsp;31, 2007, none of
our U.S. NOLs have expired. Over the next five years, the scheduled expirations of our U.S. NOLs
are as follows: 2008 &#151; $2,428, 2009 &#151; $3,303, 2010 &#151; $2,034, 2011 &#151; $6,158, and 2012 &#151; $10,429.
(See Note 8 in the Notes to the Consolidated Financial Statements for additional information.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory turnover for the year ended December&nbsp;31, 2007 averaged 3.0 turns compared to 3.2
turns for 2006. The decline in this metric is mainly due to the timing of production and shipments,
including maintaining a supply of raw materials for surge production for the U.S. military, and the
impact from procuring premium priced inventory at our Waco operation in the latter part of 2006.
In addition, our inventory turnover was impacted by delayed deliveries to our customers in the
fourth quarter of 2007 due to a supply chain issue at our sole supplier for a key component of our
advanced communications systems we had coordinated as we ramped-up of production at the end of 2007
to meet shipping schedules on certain large orders received during the fourth quarter. We expect
this metric to improve during 2008 as our supply chain issues are resolved and we can ship products
to our customer in a more timely fashion. Our Days Sales Outstanding
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(DSOs) was an average of 55&nbsp;days for 2007, an increase from the 2006 average of 50&nbsp;days, as our customer base continues to
expand and the credit terms for non-U.S. customers are generally more lenient than for U.S.
customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
order backlog at December&nbsp;31, 2007 was approximately $141,850, of which approximately
$115,506 related to recent orders for SATCOM-On-The-Move and other advanced communications systems.
The majority of the backlog was related to orders that are expected to ship throughout 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, we had made commitments to purchase approximately $326 of production
machinery and equipment, which we expect to fund through operating cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2005, we received a contract valued at approximately $3,000 from the U.S. Defense
Department to purchase equipment and enhance processes to reduce lead time and increase
manufacturing efficiency to boost production surge capability of our BA-5390 battery during
contingency operations. Under the contract, we have also purchased and pre-positioned critical
long lead-time materials and subassemblies. During 2006 and 2007, we
received approximately $2,852
for completing the first four milestones under the contract, primarily related to reimbursement for
raw material inventory and the procurement of certain equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have had certain &#147;exigent&#148; non-bid contracts with the U.S. government that have been
subject to an audit and final price adjustment, which have resulted in decreased margins compared
with the original terms of the contracts. As of December&nbsp;31, 2007, there were no outstanding
exigent contracts with the U.S. government. As part of its due diligence, the U.S. government has
conducted post-audits of the completed exigent contracts to ensure that information used in
supporting the pricing of exigent contracts did not differ materially from actual results. In
September&nbsp;2005, the Defense Contracting Audit Agency (&#147;DCAA&#148;) presented its findings related to the
audits of three of the exigent contracts, suggesting a potential pricing adjustment of
approximately $1,400 related to reductions in the cost of materials that occurred prior to the
final negotiation of these contracts. We have reviewed these audit reports, have submitted our
response to these audits and believe, taken as a whole, the proposed audit adjustments can be
offset with the consideration of other compensating cost increases that occurred prior to the final
negotiation of the contracts. While we believe that potential exposure exists relating to any
final negotiation of these proposed adjustments, we cannot reasonably estimate what, if any,
adjustment may result when finalized. In addition, in June&nbsp;2007, we received a request from the
Office of Inspector General of the Department of Defense (&#147;DoD IG&#148;) seeking certain information and
documents relating to our business with the Department of Defense. We are cooperating with the DoD
IG inquiry and have furnished the requested information and documents. At this time we have no
basis for assessing whether we might face any penalties or liabilities on account of the DoD IG
inquiry. The aforementioned DCAA-related adjustments could reduce margins and, along with the
aforementioned DoD IG inquiry, could have an adverse effect on our business, financial condition
and results of operation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From August&nbsp;2002 through August&nbsp;2006, we participated in a self-insured trust to manage our
workers&#146; compensation activity for our employees in New York State. All members of this trust
have, by design, joint and several liability during the time they participate in the trust. In
August&nbsp;2006, we left the self-insured trust and have obtained alternative coverage of our workers&#146;
compensation program through a third-party insurer. In the third quarter of 2006, we confirmed
that the trust was in an underfunded position (i.e. the assets of the trust were insufficient to
cover the actuarially projected liabilities associated with the members in the trust). In the
third quarter of 2006, we recorded a liability and an associated expense of $350
as an estimate of our potential future cost related to the trust&#146;s underfunded status. As of
December&nbsp;31, 2007, we have determined that our reserve for this potential liability continues to be
reasonable. It is likely, however, that the final amount may be more or less, depending upon the
ultimate settlement of claims that remain in the trust for the period of time we were a member. It
is likely to take several years before the final resolution of outstanding workers&#146; compensation
claims. We will continue to review this liability periodically and make adjustments accordingly as
new information is collected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our acquisition of ABLE on May&nbsp;19, 2006, there was an additional $500 cash
payment to be made to the sellers of ABLE upon the achievement of certain performance milestones,
payable in separate $250 payments, when cumulative ABLE revenues from the date of acquisition
attain $5,000 and $10,000, respectively. The contingent payments will be recorded as an addition
to the purchase price when the performance milestones are attained. The first milestone payment
was made during the fourth quarter of 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our acquisition of McDowell, the purchase price of approximately $25,000
(consisting of $5,000 in cash and a $20,000 non-transferable convertible note to be held by the
sellers) was subject to a post-closing adjustment based on a final valuation of trade accounts
receivable, inventory and trade accounts payable that were acquired or assumed on the date of the
closing, using a base value of $3,000. The final net value of these assets, under our contractual
obligation under the acquisition agreement, was $6,389, resulting in a revised purchase price of
approximately $28,448. In January&nbsp;2007, we made a $1,500 payment to the sellers of McDowell as
partial payment for the remaining obligation and we
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">had accrued $1,889 for the remaining final post-closing adjustment of $3,389. On November&nbsp;16, 2007, we finalized a settlement agreement with
the sellers of McDowell, which resolved various operational issues that arose during the first
several months following the acquisition that significantly reduced our profit margins. The
settlement agreement reduced the overall purchase price by approximately $7,900, by reducing the
principal amount on the convertible note from $20,000 to $14,000, and eliminating a $1,889
liability related to the Purchase Price Adjustment formula. In addition, the interest rate on the
convertible notes was increased from 4% to 5% and we made prepayments totaling $3,500 on the
convertible notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our acquisition of RedBlack on September&nbsp;28, 2007, there is an additional
cash payment of up to $2,000 to be made contingent upon the achievement of certain annual sales
milestones through September&nbsp;30, 2010. The additional cash consideration is payable in up to three
annual payments and subject to possible adjustments as set forth in the stock purchase agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our acquisition of Stationary Power Services on November&nbsp;16, 2007, the
purchase agreement specified an adjustment mechanism based upon SPS&#146;s closing date net worth
balance relative to a previously-agreed amount of $500. This adjustment is still under review. In
addition, there is a contingent payout of 100,000 shares of our common stock to be earned upon the
achievement of certain post-acquisition sales milestones.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our acquisition of Reserve Power Systems on November&nbsp;16, 2007, on the
achievement of certain post-acquisition sales milestones, we will pay the sellers, in cash, 5% of
sales up to the sales in the operating plan, and 10% of sales that exceed the sales in the
operating plan, for the remainder of the calendar year 2007 and for calendar years 2008, 2009 and
2010. The additional contingent cash consideration is payable in annual installments, and excludes
sales made to SPS, which historically have comprised substantially all of RPS&#146;s sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Debt and Lease Commitments</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007, we had outstanding capital lease obligations of $514.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary credit facility, which was initiated in June&nbsp;2004, consists of both a term loan
component and a revolver component, and the facility is collateralized by essentially all of our
assets, including those owned by our subsidiaries. The lenders of the credit facility are JP
Morgan Chase Bank and Manufacturers and Traders Trust Company, with JP Morgan Chase Bank acting as
the administrative agent. The current revolver loan commitment is $15,000. Availability under the
revolving credit component is subject to meeting certain financial covenants. We are required to meet certain financial
covenants under the facility, as amended, including a debt to earnings ratio, a fixed charge
coverage ratio, and a current assets to total liabilities ratio. In addition, we are required to
meet certain non-financial covenants. The rate of interest, in general, is based upon either a
LIBOR rate or Prime, plus a Eurodollar spread (dependent upon a debt to earnings ratio within a
predetermined grid).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;30, 2004, we drew down the full $10,000 term loan that was made available to us. The
term loan is being repaid in equal monthly installments of $167 over five years. On July&nbsp;1, 2004,
we entered into an interest rate swap arrangement in the notional amount of $10,000 to be effective
on August&nbsp;2, 2004, related to the $10,000 term loan, in order to take advantage of historically low
interest rates. We received a fixed rate of interest in exchange for a variable rate. The swap
rate received was 3.98% for five years. The total rate of interest paid by us is equal to the swap
rate of 3.98% plus the Eurodollar spread stipulated in the predetermined grid associated with the
term loan. On January&nbsp;1, 2006, the adjusted rate was 6.98%. On February&nbsp;14, 2007, the adjusted
rate increased to 7.23%, on August&nbsp;15, 2007, the adjusted rate decreased to 6.98%, and on November
7, 2007, the adjusted rate decreased to 5.98%. Derivative instruments are accounted for in
accordance with SFAS No.&nbsp;133, &#147;Accounting for Derivative Instruments and Hedging Activities&#148;, which
requires that all derivative instruments be recognized in the financial statements at fair value.
The fair value of this arrangement at December&nbsp;31, 2007 resulted in an asset of $4, all of which
was reflected as a short-term asset.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been several amendments to the credit facility during the past few years, including
amendments to authorize acquisitions and modify financial covenants. Effective
February&nbsp;14, 2007, we entered into Forbearance and Amendment Number Six to the Credit Agreement
(&#147;Forbearance and Amendment&#148;) with the banks. The Forbearance and Amendment provided that the
banks would forbear from exercising their rights under the credit facility arising from our failure
to comply with certain financial covenants in the credit facility with respect to the fiscal
quarter ended December&nbsp;31, 2006. Specifically, we were not in compliance with the terms of the
credit facility because we failed to maintain the required debt-to-earnings and EBIT-to-interest
ratios provided for in the credit facility at that time. The banks agreed to forbear from
exercising their respective rights and remedies under the credit facility until March&nbsp;23, 2007
(&#147;Forbearance Period&#148;), unless we breached the Forbearance and Amendment or unless another event or
condition occurred that constituted a default under the credit facility. Each bank agreed to
continue to make revolving loans available to us during the Forbearance Period. Pursuant to the
Forbearance and Amendment, the aggregate amount of the banks&#146; revolving
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">loan commitment was reduced from $20,000 to $15,000. During the Forbearance Period, the applicable revolving interest rate and
the applicable term interest rate, in each case as set forth in the credit agreement, both were
increased by 25 basis points. In addition to a number of technical and conforming amendments, the
Forbearance and Amendment revised the definition of &#147;Change in Control&#148; in the credit facility to
provide that the acquisition of equity interests representing more than 30% of the aggregate
ordinary voting power represented by the issued and outstanding equity interests of us shall
constitute a &#147;Change in Control&#148; for purposes of the credit facility. Previously, the equity
interest threshold had been set at 20%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective March&nbsp;23, 2007, we entered into Extension of Forbearance and Amendment Number Seven
to Credit Agreement (&#147;Extension and Amendment&#148;) with the banks. The Extension and Amendment
provided that the banks agreed to extend the Forbearance Period until May&nbsp;18, 2007. The Extension
and Amendment also acknowledged that we continued not to be in compliance with the financial
covenants identified above for the fiscal quarter ended December&nbsp;31, 2006 and did not contemplate
being in compliance for the fiscal quarter ending March&nbsp;31, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective May&nbsp;18, 2007, we entered into Extension of Forbearance and Amendment Number Eight to
Credit Agreement (&#147;Second Extension and Amendment&#148;) with the banks. The Second Extension and
Amendment provided that the banks agreed to extend the Forbearance Period until August&nbsp;15, 2007.
The Second Extension and Amendment also acknowledged that we continued not to be in compliance with
the financial covenants identified above for the fiscal quarter ended March&nbsp;31, 2007 and did not
contemplate being in compliance for the fiscal quarter ending June&nbsp;30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective August&nbsp;15, 2007, we entered into Amendment Number Nine to Credit Agreement
(&#147;Amendment Nine&#148;) with the banks. Amendment Nine effectively ended the Forbearance Period and
extended the term of the revolving credit component of the facility to January&nbsp;31, 2009 and
the term of the term loan component of the facility to July&nbsp;1, 2009. Amendment Nine also added
several definitions and modified or replaced certain covenants. As of December&nbsp;31, 2007, we were
in compliance with all of the credit facility covenants, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, we had $3,167 outstanding under the term loan component of our credit
facility with our primary lending bank and $11,200 was outstanding under the revolver component.
At December&nbsp;31, 2007, the interest rate on the revolver component was 7.25%. The revolver arrangement currently provides for up to $15,000 of borrowing capacity,
including outstanding letters of credit. At December&nbsp;31, 2007, we had no outstanding letters of
credit related to this facility, as amended August&nbsp;15, 2007, leaving $3,800 of additional borrowing
capacity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our wholly-owned U.K. subsidiary, Ultralife Batteries (UK)&nbsp;Ltd. (&#147;Ultralife UK&#148;), has an
agreement for a revolving credit facility with a commercial bank in the U.K. This credit facility
provides our U.K. operation with additional financing flexibility for its working capital needs.
Any borrowings against this credit facility are collateralized with Ultralife UK&#146;s outstanding
accounts receivable balances. The maximum credit available to that subsidiary under the facility
is approximately $899 as of December&nbsp;31, 2007. The rate of interest is based upon prime plus 2.25%
(7.75% at December&nbsp;31, 2007). At December&nbsp;31, 2007, there was nothing outstanding under this
facility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our acquisition of RedBlack, we assumed approximately $900 in debt, of
which we immediately paid off approximately $875 after closing. In connection with our acquisition
of SPS and RPS, we assumed approximately $1,400 in debt, of which we immediately paid off
approximately $1,200 after closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are continually in discussion with our primary lending banks to enhance the flexibility of
our credit facility structure. While we believe relations with our lenders are good and we have
received waivers as necessary in the past, there can be no assurance that such waivers can always
be obtained. In such case, we believe we have, in the aggregate, sufficient cash, cash generation
capabilities from operations, working capital, and financing alternatives at our disposal,
including but not limited to alternative borrowing arrangements and other available lenders, to
fund operations in the normal course and repay the debt outstanding under our credit facility that
is subject to Amendment Nine.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been able to obtain certain grants/loans from government agencies to assist with
various funding needs. In November&nbsp;2001, we received approval for a $300 grant/loan from New York
State. The grant/loan was to fund capital expansion plans that we expected would lead to job
creation. In this case, we were to be reimbursed after the full completion of the particular
project. This grant/loan also required us to meet and maintain certain levels of employment.
During 2002, since we did not meet the initial employment threshold, it appeared unlikely at that
time that we would be able to gain access to these funds. However, during 2006, our employment
levels had increased to a level that exceeded the minimum threshold, and we received these funds in
April&nbsp;2007. As this grant/loan requires us to not only meet, but maintain our employment levels
for a pre-determined time period, we currently reflect the funds that we received as a
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">current liability, in the Other Current Liabilities line on our Consolidated Balance Sheet. Our employment
levels met the specified levels as of December&nbsp;31, 2007. In the event our employment levels are
not maintained at the specified levels at December&nbsp;31, 2008, we may be required to pay back these
funds.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Equity Transactions</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2007, 2006 and 2005, we issued 204,000, 200,000, and 452,000 shares of common stock,
respectively, as a result of exercises of stock options and warrants. We received approximately
$1,314 in 2007, $1,231 in 2006 and $2,488 in 2005 in cash proceeds as a result of these
transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2007 and 2006, we issued restricted stock awards of 51,548 and 85,668 shares of our
common stock, respectively, to certain officers and directors, with various vesting schedules
related to time and performance. At December&nbsp;31, 2007, 45,313 shares had vested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2007, we completed a limited public offering, whereby 1,000,000 shares of our
common stock were issued. Total net proceeds from the offering were approximately $12,600, of
which $6,000 was used for the SPS cash payment, $3,500 was used as a prepayment on the subordinated
convertible notes that were issued as partial consideration for the McDowell acquisition, and
$1,000 was used as a repayment of borrowings outstanding under our credit facility used to fund the
RedBlack acquisition. The remainder of the proceeds was used for general working capital purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our May&nbsp;2006 stock purchase of ABLE New Energy Co., Ltd., we issued a
combination of shares and warrants exercisable for shares of our common stock to the previous
owners of ABLE New Energy Co., Ltd. as part of the purchase price. The equity portion of the
purchase price consisted of 96,247 shares of our common stock valued at $1,000, based on the
closing price of the stock on the closing date of the acquisition, and 100,000 stock warrants with
a five-year term valued at $526, for a total equity consideration of $1,526. In January&nbsp;2008,
82,000 warrants were exercised.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our July&nbsp;2006 acquisition of substantially all of the assets of McDowell
Research, Ltd., we issued to McDowell Research, Ltd. a non-transferable, subordinated convertible
promissory note in the principal amount of $20,000 as part of the purchase price. The $20,000
convertible note carried a five-year term, an annual interest rate of 4% and was convertible at $15
per share into 1.33&nbsp;million shares of our common stock, with a forced conversion feature, at our
option, at any time after the 30-day average closing price of our common stock exceeds $17.50 per
share. The conversion price was subject to adjustment as defined in the subordinated convertible
promissory note. Interest was payable quarterly in arrears, with all unpaid accrued interest and
outstanding principal due in full on July&nbsp;3, 2011. In April&nbsp;2007, in connection with its
dissolution, McDowell Research, Ltd. distributed the convertible note to its members in proportion
to their membership interests, resulting in six separate convertible notes aggregating to $20,000.
On November&nbsp;16, 2007, we finalized a settlement agreement with the sellers of McDowell Research,
Ltd., which resolved various operational issues that arose during the first several months
following the acquisition that significantly reduced our profit margins. The settlement agreement
reduced the overall purchase price by approximately $7,900, by reducing the principal amount on the
convertible notes from $20,000 to $14,000, and eliminating the $1,889 liability related to the
purchase price adjustment. In addition, the interest rate on the convertible notes was increased
from 4% to 5% and we made prepayments totaling $3,500 on the convertible notes. In January&nbsp;2008,
the convertible notes were converted in full into 700,000 shares of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our November&nbsp;2007 acquisition of all of the issued and outstanding shares
of common stock of Stationary Power Services, Inc., we issued, to the seller, a subordinated
convertible promissory note in the principal amount of $4,000 as part of the purchase price. The
$4,000 convertible note carries a three-year term, an annual interest rate of 5% and is convertible
at $15 per share into 266,667 shares of our common stock, with a forced conversion feature at $17.00 per
share. The conversion price is subject to adjustment as defined in the subordinated convertible
promissory note. Interest is payable quarterly in arrears, with all unpaid accrued interest and
outstanding principal due in full on November&nbsp;16, 2010. In addition, on the achievement of certain
post-acquisition sales milestones, we will issue up to an aggregate amount of 100,000 shares of our
common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our November&nbsp;2007 acquisition of all of the issued and outstanding shares
of common stock of Reserve Power Systems, Inc., we issued 100,000 shares of our common stock valued
at $1,383.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We utilized securities as consideration in these transactions in part to reduce the need to
draw on the liquidity provided by our cash and cash equivalents and revolving credit facility.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->40<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Other Matters</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continue to be optimistic about our future prospects and growth potential. We continually
explore various sources of liquidity to ensure financing flexibility, including leasing
alternatives, issuing new or refinancing existing debt, and raising equity through private or
public offerings. Although we stay abreast of such financing alternatives, we believe we have the
ability during the next 12&nbsp;months to finance our operations primarily through internally generated
funds or through the use of additional financing that currently is available to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our plan to achieve operational profitability and reduce our negative cash flows from
operations includes successfully resolving our supply chain issue for a key component that caused a
delay in shipping certain advanced communications systems to fulfill certain large orders,
implementing measures in our operations to reduce scrap and improve manufacturing efficiencies, and
reducing our inventory levels by balancing our production activity and sales orders more
effectively. Additionally, we believe we have adequate third party financing available to fund our
operations or we could obtain other financing, if needed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we are unable to achieve our plans or unforeseen events occur, we may need to implement
alternative plans. While we believe we can complete our original plans or alternative plans, if
necessary, there can be no assurance that such alternatives would be available on acceptable terms
and conditions or that we would be successful in our implementation of such plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As described in Part&nbsp;I, Item&nbsp;3, &#147;Legal Proceedings&#148; of this report, we are involved in certain
environmental matters with respect to our facility in Newark, New York. Although we have reserved
for expenses related to this potential exposure, there can be no assurance that such reserve will
be adequate. The ultimate resolution of this matter may have a significant adverse impact on the
results of operations in the period in which it is resolved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We typically offer warranties against any defects due to product malfunction or workmanship
for a period up to one year from the date of purchase. We offer a four-year warranty on certain
communications accessories products. We also offer a 10-year warranty on our 9-volt batteries that
are used in ionization-type smoke detector applications. We provide for a reserve for this
potential warranty expense, which is based on an analysis of historical warranty issues. There is
no assurance that future warranty claims will be consistent with past history, and in the event we
experience a significant increase in warranty claims, there is no assurance that our reserves would
be sufficient. Any such insufficiency could have a material adverse effect on our business,
financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Contractual Obligations</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18" style="border-bottom: 0px solid #000000">Payments due by period</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Less than</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">1-3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">3-5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">More than</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Contractual Obligations:</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">1 year</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">5 years</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Debt Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected Interest Payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital Lease Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating Lease Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,068</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">136,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">116,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected interest payments are calculated assuming a 5.98% annual rate on outstanding debt
principal, 7.25% annual rate on the outstanding revolver balance, plus associated fees related to
the our credit facility; the applicable annual interest rates ranging from 0.00% to 7.13% for
various notes payable for equipment and vehicles; and a 5.00% annual rate on the outstanding
principal related to the subordinated convertible notes payable. Purchase obligations consist of commitments for property, plant and
equipment, open purchase orders for materials and supplies, and other general commitments for
various service contracts.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->41<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Off-Balance Sheet Arrangements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has no off-balance sheet arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Outlook</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For 2008, we are projecting full year revenues of at least $238,000, which includes revenues
from shipments on the $24,000 SATCOM-On-The-Move contract that were delayed in the fourth quarter
of 2007. The achievement of our forecast is highly dependent on the receipt of key components to
complete orders for advanced communications systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical Accounting Policies and Estimates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The above discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in accordance with
generally accepted accounting principles in the U.S. The preparation of these financial statements
requires management to make estimates and assumptions that affect amounts reported therein. The
estimates and assumptions that require management&#146;s most difficult, subjective or complex judgments
are described below.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Revenue recognition:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Product Sales &#151; In general, revenues from the sale of products are recognized when products
are shipped. When products are shipped with terms that require transfer of title upon
delivery at a customer&#146;s location, revenues are recognized on date of delivery. A
provision is made at the time the revenue is recognized for warranty costs expected to be
incurred. Customers, including distributors, do not have a general right of return on
products shipped.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Service Contracts &#151; Revenue from fixed price engineering contracts and the sale of
installation services is recognized on a proportional method, measured by the percentage of
actual costs incurred to total estimated costs to complete the contract. Revenue from time
and material engineering contracts is recognized as work progresses through monthly
billings of time and materials as they are applied to the work pursuant to the terms in the
respective contract. Revenue from customer maintenance agreements is recognized using the
straight-line method over the term of the related agreements, which range from six months
to three years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Technology Contracts &#151; We recognize revenue using the proportional method, measured by the
percentage of actual costs incurred to date to the total estimated costs to complete the
contract. Elements of cost include direct material, labor and overhead. If a loss on a
contract is estimated, the full amount of the loss is recognized immediately. We allocate
costs to all technology contracts based upon actual costs incurred including an allocation
of certain research and development costs incurred.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Valuation of Inventory:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Inventories are stated at the lower of cost or market, with cost determined using the
first-in, first-out (FIFO)&nbsp;method. Our inventory includes raw materials, work in process
and finished goods. We record provisions for excess, obsolete or slow moving inventory
based on changes in customer demand, technology developments or other economic factors. The
factors that contribute to inventory valuation risks are our purchasing practices, material
and product obsolescence, accuracy of sales and production forecasts, introduction of new
products, product lifecycles, product support and foreign regulations governing hazardous
materials (see Item&nbsp;1A &#151; Risk Factors for further information on foreign regulations). We
manage our exposure to inventory valuation risks by maintaining safety stocks, minimum
purchase lots, managing product end-of-life issues brought on by aging components or new
product introductions, and by utilizing certain inventory minimization strategies such as
vendor-managed inventories. We believe that the accounting estimate related to valuation of
inventories is a &#147;critical accounting estimate&#148; because it is susceptible to changes from
period-to-period due to the requirement for management to make estimates relative to each
of the underlying factors ranging from purchasing, to sales, to production, to after-sale support.
If actual demand, market conditions or product lifecycles are adversely different from
those estimated by management, inventory adjustments to lower market values would result in
a reduction to the carrying value of inventory, an increase in inventory write-offs and a
decrease to gross margins.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Warranties:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">We maintain provisions related to normal warranty claims by customers. We evaluate
these reserves quarterly based on actual experience with warranty claims to date and our
assessment of additional claims in the future.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">
There is no assurance that future warranty
claims will be consistent with past history, and in the event we experience a significant
increase in warranty claims, there is no assurance that our reserves would be sufficient.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Impairment of Long-Lived Assets:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">We regularly assess all of our long-lived assets for impairment when events or
circumstances indicate their carrying amounts may not be recoverable. This is accomplished
by comparing the expected undiscounted future cash flows of the assets with the respective
carrying amount as of the date of assessment. Should aggregate future cash flows be less
than the carrying value, a write-down would be required, measured as the difference between
the carrying value and the fair value of the asset. Fair value is estimated either through
the assistance of an independent valuation or as the present value of expected discounted
future cash flows. The discount rate used by us in our evaluation approximates our
weighted average cost of capital. If the expected undiscounted future cash flows exceed the
respective carrying amount as of the date of assessment, no impairment is recognized.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Environmental Issues:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Environmental expenditures that relate to current operations are expensed or capitalized,
as appropriate, in accordance with the American Institute of Certified Public Accountants
(&#147;AICPA&#148;) Statement of Position (&#147;SOP&#148;) 96-1, &#147;Environmental Remediation Liabilities&#148;.
Remediation costs that relate to an existing condition caused by past operations are
accrued when it is probable that these costs will be incurred and can be reasonably
estimated.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Goodwill and Other Intangible Assets:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">In accordance with SFAS No.&nbsp;141, &#147;Business Combinations,&#148; the purchase price paid to effect
an acquisition is allocated to the acquired tangible and intangible assets and liabilities
at fair value. In accordance with SFAS No.&nbsp;142, &#147;Goodwill and Other Intangible Assets,&#148; we
do not amortize goodwill and intangible assets with indefinite lives, but instead measure
these assets for impairment at least annually, or when events indicate that impairment
exists. We amortize intangible assets that have definite lives so that the economic
benefits of the intangible assets are being utilized over their weighted-average estimated
useful life.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock-Based Compensation:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Effective January&nbsp;1, 2006, we adopted the provisions of SFAS No.&nbsp;123 (revised 2004),
&#147;Share-Based Payment&#148; (&#147;SFAS 123R&#148;) requiring that compensation cost relating to
share-based payment transactions be recognized in the financial statements. The cost is
measured at the grant date, based on the fair value of the award, and is recognized as an
expense over the employee&#146;s requisite service period (generally the vesting period of the
equity award). We adopted SFAS 123R using the modified prospective method and,
accordingly, did not restate prior periods presented in this report to reflect the fair
value method of recognizing compensation cost. Under the modified prospective approach,
SFAS 123R applies to new awards and to awards that were outstanding on January&nbsp;1, 2006 that
are subsequently modified, repurchased or cancelled. We calculate expected volatility for
stock options by taking an average of historical volatility over the past five years and a
computation of implied volatility. Prior to 2006, the computation of expected volatility
was based solely on historical volatility. The change to a blended volatility measure was
based on a thorough review of assumptions underlying the valuation of our stock options, in
conjunction with additional information and guidance that became more widely available as
we prepared to implement SFAS 123R in 2006. A blended volatility factor was deemed to be
more appropriate as we believe that implied volatility, a forward-looking measure, provides
a more market-driven valuation related to
investors&#146; expectations of the volatility of our business, and provides a balance against
focusing only on a historical measure. The computation of expected term was determined
based on historical experience of similar awards, giving consideration to the contractual
terms of the stock-based awards and vesting schedules. The interest rate for periods
within the contractual life of the award is based on the U.S. Treasury yield in effect at
the time of grant.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Prior to January&nbsp;1, 2006, we applied Accounting Principles Board (APB)&nbsp;Opinion No.&nbsp;25,
&#147;Accounting for Stock Issued to Employees,&#148; and related interpretations which require
compensation costs to be recognized based on the difference, if any, between the quoted
market price of the stock on the grant date and the exercise price. We had adopted the
disclosure-only provision of SFAS No.&nbsp;148, &#147;Accounting for Stock-Based Compensation&#148;. As
all options granted to employees under such plans had an exercise price at least equal to
the market value of the underlying common stock on the date of grant, and given the fixed
nature of the equity instruments, no stock-based employee compensation cost relating to
stock options was reflected in net income (loss).
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Income Taxes:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">We apply SFAS No.&nbsp;109, &#147;Accounting for Income Taxes&#148;, in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are measured using
the enacted tax rates and laws that may be in effect when the differences are expected to
reverse.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">We recorded a deferred tax asset in December&nbsp;2004 arising from our conclusion that it was
more likely than not that we would be able to utilize our U.S. net operating loss
carryforwards (&#147;NOLs&#148;) that had accumulated over time. The recognition of a deferred tax
asset resulted from our evaluation of all available evidence, both positive and negative,
including: a) recent historical net income, and income on a cumulative three-year basis, as
well as anticipated future profitability based in part on recent military contracts; b) a
financial evaluation that modeled the future utilization of anticipated deferred tax assets
under three alternative scenarios; and c) the award of a significant contract with the U.S.
Defense Department in December&nbsp;2004 for various battery types that could reach a maximum
value of $286,000 in revenues over the next five years. The amount of the net deferred tax
assets was considered realizable. As of December&nbsp;31, 2005, we continued to recognize a
deferred tax asset arising from our conclusion that it was more likely than not that we
would be able to utilize our U.S. NOLs that had accumulated over time. In December&nbsp;2006,
we placed a full valuation allowance on our deferred tax assets arising from our conclusion
that it was more likely than not that we would not be able to utilize our U.S. NOLs that
had accumulated over time. The recognition of the full valuation allowance on our deferred
tax asset resulted from our evaluation of all available evidence, both positive and
negative, including: a) recent historical net income/losses, and income/losses on a
cumulative three-year basis; and b) a financial evaluation that modeled the future
utilization of anticipated deferred tax assets under three alternative scenarios. As of
December&nbsp;31, 2007, we continue to recognize a full valuation allowance on our deferred tax
assets, based on a consistent evaluation methodology that was used for 2006 and arising
from our conclusion that it is more likely than not that we would not be able to utilize
our U.S. NOLs that have accumulated over time. We have significant NOLs related to past
years&#146; cumulative losses, and as a result can be subject to U.S. alternative minimum tax
where NOLs can offset only 90% of alternative minimum taxable income. Because evidence
such as our operating results during the most recent historical periods is afforded more
weight than forecasted results for future periods, our cumulative loss during our most
recent three-year period represents sufficient negative evidence regarding the need for a
full valuation allowance under SFAS No.&nbsp;109. Achieving business plan targets, particularly
those relating to revenue and profitability, is integral to our assessment regarding the
recoverability of our net deferred tax asset. (See Note 8 in the Notes to the Consolidated
Financial Statements for additional information.)
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Recent Accounting Pronouncements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2007, the Financial Accounting Standards Board (&#147;FASB&#148;) issued SFAS No.&nbsp;141
(revised 2007), &#147;Business Combinations&#148; (&#147;SFAS No.&nbsp;141R&#148;), which replaces SFAS 141. The statement
retains the purchase method of accounting for acquisitions, but requires a number of changes,
including changes in the way assets and liabilities are recognized in purchase accounting. It also
changes the recognition of assets acquired and liabilities assumed arising from contingencies,
requires the capitalization of in-process research and development at fair value, and requires the
expensing of acquisition-related costs as incurred. SFAS No.&nbsp;141R is effective for fiscal years
beginning on or after December&nbsp;15, 2008 and will apply prospectively to business combinations
completed on or after that date. The impact of adopting SFAS No.&nbsp;141R will be dependent on the
future business combinations that we may pursue after its effective date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2007, the FASB issued SFAS No.&nbsp;160, &#147;Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB 51&#148;, which changes the accounting and reporting for
minority interests. Minority interests will be recharacterized as noncontrolling interests and
will be reported as a component of equity separate from the parent&#146;s equity, and purchases or sales
of equity interests that do not result in a change in control will be accounted for as equity
transactions. In addition, net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement and, upon a loss of
control, the interest sold, as well as any interest retained, will be recorded at fair value with
any gain or loss recognized in earnings. SFAS No.&nbsp;160 is effective for fiscal years beginning on
or after December&nbsp;15, 2008 and will apply prospectively, except for the presentation and disclosure
requirements, which will apply retrospectively. The impact of adopting SFAS No.&nbsp;160 will be
dependent on the structure of future business combinations or partnerships that we may pursue after
its effective date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2007, the FASB issued SFAS No.&nbsp;159, &#147;The Fair Value Option for Financial Assets
and Financial Liabilities&#151;Including an amendment of FASB Statement No.&nbsp;115.&#148; SFAS No.&nbsp;159 permits
entities to choose to measure many financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. SFAS No.&nbsp;159 is effective for an entity&#146;s
first fiscal year beginning after November&nbsp;15, 2007. We do not expect the adoption of this
pronouncement to have a significant impact on our financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2006, FASB issued FASB Staff Position (&#147;FSP&#148;) EITF 00-19-2 which addresses an
issuer&#146;s accounting for registration payment arrangements for financial instruments such as equity
shares, warrants or debt
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">instruments. This FSP specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with FASB SFAS No.&nbsp;5,
&#147;Accounting for Contingencies&#148; and FASB Interpretation No.&nbsp;14, &#147;Reasonable Estimation of the Amount
of a Loss.&#148; The financial instrument(s) subject to the registration payment arrangement shall be
recognized and measured in accordance with other applicable Generally Acceptable Accounting
Principles, (&#147;GAAP&#148;) without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement.<SUP style="font-size: 85%; vertical-align: text-top"> </SUP>An entity should recognize and measure a
registration payment arrangement as a separate unit of account from the financial instrument(s)
subject to that arrangement. Adoption of this FSP may require additional disclosures relating to
the nature of the registration payment, settlement alternatives, current carrying amount of the
liability representing the issuer&#146;s obligations and the maximum potential amount of consideration,
undiscounted that the issuer could be required to transfer. This FSP shall be effective immediately
for registration payment arrangements and the financial instruments subject to those arrangements
that are entered into or modified subsequent to the date of issuance of this FSP. For registration
payment arrangements and financial instruments subject to those arrangements that were entered into
prior to the issuance of this FSP, this guidance shall be effective for financial statements issued
for fiscal years beginning after December&nbsp;15, 2006. The adoption of this pronouncement had no
impact on our financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157, &#147;Fair Value Measurements&#148;, which establishes
a framework for measuring fair value and requires expanded disclosure about the information used to
measure fair value. The statement applies whenever other statements require, or permit, assets or
liabilities to be measured at fair value. The statement does not expand the use of fair value in
any new circumstances
and is effective for fiscal years beginning after November&nbsp;15, 2007, and interim periods within
those fiscal years, with early adoption encouraged. In February&nbsp;2008, FASB issued FSP FASB No
157-2, which delays the effective date of FASB No.&nbsp;157 to fiscal years beginning after November&nbsp;15,
2008, and interim periods within those fiscal years, with early adoption encouraged. We do not
expect the adoption of this pronouncement to have a significant impact on our financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the FASB issued FASB Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in
Income Taxes, an interpretation of SFAS No.&nbsp;109&#148; (&#147;FIN 48&#148;). This statement clarifies the
accounting for uncertainty in income taxes recognized in a company&#146;s financial statements in
accordance with SFAS No.&nbsp;109, Accounting for Income Taxes. This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. This Interpretation
also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The provisions of FIN 48 were effective for fiscal
years beginning after December&nbsp;15, 2006. The adoption of this pronouncement had no significant
impact on our financial statements. See Note 8 for additional information related to the effect of
the adoption of FIN 48.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2006, the FASB issued SFAS No.&nbsp;156, &#147;Accounting for Servicing of Financial Assets&#148;,
an amendment of FASB Statement No.&nbsp;140, &#147;Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities&#148; (&#147;SFAS No.&nbsp;156&#148;). SFAS No.&nbsp;156 requires all separately
recognized servicing assets and servicing liabilities be initially measured at fair value, if
practicable, and permits for subsequent measurement using either fair value measurement with
changes in fair value reflected in earnings or the amortization and impairment requirements of
Statement No.&nbsp;140. The subsequent measurement of separately recognized servicing assets and
servicing liabilities at fair value eliminates the necessity for entities that manage the risks
inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge
accounting treatment and eliminates the characterization of declines in fair value as impairments
or direct write-downs. SFAS No.&nbsp;156 was effective for an entity&#146;s first fiscal year beginning after
September&nbsp;15, 2006. The adoption of this pronouncement had no impact on our financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2006, the FASB issued SFAS No.&nbsp;155, &#147;Accounting for Certain Hybrid Financial
Instruments&#148; (&#147;SFAS No.&nbsp;155&#148;). SFAS No.&nbsp;155 amended SFAS No.&nbsp;133, &#147;Accounting for Derivative
Instruments and Hedging Activities&#148; and SFAS No.&nbsp;140, &#147;Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.&#148; SFAS No.&nbsp;155 also resolved issues addressed
in SFAS No.&nbsp;133 Implementation Issue No.&nbsp;D1, &#147;Application of Statement 133 to Beneficial Interests
in Securitized Financial Assets.&#148; SFAS No.&nbsp;155 eliminated the exemption from applying SFAS No.&nbsp;133
to interests in securitized financial assets so that similar instruments are accounted for in the
same manner regardless of the form of the instruments. SFAS No.&nbsp;155 allows a preparer to elect fair
value measurement at acquisition, at issuance, or when a previously recognized financial instrument
is subject to a remeasurement (new basis) event, on an instrument-by-instrument basis. SFAS No.&nbsp;155
was effective for all financial instruments acquired or issued after the beginning of an entity&#146;s
first fiscal year that began after September&nbsp;15, 2006. The fair value election provided for in
paragraph 4(c) of SFAS No.&nbsp;155 may also be applied upon adoption of SFAS No.&nbsp;155 for hybrid
financial instruments that had been bifurcated under paragraph 12 of SFAS No.&nbsp;133 prior to the
adoption of this Statement. Earlier adoption was permitted as of the beginning of an entity&#146;s
fiscal year, provided the entity had not yet issued financial statements, including financial
statements for any interim period for that fiscal year. Provisions of SFAS No.&nbsp;155 may be applied
to instruments that an entity holds at the date of adoption on an
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">instrument-by-instrument basis. The adoption of this pronouncement had no significant impact on our financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the FASB issued FASB Staff Position No.&nbsp;FAS 143-1 (&#147;FSP FAS 143-1&#148;), Accounting
for Electronic Equipment Waste Obligations. FSP FAS 143-1 addresses the accounting for obligations
associated with the Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the
Directive) adopted by the European Union (EU). FSP FAS 143-1 was effective the latter of the first
reporting period that ended after June&nbsp;8, 2005 or the date that the EU-member country adopts the
law. Effective January&nbsp;2, 2007, the United Kingdom, the only EU-member country in which we have
significant operations, adopted the law. The adoption of this law had no significant impact on our
financial statements.
</DIV>
<DIV align="left">
<A name="110"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK<BR>
(Dollars in thousands)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to various market risks in the normal course of business, primarily interest
rate risk and foreign currency risk. Our primary interest rate risk is derived from our
outstanding variable-rate debt obligation. In July&nbsp;2004, we hedged this risk by entering into an
interest rate swap arrangement in connection with the term loan component of our credit facility.
Under the swap arrangement, effective August&nbsp;2, 2004, we received a fixed rate of interest in
exchange for a variable rate. The swap rate received was 3.98% for five years and is adjusted
accordingly for a Eurodollar spread incorporated in the agreement. As of December&nbsp;31, 2007, a one
basis point change in the Eurodollar spread would have a less than $1 value change.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to foreign currency risk, due to fluctuations in currencies relative to the
U.S. dollar. In the year ended December&nbsp;31, 2007, approximately 81% of our sales were denominated
in U.S. dollars. The remainder of our sales was denominated in U.K. pounds sterling, euros,
Australian dollars, Canadian dollars and Chinese yuan renminbi. A 10% change in the value of the
pound sterling, the euro, Australian dollar, Canadian dollar or the yuan renminbi to the U.S.
dollar would have impacted our revenues in that period by less than 2%. We monitor the
relationship between the U.S. dollar and other currencies on a continuous basis and adjust sales
prices for products and services sold in these foreign currencies as appropriate to safeguard
against the fluctuations in the currency effects relative to the U.S. dollar.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain manufacturing operations in North America, Europe and Asia, and export products
internationally. We purchase materials and sell our products in foreign currencies, and therefore
currency fluctuations may impact our pricing of products sold and materials purchased. In
addition, our foreign subsidiaries maintain their books in local currency, which is translated into
U.S. dollars for our consolidated financial statements. A 10% change in local currency relative to
the U.S. dollar would have impacted our consolidated income before taxes by approximately $315, or
approximately 6%.
</DIV>

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<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial statements and schedules listed in Item&nbsp;15(a)(1) and (2)&nbsp;are included in this
Report beginning on page 47.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Page</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Report of Independent Registered Public Accounting Firm,
BDO Seidman, LLP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Report of Independent Registered Public Accounting Firm,
PricewaterhouseCoopers LLP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated Financial Statements:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Consolidated Balance Sheets as of December&nbsp;31, 2007 and 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Consolidated Statements of Operations for the years ended December&nbsp;31, 2007,
2006 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Consolidated Statements of Changes in Shareholders&#146; Equity and Accumulated Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Comprehensive Income (Loss) for the years ended December&nbsp;31, 2007,
2006 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Consolidated Statements of Cash Flows for the years ended December&nbsp;31, 2007,
2006 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Notes to Consolidated Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Financial Statement Schedules:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Schedule&nbsp;II &#151; Valuation and Qualifying Accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Report of Independent Registered Public Accounting Firm</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Board of Directors and Stockholders<BR>
Ultralife Batteries, Inc.<BR>
Newark, New York

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited the accompanying consolidated balance sheets of Ultralife Batteries, Inc. as
of December&nbsp;31, 2007 and 2006 and the related consolidated statements of operations, shareholders&#146;
equity and accumulated other comprehensive income (loss), and cash flows for the years ended
December&nbsp;31, 2007 and 2006. We have also audited the schedule listed in the accompanying index for
the years ended December&nbsp;31, 2007 and 2006. These financial statements and schedule are the
responsibility of the Company&#146;s management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and schedule are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements and schedule, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our audits provide a
reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Ultralife Batteries, Inc. at December&nbsp;31, 2007 and
2006, and the results of its operations and its cash flows for the years ended December&nbsp;31, 2007
and 2006<B>, </B>in conformity with accounting principles generally accepted in the United States of
America.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also in our opinion, the schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, for the years ended December&nbsp;31, 2007 and 2006 presents fairly, in all
material respects, the information set forth therein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
discussed in Notes 1 and 7 to the consolidated financial statements, the Company changed
its method of accounting for share-based compensation on January&nbsp;1, 2006 by adopting Statement of
Financial Accounting Standards No.&nbsp;123 (revised 2004), &#147;<I>Share-Based Payment.&#148;</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Ultralife Batteries, Inc.&#146;s internal control over financial
reporting as of December&nbsp;31, 2007, based on criteria established in <I>Internal Control &#151; Integrated
Framework </I>issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)&nbsp;and
our report dated March&nbsp;19, 2008, expressed an unqualified opinion thereon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>/s/ BDO Seidman, LLP</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Troy, Michigan<BR>
March&nbsp;19, 2008

</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Report of Independent Registered Public Accounting Firm</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To the Board of Directors and Shareholders of<BR>
Ultralife Batteries, Inc.:

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, the consolidated statements of operations, shareholders&#146; equity and accumulated
other comprehensive income (loss)&nbsp;and cash flows for the year ended December&nbsp;31, 2005 present
fairly, in all material respects, the results of operations and cash flows for Ultralife Batteries,
Inc. and its subsidiaries for the year ended December&nbsp;31, 2005, in conformity with accounting
principles generally accepted in the United States of America. In addition, in our opinion, the
financial statement schedule for the year ended December&nbsp;31, 2005 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement schedule are the
responsibility of the Company&#146;s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We conducted our audits
of these statements in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>/s/ PricewaterhouseCoopers LLP</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PricewaterhouseCoopers LLP<BR>
Rochester, New York<BR>
March&nbsp;22, 2006

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->49<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.<BR>
CONSOLIDATED BALANCE SHEETS<BR>
(Dollars in Thousands, Except Per Share Amounts)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:90px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current assets:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivable, net of allowance for
doubtful accounts of $485 and $447, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,197</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,360</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due from insurance company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">780</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax asset &#151; current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">309</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,748</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,880</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Property, plant and equipment, net</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,396</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other assets:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Security deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">122,048</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">97,758</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:75px; text-indent:-15px"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current liabilities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of debt and capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,246</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,925</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">547</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued vacation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">755</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,337</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,810</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Long-term liabilities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt and capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,043</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,209</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,359</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Commitments and contingencies (Note 6)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Shareholders&#146; equity:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Preferred stock, par value $0.10 per share, authorized 1,000,000 shares;
none issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock, par value $0.10 per share, authorized 40,000,000 shares;
issued - 17,208,862 and 15,853,306, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,578</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital in excess of par value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134,736</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(321</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(88,443</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(94,026</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,967</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Less &#151;Treasury stock, at cost - 728,690 and 727,250 shares outstanding, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,378</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,589</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total Liabilities and Shareholders&#146; Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">122,048</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">97,758</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->50<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
(In Thousands, Except Per Share Amounts)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 0px solid #000000">Year Ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Revenues</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">137,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">93,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">70,501</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cost of products sold</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,243</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Gross margin</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,258</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating expenses:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Research and development (including $1,027, $619 and $0 of
amortization of intangible assets, respectively)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,751</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Selling, general, and administrative (including $1,290, $580 and $0 of
amortization of intangible assets, respectively)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,409</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total operating expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,160</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating income (loss)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,957</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,902</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other income (expense):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">185</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,234</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,424</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(821</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on insurance settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on McDowell settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Miscellaneous income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(318</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income (loss)&nbsp;before income taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,753</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,856</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision &#151; current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision &#151; deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">486</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total income taxes provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">489</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net income (loss)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Earnings (loss)&nbsp;per share &#151; basic</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.30</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Earnings (loss)&nbsp;per share &#151; diluted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.30</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Weighted average shares outstanding &#151; basic</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,551</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Weighted average shares outstanding &#151; diluted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,551</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->51<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.<BR>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS&#146; EQUITY AND ACCUMULATED OTHER COMPREHENSIVE<BR>
INCOME (LOSS)<BR>
(Dollars in Thousands, Except Per Share Amounts)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="30"><B>Accumulated Other</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="30" style="border-bottom: 1px solid #000000"><B>Comprehensive Income (Loss)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Foreign</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Capital in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Currency</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>excess of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Translation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Treasury</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Par Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Adjustment</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Net Gain (Loss)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="31" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,019,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">127,299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(505</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(62,193</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,378</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,625</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive loss:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other comprehensive
income (loss), net of
tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign currency
translation
adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(609</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(609</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized gain on interest
rate swap arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(449</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,794</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax benefits applicable to
exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">788</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued under employee
stock grant</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued under stock
option and warrant exercises</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">452,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,442</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,487</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="31" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,471,446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">130,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,114</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(66,538</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,378</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">62,107</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="31" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive loss:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other comprehensive
income (loss), net of
tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign currency
translation
adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">743</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized loss on interest
rate swap arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">733</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(26,755</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation
related to stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,320</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued and compensation
under restricted stock grants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares and stock warrants
issued in connection with ABLE
acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued under stock
option and warrant exercises</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,231</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="31" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,853,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">134,736</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(371</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(94,026</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,378</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">39,589</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="31" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other comprehensive
income (loss), net of
tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign currency
translation
adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">437</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized loss on interest
rate swap arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(47</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,973</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation
related to stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,648</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,648</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued and compensation
under restricted stock grants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">478</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued in connection
with RPS acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,383</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued in connection
with limited public offering,
net of expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,622</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued under stock
option exercises</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204,008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,314</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="31" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,208,862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">152,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(88,443</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,401</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,007</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="31" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->52<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(Dollars in Thousands)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 0px solid #000000">Year Ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING ACTIVITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization of financing fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,181</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss on asset disposal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on insurance settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(191</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign exchange (gain)&nbsp;loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(425</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(285</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">330</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on McDowell settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,550</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-cash stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changes in deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">489</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for loss on accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for inventory obsolescence</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">221</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for warranty charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for workers&#146; compenstion obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changes in operating assets and liabilities, net of effects from acquisitions:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,866</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,734</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,348</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,366</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,115</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,157</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(793</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Insurance receivable relating to fires</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">682</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">659</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable and other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,626</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,085</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,587</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">INVESTING ACTIVITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,073</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,455</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,309</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from asset disposal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sales of securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payment for acquired companies, net of cash acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,678</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,013</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,751</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,284</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">FINANCING ACTIVITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net change in revolving credit facilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,488</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Principal payments on debt and capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,817</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,046</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,020</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by in financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(107</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,494</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,315</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,529</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,214</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SUPPLEMENTAL CASH FLOW INFORMATION</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid for interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">545</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Noncash investing and financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of common stock and stock warrants for acquired companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of convertible notes payable for acquired companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of property and equipment via capital lease payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->53<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><I>Notes to Consolidated Financial Statements</I><BR>
(Dollars in Thousands, Except Per Share Amounts)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 1 &#151; Summary of Operations and Significant Accounting Policies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">a. <I>Description of Business</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer products and services ranging from portable and standby power solutions to
communications and electronics systems. Through our engineering and collaborative approach to
problem solving, we serve government, defense and commercial customers across the globe. We
design, manufacture, install and maintain power and communications systems including: portable and
standby power systems, communications and electronics systems and accessories, and custom
engineered systems, solutions and services. We sell our products worldwide through a variety of
trade channels, including original equipment manufacturers (&#147;OEMs&#148;), industrial and retail
distributors, national retailers and directly to U.S. and international defense departments.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">b. <I>Principles of Consolidation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements are prepared in accordance with generally accepted
accounting principles in the United States and include the accounts of Ultralife Batteries, Inc.
and our wholly owned subsidiaries, Ultralife Batteries (UK)&nbsp;Ltd., ABLE New Energy Co., Limited, and
its wholly-owned subsidiary ABLE New Energy Co., Ltd., McDowell Research Co., Inc., RedBlack
Communications, Inc. (formerly Innovative Solutions Consulting, Inc.), Stationary Power Services,
Inc. and Reserve Power Systems, Inc. Intercompany accounts and transactions have been eliminated
in consolidation. Investments in entities in which we do not have a controlling interest are
accounted for using the equity method, if our interest is greater than 20%. Investments in
entities in which we have less than a 20% ownership interest are accounted for using the cost
method.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">c. <I>Management&#146;s Use of Judgment and Estimates</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at year end and the
reported amounts of revenues and expenses during the reporting period. Key areas affected by
estimates include: (a)&nbsp;reserves for deferred tax assets, excess and obsolete inventory, warranties,
and bad debts; (b)&nbsp;profitability on development
contracts; (c)&nbsp;various expense accruals; (d)&nbsp;stock-based compensation; and, (e)&nbsp;carrying value of
goodwill and intangible assets. Actual results could differ from those estimates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">d. <I>Reclassifications</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain items previously reported in specific financial statement captions have been
reclassified to conform to the current presentation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">e<I>. Cash and Cash Equivalents</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the Consolidated Statements of Cash Flows, we consider all demand deposits
with financial institutions and financial instruments with original maturities of three months or
less to be cash equivalents. For purposes of the Consolidated Balance Sheet, the carrying value
approximates fair value because of the short maturity of these instruments.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">f. <I>Accounts Receivable and Allowance for Doubtful Accounts</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We extend credit to our customers in the normal course of business. We perform ongoing credit
evaluations and generally do not require collateral. Trade accounts receivable are recorded at
their invoiced amounts, net of allowance for doubtful accounts. We evaluate the adequacy of our
allowance for doubtful accounts quarterly. Accounts outstanding longer than contractual payment
terms are considered past due and are reviewed individually for
collectability. We maintain
reserves for potential credit losses based upon our loss history and specific receivables aging
analysis. Receivable balances are written off when collection is deemed unlikely. Such losses have
been within management&#146;s expectations.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->54<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in our allowance for doubtful accounts during the years ended December&nbsp;31, 2007, 2006
and 2005 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">284</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amounts charged (credited)&nbsp;to expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amounts charged to other accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Uncollectible accounts written-off, net of recovery</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(69</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">458</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">g. <I>Inventories</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or market with cost determined under the first-in,
first-out (FIFO)&nbsp;method. We record provisions for excess, obsolete or slow-moving inventory based
on changes in customer demand, technology developments or other economic factors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">h. <I>Property, Plant and Equipment</I>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Property, plant and equipment are stated at cost. Estimated useful lives are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Buildings
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10 &#150; 20&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Machinery and Equipment
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5 &#150; 10&nbsp;years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Furniture and Fixtures
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3 &#150; 10&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Computer Hardware and Software
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3 &#150; 5&nbsp;years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Leasehold Improvements
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lesser of useful life or lease term</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization are computed using the straight-line method. Betterments,
renewals and extraordinary repairs that extend the life of the assets are capitalized. Other
repairs and maintenance costs are expensed when incurred. When disposed, the cost and accumulated
depreciation applicable to assets retired are removed from the accounts and the gain or loss on
disposition is recognized in operating income (expense).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">i. <I>Long-Lived Assets, Goodwill and Intangibles</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We regularly assess all of our long-lived assets for impairment when events or circumstances
indicate that their carrying amounts may not be recoverable. This is accomplished by comparing the
expected undiscounted future cash flows of the assets with the
respective carrying amount as of the date of assessment. Should aggregate future cash flows be
less than the carrying value, a write-down would be required, measured as the difference between
the carrying value and the fair value of the asset. Fair value is estimated either through the
assistance of an independent valuation or as the present value of expected discounted future cash
flows. The discount rate used by us in our evaluation approximates our weighted average cost of
capital. If the expected undiscounted future cash flows exceed the respective carrying amount as
of the date of assessment, no impairment is recognized. We did not record any impairment of
long-lived assets in the calendar years ended December&nbsp;31, 2007, 2006 or 2005.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with Statement of Financial Accounting Standards (&#147;SFAS&#148;) No.&nbsp;142, &#147;Goodwill and
Other Intangible Assets,&#148; we do not amortize goodwill and intangible assets with indefinite lives,
but instead measure these assets for impairment at least annually, or when events indicate that
impairment exists. We amortize intangible assets that have definite lives so that the economic
benefits of the intangible assets are being utilized over their weighted-average estimated useful
life.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on the current preliminary valuations for amortizable intangible assets acquired in the
RedBlack and SPS acquisitions during 2007, and the final valuations for amortizable intangible
assets acquired in the ABLE and McDowell acquisitions during 2006, we project our amortization
expense will be approximately $2,085, $1,393, $1,011, $818 and $649 for the fiscal years ending
December&nbsp;31, 2008 through 2012, respectively.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->55<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt">j. <I>Translation of Foreign Currency</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial statements of our foreign affiliates are translated into U.S. dollar equivalents
in accordance with SFAS No.&nbsp;52, &#147;Foreign Currency Translation&#148;. Exchange gains (losses)&nbsp;included
in net income (loss)&nbsp;for the years ended December&nbsp;31, 2007, 2006 and 2005 were $425, $285, and
$(330), respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">k<I>. Revenue Recognition</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product Sales &#150; In general, revenues from the sale of products are recognized when products
are shipped. When products are shipped with terms that require transfer of title upon delivery at a
customer&#146;s location, revenues are recognized on date of delivery. A provision is made at the time
the revenue is recognized for warranty costs expected to be incurred. Customers, including
distributors, do not have a general right of return on products shipped.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Services &#150; Revenue from fixed price engineering contracts and the sale of installation
services is recognized on a proportional method, measured by the percentage of actual costs
incurred to total estimated costs to complete the contract. Revenue from time and material
engineering contracts is recognized as work progresses through monthly billings of time and
materials as they are applied to the work pursuant to the terms in the respective contract.
Revenue from customer maintenance agreements is recognized using the straight-line method over the
term of the related agreements, which range from six months to three years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technology Contracts <I>&#150; </I>We recognize revenue using the proportional effort method based on the
relationship of costs incurred to date to the total estimated cost to complete the contract.
Elements of cost include direct material, labor and overhead. If a loss on a contract is
estimated, the full amount of the loss is recognized immediately. We allocate costs to all
technology contracts based upon actual costs incurred including an allocation of certain research
and development costs incurred.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">l. <I>Warranty Reserves</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate future costs associated with expected product failure rates, material usage and
service costs in the development of our warranty obligations. Warranty reserves, included in other
current liabilities and other long-term liabilities as applicable on our Consolidated Balance
Sheets, are based on historical experience of warranty claims. In the event the actual results of
these items differ from the estimates, an adjustment to the warranty obligation would be recorded.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">m. <I>Shipping and Handling Costs</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs incurred by us related to shipping and handling are included in cost of products sold.
Amounts charged to customers pertaining to these costs are reflected as revenue.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">n. <I>Advertising Expenses</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advertising costs are expensed as incurred and are included in selling, general and
administrative expenses in the accompanying Consolidated Statements of Operations. Such expenses
amounted to $443, $320, and $248 for the years ended December&nbsp;31, 2007, 2006 and 2005,
respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">o. <I>Research and Development</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expenditures are charged to operations as incurred. The majority of
research and development expenses pertain to salaries and benefits, developmental supplies,
depreciation and other contracted services.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">p. <I>Environmental Costs</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Environmental expenditures that relate to current operations are expensed or capitalized, as
appropriate, in accordance with the American Institute of Certified Public Accountants (&#147;AICPA&#148;)
Statement of Position (&#147;SOP&#148;) 96-1, &#147;Environmental Remediation Liabilities&#148;. Remediation costs
that relate to an existing condition caused by past operations are accrued when it is probable that
these costs will be incurred and can be reasonably estimated.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->56<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt">q. <I>Income Taxes</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The asset and liability method, prescribed by SFAS No.&nbsp;109, &#147;Accounting for Income Taxes&#148;, is
used in accounting for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse. For the year ended December&nbsp;31, 2007, we continued to
recognize a full valuation allowance on our net deferred tax asset, based on a consistent
evaluation methodology that was used for 2006 and due to the determination that it was more likely
than not that we would not be able to utilize these benefits in the future. A valuation allowance
is required when it is more likely than not that the recorded value of a deferred tax asset will
not be realized. Because evidence, such as our operating results during the most recent historical
periods excluding the gain on the McDowell settlement, is afforded more weight than forecasted results for future periods, our cumulative loss
during our most recent three-year period represents sufficient negative evidence regarding the need
for a full valuation allowance under SFAS No.&nbsp;109. For the year ended December&nbsp;31, 2006, we
recorded a full valuation allowance on our net deferred tax asset, due to the determination that it
was more likely than not that we would not be able to utilize these benefits in the future. For
the year ended December&nbsp;31, 2005, our balance sheet reflected a balance of $23,729 associated with
our net deferred tax asset, arising from our conclusion that it was more likely than not that we
would be able to utilize our U.S. NOLs that had accumulated over time. A valuation allowance was
required for the years ended December&nbsp;31, 2007, 2006 and 2005 related to our U.K. subsidiary and
the history of losses at that facility.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the FASB issued FASB Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in
Income Taxes, an interpretation of SFAS No.&nbsp;109&#148; (&#147;FIN 48&#148;). This statement clarifies the
accounting for uncertainty in income taxes recognized in a company&#146;s financial statements in
accordance with SFAS No.&nbsp;109, Accounting for Income Taxes. This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. This Interpretation
also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The provisions of FIN 48 were effective for fiscal
years beginning after December&nbsp;15, 2006. The adoption of this pronouncement on January&nbsp;1, 2007 had
no significant impact on our financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">r.
<I>Concentration Related to Customers and Suppliers</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have three major customers, the U.S. Department of Defense, that comprised 14%, 20%, and
25% of our revenue in the years ended December&nbsp;31, 2007, 2006 and 2005, respectively, the U.K.
Ministry of Defence, that comprised 12%, 7%, and 6% of our revenue in the years ended December&nbsp;31,
2007, 2006 and 2005, respectively, and Raytheon Company, that comprised 13%, 3%, and 1% of our
revenue in the years ended December&nbsp;31, 2007, 2006 and 2005, respectively. There were no other
customers that comprised greater than 10% of our total revenues in those years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have two customers that comprised 42% of our trade accounts receivables as of December&nbsp;31,
2007. There were no other customers that comprised greater than 10% of our total trade accounts
receivables as of December&nbsp;31, 2007. We have one customer that comprised 22% of our trade accounts
receivable as of December&nbsp;31, 2006. There were no other customers that comprised greater than 10%
of our total trade accounts receivable as of December&nbsp;31, 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, we do not experience significant seasonal trends in non-rechargeable product
revenues. However, a downturn in the U.S. economy, which affects retail sales and which could
result in fewer sales of smoke detectors to consumers, could potentially result in lower sales for
us to this market segment. The smoke detector OEM market segment comprised approximately 12% of
total
non-rechargeable revenues in 2007. Additionally, a lower demand from the U.S., U.K. and other
foreign governments could result in lower sales to military and government users.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generally do not distribute our products to a concentrated geographical area nor is there a
significant concentration of credit risks arising from individuals or groups of customers engaged
in similar activities, or who have similar economic characteristics. While sales to the U.S.
Department of Defense have been substantial during 2007, 2006 and 2005, we do not consider this
customer to be a significant credit risk. We do not normally obtain collateral on trade accounts
receivable.
</DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain materials and components used in our products are available only from a single or a
limited number of suppliers. As such, some materials and components could become in short supply
resulting in limited availability and/or increased costs. Additionally, we may elect to develop
relationships with a single or limited number of suppliers for materials and components that are
otherwise generally available. Although we believe that alternative suppliers are available to
supply materials and components that could replace materials and components currently used and
that, if necessary, we would be able to redesign our products to make use of such alternatives, any
interruption in the supply from any supplier that serves as a sole source could delay product
shipments and have a material adverse effect on our business, financial condition and results of
operations. We have experienced interruptions of product deliveries by sole source suppliers in
the past. For example, in the fourth quarter of 2007, we ramped up production levels in our
Communications Systems business to meet increased order volumes. A sole-source supplier of a key
component was unable to meet an agreed-upon delivery schedule which caused a delay in shipments of
our products to our customers.
</DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 12pt">s. <I>Fair Value of Financial Instruments</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;107, &#147;Disclosure About Fair Value of Financial Instruments&#148;, requires disclosure of
an estimate of the fair value of certain financial instruments. The fair value of financial
instruments pursuant to SFAS No.&nbsp;107 approximated their carrying values at December&nbsp;31, 2007 and
2006. Fair values have been determined through information obtained from market sources.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">t<I>. Derivative Financial Instruments</I>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Derivative instruments are accounted for in accordance with SFAS No.&nbsp;133, &#147;Accounting for
Derivative Instruments and Hedging Activities&#148; which requires that all derivative instruments be
recognized in the financial statements at fair value. The fair value of our interest rate swap at
December&nbsp;31, 2007 and 2006 resulted in an asset of $4 and $76, respectively, all of which was
reflected as short term.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">u. <I>Earnings (Loss) Per Share</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We account for earnings (loss)&nbsp;per common share in accordance with the provisions of SFAS No.
128, &#147;Earnings Per Share&#148;. SFAS No.&nbsp;128 requires the reporting of basic and diluted earnings per
share (&#147;EPS&#148;). Basic EPS is computed by dividing reported earnings available to common
shareholders by weighted average shares outstanding for the period. Diluted EPS includes the
dilutive effect of securities, if any, calculated using the treasury stock method. There were
1,573,325 outstanding stock options, warrants and restricted stock awards as of December&nbsp;31, 2007
that were not included in EPS as the effect would be anti-dilutive. We also had 966,667 shares of
common stock at December&nbsp;31, 2007 reserved under convertible notes payable, which were not included
in EPS as the effect would be anti-dilutive. The dilutive effect of 392,041 outstanding stock
options, warrants and restricted stock awards was included in the dilution computation for the
year ended December&nbsp;31, 2007. There were 1,915,471 and 1,516,906 outstanding stock options,
warrants and restricted stock awards as of December&nbsp;31, 2006 and 2005, respectively, that were not
included in EPS as the effect would be anti-dilutive. We also had 1,333,333 and -0- shares of
common stock at December&nbsp;31, 2006 and 2005, respectively reserved under convertible notes payable,
which were not included in EPS as the effect would be anti-dilutive. For these periods, diluted
earnings (loss)&nbsp;per share were the equivalent of basic earnings (loss)&nbsp;per share due to the net
loss. (See Note 7)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The computation of basic and diluted earnings per share is summarized as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 0px solid #000000">Year Ended December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (Loss) (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of Dilutive Securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock Options / Warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restricted Stock Awards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net Income (Loss) &#150; Adjusted (b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average Shares Outstanding &#150; Basic (c)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,511</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of Dilutive Securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock Options / Warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restricted Stock Awards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Average Shares Outstanding &#150; Diluted (d)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,551</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">EPS &#150; Basic (a/c)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.30</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">EPS &#150; Diluted (b/d)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.30</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">v. <I>Stock-Based Compensation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have various stock-based employee compensation plans, which are described more fully in
Note 7. Effective January&nbsp;1, 2006, we adopted the provisions of SFAS No.&nbsp;123 (revised 2004),
&#147;Share-Based Payment&#148; (&#147;SFAS 123R&#148;) requiring that compensation cost relating to share-based
payment transactions be recognized in the financial statements. The cost is measured at the grant
date, based on the fair value of the award, and is recognized as an expense over the employee&#146;s
requisite service period (generally the vesting period of the equity award). We adopted SFAS 123R
using the modified prospective method and, accordingly, did not restate prior periods presented in
this Form 10-K to reflect the fair value method of recognizing compensation cost. Under the
modified prospective approach, SFAS 123R applies to new awards, awards that were unvested as of
January&nbsp;1, 2006 and to awards that were outstanding on January&nbsp;1, 2006 that are subsequently
modified, repurchased or cancelled.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to January&nbsp;1, 2006, we applied Accounting Principles Board (&#147;APB&#148;) Opinion No.&nbsp;25,
&#147;Accounting for Stock Issued to Employees,&#148; and related interpretations which required compensation
costs to be recognized based on the difference, if any, between the quoted market price of the
stock on the grant date and the exercise price. As all options granted to employees under such
plans had an exercise price at least equal to the market value of the underlying common
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->58<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">stock on
the date of grant, and given the fixed nature of the equity instruments, no stock-based employee
compensation cost relating to stock options was reflected in net income (loss).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The effect on net income (loss)&nbsp;and earnings (loss)&nbsp;per share if we had applied the fair value
recognition provisions of SFAS No.&nbsp;148, &#147;Accounting for Stock-Based Compensation &#150; Transition and
Disclosure, an Amendment of SFAS No.&nbsp;123&#148;, to stock -based employee compensation for the year ended
December&nbsp;31, 2005, would have been as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss, as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Stock option-based employee compensation expense included in reported net loss, net of related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deduct: Total stock option-based employee compensation expense determined under fair value based method for all awards, net of related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,236</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(7,581</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic &#150; as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.30</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted &#150; as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.30</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic &#150; pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.52</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted &#150; pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.52</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2005, our Board of Directors approved the acceleration of vesting of certain
&#147;underwater&#148; unvested stock options held by certain current employees, including some of our
executive officers. Options held by our President and Chief Executive Officer were not included in
the acceleration. Options held by non-employee directors also were not included as those options
vest immediately upon grant. A stock option was considered &#147;underwater&#148; if the exercise price was
$12.90 per share or greater. A total of 346,186 options were impacted by this acceleration. The
effect on net loss in 2005 resulting from this acceleration, if we had applied the fair value
recognition provisions of SFAS No.&nbsp;148 to stock-based employee compensation, was approximately
$1,500 net of related tax effects. (See Note 7.)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">w. <I>Segment Reporting</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We report segment information in accordance with SFAS No.&nbsp;131, &#147;Disclosures about Segments of
an Enterprise and Related Information&#148;. We have four operating segments. The basis for
determining our operating segments is the manner in which financial information is used by us in
our operations. Management operates and organizes itself according to business units that comprise
unique products and services across geographic locations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">x. <I>Recent Accounting Pronouncements</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2007, the Financial Accounting Standards Board (&#147;FASB&#148;) issued SFAS No.&nbsp;141
(revised 2007), &#147;Business Combinations&#148; (&#147;SFAS No.&nbsp;141R&#148;), which replaces SFAS 141. The statement
retains the purchase method of accounting for acquisitions, but requires a number of changes,
including changes in the way assets and liabilities are recognized in purchase accounting. It also
changes the recognition of assets acquired and liabilities assumed arising from contingencies,
requires the capitalization of in-process research and development at fair value, and requires the
expensing of acquisition-related costs as incurred. SFAS No.&nbsp;141R is effective for fiscal years
beginning on or after December&nbsp;15, 2008 and will apply prospectively to business combinations
completed on or after that date. The impact of adopting SFAS&nbsp;No.&nbsp;141R will be dependent on the
future business combinations that we may pursue after its effective date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2007, the FASB issued SFAS No.&nbsp;160, &#147;Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB 51&#148;, which changes the accounting and reporting for
minority interests. Minority interests will be recharacterized as noncontrolling interests and
will be reported as a component of equity separate from the parent&#146;s equity, and purchases or sales
of equity interests that do not result in a change in control will be accounted for as equity
transactions. In addition, net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement and, upon a loss of
control, the interest sold, as well as any interest retained, will be recorded at fair value with
any gain or loss recognized in earnings. SFAS No.&nbsp;160 is effective for fiscal years beginning on
or after December&nbsp;15, 2008 and will apply prospectively, except for the presentation and disclosure
requirements, which will apply retrospectively. The impact of adopting SFAS&nbsp;No.&nbsp;160 will be
dependent on the structure of future business combinations or partnerships that we may pursue after
its effective date.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->59<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2007, the Financial Accounting Standards Board (&#147;FASB&#148;) issued SFAS No.&nbsp;159, &#147;The
Fair Value Option for Financial Assets and Financial Liabilities&#151;Including an amendment of FASB
Statement No.&nbsp;115.&#148; SFAS No.&nbsp;159 permits entities to choose to measure many financial instruments
and certain other items at fair value. Unrealized gains and losses on items for which the fair
value option has been elected will be recognized in earnings at each subsequent reporting date.
SFAS No.&nbsp;159 is effective for an entity&#146;s first fiscal year beginning after November&nbsp;15, 2007. We
do not expect the adoption of this pronouncement to have a significant impact on our financial
statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2006, FASB issued FASB Staff Position (&#147;FSP&#148;) EITF 00-19-2 which addresses an
issuer&#146;s accounting for registration payment arrangements for financial instruments such as equity
shares, warrants or debt instruments. This FSP specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with FASB SFAS No.&nbsp;5,
&#147;Accounting for Contingencies&#148; and FASB Interpretation No.&nbsp;14, &#147;Reasonable Estimation of the Amount
of a Loss.&#148; The financial instrument(s) subject to the registration payment arrangement shall be
recognized and measured in accordance with other applicable Generally Acceptable Accounting
Principles, (&#147;GAAP&#148;) without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement.<SUP style="font-size: 85%; vertical-align: text-top"> </SUP>An entity should recognize and measure a
registration payment arrangement as a separate unit of account from the financial instrument(s)
subject to that arrangement. Adoption of this FSP may require additional disclosures relating to
the nature of the registration payment, settlement alternatives, current carrying amount of the
liability representing the issuer&#146;s obligations and the maximum potential amount of consideration,
undiscounted that the issuer could be required to transfer. This FSP shall be effective immediately
for registration payment arrangements and the financial instruments subject to those arrangements
that are entered into or modified subsequent to the date of issuance of this FSP. For registration
payment arrangements and financial instruments subject to those arrangements that were entered into
prior to the issuance of this FSP, this guidance shall be effective for financial statements issued
for fiscal years beginning after December&nbsp;15, 2006. The adoption of this pronouncement had no
impact on our financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157, &#147;Fair Value Measurements&#148;, which establishes
a framework for measuring fair value and requires expanded disclosure about the information used to
measure fair value. The statement applies whenever other statements require, or permit, assets or
liabilities to be measured at fair value. The statement does not expand the use of fair value in
any new circumstances and is effective for fiscal years beginning after November&nbsp;15, 2007, and
interim periods within those fiscal years, with early adoption encouraged. In February&nbsp;2008, FASB
issued FSP FASB No 157-2, which delays the effective date of FASB No.&nbsp;157 to fiscal years beginning
after November&nbsp;15, 2008, and interim periods within those fiscal years, with early adoption
encouraged. We do not expect the adoption of this pronouncement to have a significant impact on
our financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the FASB issued FASB Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in
Income Taxes, an interpretation of SFAS No.&nbsp;109&#148; (&#147;FIN 48&#148;). This statement clarifies the
accounting for uncertainty in income taxes recognized in a company&#146;s financial statements in
accordance with SFAS No.&nbsp;109, Accounting for Income Taxes. This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return. This Interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. The provisions
of FIN 48 were effective for fiscal years beginning after December&nbsp;15, 2006. The adoption of this
pronouncement had no significant impact on our financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2006, the FASB issued SFAS No.&nbsp;156, &#147;Accounting for Servicing of Financial Assets&#148;,
an amendment of FASB Statement No.&nbsp;140, &#147;Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities&#148; (&#147;SFAS&nbsp;No.&nbsp;156&#148;). SFAS&nbsp;No.&nbsp;156 requires all separately
recognized servicing assets and servicing liabilities be initially measured at fair value, if
practicable, and permits for subsequent measurement using either fair value measurement with
changes in fair value reflected in earnings or the amortization and impairment requirements of
Statement No.&nbsp;140. The subsequent measurement of separately recognized servicing assets and
servicing liabilities at fair value eliminates the necessity for entities that manage the risks
inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge
accounting treatment and eliminates the characterization of declines in fair value as impairments
or direct write-downs. SFAS&nbsp;No.&nbsp;156 was effective for an entity&#146;s first fiscal year beginning after
September&nbsp;15, 2006. The adoption of this pronouncement had no impact on our financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2006, the FASB issued SFAS No.&nbsp;155, &#147;Accounting for Certain Hybrid Financial
Instruments&#148; (&#148;SFAS No.&nbsp;155&#148;). SFAS No.&nbsp;155 amended SFAS No.&nbsp;133, &#147;Accounting for Derivative
Instruments and Hedging Activities&#148; and SFAS No.&nbsp;140, &#147;Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.&#148; SFAS No.&nbsp;155 also resolved issues addressed
in SFAS No.&nbsp;133 Implementation Issue No.&nbsp;D1, &#147;Application of Statement 133 to Beneficial Interests
in Securitized Financial Assets.&#148; SFAS No.&nbsp;155 eliminated the exemption from applying SFAS No.&nbsp;133
to interests
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->60<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">in securitized financial assets so that similar instruments are accounted for in the
same manner regardless of the form of the instruments. SFAS No.&nbsp;155 allows a preparer to elect fair
value measurement at acquisition, at issuance, or when a previously recognized financial instrument
is subject to a remeasurement (new basis) event, on an instrument-by-instrument basis. SFAS No.&nbsp;155
was effective for all financial instruments acquired or issued after the beginning of an entity&#146;s
first fiscal year that began after September&nbsp;15, 2006. The fair value election provided for in
paragraph 4(c) of SFAS No.&nbsp;155 may also be applied upon adoption of SFAS No.&nbsp;155 for hybrid
financial instruments that had been bifurcated under paragraph 12 of SFAS No.&nbsp;133 prior to the
adoption of this Statement. Earlier adoption was permitted as of the beginning of an entity&#146;s
fiscal year, provided the entity had not yet issued financial statements, including financial
statements for any interim period for that fiscal year. Provisions of SFAS No.&nbsp;155 may be applied
to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis.
The adoption of this pronouncement had no significant impact on our financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the FASB issued FASB Staff Position No.&nbsp;FAS 143-1 (&#147;FSP FAS 143-1&#148;), Accounting
for Electronic Equipment Waste Obligations. FSP FAS 143-1 addresses the accounting for obligations
associated with the Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the
Directive) adopted by the European Union (EU). FSP FAS 143-1 was effective the latter of the first
reporting period that ends after June&nbsp;8, 2005 or the date that the EU-member country adopts the
law. Effective January&nbsp;2, 2007, the United Kingdom, the only EU-member country in which we have
significant operations, adopted the law. The adoption of this law had no significant impact on our
financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 2 &#151; Acquisitions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We accounted for the following acquisitions in accordance with the purchase method of
accounting provisions of SFAS No.&nbsp;141, &#147;Business Combinations,&#148; whereby the purchase price paid to
effect an acquisition is allocated to the acquired tangible and intangible assets and liabilities
at fair value.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2007 Acquisitions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>RedBlack Communications, Inc. (formerly Innovative Solutions Consulting, Inc.)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;28, 2007, we finalized the acquisition of all of the issued and outstanding
shares of common stock of Innovative Solutions Consulting, Inc. (&#147;ISC&#148;), a provider of a full range
of engineering and technical services for communication electronic systems to government agencies
and prime contractors. In January&nbsp;2008, we renamed ISC to RedBlack Communications, Inc.
(&#147;RedBlack&#148;).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The initial cash purchase price was $943 (net of $57 in cash acquired), with up to $2,000 in
additional cash consideration contingent on the achievement of certain sales milestones. The
additional cash consideration is payable in up to three annual payments and subject to possible
adjustments as set forth in the stock purchase agreement. The contingent payments will be recorded
as an addition to the purchase price when the performance milestones are attained. The initial
$943 cash payment was financed through a combination of cash on hand and borrowings through the
revolver component of our credit facility with our primary lending banks. We incurred $41 in
acquisition related costs, which are included in the initial cost of the investment of $984,
with a potential total cost of the investment of $2,984 assuming the earn-out of all
contingent consideration. During the fourth quarter of 2007, $28 of additional acquisition costs
were incurred, which resulted in an increase of goodwill of $28.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations of RedBlack and the estimated fair value of assets acquired and
liabilities assumed are included in our consolidated financial statements beginning on the
acquisition date. The estimated excess of the purchase price over the net tangible and intangible
assets acquired of $136 (including $57 in cash) was recorded as goodwill in the amount of $905. We
are in the process of completing the valuations of certain tangible and intangible assets acquired
with the new business. The final allocation of the excess of the purchase price over the net assets
acquired is subject to revision based upon our final review of valuation assumptions. The acquired
goodwill will be assigned to the Design and Installation Services segment and is expected to be
fully deductible for income tax purposes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of revisions to the asset valuations during the fourth quarter of 2007, values
assigned to the tangible and intangible assets have been revised. The adjustments to the values
for tangible assets from those reported for the quarter ended September&nbsp;29, 2007 were as follows:
inventory decreased by $117, property, plant and equipment decreased by $100, non-compete
agreements increased by $180 and accounts payable increased by $98. These adjustments resulted in
an increase to goodwill of $135.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table represents the revised, preliminary allocation of the purchase price to
assets acquired and liabilities assumed at the acquisition date:
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->61<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivables, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">535</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">767</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">687</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">905</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible Assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,539</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,310</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,498</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Purchase Price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,041</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-compete agreements are being amortized on a straight-line basis over their estimated
useful lives of two years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the unaudited pro forma financial information for the periods
indicated as if the RedBlack acquisition had occurred at the beginning of the period being
presented. The pro forma information contains the actual combined results of RedBlack and us, with
the results prior to the acquisition date including pro forma impact of: the amortization of the
acquired intangible assets; and the impact on interest expense in connection with funding the cash
portion of the acquisition purchase price. These pro forma amounts do not purport to be indicative
of the results that would have actually been obtained if the acquisition occurred as of the
beginning of each of the periods presented or that may be obtained in the future.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Years Ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">(in thousands, except per share data)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">$139,698</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">97,284</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (Loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">$&nbsp;&nbsp;&nbsp;&nbsp;5,107</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(28,987</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings (Loss) per share &#151; Basic</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.33</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.94</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings (Loss) per share &#151; Diluted</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" nowrap align="center">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.33</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.94</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Stationary Power Services, Inc. and Reserve Power Systems, Inc.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2007, we completed the acquisition of all of the issued and outstanding shares
of common stock of Stationary Power Services, Inc. (&#147;SPS&#148;), an infrastructure power management
services firm specializing in engineering, installation and preventative maintenance of standby
power systems, uninterruptible power supply systems, DC power systems and switchgear/control
systems for the telecommunications, aerospace, banking and information services industries.
Immediately prior to the closing of the SPS acquisition, SPS distributed the real estate assets,
along with the corresponding mortgage payable, to the original owner of SPS, as these assets and
corresponding liability were not part of our acquisition of SPS. Also on November&nbsp;16, 2007, we
completed the acquisition of all of the issued and outstanding shares of common stock of Reserve
Power Systems, Inc. (&#147;RPS&#148;), a supplier of lead acid batteries primarily for use by SPS in the
design and installation of standby power systems. SPS and RPS were previously affiliated companies
due to common ownership interests.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->62<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the stock purchase agreement for SPS, the initial purchase price of $10,000
consisted of $5,889 (net of $111 in cash acquired) in cash and a $4,000 subordinated convertible
promissory note to be held by the seller. In addition, on the achievement of certain
post-acquisition sales milestones, we will issue up to an aggregate amount of 100,000 shares of our
common stock. The $6,000 cash payment was financed by a portion of the net proceeds from a limited
public offering that we completed on November&nbsp;16, 2007, whereby 1,000,000 shares of our common
stock were issued. Total net proceeds from the offering were
approximately $12,600, of which $6,000 was used for the SPS cash payment. The $4,000
subordinated convertible promissory note carries a three-year term, bears interest at the rate of
5% per year and is convertible at $15.00 per share into 266,667 shares of our common stock, with a
forced conversion feature at $17.00 per share. We have evaluated the terms of the conversion
feature under applicable accounting literature, including SFAS No.&nbsp;133 and EITF 00-19, &#147;Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company&#146;s Own Stock&#148;
(&#147;EITF 00-19&#148;), and concluded that this feature should not be separately accounted for as a
derivative. We incurred $54 in acquisition related costs, which are included in the initial cost
of the SPS investment of $10,054.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the stock purchase agreement for RPS, the initial purchase price consisted
of 100,000 shares of our common stock, valued at $1,383. In addition, on the achievement of
certain post-acquisition sales milestones, we will pay the sellers, in cash, 5% of sales up to the
operating plan, and 10% of sales that exceed the operating plan, for the remainder of the calendar
year 2007 and for calendar years 2008, 2009 and 2010. The additional contingent cash consideration
is payable in annual installments, and excludes sales made to SPS, which historically have
comprised substantially all of RPS&#146;s sales.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations of SPS and RPS and the estimated fair value of assets acquired and
liabilities assumed are included in our consolidated financial statements beginning on the
acquisition date. The estimated excess of the purchase price over the net tangible and intangible
assets acquired of $5,940 (including $111 of cash) was recorded as goodwill in the amount of
$5,497. We are in the process of completing the valuations of certain tangible and intangible
assets acquired with the new businesses. The final allocation of the excess of the purchase price
over the net assets acquired is subject to revision based upon our final review of valuation
assumptions. The acquired goodwill will be assigned to the Design and Installation Services and
the Rechargeable Products segments and is expected to be fully deductible for income tax purposes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table represents the preliminary allocation of the purchase price to assets acquired
and liabilities assumed at the acquisition date:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">111</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivables, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,594</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,687</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,444</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">324</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,497</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible Assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Patents and Technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">440</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer Relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other Assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Security deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,617</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->63<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,277</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,958</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">788</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,023</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">137</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,180</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Purchase Price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,437</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trademarks have an indefinite life and are not being amortized. The intangible assets related
to patents and technology and customer relationships are being amortized as the economic benefits
of the intangible assets are being utilized over their weighted-average estimated useful life of
nineteen years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the SPS acquisition, we entered into an operating lease agreement for real
property in Clearwater, Florida with a company partially owned by William Mahar, former owner of
SPS and who joined the company as an employee following the completion of the SPS acquisition. The
lease term is for three years and expires on November&nbsp;15, 2010. The lease has a base annual rent
of approximately $144, payable in monthly installments. In addition to the base annual rate, we
are obligated to pay the real estate and personal property taxes associated with the facility.
Under the terms of the lease, we have the right to extend the lease for one additional three-year
term, with the base annual rent, applicable to the extension, of approximately $147.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the unaudited pro forma financial information for the periods
indicated as if the SPS and RPS acquisitions had occurred at the beginning of the period being
presented. Because SPS and RPS were under common control as of the date of these acquisitions, the
pro forma information contains the actual combined results of SPS and RPS and us, with the results
prior to the acquisition date including pro forma impact of: the amortization of the acquired
intangible assets; the interest expense incurred relating to the convertible note payable issued in
connection with the acquisition purchase price; interest expense that would not have been incurred
for the mortgage payable that was not assumed by us in the SPS acquisition; the elimination of the
sales and purchases between SPS and RPS and us; and rent expense that would have been incurred for
the building that was not acquired by us in the SPS acquisition, net of the reduction in
depreciation expense for the building. These pro forma amounts do not purport to be indicative of
the results that would have actually been obtained if the acquisition occurred as of the beginning
of each of the periods presented or that may be obtained in the future.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">Years Ended December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">(in thousands, except per share data)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2006</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">$144,356</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">102,484</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (Loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">$5,393</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(26,887</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings
(Loss) per share &#151; Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">$0.34</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.74</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings
(Loss) per share &#151; Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">$0.33</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.74</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2006 Acquisitions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ABLE New Energy Co., Ltd.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;19, 2006, we acquired 100% of the equity securities of ABLE New Energy Co., Ltd.
(&#147;ABLE&#148;), an established manufacturer of lithium batteries located in Shenzhen, China. With more
than 50 products, including a wide range of lithium-thionyl chloride and lithium-manganese dioxide
batteries and coin cells, this acquisition broadens our expanding portfolio of high-energy power
sources, enabling us to further penetrate large and emerging markets such as remote meter reading,
RFID (Radio Frequency Identification) and other markets that will benefit from these chemistries.
We expect this acquisition will strengthen our global presence, facilitate our entry into the
rapidly growing Chinese market, and improve our access to lower material and manufacturing costs.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->64<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total consideration given for ABLE was a combination of cash and equity. The initial cash
purchase price was $1,896 (net of $104 in cash acquired), with an additional $500 cash payment
contingent on the achievement of certain performance milestones, payable in separate $250
increments, when cumulative ABLE revenues from the date of acquisition attain $5,000 and $10,000,
respectively. The contingent payments will be recorded as an addition to the purchase price when
the performance milestones are attained. In August&nbsp;2007, the $5,000 cumulative revenue milestone
was attained, and as such, we recorded the first $250 contingent cash payment, which resulted in an
increase in goodwill of $250. The equity portion of the purchase price consisted of 96,247 shares
of our common stock valued at $1,000, based on the closing price of the stock on the closing date
of the acquisition, and 100,000 stock warrants valued at $526, for a total equity consideration of
$1,526. The fair value of the stock warrants was estimated using the Black-Scholes option-pricing
model with the following weighted-average assumptions as of May&nbsp;19, 2006 (the date of acquisition):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.31</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility factor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">61.25</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average expected life (years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.50</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We incurred $59 in acquisition related costs, which is included in the total potential cost of
the investment of $3,981.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations of ABLE and the estimated fair value of assets acquired and
liabilities assumed are included in our consolidated financial statements beginning on the
acquisition date. The estimated excess of the purchase price over the net tangible and intangible
assets acquired of $2,268 (including $104 in cash) was recorded as goodwill in the amount of
$1,567. The acquired goodwill has been assigned to the Non-Rechargeable Products segment and is
not deductible for income tax purposes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table represents the final allocation of the purchase price to assets acquired
and liabilities assumed at the acquisition date:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivables, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">737</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,232</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">740</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,567</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible Assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Patents and technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">820</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributor relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,179</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,085</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,195</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Purchase Price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,835</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trademarks have an indefinite life and will not be amortized. The intangible assets related
to patents and technology, customer relationships, and distributor relationships are being
amortized as the economic benefits of these
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->65<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">intangible assets are being utilized over their
weighted-average estimated useful life of eleven years. The non-compete agreements are being
amortized on a straight-line basis over its estimated useful life of three years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>McDowell Research, Ltd.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;3, 2006, we finalized the acquisition of substantially all of the assets of McDowell
Research, Ltd. (&#147;McDowell&#148;), a manufacturer of military communications accessories located in Waco,
Texas.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the acquisition agreement, the purchase price of approximately $25,000
consisted of $5,000 in cash and a $20,000 non-transferable, subordinated convertible promissory
note to be held by the sellers. The purchase price was subject to a post-closing adjustment based
on a final valuation of trade accounts receivable, inventory and trade accounts payable that were
acquired or assumed on the date of the closing, using a base value of $3,000. The final net value
of these assets, under our contractual obligation under the acquisition agreement, was $6,389,
resulting in a revised purchase price of approximately $28,448. A cash payment of $1,500 was
made to the sellers during the first quarter of 2007 and we had accrued $1,889 for the remaining
final post-closing adjustment of $3,389. As of December&nbsp;31, 2006, we had accrued $3,000 for the
post-closing adjustment. The 2006 accrual for the post-closing adjustment is included in the other
current liabilities line on our Consolidated Balance Sheet.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The initial $5,000 cash portion was financed through a combination of cash on hand and
borrowing through the revolver component of our credit facility with our primary lending banks,
which was amended to accommodate the acquisition of McDowell. The $20,000 convertible note carried
a five-year term, an annual interest rate of 4% and was convertible at $15 per share into 1.33
million shares of our common stock, with a forced conversion feature, at our option, at any time
after the 30-day average closing price of our common stock exceeded $17.50 per share. We had
evaluated the terms of the conversion feature under applicable accounting literature, including
SFAS No.&nbsp;133 and EITF 00-19, and concluded that this feature should not be separately accounted for
as a derivative. The conversion price was subject to adjustment as defined in the subordinated
convertible promissory note. Interest was payable quarterly in arrears, with all unpaid accrued
interest and outstanding principal due in full on July&nbsp;3, 2011. In April&nbsp;2007, in connection with
its dissolution, McDowell distributed the convertible note to its members in proportion to their
membership interests, resulting in six separate convertible notes aggregating $20,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2007, we finalized a settlement agreement with the sellers of McDowell, which
resolved various operational issues that arose during the first several months following the
acquisition that significantly reduced our profit margins. The settlement agreement reduced the
overall purchase price by approximately $7,900, by reducing the principal amount on the convertible
notes from $20,000 to $14,000, and eliminating the $1,889 liability related to the purchase price
adjustment. In addition, the interest rate on the convertible notes was increased from 4% to 5%
and we made prepayments totaling $3,500 on the convertible notes. Upon payment of the $3,500, we
reported a one-time, non-operating gain of approximately $7,550 to account for the purchase price
reduction, net of certain adjustments related to the change in the interest rate on the convertible
notes. Based on
the facts and circumstances surrounding the settlement agreement, there was not a clear and direct
link to the purchase price; therefore, we recorded the settlement as an adjustment to income in
accordance with SFAS No.&nbsp;141. In January&nbsp;2008, the
convertible notes were converted in full into 700,000 shares of our common stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have incurred $59 in acquisition related costs, which are included in the approximate total
cost of the investment of $28,448.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations of McDowell and the estimated fair value of assets acquired and
liabilities assumed are included in our consolidated financial statements beginning on the
acquisition date. The estimated excess of the purchase price over the net tangible and intangible
assets acquired of $15,373 was recorded as goodwill in the amount of $13,075. The acquired
goodwill has been assigned to the Communications Systems and the Rechargeable Products segments and
is fully deductible for income tax purposes.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->66<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table represents the final allocation of the purchase price to assets acquired
and liabilities assumed at the acquisition date:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivables, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,532</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid inventory and other current expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,697</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">397</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,075</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible Assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Patents and technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,201</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,990</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,787</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,041</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,078</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Purchase Price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">28,448</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trademarks have an indefinite life and are not being amortized. The intangible assets related
to patents and technology and customer relationships are being amortized as the economic benefits
of these intangible assets are being utilized over their weighted-average estimated useful life of
thirteen years. The non-compete agreements are being amortized on a straight-line basis over their
estimated useful life of two years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the McDowell acquisition, we entered into an operating lease agreement for
real property in Waco, Texas with a partnership that is 50% owned by Thomas Hauke, who joined us as
an executive officer following the completion of the McDowell acquisition. The lease term was for
one year, with annual rent of $227, payable in monthly installments. This lease was extended and
on November&nbsp;1, 2007, we entered into a new operating lease agreement on a month-to-month basis for
$10 per month, due to a reduction in total square feet being utilized. During the first quarter of
2007, Mr.&nbsp;Hauke resigned from his position.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the unaudited pro forma financial information for the periods
indicated as if the McDowell acquisition had occurred at the beginning of the period being
presented. The pro forma information contains the actual combined results of McDowell and us, with
the results prior to the acquisition date including pro forma impact of: the amortization of the
acquired intangible assets; the interest expense incurred relating to the convertible note payable
issued in connection with the acquisition purchase price; the elimination of the sales and
purchases between McDowell and us; the impact on interest income and interest expense in connection
with funding the cash portion of the acquisition purchase price; and the impact on income taxes.
These pro forma amounts do not purport to be indicative of the results that would have actually
been obtained if the acquisitions occurred as of the beginning of each of the periods presented or
that may be obtained in the future.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->67<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">(in thousands, except per share data)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">December 31, 2006</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">105,691</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(26,359</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per share &#151; Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.77</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per share &#151; Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.77</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 3 &#151; Supplemental Balance Sheet Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>a. Inventory</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or market with cost determined under the first-in,
first-out (FIFO)&nbsp;method. The composition of inventories was:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,964</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Work in process</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,061</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,541</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,566</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Reserve for obsolescence</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,206</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,360</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 0px double #000000">&nbsp;</TD>
    <TD style="border-top: 3px double #000000">&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-top: 3px double #000000">&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><i>b. Property, Plant and Equipment</i>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Major
classes of property, plant and equipment consisted of the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">123</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buildings and Leasehold Improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,336</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery and Equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,485</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture and Fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">982</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Computer Hardware and Software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,127</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Construction in Progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,353</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Accumulated Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,396</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD style="border-top: 0px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimated costs to complete construction in progress as of December&nbsp;31, 2007 and 2006 was approximately $876 and $900,
respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation expense was $3,765, $3,610, and $3,112 for the years ended December&nbsp;31, 2007, 2006, and 2005, respectively.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->68<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included in Buildings and Leasehold Improvements is our Newark, New York facility that was
held under a capital lease. Upon expiration of the lease in December&nbsp;2007, we purchased the
facility for the purchase price of one dollar. The carrying value for this facility is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Acquisition Value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">553</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">553</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Accumulated Amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">544</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">488</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Carrying Value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">9</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">65</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included in Machinery and Equipment are various capital leases. The carrying value for these
assets is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Acquisition Value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">600</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">37</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Accumulated Amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">29</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Carrying Value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">571</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">37</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>c. Goodwill</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the goodwill activity by segment for the years ended December
31, 2007 and 2006:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Design and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Communications</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Installation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Systems</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Services</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of ABLE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,239</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of McDowell</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,105</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of RedBlack</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">905</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of SPS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,825</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of RPS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to purchase price allocation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of foreign currency translations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,180</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>d. Other Intangible Assets</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The composition of intangible assets was:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>December 31, 2007</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gross Assets</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,399</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patents and technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,407</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,881</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distributor relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">206</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,113</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->69<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>December 31, 2006</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gross Assets</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,090</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patents and technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,118</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distributor relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization expense for intangible assets was $2,317, $1,199, and $0 for the years ended
December&nbsp;31, 2007, 2006, and 2005, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The change in the cost value of total intangible assets is a result of the 2007 acquisitions,
changes in the final valuation of intangible assets in connection with the 2006 acquisitions and
the effect of foreign currency translations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 4 &#151; Operating Leases</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We lease various buildings, machinery, land, automobiles and office equipment. Rental
expenses for all operating leases were approximately $1,234, $1,026 and $768 for the years ended
December&nbsp;31, 2007, 2006 and 2005, respectively. Future minimum lease payments under
non-cancelable operating leases as of December&nbsp;31, 2007 are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2012</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2011</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">and beyond</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left">$</TD>
    <TD align="right">944</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">681</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">621</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">346</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">476</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 5 &#151; Debt and Capital Leases</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Credit Facilities</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary credit facility, which was initiated in 2004, consists of both a term loan
component and a revolver component, and the facility is collateralized by essentially all of our
assets, including all of our subsidiaries. The lenders of the credit facility are JP Morgan Chase
Bank and Manufacturers and Traders Trust Company, with JP Morgan Chase Bank acting as the
administrative agent. The current revolver loan commitment is $15,000. Availability under the
revolving credit component is subject to meeting certain
financial covenants. We are required to meet certain financial covenants under the facility,
as amended, including a debt to earnings ratio, a fixed charge coverage ratio, and a current assets
to total liabilities ratio. In addition, we are required to meet certain non-financial covenants.
The rate of interest, in general, is based upon either a LIBOR rate or Prime, plus a Eurodollar
spread (dependent upon a debt to earning ratio within a predetermined grid).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;30, 2004, we drew down the full $10,000 term loan. The term loan is being repaid in
equal monthly installments of $167 over five years. On July&nbsp;1, 2004, we entered into an interest
rate swap arrangement in the notional amount of $10,000 to be effective on August&nbsp;2, 2004, related
to the $10,000 term loan, in order to take advantage of historically low interest rates. We
received a fixed rate of interest in exchange for a variable rate. The swap rate received was
3.98% for five years. The total rate of interest paid by us is equal to the swap rate of 3.98%
plus the Eurodollar spread stipulated in the predetermined grid associated with the term loan. On
January&nbsp;1, 2006, the adjusted rate was 6.98%. On February&nbsp;14, 2007, the adjusted rate increased to
7.23%, on August&nbsp;15, 2007, the adjusted rate decreased to 6.98%, and on November&nbsp;7, 2007, the
adjusted rate decreased to 5.98%. Derivative instruments are accounted for in accordance with SFAS
No.&nbsp;133, &#147;Accounting for Derivative Instruments and Hedging Activities&#148;, which requires that all
derivative instruments be recognized in the financial statements at fair value. The fair value of
this arrangement at December&nbsp;31, 2007 resulted in an asset of $4, all of which was reflected as a
short-term asset.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been several amendments to the credit facility during the past few years, including
amendments to authorize acquisitions and modify financial covenants. Effective February
14, 2007, we entered into Forbearance and Amendment Number Six to the Credit Agreement
(&#147;Forbearance and Amendment&#148;) with the banks. The Forbearance and Amendment provided that the
banks would forbear from exercising their rights under the credit facility arising from our failure
to comply with certain financial covenants in the credit facility with respect to the fiscal
quarter
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->70<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">ended December&nbsp;31, 2006. Specifically, we were not in compliance with the terms of the
credit facility because we failed to maintain the required debt-to-earnings and EBIT-to-interest
ratios provided for in the credit facility at that time. The banks agreed to forbear from
exercising their respective rights and remedies under the credit facility until March&nbsp;23, 2007
(&#147;Forbearance Period&#148;), unless we breached the Forbearance and Amendment or unless another event or
condition occurred that constituted a default under the credit facility. Each bank agreed to
continue to make revolving loans available to us during the Forbearance Period. Pursuant to the
Forbearance and Amendment, the aggregate amount of the banks&#146; revolving loan commitment was reduced
from $20,000 to $15,000. During the Forbearance Period, the applicable revolving interest rate and
the applicable term interest rate, in each case as set forth in the credit agreement, both were
increased by 25 basis points. In addition to a number of technical and conforming amendments, the
Forbearance and Amendment revised the definition of &#147;Change in Control&#148; in the credit facility to
provide that the acquisition of equity interests representing more than 30% of the aggregate
ordinary voting power represented by the issued and outstanding equity interests of us shall
constitute a &#147;Change in Control&#148; for purposes of the credit facility. Previously, the equity
interests threshold had been set at 20%.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective March&nbsp;23, 2007, we entered into Extension of Forbearance and Amendment Number Seven
to Credit Agreement (&#147;Extension and Amendment&#148;) with the banks. The Extension and Amendment
provided that the banks agreed to extend the Forbearance Period until May&nbsp;18, 2007. The Extension
and Amendment also acknowledged that we continued not to be in compliance with the financial
covenants identified above for the fiscal quarter ended December 31,
2006 and did not contemplate being in compliance for the fiscal
quarter ending March 31, 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective May&nbsp;18, 2007, we entered into Extension of Forbearance and Amendment Number Eight to
Credit Agreement (&#147;Second Extension and Amendment&#148;) with the banks. The Second Extension and
Amendment provided that the banks agreed to extend the Forbearance Period until August&nbsp;15, 2007.
The Second Extension and Amendment also acknowledged that we continued not to be in compliance with
the financial covenants identified above for the fiscal quarter ended March&nbsp;31, 2007 and did not
contemplate being in compliance for the fiscal quarter ending June&nbsp;30, 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective August&nbsp;15, 2007, we entered in Amendment Number Nine to Credit Agreement (&#147;Amendment
Nine&#148;) with the banks. Amendment Nine effectively ended the Forbearance Period and extended the
term of the revolving credit component of the facility to January&nbsp;31, 2009 and the term of the term
loan component of the facility to July&nbsp;1, 2009. Amendment Nine also added several definitions and
modified or replaced certain covenants. As of December&nbsp;31, 2007, we were in compliance with all of
the credit facility covenants, as amended.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we believe relations with our lenders are good and we have received waivers as necessary
in the past, there can be no assurance that such waivers can always be obtained. In such case, we
believe we have, in the aggregate, sufficient cash, cash generation capabilities from operations,
working capital, and financing alternatives at our disposal, including but not limited to
alternative borrowing arrangements (e.g. asset secured borrowings) and other available lenders, to
fund operations in the normal course and repay the debt outstanding under our credit facility.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, we had $3,167 outstanding under the term loan component of our credit
facility with our primary lending bank and $11,200 was outstanding under the revolver component.
At December&nbsp;31, 2007, the interest rate on the revolver component was 7.25%.  The revolver
arrangement now provides for up to $15,000 of borrowing capacity, including outstanding letters of
credit. At December&nbsp;31, 2007, we had no outstanding letters of credit related to this facility, as
amended August&nbsp;15, 2007, leaving $3,800 of additional borrowing capacity.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, our wholly-owned U.K. subsidiary, Ultralife Batteries (UK)&nbsp;Ltd.
(&#147;Ultralife UK&#148;), had nothing outstanding under its revolving credit facility with a commercial
bank in the U.K. This credit facility provides our U.K. operation with additional financing
flexibility for its working capital needs. Any borrowings against this credit facility are
collateralized with Ultralife UK&#146;s outstanding accounts receivable balances. The maximum credit
available to that subsidiary under the facility is approximately $899 as of December&nbsp;31, 2007. The
rate of interest is based upon prime plus 2.25% (7.75% at December&nbsp;31, 2007).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><i>Equipment
and Vehicle Notes Payable</i>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have two equipment notes payable related to our McDowell operations. The first note
payable is for equipment that provides for payments (including principal and interest at 5.85%) of
$34 per year through January&nbsp;2008. The other note payable is also for equipment that provides for
payments (including principal and interest at 6.75%) of $12 per year through May&nbsp;2009. The
respective equipment collateralizes both notes payable.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->71<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have two equipment and one vehicle notes payable related to our RedBlack operations. The
first equipment note payable provides for payments (including principal and interest at 6.27%) of
$8 per year through February&nbsp;2008. The second equipment note payable provides for payments
(including principal and interest at 6.27%) of $12 per year through November&nbsp;2008. The vehicle
note payable provides for payments (including principal and interest at 0.90%) of $13 per year
through March&nbsp;2009. The respective equipment and vehicles collateralize the notes payable.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have eleven vehicle notes payable related to our SPS operations. The notes payable provide
for payments (including principal and interest) of $73 per year, collectively. The interest rates
on the notes payable range from 0.00% to 7.13%. The term on the notes payable range from 24 to 72
months, with payments on the individual notes payable ending between March&nbsp;2008 and October&nbsp;2012.
The respective vehicles collateralize the notes payable.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><i>Capital Leases</i>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have twelve capital leases. The first capital lease commitment was for the Newark, New
York facility which provided for payments (including principal and interest) of $28 per year from
December&nbsp;2003 through 2007. Upon expiration of the lease, we purchased the facility for one
dollar. The second capital lease commitment is for copiers that provides for payments (including
principal and interest) of $14 per year from November&nbsp;2006 through October&nbsp;2009. The third capital
lease commitment is for leasehold improvements that provide for payments (including principal and
interest) of $91 per year from May&nbsp;2007 through April&nbsp;2012. The remaining nine capital lease
commitments are for copiers that provide for payments (including principal and interest) of $38 per
year, collectively, from July&nbsp;2007 through December&nbsp;2012. Remaining interest payable on the
capital leases is approximately $89. At the end of the lease terms, we are required to purchase
the assets under the capital lease commitments for one dollar each.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><i>Payment Schedule</i>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Scheduled
principal payments under the current amount outstanding of debt and capital leases are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Equipment</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Vehicle</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Convertible</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Credit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Notes</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Notes</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Facility</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Payable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Leases</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Payable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">13,200</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">113</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">110</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">13,423</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,167</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">60</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">115</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,342</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">50</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">111</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4,161</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">34</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">119</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,500</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,653</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">2012 and thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">9</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">59</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">68</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">14,367</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">266</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">514</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">14,500</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">29,647</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Less: Current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">13,200</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">113</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">110</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">13,423</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Long-term</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">1,167</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">153</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">404</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">14,500</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">16,224</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2008, the convertible notes in connection with the McDowell acquisition, with a
balance of $10,500 at December&nbsp;31, 2007, were converted in full into 700,000 shares of our common
stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><i>Letters of Credit</i>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the $4,000 operating lease line that we initiated in March&nbsp;2001, we
maintained a letter of credit, which expired in July&nbsp;2007. At December&nbsp;31, 2007, we had no
outstanding letters of credit.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->72<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 6 &#151; Commitments and Contingencies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">a. <I>Indemnity Agreement</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Delaware General Corporation Law provides that directors or officers will be reimbursed
for all expenses, to the fullest extent permitted by law arising out of their performance as agents
or trustees of ours.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">b. <I>Purchase Commitments</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, we have made commitments to purchase approximately $326 of production
machinery and equipment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">c. <I>Royalty Agreements</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technology underlying certain of our products is based in part on non-exclusive transfer
agreements. In 2003, we entered into an agreement with Saft, to license certain tooling for
battery cases. The licensing fee associated with this agreement is essentially one dollar per
battery case. The total royalty expense reflected in 2007, 2006 and 2005 was $13, $39 and $103,
respectively. This agreement expires in the year 2017.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">d. <I>Government Grants/Loans</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been able to obtain certain grants/loans from government agencies to assist with
various funding needs. In November&nbsp;2001, we received approval for a $300 grant/loan from New York
State. The grant/loan was to fund capital expansion plans that we expected would lead to job
creation. In this case, we were to be reimbursed after the full completion of the particular
project. This grant/loan also required us to meet and maintain certain levels of employment.
During 2002, since we did not meet the initial employment threshold, it appeared unlikely at that
time that we would be able to gain access to these funds. However, during 2006, our employment
levels had increased to a level that exceeded the minimum threshold, and we received these funds in
April&nbsp;2007. As this grant/loan requires us to not only meet, but maintain our employment levels
for a pre-determined time period, we currently reflect the funds that we received as a current
liability, in the Other Current Liabilities line on our Consolidated Balance Sheet. Our employment
levels met the specified levels as of December&nbsp;31, 2007. In the event our employment levels are
not maintained at the specified levels at December&nbsp;31, 2008, we may be required to pay back these
funds.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2005, we received a contract valued at approximately $3,000 from the U.S. Defense
Department to purchase equipment and enhance processes to reduce lead times and increase
manufacturing efficiency to boost production surge capability of our BA-5390 battery during
contingency operations. Approximately $1,800 of the total contract amount pertains to inventory
that is included in our inventory balance at December&nbsp;31, 2007, offset by deferred revenues which
are included in other current liabilities. Approximately $700 of the total contract pertains to a
reimbursement for expenses incurred to implement more effective processes and procedures, and the
remaining approximately $500 was allocated to purchase equipment that is owned by the U.S. Defense
Department. In 2006, we received $1,325 relating to this contract. In 2007, we received $1,257
relating to this contract. The contract term has been extended and we expect to complete this
contract during 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">e. <I>Employment Contracts</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have employment contracts with certain of our key employees with automatic one-year
renewals unless terminated by either party. These agreements provide for minimum salaries, as
adjusted for annual increases, and may include incentive bonuses based upon attainment of specified
management goals. In addition, these agreements provide for severance payments in the event of
specified termination of employment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the ABLE acquisition, we entered into employment contracts with certain key
employees for a term of one to three years. These agreements provide for minimum salaries and may
include incentive bonuses based upon attainment of specified management goals. In addition, these
agreements provide for severance payments in the event of specified termination of employment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the McDowell acquisition, we have one employment contract with a key
employee for a term of two years. This agreement provides for a minimum salary and may include
incentive bonuses based upon attainment of specified management goals. In addition, this agreement
provides for severance payments in the event of specified termination of employment.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->73<!-- /Folio -->
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the RedBlack (formerly ISC) acquisition, we entered into employment
contracts with certain key employees for a term of one year. These agreements provide for minimum
salaries and may include incentive bonuses based upon attainment of specified management goals. In
addition, these agreements provide for severance payments in the event of specified termination of
employment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the SPS and RPS acquisitions, we entered into employment contracts with
certain key employees for a term of three years. These agreements provide for minimum salaries and
may include incentive bonuses based upon attainment of specified management goals. In addition,
these agreements provide for severance payments in the event of specified termination of
employment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">f. <I>Product Warranties</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate future costs associated with expected product failure rates, material usage and
service costs in the development of our warranty obligations. Warranty reserves are based on
historical experience of warranty claims and generally will be estimated as a percentage of sales
over the warranty period. In the event the actual results of these items differ from the
estimates, an adjustment to the warranty obligation would be recorded. Changes in our product
warranty liability during the years ended December&nbsp;31, 2007, 2006 and 2005 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">326</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accruals for warranties issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Settlements made</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(231</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(67</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">g. <I>Post Audits of Government Contracts</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have had certain &#147;exigent&#148;, non-bid contracts with the U.S. government that have been
subject to an audit and final price adjustment and have resulted in decreased margins compared with
the original terms of the contracts. As of December&nbsp;31, 2007, there were no outstanding exigent
contracts with the U.S. government. As part of its due diligence, the U.S. government has
conducted post-audits of the completed exigent contracts to ensure that information used in
supporting the pricing of exigent contracts did not differ materially from actual results. In
September&nbsp;2005, the Defense Contracting Audit Agency (&#147;DCAA&#148;) presented its findings related to the
audits of three of the exigent contracts, suggesting a potential pricing adjustment of
approximately $1,400 related to reductions in the cost of materials that occurred prior to the
final negotiation of these contracts. We have reviewed these audit reports, have submitted our
response to these audits and believe, taken as a whole, the proposed audit adjustments can be
offset with the consideration of other compensating cost increases that occurred prior to the final
negotiation of the contracts. While we believe that potential exposure exists relating to any
final negotiation of these proposed adjustments, we cannot reasonably estimate what, if any,
adjustment may result when finalized. In addition, in June&nbsp;2007, we received a request from the
Office of Inspector General of the Department of Defense (&#147;DoD IG&#148;) seeking certain information and
documents relating to our business with the Department of Defense. We are cooperating with the DoD
IG inquiry and have furnished the requested information and documents. At this time we have no
basis for assessing whether we might face any penalties or liabilities on account of the DoD IG
inquiry. The aforementioned DCAA-related adjustments could reduce margins and, along with the
aforementioned DOD IG inquiry, could have an adverse effect on our business, financial condition
and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">h. <I>Legal Matters</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to legal proceedings and claims that arise in the normal course of business.
We believe that the final disposition of such matters will not have a material adverse effect on
the financial position or results of operations of ours.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In conjunction with our purchase/lease of our Newark, New York facility in 1998, we entered
into a payment-in-lieu of tax agreement, which provides us with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, a consulting firm performed a Phase
I and II Environmental Site Assessment, which revealed the existence of contaminated soil and
ground water around one of the buildings. We retained an engineering firm, which estimated that
the cost of remediation should be in the range of $230. In February&nbsp;1998, we entered into an
agreement with a third party which provides that we and this third party will retain an
environmental consulting firm to conduct a
supplemental Phase II investigation to verify the existence of the contaminants and further
delineate the nature of the
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">environmental concern. The third party agreed to reimburse us for
fifty percent (50%) of the cost of correcting the environmental concern on the Newark property. We
have fully reserved for our portion of the estimated liability. Test sampling was completed in the
spring of 2001, and the engineering report was submitted to the New York State Department of
Environmental Conservation (&#147;NYSDEC&#148;) for review. NYSDEC reviewed the report and, in January&nbsp;2002,
recommended additional testing. We responded by submitting a work plan to NYSDEC, which was
approved in April&nbsp;2002. We sought proposals from engineering firms to complete the remedial work
contained in the work plan. A firm was selected to undertake the remediation and in December&nbsp;2003
the remediation was completed, and was overseen by the NYSDEC. The report detailing the remediation
project, which included the test results, was forwarded to NYSDEC and to the New York State
Department of Health (&#147;NYSDOH&#148;). The NYSDEC, with input from the NYSDOH, requested that we perform
additional sampling. A work plan for this portion of the project was written and delivered to the
NYSDEC and approved. In November&nbsp;2005, additional soil, sediment and surface water samples were
taken from the area outlined in the work plan, as well as groundwater samples from the monitoring
wells. We received the laboratory analysis and met with the NYSDEC in March&nbsp;2006 to discuss the
results. On June&nbsp;30, 2006, the Final Investigation Report was delivered to the NYSDEC by our
outside environmental consulting firm. In November&nbsp;2006, the NYSDEC completed its review of the
Final Investigation Report and requested additional groundwater, soil and sediment sampling. A
work plan to address the additional investigation was submitted to the NYSDEC in January&nbsp;2007 and
was approved in April&nbsp;2007. Additional investigation work was performed in May&nbsp;2007. A
preliminary report of results was prepared by our outside environmental consulting firm in August
2007 and a meeting with the NYSDEC and NYSDOH took place in September&nbsp;2007. As a result of this
meeting, NYSDEC and NYSDOH have requested additional investigation work. A work plan to address
this additional investigation was submitted to and approved by the NYSDEC in November&nbsp;2007.
Additional investigation work was performed in December&nbsp;2007 and we are awaiting the results from
our environmental consulting firm. The results of the additional investigation requested by the
NYSDEC may increase the estimated remediation costs modestly. Through December&nbsp;31, 2007, total
costs incurred have amounted to approximately $195, none of which has been capitalized. At
December&nbsp;31, 2007 and December&nbsp;31, 2006, we have $85 and $35, respectively, reserved for this
matter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A retail end-user of a product manufactured by one of our customers (the &#147;Customer&#148;), made a
claim against the Customer wherein it asserted that the Customer&#146;s product, which is powered by one
of our batteries, does not operate according to the Customer&#146;s product specification. No claim has
been filed against us. However, in the interest of fostering good customer relations, in September
2002, we agreed to lend technical support to the Customer in defense of its claim. Additionally,
we assured the Customer that we would honor our warranty by replacing any batteries that may be
determined to be defective. Subsequently, we learned that the end-user and the Customer settled
the matter. In February&nbsp;2005, we entered into a settlement agreement with the Customer. Under the
terms of the agreement, we have agreed to provide replacement batteries for product determined to
be defective, to warrant each replacement battery under our standard warranty terms and conditions,
and to provide the Customer product at a discounted price for shipments made prior to December&nbsp;31,
2008 in recognition of the Customer&#146;s administrative costs in responding to the claim of the retail
end-user. In consideration of the above, the Customer released us from any and all liability with
respect to this matter. Consequently, we do not anticipate any further expenses with regard to
this matter other than our obligation under the settlement agreement. As of December&nbsp;31, 2007, we
no longer have an accrual in the warranty reserve related to anticipated replacements under this
agreement, due to lack of actual claims for replacements during the past few years. Further, we do
not expect the ongoing terms of the settlement agreement to have a material impact on our
operations or financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">i. <I>Workers&#146; Compensation Self-Insured Trust</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From August&nbsp;2002 through August&nbsp;2006, we participated in a self-insured trust to manage our
workers&#146; compensation activity for our employees in New York State. All members of this trust
have, by design, joint and several liability during the time they participate in the trust. In
August&nbsp;2006, we left the self-insured trust and have obtained alternative coverage for our workers&#146;
compensation program through a third-party insurer. In the third quarter of 2006, we confirmed that
the trust was in an underfunded position (i.e. the assets of the trust were insufficient to cover
the actuarially projected liabilities associated with the members in the trust). In the third
quarter of 2006, we recorded a liability and an associated expense of $350 as an estimate of our
potential future cost related to the trust&#146;s underfunded status. As of December&nbsp;31, 2007, we have
determined that our reserve for this potential liability continues to be reasonable. It is likely,
however, that the final amount may be more or less, depending upon the ultimate settlement of
claims that remain in the trust for the period of time we were a member. It is likely to take
several years before resolution of outstanding workers&#146; compensation claims are finally settled.
We will continue to review this liability periodically and make adjustments accordingly as new
information is collected.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 7 &#151; Shareholders&#146; Equity</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">a. <I>Preferred Stock</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have authorized 1,000,000 shares of preferred stock, with a par value of $0.10 per share.
At December&nbsp;31, 2007, no preferred shares were issued or outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">b. <I>Common Stock</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have authorized 40,000,000 shares of common stock, with a par value of $0.10 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2007, we issued 1,000,000 shares of common stock in a limited public offering at
$13.50 per share. Total net proceeds from the offering were approximately $12,600, of which $6,000
was used for the SPS cash payment, $3,500 was used as a prepayment on the subordinated convertible
notes that were issued as partial consideration for the McDowell acquisition, $1,000 was used as a
repayment of borrowings outstanding under our credit facility used to fund the RedBlack
acquisition, and for general working capital purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">c. <I>Treasury Stock</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007 and 2006, we had 728,690 and 727,250 shares, respectively, of treasury
stock outstanding, valued at $2,401 and $2,378, respectively. The 1,440 increase in treasury
shares related to the vesting of restricted stock awards for certain key employees in December
2007, a portion of which were withheld as treasury shares to cover for estimated individual income
taxes, since the vesting of such awards is a taxable event for the individuals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">d. <I>Stock Options</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have various stock-based employee compensation plans. Effective January&nbsp;1, 2006, we
adopted the provisions SFAS No.&nbsp;123 (revised 2004), &#147;Share-Based Payment&#148; (&#147;SFAS No.&nbsp;123R&#148;)
requiring that compensation cost relating to share-based payment transactions be recognized in the
financial statements. The cost is measured at the grant date, based on the fair value of the
award, and is recognized as an expense over the employee&#146;s requisite service period (generally the
vesting period of the equity award). We adopted SFAS No.&nbsp;123R using the modified prospective
method and, accordingly, did not restate prior periods presented in this Form 10-K to reflect the
fair value method of recognizing compensation cost. Under the modified prospective approach, SFAS
No.&nbsp;123R applies to new awards, awards that were unvested as of January&nbsp;1, 2006 and to awards that
were outstanding on January&nbsp;1, 2006 that are subsequently modified, repurchased or cancelled.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to January&nbsp;1, 2006, we applied Accounting Principles Board (APB)&nbsp;Opinion No.&nbsp;25,
&#147;Accounting for Stock Issued to Employees,&#148; and related interpretations which required compensation
costs to be recognized based on the difference, if any, between the quoted market price of the
stock on the grant date and the exercise price. As all options granted to employees under such
plans had an exercise price at least equal to the market value of the underlying common stock on
the date of grant, and given the fixed nature of the equity instruments, no stock-based employee
compensation cost relating to stock options was reflected in net income (loss). For purposes of
the disclosure-only provision of SFAS No.&nbsp;148, &#147;Accounting for Stock&#150;Based Compensation&#148;, the fair
value of each fixed option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for grants in the years
ended December&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility factor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">69.4</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average expected life (years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average fair value of options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7.53</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our shareholders have approved various equity-based plans that permit the grant of options,
restricted stock and other equity-based awards. In addition, our shareholders have approved the
grant of options outside of these plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our shareholders have approved a 1992 stock option for grants to key employees, directors and
consultants of ours. The shareholders approved reservation of 1,150,000 shares of Common Stock for
grant under the plan. During 1997, the Board of Directors and shareholders approved an amendment to
the plan increasing the number of shares of Common Stock reserved by 500,000 to 1,650,000. Options
granted under the 1992 plan are either Incentive Stock Options (&#147;ISOs&#148;) or Non-Qualified Stock
Options (&#147;NQSOs&#148;). Key employees were eligible to receive ISOs and NQSOs; however, directors and
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">consultants were eligible to receive only NQSOs. All ISOs vested at twenty percent per year for
five years and expired on the sixth anniversary of the grant. The NQSOs vested immediately and
expire on the sixth anniversary of the grant. On October&nbsp;13, 2002, this plan expired and as a
result, there are no more shares available for grant under this plan. As of December&nbsp;31, 2007,
there were 25,400 stock options outstanding under this plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective December&nbsp;2000, we established the 2000 stock option plan which is substantially the
same as the 1992 stock option plan. The shareholders approved reservation of 500,000 shares of
Common Stock for grant under the plan. In December&nbsp;2002, the shareholders approved an amendment to
the plan increasing the number of shares of Common Stock reserved by 500,000, to a total of
1,000,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2004, shareholders adopted the Ultralife Batteries, Inc. 2004 Long-Term Incentive Plan
(&#147;LTIP&#148;) pursuant to which we were authorized to issue up to 750,000 shares of Common Stock and
grant stock options, restricted stock awards, stock appreciation rights and other stock-based
awards. In June&nbsp;2006, shareholders approved an amendment to the LTIP, increasing the number of
shares of Common Stock by an additional 750,000, bringing the total shares authorized under the
LTIP to 1,500,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options granted under the amended 2000 stock option plan and the LTIP are either ISOs or
NQSOs. Key employees are eligible to receive ISOs and NQSOs; however, directors and consultants
are eligible to receive only NQSOs. Most ISOs vest over a three or five year period and expire on
the sixth or seventh anniversary of the grant date. All NQSOs issued to non-employee directors
vest immediately and expire on either the sixth or seventh anniversary of the grant date. Some
NQSOs issued to non-employees vest immediately and expire within three years; others have the same
vesting characteristics as options given to employees. As of December&nbsp;31, 2007, there were
1,696,063 stock options outstanding under the amended 2000 stock option plan and the LTIP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;19, 2005, we granted the current CEO an option to purchase shares of Common Stock
at $12.96 per share outside of any of our equity-based compensation plans, subject to shareholder
approval. Shareholder approval was obtained on June&nbsp;8, 2006. The option to purchase 48,000 shares
of Common Stock becomes exercisable in annual increments of 16,000 shares over a three-year period
commencing December&nbsp;9, 2006. The option expires on June&nbsp;8, 2013.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;28, 2005, our Board of Directors approved the acceleration of vesting of certain
&#147;underwater&#148; unvested stock options held by certain current employees of ours, including some of
our executive officers. Options held by our President and Chief Executive Officer were not included
in the acceleration. Options held by non-employee directors also were not included as those options
vest immediately upon grant. A stock option was considered &#147;underwater&#148; if the exercise price was
$12.90 per share or greater. The Board of Directors took action to accelerate the vesting of those
options that were underwater and that had been granted prior to October&nbsp;2, 2005. The decision to
accelerate vesting of these underwater stock options was based on management&#146;s desire to
incentivize our employees who hold options that are currently underwater, in addition to avoiding
the recognition of future compensation expense of approximately $1,500, net of related tax effects,
upon the effectiveness of SFAS No.&nbsp;123R. The aggregate number of shares issuable upon options for
which the vesting was accelerated and the weighted average exercise price per share for executive
officers, all other employees, and total, respectively, are set forth below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Aggregate Number of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Shares Issuable Upon</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accelerated Stock</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted Average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise Price Per Share</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Executive Officers*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">All Other Employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">236,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.43</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Executive officers exclude our President and Chief Executive Officer.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In taking these actions, and to avoid any unintended personal benefits to our executive
officers, our Board of Directors imposed, as a condition of the acceleration, a holding period on
the shares underlying the options for which the vesting was accelerated which were held by certain
executive officers of ours. The holding period requires all such executive officers to refrain from
selling any shares of our common stock acquired upon the exercise of the options until the earlier
of the original vesting date applicable to such shares (or any portion thereof) underlying the
stock option grant or the termination of the executive officer&#146;s employment. The decision to
accelerate vesting of these underwater stock options was based on two considerations. First, we
took the action as an alternative to issuing additional options, in order to incentivize our
employees who hold options that are currently underwater. With the broad distribution of options
that we have, the Board of Directors felt that it was a non-dilutive way to incentivize these
employees on a going forward basis. Second, it
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->77<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">would enable us to avoid recognizing future compensation expense associated with the
accelerated stock options upon the effectiveness of SFAS No.&nbsp;123R. We also believe that the
underwater stock options may not be offering the intended incentives to the holders of those
options when compared to the potential future compensation expense that we would have had to bear
had we chosen not to accelerate their vesting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 346,186 stock options affected by this accelerated vesting represented approximately 25%
of the outstanding stock options awarded to our employees under our LTIP and predecessor plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In conjunction with SFAS No.&nbsp;123R, we recorded compensation cost related to stock options of
$1,649 and $1,322 for the years ended December&nbsp;31, 2007 and 2006, respectively. As of December&nbsp;31,
2007, there was $1,785 of total unrecognized compensation costs related to outstanding stock
options, which is expected to be recognized over a weighted average period of 1.39&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use the Black-Scholes option-pricing model to estimate fair value of stock-based awards.
The following weighted average assumptions were used to value options granted during the years
ended December&nbsp;31, 2007 and 2006:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">Years Ended December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.59</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.84</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility factor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">56.72</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">60.04</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average expected life (years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.66</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Forfeiture rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.00</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We calculate expected volatility for stock options by taking an average of historical
volatility over the past five years and a computation of implied volatility. Prior to 2006, the
computation of expected volatility was based solely on historical volatility. The change to a
blended volatility measure was based on a thorough review of assumptions underlying the valuation
of our stock options, in conjunction with additional information and guidance that became more
widely available as we prepared to implement SFAS No.&nbsp;123R in 2006. A blended volatility factor
was deemed to be more appropriate as we believe that implied volatility, a forward-looking measure,
provides a more market-driven valuation related to investors&#146; expectations of the volatility of our
business, and provides a balance against focusing only on a historical measure. The computation of
expected term was determined based on historical experience of similar awards, giving consideration
to the contractual terms of the stock-based awards and vesting schedules. The interest rate for
periods within the contractual life of the award is based on the U.S. Treasury yield in effect at
the time of grant. Forfeiture rates are calculated by dividing unvested shares forfeited by
beginning shares outstanding. The pre-vesting forfeiture rate is calculated yearly and is
determined using a historical twelve-quarter rolling average of the forfeiture rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes data for the stock options issued by us:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>Year Ended December 31, 2007</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Aggregate</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Intrinsic</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Per Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Term</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Value</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares under option
at beginning of
year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,815,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">263,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(204,008</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(105,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares under option
at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,769,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">4.32 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,323</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vested and expected
to vest as end of
year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,661,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">4.23 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,316</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercisable
at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,095,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">3.55 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,761</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->78<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Per Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Per Share</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares under option
at beginning of
year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,430,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,652,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.95</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">566,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">291,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.82</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(119,400</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(452,142</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(61,700</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(60,600</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares under option
at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,815,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,430,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.94</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercisable
at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,038,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">974,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.36</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table represents additional information about stock options outstanding at
December&nbsp;31, 2007:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="16%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" colspan="13" style="border-bottom: 1px solid #000000"><B>Options Outstanding</B></TD>
    <TD style="border-right: 2px solid #000000; border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Options Exercisable</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted-</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercisable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted-</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Range of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>at December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>at December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" ><B>Exercise Prices</B></TD>
    <TD >&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Life</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B></TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD >&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2007</B></TD>
    <TD >&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 2px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">$2.61-$4.96</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">251,805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.01</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">$5.18-$9.84</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9.69</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9.27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">$9.95-$10.55</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">290,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.18</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">$10.70-$12.96</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">408,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.48</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">201,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">$12.99-$14.75</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.88</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">$15.05-$15.05</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">335,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.05</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">335,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">$16.15-$20.89</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18.06</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18.06</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">$21.28-$21.28</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21.28</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21.28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 2px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">$2.61-$21.28</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,769,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.51</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,095,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.18</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The weighted average fair value of options granted during the years ended December&nbsp;31, 2007
and 2006 was $4.84 and $5.02. The total intrinsic value of options (which is the amount by which
the stock price exceeded the exercise price of the options on the date of exercise) exercised
during the years ended December&nbsp;31, 2007 and 2006 was $1,526 and $604.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to adopting FAS 123R, all tax benefits resulting from the exercise of stock options were
presented as operating cash flows in the Condensed Statement of Cash Flows. SFAS No.&nbsp;123R requires
cash flows from excess tax benefits to be classified as a part of cash flows from financing
activities. Excess tax benefits are realized tax benefits from tax deductions for exercised
options in excess of the deferred tax asset attributable to stock compensation costs for such
options. We did not record any excess tax benefits in 2007 or 2006. Cash received from option
exercises under our stock-based compensation plans for the years ended December&nbsp;31, 2007, 2006 and
2005 was $1,314, $728 and $2,487, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">e. <I>Warrants</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2001, we issued warrants to purchase 109,000 shares of our common stock to H.C.
Wainwright &#038; Co., Inc. and other affiliated individuals that participated as investment bankers in
the $6,800 private placement of 1,090,000 shares of common stock that was completed at that time.
The exercise price of the warrants was $6.25 per share and the warrants had a five-year term.
Through 2005, 22,365 warrants had been exercised. During 2006, 80,545 warrants were
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->79<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">exercised. On July&nbsp;20, 2006, warrants to purchase 6,090 shares expired unexercised. At December
31, 2006, none of these warrants were outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;19, 2006, in connection with our acquisition of ABLE New Energy Co., Ltd., we granted
warrants to acquire 100,000 shares of common stock. The exercise price of the warrants is $12.30
per share and the warrants have a five-year term. At December&nbsp;31, 2007, there were 100,000
warrants outstanding. In January&nbsp;2008, 82,000 warrants were exercised.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">f. <I>Restricted Stock Awards</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2007, we issued 28,948 restricted stock awards to directors. The restrictions lapse in
equal installments of 7,237 shares on August&nbsp;15, 2007, November&nbsp;15, 2007, February&nbsp;15, 2008 and May
15, 2008. As of December&nbsp;31, 2007, 14,474 of these shares had vested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2007, we issued 22,600 time-vested restricted stock awards to our executive officers.
The restrictions for 10,000 of these restricted stock awards will
lapse annually in three equal installments, commencing on March&nbsp;1, 2008. The restrictions for the remaining 12,600
restricted stock awards will lapse annually in three equal installments, commencing on
March&nbsp;1, 2009. As of December&nbsp;31, 2007, none of these shares had vested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2006, we issued 26,668 restricted stock awards to directors. The restrictions lapse in
equal installments of 6,667 shares on August&nbsp;15, 2006, November&nbsp;15, 2006, February&nbsp;15, 2007 and May
15, 2007. As of December&nbsp;31, 2007, all 26,668 of these shares had vested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2006, we issued 12,500 time-vested restricted stock awards to our executive officers.
The restrictions will lapse over a three-year period in equal installments, commencing on the first
anniversary of the grant date (December&nbsp;21, 2006). As of December&nbsp;31, 2007, 4,171 of these shares
had vested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2006, we issued 46,500 performance-vested restricted stock awards to our executive
officers. The restrictions will lapse in three equal installments only if we meet or exceed the
same predetermined target for our operating performance for 2007, 2008 and 2009 as used for
determining cash awards pursuant to the non-equity incentive plan. As of December&nbsp;31, 2007, none
of these shares had vested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restricted stock grants were awarded during the years ended December&nbsp;31, 2007 and 2006 with
the following values:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" ><B>Years Ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2006</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Number of shares awarded</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,668</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average fair value per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Aggregate total value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">610,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">897,237</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The activity of restricted stock grants of common stock for the years ended December&nbsp;31, 2007
and 2006 is summarized as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Average</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Grant Date Fair Value</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unvested as December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,334</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unvested as December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.85</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(31,979</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unvested at December&nbsp;31, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11.28</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recorded compensation cost related to restricted stock grants of $500 and $158 for the
years ended December&nbsp;31, 2007 and 2006, respectively. As of December&nbsp;31, 2007, we had $848 of
total unrecognized compensation expense related to restricted stock grants, which is expected to be
recognized over the remaining weighted average period of approximately
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->80<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2.00&nbsp;years. The total fair value of these grants that vested during the years ended December
31, 2007 and 2006 was $334 and $141, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">g. <I>Reserved Shares</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have reserved 1,934,598, 2,191,554, and 1,627,357 shares of common stock under the various
stock option plans, warrants and restricted stock awards as of December&nbsp;31, 2007, 2006, and 2005
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>h. Accumulated Other Comprehensive Income (Loss)</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other comprehensive income (loss)&nbsp;is reported on the Consolidated Statement of Changes in
Shareholders&#146; Equity and accumulated other comprehensive income (loss)&nbsp;is reported on the
Consolidated Balance Sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The components of accumulated other comprehensive income (loss)&nbsp;were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign Currency Exchange Translation Adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(371</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,114</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized Gains (Losses) on Derivative Instruments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(60</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated Other Comprehensive Income (Loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(321</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,054</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 8 &#151; Income Taxes</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provision for income taxes consists of:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(970</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,456</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">486</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">489</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We reflected a tax provision of $77 for the year ended December&nbsp;31, 2007. This was due to the
adjustment required for deferred taxes outside the United States. We continued to report in 2007 a
full valuation allowance for our deferred tax assets in the United States and in the United Kingdom
arising from our conclusion that it was more likely than not that we would not be able to utilize
our U.S. and U.K. net operating loss carryforwards (&#147;NOLs&#148;) that had accumulated over time. The
recognition of the full valuation allowance on our deferred tax asset resulted from our evaluation
of all available evidence, both positive and negative, including: a) recent historical net
income/losses, and income/losses on a cumulative three-year basis; and b) a financial evaluation
that modeled the future utilization of anticipated deferred tax assets under three alternative
scenarios. Because evidence, such as our operating results during the most recent historical
periods excluding the gain on the McDowell settlement, is afforded more weight than forecasted results for future periods, our cumulative loss
during our most recent three-year period represents sufficient negative evidence regarding the need
for a full valuation allowance under SFAS No.&nbsp;109. We continually assess the carrying value of
this asset based on relevant accounting standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2006, we placed a full valuation allowance on our deferred tax assets arising from
our conclusion that it was more likely than not that we would not be able to utilize our U.S. and
U.K. NOLs that had accumulated over time. As
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->81<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">a result, we reflected a tax provision of $23,735 for the year ended December&nbsp;31, 2006. The
recognition of the full valuation allowance on our deferred tax asset resulted from our evaluation
of all available evidence, both positive and negative, including: a) recent historical net
income/losses, and income/losses on a cumulative three-year basis; and b) a financial evaluation
that modeled the future utilization of anticipated deferred tax assets under three alternative
scenarios.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We reported a deferred income tax provision of $486 for 2005. We concluded at the end of 2005
that it was more likely than not that we would be able to utilize the U.S. NOLs. Our conclusion
was based on the expectation that the U.S. federal and state deferred tax assets will be realized
primarily through future taxable income from operations, and partly from reversing taxable
temporary differences. The continued recognition of a deferred tax asset resulted from our
evaluation of all available evidence, both positive and negative, including: a) recent historical
net income, and income on a cumulative three-year basis, as well as anticipated future
profitability based in part on recent military contracts; b) a financial evaluation that modeled
the future utilization of anticipated deferred tax assets under three alternative scenarios; and c)
the award of a significant contract with the U.S. Defense Department in December&nbsp;2004 for various
battery types that could reach a maximum value of $286,000 in revenues over the next five years.
Included in the 2005 provision was a $1,456 impact from a change in the New York State income tax
law in the second quarter of 2005, which caused a reduction in the associated deferred tax asset.
In April&nbsp;2005, legislation was enacted in New York State that changed the apportionment methodology
for corporate income from a &#147;three factor formula&#148; comprised of payroll, property and sales, to one
which uses only sales. This change was phased in beginning in 2006, and the change is fully
effective for the tax year 2008 and thereafter. This legislative change resulted in a reduction in
our New York State effective tax rate from approximately 2.46% in 2005 to 0.18% in 2008. Excluding
the New York State tax provision, the 2005 benefit related mainly from the loss before income taxes
for U.S. operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amount used for
income tax purposes. Significant components of our deferred tax liabilities and assets are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,224</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intangible assets and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,299</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net operating loss carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,225</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses, reserves and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,383</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,142</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Valuation allowance for deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,149</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,526</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,224</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(146</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(75</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The $146 net deferred tax liability for the year ended December&nbsp;31, 2007 is comprised of a
long-term deferred tax liability of $455, offset in part by a current deferred tax asset of $309.
The $75 net deferred tax liability for the year ended December&nbsp;31, 2006 is comprised of a long-term
deferred tax liability of $150, offset in part by a current deferred tax asset of $75.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, we have foreign and domestic net operating loss carryforwards
totaling approximately $83,679 available to reduce future taxable income. Foreign loss
carryforwards of approximately $11,915 can be carried forward indefinitely. The domestic net
operating loss carryforward of $71,764 expires from 2008 through 2027. The domestic net operating
loss includes approximately $1,831 of the net operating loss carryforward for which a benefit will
be recorded in capital in excess of par value when realized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We have determined that a change in ownership as defined under Internal Revenue Code
Section&nbsp;382 occurred during the fourth quarter of 2003, during the third quarter of 2005 and during
the fourth quarter of 2006. As such, the domestic net operating loss carryforward will be subject
to an annual limitation, which is currently estimated to be
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->82<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">approximately $12,000, the unused portion of which can be carried forward to subsequent periods. We
believe such limitation will not impact our ability to realize the deferred tax asset. In
addition, certain of our NOL carryforwards are subject to U.S. alternative minimum tax such that
carryforwards can offset only 90% of alternative minimum taxable income. This limitation did not
have an impact on income taxes determined for 2007 and 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For financial reporting purposes, income (loss)&nbsp;before income taxes is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,931</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,871</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(822</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(985</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,753</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,856</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no undistributed earnings of our foreign subsidiaries, at December&nbsp;31, 2007 or
December&nbsp;31, 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been granted a tax holiday in China. For 2007, our tax rate for our Chinese
subsidiary, ABLE, was 7.5%, which is 50% of the normal 15% tax rate for the jurisdiction in which
we operate. As a result of new legislation effective for 2008, ABLE&#146;s corporate income rate will
increase to 9% which is 50% of the new 2008 tax rate of 18%. Thereafter, our tax rate in China will
be phased in until ultimately reaching a rate of 25% in 2012.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provision for income taxes differs from the amount of income tax determined by
applying the applicable U.S. statutory federal income tax rate to income before income taxes as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision/(benefit) computed using the statutory rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34.0</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34.0</TD>
    <TD nowrap>)%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase (reduction)&nbsp;in taxes resulting from:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">State tax, net of federal benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Valuation allowance/deferred impact</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(27.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">649.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">632.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12.7</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2007, the provision for income taxes was lower than what would be expected if the statutory
rate were applied to pretax income. This is due to the continuation of reflecting a full valuation
allowance for our U.S. and U.K. deferred tax assets. In addition, there was a lower than expected
tax rate on our non-U.S. income due to the reduction of our valuation allowance on our foreign
deferred tax assets. In 2006, the provision for income taxes is higher than would be expected if
the statutory rate were applied to pretax income. This is due to the establishment of the valuation
allowance for our U.S. net deferred tax asset. In addition, there were no benefits recognized for
losses in the foreign jurisdictions. In 2005, we recorded a provision for income taxes. This
provision resulted primarily from the reduction in state deferred tax asset due to a legislative
change in New York State. The state tax provision for 2005 reflected in the table above includes
the amount related to this legislative change.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accounting for Uncertainty in Income Taxes (&#147;FIN 48&#148;)

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;1, 2007, we adopted FASB Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in
Income Taxes&#148; (&#147;FIN 48&#148;). As a result of the implementation of FIN 48, there was no cumulative
effect adjustment for unrecognized tax benefits, which would have been accounted for as an
adjustment to the January&nbsp;1, 2007 balance of retained earnings. We have recorded no liability for
income taxes associated with unrecognized tax benefits at the date of adoption and have not
recorded any liability associated with unrecognized tax benefits during 2007, and as such, have not
recorded any interest or penalty in regard to any unrecognized benefit. Our policy regarding
interest and/or penalties related to income tax matters is to recognize such items as a component
of income tax expense (benefit). It is possible that a liability associated with our unrecognized
tax benefits will increase or decrease within the next twelve months.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->83<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We file a consolidated income tax return in the U.S. federal jurisdiction and consolidated and
separate income tax returns in many state and foreign jurisdictions. Our U.S. tax matters for the
years 2004 through 2007 remain subject to examination by the Internal Revenue Service (&#147;IRS&#148;).
Our U.S. tax matters for the years 2003 through 2007 remain subject to examination by various state
and local tax jurisdictions. Our tax matters for the years 2003 through 2007 remain subject to
examination by the respective foreign tax jurisdiction authorities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 9- 401(k) Plan</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain a defined contribution 401(k) plan covering substantially all employees. Employees
can contribute a portion of their salary or wages as prescribed under Section 401(k) of the
Internal Revenue Code and, subject to certain limitations, we may, at the Board of Directors
discretion, authorize an employer contribution based on a portion of the employees&#146; contributions.
Effective February&nbsp;2004, the Board of Directors approved our matching of employee contributions at
the rate of 50% of the first 4% contributed by an employee, or a maximum of 2% of the employee&#146;s
income. In November&nbsp;2005, the employer match was suspended in an effort to conserve cash. In
October&nbsp;2007, the employer match was reinstated at the rate of 50% of the first 4% contributed by
an employee, or a maximum of 2% of the employee&#146;s income. For 2007, 2006, and 2005 we contributed
$63, $0, and $133, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 10 &#151; Business Segment Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We report our results in four operating segments: Non-Rechargeable Products, Rechargeable
Products, Communications Systems and Design and Installation Services. The Non-Rechargeable
Products segment includes: lithium 9-volt, cylindrical and various other non-rechargeable
batteries, including seawater-activated. The Rechargeable Products segment includes: rechargeable
batteries, charging systems, uninterruptable power supplies and accessories, such as cables. In
2006, as a result of the acquisition of McDowell, we formed a new segment, Communications
Accessories, which was renamed Communications Systems in 2007. The Communications Systems segment
includes: power supplies, cable and connector assemblies, RF amplifiers, amplified speakers,
equipment mounts, case equipment and integrated communication system kits. In the fourth quarter
of 2007, as a result of the acquisitions of RedBlack and SPS, we renamed our Technology Contracts
segment to Design and Installation Services. The Design and Installation Services segment
includes: standby power and communications and electronics systems design, installation and
maintenance activities and revenues and related costs associated with various development
contracts. We look at our segment performance at the gross margin level, and we do not allocate
research and development or selling, general and administrative costs against the segments. All
other items that do not specifically relate to these four segments and are not considered in the
performance of the segments are considered to be Corporate charges.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Design and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Communications</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Installation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Systems</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Services</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Corporate</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">80,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">37,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">137,596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment contribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,747</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,973</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(199</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,184</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,184</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on McDowell
settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,550</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income
(expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">493</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(77</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(77</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->84<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Design and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Communications</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Installation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Systems</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Services</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Corporate</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,733</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122,048</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,073</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,178</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based
compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,149</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Communications</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Technology</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Accessories</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Contracts</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Corporate</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">67,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,433</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">93,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment contribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,400</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,957</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,298</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,298</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income
(expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">502</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,735</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,735</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,758</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,455</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,866</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based
compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,480</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>Technology</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Contracts</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Corporate</B></TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>

    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">58,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">70,501</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment contribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,883</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,160</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,902</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(636</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(636</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(318</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(318</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(486</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(486</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,345</TD>
    <TD nowrap>)</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,575</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,757</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,309</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,181</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->85<!-- /Folio -->
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Geographical Information</B></U>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Revenues</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Long-Lived Assets</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">79,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">57,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,776</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United Kingdom</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">China*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hong Kong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,309</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Europe, excluding
United Kingdom</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Singapore</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canada</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Australia**</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">137,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">93,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">70,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,931</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Geographical data for 2005 included in &#147;Other&#148; category.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">**</TD>
    <TD>&nbsp;</TD>
    <TD>Geographical data for 2006 and 2005 included in &#147;Other&#148; category.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived assets represent the sum of the net book value of property, plant and equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 30pt"><B>Note 11 &#151; Fires at Manufacturing Facilities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2004 and June&nbsp;2004, we experienced two fires that damaged certain inventory and
property at our facilities. The May&nbsp;2004 fire occurred at our Newark facility and was caused by
cells that shorted out when a forklift truck accidentally tipped the cells over in an oven in an
enclosed area. Certain inventory, equipment and a small portion of the building where the fire was
contained were damaged. The June&nbsp;2004 fire happened at our U.K. location and mainly caused damage
to various inventory and the Ultralife UK&#146;s leased facility. The fire was contained mainly in a
bunkered, non-manufacturing area designed to store various material, and there was additional smoke
and water damage to the facility and its contents. It is unknown how the U.K. fire was started.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total amount of the two losses and related expenses associated with company-owned assets
was approximately $2,000. Of this total, approximately $450 was related to machinery and
equipment, approximately $750 was related to inventory and approximately $800 was required to
repair and clean up the facilities. The insurance claim related to the fire at our Newark facility
was finalized in March&nbsp;2005. In the first quarter of 2006, we received notice of a final claim
settlement for the U.K. facility. As a result of the final settlement for the fire at the U.K.
facility, we reflected a gain of $148 in the first quarter of 2006 related to equipment and
inventory damage. In April&nbsp;2006 we received payment in final settlement. In June&nbsp;2006 we recorded
a gain of $43 for the favorable settlement of fire damage that pertained to our leased facilities
in the U.K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2006, we experienced a fire that damaged certain inventory and property at our
facility in China, which began in a battery storage area. Certain inventory and portions of
buildings were damaged. We believe we maintain adequate insurance coverage for this operation.
The total amount of the loss pertaining to assets and the related expenses is expected to be
approximately $849. The majority of the insurance claim is related to the recovery of damaged
inventory. In July&nbsp;2007, we received approximately $637 as a partial payment on our insurance
claim, which resulted in no gain or loss being recognized. As of December&nbsp;31, 2007, our current
assets in our Consolidated Balance Sheet included a receivable from insurance companies for
approximately $152, representing additional proceeds to be received.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->86<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note 12 &#151; Selected Quarterly Information (unaudited)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents reported net revenues, gross margin (net sales less cost of
products sold), net income (loss)&nbsp;and net income (loss)&nbsp;per share, basic and diluted, for each
quarter during the past two years:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Quarter ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>June 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Sept 29,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Dec 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Full</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>Year</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">32,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">35,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,291</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">36,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">137,596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,774</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (Loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(&nbsp;128</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,583</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (Loss) per share-basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.00</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (Loss) per share- diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.00</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Quarter ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>April 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>July 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Sept 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Dec 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>Full</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>Year</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">30,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">93,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,443</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (Loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,698</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(26,039</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,488</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (Loss) per share-basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (Loss) per share- diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.84</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our monthly closing schedule is a weekly-based cycle as opposed to a calendar month-based
cycle. While the actual dates for the quarter-ends will change slightly each year, we believe that
there are not any material differences when making quarterly comparisons.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Quarterly and year-to-date computations of per share amounts are made independently;
therefore, the sum of per share amounts for the quarters may not equal per share amounts for the
year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Earnings in the fourth quarter of 2007 were favorably impacted by the recognition of a
one-time, non-operating gain of $7,550 pertaining to a purchase price settlement agreement that was
finalized during the quarter with the sellers of McDowell, which we
acquired in July&nbsp;2006. In addition, gross margins in the fourth
quarter were hampered by inventory adjustments of approximately $1,000
mainly related to physical inventory valuations at our McDowell
operation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Earnings in the fourth quarter of 2006 were impacted, in part, by a net income tax charge of
$24,116 resulting from the recognition of a full reserve on the U.S. net deferred tax asset.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->87<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>
<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9A. CONTROLS AND PROCEDURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><B>Evaluation Of Disclosure Controls And Procedures</B></U> &#150; Our president and chief executive
officer (principal executive officer) and our vice president- finance and chief financial officer
(principal financial officer) have evaluated our disclosure controls and procedures (as defined in
Exchange Act Rule&nbsp;13a-15(e)) as of the end of the period covered by this annual report. Based on
this evaluation, the president and chief executive officer and vice president &#151; finance and chief
financial officer concluded that our disclosure controls and procedures were effective as of such
date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><B>Changes In Internal Controls Over Financial Reporting</B></U> &#150; In 2006 and 2007, we completed
the acquisitions of ABLE, McDowell, RedBlack, SPS and RPS. We have worked to integrate these
companies into our business and are assimilating their operations, services, products and personnel
with our management policies, procedures and strategies. As all of these businesses were
closely-held private companies prior to our acquisitions, the internal controls and processes
inherent in these businesses have typically not been as sound as we require. We believe that we
have taken the necessary steps to implement adequate controls and procedures to ensure that our
financial statements are stated properly in compliance with U.S. GAAP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There has been no other change in the internal control over financial reporting that occurred
during the fiscal year covered by this annual report that has materially affected, or is reasonably
likely to materially affect, the internal control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><B>Management&#146;s Report on Internal Control over Financial Reporting</B></U> &#150; Our management team
is responsible for establishing and maintaining adequate internal control over financial reporting.
Our internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
Because of our inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management assessed the effectiveness of our internal control over financial reporting as
of December&nbsp;31, 2007. In making this assessment, we used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO)&nbsp;in Internal Control-Integrated
Framework. Based on our assessment, we concluded that, as of December&nbsp;31, 2007, our internal
control over financial reporting was effective based on those criteria. Our assessment of and
conclusion on the effectiveness of internal control over financial reporting did not include the
internal controls of RedBlack, SPS and RPS, which were acquired on September&nbsp;28, 2007, November&nbsp;16,
2007 and November&nbsp;16, 2007, respectively, and which are included in the consolidated balance sheet
of Ultralife Batteries, Inc. as of December&nbsp;31, 2007, and the related consolidated statements of
operations, shareholders&#146; equity and accumulated other comprehensive income, and cash flows for the
year then ended. RedBlack constituted 2% and 4% of total assets and net assets, respectively, as of
December&nbsp;31, 2007, and 1% and (2%) of revenues and net income, respectively, for the year then
ended. SPS constituted 11% and 18% of total assets and net assets, respectively, as of December
31, 2007, and 1% and (2%) of revenues and net income, respectively, for the year then ended. RPS
constituted 2% and 3% of total assets and net assets, respectively, as of December&nbsp;31, 2007, and 0%
and 0% of revenues and net income, respectively, for the year then ended. We did not assess the
effectiveness of internal control over financial reporting of RedBlack, SPS and RPS because of the
timing of the acquisitions during 2007.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->88<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BDO Seidman, LLP, an independent registered public accounting firm that audited the financial
statements included in this report, has issued a report on the operating effectiveness of internal
control over financial reporting. A copy of the report follows:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Report of Independent Registered Public Accounting Firm on Internal Controls Over Financial
Reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Board of Directors and Shareholders<BR>
Ultralife Batteries, Inc.<BR>
Newark, New York

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited Ultralife Batteries, Inc.&#146;s internal control over financial reporting as of
December&nbsp;31, 2007, based on criteria established in <I>Internal Control &#150; Integrated Framework </I>issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Ultralife Batteries, Inc&#146;s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying &#147;Item&nbsp;9A &#151; Controls and Procedures.&#148; Our
responsibility is to express an opinion on the company&#146;s internal control over financial reporting
based on our audit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A company&#146;s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A company&#146;s internal control over financial reporting includes those policies and
procedures that (1)&nbsp;pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2)&nbsp;provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3)&nbsp;provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company&#146;s assets that could have
a material effect on the financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As indicated in the accompanying &#147;Management&#146;s Report on Internal Control over Financial
Reporting,&#148; included in &#147;Item&nbsp;9A &#150; Controls and Procedures,&#148; management&#146;s assessment of and
conclusion on the effectiveness of internal control over financial reporting did not include the
internal controls of RedBlack Communications, Inc.
(&#147;RedBlack&#148;), Stationary Power Services, Inc.
(&#147;SPS&#148;) and Reserve Power Systems, Inc. (&#147;RPS&#148;), which were acquired on September&nbsp;28, 2007, November&nbsp;16,
2007 and November&nbsp;16, 2007, respectively, and which are included in the consolidated balance sheet
of Ultralife Batteries, Inc. as of December&nbsp;31, 2007, and the related consolidated statements of
operations, shareholders&#146; equity and accumulated other comprehensive income, and cash flows for the
year then ended. RedBlack constituted 2% and 4% of total assets and net assets, respectively, as of
December&nbsp;31, 2007, and 1% and (2%) of revenues and net income, respectively, for the year then
ended. SPS constituted 11% and 18% of total assets and net assets, respectively, as of December
31, 2007, and 1% and (2%) of revenues and net income, respectively, for the year then ended. RPS
constituted 2% and 3% of total assets and net assets, respectively, as of December&nbsp;31, 2007, and 0%
and 0% of revenues and net income, respectively, for the year then ended. Management did not
assess the effectiveness of internal control over financial reporting of these acquired entities
because of the timing of the acquisitions. Our audit of internal control over financial reporting
of Ultralife Batteries, Inc. also did not include an evaluation of the internal control over
financial reporting of RedBlack, SPS and RPS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our opinion, Ultralife Batteries, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December&nbsp;31, 2007, based on the COSO criteria<I>.</I>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->89<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Ultralife Batteries, Inc. as of
December&nbsp;31, 2007 and 2006 and the related consolidated statements of operations, shareholders&#146;
equity and accumulated other comprehensive income (loss)&nbsp;and cash flows for the years ended
December&nbsp;31, 2007 and 2006 and our report dated March 19, 2008 expressed an unqualified opinion
thereon.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD valign="top" style="margin-left:0px; text-indent:-0px; border-bottom: 1px solid #000000">/s/ BDO Seidman, LLP


</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">

Troy, Michigan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">March
19, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9B. OTHER INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->90<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART III</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by Part&nbsp;III, other than as set forth in Item&nbsp;12, and each of the
following items is omitted from this report and will be presented in our definitive proxy statement
(&#147;Proxy Statement&#148;) to be filed pursuant to Regulation&nbsp;14A, not later than 120&nbsp;days after the end
of the fiscal year covered by this report, in connection with our 2008 Annual Meeting of
Shareholders, which information included therein is incorporated herein by reference.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The sections entitled &#147;Election of Directors&#148;, &#147;Executive Officers&#148;, &#147;Section&nbsp;16(a) Beneficial
Ownership Reporting Compliance&#148; and &#147;Corporate Governance&#148; in the Proxy Statement are incorporated
herein by reference.
</DIV>
<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 11. EXECUTIVE COMPENSATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
sections entitled &#147;Executive Compensation&#148;,
&#147;Directors&#146; Compensation&#148;, &#147;Employment
Arrangements&#148; and &#147;Compensation and Management
Committee Report&#148; in the Proxy Statement are incorporated herein by reference.
</DIV>
<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 12.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
section entitled &#147;Security Ownership of Certain Beneficial
Owners&#148; and &#147;Security Ownership of Management&#148; in the
Proxy Statement is incorporated herein by reference.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Securities Authorized for Issuance Under Equity Compensation Plans</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of securities</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of securities remaining</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">to be issued upon</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted-average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">available for future issuance</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">exercise of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">exercise price of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">under equity compensation</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">outstanding options,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">outstanding options,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">plans (excluding securities</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">warrants and rights</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">warrants and rights</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">reflected in column (a))</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">Plan Category</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(c)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity compensation
plans approved by
security holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">1,861,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="center">$11.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">65,135</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity compensation
plans not approved
by security holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">1,861,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="center">$11.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">65,135</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Note 7 in Notes to Consolidated Financial Statements for additional information.
</DIV>
<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
section entitled &#147;Corporate Governance &#151; General&#148; in the Proxy Statement is incorporated herein by
reference.
</DIV>
<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
section entitled &#147;Proposal 2 &#151; Ratify the Selection of
Independent Registered Accounting Firm &#151; Principal Accountant Fees and Services&#148; in the Proxy Statement is
incorporated herein by reference.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->91<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART IV</B>
</DIV>

<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Documents filed as part of this report:</U></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Financial Statements</U></TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial statements and schedules required by this Item&nbsp;15 are set forth in Part
II, Item&nbsp;8 of this report.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U> Financial Statement Schedules</U></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;II &#150; Valuation and Qualifying Accounts
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">See Item&nbsp;15 (c)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Exhibits</U>. The following exhibits are filed as a part of this report:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Index</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Description of Document</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Incorporated By Reference from:</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Certificate of Incorporation
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;4.3 of our
Registration Statement on Form
S-8 filed on May&nbsp;15, 2001,
File No.&nbsp;333-60984 (the &#147;2001
Registration Statement&#148;)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By-laws
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;3.2 of Registration
Statement, No 33-54470 (the
&#147;1992 Registration Statement&#148;)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen Stock Certificate
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;4.1 of the 1992
Registration Statement</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Asset Purchase Agreement between the
Registrant, Eastman Technology, Inc.
and Eastman Kodak Company
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the 1992
Registration Statement</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1992 Stock Option Plan, as amended
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.7 of the 1992
Registration Statement</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stock Option Agreement under the<BR>
Company&#146;s 1992 Stock Option Plan for<BR>
incentive stock options
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.10 of Form&nbsp;10-Q for
the fiscal quarter ended
December&nbsp;31, 1993, File No.
0-20852 (the &#147;1993 10-Q&#148;);
(this Exhibit may be found in
SEC File No.&nbsp;0-20852)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stock Option Agreement under the<BR>
Company&#146;s 1992 Stock Option Plan for<BR>
non-qualified options
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.10 of the 1993 10-Q
(this Exhibit may be found in
SEC File No.&nbsp;0-20852)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.5*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Technology Transfer Agreement
relating to Lithium Batteries
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.19 of our
Registration Statement on Form
S-1 filed on October&nbsp;7, 1994,
File No.&nbsp;33-84888 (the &#147;1994
Registration Statement&#148;)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.6*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Technology Transfer Agreement
relating to Lithium Batteries
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.20 of the 1994
Registration Statement</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->92<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Index</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Description of Document</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Incorporated By Reference from:</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to the
Agreement relating to
rechargeable
batteries
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.24 of our Form&nbsp;10-K for the
fiscal year ended June&nbsp;30, 1996 (this
Exhibit may be found in SEC File No.
0-20852)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lease agreement
between Wayne County
Industrial
Development Agency
and the Registrant,
dated as of February
1, 1998
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of our Registration
Statement on Form&nbsp;S-3 filed on February
27, 1998, File No.&nbsp;333-47087</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ultralife Batteries,
Inc. 2000 Stock
Option Plan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;99.1 of the 2001 Registration
Statement</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lease Agreement
between Winthrop
Resources and the
Registrant
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.41 of our Report on Form&nbsp;10-K
for the year ended June&nbsp;30, 2001</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended Lease
Agreement between
Winthrop Resources
and the Registrant
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;10-Q for the
fiscal quarter ended December&nbsp;31, 2001</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement
between the
Registrant and John
D. Kavazanjian
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.45 of our Report on Form&nbsp;10-K
for the year ended June&nbsp;30, 2002 (the
&#147;2002 10-K&#148;)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement
between the
Registrant and
William A. Schmitz
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.47 of the 2002 10-K</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stock Purchase
Agreement with
Ultralife Taiwan,
Inc.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;10-Q for the
fiscal quarter ended September&nbsp;28, 2002</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Financing Agreement
between Ultralife
Batteries (UK)&nbsp;Ltd.
and EuroFinance
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10 of the Form&nbsp;10-Q for the
fiscal quarter ended June&nbsp;28, 2003</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.16
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock
Purchase Agreement
dated October&nbsp;7, 2003
(Three separate but
identical (other than
subscription amount)
stock purchase
agreements for
Corsair Capital
Partners, LP, Corsair
Long Short
International Ltd.,
and Neptune Partners,
LP for an aggregate
200,000 shares for an
aggregate purchase
price of $2,500,000).
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;10-Q for the
fiscal quarter ended September&nbsp;27, 2003
(the &#147;September&nbsp;2003 10-Q&#148;)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.17
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Registration
Rights Agreement
dated October&nbsp;7, 2003
(Three separate but
identical (other than
subscription amount)
stock purchase
agreements for
Corsair Capital
Partners, LP, Corsair
Long Short
International Ltd.,
and Neptune Partners,
LP for an aggregate
200,000 shares for an
aggregate purchase
price of $2,500,000).
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.2 of the September&nbsp;2003 10-Q</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Loan and Stock
Subscription
Agreement with
Ultralife Taiwan,
Inc.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.3 of the September&nbsp;2003 10-Q</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Credit Agreement
dated as of June&nbsp;30,
2004 with JPMorgan
Chase Bank as
Administrative Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;10-Q for the
fiscal quarter ended June&nbsp;26, 2004 (the
&#147;June&nbsp;2004 10-Q&#148;)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.20
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">General Security
Agreement dated as of
June&nbsp;30, 2004 in
favor of JPMorgan
Chase Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.2 of the June&nbsp;2004 10-Q</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->93<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Index</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Description of Document</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Incorporated By Reference from:</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ultralife Batteries, Inc.
Amended and Restated 2004
Long-Term Incentive Plan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;99.2 of our Registration
Statement on Form&nbsp;S-8 filed on July
26, 2004, File No.&nbsp;333-117662</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment Numbers One and
Two to Credit Agreement
dated as of September&nbsp;24,
2004 with JPMorgan Chase
Bank as Administrative
Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;10-Q for
the fiscal quarter ended April&nbsp;2,
2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Base compensation
information for certain
executive officers of the
Company
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Current report on Form&nbsp;8-K dated
June&nbsp;10, 2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment Number Three to
Credit Agreement dated as
of August&nbsp;5, 2005 with the
Lenders Party Thereto and
JPMorgan Chase Bank as
Administrative Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;10-Q for
the fiscal quarter ended July&nbsp;2,
 2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.25
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment Number Four to
Credit Agreement dated as
of November&nbsp;1, 2005 with
the Lenders Party Thereto
and JPMorgan Chase Bank as
Administrative Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;10-Q for
the fiscal quarter ended October&nbsp;1,
2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.26
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Officer bonus plan for
2006 and stock option
grants for officers as of
December&nbsp;9, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Current report on Form&nbsp;8-K dated
December&nbsp;13, 2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.27
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Resale Restriction
Agreement between the
Registrant and option
holders dated as of
December&nbsp;28, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"> Exhibit&nbsp;10 of Form&nbsp;8-K filed
December&nbsp;30, 2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.28
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement on Transfer of
Shares in ABLE New Energy
Co., Limited dated January
25, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;10-Q for
the fiscal quarter ended April&nbsp;1,
 2006 (the &#147;March&nbsp;2006 10-Q)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.29
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to
Agreement on Transfer of
Shares in ABLE New Energy
Co., Limited
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.2 of the March&nbsp;2006 10-Q</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.30
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement on Transfer of
Shares in ABLE New Energy
Co., Ltd dated January&nbsp;25,
2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.3 of the March&nbsp;2006 10-Q</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.31
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Asset Purchase Agreement
by and among McDowell
Research, Ltd., Thomas
Hauke, Earl Martin, Sr.,
James Evans, Frank
Alexander, the Registrant
and MR Acquisition
Corporation dated May&nbsp;1,
2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;2.1.1 of the Form&nbsp;8-K/A
filed July&nbsp;21, 2006 (the &#147;July&nbsp;2006
8-K/A&#148;)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.32
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subordinated Convertible
Promissory Note with
McDowell Research, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;2.1.3 of the July&nbsp;2006 8-K/A</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.33
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Waco Facilities Lease
Agreement dated July&nbsp;3,
2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;2.1.4 of the July&nbsp;2006 8-K/A</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.34
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registration Rights
Agreement dated July&nbsp;3,
2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;2.1.5 of the July&nbsp;2006 8-K/A</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.35
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment Number Five to
Credit Agreement dated as
of June&nbsp;29, 2006 with the
Lenders Party Thereto and
JPMorgan Chase Bank as
Administrative Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;10-Q for
the fiscal quarter ended July&nbsp;1,
2006</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.36
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to
Ultralife Batteries, Inc.
Amended and Restated 2004
Long-Term Incentive Plan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;99.3 of our Registration
Statement on Form&nbsp;S-8 filed August
18, 2006, File No.&nbsp;333-136737</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.37
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Forbearance and Amendment
Number Six to Credit
Agreement dated as of
February&nbsp;14, 2007 with the
Lenders Party Thereto and
JPMorgan Chase Bank as
Administrative Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;8-K filed
February&nbsp;21, 2007</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->94<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Index</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Description of Document</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Incorporated By Reference from:</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.38
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Extension of Forbearance
and Amendment Number Seven
to the Credit Agreement
dated as of March&nbsp;23,
2007, with the Lenders
Party Thereto and JPMorgan
Chase Bank as
Administrative Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;8-K filed
 March&nbsp;27, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.39
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement
between the Registrant and
John D. Kavazanjian
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;99.1 of our Report on Form
 8-K filed April&nbsp;27, 2007.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.40
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Employment
Agreement between the
Registrant and each of
William A. Schmitz, Robert
W. Fishback and Peter F.
Comerford
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;99.2 of our Report on Form
8-K filed April&nbsp;27, 2007.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.41
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Extension of Forbearance
and Amendment Number Eight
to the Credit Agreement
dated as of May&nbsp;18, 2007,
with the Lenders Party
Thereto and JPMorgan Chase
Bank as Administrative
Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;8-K filed
 May&nbsp;21, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.42
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment Number Nine to
the Credit Agreement dated
as of August&nbsp;15, 2007,
with the Lenders Party
Thereto and JPMorgan Chase
Bank as Administrative
Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;8-K filed
 on August&nbsp;16, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.43
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Settlement Agreement dated
October&nbsp;3, 2007, among MRC
Chargers, LTD., Frank
Alexander, James Evans,
Thomas Hauke, Earl Martin,
Sr., Gloria Martin,
Lillian Hauke, the
Registrant, and McDowell
Research Co., Inc.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"> Exhibit&nbsp;10.1 of the Form&nbsp;8-K filed
 on October&nbsp;5, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.44
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Amended and
Restated Subordinated
Convertible Promissory
Note for Frank Alexander
and James Evans
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.2(a) of the Form&nbsp;8-K
filed on October&nbsp;5, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.45
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Amended and
Restated Subordinated
Convertible Promissory
Note for Thomas Hauke,
Lillian Hauke, Earl
Martin, Sr., and Gloria
Martin
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.2(b) of the Form&nbsp;8-K
filed on October&nbsp;5, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.46
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stock Purchase Agreement
by and among Innovative
Solutions Consulting,
Inc., Michele A. Aloisio,
Marc DeLaVergne, Thomas R.
Knowlton, Kenneth J. Wood,
W. Michael Cooper, and the
Registrant, dated
September&nbsp;12, 2007
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exhibit&nbsp;10.1 of the Form&nbsp;10-Q filed
November&nbsp;7, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.47
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Placement Agency Agreement
dated November&nbsp;8, 2007 by
and between the Registrant
and Stephens, Inc.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"> Exhibit&nbsp;10.1 of the Form&nbsp;8-K filed
November&nbsp;9, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.48
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stock Purchase Agreement
by and among Stationary
Power Services, Inc.,
William Maher, and the
Registrant dated October
30, 2007
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed herewith</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.49
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subordinated Convertible
Promissory Note with
William Maher
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed herewith</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.50
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stock Purchase Agreement
by and among Reserve Power
Systems, Inc., William
Maher, Edward Bellamy, and
the Registrant dated
October&nbsp;30, 2007
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed herewith</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed herewith</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of BDO Seidman, LLP
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed herewith</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of
PricewaterhouseCoopers LLP
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed herewith</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->95<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Index</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Description of Document</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Incorporated By Reference from:</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CEO 302 Certifications
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed herewith</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CFO 302 Certifications
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed herewith</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">906 Certifications
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed herewith</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Confidential treatment has been granted as to certain portions of this exhibit.</TD>
</TR>

</TABLE>



<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Financial Statement Schedules.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following financial statement schedules of the Registrant are filed herewith:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Schedule&nbsp;II &#150; Valuation and Qualifying Accounts</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Additions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Charged to</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Charged to</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Expense </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Accounts </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">Deductions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Allowance for
doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">485</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventory reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,333</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warranty reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">501</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax
valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,149</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Additions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Charged to</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Charged to</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Expense </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Accounts</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">Deductions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Allowance for
doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">447</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventory reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">868</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,206</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warranty reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">522</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax
valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,721</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,526</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Additions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Charged to</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Charged to</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Other </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Expense </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Accounts </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">Deductions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Allowance for
doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">458</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventory reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">868</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warranty reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax
valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,721</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->96<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>ULTRALIFE BATTERIES, INC.</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date:
March&nbsp;19, 2008
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ John D. Kavazanjian
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">John D. Kavazanjian</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">President and Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">(Principal Executive Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ John D. Kavazanjian
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">John D. Kavazanjian&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">President, Chief Executive Officer and Director&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Robert W. Fishback
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Robert W. Fishback&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><FONT style="white-space: nowrap">Vice President &#151; Finance and Chief Financial Officer</FONT><br>

(Principal Financial Officer)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Carole Lewis Anderson
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Carole Lewis Anderson (Director)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Patricia C. Barron
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Patricia C. Barron (Director)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Anthony J. Cavanna
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Anthony J. Cavanna (Director)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Paula H. J. Cholmondeley
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Paula H. J. Cholmondeley (Director)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Daniel W. Christman
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Daniel W. Christman (Director)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Ranjit C. Singh
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Ranjit C. Singh (Director)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Bradford T. Whitmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Bradford T. Whitmore (Director)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->97<!-- /Folio -->
</DIV>



</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.48
<SEQUENCE>2
<FILENAME>l30016aexv10w48.htm
<DESCRIPTION>EX-10.48
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-10.48</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit 10.48</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">STOCK PURCHASE AGREEMENT
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">AMONG

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">AND

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">STATIONARY POWER SERVICES, INC.

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">AND

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 18pt">WILLIAM MAHER

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">OCTOBER 30, 2007

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Section</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 1. Definitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 2. Purchase and Sale of Target Shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Basic Transaction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Purchase Price; Payment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Closing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Deliveries at Closing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Post-Closing Purchase Price Adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 3. Transaction Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Seller&#146;s Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Buyer&#146;s Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 4. Target Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Organization, Qualification, and Corporate Power</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Capitalization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Non-contravention</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Brokers&#146; Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Title to Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(f)&nbsp;Subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(g)&nbsp;Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(h)&nbsp;Events Subsequent to Most Recent Fiscal Year End</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(i)&nbsp;Undisclosed Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(j)&nbsp;Legal Compliance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(k)&nbsp;Tax Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(l)&nbsp;Real Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(m)&nbsp;Intellectual Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(n)&nbsp;Tangible Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(o)&nbsp;Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(p)&nbsp;Contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(q)&nbsp;Notes and Accounts Receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(r)&nbsp;Powers of Attorney</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(s)&nbsp;Insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(t)&nbsp;Litigation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(u)&nbsp;Product Warranty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(v)&nbsp;Product Liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(w)&nbsp;Employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-i-<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Section</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 4. Target Representations and Warranties (cont&#146;d)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(x)&nbsp;Employee Benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(y)&nbsp;Guaranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(z)&nbsp;Environmental, Health, and Safety Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(aa)&nbsp;Certain Business Relationships with Target</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(bb)&nbsp;Customers and Suppliers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(cc)&nbsp;Disclosure</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 5. Pre-Closing Covenants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;General</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Notices and Consents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Operation of Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Preservation of Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Full Access</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(f)&nbsp;Notice of Developments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(g)&nbsp;Exclusivity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(h)&nbsp;Maintenance of Real Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(i)&nbsp;Leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(j)&nbsp;Tax Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(k)&nbsp;S Corporation Status</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(l)&nbsp;Employee Benefits and Welfare Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt">
<td>&nbsp;</td></tr>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 6. Post-Closing Covenants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR><tr style="font-size: 10pt">
<td>&nbsp;</td></tr>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;General</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Litigation Support</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Transition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Confidentiality</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Release of Target by Seller</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 7. Conditions to Obligation to Close</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Conditions to Buyer&#146;s Obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Conditions to Seller&#146;s Obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 8. Remedies for Breaches of This Agreement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Survival of Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Indemnification Provisions for Buyer&#146;s Benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Indemnification Provisions for Seller&#146;s Benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Matters Involving Third Parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Determination of Adverse Consequences</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(f)&nbsp;Setoff against Promissory Note Payments; Priority</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(g)&nbsp;Other Indemnification Provisions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 9. Tax Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Tax Indemnification</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Responsibility for Filing Tax Returns</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Cooperation on Tax Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-ii-<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Section</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Tax Sharing Agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Certain Taxes and Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(f)&nbsp;Section&nbsp;338(h)(10) Election</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(g)&nbsp;Tax Adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(h)&nbsp;Tax Refund</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 10 Termination</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Termination of Agreement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Effect of Termination</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 11</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Press Releases and Public Announcements; Confidentiality</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;No Third-Party Beneficiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Entire Agreement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Succession and Assignment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Counterparts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(f)&nbsp;Headings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(g)&nbsp;Notices</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(h)&nbsp;Governing Law</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(i)&nbsp;Amendments and Waivers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(j)&nbsp;Severability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(k)&nbsp;Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(l)&nbsp;Construction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(m)Incorporation of Exhibits, Annexes, and Schedules</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(n)&nbsp;Specific Performance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(o)&nbsp;Submission to Jurisdiction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(p)&nbsp;Tax Disclosure Authorization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-iii-<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Attachments to Stock Purchase Agreement</U>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Annex I: Exceptions to Seller&#146;s Representations and Warranties</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Annex II: Exceptions to Buyer&#146;s Representations and Warranties</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosure Schedule for Target</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;A: Form of Promissory Note</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;B: Financial Statements of Target</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;C: Form of Lease Agreement</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;D-1: Form of Employment Agreement for William Maher</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;D-2: Form of Employment Agreement for Edward Bellamy</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">8.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;E: Form of Registration Rights Agreement</TD>
</TR>

</TABLE>
</DIV>
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<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>STOCK PURCHASE AGREEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Stock Purchase Agreement (this &#147;<B><I>Agreement</I></B>&#148;) is entered into as of October&nbsp;30, 2007, by
and among Ultralife Batteries, Inc., a Delaware corporation (&#147;<B><I>Buyer</I></B>&#148;), Stationary Power Services,
Inc., a Florida corporation (&#147;<B><I>Target</I></B>&#148;), and William Maher (&#147;<B><I>Seller</I></B>&#148;). Buyer, Target and Seller are
referred to collectively herein as the &#147;Parties.&#148;
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>RECITALS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;Seller owns all of the outstanding capital stock of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;This Agreement contemplates a transaction in which Buyer will purchase from Seller, and
Seller will sell to Buyer, all of the outstanding capital stock of Target in return for certain
consideration described below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in
consideration of the representations, warranties, and covenants herein contained, the Parties agree
as follows.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 1. DEFINITIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Adjusted Net Worth</I>&#148; has the meaning set forth in Section 2(e) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Adverse Consequences</I>&#148; means all actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens,
actual losses, expenses, and fees, including court costs and attorneys&#146; fees and expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Affiliate</I>&#148; means a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person specified.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Affiliated Group</I>&#148; means any affiliated group within the meaning of Code Section 1504(a) or
any similar group defined under a similar provision of state, local or foreign law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Auditor</I>&#148; has the meaning set forth in Section 2(e) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Basis</I>&#148; means any past or present fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Buyer</I>&#148; has the meaning set forth in the preface above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Closing</I>&#148; has the meaning set forth in Section 2(c) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Closing Balance Sheet</I>&#148; has the meaning set forth in Section 2(e) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Closing Date</I>&#148; has the meaning set forth in Section 2(c) below.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Closing Payment</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>COBRA</I>&#148; means the requirements of Part&nbsp;6 of Subtitle B of Title I of ERISA and Code Section
4980B and of any similar state law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Code</I>&#148; means the Internal Revenue Code of 1986, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Confidential Information</I>&#148; means any information concerning the businesses and affairs of the
Target, Seller or Buyer, as the context requires, that is not already generally available to the
public.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Controlled Group</I>&#148; has the meaning set forth in Code Section&nbsp;1563.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Disclosure Schedule</I>&#148; has the meaning set forth in Section&nbsp;4 below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employee Benefit Plan</I>&#148; has the meaning set forth in Section 4(x) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employee Pension Benefit Plan</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(2).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employee Welfare Benefit Plan</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(1).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employment Agreements</I>&#148; means the forms of employment agreement attached as <U>Exhibits D-1
and D-2</U> to this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Encumbrance Documents</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Environmental, Health, and Safety Requirements</I>&#148; shall mean all federal, state, local, and
foreign statutes, regulations, ordinances, and other provisions having the force or effect of law,
all judicial and administrative orders and determinations, all contractual obligations, and all
common law concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including, without limitation, all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage, disposal, distribution,
labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any
hazardous materials, substances, or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, or radiation, each as amended and as now or hereafter in effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Equity Payments</I>&#148; has the meaning set forth in Section&nbsp;2(b)(iii) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>ERISA</I>&#148; means the Employee Retirement Income Security Act of 1974, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>ERISA Affiliate</I>&#148; means any Person that is a member of a &#147;controlled group of corporations&#148;
with, or is under &#147;common control&#148; with, or is a member of the same &#147;affiliated service group&#148; with
Target, as defined in Section&nbsp;414 of the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Estoppel Certificates</I>&#148; has the meaning set forth in Section 7(a) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Fiduciary</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(21).
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Financial Statements</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>GAAP</I>&#148; means United States generally accepted accounting principles as in effect from time to
time, consistently applied.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Improvements</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Indemnified Party</I>&#148; has the meaning set forth in Section 8(d) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Indemnifying Party</I>&#148; has the meaning set forth in Section 8(d) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Intellectual Property</I>&#148; means all of the following in any jurisdiction throughout the world:
(a)&nbsp;all inventions (whether patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent disclosures, together with
all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b)&nbsp;all trademarks, service marks, trade dress, logos, slogans, trade names, corporate
names, Internet domain names, and rights in telephone numbers, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill associated therewith,
and all applications, registrations, and renewals in connection therewith, (c)&nbsp;all copyrightable
works, all copyrights, and all applications, registrations, and renewals in connection therewith,
(d)&nbsp;all mask works and all applications, registrations, and renewals in connection therewith, (e)
all trade secrets and confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing and cost information,
and business and marketing plans and proposals), (f)&nbsp;all computer software (including source code,
executable code, data, databases, and related documentation), (g)&nbsp;all advertising and promotional
materials, (h)&nbsp;all other proprietary rights, and (i)&nbsp;all copies and tangible embodiments thereof
(in whatever form or medium).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Knowledge</I>&#148; means actual knowledge after reasonable investigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Lease Agreement</I>&#148; means the form of Lease Agreement attached as <U>Exhibit&nbsp;C</U> to this
Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Lease Consents</I>&#148; has the meaning set forth in Section 7(a) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Leased Real Property</I>&#148; means all leasehold or subleasehold estates and other rights to use or
occupy any land, buildings, structures, improvements, fixtures, or other interest in real property
held by Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Leases</I>&#148; means all leases, subleases, licenses, concessions and other agreements (written or
oral), including all amendments, extensions, renewals, guaranties, and other agreements with
respect thereto, pursuant to which Target holds any Leased Real Property, including the right to
all security deposits and other amounts and instruments deposited by or on behalf of Target
thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Liability</I>&#148; means any liability or obligation of whatever kind or nature (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">unaccrued, whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Lien</I>&#148; means any mortgage, pledge, lien, encumbrance, charge, or other security interest,
other than (a)&nbsp;liens for Taxes not yet due and payable and (b)&nbsp;other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Material Adverse Effect</I>&#148; or &#147;<I>Material Adverse Change</I>&#148; means any effect or change that would
be materially adverse to the business, assets, condition (financial or otherwise), operating
results, operations, or business prospects of Target, taken as a whole, or on the ability of Seller
to consummate timely the transactions contemplated hereby (regardless of whether or not such
adverse effect or change can be or has been cured at any time or whether Buyer has knowledge of
such effect or change on the date hereof).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Measuring Periods</I>&#148; means the following periods of time: (i)&nbsp;the period commencing on the
Closing Date and ending on December&nbsp;31, 2008; (ii)&nbsp;the period commencing on January&nbsp;1, 2009 and
ending on December&nbsp;31, 2009; (iii)&nbsp;the period commencing on January&nbsp;1, 2010 and ending on December
31, 2010; (iv)&nbsp;the period commencing on January&nbsp;1, 2011 and ending on December&nbsp;31, 2011; and (v)
the period commencing on January&nbsp;1, 2012 and ending on December&nbsp;31, 2012. Each of such Measuring
Periods may be referred to individually as a &#147;<I>Measuring Period</I>.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Balance Sheet</I>&#148; means the balance sheet contained within the Most Recent Financial
Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Financial Statements</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Fiscal Month End</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Fiscal Year End</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Multiemployer Plan</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(37).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Non-Disturbance Agreements</I>&#148; has the meaning set forth in Section 7(a) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Ordinary Course of Business</I>&#148; means the ordinary course of business consistent with past
custom and practice (including with respect to quantity and frequency).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Party</I>&#148; has the meaning set forth in the preface above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Permitted Encumbrances</I>&#148; means with respect to each parcel of Real Property: (a)&nbsp;real estate
taxes, assessments and other governmental levies, fees, or charges imposed with respect to such
Real Property that are (i)&nbsp;not due and payable as of the Closing Date or (ii)&nbsp;that are being
contested in good faith and for which appropriate reserves have been established in accordance with
GAAP; (b)&nbsp;mechanics&#146; liens and similar liens for labor, materials, or supplies provided with
respect to such Real Property incurred in the Ordinary Course of Business for amounts that are (i)
not due and payable as of the Closing Date or (ii)&nbsp;being contested in good faith and for which
appropriate reserves have been established in accordance with GAAP; (c)&nbsp;zoning, building codes
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and other land use laws regulating the use or occupancy of such Real Property or the
activities conducted thereon which are imposed by any governmental authority having jurisdiction
over such Real Property and are not violated by the current use or occupancy of such Real Property
or the operation of Target&#146;s business as currently conducted thereon; and (d)&nbsp;easements, covenants,
conditions, restrictions, and other similar matters of record affecting title to such Real Property
which do not or would not impair the use or occupancy of such Real Property in the operation of
Target&#146;s business as currently conducted thereon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Person</I>&#148; means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization, any
other business entity, or a governmental entity (or any department, agency, or political
subdivision thereof).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Prohibited Transaction</I>&#148; has the meaning set forth in ERISA Section&nbsp;406 and Code Section&nbsp;4975.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Promissory Note</I>&#148; has the meaning set forth in Section&nbsp;2(b)(ii) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Purchase Price</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Real Property</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Real Property Laws</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Registrable Securities</I>&#148; means those Ultralife Shares issuable to Seller in accordance with
the provisions of Section&nbsp;2(b)(iii).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>&#147;Registration Rights Agreement&#148; </I>means the form of Registration Rights Agreement attached as
<U>Exhibit&nbsp;E </U>to this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Reportable Event</I>&#148; has the meaning set forth in ERISA Section&nbsp;4043.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Sales</I>&#148; means revenues, determined in accordance with GAAP, that are achieved by Target in the
ordinary course of business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Securities Act</I>&#148; means the Securities Act of 1933, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Securities Exchange Act</I>&#148; means the Securities Exchange Act of 1934, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Seller</I>&#148; has the meaning set forth in the preface above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Subsidiary</I>&#148; means, with respect to any Person, any corporation, limited liability company,
partnership, association, or other business entity of which (i)&nbsp;if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii)&nbsp;if a limited liability company,
partnership, association, or other business entity (other than a corporation), a majority of
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">partnership or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination
thereof and for this purpose, a Person or Persons own a majority ownership interest in such a
business entity (other than a corporation) if such Person or Persons shall be allocated a majority
of such business entity&#146;s gains or losses or shall be or control any managing director or general
partner of such business entity (other than a corporation). The term &#147;Subsidiary&#148; shall include all
Subsidiaries of such Subsidiary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Target</I>&#148; has the meaning set forth in the preface above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Target Share</I>&#148; means any share of the common stock, par value $0.01 per share, of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Tax</I>&#148; or &#147;<I>Taxes</I>&#148; means any federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section&nbsp;59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or
succeed to the Tax liability of any other Person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Tax Return</I>&#148; means any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Third Party Claim</I>&#148; has the meaning set forth in Section 8(d) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Treasury Regulations</I>&#148; means the Treasury Regulations promulgated under the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Ultralife Shares</I>&#148; means shares of common stock, par value $0.10 per share, of Ultralife
Batteries, Inc.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 2. PURCHASE AND SALE OF TARGET SHARES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Basic Transaction</B>. On and subject to the terms and conditions of this Agreement, Buyer
agrees to purchase from Seller, and Seller agrees to sell to Buyer, all of his Target Shares for
the consideration specified below in this Section&nbsp;2.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Purchase Price; Payment</B>. The aggregate consideration for the Target Shares shall be up to
$10,000,000, subject to adjustment after Closing as provided by Section&nbsp;2(e), plus up to 100,000
Ultralife Shares (together, as adjusted, the &#147;<B><I>Purchase Price</I></B>&#148;). On the terms and subject to the
conditions set forth herein, Buyer shall pay the Purchase Price to Seller as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;At Closing, Buyer shall pay Seller the aggregate amount of $6,000,000 by wire
transfer of immediately available funds into an account designated by Seller prior
to the Closing Date (the &#147;<B><I>Closing Payment</I></B>&#148;). The Closing Payment shall be
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">made by a single wire transfer. The Closing Payment shall be subject to adjustment
after Closing as provided by Section&nbsp;2(e).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;At Closing, Buyer shall execute and deliver to Seller a subordinated
convertible promissory note with a principal amount of $4,000,000 and a term of
three years in the form attached hereto as <U>Exhibit&nbsp;A</U> (the &#147;<B><I>Promissory
Note</I></B>&#148;).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;Following the Closing, during the Measuring Periods if Target achieves certain
Sales target, then Buyer shall issue up to an aggregate of 100,000 Ultralife Shares
to Seller on the following terms and conditions (the &#147;<B><I>Equity Payments</I></B>&#148;):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) The first time Sales exceed $14,000,000 during any of the Measuring Periods, and
only the first time such threshold is exceeded, Buyer shall issue 20,000 Ultralife Shares to
Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) The first time Sales exceed $16,500,000 during any of the Measuring Periods, and
only the first time such threshold is exceeded, Buyer shall issue an additional 20,000
Ultralife Shares to Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) The first time Sales exceed $19,000,000 during any of the Measuring Periods, and
only the first time such threshold is exceeded, Buyer shall issue an additional 20,000
Ultralife Shares to Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) The first time Sales exceed $22,000,000 during any of the Measuring Periods, and
only the first time such threshold is exceeded, Buyer shall issue an additional 20,000
Ultralife Shares to Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) The first time Sales exceed $25,000,000 during any of the Measuring Periods, and
only the first time such threshold is exceeded, Buyer shall issue an additional 20,000
Ultralife Shares to Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(F) The following illustrates how the Equity Payments are earned. If Sales were
$17,000,000 during the period commencing on the Closing Date and ending on December&nbsp;31,
2008, $18,000,000 during the period commencing on January&nbsp;1, 2009 and ending on December&nbsp;31,
2009, and $26,000,000 during the period commencing on January&nbsp;1, 2010 and ending on December
31, 2010, then (1)&nbsp;Buyer would issue to Seller 40,000 Ultralife Shares for the period
commencing on the Closing Date and ending on December&nbsp;31, 2008 because both the $14,000,000
and the $16,500,000 Sales thresholds would have been satisfied in that Measuring Period; (2)
Buyer would not issue any Ultralife Shares to Seller for the period commencing on January&nbsp;1,
2009 and ending on December&nbsp;31, 2009 because the $14,000,000 and the $16,500,000 Sales
thresholds would have been already satisfied during the prior Measuring Period and none of
the three additional Sales thresholds (i.e., $19,000,000, $22,000,000 and $25,000,000) were
satisfied during such period; and (3)&nbsp;Buyer would issue to Seller 60,000 Ultralife Shares
for the period commencing on January&nbsp;1, 2010 and ending on December&nbsp;31, 2010 because each
of the $19,000,000, $22,000,000 and $25,000,000 Sales thresholds would have been satisfied
during such Measuring Period. Finally, because an aggregate of
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">100,000 Ultralife Shares would have been then issued to Seller, Seller would not be
entitled to any additional Ultralife Shares during the remaining Measuring Periods.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(G) Notwithstanding anything herein to the contrary, in no event shall the aggregate
number of Ultralife Shares issuable as Equity Payments exceed 100,000 shares. In the event
of a stock split or other re-capitalization event affecting the Ultralife Shares, the number
of shares issuable as Equity Payments shall be adjusted accordingly.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(H) Any Equity Payments due from Buyer to Seller hereunder shall be made within ten
days of the completion of the audit by Buyer&#146;s independent public accountant of the books
and records of Buyer and its affiliates, including Target, for the applicable Measuring
Period and shall be made in accordance with Buyer&#146;s customary practices for issuing
securities in transactions that are exempt from registration under Section&nbsp;5 of the
Securities Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Closing</B>. The closing of the transactions contemplated by this Agreement (the &#147;<B><I>Closing</I></B>&#148;)
shall take place at the offices of Harter Secrest &#038; Emery LLP, in Rochester, New York, commencing
at 10:00&nbsp;a.m. local time on the second business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take at the Closing
itself) or such other date as Buyer and Seller may mutually determine (the &#147;<B><I>Closing Date</I></B>&#148;);
<U>provided</U>, <U>however</U>, that the Closing Date shall be no later than November&nbsp;30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Deliveries at Closing</B>. At the Closing, (i)&nbsp;Seller will deliver to Buyer the various
certificates, instruments, and documents referred to in Section 7(a) below, (ii)&nbsp;Buyer will deliver
to Seller the various certificates, instruments, and documents referred to in Section 7(b) below,
(iii)&nbsp;Seller will deliver to Buyer stock certificates representing all of his Target Shares,
endorsed in blank or accompanied by duly executed assignment documents, and (iv)&nbsp;Buyer will deliver
to Seller the consideration specified in Section 2(b) above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Post-Closing Purchase Price Adjustment</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;A closing balance sheet will be prepared and finally determined as provided by
this Section&nbsp;2(e), whereupon all references herein to the &#147;<B><I>Closing Balance Sheet</I></B>&#148;
will mean the same as so finally determined. Within 45&nbsp;days following Closing, Buyer
will prepare the Closing Balance Sheet and deliver the same to Seller. Buyer will
cause the Closing Balance Sheet to be derived from the books and records of Target,
and to present fairly the assets and liabilities of Target as of the Closing Date.
The Closing Balance Sheet will be prepared from Target&#146;s books and records and will
be true, correct and complete in all material respects, consistent with Target&#146;s
books and records, and will fairly present the financial condition of Target as of
the Closing Date. Buyer agrees that the Seller shall participate in the preparation
of the Closing Balance Sheet.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Within 60&nbsp;days after the delivery of the Closing Balance Sheet, Buyer and
Seller shall mutually agree on the contents of the Closing Balance Sheet, which
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">will then be final and binding upon the parties for all purposes. If the parties
fail such mutual agreement within such period, then either Buyer or Seller may
submit the Closing Balance Sheet, or the resolution of only such item or items
thereof as are in dispute, to BDO Seidman LLP (the &#147;<B><I>Auditor</I></B>&#148;) for computation,
verification or resolution in accordance with the provisions of this Agreement.
Buyer and Seller shall make readily available to the Auditor all relevant books and
records (including work papers of a party&#146;s independent public accountants) as the
Auditor reasonably requests. The Auditor&#146;s computation or verification of the
Closing Balance Sheet or resolution of such disputed item or items thereof (as the
case may be), which Buyer and Seller will instruct the Auditor to deliver to them
within 30&nbsp;days after submission to the Auditor, will be final and binding upon the
parties for all purposes relating to this Section&nbsp;2(e), and the Auditor&#146; fees and
expenses therefor will be borne by the non-prevailing party or, in the event that
each party prevails on some of the issues in dispute, will be shared
proportionately, as determined by the Auditor.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;For all purposes relating to this Section&nbsp;2(e), &#147;<B><I>Adjusted Net Worth</I></B>&#148; means the
net worth of Target, as defined by GAAP and as shown on the Closing Balance Sheet,
calculated and determined in accordance with the methodology set forth on Schedule
2(e), which Adjusted Net Worth shall include the adjusted book value of the Real
Property transferred to Seller prior to Closing as contemplated by Section&nbsp;4(l)(i).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;The amount of the Closing Payment, as finally determined pursuant to the
provisions hereof following the Closing, shall be $6,000,000 <U>less</U> the amount
(if any) by which the Adjusted Net Worth is less than $500,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;If the amount of the Adjusted Net Worth as so finally determined is less than
$500,000, then Seller shall, within ten days after such final determination, pay the
amount of such deficiency to Buyer by wire transfer of immediately available funds
to an account designated by Buyer. If the amount of the Adjusted Net Worth as so
finally determined is greater than $500,000, then Buyer shall, within ten days after
such final determination, pay the amount of such excess to Seller by wire transfer
of immediately available funds to an account designated by Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi)&nbsp;If Seller does not satisfy any deficiency he owes under Section&nbsp;2(e)(v) within
the prescribed time, then Buyer shall have the right to setoff the amount of such
deficiency against any amounts owed by Buyer to Seller under the Promissory Note.
The exercise by Buyer of such right of setoff shall not preclude Buyer from pursuing
other remedies available to Buyer against Seller.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 3. TRANSACTION REPRESENTATIONS AND WARRANTIES</B></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Seller&#146;s Representations and Warranties</B>. Seller represents and warrants to Buyer that the
statements contained in this Section 3(a) are correct and complete as of the date of
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">this Agreement and will be correct and complete as of the Closing Date (as though made then
and as though the Closing Date were substituted for the date of this Agreement throughout this
Section&nbsp;3(a)) with respect to himself, except as set forth in Annex I attached hereto.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i) <I>Authorization of Transaction</I>. Seller has full power and authority to execute and
deliver this Agreement and to perform his obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of Seller, enforceable in
accordance with its terms and conditions. Seller need not give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by this
Agreement. The execution, delivery, and performance of this Agreement and all other
agreements contemplated hereby have been duly authorized by Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii) <I>Non-contravention</I>. Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (A)&nbsp;violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Seller is subject or, if Seller is an entity, any provision of its
charter, bylaws, or other governing documents, (B)&nbsp;conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other arrangement to which
Seller is a party or by which he is bound or to which any of his assets is subject,
or (C)&nbsp;result in the imposition or creation of a Lien upon or with respect to the
Target Shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii) <I>Brokers&#146; Fees</I>. Seller has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv) <I>Target Shares</I>. Seller holds of record and owns beneficially the number of
Target Shares set forth next to his or its name in Section 4(b) of the Disclosure
Schedule, which constitute all of the issued and outstanding Target Shares, free and
clear of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Liens, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. Seller is not a party
to any option, warrant, purchase right, or other contract or commitment that could
require Seller to sell, transfer, or otherwise dispose of any capital stock of
Target (other than this Agreement). Seller is not a party to any voting trust,
proxy, or other agreement or understanding with respect to the voting of any capital
stock of Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v) <I>Investment Representations for Ultralife Shares</I>. Seller acknowledges that any
Ultralife Shares acquired by Seller pursuant to this Agreement shall be acquired by
Seller for his own account, for investment purposes only, and not with a view to or
for distributing or reselling such securities or any part thereof or
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">interest therein. Seller, either alone or together with his representatives, has
such knowledge, sophistication and experience in business and financial matters so
as to be capable of evaluating the merits and risks of any investment by him in
Ultralife Shares, and has so evaluated the merits and risks of any such investment
to his satisfaction. As of the Closing Date, Seller shall be able to bear the
economic risk of an investment in the Ultralife Shares offered pursuant to this
Agreement and shall be able to afford a complete loss of any such investment. Seller
acknowledges that at the time Seller was offered the Ultralife Shares pursuant to
this Agreement, Seller was and, at the date hereof, Seller is, and at the Closing
Date Seller will be, an &#147;accredited investor&#148; as defined in Rule&nbsp;501 under the
Securities Act. Seller acknowledges that he has been afforded: (A)&nbsp;the opportunity
to ask such questions as he has deemed necessary of, and to receive answers from,
representatives of Buyer concerning the terms and conditions of the offer and sale
of any Ultralife Shares offered pursuant to this Agreement, and the merits and risks
of investing in such securities; (B)&nbsp;access to information about Buyer and Buyer&#146;s
financial condition, results of operations, business, properties, management and
prospects sufficient to enable Seller to evaluate his investment; and (C)&nbsp;the
opportunity to obtain such additional information that Buyer possesses or can
acquire without unreasonable effort or expense that is reasonably necessary to
permit Seller to make an informed investment decision with respect to any Ultralife
Shares to be acquired by Seller pursuant to this Agreement. Seller understands and
acknowledges that any Ultralife Shares acquired by Seller pursuant to this Agreement
were offered and acquired by him without registration under the Securities Act in a
private transaction pursuant to the exemption from registration under Section&nbsp;5 of
the Securities Act provided by Section&nbsp;4(2) of the Securities Act and that such
securities are and shall be &#147;restricted securities&#148; as defined in Rule&nbsp;144 under the
Securities Act and thus such securities shall not be freely transferable by Seller.
Seller understands and acknowledges that except as set forth in Section&nbsp;3(a)(vi)
below, Buyer is not providing Seller with any registration rights in connection with
any Ultralife Shares offered pursuant to this Agreement. Seller understands and
acknowledges that Buyer shall rely on the accuracy and truthfulness of Seller&#146;s
representations herein in order to avail of the exemption from registration under
Section&nbsp;5 of the Securities Act provided by Section&nbsp;4(2) of the Securities Act.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi) <I>Registration Rights. </I>Buyer hereby grants Seller piggyback registration rights
as it relates to any future Registration Statement and covenants to include to the
extent legally permissible and subject to any limitations imposed by the underwriter
or placement agent, if applicable, Registrable Securities in such Registration
Statement. If at any time prior to the removal of restrictive legends pursuant to
Rule&nbsp;144(k)(a) Buyer proposes to register shares of Common Stock under the
Securities Act other than on Forms S-8, S-4 or any successor forms in connection
with a public offering of such shares for cash (a &#147; Proposed Registration&#148;) and (b)
a Registration Statement covering the resale of all of the Registrable Securities is
not been effective and available for sales thereof by Seller, Buyer shall at such
time promptly give Seller written notice of such Proposed Registration. Buyer shall
use its best efforts to cause such Registration
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Statement to cover the resale of the Registrable Securities, which have not
otherwise been registered or covered under a current effective Registration
Statement, which Registration Statement shall state that in accordance with Rule&nbsp;416
promulgated under the Securities Act, such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon stock splits, stock dividends or similar transactions. The Seller and the
Buyer shall enter into a separate Registration Rights Agreement in substantially the
form attached to hereto as <U>Exhibit&nbsp;E</U> consistent with the provision of this
Section&nbsp;3(a)(iv), which Registration Rights Agreement shall contain customary
representations and warranties and provisions regarding indemnification and
contribution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Buyer&#146;s Representations and Warranties</B>. Buyer represents and warrants to Seller that the
statements contained in this Section 3(b) are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this Section&nbsp;3(b)), except
as set forth in Annex II attached hereto.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i) <I>Organization of Buyer</I>. Buyer is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii) <I>Authorization of Transaction</I>. Buyer has full power and authority (including
full corporate or other entity power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of Buyer, enforceable in accordance with its
terms and conditions. Buyer need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this Agreement. The
execution, delivery, and performance of this Agreement and all other agreements
contemplated hereby have been duly authorized by Buyer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii) <I>Non-contravention</I>. Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (A)&nbsp;violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Buyer is subject or any provision of its charter, bylaws, or other
governing documents or (B)&nbsp;conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which Buyer is a party
or by which it is bound or to which any of its assets is subject.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv) <I>Brokers&#146; Fees</I>. Buyer has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which any Seller could become liable or
obligated.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v) <I>Investment</I>. Buyer is not acquiring the Target Shares with a view to or for sale
in connection with any distribution thereof within the meaning of the Securities
Act.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi) <I>Access to Information</I>. Buyer has such knowledge of the business and financial
affairs of the Target and possesses a sufficient degree of sophistication, knowledge
and experience in financial and business matters such that Buyer is capable of
evaluating the information provided to Buyer by Seller and Target about Target&#146;s
business, including Target&#146;s assets and liabilities, and the economic risks of
acquiring the Target Shares. Buyer acknowledges and agrees that Target and Seller
make no further representations or warranties to Buyer regarding the Target or the
Target Shares, other than as set forth in this Agreement. Specifically, Buyer
acknowledges and agrees, that Target and Seller give no assurances, representations
or warranties as to the continued viability of the Target as a going concern or
otherwise or its future profitability after Buyer&#146;s purchase.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vii) <I>Litigation; Judgments</I>. There are no pending or threatened, suits, actions,
grievances or proceedings against or relating to Buyer, the business or any property
or asset of the business of Buyer that individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect on Buyer&#146;s ability to
consummate the transactions contemplated by this Agreement. There is no unsatisfied
or outstanding judgment, decree, injunction, rule or order of any governmental
entity or arbitrator which (i)&nbsp;could reasonably be expected to have a Material
Adverse Effect on Buyer or the business of Buyer or (ii)&nbsp;seeks to enjoin or prohibit
the consummation of the transactions contemplated by this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(viii) <I>Equity Payments</I>. The Equity, if and when issued pursuant to the Convertible
Note, will be duly authorized, validly issued, fully paid and non assessable shares
of common stock of Buyer. Upon delivery of such shares, Seller will receive good and
unencumbered title to such shares, free and clear of all liens, restrictions,
charges, encumbrances and other security interests of any kind or nature whatsoever,
except for any restrictions existing under applicable securities laws and the
restrictions imposed by this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ix) <I>Reports and Financial Statements</I>. As of their respective dates, the periodic
reports (the &#147;<B><I>Reports</I></B>&#148;) filed by Buyer with the Securities and Exchange Commission
(the &#147;<B><I>Commission</I></B>&#148;) under the Securities Exchange Act of 1934, as amended (the
&#147;<B><I>Exchange Act</I></B>&#148;) complied or will comply in all material respects with the then
applicable published rules and regulations of the Commission with respect thereto
(including, without limitation, rules related to the financial statements included
therein) at the date of their issuance and did not or will not contain any untrue
statement of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Buyer has filed all reports and filings
with the SEC required pursuant to the Securities Act or 1933 or the Exchange Act on
a timely basis. Each such report or filing is true,
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">correct and complete in all material respects and does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which they were made, not
misleading.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 4. TARGET REPRESENTATIONS AND WARRANTIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller represents and warrants to Buyer that the statements contained in this Section&nbsp;4 are
correct and complete as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section&nbsp;4), except as set forth in the disclosure schedule delivered
by Seller to Buyer on the date hereof and initialed by the Parties (the &#147;<B><I>Disclosure Schedule</I></B>&#148;).
Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein, however, unless the Disclosure Schedule identifies the
exception with particularity and describes the relevant facts in detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item
shall not be deemed adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the document or other item
itself). The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section&nbsp;4.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Organization, Qualification, and Corporate Power</B>. Target is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Florida. Target is duly
authorized to conduct business and is in good standing under the laws of each jurisdiction where
such qualification is required. Target has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which it is engaged and in
which it presently proposes to engage and to own and use the properties owned and used by it.
Section 4(a) of the Disclosure Schedule lists the directors and officers of Target. Seller has
delivered to Buyer correct and complete copies of the charter and bylaws of Target (as amended to
date). The minute books (containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate books, and the
stock record books of Target are correct and complete. Target is not in default under or in
violation of any provision of its charter or bylaws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Capitalization</B>. The entire authorized capital stock of Target consists of Ten 10,000
Target Shares, of which 100 Target Shares are issued and outstanding and no Target Shares are held
in treasury. All of the issued and outstanding Target Shares have been duly authorized, are validly
issued, fully paid, and non-assessable, and are held of record by the respective Seller as set
forth in Section 4(b) of the Disclosure Schedule. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require Target to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Target. There are no voting
trusts, proxies, or other agreements or understandings with respect to the voting of the capital
stock of Target.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Non-contravention</B>. Except as set forth on Section 4(c) of the Disclosure Schedule, neither
the execution and the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i)&nbsp;violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Target is subject or any provision of the charter or bylaws of Target or
(ii)&nbsp;conflict with, result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other arrangement to which
Target is a party or by which it is bound or to which any of its assets is subject (or result in
the imposition of any Lien upon any of its assets). Target does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions contemplated by this
Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Brokers&#146; Fees</B>. Target has no Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Title to Assets</B>. Except as set forth on Section 4(e) of the Disclosure Schedule, Target
has good and marketable title to, or a valid leasehold interest in, the properties and assets used
by Target, located on its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Liens, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet. The 2007 Lexus
GS450HU is currently leased by Target and used by Seller. All of Target&#146;s rights in and to that
Lexus shall be distributed to Seller prior to closing and Seller shall assume all obligations with
respect to the lease of the Lexus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Subsidiaries</B>. Target has no Subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Financial Statements</B>. Attached hereto as <U>Exhibit&nbsp;B</U> are the following financial
statements (collectively the &#147;<B><I>Financial Statements</I></B>&#148;): (i)&nbsp;an audited balance sheet and statements
of income, changes in stockholders&#146; equity, and cash flow as of and for the fiscal year ended
December&nbsp;31, 2006 (the &#147;<B><I>Most Recent Fiscal Year End</I></B>&#148;) for Target; and (ii)&nbsp;an unaudited balance
sheet and statements of income, changes in stockholders&#146; equity, and cash flow (the &#147;<B><I>Most Recent
Financial Statements</I></B>&#148;) as of and for the six months ended June&nbsp;30, 2007 (the &#147;<B><I>Most Recent Fiscal
Month End</I></B>&#148;) for Target. The Financial Statements have been prepared from Target&#146;s books and
records, are true, correct and complete in all material respects, are consistent with Target&#146;s
books and records applied on a consistent basis throughout the periods covered thereby, present
fairly the financial condition of Target as of such dates and the results of operations of Target
for such periods, are correct and complete, and are consistent with the books and records of Target
(which books and records are correct and complete);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(h)&nbsp;Events Subsequent to Most Recent Fiscal Year End</B>. Except as set forth on Section 4(h) of
the Disclosure Schedule, since the Most Recent Fiscal Year End, there has not been any Material
Adverse Change. Without limiting the generality of the foregoing, since that date:
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Target has not sold, leased, transferred, or assigned any of its assets,
tangible or intangible, other than for a fair consideration in the Ordinary Course
of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Target has not entered into any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) either involving more
than $100,000 or outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;no party (including Target) has accelerated, terminated, modified, or
cancelled any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more than $100,000 to which
Target is a party or by which Target is bound;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;Target has not imposed any Liens upon any of its assets, tangible or
intangible;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;Except as set forth on Section&nbsp;4(h)(v) of the Disclosure Schedule, Target has
not made any capital expenditure (or series of related capital expenditures) either
involving more than $100,000 or outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi)&nbsp;Target has not made any capital investment in, any loan to, or any acquisition
of the securities or assets of, any other Person (or series of related capital
investments, loans, and acquisitions) either involving more than $100,000 or outside
the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vii)&nbsp;Except as set forth on Section&nbsp;4(h)(vii) of the Disclosure Schedule, Target
has not issued any note, bond, or other debt security or created, incurred, assumed,
or guaranteed any indebtedness for borrowed money or capitalized lease obligation
either involving more than $100,000 in the aggregate;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(viii)&nbsp;Target has not delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ix)&nbsp;Target has not cancelled, compromised, waived, or released any right or claim
(or series of related rights and claims) either involving more than $10,000 or
outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(x)&nbsp;Target has not transferred, assigned, or granted any license or sublicense of
any rights under or with respect to any Intellectual Property;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xi)&nbsp;there has been no change made or authorized in the charter or bylaws of Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xii)&nbsp;Except as set forth on Section&nbsp;4(h)(xii) of the Disclosure Schedule, Target
has not issued, sold, or otherwise disposed of any of its capital stock, or granted
any options, warrants, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any of its capital stock;
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xiii)&nbsp;Target has not declared, set aside, or paid any dividend or made any
distribution with respect to its capital stock (whether in cash or in kind) or
redeemed, purchased, or otherwise acquired any of its capital stock;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xiv)&nbsp;Target has not experienced any damage, destruction, or loss (whether or not
covered by insurance) to its property;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xv)&nbsp;Target has not made any loan to, or entered into any other transaction with,
any of its directors, officers, and employees outside the Ordinary Course of
Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xvi)&nbsp;Target has not entered into any employment contract or collective bargaining
agreement, written or oral, or modified the terms of any existing such contract or
agreement;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xvii)&nbsp;Target has not granted any increase in the base compensation of any of its
directors, officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xviii)&nbsp;Target has not adopted, amended, modified, or terminated any bonus, profit
sharing, incentive, severance, or other plan, contract, or commitment for the
benefit of any of its directors, officers, and employees (or taken any such action
with respect to any other Employee Benefit Plan);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xix)&nbsp;Target has not made any other change in employment terms for any of its
directors, officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xx)&nbsp;Target has not made or pledged to make any charitable or other capital
contribution outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxi)&nbsp;there has not been any other material occurrence, event, incident, action,
failure to act, or transaction outside the Ordinary Course of Business involving
Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxii)&nbsp;Target has not discharged a material Liability or Lien outside the Ordinary
Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxiii)&nbsp;Target has not made any loans or advances of money;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxiv)&nbsp;Target has not disclosed any Confidential Information; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxv)&nbsp;Target has not committed to any of the foregoing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;Undisclosed Liabilities</B>. Target has no Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability), except for (i)&nbsp;Liabilities set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii)&nbsp;Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business (none of
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">which results from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of law).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(j)&nbsp;Legal Compliance</B>. Target and its predecessors and Affiliates, if any, have complied with
all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder and including the Foreign Corrupt Practices Act, 15 U.S.C.
78dd-1 et seq.) of federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to comply except where the
failure to comply would not have a Material Adverse Effect..
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(k)&nbsp;Tax Matters</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Target (and any predecessor of Target) has been a validly electing S corporation
within the meaning of Code Section&nbsp;1361 and Section&nbsp;1362 at all times during its
existence and Target will be an S corporation up to and including the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Target has no potential liability for any Tax under Code Section&nbsp;1374. Target
has not, in the past 10&nbsp;years, (A)&nbsp;acquired assets from another corporation in a
transaction in which Target&#146;s Tax basis for the acquired assets was determined, in
whole or in part, by reference to the Tax basis of the acquired assets (or any other
property) in the hands of the transferor or (B)&nbsp;acquired the stock of any
corporation that is a qualified subchapter S subsidiary.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;Target has filed all Tax Returns that it was required to file under applicable
laws and regulations. All such Tax Returns were correct and complete in all respects
and have been prepared in substantial compliance with all applicable laws and
regulations. All Taxes due and owing by Target (whether or not shown on any Tax
Return) have been paid. Target currently is not the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Liens for Taxes (other
than Taxes not yet due and payable) upon any of the assets of Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;Target has withheld and paid all Taxes required to have been withheld and paid
in connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;No Seller or director or officer (or employee responsible for Tax matters) of
Target expects any authority to assess any additional Taxes for any period for which
Tax Returns have been filed. No foreign, federal, state, or local tax audits or
administrative or judicial Tax proceedings are pending or being conducted with
respect to Target. Target has not received from any foreign, federal, state, or
local taxing authority (including jurisdictions where Target has not filed Tax
Returns) any (i)&nbsp;notice indicating an intent to open an audit or other review, (ii)
request for
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">information related to Tax matters, or (iii)&nbsp;notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any taxing
authority against Target; Disclosure Schedule lists all federal, state, local, and
foreign income Tax Returns filed with respect to Target for taxable periods ended on
or after December&nbsp;31, 2003, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. Seller have
delivered to Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed to by
Target filed or received since December&nbsp;31, 2003.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi)&nbsp;Target has not waived any statute of limitations in respect of Taxes or agreed
to any extension of time with respect to a Tax assessment or deficiency.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vii)&nbsp;Target is not a party to any agreement, contract, arrangement or plan that has
resulted or would result, separately or in the aggregate, in the payment of (i)&nbsp;any
&#147;excess parachute payment&#148; within the meaning of Code Section&nbsp;280G (or any
corresponding provision of state, local or foreign Tax law) and (ii)&nbsp;any amount that
will not be fully deductible as a result of Code 162(m) (or any corresponding
provision of state, local or foreign Tax law). Target has not been a United States
real property holding corporation within the meaning of Code Section&nbsp;897(c)(2)
during the applicable period specified in Code Section&nbsp;897(c)(1)(A)(ii). Target has
disclosed on its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within the meaning
of Code Section&nbsp;6662. Target is not a party to or bound by any Tax allocation or
sharing agreement. Target (A)&nbsp;has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common parent of
which was Target) or (B)&nbsp;has no Liability for the Taxes of any Person (other than
Target) under Reg. Section&nbsp;1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(viii)&nbsp;The unpaid Taxes of Target (A)&nbsp;did not, as of the Most Recent Fiscal Month
End, exceed the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) and (B)&nbsp;do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of Target
in filing their Tax Returns. Since the date of the Most Recent Balance Sheet, Target
has not incurred any liability for Taxes arising from extraordinary gains or losses,
as that term is used in GAAP, outside the Ordinary Course of Business consistent
with past custom and practice.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ix)&nbsp;Target will not be required to include any item of income in, or exclude any
item of deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of any: (A)&nbsp;change in method of accounting
for a taxable period ending on or prior to the Closing Date; (B) &#147;closing agreement&#148;
as described in Code Section&nbsp;7121 (or any corresponding or
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">similar provision of state, local or foreign income Tax law) executed on or prior to
the Closing Date; (C)&nbsp;intercompany transactions or any excess loss account described
in Treasury Regulations under Code Section&nbsp;1502 (or any corresponding or similar
provision of state, local or foreign income Tax law); (D)&nbsp;installment sale or open
transaction disposition made on or prior to the Closing Date; or (E)&nbsp;prepaid amount
received on or prior to the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(x)&nbsp;Target has not distributed stock of another Person, or has had its stock
distributed by another Person, in a transaction that was purported or intended to be
governed in whole or in part by Code Section&nbsp;355 or Section&nbsp;361.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xi)&nbsp;Target has not, since October&nbsp;3, 2004, (A)&nbsp;granted to any person an interest in
a nonqualified deferred compensation plan (as defined in Code Section&nbsp;409A) which
interest has been or, upon the lapse of a substantial risk of forfeiture with
respect to such interest, will be subject to the Tax imposed by Code Section&nbsp;409A,
or (B)&nbsp;modified the terms of any nonqualified deferred compensation plan in a manner
that could cause an interest previously granted under such plan to become subject to
the Tax imposed by Code Section&nbsp;409A. No person has a right to be indemnified by
Target for any Tax imposed by Code Section&nbsp;409A.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(l)&nbsp;Real Property</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Except as set forth on Section&nbsp;4(l)(i) of the Disclosure Schedule, Target does
not own any Real Property. The Real Property owned by Target shall be distributed to
Seller prior to Closing together with all mortgages and other encumbrances related
to the Real Property, all of which shall be assumed by Seller or Seller&#146;s affiliate
to whom the Real Property is transferred.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Section&nbsp;4(l)(ii) of the Disclosure Schedule sets forth the address of each
parcel of Leased Real Property, and a true and complete list of all Leases for each
such Leased Real Property (including the date and name of the parties to such Lease
document). Target has delivered to Buyer a true and complete copy of each such Lease
document, and in the case of any oral Lease, a written summary of the material terms
of such Lease. Except as set forth in Section&nbsp;4(l)(ii) of the Disclosure Schedule,
with respect to each of the Leases:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) such Lease is legal, valid, binding, enforceable and in full force and effect;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the transaction contemplated by this Agreement does not require the consent of any
other party to such Lease (except for those Leases for which Lease Consents (as hereinafter
defined) are obtained), will not result in a breach of or default under such Lease, and will
not otherwise cause such Lease to cease to be legal, valid, binding, enforceable and in full
force and effect on identical terms following the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) Target&#146;s possession and quiet enjoyment of the Leased Real Property under such
Lease has not been disturbed and there are no disputes with respect to such Lease;
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) neither Target nor any other party to the Lease is in breach or default under such
Lease, and no event has occurred or circumstance exists which, with the delivery of notice,
the passage of time or both, would constitute such a breach or default, or permit the
termination, modification or acceleration of rent under such Lease;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) no security deposit or portion thereof deposited with respect to such Lease has
been applied in respect of a breach or default under such Lease which has not been
redeposited in full;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(F) Target neither owes or will owe in the future any brokerage commissions or finder&#146;s
fees with respect to such Lease;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(G) the other party to such Lease is not an Affiliate of, and otherwise does not have
any economic interest in, Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(H) Target has not subleased, licensed or otherwise granted any Person the right to use
or occupy such Leased Real Property or any portion thereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(I) Target has not collaterally assigned or granted any other Lien in such Lease or any
interest therein; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(J) there are no Liens on the estate or interest created by such Lease.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;The Real Property identified in Section&nbsp;4(l)(i) and the Leased Real Property
identified in Section&nbsp;4(l)(ii) of the Disclosure Schedule (collectively, the &#147;<B><I>Real
Property</I></B>&#148;), comprises all of the real property used or intended to be used in, or
otherwise related to, Target&#146;s business; and Target is not a party to any agreement
or option to purchase any real property or interest therein.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;All buildings, structures, fixtures, building systems and equipment, and all
components thereof, including the roof, foundation, load-bearing walls and other
structural elements thereof, heating, ventilation, air conditioning, mechanical,
electrical, plumbing and other building systems, environmental control, remediation
and abatement systems, sewer, storm and waste water systems, irrigation and other
water distribution systems, parking facilities, fire protection, security and
surveillance systems, and telecommunications, computer, wiring and cable
installations, included in the Real Property (the &#147;<B><I>Improvements</I></B>&#148;) are in good
condition and repair and sufficient for the operation of Target&#146;s business. There
are no structural deficiencies or latent defects affecting any of the Improvements
and there are no facts or conditions affecting any of the Improvements which would,
individually or in the aggregate, interfere in any respect with the use or occupancy
of the Improvements or any portion thereof in the operation of Target&#146;s business as
currently conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;There is no condemnation, expropriation or other proceeding in eminent domain,
pending or threatened, affecting any parcel of Real Property or any portion thereof
or interest therein. There is no injunction, decree, order, writ or judgment
outstanding, nor any claims, litigation, administrative actions or similar
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">proceedings, pending or threatened, relating to the ownership, lease, use or
occupancy of the Real Property or any portion thereof, or the operation of Target&#146;s
business as currently conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi)&nbsp;Except as set forth in Section&nbsp;4 (l) (vi)&nbsp;of the Disclosure Schedule, the Real
Property is in compliance with all applicable building, zoning, subdivision, health
and safety and other land use laws, including the Americans with Disabilities Act of
1990, as amended (&#147;ADA&#148;), and all insurance requirements affecting the Real Property
(collectively, the &#147;<B><I>Real Property Laws</I></B>&#148;), and the current use and occupancy of the
Real Property and operation of Target&#146;s business thereon does not violate any Real
Property Laws. Target has not received any notice of violation of any Real Property
Law and there is no basis for the issuance of any such notice or the taking of any
action for such violation. There is no pending or anticipated change in any Real
Property Law that will materially impair the ownership, lease, use or occupancy of
any Real Property or any portion thereof in the continued operation of Target&#146;s
business as currently conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vii)&nbsp;Each parcel of Real Property has direct vehicular and pedestrian access to a
public street adjoining the Real Property, or has vehicular and pedestrian access to
a public street via an insurable, permanent, irrevocable and appurtenant easement
benefiting such parcel of Real Property, and such access is not dependent on any
land or other real property interest which is not included in the Real Property.
None of the Improvements or any portion thereof is dependent for its access, use or
operation on any land, building, improvement or other real property interest which
is not included in the Real Property.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(viii)&nbsp;All water, oil, gas, electrical, steam, compressed air, telecommunications,
sewer, storm and waste water systems and other utility services or systems for the
Real Property have been installed and are operational and sufficient for the
operation of Target&#146;s business as currently conducted thereon. Each such utility
service enters the Real Property from an adjoining public street or valid private
easement in favor of the supplier of such utility service or appurtenant to such
Real Property, and is not dependent for its access, use or operation on any land,
building, improvement or other real property interest which is not included in the
Real Property.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ix)&nbsp;All certificates of occupancy, permits, licenses, franchises, approvals and
authorizations (collectively, the &#147;<B><I>Real Property Permits</I></B>&#148;) of all governmental
authorities, boards of fire underwriters, associations or any other entity having
jurisdiction over the Real Property which are required or appropriate to use or
occupy the Real Property or operate Target&#146;s business as currently conducted
thereon, have been issued and are in full force and effect. Section&nbsp;4(l)(ix) of the
Disclosure Schedule lists all material Real Property Permits held by Target with
respect to each parcel of Real Property. Target has delivered to Buyer a true and
complete copy of all Real Property Permits. Target has not received any notice from
any governmental authority or other entity having jurisdiction over the Real
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Property threatening a suspension, revocation, modification or cancellation of any
Real Property Permit and there is no basis for the issuance of any such notice or
the taking of any such action. The Real Property Permits are transferable to Buyer
without the consent or approval of the issuing governmental authority or entity, no
disclosure, filing or other action by Target is required in connection with such
transfer, and Buyer shall not be required to assume any additional liabilities or
obligations under the Real Property Permits as a result of such transfer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(x)&nbsp;The classification of each parcel of Real Property under applicable zoning laws,
ordinances and regulations permits the use and occupancy of such parcel and the
operation of Target&#146;s business as currently conducted thereon, and permits the
Improvements located thereon as currently constructed, used and occupied. There are
sufficient parking spaces, loading docks and other facilities at such parcel to
comply with such zoning laws, ordinances and regulations. Target&#146;s use or occupancy
of the Real Property or any portion thereof or the operation of Target&#146;s business as
currently conducted thereon is not dependent on a &#147;permitted non-conforming use&#148; or
&#147;permitted non-conforming structure&#148; or similar variance, exemption or approval from
any governmental authority.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xi)&nbsp;The current use and occupancy of the Real Property and the operation of
Target&#146;s business as currently conducted thereon does not violate any easement,
covenant, condition, restriction or similar provision in any instrument of record or
other unrecorded agreement affecting such Real Property (the &#147;<B><I>Encumbrance
Documents</I></B>&#148;). Neither Seller nor Target has received any notice of violation of any
Encumbrance Documents, and there is no basis for the issuance of any such notice or
the taking of any action for such violation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xii)&nbsp;None of the Improvements encroach on any land which is not included in the
Real Property or on any easement affecting such Real Property, or violate any
building lines or set-back lines, and there are no encroachments onto any of the
Real Property, or any portion thereof, which encroachment would interfere with the
use or occupancy of such Real Property or the continued operation of Target&#146;s
business as currently conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xiii)&nbsp;Each parcel of Real Property is a separate lot for real estate tax and
assessment purposes, and no other real property is included in such tax parcel.
There are no Taxes, assessments, fees, charges or similar costs or expenses imposed
by any governmental authority, association or other entity having jurisdiction over
the Real Property (collectively, the &#147;<B><I>Real Estate Impositions</I></B>&#148;) with respect to any
Real Property or portion thereof which are delinquent. There is no pending or
threatened increase or special assessment or reassessment of any Real Estate
Impositions for such parcel.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xiv)&nbsp;None of the Real Property or any portion thereof is located in a flood hazard
area (as defined by the Federal Emergency Management Agency).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(m)&nbsp;Intellectual Property</B>.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Target owns and possesses or has the right to use pursuant to a valid and
enforceable, written license, sublicense, agreement, or permission all Intellectual
Property necessary or desirable for the operation of the businesses of Target as
presently conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by Target immediately prior to the Closing
hereunder will be owned or available for use by Target on identical terms and
conditions immediately subsequent to the Closing hereunder. Target has taken all
necessary and desirable action to maintain and protect each item of Intellectual
Property that Target owns or uses.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Target has not interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Intellectual Property rights of third parties, and none
of Seller and the directors and officers (and employees with responsibility for
Intellectual Property matters) of Target has ever received any charge, complaint,
claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that Target must license or
refrain from using any Intellectual Property rights of any third party). To the
Knowledge of any of Seller and the directors and officers (and employees with
responsibility for Intellectual Property matters) of Target, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property rights of Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;Section&nbsp;4(m)(iii) of the Disclosure Schedule identifies each patent or
registration that has been issued to Target with respect to any of its Intellectual
Property, identifies each pending patent application or application for registration
which Target has made with respect to any of its Intellectual Property, and
identifies each license, sublicense, agreement, or other permission which Target has
granted to any third party with respect to any of its Intellectual Property
(together with any exceptions). Seller have delivered to Buyer correct and complete
copies of all such patents, registrations, applications, licenses, sublicenses,
agreements, and permissions (as amended to date). Section&nbsp;4(m)(iii) of the
Disclosure Schedule also identifies each material unregistered trademark, service
mark, trade name, corporate name or Internet domain name, computer software item
(other than commercially available off-the-shelf software purchased or licensed for
less than a total cost of $1,000 in the aggregate) and each material unregistered
copyright used by Target in connection with any of its businesses. With respect to
each item of Intellectual Property required to be identified in Section&nbsp;4(m)(iii) of
the Disclosure Schedule:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) Target owns and possesses all right, title, and interest in and to the item, free
and clear of any Lien, license, or other restriction or limitation regarding use or
disclosure;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the item is not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or, to the Knowledge of any of Seller and the directors and officers (and
employees with responsibility for Intellectual Property matters) of Target, is threatened
which challenges the legality, validity, enforceability, use, or ownership of the item, and
there are no grounds for the same;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) Target has never agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to the item; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) no loss or expiration of the item is threatened, pending, or reasonably
foreseeable, except for patents expiring at the end of their statutory terms (and not as a
result of any act or omission by Seller or Target, including without limitation, a failure
by Seller or Target to pay any required maintenance fees).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;Section&nbsp;4(m)(iv) of the Disclosure Schedule identifies each item of
Intellectual Property that any third party owns and that Target uses pursuant to
license, sublicense, agreement, or permission. Seller has delivered to Buyer correct
and complete copies of all such licenses, sublicenses, agreements, and permissions
(as amended to date). With respect to each item of Intellectual Property required to
be identified in Section&nbsp;4(m)(iv) of the Disclosure Schedule:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) the license, sublicense, agreement, or permission covering the item is legal,
valid, binding, enforceable, and in full force and effect;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the license, sublicense, agreement, or permission will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following consummation
of the transactions contemplated hereby;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) no party to the license, sublicense, agreement, or permission is in breach or
default, and no event has occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or acceleration thereunder;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) no party to the license, sublicense, agreement, or permission has repudiated any
provision thereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) with respect to each sublicense, the representations and warranties set forth in
subsections (A)&nbsp;through (D)&nbsp;above are true and correct with respect to the underlying
license;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(F) the underlying item of Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(G) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or, to the Knowledge of any of Seller and the directors and officers (and
employees with responsibility for Intellectual Property matters) of Target, is threatened
that challenges the legality, validity, or enforceability of the underlying item of
Intellectual Property, and there are no grounds for the same; and
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(H) Target has not granted any sublicense or similar right with respect to the license,
sublicense, agreement, or permission.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;To the Knowledge of any of Seller and the directors and officers (and employees
with responsibility for Intellectual Property matters) of Target: (A)&nbsp;Target has not
in the past nor will interfere with, infringe upon, misappropriate, or otherwise
come into conflict with, any Intellectual Property rights of third parties as a
result of the continued operation of its businesses as presently conducted; (B)
there are no facts that indicate a likelihood of any of the foregoing; and (C)&nbsp;no
notices regarding any of the foregoing (including, without limitation, any demands
or offers to license any Intellectual Property from any third party) have been
received.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi)&nbsp;Seller have taken all necessary and desirable action to maintain and protect
all of the Intellectual Property of Target and will continue to maintain and protect
all of the Intellectual Property of Target prior to Closing so as not to adversely
affect the validity or enforceability thereof. To the Knowledge of any of Seller,
the owners of any of the Intellectual Property licensed to Target have taken all
necessary and desirable action to maintain and protect the Intellectual Property
covered by such license.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vii)&nbsp;Seller have complied in all material respects with and are presently in
compliance in all material respects with all foreign, federal, state, local,
governmental (including, but not limited to, the Federal Trade Commission and State
Attorneys General), administrative or regulatory laws, regulations, guidelines and
rules applicable to any Intellectual Property and Seller shall take all steps
necessary to ensure such compliance until Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(n)&nbsp;Tangible Assets</B>. Target owns or leases all buildings, machinery, equipment, and other
tangible assets necessary for the conduct of their businesses as presently conducted and as
presently proposed to be conducted. Each such tangible asset is free from defects (patent and
latent), has been maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable for the purposes for which
it presently is used and presently is proposed to be used.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(o)&nbsp;Inventory</B>. The inventory of Target consists of raw materials and supplies, manufactured
and purchased parts, goods in process, and finished goods, all of which is merchantable and fit for
the purpose for which it was procured or manufactured, and none of which is slow-moving, obsolete,
damaged, or defective, subject only to the reserve for inventory writedown set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(p)&nbsp;Contracts</B>. Section 4(p) of the Disclosure Schedule lists the following contracts and other
agreements to which Target is a party:
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;any agreement (or group of related agreements) for the lease of personal
property to or from any Person regardless of amount;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;any agreement (or group of related agreements) for the purchase or sale of raw
materials, commodities, supplies, products, or other personal property, or for the
furnishing or receipt of services, the performance of which will extend over a
period of more than one year, result in a loss to Target, or involve consideration
in excess of $10,000;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;any agreement concerning a partnership or joint venture;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;any agreement (or group of related agreements) under which it has created,
incurred, assumed, or guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;any agreement concerning confidentiality or non-competition;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi)&nbsp;any agreement with any of Seller and their Affiliates (other than Target);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vii)&nbsp;any profit sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance, or other plan or arrangement for the benefit of its current
or former directors, officers, and employees;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(viii)&nbsp;any collective bargaining agreement;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ix)&nbsp;any agreement for the employment of any individual on a full-time, part-time,
consulting, or other basis providing annual compensation in excess of $10,000 or
providing severance benefits;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(x)&nbsp;any agreement under which it has advanced or loaned any amount to any of its
directors, officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xi)&nbsp;any agreement under which the consequences of a default or termination could
have a Material Adverse Effect;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xii)&nbsp;any agreement under which it has granted any Person any registration rights
(including, without limitation, demand and piggyback registration rights);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xiii)&nbsp;any agreement under which Target has advanced or loaned any other Person any
amounts; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xiv)&nbsp;any other agreement (or group of related agreements) the performance of which
involves consideration in excess of $10,000.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Seller have delivered to Buyer a correct and complete copy of each written agreement (as amended to
date) listed in Section 4(p) of the Disclosure Schedule and a written summary setting forth the
terms and conditions of each oral agreement referred to in Section 4(p) of the Disclosure Schedule.
With respect to each such agreement: (A)&nbsp;the agreement is legal, valid,
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">binding, enforceable, and in full force and effect; (B)&nbsp;the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C)&nbsp;no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach or default, or
permit termination, modification, or acceleration, under the agreement; and (D)&nbsp;no party has
repudiated any provision of the agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(q)&nbsp;Notes and Accounts Receivable</B>. All notes and accounts receivable of Target are reflected
properly on their books and records, are valid receivables subject to no setoffs or counterclaims,
are current and collectible, and will be collected in accordance with their terms at their recorded
amounts, subject only to the reserve for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of Target. All accounts receivable collected
by Buyer shall be applied on a first in, first out basis. Buyer shall continue Target&#146;s customary
collection practices following Closing and shall provide Seller with all normal and customary
information relating to the accounts receivable that were in existence on the Closing Date,
including all normal aging reports, following the Closing. Any accounts receivable determined by
Buyer to be uncollectible shall be reassigned to Seller, subject, however, to buyer&#146;s
indemnification rights hereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(r)&nbsp;Powers of Attorney</B>. There are no outstanding powers of attorney executed on behalf of
Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(s)&nbsp;Insurance</B>. Section 4(s) of the Disclosure Schedule sets forth the following information
with respect to each insurance policy (including policies providing property, casualty, liability,
and workers&#146; compensation coverage and bond and surety arrangements) to which Target has been a
party, a named insured, or otherwise the beneficiary of coverage at any time within the past 10
years:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;the name, address, and telephone number of the agent;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;the name of the insurer, the name of the policyholder, and the name of each
covered insured;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;the policy number and the period of coverage;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;the scope (including an indication of whether the coverage was on a claims
made, occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;a description of any retroactive premium adjustments or other loss-sharing
arrangements.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">With respect to each such insurance policy: (A)&nbsp;the policy is legal, valid, binding, enforceable,
and in full force and effect; (B)&nbsp;the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the consummation of the
transaction contemplated hereby; (C)&nbsp;neither Target nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of notices), and no
event has
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">occurred which, with notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification, or acceleration, under the policy; and (D)&nbsp;no party to the policy
has repudiated any provision thereof. Target has been covered during the past 10&nbsp;years by insurance
in scope and amount customary and reasonable for the businesses in which they have engaged during
the aforementioned period. Section 4(s) of the Disclosure Schedule describes any self-insurance
arrangements affecting Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(t)&nbsp;Litigation</B>. Section 4(t) of the Disclosure Schedule sets forth each instance in which
Target (i)&nbsp;is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or
(ii)&nbsp;is a party or , to the Knowledge of any of Seller and the directors and officers (and
employees with responsibility for litigation matters) of Target, is threatened to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings, hearings, and investigations set
forth in Section 4(t) of the Disclosure Schedule could result in any Material Adverse Change. None
of Seller and the directors and officers (and employees with responsibility for litigation matters)
of Target has any reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against Target or that there is any Basis for the
foregoing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(u)&nbsp;Product Warranty</B>. Each product manufactured, sold, leased, or delivered by Target has been
in conformity with all applicable contractual commitments and all express and implied warranties,
and Target has no Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for product warranty claims set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of Target. Section 4(u) of the
Disclosure Schedule includes copies of the standard terms and conditions of sale or lease for
Target (containing applicable guaranty, warranty, and indemnity provisions). No product
manufactured, sold, leased, or delivered by Target is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale or lease set forth in Section
4(u) of the Disclosure Schedule.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v)&nbsp;Product Liability</B>. Target has no Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(w)&nbsp;Employees</B>. Except as set forth on Section 4(w) of the Disclosure Schedule, to the
Knowledge of Seller and the directors and officers (and employees with responsibility for
employment matters) of Target, no executive, key employee, or group of employees has any plans to
terminate employment with Target. Target is not a party to or bound by any collective bargaining
agreement, nor has Target experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. Target has not committed any unfair labor practice. None of
Seller and the directors and officers (and employees with responsibility for
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">employment matters) of Target has any Knowledge of any organizational effort presently being
made or threatened by or on behalf of any labor union with respect to employees of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(x)&nbsp;Employee Benefits</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Section&nbsp;4(x) of the Disclosure Schedule lists all employee benefit plans and
collective bargaining, employment or severance agreements or other similar
arrangements which Target, or any ERISA Affiliate, has ever sponsored, maintained,
or to which contributions are made or have ever been made, or for which obligations
have been incurred, for the benefit of employees or former employees of Target or an
ERISA Affiliate, including, without limitation, (1)&nbsp;any &#147;employee benefit plan&#148;
(within the meaning of Section&nbsp;3(3) of ERISA), (2)&nbsp;any profit-sharing, deferred
compensation, bonus, stock option, stock purchase, pension, retainer, consulting,
retirement, severance, welfare or incentive plan, agreement or arrangement, (3)&nbsp;any
plan, agreement or arrangement providing for &#147;fringe benefits&#148; or perquisites to
employees, officers, directors or agents, including but not limited to benefits
relating to automobiles, clubs, vacation, child care, parenting, sabbatical, sick
leave, tuition reimbursement, medical, dental, hospitalization, life insurance,
disability insurance and other types of insurance, and (4)&nbsp;any employment agreement.
The plans, agreements and arrangements described in this Section 4(x) are referred
to herein as &#147;<B><I>Employee Benefit Plans</I></B>.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;None of the Employee Benefit Plans is, and neither Target nor any other ERISA
Affiliate has ever contributed to or had any obligation to contribute to, (i)&nbsp;a plan
subject to Title IV of ERISA or Section&nbsp;412 of the Code, (ii)&nbsp;a &#147;multiemployer plan&#148;
(within the meaning of Section&nbsp;3(37) of ERISA), (iii)&nbsp;or a &#147;multiple employer plan&#148;
(within the meaning of Section 413(c) of the Code), any &#147;voluntary employees&#146;
beneficiary association&#148; (within the meaning of Section&nbsp;501(c)(9) of the Code), or
any &#147;multiple employer welfare arrangement&#148; (within the meaning of Section&nbsp;3(40) of
ERISA).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;None of the Employee Benefit Plans, nor any trust created thereunder, now
holds or has heretofore held as assets any stock or securities issued by Target or
any ERISA Affiliate.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;Target has delivered to Buyer true and complete copies of all documents
(including plan documents, trust agreements and insurance contracts) and summary
plan descriptions of the Employee Benefit Plans or summary descriptions of any such
Employee Benefit Plan not otherwise in writing. Target has delivered to Buyer true
and complete copies of the most recent determination letters and the Forms 5500
filed in the most recent three plan years with respect to any Employee Benefit Plan,
including all schedules thereto and financial statements with attached opinions of
independent accountants. Target has delivered to Buyer summaries of material
modifications and material communications distributed within the last year to the
participants of each Employee Benefit Plan. Target has delivered to Buyer all
communications received from or sent to the Internal Revenue Service, Pension
Benefit Guaranty
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Corporation or the Department of Labor within the last three years and any Forms
5330 required to be filed by Target or any ERISA Affiliate, whether related to a
Employee Benefit Plan or otherwise. Target and any ERISA Affiliate, as applicable,
have maintained all employee data necessary to administer each Employee Plan,
including all data required to be maintained under Sections&nbsp;107 and 209 of ERISA,
and such data is true and correct and is maintained in usable form.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;Each Employee Benefit Plan (and any related trust agreement) has been
maintained, funded and administered in accordance with its terms and the terms of
any applicable collective bargaining agreement, and Target, and each ERISA
Affiliate, is in compliance with the applicable provisions of ERISA, the Code and
all laws applicable thereto. Without limitation of the foregoing:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) None of Target, any ERISA Affiliate, nor any Employee Benefit Plan fiduciary has,
with respect to the Employee Benefit Plans, engaged in a non-exempt Prohibited Transaction,
and no event or condition exists with respect to any Employee Benefit Plan which constitutes
a reportable event within the meaning of Section&nbsp;4043 of ERISA, as to which a waiver is not
applicable. No event has occurred and no condition exists with respect to any Employee
Benefit Plan which would give rise to any Liability under the Code or ERISA, including but
not limited to Sections&nbsp;511, 4971, 4972, 4975, 4976, 4977, 4979, 4980B, 4980D, 4980E, 4980F
or 6652 of the Code, or to any fine or civil penalty under Sections&nbsp;502, 4069 or 4071 of
ERISA.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) Target and each ERISA Affiliate have complied in all respects with COBRA, the
Health Insurance Portability &#038; Accountability Act of 1996, and Medicare Part&nbsp;D with respect
to any events occurring prior to and including the Closing Date. Each Employee Benefit Plan
that is subject to Section&nbsp;1862(b)(1) of the Social Security Act has been operated in
compliance with the secondary payor requirements of Section&nbsp;1862 of such Act.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) Each Employee Benefit Plan that constitutes a &#147;welfare benefit plan,&#148; within the
meaning of Section&nbsp;3(1) of ERISA, and for which contributions are claimed by Target or any
ERISA Affiliate as deductions under any provision of the Code, is in compliance with all
applicable requirements pertaining to such deduction. &#167;4(x) of the Disclosure Schedule
discloses whether each welfare plan is (i)&nbsp;unfunded, (ii)&nbsp;with respect to welfare plans
subject to the provisions of the Code, funded through a &#147;welfare benefit fund&#148;, as such term
is defined in Section 419(e) of the Code, or other funding mechanism or (iii)&nbsp;insured.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) Arrangements which constitute &#147;nonqualified deferred compensation plans&#148; as defined
by &#167;409A of the Code have been administered in compliance with &#167;409A or an exemption
therefrom since January&nbsp;1, 2005.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) All reports, returns and similar documents with respect to each Employee Benefit
Plan required to be filed with any Governmental Authority or distributed to any participant
of each Employee Benefit Plan have been duly and timely filed or distributed.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">All contributions, fees, interest, penalties and assessments that are payable by or for
Target or any ERISA Affiliate have been timely reported, fully paid and discharged. There
are no unpaid contributions, fees, penalties, interest or assessments due from Target or any
ERISA Affiliate or from any other person that are or could become a Lien on any asset of
Target or any ERISA Affiliate or could otherwise adversely affect the business or assets of
Target or any ERISA Affiliate, and no assets of Target or any ERISA Affiliate are subject to
(or expected to be subject to) any such Lien. Target and each ERISA Affiliate have collected
or withheld all amounts that are required to be collected or withheld by them to discharge
their obligations, and all of those amounts have been paid to the appropriate Employee
Benefit Plans or governmental agencies or set aside in appropriate accounts for future
payment when due.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi)&nbsp;No actions, suits, disputes or claims (other than routine claims for benefits
in the ordinary course) are pending or threatened with respect to any Employee
Benefit Plan. No audits, inquiries, reviews, proceedings, claims, or demands are
pending with any governmental authority with respect to any Employee Benefit Plan.
There are no facts which could give rise to any Liability in the event of any such
investigation, claim, action, suit, audit, review, or other proceeding (including,
without limitation, any claim for breach of fiduciary duty).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vii)&nbsp;Each Employee Benefit Plan that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the Internal
Revenue Service that such Employee Benefit Plan is qualified under Section 401(a) of
the Code, and such determination letter considers the Uruguay Round Agreements Act,
the Small Business Job Protection Act of 1996, the Uniformed Services Employment and
Reemployment Rights Act of 1994, the Taxpayer Relief Act of 1997, the Internal
Revenue Service Restructuring and Reform Act of 1998, and the Community Renewal Tax
Relief Act of 2000. Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the Code has been timely amended to reflect the provisions
of the Economic Growth &#038; Tax Relief Reconciliation Act of 2001 and any other
statutory or regulatory changes requiring amendments, and has been timely submitted
for a determination letter regarding the provisions of the Economic Growth &#038; Tax
Relief Reconciliation Act of 2001 if the deadline for such submission has passed. No
event has occurred that will or could give rise to the revocation of any applicable
determination letter, or the disqualification or loss of tax-exempt status of any
such Employee Benefit Plan or trust under Sections 401(a) or 501(a) of the Code.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(viii)&nbsp;Each of the Employee Benefit Plans can be terminated within a period of
thirty (30)&nbsp;days following the Closing Date, without any additional contribution to
such Employee Benefit Plan or the payment of any additional compensation or amount
or acceleration of any benefits.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ix)&nbsp;No Employee Benefit Plan provides for or continues medical or health benefits,
or life insurance or other benefits (through insurance or otherwise) for any Person
or any dependent or beneficiary of any Person after such employee&#146;s retirement or
other termination of employment except as may be required by
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">COBRA or applicable state law, and there has been no communication to any Person
that could reasonably be expected to promise or guarantee any such benefits.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(x)&nbsp;No condition exists as a result of which Target or any ERISA Affiliate would
have any Liability, whether absolute or contingent, including any obligations under
the Employee Benefit Plans, with respect to any misclassification of a Person
performing services for Target or an ERISA Affiliate as an independent contractor
rather than as an employee.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xi)&nbsp;All contributions (including all employer contributions and employee salary
reduction contributions) and premium payments which are or have been due have been
paid to or with respect to each Employee Benefit Plan within the time required by
law. All required or discretionary (in accordance with historical practices)
payments, premiums, contributions, reimbursements, or accruals for all periods
ending prior to or as of the Closing Date shall have been made or properly accrued
on the Closing Balance Sheets or will be properly accrued on the books and records
of Target and each ERISA Affiliate as of the Closing Date. None of the Employee
Benefit Plans has any unfunded liabilities which are not reflected on the Closing
Balance Sheet or the books and records of Target and each ERISA Affiliate.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xii)&nbsp;The consummation of the transactions contemplated by this Agreement will not
entitle any individual to severance pay, and will not accelerate the time of payment
or vesting, or increase the amount of compensation due to any individual. None of
the Employee Benefit Plans obligates Target or any ERISA Affiliate to pay
separation, severance, termination or similar benefits solely as a result of any
transaction contemplated by this Agreement or solely as a result of &#147;change of
control&#148; (as such term is defined in Section&nbsp;280G of the Code).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(y)&nbsp;Guaranties</B>. Target is not a guarantor or otherwise is liable for any Liability or
obligation (including indebtedness) of any other Person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(z)&nbsp;Environmental, Health, and Safety Matters</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Target and its predecessors and Affiliates have complied and are in compliance
with all Environmental, Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Without limiting the generality of the foregoing, Target and its Affiliates
have obtained and complied with, and are in compliance with, all permits, licenses
and other authorizations that are required pursuant to Environmental, Health, and
Safety Requirements for the occupation of their facilities and the operation of
their business; a list of all such permits, licenses and other authorizations is set
forth on Section 4(z) of the Disclosure Schedule.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;Neither Target nor, to its Knowledge, its predecessors or Affiliates has
received any written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety Requirements, or
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">any Liabilities or potential Liabilities, including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;To knowledge of Target, none of the following exists at any property or
facility owned or operated by Target: (1)&nbsp;underground storage tanks, (2)
asbestos-containing material in any form or condition, (3)&nbsp;materials or equipment
containing polychlorinated biphenyls, or (4)&nbsp;landfills, surface impoundments, or
disposal areas.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;Neither Target nor, to its Knowledge, its predecessors or Affiliates have
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation any
hazardous substance, or owned or operated any property or facility (and no such
property or facility is contaminated by any such substance) in a manner that has
given or would give rise to Liabilities, including any Liability for response costs,
corrective action costs, personal injury, property damage, natural resources damages
or attorney fees, pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (&#147;<B><I>CERCLA</I></B>&#148;), the Solid Waste Disposal Act, as
amended (&#147;<B><I>SWDA</I></B>&#148;) or any other Environmental, Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi)&nbsp;Neither this Agreement nor the consummation of the transaction that is the
subject of this Agreement will result in any obligations for site investigation or
cleanup, or notification to or consent of government agencies or third parties,
pursuant to any of the so-called &#147;transaction-triggered&#148; or &#147;responsible property
transfer&#148; Environmental, Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vii)&nbsp;Neither Target nor, to its Knowledge, its predecessors or Affiliates has,
either expressly or by operation of law, assumed or undertaken any Liability,
including without limitation any obligation for corrective or remedial action, of
any other Person relating to Environmental, Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(viii)&nbsp;No facts, events or conditions relating to the past or present facilities,
properties or operations of Target or, to its Knowledge, its predecessors or
Affiliates will prevent, hinder or limit continued compliance with Environmental,
Health, and Safety Requirements, give rise to any investigatory, remedial or
corrective obligations pursuant to Environmental, Health, and Safety Requirements,
or give rise to any other Liabilities pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(aa)&nbsp;Certain Business Relationships with Target</B>. None of Seller, their Affiliates, Seller&#146;
directors, officers, employees and stockholders and Target&#146;s directors, officers, employees, and
stockholders has been involved in any business arrangement or relationship with Target within the
past 12&nbsp;months, and none of Seller, their Affiliates, Seller&#146;s directors, officers,
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">employees and stockholders and Target&#146;s directors, officers, employees, and stockholders owns
any asset, tangible or intangible, which is used in the business of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(bb)&nbsp;Customers and Suppliers</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Section&nbsp;4(bb) of the Disclosure Schedule lists the 10 largest customers of
Target for each of the two most recent fiscal years and sets forth opposite the name
of each such customer the percentage of consolidated net sales attributable to such
customer. Section&nbsp;4(bb) of the Disclosure Schedule also lists any additional current
customers that Target anticipates shall be among the 10 largest customers for the
current fiscal year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Since the date of the Most Recent Balance Sheet, no supplier of Target has
indicated that it shall stop, or decrease the rate of, supplying materials, products
or services to Target, and no customer listed on Section&nbsp;4(bb) of the Disclosure
Schedule has indicated that it shall stop, or decrease the rate of, buying
materials, products or services from Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(cc)&nbsp;Disclosure</B>. The representations and warranties contained in this Section&nbsp;4 do not contain
any untrue statement of a material fact or omit to state any material fact necessary in order to
make the statements and information contained in this Section&nbsp;4 not misleading.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 5. PRE-CLOSING COVENANTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Parties agree as follows with respect to the period between the execution of this
Agreement and the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;General</B>. Each of the Parties will use his, her, or its best efforts to take all action and
to do all things necessary, proper, or advisable in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing
conditions set forth in Section&nbsp;7 below).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Notices and Consents</B>. Seller will cause Target to give any notices to third parties, and
will cause Target to use its best efforts to obtain any third party consents referred to in Section
4(c) above, the Lease Consents, and the items set forth on Section 5(b) of the Disclosure Schedule.
Each of the Parties will (and Seller will cause Target to) give any notices to, make any filings
with, and use its best efforts to obtain any authorizations, consents, and approvals of governments
and governmental agencies in connection with the matters referred to in Section&nbsp;3(a)(ii), Section
3(b)(ii), and Section 4(c) above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Operation of Business</B>. Seller will not cause or permit Target to engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, Seller will not cause or permit Target to (i)&nbsp;declare,
set aside, or pay any dividend or make any distribution whatsoever with respect to its capital
stock (whether in cash or in kind) or redeem, purchase, or otherwise acquire any of its capital
stock or (ii)&nbsp;otherwise engage in any practice, take any action, or enter into any transaction of
the sort described in Section 4(h) above;<U> provided</U>, <U>however</U>, that nothing herein
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">contained shall prohibit Target from making cash distributions to the Seller (whether in the
form of dividends or compensation) so long as such distributions do not cause the Adjusted Net
Worth to be materially less than $500,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Preservation of Business</B>. Seller will cause Target to keep its business and properties
substantially intact, including its present operations, physical facilities, working conditions,
insurance policies, and relationships with lessors, licensors, suppliers, customers, and employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Full Access</B>. Each of Seller will permit, and Seller will cause Target to permit,
representatives of Buyer (including legal counsel and accountants) to have full access at all
reasonable times, and in a manner so as not to interfere with the normal business operations of
Target, to all premises, properties, personnel, books, records (including Tax records), contracts,
and documents of or pertaining to Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Notice of Developments</B>. Seller will give prompt written notice to Buyer of any material
adverse development causing a breach of any of the representations and warranties in Section&nbsp;4
above. Each Party will give prompt written notice to the others of any material adverse development
causing a breach of any of his or its own representations and warranties in Section&nbsp;3 above. No
disclosure by any Party pursuant to this Section&nbsp;5(f), however, shall be deemed to amend or
supplement Annex I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Exclusivity</B>. Seller will not (and Seller will not cause or permit Target to) (i)&nbsp;solicit,
initiate, or encourage the submission of any proposal or offer from any Person relating to the
acquisition of any capital stock or other voting securities, or any substantial portion of the
assets, of Target (including any acquisition structured as a merger, consolidation, or share
exchange) or (ii)&nbsp;participate in any discussions or negotiations regarding, furnish any information
with respect to, assist or participate in, or facilitate in any other manner any effort or attempt
by any Person to do or seek any of the foregoing. Seller will not vote its Target Shares in favor
of any such acquisition. Seller will notify Buyer immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(h)&nbsp;Maintenance of Real Property</B>. Seller will cause Target to maintain the Real Property,
including all of the Improvements, in substantially the same condition as of the date of this
Agreement, ordinary wear and tear excepted, and shall not demolish or remove any of the existing
Improvements, or erect new improvements on the Real Property or any portion thereof, without the
prior written consent of Buyer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;Leases</B>. Except to the extent necessary to satisfy the Closing conditions set forth in
Section&nbsp;7 below, Seller will not cause or permit any of Target&#146;s Leases to be amended, modified,
extended, renewed or terminated, nor shall Target enter into any new lease, sublease, license or
other agreement for the use or occupancy of any real property, without the prior written consent of
Buyer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(j)&nbsp;Tax Matters</B>. Without the prior written consent of Buyer, Target shall not make or change
any election, change an annual accounting period, adopt or change any accounting
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or
assessment relating to Target, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or assessment relating to
Target, or take any other similar action relating to the filing of any Tax Return or the payment of
any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent
or other action would have the effect of increasing the Tax liability of Target for any period
ending after the Closing Date or decreasing any Tax attribute of Target existing on the Closing
Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(k)&nbsp;S Corporation Status</B>. Target and Seller shall not revoke Target&#146;s election to be taxed as
an S corporation within the meaning of Code Section&nbsp;1361 and Section&nbsp;1362. Target and Seller shall
not take or allow any action, other than the sale of Target&#146;s stock pursuant to this Agreement,
which would result in the termination of Target&#146;s status as a validly electing S corporation within
the meaning of Code Section&nbsp;1361 and Section&nbsp;1362.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(l)&nbsp;Employee Benefits and Welfare Matters</B>. Notwithstanding anything in this Agreement to the
contrary, prior to Closing, Seller shall cause the Target to terminate the Stationary Power
Services, Inc. 401(k) Plan (the &#147;<B><I>4</I></B><B><I>01(k)</I></B><B><I> Plan</I></B>&#148;) and any other Target Plan intended to be qualified
under Code Section 401(a) or 403(a). In addition, (a)&nbsp;Sellers shall cause the Target to remove, or
Seller shall cause to resign, as a trustee under the 401(k) Plan, Seller and each other trustee, if
any, of the 401(k) Plan, effective as of the Closing Date; and (b)&nbsp;Seller shall cause the Target to
appoint, effective as of the Closing Date, successor trustees designated by Buyer.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 6. POST-CLOSING COVENANTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Parties agree as follows with respect to the period following the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;General</B>. In case at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the Parties will take such further
action (including the execution and delivery of such further instruments and documents) as any
other Party reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under Section&nbsp;8 below). Seller
acknowledge and agree that from and after the Closing Buyer will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial data of any sort
relating to Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Litigation Support</B>. In the event and for so long as any Party actively is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand in connection with (i)&nbsp;any transaction contemplated under this Agreement or (ii)&nbsp;any
fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date involving Target,
each of the other Parties will cooperate with him or it and his or its counsel in the contest or
defense, make available their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at the
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">sole cost and expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Section&nbsp;8 below).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Transition</B>. Seller will not take any action that is designed or intended to have the
effect of discouraging any lessor, licensor, customer, supplier, or other business associate of
Target from maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. Seller shall refer all customer inquiries relating to
the businesses of Target to Buyer from and after the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Confidentiality</B>. Each of the parties hereto will treat and hold as such all of the
Confidential Information of the other parties, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to such other party or
destroy, at the request and option of disclosing party, all tangible embodiments (and all copies)
of the Confidential Information which are in his, her, or its possession. In the event that any
party is requested or required pursuant to written or oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar
process to disclose any Confidential Information, such party will notify the disclosing party
promptly of the request or requirement so that the disclosing party may seek an appropriate
protective order or waive compliance with the provisions of this Section&nbsp;6(d). If, in the absence
of a protective order or the receipt of a waiver hereunder, any of receiving parties is, on the
advice of counsel, compelled to disclose any Confidential Information to any tribunal or party in a
proceeding therein or else stand liable for contempt, such party may disclose the Confidential
Information to the tribunal or such person involved in such action; provided, however, that the
disclosing party shall use his, her, or its best efforts to obtain, at the reasonable request of
the disclosing party, an order or other assurance that confidential treatment will be accorded to
such portion of the Confidential Information required to be disclosed as the disclosing party shall
designate. The foregoing provisions shall not apply to any Confidential Information that is
generally available to the public immediately prior to the time of disclosure unless such
Confidential Information is so available due to the actions of a party, nor shall the foregoing
provisions apply to Buyer to the extent Buyer is required to disclose such information in order to
comply with its disclosure obligations as a publicly-traded company under applicable federal
securities laws and stock exchange rules and listing standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Release of Target by Seller</B>. Effective at and (only)&nbsp;upon Closing, Seller (the &#147;<B><I>Releasing
Party</I></B>&#148;) hereby irrevocably and unconditionally releases and forever discharges the Target and its
respective successors and assigns (the &#147;<B><I>Released Parties</I></B>&#148;) from any and all claims, charges,
complaints, causes of action, damages, agreements and liabilities of any kind or nature whatsoever,
including any claim by Seller against the Target for indemnification or for advances with respect
to actions or omissions (or claims or allegations thereof) of Seller prior to the Closing in their
capacities as shareholders, officers, directors or employees of the Target (&#147;<B><I>Released Claims</I></B>&#148;),
whether known or unknown and whether at law or in equity, arising from conduct occurring on or
prior to the Closing Date, including without limitation any Released Claims relating to or arising
out of Seller&#146;s ownership of securities of Target; provided that (i)&nbsp;nothing contained herein shall
release Released Parties from any of their post-Closing obligations and liabilities to Releasing
Party created under this Agreement or constitute a waiver of any claims that Releasing Party may
bring or have for indemnification by the Released Parties
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">under Section&nbsp;8, and (ii)&nbsp;this release shall only relate to those claims arising from conduct
or omissions occurring on or before the Closing.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Conditions to Buyer&#146;s Obligation</B>. Buyer&#146;s obligation to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the following
conditions:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;the representations and warranties set forth in Section 3(a) and Section&nbsp;4 above
shall be true and correct in all material respects at and as of the Closing Date,
except to the extent that such representations and warranties are qualified by terms
such as &#147;material&#148; and &#147;Material Adverse Effect,&#148; in which case such representations
and warranties shall be true and correct in all respects at and as of the Closing
Date;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Seller shall have performed and complied with all of his covenants hereunder in
all material respects through the Closing, except to the extent that such covenants
are qualified by terms such as &#147;material&#148; and &#147;Material Adverse Effect,&#148; in which
case Seller shall have performed and complied with all of such covenants in all
respects through the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;Target shall have procured all of the third party consents specified in
Section 5(b) above;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;no action, suit, or proceeding shall be pending or threatened before any court
or quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A)&nbsp;prevent consummation of any of the
transactions contemplated by this Agreement, (B)&nbsp;cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)&nbsp;affect
adversely the right of Buyer to own the Target Shares and to control Target, or (D)
affect adversely the right of Target to own its assets and to operate its businesses
(and no such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;Seller shall have delivered to Buyer a certificate to the effect that each of
the conditions specified above in Section&nbsp;7(a)(i)-(iv) is satisfied in all respects;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi)&nbsp;the Parties shall have received all other authorizations, consents, and
approvals of governments and governmental agencies referred to in Section&nbsp;3(a)(ii),
Section&nbsp;3(b)(ii), and Section 4(c) above;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vii)&nbsp;Buyer shall have received the resignations, effective as of the Closing, of
each director and officer of Target other than those whom Buyer shall have specified
in writing at least five business days prior to the Closing;
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(viii)&nbsp;Buyer shall have obtained on terms and conditions satisfactory to it any debt
or equity financing it needs in order to consummate the transactions contemplated
hereby and fund the working capital requirements of Target after the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ix)&nbsp;all actions to be taken by the Seller in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments, and
other documents required to effect the transactions contemplated hereby shall be
satisfactory in form and substance to Buyer;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(x)&nbsp;Target shall have obtained and delivered to Buyer a written consent for the
assignment of each of the Leases, and, if requested by Buyer&#146;s lender, a waiver of
landlord liens, collateral assignment of lease or leasehold mortgage from the
landlord or other party whose consent thereto is required under such Lease (the
&#147;<B><I>Lease Consents</I></B>&#148;), in form and substance satisfactory to Buyer and Buyer&#146;s lender;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xi) &#091;INTENTIONALLY OMITTED&#093;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xii) &#091;INTENTIONALLY OMITTED&#093;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xiii)&nbsp;no damage or destruction or other change has occurred with respect to any of
the Real Property or any portion thereof that, individually or in the aggregate,
would materially impair the use or occupancy of the Real Property or the operation
of Target&#146;s business as currently conducted thereon;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xiv)&nbsp;William Maher and Edward Bellamy shall have entered into the Employment
Agreements with Buyer (or an Affiliate of Buyer) in the forms attached hereto as
Exhibits D-1 and D-2, respectively, and such agreements shall be in full force and
effect as of the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xv)&nbsp;Seller shall have delivered to Buyer copies of the certificate of incorporation
of Target certified on or soon before the Closing Date by the Secretary of State (or
comparable officer) of the jurisdiction of Target&#146;s incorporation;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xvi)&nbsp;Seller shall have delivered to Buyer copies of the certificate of good
standing of Target issued on or soon before the Closing Date by the Secretary of
State (or comparable officer) of the jurisdiction of Target&#146;s organization and of
each jurisdiction in which Target is qualified to do business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xvii)&nbsp;Seller shall have delivered to Buyer a certificate of the secretary or an
assistant secretary of Target, dated the Closing Date, in form and substance
reasonably satisfactory to Buyer, as to (i)&nbsp;no amendments to the Certificate of
Incorporation of Target since the date specified in clause (xxii)&nbsp;above; (ii)&nbsp;the
bylaws of Target; and (iii)&nbsp;any resolutions of the board of directors of Target
relating to this Agreement and the transactions contemplated hereby;
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xviii)&nbsp;Seller shall have entered into a confidentiality, non-solicitation,
non-compete and non-disparagement agreement with Target on terms satisfactory to
Buyer, and such agreement shall be in full force and effect as of the Closing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xix)&nbsp;Any amounts owed by Target to Seller shall have been paid in full and, at the
request of Buyer, Seller shall deliver to Target a release to such effect in form
and substance satisfactory to Buyer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xx)&nbsp;Buyer shall have obtained the approval of its lenders of this Agreement and the
transactions contemplated thereby and consent for payment of the Promissory Note and
Equity Payments and there shall be no payment default under Buyer&#146;s loan agreements
with its lenders unless waived by Buyer&#146;s lenders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxi)&nbsp;Buyer shall have obtained the approval of its board of directors of this
Agreement and the transactions contemplated thereby.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxii)&nbsp;Target and Seller shall have delivered to Buyer signed copies of the
applicable forms and attachments thereto required in connection with the Section
338(h)(10) Election pursuant to Section 9(f) below.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxiii)&nbsp;Target and Seller or an affiliate of Seller shall have entered into the
Lease Agreement and such agreement shall be in full force and effect as of the
Closing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxiv)&nbsp;Buyer shall have received from Bonadio and Company, LLP audited Financial
Statements of Target for the year ended December&nbsp;31, 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxv)&nbsp;Seller and Buyer shall have entered into the Registration Rights Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(xxvi)&nbsp;Buyer&#146;s acquisition of Reserve Power Systems, Inc. shall have been completed
as of the Closing Date.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Buyer may waive any condition specified in this Section 7(a) if it executes a writing so stating at
or prior to the Closing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Conditions to Seller&#146;s Obligation</B>. The obligation of Seller to consummate the transactions
to be performed by them in connection with the Closing is subject to satisfaction of the following
conditions:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;the representations and warranties set forth in Section 3(b) above shall be true
and correct in all material respects at and as of the Closing Date, except to the
extent that such representations and warranties are qualified by terms such as
&#147;material&#148; and &#147;Material Adverse Effect,&#148; in which case such representations and
warranties shall be true and correct in all respects at and as of the Closing Date;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Buyer shall have performed and complied with all of its covenants hereunder in
all material respects through the Closing, except to the extent that such covenants
are qualified by terms such as &#147;material&#148; and &#147;Material Adverse
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Effect,&#148; in which case Buyer shall have performed and complied with all of such
covenants in all respects through the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;no action, suit, or proceeding shall be pending or threatened before any court
or quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A)&nbsp;prevent consummation of any of the
transactions contemplated by this Agreement or (B)&nbsp;cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;Buyer shall have delivered to Seller a certificate to the effect that each of
the conditions specified above in Section&nbsp;7(b)(i)-(iii) is satisfied in all
respects;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(v)&nbsp;the Parties shall have received all authorizations, consents, and approvals of
governments and governmental agencies referred to in Section&nbsp;3(a)(ii), Section
3(b)(ii), and Section 4(c) above;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vi)&nbsp;all actions to be taken by Buyer in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments, and
other documents required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Seller;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(vii)&nbsp;William Maher and Edward Bellamy shall have entered into the Employment
Agreements with Buyer (or an Affiliate of Buyer) in the forms attached hereto as
Exhibits D-1 and D-2, respectively, and such agreements shall be in full force and
effect as of the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(viii)&nbsp;Buyer and Seller shall have entered into the Registration Rights Agreement;
and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ix)&nbsp;Buyer shall have paid in full, or caused Target to pay in full at Closing,
those obligations of Target set forth on Schedule&nbsp;7(b)(ix).
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Seller may waive any condition specified in this Section 7(b) if it executes a writing so stating
at or prior to closing.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Survival of Representations and Warranties</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;All of the representations and warranties of the Parties contained in Section&nbsp;3
of this Agreement shall survive the Closing hereunder (even if the damaged Party
knew or had reason to know of any misrepresentation or breach of warranty or
covenant at the time of Closing) and continue in full force and effect forever
thereafter (subject to any applicable statutes of limitations).
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Except for those representations and warranties of the Parties contained in
Sections&nbsp;4(a)-(f) (inclusive), (j), (k)&nbsp;and (z)&nbsp;of this Agreement, all of the
representations and warranties of the Parties contained in Section&nbsp;4 of this
Agreement, shall survive the Closing hereunder (even if the damaged Party knew or
had reason to know of any misrepresentation or breach of warranty or covenant at the
time of Closing) and continue in full force and effect for a period of two years
from the Closing Date. This provision shall not extinguish claims that are made
within two years of the Closing Date but that remain unresolved on or after the date
that is two years after the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;All of the representations and warranties of the Parties contained in Sections
4(a)-(f) (inclusive), (j), (k)&nbsp;and (z)&nbsp;of this Agreement shall survive the Closing
hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty or covenant at the time of Closing) and
continue in full force and effect until the expiration of any applicable statutes of
limitations (after giving effect to any extensions or waivers) plus 60&nbsp;days.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Indemnification Provisions for Buyer&#146;s Benefit</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;In the event Seller breaches (or in the event any third party alleges facts
that, if true, would mean Seller has breached) any of his representations,
warranties, and covenants contained herein (other than the covenants in Section 2(a)
above and the representations and warranties in Section 3(a) above) and, provided
that Buyer makes a written claim for indemnification against Seller pursuant to
Section 11(h) below within the survival period (if there is an applicable survival
period pursuant to Section 8(a) above), then Seller shall be obligated to indemnify
Buyer from and against the entirety of any Adverse Consequences Buyer may suffer
(including any Adverse Consequences Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach); <U>provided</U>, <U>however</U>,
that Seller shall not have any obligation to indemnify Buyer from and against any
Adverse Consequences resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or alleged breach) of any representation or warranty of
Sellers contained in Sections&nbsp;4(g)-(i) inclusive, Sections&nbsp;4(l)-(y) inclusive and
Sections&nbsp;4(aa)-(cc) inclusive above until Buyer has suffered Adverse Consequences by
reason of all such breaches (or alleged breaches) in excess of a $30,000 aggregate
threshold, at which point Seller will be obligated to indemnify Buyer from and
against only such Adverse Consequences above such $30,000 aggregate threshold.
Notwithstanding the other provisions of this Section&nbsp;8(b)(i) to the contrary, Seller
will be obligated to indemnify Buyer from and against any and all Adverse
Consequences resulting from, arising out of, or relating to (a)&nbsp;the failure of the
Real Property to be in compliance with ADA standards; (b)&nbsp;the Urban America, Inc.
warranty matter described in Disclosure Schedule&nbsp;4(i); (c)&nbsp;the Global Crossing
preferential payment matter described in Disclosure Schedule&nbsp;4(j); and (d)&nbsp;the Ohio,
West Virginia and Louisiana Department of Revenue matters described in Disclosure
Schedule&nbsp;4(j).
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;In the event Seller breaches (or in the event any third party alleges facts
that, if true, would mean Seller breached) any of his covenants in Section 2(a)
above or any of his representations and warranties in Section 3(a) above, and
provided that Buyer makes a written claim for indemnification against Seller
pursuant to Section 11(h) below within the survival period (if there is an
applicable survival period pursuant to Section 8(a) above), then Seller shall
indemnify Buyer from and against the entirety of any Adverse Consequences Buyer may
suffer (including any Adverse Consequences Buyer may suffer after the end of any
applicable survival period) resulting from arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;Seller shall indemnify Buyer from and against the entirety of any Adverse
Consequences Buyer may suffer resulting from, arising out of, relating to, in the
nature of, or caused by any occurrence or circumstance related to Target or its
business that first arose, in whole or in part, on or before the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;Notwithstanding anything in this Agreement to the contrary, in no event shall
the aggregate liability of Seller to Buyer under this Section 8(b) exceed THE
PURCHASE PRICE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Indemnification Provisions for Seller&#146;s Benefit</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;In the event Buyer breaches (or in the event any third party alleges facts that,
if true, would mean Buyer has breached) any of its representations, warranties, and
covenants contained herein and, provided that Seller makes a written claim for
indemnification against Buyer pursuant to Section 11(h) below within such survival
period (if there is an applicable survival period pursuant to Section 8(a) above),
then Buyer shall indemnify Seller from and against the entirety of any Adverse
Consequences suffered (including any Adverse Consequences suffered after the end of
any applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Buyer shall indemnify Seller from and against the entirety of any Adverse
Consequences Seller may suffer resulting from, arising out of, relating to, in the
nature of, or caused by any occurrence or circumstance related to Target or its
business that first arose, in whole or in part, after the Closing Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Matters Involving Third Parties</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;If any third party shall notify any Party (the &#147;<B><I>Indemnified Party</I></B>&#148;) with respect
to any matter (a &#147;<B><I>Third Party Claim</I></B>&#148;) which may give rise to a claim for
indemnification against any other Party (the &#147;<B><I>Indemnifying Party</I></B>&#148;) under this
Section&nbsp;8, then the Indemnified Party shall promptly notify each Indemnifying Party
thereof in writing; provided, however, that no delay on the part of the Indemnified
Party in notifying any Indemnifying Party shall relieve the
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Any Indemnifying Party will have the right to defend the Indemnified Party
against the Third Party Claim with counsel of its choice reasonably satisfactory to
the Indemnified Party so long as (A)&nbsp;the Indemnifying Party notifies the Indemnified
Party in writing within 15&nbsp;days after the Indemnified Party has given notice of the
Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party
from and against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or caused by
the Third Party Claim, (B)&nbsp;the Indemnifying Party provides the Indemnified Party
with evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder, (C)&nbsp;the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (D)&nbsp;settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the continuing
business interests or the reputation of the Indemnified Party, and (E)&nbsp;the
Indemnifying Party conducts the defense of the Third Party Claim actively and
diligently.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;So long as the Indemnifying Party is conducting the defense of the Third Party
Claim in accordance with Section&nbsp;8(d)(ii) above, (A)&nbsp;the Indemnified Party may
retain separate co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim, (B)&nbsp;the Indemnified Party will not consent to the
entry of any judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnifying Party (not to be
withheld unreasonably), and (C)&nbsp;the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be withheld
unreasonably).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;In the event any of the conditions in Section&nbsp;8(d)(ii) above is or becomes
unsatisfied, however, (A)&nbsp;the Indemnified Party may defend against, and consent to
the entry of any judgment or enter into any settlement with respect to, the Third
Party Claim in any manner it reasonably may deem appropriate (and the Indemnified
Party need not consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B)&nbsp;the Indemnifying Parties will reimburse the Indemnified
Party promptly and periodically for the costs of defending against the Third Party
Claim (including reasonable attorneys&#146; fees and expenses), and (C)&nbsp;the Indemnifying
Parties will remain responsible for any Adverse Consequences the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of, or caused
by the Third Party Claim to the fullest extent provided in this Section&nbsp;8.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Determination of Adverse Consequences</B>. All indemnification payments under this Section&nbsp;8
and Section 9(a) shall be deemed adjustments to the Purchase Price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Setoff against Promissory Note Payments; Priority; Escrow.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Any indemnification to which Buyer is entitled under this Agreement as a result
of any Adverse Consequences Buyer may suffer may, at Buyer&#146;s election, be satisfied
by Buyer setting-off such indemnification amounts against any amounts due to Seller
under the Promissory Note, and Buyer shall seek to satisfy such indemnification
amounts against such amounts due to Seller under the Promissory Note prior to and
before seeking to satisfy such indemnification amounts against other assets of
Sellers. The exercise by Buyer of such right of setoff shall not preclude Buyer from
pursuing other remedies available to Buyer against Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;In the event the Global Crossing preferential payment matter described in
Disclosure Schedule 4(j) has not been resolved by the date the Promissory Note is
converted in accordance with its terms or by the maturity date of the Promissory
Note if not so converted, the principal amount of the Promissory Note shall be
reduced by $500,000 and Buyer shall put $500,000 in escrow with a commercial bank
selected by Buyer to act as escrow agent, which amount shall be held solely for
purposes of satisfying any claims arising out of the Global Crossing preferential
payment matter. Sellers and Buyer agree to enter into an escrow agreement with the
escrow agent containing customary terms and terms consistent with this Section
8(f)(ii).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Other Indemnification Provisions</B>. Buyer and Seller acknowledge and agree that the
foregoing indemnification provisions in this Section&nbsp;8 shall be the exclusive remedy of Buyer and
Seller with respect to Target, Seller, and the transactions contemplated by this Agreement. The
party entitled to indemnification hereunder shall take all reasonable steps to mitigate all
damages, upon and after becoming aware of any event that could reasonably be expected to give rise
to any such losses that are indemnifiable hereunder. No party shall be entitled to indemnification
to the extent of any insurance, of any tax deduction or benefit actually realized, refund or
credit, or any other benefits actually realized resulting from or which may be claimed as a result
of the facts and circumstance relating to any indemnifiable claim. If any damages are covered by
insurance, the party seeking indemnity hereunder shall use all reasonable efforts to recover the
amount of such losses from the insurer of such insurance, which such recovery shall reduce the
amount of losses to be indemnified. To the extent either party discharges any claims for
indemnification hereunder, that party shall be segregated to all rights of the other parties
against third parties. Seller hereby agrees that he will not make any claim for indemnification
against Target by reason of the fact that he was a director, officer, employee, or agent of any
such entity or was serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or otherwise and whether
such claim is pursuant to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought by Buyer against
Seller (whether
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">such action, suit, proceeding, complaint, claim, or demand is pursuant to this Agreement,
applicable law, or otherwise).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 9. TAX MATTERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following provisions shall govern the allocation of responsibility as between Buyer and
Seller for certain tax matters following the Closing Date:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Tax Indemnification</B>. Seller shall indemnify Target, Buyer, and each Buyer Affiliate and
hold them harmless from and against without duplication, any loss, claim, liability, expense, or
other damage attributable to (i)&nbsp;all Taxes (or the non-payment thereof) of Target for all Taxable
periods ending on or before the Closing Date and the portion through the end of the Closing Date
for any Taxable period that includes (but does not end on) the Closing Date (&#147;<B><I>Pre-Closing Tax
Period</I></B>&#148;), (ii)&nbsp;all Taxes of any member of an affiliated, consolidated, combined or unitary group of
which Target (or any predecessor of Target) is or was a member on or prior to the Closing Date,
including pursuant to Treasury Regulation&nbsp;Section&nbsp;1.1502-6 or any analogous or similar state,
local, or foreign law or regulation, and (iii)&nbsp;any and all Taxes of any person (other than Target)
imposed on Target as a transferee or successor, by contract or pursuant to any law, rule, or
regulation, which Taxes relate to an event or transaction occurring before the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Responsibility for Filing Tax Returns</B>. Buyer acknowledges that the Target will no longer
be eligible for S corporation status after the Closing Date. Accordingly, a final Form&nbsp;1120S for
the Target will be required to be prepared for the period January&nbsp;1, 2007 through the end of the
Closing Date. Such income tax return will be provided by the Seller allocating income and expenses
to this period according to the closing of the books method, in accordance with Section&nbsp;1377(a)(2)
of the Code. At his expense, Seller shall prepare or caused to be prepared and file or caused to be
filed all Tax Returns for Target for periods ending on or before the Closing Date. Seller shall
permit Buyer to review and comment on each such Tax Return described in the preceding sentence
prior to filing. Buyer shall have the right to contest the contents of all such Tax Returns, and
any conflict between Seller and Buyer with respect thereto shall be resolved in accordance with the
provisions of Section&nbsp;2(e)(ii), except that the parties shall have 20&nbsp;days in which to attempt to
reach mutual agreement before referring the calculation to the Auditor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Cooperation on Tax Matters</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Buyer, Target, and Seller shall cooperate fully, as and to the extent reasonably
requested by the other Party, in connection with the filing of Tax Returns pursuant
to Section 9(c) and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other Party&#146;s request)
the provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any material
provided hereunder. Target and Seller agree (A)&nbsp;to retain all books and records with
respect to Tax matters pertinent to Target
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by Buyer or
Seller, any extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing authority, and (B)&nbsp;to
give the other Party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other Party so requests, Target or
Seller, as the case may be, shall allow the other Party to take possession of such
books and records.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Buyer and Seller further agree, upon request, to use their best efforts to
obtain any certificate or other document from any governmental authority or any
other Person as may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the transactions
contemplated hereby).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;Buyer and Seller further agree, upon request, to provide the other party with
all information that either party may be required to report pursuant to Code Section
6043 and all Treasury Regulations promulgated thereunder.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;Buyer shall not with out the prior written consent of the Seller file, or cause
to be filed, any amended Tax Return or claim for Tax Refund, with respect to the
Target for pre-Closing Tax Period, to the extent any such filing may adversely
effect the liability of the Seller, unless advised in writing that such filing is
required by law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Tax Sharing Agreements</B>. All Tax sharing agreements or similar agreements with respect to
or involving Target shall be terminated as of the Closing Date and, after the Closing Date, Target
shall not be bound thereby or have any liability thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Certain Taxes and Fees</B>. All transfer, documentary, sales, use, stamp, registration and
other such Taxes, and all conveyance fees, recording charges and other fees and charges (including
any penalties and interest) incurred in connection with consummation of the transactions
contemplated by this Agreement shall be paid by Seller when due, and Seller will, at his own
expense, file all necessary Tax Returns and other documentation with respect to all such Taxes,
fees and charges, and, if required by applicable law, Buyer will, and will cause its Affiliates to,
join in the execution of any such Tax Returns and other documentation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;</B>Section&nbsp;338(h)(10) Election.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;At Buyer&#146;s request, Target and Seller shall join with Buyer in making an
election under Sections&nbsp;338(h)(10) of the Code and the Treasury Regulations,
including Treasury Regulation&nbsp;Section&nbsp;1.338(h)(10)-1T(c)(1), and any corresponding
or similar elections under state, local or foreign Tax Law (collectively, a &#147;<B><I>Section
3</I></B><B><I>38(h)(10)</I></B><B><I> Election</I></B>&#148;) with respect to the purchase and sale of the Target Shares. In
such case, Target and Seller shall include any income, gain, loss, deduction, or
other Tax item resulting from the Section&nbsp;338(h)(10) Election on their Tax Returns
to the extent required by applicable law.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-48-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Buyer shall be responsible for the preparation and filing of all forms and
documents required in connection with the Section&nbsp;338(h)(10) Election. Seller shall
execute and deliver to Buyer such documents or forms as are reasonably requested and
are required by any law, rule or regulation to complete properly the Section
338(h)(10) Election no later than 60&nbsp;days after the Closing. For the purposes of
executing the Section&nbsp;338 Election, on or prior to the Closing Date, Seller and
Buyer will execute two copies of the applicable Internal Revenue Service form and
all attachments required to be filed therewith pursuant to applicable Treasury
Regulations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;Buyer, not less than 30&nbsp;days prior to the date the forms required under
Section&nbsp;338(h)(10) of the Code are required to be filed, will provide Seller with a
valuation statement reflecting, as of the Closing Date, the fair market values of
all of the assets and the liabilities and obligations of the Target. Buyer and
Seller will file, and will cause their Affiliates to file, all Tax Returns and
statements, forms and schedules in connection therewith in a manner consistent with
such valuation and will take no position contrary thereto unless required to do so
by applicable Tax laws.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;To the extent permitted by state and local law, the principles and procedures
of this section will also apply with respect to Section&nbsp;338(h)(10) Election or
equivalent or comparable provision under state or local law. Seller will make any
election similar to a Section&nbsp;338(h)(10) Election which is optional under any state
or local law, and will cooperate and join in any election made by Target, Buyer or
its Affiliates to effect such an election so as to treat the transaction as a sale
of assets for state and local income Tax purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 1%">&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Tax Adjustment</B>. If Buyer makes a Section&nbsp;338(h)(10) Election, and if such Section
338(h)(10) Election causes Seller&#146;s after-Tax net proceeds from the sale of Target&#146;s stock to be
less than the after-Tax net proceeds that Seller would have received had the Section&nbsp;338(h)(10)
Election not been made, taking into account all appropriate state, federal and local Tax
implications (the &#147;<B><I>Section&nbsp;</I></B><B><I>338(h)(10)</I></B><B><I> Election Liability</I></B>&#148;), then Buyer shall pay to Seller, in
cash, an aggregate amount determined pursuant to the following (the &#147;<B><I>Tax Adjustment</I></B>&#148;):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;If the aggregate amount of the Section&nbsp;338(h)(10) Election Liability is less
than or equal to $125,000, then Buyer shall pay Seller the aggregate amount of the
Section&nbsp;338(h)(10) Election Liability.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The amount of the Tax Adjustment shall be paid to Seller prior to the date that any Tax return is
required to be filed in which the Section&nbsp;338(h)(10) Election would have an impact on a Seller&#146;s
Tax liability. If a Tax impact would occur in multiple years, only the amount necessary to pay a
Tax Adjustment for each year shall be paid in that year. In order to be entitled to a Tax
Adjustment, Seller shall provide Buyer with a schedule, not later than 30&nbsp;days before the due date
of the Tax return with respect to which the Tax Adjustment is requested, computing the amount of
the Tax Adjustment. The Tax Adjustment shall reflect the actual calculation of Seller&#146;s tax and
shall not be based on assumed or hypothetical Tax rates. Buyer shall have the right to contest the
calculation of any requested Tax Adjustment, and any conflict with respect to the calculation of a
Tax Adjustment shall be resolved in accordance with the provisions
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->-49-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">of Section&nbsp;2(e)(ii), except that the parties shall have 20&nbsp;days in which to attempt to reach mutual
agreement before referring the calculation to the Auditor.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(h)&nbsp;Tax Refund. </B>Any Tax Refund pertaining to the pre-Closing Period (reduced by any Taxes
imposed on the Target as a result of </div>
<DIV align="left" style="font-size: 10pt; margin-top: 0pt">&nbsp;&nbsp;such refund) shall be for the account of, and paid over to the
Seller.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 10. TERMINATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Termination of Agreement</B>. Certain of the Parties may terminate this Agreement as provided
below:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Buyer and Seller may terminate this Agreement by mutual written consent at any
time prior to the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Buyer may terminate this Agreement by giving written notice to Seller on or
before the 25<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day following the date of this Agreement if Buyer is not
satisfied with the results of its continuing business, legal, environmental, and
accounting due diligence regarding Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iii)&nbsp;Buyer may terminate this Agreement by giving written notice to Seller at any
time prior to the Closing (A)&nbsp;in the event Seller has breached any material
representation, warranty, or covenant contained in this Agreement in any material
respect, Buyer has notified Seller of the breach, and the breach has continued
without cure for a period of 10&nbsp;days after the notice of breach or (B)&nbsp;if the
Closing shall not have occurred on or before November&nbsp;30, 2007, by reason of the
failure of any condition precedent under Section 7(a) hereof (unless the failure
results primarily from Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement); and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(iv)&nbsp;Seller may terminate this Agreement by giving written notice to Buyer at any
time prior to the Closing (A)&nbsp;in the event Buyer has breached any material
representation, warranty, or covenant contained in this Agreement in any material
respect, any Seller has notified Buyer of the breach, and the breach has continued
without cure for a period of 10&nbsp;days after the notice of breach or (B)&nbsp;if the
Closing shall not have occurred on or before November&nbsp;30, 2007, by reason of the
failure of any condition precedent under Section 7(b) hereof (unless the failure
results primarily from Seller breaching any representation, warranty, or covenant
contained in this Agreement).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Effect of Termination</B>. If any Party terminates this Agreement pursuant to Section 10(a)
above, all rights and obligations of the
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 0pt">&nbsp;&nbsp;Parties hereunder shall terminate without any Liability of
any Party to any other Party (except for any Liability of any Party
then in</div>
<DIV align="left" style="font-size: 10pt; margin-top: 0pt">&nbsp;&nbsp; breach).</div>
<P align="center" style="font-size: 10pt"><!-- Folio -->-50-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 11. MISCELLANEOUS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Press Releases and Public Announcements; Confidentiality</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;No Party shall issue any press release or make any public announcement relating
to the subject matter of this Agreement without the prior written approval of Buyer
and Seller; <U>provided</U>, <U>however</U>, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other Parties
prior to making the disclosure).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Each of the parties hereto will treat and hold as such all of the Confidential
Information of the other parties, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to such
other party or destroy, at the request and option of disclosing party, all tangible
embodiments (and all copies) of the Confidential Information which are in his, her,
or its possession. In the event that any party is requested or required pursuant to
written or oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar process
to disclose any Confidential Information, such party will notify the disclosing
party promptly of the request or requirement so that the disclosing party may seek
an appropriate protective order or waive compliance with the provisions of this
Section&nbsp;11(a)(ii). If, in the absence of a protective order or the receipt of a
waiver hereunder, any of receiving parties is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or party in a proceeding
therein or else stand liable for contempt, such party may disclose the Confidential
Information to the tribunal or such person involved in such action; provided,
however, that the disclosing party shall use his, her, or its best efforts to
obtain, at the reasonable request of the disclosing party, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the disclosing party shall
designate. The foregoing provisions shall not apply to any Confidential Information
that is generally available to the public immediately prior to the time of
disclosure unless such Confidential Information is so available due to the actions
of a party, nor shall the foregoing provisions apply to Buyer to the extent Buyer is
required to disclose such information in order to comply with its disclosure
obligations as a publicly-traded company under applicable federal securities laws
and stock exchange rules and listing standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;No Third-Party Beneficiaries</B>. This Agreement shall not confer any rights or remedies upon
any Person other than the Parties and their respective successors and permitted assigns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Entire Agreement</B>. This Agreement (including the documents referred to herein) constitutes
the entire agreement among the Parties and supersedes any prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they relate
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-51-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">in any way to the subject matter hereof, including, but not limited to that certain letter of
intent and term sheet dated as of July&nbsp;16, 2007, as amended or extended, which letter of intent and
term sheet are hereby terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Succession and Assignment</B>. This Agreement shall be binding upon and inure to the benefit
of the Parties named herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of his, her, or its rights, interests, or obligations hereunder
without the prior written approval of Buyer and Seller; <U>provided</U>, <U>however</U>, that
Buyer may (i)&nbsp;assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii)&nbsp;designate one or more of its Affiliates to perform its obligations hereunder
(in any or all of which cases Buyer nonetheless shall remain responsible for the performance of all
of its obligations hereunder).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Counterparts</B>. This Agreement may be executed in one or more counterparts (including by
means of facsimile), each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Headings</B>. The section headings contained in this Agreement are inserted for convenience
only and shall not affect in any way the meaning or interpretation of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Notices</B>. All notices, requests, demands, claims, and other communications hereunder will
be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed
duly given (i)&nbsp;when delivered personally to the recipient, (ii)&nbsp;one business day after being sent
to the recipient by reputable overnight courier service (charges prepaid), (iii)&nbsp;one business day
after being sent to the recipient by facsimile transmission or electronic mail, or (iv)&nbsp;four
business days after being mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid, and addressed to the intended recipient as set forth below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">If to Buyer:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ultralife Batteries, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2000 Technology Parkway</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Newark, NY 14513</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: General Counsel</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile: (315)&nbsp;331-7048</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">With a copy to:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Harter Secrest &#038; Emery LLP</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1600 Bausch &#038; Lomb Place</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rochester, NY 14604</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: Jeffrey H. Bowen</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile: (585)&nbsp;232-2152</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">If to Seller:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">William Maher</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">525 Tallahassee Drive</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">St. Petersburg, FL 33702</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile:<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-52-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>

</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">With a copy to:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Johnson, Pope, Bokor, Ruppel &#038; Burns, LLP</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">911 Chestnut Street</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Clearwater, FL 33756</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: Michael G. Little</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile: 727-462-0365</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Any Party may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice in the manner
herein set forth.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(h)&nbsp;Governing Law</B>. This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of New York without giving effect to any choice or conflict of law
provision or rule (whether of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;Amendments and Waivers</B>. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by Buyer and Seller. No waiver by any Party of any
provision of this Agreement or any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be valid unless the same shall be in writing and
signed by the Party making such waiver nor shall such waiver be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such default, misrepresentation, or
breach of warranty or covenant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(j)&nbsp;Severability</B>. Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or enforceability of the remaining
terms and provisions hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(k)&nbsp;Expenses</B>. Each of Buyer, Seller and Target will bear his or its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby; <U>provided</U><I>, </I><U>however</U>, that Seller shall also bear the costs and
expenses of Target (including all of their legal fees and expenses) in connection with this
Agreement and the transactions contemplated hereby in the event that the transactions contemplated
by this Agreement are consummated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(l)&nbsp;Construction</B>. The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of
proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word &#147;including&#148; shall mean including without limitation. The
Parties intend that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation, warranty, or covenant
contained herein in any respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels of specificity)
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-53-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">which the Party has not breached shall not detract from or mitigate the fact that the Party is
in breach of the first representation, warranty, or covenant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(m)&nbsp;Incorporation of Exhibits, Annexes, and Schedules</B>. The Exhibits, Annexes, and Schedules
identified in this Agreement are incorporated herein by reference and made a part hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(n)&nbsp;Specific Performance</B>. Each Party acknowledges and agrees that the other Parties would be
damaged irreparably in the event any provision of this Agreement is not performed in accordance
with its specific terms or otherwise is breached, so that a Party shall be entitled to injunctive
relief to prevent breaches of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in addition to any other remedy to which such Party may be entitled, at
law or in equity. In particular, the Parties acknowledge that the business of Target is unique and
recognize and affirm that in the event Seller breaches this Agreement, money damages would be
inadequate and Buyer would have no adequate remedy at law, so that Buyer shall have the right, in
addition to any other rights and remedies existing in its favor, to enforce its rights and the
other Parties&#146; obligations hereunder not only by action for damages but also by action for specific
performance, injunctive, and/or other equitable relief.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(o)&nbsp;Submission to Jurisdiction</B>. Each of the Parties submits to the jurisdiction of any state
or federal court having jurisdiction in Wayne County, New York, in any action or proceeding arising
out of or relating to this Agreement and agrees that all claims in respect of the action or
proceeding may be heard and determined in any such court. Each Party also agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any other court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of any other Party
with respect thereto. Each Party agrees that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(p)&nbsp;Tax Disclosure Authorization</B>. Notwithstanding anything herein to the contrary, the Parties
(and each Affiliate and Person acting on behalf of any Party) agree that each Party (and each
employee, representative, and other agent of such Party) may disclose to any and all Persons,
without limitation of any kind, the transaction&#146;s tax treatment and tax structure (as such terms
are used in Code Sections&nbsp;6011 and 6112 and regulations thereunder) contemplated by this agreement
and all materials of any kind (including opinions or other tax analyses) provided to such Party or
such Person relating to such tax treatment and tax structure, except to the extent necessary to
comply with any applicable federal or state securities laws; <U>provided</U><I>, </I><U>however</U>,
that such disclosure many not be made until the earlier of date of (A)&nbsp;public announcement of
discussions relating to the transaction, (B)&nbsp;public announcement of the transaction, or (C)
execution of an agreement to enter into the transaction. This authorization is not intended to
permit disclosure of any other information including (without limitation) (A)&nbsp;any portion of any
materials to the extent not related to the transaction&#146;s tax treatment or tax structure, (B)&nbsp;the
identities of participants or potential participants, (C)&nbsp;the existence or status of any
negotiations, (D)&nbsp;any pricing or financial information (except to the extent such pricing or
financial information is related to the transaction&#146;s tax treatment or tax structure), or (E)&nbsp;any
other term or detail not relevant to the transaction&#146;s tax treatment or the tax structure.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-54-<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">* * * * *
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the Parties hereto have executed this Stock Purchase Agreement as of the
date first above written.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="49%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><u>BUYER:</u></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ultralife Batteries, Inc.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By: /s/ John D. Kavazanjian
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">John D. Kavazanjian</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><u> SELLER:</u></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By: /s/ William Maher</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">William Maher, Individually</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><u>TARGET:</u></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stationary Power Services, Inc.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ William Maher</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">William Maher</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
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</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->-55-<!-- /Folio -->
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<DOCUMENT>
<TYPE>EX-10.49
<SEQUENCE>3
<FILENAME>l30016aexv10w49.htm
<DESCRIPTION>EX-10.49
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-10.49</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><b>Exhibit&nbsp;10.49</b>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">THE SECURITY REPRESENTED BY THIS INSTRUMENT WAS ORIGINALLY ISSUED ON NOVEMBER 16,
2007, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
TRANSFER OF SUCH SECURITY IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE STOCK
PURCHASE AGREEMENT, DATED AS OF OCTOBER 30, 2007, AS AMENDED AND MODIFIED FROM TIME
TO TIME, BY AND AMONG ULTRALIFE BATTERIES, INC. (THE &#147;<U>COMPANY</U>&#148;), WILLIAM
MAHER AND STATIONARY POWER SERVICES, INC., AND THE COMPANY RESERVES THE RIGHT TO
REFUSE THE TRANSFER OF SUCH SECURITY UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
RESPECT TO SUCH TRANSFER. UPON WRITTEN REQUEST, A COPY OF SUCH CONDITIONS SHALL BE
FURNISHED BY THE COMPANY TO THE HOLDER HEREOF WITHOUT CHARGE.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
&#147;<U>ACT</U>&#148;), AND MAY NOT BE OFFERED OR SOLD EXCEPT: (i)&nbsp;PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT (ii)&nbsp;TO THE EXTENT APPLICABLE, PURSUANT TO RULE
144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (iii)&nbsp;UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, AND AN EXEMPTION
FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>THREE-YEAR SUBORDINATED</B></U><BR>
<U><B>CONVERTIBLE PROMISSORY NOTE</B></U>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top"><B>$4,000,000</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Newark, New York</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR VALUE RECEIVED<B>, ULTRALIFE BATTERIES, INC.</B>, a Delaware corporation with offices at
2000&nbsp;Technology Parkway, Newark, New York 14513 (the &#147;<U>Company</U>&#148;<I>), </I>hereby promises to pay to
the order of <B>WILLIAM MAHER</B>, a natural person with an address of 525 Tallahassee Drive, St.
Petersburg, FL 33702 or his registered assigns <I>(</I>&#147;<U>Holder</U>&#148;<I>) </I>the principal sum of $4,000,000,
or such lesser principal amount to which this Note shall have been adjusted in accordance with the
provisions of the Stock Purchase Agreement, together with interest thereon calculated from the date
hereof, in accordance with the provisions of this Note.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Note was issued pursuant to the Stock Purchase Agreement, dated as of October&nbsp;30, 2007
(the &#147;<U>Purchase Agreement</U>&#148;), by and among the Company, Holder and Stationary Power Services,
Inc. and the applicable provisions thereof are hereby incorporated herein in full by reference. The
Purchase Agreement contains terms governing the rights of the Holder of this Note and the Holder is
entitled to the benefits thereof. All capitalized terms used herein and not otherwise defined shall
have the meanings given thereto in the Purchase Agreement.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.&nbsp;</B><B><I>Interest</I></B><I>. </I>Except as otherwise expressly provided herein, interest shall accrue on the
unpaid principal amount of this Note outstanding from the date hereof until such time as payment
thereof is actually delivered to the Holder (including after acceleration, maturity, or judgment)
at the rate of 5% per annum. All interest shall be calculated on the basis of actual days elapsed
divided by a 365&nbsp;day year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After the occurrence of Event of Default, the Holder may, upon one day&#146;s written notice but
without demand, declare all or any portion of the unpaid principal amount of this Note, any unpaid
and accrued interest thereon and any applicable late fees, to be immediately due and payable and
may otherwise take action to enforce this Note. Upon the occurrence of an Event of Default, at
Holder&#146;s option interest on the outstanding principal hereunder shall accrue at a rate per annum
from time to time equal to the rate of interest then in effect on this Note plus 5% per annum. Any
increase in the interest rate shall be in addition to the Holder&#146;s other available remedies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holder does not intend or expect to pay, nor does Company intend or expect to charge, accept
or collect any interest which shall be in excess of the highest lawful rate allowable under the
laws of the State of New York or the United States of America, whichever is lower. Should any
charges upon the earning of interest be in excess of the highest lawful rate allowable under the
laws of the State of New York or the United States of America, whichever is lower, then any and all
such excess is hereby waived and shall be applied against the remaining principal balance, if any,
and thereafter refunded to Holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.&nbsp;</B><B><I>Payments. </I></B>Interest shall be due and payable quarterly in arrears of each year that this
Note is outstanding, commencing on January&nbsp;1, 2008 and continuing on the first day of each calendar
quarter thereafter until the principal hereof shall have become due and payable, and on the
Maturity Date hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Holder has not received the full amount of any installment by the end of fifteen (15)
calendar days from the date it is due, Company shall pay a late charge to Holder. The amount of
the late charge will be five percent (5%) of the amount of the payment due. The late charge shall
be due and payable immediately but shall be paid only once on each late payment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All unpaid accrued interest and all outstanding principal shall be due and payable in full on
the third anniversary of the Closing (the &#147;<U>Maturity Date</U>&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.&nbsp;</B><B><I>Voluntary Prepayments</I></B><B>. </B>This Note may be prepaid by the Company in whole or in part at any
time after 60&nbsp;days prior written notice to Holder (during which period Holder may exercise its
conversion rights hereunder).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.&nbsp;</B><B><I>Conversion Rights</I></B><B>.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The Holder may convert the outstanding principal amount of this Note (or a portion of such
outstanding principal amount as provided in Section&nbsp;4(c)) into fully paid and nonassessable shares
of Common Stock of the Company (the &#147;<U>Conversion Shares</U>&#148;) at any time prior to the time the
outstanding principal amount of this Note is paid in full (subject to the notice periods and
conversion rights related thereto described elsewhere in this Note), at the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Conversion Price (defined below) then in effect (collectively, the &#147;<U>Conversion
Rights</U>&#148;). The initial per share conversion price (the &#147;<U>Conversion Price</U>&#148;) shall be
$15.00. The Conversion Price is subject to adjustment as provided in Section&nbsp;5.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The provisions of this Note that apply to conversion of the outstanding principal amount
of this Note also apply to a partial conversion of this Note. The Holder is not entitled to any
rights of a holder of Conversion Shares until the Holder has converted this Note (or a portion
thereof) into Conversion Shares, and only to the extent that this Note is deemed to have been
converted into Conversion Shares under this Section&nbsp;4.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;To convert all or a portion of this Note, the Holder must (a)&nbsp;complete and sign a notice
of election to convert substantially in the form of <U>Exhibit&nbsp;I</U> hereto (each, a
&#147;<U>Conversion Notice</U>&#148;), (b)&nbsp;surrender the Note to the Company, and (c)&nbsp;furnish appropriate
endorsements or transfer documents if required by the Company. The date on which the Holder
satisfies all of such requirements is the conversion date (the &#147;<U>Conversion Date</U>&#148;). As soon
as practicable, and in any event within 10 business days after the Conversion Date, the Company
will deliver, or cause to be delivered, to the Holder a certificate for the number of whole
Conversion Shares issuable upon such conversion and a check for any fractional Conversion Share
determined pursuant to Section&nbsp;4(d). The person in whose name the certificate for Conversion Shares
is to be registered shall become the stockholder of record on the Conversion Date and, as of the
Conversion Date, the rights of the Holder as to this Note shall cease as to the portion thereof so
converted; <U>provided</U>, <U>however</U>, that no surrender of a Note on any date when the
stock transfer books of the Company shall be closed shall be effective to constitute the person
entitled to receive the Conversion Shares upon such conversion as the stockholder of record of such
Conversion Shares on such date, but such surrender shall be effective to constitute the person
entitled to receive such Conversion Shares as the stockholder of record thereof for all purposes at
the close of business on the next succeeding day on which such stock transfer books are open;
provided further that such conversion shall be at the Conversion Price in effect on the date that
this Note shall have been surrendered for conversion, as if the stock transfer books of the Company
had not been closed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case of a partial conversion of this Note, upon such conversion, the Company shall
execute and deliver to the Holder, at the expense of the Company, a new Note in an aggregate
principal amount equal to the unconverted portion of the principal amount.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;No fractional Conversion Shares shall be issued upon exercise of the Conversion Rights.
Instead of any fractional Conversion Share which would otherwise be issuable upon conversion of
this Note, the Company shall calculate and pay a cash adjustment in respect of such fraction
(calculated to the nearest 1/100th of a share) in an amount equal to the same fraction of the
Conversion Price at the close of business on the Conversion Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;The issuance of certificates for Conversion Shares upon exercise of any of the Conversion
Rights shall be made without charge to the Holder for such certificates or for any tax in respect
of the issuance of such certificates, and such certificates shall be issued in the name of, or in
such names as may be directed by, the Holder; <U>provided</U>, <U>however</U>, that in the event
that certificates for Conversion Shares are to be issued in a name or names other than the name of
the Holder, such Note, when surrendered for conversion, shall be accompanied by an instrument of
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">transfer, in form satisfactory to the Company, duly executed by the Holder or his duly
authorized attorney; and provided further, moreover, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance and delivery of
any such certificates in a name or names other than that of the Holder, and the Company shall not
be required to issue or deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid or is not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;The Company shall at all times reserve and keep available, free from preemptive rights,
out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion
of this Note, the full number of Conversion Shares then issuable upon the conversion in full of
this Note. The Company hereby grants Holder piggyback registration rights as more particularly set
forth in the Purchase Agreement and the Registration Rights Agreement entered into pursuant
thereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;If the Company or an affiliate of the Company shall at any time after the date hereof and
prior to the conversion of the Note in full issue any rights to subscribe for shares of Common
Stock or any other securities of the Company or of such affiliate to all the stockholders of the
Company, the Holder of the unconverted portion of the Note shall be entitled, in addition to the
shares of Common Stock or other securities receivable upon the Conversion thereof, to receive such
rights at the time such rights are distributed to the other stockholders of the Company, to be
calculated on an as-converted basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.&nbsp;</B><B><I>Adjustments to Conversion Rights</I></B><B>.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;<I>General</I>. In order to prevent dilution of the rights granted under this Note, the
Conversion Price and the number of Conversion Shares shall be subject to adjustment from time to
time as provided in this Section&nbsp;5(a). It is the intention of the Company that the Conversion Price
shall at all times be the lower of (i)&nbsp;the Conversion Price on the date of this Note and (ii)&nbsp;the
Conversion Price determined by adjustment pursuant to the remainder of this Section&nbsp;5(a). In the
event that at any time the Common Stock of the Company shall be exchanged for, or changed into, a
different kind and/or a number of shares of stock of the Company or of another corporation by
reason of a merger, consolidation, sale of Stocks, recapitalization, reclassification, stock
dividend, stock split-up or combination of shares or otherwise, then, until any further adjustment
is required, there shall be issuable upon the conversion of the Note, in lieu of each share of
Common Stock of the Company or of any other stock theretofore issued pursuant to the provisions of
this Note, the kind and/or number of shares of stock for which each share of Common Stock of the
Company or such other stock shall be so exchanged, or into which each share of Common Stock of the
Company or such other stock shall be so changed and the Conversion Price shall be automatically
adjusted to a new Conversion Price as nearly equivalent as practicable to the adjustment in shares
of stock, if by reason of such merger, consolidation, recapitalization, reclassification or
otherwise the number of issued and outstanding shares of Common Stock of the Company shall have
been exchanged for or changed into such new shares on other than a one-to-one basis. No adjustment
in the Conversion Price shall be made for cash dividends on the shares of Common Stock of the
Company or any other stock issued upon any conversion of the Note.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;<I>Notices. </I>Immediately upon any adjustment of the Conversion Price, the Company shall give
written notice thereof to the Holder, setting forth in reasonable detail and certifying the
calculation of such adjustment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>6.&nbsp;Company Right to Compel Conversion</I></B>. Notwithstanding any other provisions of this Note, the
Company shall have the right, at the Company&#146;s sole discretion, to compel the Holder to convert the
Note at the Conversion Price at any time within five (5)&nbsp;business days after the average &#147;Value
Weighted Average Price&#148; of the Company&#146;s Common Stock, as published by The NASDAQ Stock Market, for
the trailing 30&nbsp;days exceeds $17.00 per share and subject to the provision that the Conversion
Shares are registered under the Act on a registration statement that has been declared effective by
the SEC. In such event, the Company shall provide the Holder with written notice of conversion,
setting forth the basis upon which the conditions to compel the conversion were satisfied.
Thereafter, the Note shall only represent the right to receive the Conversion Shares and any
accrued but unpaid interest. In the event the Company fails to provide the Holder with written
notice of conversion within the five (5)&nbsp;business day period set forth in the first sentence of
this Section&nbsp;6, the Company shall be deemed to have waived its right to compel conversion of this
Note at that time and shall be required to satisfy anew the conditions for a compelled conversion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>7.&nbsp;Subordination</I></B>. The Holder agrees that the payment of the principal of and the interest on
the Note is expressly subordinated to the payment of all Senior Indebtedness, to the extent and
subject to the conditions set forth in this Section&nbsp;7. As used herein, the term &#147;<U>Senior
Indebtedness</U>&#148; shall mean the principal of, the interest on and the premium, if any, on all
indebtedness of the Company for money borrowed by it from any financial institution including
banks, savings institutions or insurance companies and similar institutional lenders, and all
renewals, extensions and refundings of any such indebtedness, whether such indebtedness shall have
been incurred prior to, on, or subsequent to the date hereof, unless by the terms of the
instruments creating or evidencing any such indebtedness it is provided that such indebtedness is
not to be considered Senior Indebtedness for the purpose of this Note.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;No interest or principal shall be paid on the Note without the consent of the holders of
all outstanding Senior Indebtedness if, at the date fixed herein for such interest or principal
payment, the Company shall be in default of payment of principal or interest upon such Senior
Indebtedness. In the event any payment of interest or principal hereunder shall be prohibited
pursuant to this Section&nbsp;7(a), such payment shall be deemed to be deferred until the cure of all
defaults in payment of principal or interest upon the Senior Indebtedness, and the payments hereon
so deferred shall immediately become due and payable, with interest thereon, at the rate of 5% per
annum, upon the cure of such defaults.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;In the event of any dissolution, winding up, liquidation or reorganization of the Company,
whether in bankruptcy, insolvency or receivership proceedings, or upon an assignment for the
benefit of creditors or in any other marshalling of the Stocks and liabilities of the Company the
holders of all Senior Indebtedness shall first be entitled to receive payment in full of such
Senior Indebtedness before the Holder shall be entitled to receive any payment upon the principal
of, the interest on, or the premium, if any, on the indebtedness evidenced by the Note. Upon any
such dissolution, winding up, liquidation or reorganization, any payment or distribution of Stocks
of the Company of any kind or character, whether in cash, property or
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">securities, to which the Holder would be entitled, except for the provisions of this
Section&nbsp;7, shall be made by the liquidating trustee or agent or such person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
directly to the Holders of the Senior Indebtedness or their representatives or to the trustee or
trustees under any indenture or indentures under which any instruments evidencing any such Senior
Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held or represented by each, to the extent necessary to pay in
full all such Senior Indebtedness remaining unpaid, after giving effect to all concurrent payments
or distributions with respect to such Senior Indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;In the event that, notwithstanding the provisions of Section&nbsp;7(b), upon any such
dissolution, or winding up, liquidation or reorganization, any payment or distribution of Stocks of
the Company of any kind or character, whether in cash, property or securities, shall be received by
the Holder before all Senior Indebtedness is paid in full, such payment or distribution shall be
paid over to the holders of such Senior Indebtedness or their representatives or to the trustee or
trustees under any indenture or indentures referred to in Section&nbsp;8(b), ratably as aforesaid, for
the application to the payment of all Senior Indebtedness remaining unpaid until all such Senior
Indebtedness shall have been paid in full, after giving effect to any concurrent payment or
distribution with respect to such Senior Indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Subject to the payment in full of all Senior Indebtedness, the Holder to the extent
permitted by law, shall be subrogated to the rights of each holder of Senior Indebtedness (to the
extent of the payments or distributions made to such holder pursuant to the provisions of Sections
7(b) and 7(c)) to receive payments or distributions of Stocks of the Company applicable to the
Senior Indebtedness until the principal of, the interest on, and the premium, if any, on this Note
shall be paid in full, and each holder of Senior Indebtedness by accepting such payments or
distributions shall be deemed to have agreed to said subrogation. No payments or distributions to
the Senior Indebtedness pursuant to the provisions of Sections 7(b) and 7(c) shall, as between the
Company, its creditors, other than the holders of the Senior Indebtedness, and the Holder, be
deemed to be a payment by the Company to or on account of the Note, the provisions of this Section
7 being, and being intended, solely for the purpose of defining the relative rights of the Holder,
on the one hand, and the holders of the Senior Indebtedness, on the other hand; and nothing
contained in this Section&nbsp;7 or elsewhere in this Note is intended to or shall impair, as between
the Company, the Holder and the other creditors of the Company, other than the holders of Senior
Indebtedness, the obligations of the Company, which is unconditional and absolute, to pay to the
Holder as and when the same shall become due and payable in accordance with the terms herein, or to
affect the relative rights of the Holder and the other creditors of the Company, other than the
holders of Senior Indebtedness, or to prevent the Holder from exercising all of the remedies
otherwise permitted by applicable law upon default as provided for herein, subject to the rights,
if any, under this Section&nbsp;7 of the holders of the Senior Indebtedness in respect of any cash,
property or securities of the Company received upon the exercise of any such remedy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;In the event that this Note shall be declared due and payable before the Maturity Date
because of the occurrence of a default hereunder, the Company will give prompt notice in writing of
such happening to the holders of the Senior Indebtedness, and any and all Senior Indebtedness shall
forthwith become immediately due and payable upon demand by the respective holders thereof
regardless of the express maturity dates thereof.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.&nbsp;</B><B><I>Events of Default. </I></B>In the event that there shall be any Event of Default hereunder (other
than subsections (a)(1) and (a)(2))and such Event of Default shall remain uncorrected or unremedied
for a period of more than 30&nbsp;days after the Holder shall have given the Company notice received
notice of such Event of Default, then the full unpaid principal amount of the Note, together with
any accrued but unpaid interest, may, at the option of the Holder, become immediately due and
payable without further notice by the Holder. An Event of Default described in subsections (a)(1)
and (a)(2) shall be deemed to occur fifteen (15)&nbsp;days after the due date of such installment of
interest or principal is due and payable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&#147;<U>Event of Default</U>&#148; as used in this Section&nbsp;8 shall mean and refer to any of the
following:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) The failure of the Company to pay any installment of interest or principal on the
Note when and as the same shall become due and payable, whether at maturity, by call for
redemption, by declaration or otherwise;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) The failure of the Company, to pay any installment of interest or principal on
Senior Indebtedness when and as the same shall become due and payable, unless such payment
shall have been deferred or waived by the terms of the instruments evidencing such Senior
Indebtedness or by the holder thereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) The breach of any representation or warranty of the Company or the failure of the
Company to observe and perform all of the covenants and agreements on the part of the
Company contained herein or in the Stock Purchase Agreement;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) The failure of any representation or warranty made by the Company in the Stock
Purchase Agreement to be truthful, accurate or correct;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) The adjudication of the Company as a bankrupt by a court of competent jurisdiction
or the entry by a court of competent jurisdiction of an order approving a petition seeking
reorganization of the Company under the federal bankruptcy laws or any other applicable law
or statute of the United States of America or any state thereof or any other jurisdiction;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) The appointment by a court of competent jurisdiction of a trustee or receiver or
receivers of the Company of all or any substantial part of its property upon the application
of any creditor in any insolvency or bankruptcy proceeding or other creditor suit, unless
such appointment or decree or order shall be stayed upon appeal or otherwise;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) The filing by the Company of a petition involuntary bankruptcy or the making by
the Company of an assignment for the benefit of its creditors or the consenting by the
Company to the appointment of a receiver or receivers for all or any substantial portion of
the property of the Company;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) The filing by the Company of a petition or answer seeking reorganization under
the federal bankruptcy laws or any other applicable law or statute of the United States of
America or any state thereof or jurisdiction, or the filing by the Company of a petition to
take advantage of any debtor&#146;s act.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Upon the occurrence of an Event of Default which shall remain uncorrected or unremedied
for a period of more than 30&nbsp;days after notice has been given to the Company from the Holder, the
Holder shall at all times have the right to institute any suit, action or proceeding, in equity or
at law, for the enforcement of rights as provided for herein, or in aid of the exercise of any
right or power granted herein. The remedies of the Holder, as provided herein shall be cumulative
and concurrent, and may be pursued singularly, successively or together, at the sole discretion of
the Holder, and may be exercised as often as occasion therefor shall arise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The Note shall be the obligation of the Company solely and there shall be no recourse had
for the payment thereof or interest thereon against any stockholder, officer or director of the
Company, either directly or through the Company, by reason of any matter prior to the delivery of
the Note, or against any present or future officer or director of the Company, all such liability
being expressly released by the Holder and by any subsequent holders hereof by the acceptance
hereof and as part of the consideration for the issuance thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Holder shall also have any other rights which the Holder may have been afforded under any
contract or agreement at any time and any other rights which such holder may have pursuant to
applicable law. The Company hereby waives diligence, presentment and protest and expressly agrees
that this Note, or any payment hereunder, may be extended from time to time and that the Holder may
accept security for this Note or release security for this Note, all without in any way affecting
the liability of the Company hereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.&nbsp;</B><B><I>Amendment and Waiver. </I></B>Except as otherwise expressly provided herein, the provisions of this
Note may be amended and the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, only if the Company has obtained the written consent of
the Holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.&nbsp;</B><B><I>Cancellation. </I></B>After all principal and accrued interest at any time owed on this Note has
been paid in full, this Note shall be surrendered to the Company for cancellation and shall not be
reissued.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.&nbsp;</B><B><I>Payments. </I></B>Unless otherwise expressly provided herein, all payments to be made to the
Holders shall be made in the lawful money of the United States of America in immediately available
funds which shall be delivered to the address designated by the Holder. Time is of the essence
with respect to the terms, covenants and conditions contained herein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>12.&nbsp;</B><B><I>Transfer of Note. </I></B>This Note may be transferred only in accordance with the terms of the
Stock Purchase Agreement, and the Company shall treat the Person to whom this Note is assigned in
accordance therewith for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>13</B><B><I>.&nbsp;Business Days</I></B><I>. </I>If any payment is due, or any time period for giving notice or taking
action expires, on a day which is a Saturday, Sunday or legal holiday in the State of New York, the
payment shall be due and payable on, and the time period shall automatically be extended to, the
next business day immediately following such Saturday, Sunday or legal holiday, and interest shall
continue to accrue at the required rate hereunder until any such payment is made.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>14</B><B><I>.&nbsp;Right of Offset. </I></B>This Note is subject to the Buyer&#146;s rights of offset pursuant to the
provisions of Section 2(e) and Section 8(f) of the Purchase Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.&nbsp;</B><B><I>Notices</I></B><I>. </I>All notices, demands or other communications to be given or delivered under or by
reason of the provisions of this Note shall be given in accordance with the Purchase Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>16.&nbsp;</B><B><I>New York Law. </I></B>This Note is intended to be performed in the State of New York and shall be
construed and enforced in accordance with the laws of such State.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>17.&nbsp;</B><B><I>Taxes</I></B>. Company shall pay all filing fees, recording costs, documentary stamp taxes,
intangible or other similar taxes incurred in connection with this Note or security given for its
performance. Company further agrees to pay all costs of collection, including reasonable
attorneys&#146; fees and litigation costs in case that sums due hereunder are not paid promptly when
due, whether suit is brought or not.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&#091;SIGNATURE PAGE FOLLOWS&#093;
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the Company has executed and delivered this Note on November&nbsp;16, 2007.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">ULTRALIFE BATTERIES, INC.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Robert W. Fishback
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Robert W. Fishback&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Vice President of Finance and<br>
Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">EXHIBIT I<BR>
FORM OF CONVERSION NOTICE
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby irrevocably elects to exercise its right, pursuant to the Subordinated
Convertible Promissory Note dated November <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 2007 (the &#147;<B><I>Note</I></B>&#148;) of Ultralife Batteries, Inc. (the
&#147;<B><I>Company</I></B>&#148;) in the outstanding principal amount of $4,000,000, which Note is tendered herewith, to
convert $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>of  the amount outstanding under the Note to<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
shares of the
common stock of the Company (the &#147;<B><I>Shares</I></B>&#148;), all in accordance with the terms of the Note. The
undersigned requests that a Certificate for such Shares be registered in the name of
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, whose address is <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, and that such Certificate be delivered to
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, whose address is<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, &#091;and that a replacement Note in the principal
amount of $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, representing the balance of the principal amount outstanding thereunder
after giving effect to this conversion, be issued in the amount of $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> and delivered to
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;</U>, whose address is<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>&#093;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Dated:<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Signature: <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(Signature must conform in all respects to name of holder as specified on the face of the Note.)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
(Insert Taxpayer Identification, Social Security or<BR>
Other Identifying Number of Holder)

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>



</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.50
<SEQUENCE>4
<FILENAME>l30016aexv10w50.htm
<DESCRIPTION>EX-10.50
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-10.50</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.50</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">STOCK PURCHASE AGREEMENT
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">AMONG
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">AND
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">RESERVE POWER SYSTEMS, INC.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">AND
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">WILLIAM MAHER AND EDWARD BELLAMY
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">OCTOBER 30, 2007
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Section</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Page</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 1. DEFINITIONS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 2. PURCHASE AND SALE OF TARGET SHARES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Basic Transaction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Purchase Price; Payment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Closing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Deliveries at Closing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Sellers&#146; Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Buyer&#146;s Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 4</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Organization, Qualification, and Corporate Power</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Capitalization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Non-contravention</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Brokers&#146; Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Title to Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(f)&nbsp;Subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(g)&nbsp;Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(h)&nbsp;Events Subsequent to Most Recent Fiscal Year End</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(i)&nbsp;Undisclosed Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(j)&nbsp;Legal Compliance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(k)&nbsp;Tax Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(l)&nbsp;Real Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(m)&nbsp;Intellectual Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(n)&nbsp;Tangible Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(o)&nbsp;Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(p)&nbsp;Contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(q)&nbsp;Notes and Accounts Receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(r)&nbsp;Powers of Attorney</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(s)&nbsp;Insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(t)&nbsp;Litigation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(u)&nbsp;Product Warranty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(v)&nbsp;Product Liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(w)&nbsp;Employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(x)&nbsp;Employee Benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(y)&nbsp;Guaranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(z)&nbsp;Environmental, Health, and Safety Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(aa)&nbsp;Certain Business Relationships with Target</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(bb)&nbsp;Customers and Suppliers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(cc)&nbsp;Disclosure</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;General</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Notices and Consents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-i-<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Section</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Page</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Operation of Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Preservation of Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Full Access</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(f)&nbsp;Notice of Developments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(g)&nbsp;Exclusivity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(h) &#091;INTENTIONALLY OMITTED&#093;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(i)&nbsp;Leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(j)&nbsp;Tax Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(k)&nbsp;S Corporation Status</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(l)&nbsp;Employee Benefits and Welfare Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 6</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;General</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Litigation Support</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Transition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Confidentiality</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Release of Target by Sellers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 7</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Conditions to Buyer&#146;s Obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Conditions to Sellers&#146; Obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 8</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Survival of Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Indemnification Provisions for Buyer&#146;s Benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Indemnification Provisions for Sellers&#146; Benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Matters Involving Third Parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Determination of Adverse Consequences</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(f)&nbsp;Setoff against Holdback Amounts; Priority</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(g)&nbsp;Other Indemnification Provisions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 9</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Tax Indemnification</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Cooperation on Tax Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Tax Sharing Agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Certain Taxes and Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Section&nbsp;338(h)(10) Election</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(f)&nbsp;Tax Adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(g)&nbsp;Tax Refund</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 10</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Termination of Agreement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;Effect of Termination</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 11</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(a)&nbsp;Press Releases and Public Announcements; Confidentiality</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(b)&nbsp;No Third-Party Beneficiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(c)&nbsp;Entire Agreement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(d)&nbsp;Succession and Assignment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(e)&nbsp;Counterparts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(f)&nbsp;Headings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(g)&nbsp;Notices</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-ii-<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Section</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Page</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(h)&nbsp;Governing Law</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(i)&nbsp;Amendments and Waivers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(j)&nbsp;Severability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(k)&nbsp;Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(l)&nbsp;Construction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(m)&nbsp;Incorporation of Exhibits, Annexes, and Schedules</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(n)&nbsp;Specific Performance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(o)&nbsp;Submission to Jurisdiction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(p)&nbsp;Tax Disclosure Authorization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Attachments to Stock Purchase Agreement</U>

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Annex I: Exceptions to Seller&#146;s Representations and Warranties</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Annex II: Exceptions to Buyer&#146;s Representations and Warranties</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosure Schedule for Target</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;A: Form of Registration Rights Agreement</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;B: Financial Statements of Target</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;C: Form of Post-Closing Agreement</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-iii-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>STOCK PURCHASE AGREEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Stock Purchase Agreement (this &#147;<B><I>Agreement</I></B>&#148;) is entered into as of October&nbsp;30, 2007, by
and among Ultralife Batteries, Inc., a Delaware corporation (&#147;<B><I>Buyer</I></B>&#148;), Reserve Power Systems, Inc.,
a Florida corporation (&#147;<B><I>Target</I></B>&#148;), and William Maher and Edward Bellamy (&#147;<B><I>Sellers</I></B>&#148;). Buyer, Target
and Sellers are referred to collectively herein as the &#147;Parties.&#148;
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>RECITALS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;Sellers own all of the outstanding capital stock of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;This Agreement contemplates a transaction in which Buyer will purchase from Sellers, and
Sellers will sell to Buyer, all of the outstanding capital stock of Target in return for certain
consideration described below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in
consideration of the representations, warranties, and covenants herein contained, the Parties agree
as follows.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 1. DEFINITIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Adverse Consequences</I>&#148; means all actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens,
actual losses, expenses, and fees, including court costs and attorneys&#146; fees and expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Affiliate</I>&#148; means a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person specified.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Affiliated Group</I>&#148; means any affiliated group within the meaning of Code Section 1504(a) or
any similar group defined under a similar provision of state, local or foreign law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Basis</I>&#148; means any past or present fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Buyer</I>&#148; has the meaning set forth in the preface above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Closing</I>&#148; has the meaning set forth in Section 2(c) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Closing Date</I>&#148; has the meaning set forth in Section 2(c) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>COBRA</I>&#148; means the requirements of Part&nbsp;6 of Subtitle B of Title I of ERISA and Code Section
4980B and of any similar state law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Code</I>&#148; means the Internal Revenue Code of 1986, as amended.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->1<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Confidential Information</I>&#148; means any information concerning the businesses and affairs of the
Target, Seller or Buyer, as the context requires, that is not already generally available to the
public.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Disclosure Schedule</I>&#148; has the meaning set forth in Section&nbsp;4 below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employee Benefit Plan</I>&#148; has the meaning set forth in Section 4(x) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employee Pension Benefit Plan</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(2).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employee Welfare Benefit Plan</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(1).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employment Agreement</I>&#148; means the form of employment agreement attached as <U>Exhibit&nbsp;C</U> to
this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Encumbrance Documents</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Environmental, Health, and Safety Requirements</I>&#148; shall mean all federal, state, local, and
foreign statutes, regulations, ordinances, and other provisions having the force or effect of law,
all judicial and administrative orders and determinations, all contractual obligations, and all
common law concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including, without limitation, all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage, disposal, distribution,
labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any
hazardous materials, substances, or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, or radiation, each as amended and as now or hereafter in effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>ERISA</I>&#148; means the Employee Retirement Income Security Act of 1974, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>ERISA Affiliate</I>&#148; means any Person that is a member of a &#147;controlled group of corporations&#148;
with, or is under &#147;common control&#148; with, or is a member of the same &#147;affiliated service group&#148; with
Target, as defined in Section&nbsp;414 of the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Estoppel Certificates</I>&#148; has the meaning set forth in Section 7(a) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Fiduciary</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(21).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Financial Statements</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>GAAP</I>&#148; means United States generally accepted accounting principles as in effect from time to
time, consistently applied.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Holdback Amount</I>&#148; has the meaning set forth in Section (b)(ii) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Improvements</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Indemnified Party</I>&#148; has the meaning set forth in Section 8(d) below.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Indemnifying Party</I>&#148; has the meaning set forth in Section 8(d) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Intellectual Property</I>&#148; means all of the following in any jurisdiction throughout the world:
(a)&nbsp;all inventions (whether patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent disclosures, together with
all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b)&nbsp;all trademarks, service marks, trade dress, logos, slogans, trade names, corporate
names, Internet domain names, and rights in telephone numbers, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill associated therewith,
and all applications, registrations, and renewals in connection therewith, (c)&nbsp;all copyrightable
works, all copyrights, and all applications, registrations, and renewals in connection therewith,
(d)&nbsp;all mask works and all applications, registrations, and renewals in connection therewith, (e)
all trade secrets and confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing and cost information,
and business and marketing plans and proposals), (f)&nbsp;all computer software (including source code,
executable code, data, databases, and related documentation), (g)&nbsp;all advertising and promotional
materials, (h)&nbsp;all other proprietary rights, and (i)&nbsp;all copies and tangible embodiments thereof
(in whatever form or medium).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Knowledge</I>&#148; means actual knowledge after reasonable investigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Lease Consents</I>&#148; has the meaning set forth in Section 7(a) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Leased Real Property</I>&#148; means all leasehold or subleasehold estates and other rights to use or
occupy any land, buildings, structures, improvements, fixtures, or other interest in real property
held by Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Leases</I>&#148; means all leases, subleases, licenses, concessions and other agreements (written or
oral), including all amendments, extensions, renewals, guaranties, and other agreements with
respect thereto, pursuant to which Target holds any Leased Real Property, including the right to
all security deposits and other amounts and instruments deposited by or on behalf of Target
thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Liability</I>&#148; means any liability or obligation of whatever kind or nature (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any
liability for Taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Lien</I>&#148; means any mortgage, pledge, lien, encumbrance, charge, or other security interest,
other than (a)&nbsp;liens for Taxes not yet due and payable and (b)&nbsp;other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Material Adverse Effect</I>&#148; or &#147;<I>Material Adverse Change</I>&#148; means any effect or change that would
be materially adverse to the business, assets, condition (financial or otherwise), operating
results, operations, or business prospects of Target, taken as a whole, or on the ability of Seller
to consummate timely the transactions contemplated hereby (regardless of whether or not such
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">adverse effect or change can be or has been cured at any time or whether Buyer has knowledge
of such effect or change on the date hereof).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Measuring Periods</I>&#148; means the following periods of time: (i)&nbsp;the period commencing on the
Closing Date and ending on December&nbsp;31, 2007; (ii)&nbsp;the period commencing on January&nbsp;1, 2008 and
ending on December&nbsp;31, 2008; (iii)&nbsp;the period commencing on January&nbsp;1, 2009 and ending on December
31, 2009; and (iv)&nbsp;the period commencing on January&nbsp;1, 2010 and ending on December&nbsp;31, 2010. Each
of such Measuring Periods may be referred to individually as a &#147;<I>Measuring Period</I>.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Balance Sheet</I>&#148; means the balance sheet contained within the Most Recent Financial
Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Financial Statements</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Fiscal Month End</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Fiscal Year End</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Multiemployer Plan</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(37).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Non-Disturbance Agreements</I>&#148; has the meaning set forth in Section 7(a) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Ordinary Course of Business</I>&#148; means the ordinary course of business consistent with past
custom and practice (including with respect to quantity and frequency).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Party</I>&#148; has the meaning set forth in the preface above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Permitted Encumbrances</I>&#148; means with respect to each parcel of Real Property: (a)&nbsp;real estate
taxes, assessments and other governmental levies, fees, or charges imposed with respect to such
Real Property that are (i)&nbsp;not due and payable as of the Closing Date or (ii)&nbsp;that are being
contested in good faith and for which appropriate reserves have been established in accordance with
GAAP; (b)&nbsp;mechanics&#146; liens and similar liens for labor, materials, or supplies provided with
respect to such Real Property incurred in the Ordinary Course of Business for amounts that are (i)
not due and payable as of the Closing Date or (ii)&nbsp;being contested in good faith and for which
appropriate reserves have been established in accordance with GAAP; (c)&nbsp;zoning, building codes and
other land use laws regulating the use or occupancy of such Real Property or the activities
conducted thereon which are imposed by any governmental authority having jurisdiction over such
Real Property and are not violated by the current use or occupancy of such Real Property or the
operation of Target&#146;s business as currently conducted thereon; and (d)&nbsp;easements, covenants,
conditions, restrictions, and other similar matters of record affecting title to such Real Property
which do not or would not impair the use or occupancy of such Real Property in the operation of
Target&#146;s business as currently conducted thereon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Person</I>&#148; means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization, any
other business entity, or a governmental entity (or any department, agency, or political
subdivision thereof).
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Plan Amount</I>&#148; has the meaning set forth in Section&nbsp;2(b)(ii) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Post Closing Agreement</I>&#148; means the form of confidentiality, non-solicitation, non-compete and
non-disparagement agreement attached as <U>Exhibit&nbsp;C</U> to this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Prohibited Transaction</I>&#148; has the meaning set forth in ERISA Section&nbsp;406 and Code Section&nbsp;4975.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Purchase Price</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Real Property</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Real Property Laws</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Registrable Securities</I>&#148; means those Ultralife Shares issued to Sellers pursuant to Section
2(b)(i).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Registration Rights Agreement</I>&#148; means the form of Registration Rights Agreement attached as
<U>Exhibit&nbsp;A</U> to this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Reportable Event</I>&#148; has the meaning set forth in ERISA Section&nbsp;4043.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Sales</I>&#148; means revenues from sales of lead-acid batteries and associated hardware, determined
in accordance with GAAP, that are achieved by Target in the ordinary course of business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Securities Act</I>&#148; means the Securities Act of 1933, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Securities Exchange Act</I>&#148; means the Securities Exchange Act of 1934, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Sellers</I>&#148; has the meaning set forth in the preface above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Subsidiary</I>&#148; means, with respect to any Person, any corporation, limited liability company,
partnership, association, or other business entity of which (i)&nbsp;if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii)&nbsp;if a limited liability company,
partnership, association, or other business entity (other than a corporation), a majority of
partnership or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination
thereof and for this purpose, a Person or Persons own a majority ownership interest in such a
business entity (other than a corporation) if such Person or Persons shall be allocated a majority
of such business entity&#146;s gains or losses or shall be or control any managing director or general
partner of such business entity (other than a corporation). The term &#147;Subsidiary&#148; shall include all
Subsidiaries of such Subsidiary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Target</I>&#148; has the meaning set forth in the preface above.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Target Share</I>&#148; means any share of the common stock, par value $0.01 per share, of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Tax</I>&#148; or &#147;<I>Taxes</I>&#148; means any federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section&nbsp;59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or
succeed to the Tax liability of any other Person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Tax Return</I>&#148; means any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Third Party Claim</I>&#148; has the meaning set forth in Section 8(d) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Treasury Regulations</I>&#148; means the Treasury Regulations promulgated under the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Ultralife Shares</I>&#148; means shares of common stock, par value $0.10 per share, of Ultralife
Batteries, Inc.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 2. PURCHASE AND SALE OF TARGET SHARES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Basic Transaction</B>. On and subject to the terms and conditions of this Agreement, Buyer
agrees to purchase from Sellers, and Sellers agree to sell to Buyer, all of their Target Shares for
the consideration specified below in this Section&nbsp;2.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Purchase Price; Payment</B>. The aggregate consideration for the Target Shares shall consist
of (i)&nbsp;a percentage payment calculated as a percentage of Target&#146;s Sales, as described in
sub-section (ii)&nbsp;below; and (ii)&nbsp;a grant of Ultralife Shares as described in subsection (i)&nbsp;below
(together, the &#147;<B><I>Purchase Price</I></B>&#148;). On the terms and subject to the conditions set forth herein,
Buyer shall pay the Purchase Price to Sellers as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;At Closing, Buyer shall deliver to each Seller a certificate representing 50,000 Ultralife
Shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Following the Closing, if Target achieves certain Sales targets during the Measuring
Periods, then Buyer shall deliver payments to Sellers as follows (the &#147;<B><I>Holdback Amount</I></B>&#148;):
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) Buyer shall deliver the Holdback Amount to Sellers, calculated at the rate of 5% of
Target&#146;s Sales, up to the operating plan amount set by Buyer in consultation with Sellers
(&#147;<B><I>Plan Amount</I></B>&#148;) for the remainder of the calendar year following the Closing and for each of
the subsequent three calendar years.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) Buyer shall deliver the Holdback Amount to Sellers, calculated at the rate of 10%
of the amount by which Target&#146;s Sales exceed the Plan Amount for any of the following
calendar years: 2008, 2009 and 2010.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) The following illustrates how the Holdback Amounts are earned. If the Plan Amount
is set at $5,000,000 for calendar year 2008 and Sales for 2008 are $6,000,000, the Holdback
Amount for 2008 would be calculated on 5% of $5,000,000, plus 10% on $1,000,000 for a total
of $350,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) Any payments of Holdback Amounts due from Buyer to Sellers hereunder shall be made
by wire transfer of immediately available funds to such account or accounts as designated by
Sellers within 60&nbsp;days of the conclusion of the applicable Measuring Period, so long as no
Seller has violated any terms of this Agreement or the Post-Closing Agreement. Buyer shall
distribute any Holdback Amounts paid pursuant to this Section equally to each Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) The following items shall be excluded from Sales for the purpose of calculating the
Holdback Amount pursuant to this Section: (i)&nbsp;Sales made to Buyer or its Subsidiaries
unless Buyer or any Buyer Subsidiary resells the products underlying such Sales to Target
customers in which event the Sales by Buyer or any Buyer Subsidiary shall be included in
Sales for purposes of calculating the Holdback Amount pursuant to this Section but shall
<U><B>not</B></U> be included in sales for Stationary Power Systems, Inc. (&#147;SPS&#148;) for purposes of
Section 2(b) of that certain Stock Purchase Agreement dated of even date herewith with
respect to Buyer&#146;s acquisition of SPS, and (ii)&nbsp;any Sale where the gross margin of such Sale
is under 15% unless the average gross margin for all RPS Sales for that year equals or
exceeds the lesser of the gross margin set forth in the applicable operating plan or 25%,
unless otherwise agreed to by Buyer in its sole discretion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Closing</B>. The closing of the transactions contemplated by this Agreement (the &#147;<B><I>Closing</I></B>&#148;)
shall take place at the offices of Harter Secrest &#038; Emery LLP, in Rochester, New York, commencing
at 10:00&nbsp;a.m. local time on the second business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take at the Closing
itself) or such other date as Buyer and Sellers may mutually determine (the &#147;<B><I>Closing Date</I></B>&#148;);
<U>provided</U>, <U>however</U>, that the Closing Date shall be no later than November&nbsp;30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Deliveries at Closing</B>. At the Closing, (i)&nbsp;Sellers will deliver to Buyer the various
certificates, instruments, and documents referred to in Section 7(a) below, (ii)&nbsp;Buyer will deliver
to Sellers the various certificates, instruments, and documents referred to in Section 7(b) below,
(iii)&nbsp;Sellers will deliver to Buyer stock certificates representing all of their Target Shares,
endorsed in blank or accompanied by duly executed assignment documents, and (iv)&nbsp;Buyer will deliver
to Sellers the consideration specified in Section 2(b) above.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 3. TRANSACTION REPRESENTATIONS AND WARRANTIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Sellers&#146; Representations and Warranties</B>. Each Seller represents and warrants to Buyer,
severally and not jointly, that the statements contained in this Section 3(a) are correct and
complete as of the date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the date of this Agreement
throughout this Section&nbsp;3(a)) with respect to himself, except as set forth in Annex I attached
hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <I>Authorization of Transaction</I>. Seller has full power and authority to execute and deliver
this Agreement and to perform his obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of Seller, enforceable in accordance with its terms and conditions.
Seller need not give any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the transactions
contemplated by this Agreement. The execution, delivery, and performance of this Agreement and all
other agreements contemplated hereby have been duly authorized by Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) <I>Non-contravention</I>. Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A)&nbsp;violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Seller is subject, (B)&nbsp;conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which Seller is a party or by which
he is bound or to which any of his assets is subject, or (C)&nbsp;result in the imposition or creation
of a Lien upon or with respect to the Target Shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) <I>Brokers&#146; Fees</I>. Seller has no Liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) <I>Target Shares</I>. Seller holds of record and owns beneficially the number of Target Shares
set forth next to his name in Section 4(b) of the Disclosure Schedule, which constitute all of the
issued and outstanding Target Shares, free and clear of any restrictions on transfer (other than
any restrictions under the Securities Act and state securities laws), Taxes, Liens, options,
warrants, purchase rights, contracts, commitments, equities, claims, and demands. Seller is not a
party to any option, warrant, purchase right, or other contract or commitment that could require
Seller to sell, transfer, or otherwise dispose of any capital stock of Target (other than this
Agreement). Seller is not a party to any voting trust, proxy, or other agreement or understanding
with respect to the voting of any capital stock of Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) <I>Investment Representations for Ultralife Shares</I>. Seller acknowledges that any Ultralife
Shares acquired by Seller pursuant to this Agreement shall be acquired by Seller for his own
account, for investment purposes only, and not with a view to or for distributing or reselling such
securities or any part thereof or interest therein. Seller, either alone or together with his
representatives, has such knowledge, sophistication and experience in business and
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">financial matters so as to be capable of evaluating the merits and risks of any investment by
him in Ultralife Shares, and has so evaluated the merits and risks of any such investment to his
satisfaction. As of the Closing Date, Seller shall be able to bear the economic risk of an
investment in the Ultralife Shares offered pursuant to this Agreement and shall be able to afford a
complete loss of any such investment. Seller acknowledges that at the time Seller was offered the
Ultralife Shares pursuant to this Agreement, Seller was and, at the date hereof, Seller is, and at
the Closing Date Seller will be, an &#147;accredited investor&#148; as defined in Rule&nbsp;501 under the
Securities Act. Seller acknowledges that he has been afforded: (A)&nbsp;the opportunity to ask such
questions as he has deemed necessary of, and to receive answers from, representatives of Buyer
concerning the terms and conditions of the offer and sale of any Ultralife Shares offered pursuant
to this Agreement, and the merits and risks of investing in such securities; (B)&nbsp;access to
information about Buyer and Buyer&#146;s financial condition, results of operations, business,
properties, management and prospects sufficient to enable Seller to evaluate his investment; and
(C)&nbsp;the opportunity to obtain such additional information that Buyer possesses or can acquire
without unreasonable effort or expense that is reasonably necessary to permit Seller to make an
informed investment decision with respect to any Ultralife Shares to be acquired by Seller pursuant
to this Agreement. Seller understands and acknowledges that any Ultralife Shares acquired by Seller
pursuant to this Agreement were offered and acquired by him without registration under the
Securities Act in a private transaction pursuant to the exemption from registration under Section&nbsp;5
of the Securities Act provided by Section&nbsp;4(2) of the Securities Act and that such securities are
and shall be &#147;restricted securities&#148; as defined in Rule&nbsp;144 under the Securities Act and thus such
securities shall not be freely transferable by Seller. Seller understands and acknowledges that
except as set forth in Section&nbsp;3(a)(vi) below, Buyer is not providing Seller with any registration
rights in connection with any Ultralife Shares offered pursuant to this Agreement. Seller
understands and acknowledges that Buyer shall rely on the accuracy and truthfulness of Seller&#146;s
representations herein in order to avail of the exemption from registration under Section&nbsp;5 of the
Securities Act provided by Section&nbsp;4(2) of the Securities Act.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) <I>Registration Rights. </I>Buyer hereby grants Sellers piggyback registration rights as they
relate to any future Registration Statement and covenants to include, to the extent legally
permissible and subject to any limitations imposed by the underwriter or placement agent, if
applicable, Registrable Securities in such Registration Statement. If at any time prior to the
removal of restrictive legends pursuant to Rule&nbsp;144(k)(a), Buyer proposes to register shares of
Common Stock under the Securities Act other than on Forms S-8, S-4 or any successor forms in
connection with a public offering of such shares for cash (a &#147;<B><I>Proposed Registration</I></B>&#148;) and (b)&nbsp;a
Registration Statement covering the resale of all of the Registrable Securities has not been
effective and available for sale thereof by Sellers, Buyer shall at such time promptly give Sellers
written notice of such Proposed Registration. Buyer shall use its best efforts to cause such
Registration Statement to cover the resale of the Registrable Securities, which have not otherwise
been registered or covered under a current effective Registration Statement, which Registration
Statement shall state that in accordance with Rule&nbsp;416 promulgated under the Securities Act, such
Registration Statement also covers such indeterminate number of additional shares of Common Stock
as may become issuable upon stock splits, stock dividends or similar transactions. The Seller and
the Buyer shall enter into a separate Registration Rights Agreement, in substantially the form
attached hereto as <U>Exhibit&nbsp;A</U>, consistent with the provisions of this
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Section&nbsp;3(a)(vi), which Registration Rights Agreement shall contain customary representations
and warranties and provisions regarding indemnification and contribution.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Buyer&#146;s Representations and Warranties</B>. Buyer represents and warrants to Sellers that the
statements contained in this Section 3(b) are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this Section&nbsp;3(b)), except
as set forth in Annex II attached hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <I>Organization of Buyer</I>. Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) <I>Authorization of Transaction</I>. Buyer has full power and authority (including full
corporate or other entity power and authority) to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of
Buyer, enforceable in accordance with its terms and conditions. Buyer need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this Agreement. The
execution, delivery, and performance of this Agreement and all other agreements contemplated hereby
have been duly authorized by Buyer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) <I>Non-contravention</I>. Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A)&nbsp;violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Buyer is subject or any provision of its
charter, bylaws, or other governing documents or (B)&nbsp;conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which Buyer is a party or by which it is bound
or to which any of its assets is subject.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) <I>Brokers&#146; Fees</I>. Buyer has no Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this Agreement for which
any Seller could become liable or obligated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) <I>Investment</I>. Buyer is not acquiring the Target Shares with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities Act.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) <I>Access to Information</I>. Buyer has such knowledge of the business and financial affairs of
the Target and possesses a sufficient degree of sophistication, knowledge and experience in
financial and business matters such that Buyer is capable of evaluating the information provided to
Buyer by Sellers and Target about Target&#146;s business, including Target&#146;s assets and liabilities, and
the economic risks of acquiring the Target Shares. Buyer acknowledges and agrees that Target and
Sellers make no further representations or warranties to Buyer regarding the Target or the Target
Shares, other than as set forth in this Agreement. Specifically, Buyer acknowledges and agrees,
that Target and Sellers give no assurances, representations or
warranties as to the continued viability of the Target as a going concern or otherwise or its
future profitability after Buyer&#146;s purchase.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) <I>Litigation; Judgments</I>. There are no pending or threatened, suits, actions, grievances or
proceedings against or relating to Buyer, the business or any property or asset of the business of
Buyer that individually or in the aggregate could reasonably be expected to have a Material Adverse
Effect on Buyer&#146;s ability to consummate the transactions contemplated by this Agreement. There is
no unsatisfied or outstanding judgment, decree, injunction, rule or order of any governmental
entity or arbitrator which (i)&nbsp;could reasonably be expected to have a Material Adverse Effect on
Buyer or the business of Buyer or (ii)&nbsp;seeks to enjoin or prohibit the consummation of the
transactions contemplated by this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) <I>Ultralife Shares</I>. The Ultralife Shares, when issued pursuant to Section&nbsp;2(b)(i), will
be duly authorized, validly issued, fully paid and non assessable shares of common stock of Buyer.
Upon delivery of such shares, Sellers will receive good and unencumbered title to such shares, free
and clear of all liens, restrictions, charges, encumbrances and other security interests of any
kind or nature whatsoever, except for any restrictions existing under applicable securities laws
and the restrictions imposed by this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) <I>Reports and Financial Statements</I>. As of their respective dates, the periodic reports (the
&#147;<B><I>Reports</I></B>&#148;) filed by Buyer with the Securities and Exchange Commission (the &#147;<B><I>Commission</I></B>&#148;) under the
Securities Exchange Act of 1934, as amended (the &#147;<B><I>Exchange Act</I></B>&#148;) complied or will comply in all
material respects with the then applicable published rules and regulations of the Commission with
respect thereto (including, without limitation, rules related to the financial statements included
therein) at the date of their issuance and did not or will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were made, not misleading.
Buyer has filed all reports and filings with the SEC required pursuant to the Securities Act or
1933 or the Exchange Act on a timely basis. Each such report or filing is true, correct and
complete in all material respects and does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which they were made, not misleading.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 4. TARGET REPRESENTATIONS AND WARRANTIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sellers jointly and severally represent and warrant to Buyer that the statements contained in
this Section&nbsp;4 are correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section&nbsp;4), except as set forth in the
disclosure schedule delivered by Sellers to Buyer on the date hereof and initialed by the Parties
(the &#147;<B><I>Disclosure Schedule</I></B>&#148;). Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however, unless the Disclosure
Schedule identifies the exception with particularity and describes the relevant facts in detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty has to do with the
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">existence of the document or other item itself). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in this Section&nbsp;4.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Organization, Qualification, and Corporate Power</B>. Target is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Florida. Target is duly
authorized to conduct business and is in good standing under the laws of each jurisdiction where
such qualification is required. Target has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which it is engaged and in
which it presently proposes to engage and to own and use the properties owned and used by it.
Section 4(a) of the Disclosure Schedule lists the directors and officers of Target. Sellers have
delivered to Buyer correct and complete copies of the charter and bylaws of Target (as amended to
date). The minute books (containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate books, and the
stock record books of Target are correct and complete. Target is not in default under or in
violation of any provision of its charter or bylaws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Capitalization</B>. The entire authorized capital stock of Target consists of <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>Target
Shares, of which <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> Target Shares are issued and outstanding and no Target Shares are held
in treasury. All of the issued and outstanding Target Shares have been duly authorized, are validly
issued, fully paid, and non-assessable, and are held of record by the respective Seller as set
forth in Section 4(b) of the Disclosure Schedule. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require Target to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Target. There are no voting
trusts, proxies, or other agreements or understandings with respect to the voting of the capital
stock of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Non-contravention</B>. Except as set forth on Section 4(c) of the Disclosure Schedule, neither
the execution and the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i)&nbsp;violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Target is subject or any provision of the charter or bylaws of Target or
(ii)&nbsp;conflict with, result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other arrangement to which
Target is a party or by which it is bound or to which any of its assets is subject (or result in
the imposition of any Lien upon any of its assets). Target does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions contemplated by this
Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Brokers&#146; Fees</B>. Target has no Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this Agreement.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Title to Assets</B>. Except as set forth on Section 4(e) of the Disclosure Schedule, Target
has good and marketable title to, or a valid leasehold interest in, the properties and assets used
by Target, located on its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Liens, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Subsidiaries</B>. Target has no Subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Financial Statements</B>. Attached hereto as <U>Exhibit&nbsp;B</U> are the following financial
statements (collectively the &#147;<B><I>Financial Statements</I></B>&#148;): (i)&nbsp;an audited balance sheet and statements
of income, changes in stockholders&#146; equity, and cash flow as of and for the fiscal year ended
December&nbsp;31, 2006 (the &#147;<B><I>Most Recent Fiscal Year End</I></B>&#148;) for Target; and (ii)&nbsp;an unaudited balance
sheet and statements of income, changes in stockholders&#146; equity, and cash flow (the &#147;<B><I>Most Recent
Financial Statements</I></B>&#148;) as of and for the six months ended June&nbsp;30, 2007 (the &#147;<B><I>Most Recent Fiscal
Month End</I></B>&#148;) for Target. The Financial Statements have been prepared from Target&#146;s books and
records, are true, correct and complete in all material respects, are consistent with Target&#146;s
books and records applied on a consistent basis throughout the periods covered thereby, present
fairly the financial condition of Target as of such dates and the results of operations of Target
for such periods, are correct and complete, and are consistent with the books and records of Target
(which books and records are correct and complete).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(h)&nbsp;Events Subsequent to Most Recent Fiscal Year End</B>. Except as set forth on Section 4(h) of
the Disclosure Schedule, since the Most Recent Fiscal Year End, there has not been any Material
Adverse Change. Without limiting the generality of the foregoing, since that date:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Target has not sold, leased, transferred, or assigned any of its assets, tangible or
intangible, other than for a fair consideration in the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Target has not entered into any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) either involving more than $10,000 or outside
the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;no party (including Target) has accelerated, terminated, modified, or cancelled any
agreement, contract, lease, or license (or series of related agreements, contracts, leases, and
licenses) involving more than $10,000 to which Target is a party or by which Target is bound;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Target has not imposed any Liens upon any of its assets, tangible or intangible;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;Except as set forth on Section&nbsp;4(h)(v) of the Disclosure Schedule, Target has not made any
capital expenditure (or series of related capital expenditures) either involving more than $10,000
or outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Target has not made any capital investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of related capital
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">investments, loans, and acquisitions) either involving more than $10,000 or outside the
Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Except as set forth on Section&nbsp;4(h)(vii) of the Disclosure Schedule, Target has not
issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation either involving more than $5,000
singly or $10,000 in the aggregate;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;Target has not delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;Target has not cancelled, compromised, waived, or released any right or claim (or series
of related rights and claims) either involving more than $10,000 or outside the Ordinary Course of
Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;Target has not transferred, assigned, or granted any license or sublicense of any rights
under or with respect to any Intellectual Property;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;there has been no change made or authorized in the charter or bylaws of Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;Except as set forth on Section&nbsp;4(h)(xii) of the Disclosure Schedule, Target has not
issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants,
or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;Target has not declared, set aside, or paid any dividend or made any distribution with
respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv)&nbsp;Target has not experienced any damage, destruction, or loss (whether or not covered by
insurance) to its property;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv)&nbsp;Target has not made any loan to, or entered into any other transaction with, any of its
directors, officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi)&nbsp;Target has not entered into any employment contract or collective bargaining agreement,
written or oral, or modified the terms of any existing such contract or agreement;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvii)&nbsp;Target has not granted any increase in the base compensation of any of its directors,
officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xviii)&nbsp;Target has not adopted, amended, modified, or terminated any bonus, profit sharing,
incentive, severance, or other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with respect to any other Employee
Benefit Plan);
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xix)&nbsp;Target has not made any other change in employment terms for any of its directors,
officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xx)&nbsp;Target has not made or pledged to make any charitable or other capital contribution
outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxi)&nbsp;there has not been any other material occurrence, event, incident, action, failure to
act, or transaction outside the Ordinary Course of Business involving Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxii)&nbsp;Target has not discharged a material Liability or Lien outside the Ordinary Course of
Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiii)&nbsp;Target has not made any loans or advances of money;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiv)&nbsp;Target has not disclosed any Confidential Information; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxv)&nbsp;Target has not committed to any of the foregoing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;Undisclosed Liabilities</B>. Target has no Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability), except for (i)&nbsp;Liabilities set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii)&nbsp;Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(j)&nbsp;Legal Compliance</B>. Target and its predecessors and Affiliates, if any, have complied with
all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder and including the Foreign Corrupt Practices Act, 15 U.S.C.
78dd-1 et seq.) of federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to comply except where the
failure to comply would not have a Material Adverse Effect..
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(k)&nbsp;Tax Matters</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Target (and any predecessor of Target) has been a validly electing S corporation within
the meaning of Code Section&nbsp;1361 and Section&nbsp;1362 at all times during its existence and Target will
be an S corporation up to and including the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Target has no potential liability for any Tax under Code Section&nbsp;1374. Target has not,
in the past 10&nbsp;years, (A)&nbsp;acquired assets from another corporation in a transaction in which
Target&#146;s Tax basis for the acquired assets was determined, in whole or in part, by reference to the
Tax basis of the acquired assets (or any other property) in the hands of the transferor or (B)
acquired the stock of any corporation that is a qualified subchapter S subsidiary.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Target has filed all Tax Returns that it was required to file under applicable laws and
regulations. All such Tax Returns were correct and complete in all respects
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and have been prepared in substantial compliance with all applicable laws and regulations. All
Taxes due and owing by Target (whether or not shown on any Tax Return) have been paid. Target
currently is not the beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where Target does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There are no Liens for Taxes (other
than Taxes not yet due and payable) upon any of the assets of Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Target has withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;No Seller or director or officer (or employee responsible for Tax matters) of Target
expects any authority to assess any additional Taxes for any period for which Tax Returns have been
filed. No foreign, federal, state, or local tax audits or administrative or judicial Tax
proceedings are pending or being conducted with respect to Target. Target has not received from any
foreign, federal, state, or local taxing authority (including jurisdictions where Target has not
filed Tax Returns) any (i)&nbsp;notice indicating an intent to open an audit or other review, (ii)
request for information related to Tax matters, or (iii)&nbsp;notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against
Target; Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed
with respect to Target for taxable periods ended on or after December&nbsp;31, 2003, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently are the subject of
audit. Sellers have delivered to Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or agreed to by
Target filed or received since December&nbsp;31, 2003.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Target has not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Target is not a party to any agreement, contract, arrangement or plan that has resulted
or would result, separately or in the aggregate, in the payment of (i)&nbsp;any &#147;excess parachute
payment&#148; within the meaning of Code Section&nbsp;280G (or any corresponding provision of state, local or
foreign Tax law) and (ii)&nbsp;any amount that will not be fully deductible as a result of Code 162(m)
(or any corresponding provision of state, local or foreign Tax law). Target has not been a United
States real property holding corporation within the meaning of Code Section&nbsp;897(c)(2) during the
applicable period specified in Code Section&nbsp;897(c)(1)(A)(ii). Target has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Code Section&nbsp;6662. Target is not a party to or bound by
any Tax allocation or sharing agreement. Target (A)&nbsp;has not been a member of an Affiliated Group
filing a consolidated federal income Tax Return (other than a group the common parent of which was
Target) or (B)&nbsp;has no Liability for the Taxes of any Person (other than Target) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;The unpaid Taxes of Target (A)&nbsp;did not, as of the Most Recent Fiscal Month End, exceed
the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the Most Recent Balance Sheet (rather than in any notes thereto) and (B)&nbsp;do not exceed that
reserve as adjusted for the passage of time through the Closing Date in accordance with the past
custom and practice of Target in filing their Tax Returns. Since the date of the Most Recent
Balance Sheet, Target has not incurred any liability for Taxes arising from extraordinary gains or
losses, as that term is used in GAAP, outside the Ordinary Course of Business consistent with past
custom and practice.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;Target will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing
Date as a result of any: (A)&nbsp;change in method of accounting for a taxable period ending on or prior
to the Closing Date; (B) &#147;closing agreement&#148; as described in Code Section&nbsp;7121 (or any
corresponding or similar provision of state, local or foreign income Tax law) executed on or prior
to the Closing Date; (C)&nbsp;intercompany transactions or any excess loss account described in Treasury
Regulations under Code Section&nbsp;1502 (or any corresponding or similar provision of state, local or
foreign income Tax law); (D)&nbsp;installment sale or open transaction disposition made on or prior to
the Closing Date; or (E)&nbsp;prepaid amount received on or prior to the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;Target has not distributed stock of another Person, or has had its stock distributed by
another Person, in a transaction that was purported or intended to be governed in whole or in part
by Code Section&nbsp;355 or Section&nbsp;361.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;Target has not, since October&nbsp;3, 2004, (A)&nbsp;granted to any person an interest in a
nonqualified deferred compensation plan (as defined in Code Section&nbsp;409A) which interest has been
or, upon the lapse of a substantial risk of forfeiture with respect to such interest, will be
subject to the Tax imposed by Code Section&nbsp;409A, or (B)&nbsp;modified the terms of any nonqualified
deferred compensation plan in a manner that could cause an interest previously granted under such
plan to become subject to the Tax imposed by Code Section&nbsp;409A. No person has a right to be
indemnified by Target for any Tax imposed by Code Section&nbsp;409A.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(l)&nbsp;Real Property</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Except as set forth on Section&nbsp;4(l)(i) of the Disclosure Schedule, Target does not own any
Real Property.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Section&nbsp;4(l)(ii) of the Disclosure Schedule sets forth the address of each parcel of
Leased Real Property, and a true and complete list of all Leases for each such Leased Real Property
(including the date and name of the parties to such Lease document). Target has delivered to Buyer
a true and complete copy of each such Lease document, and in the case of any oral Lease, a written
summary of the material terms of such Lease. Except as set forth in Section&nbsp;4(l)(ii) of the
Disclosure Schedule, with respect to each of the Leases:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) such Lease is legal, valid, binding, enforceable and in full force and effect;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the transaction contemplated by this Agreement does not require the consent of any
other party to such Lease (except for those Leases for which Lease Consents (as hereinafter
defined) are obtained), will not result in a breach of or default
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">under such Lease, and will not otherwise cause such Lease to cease to be legal, valid,
binding, enforceable and in full force and effect on identical terms following the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) Target&#146;s possession and quiet enjoyment of the Leased Real Property under such
Lease has not been disturbed and there are no disputes with respect to such Lease;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) neither Target nor any other party to the Lease is in breach or default under such
Lease, and no event has occurred or circumstance exists which, with the delivery of notice,
the passage of time or both, would constitute such a breach or default, or permit the
termination, modification or acceleration of rent under such Lease;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) no security deposit or portion thereof deposited with respect to such Lease has
been applied in respect of a breach or default under such Lease which has not been
redeposited in full;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(F) Target neither owes or will owe in the future any brokerage commissions or finder&#146;s
fees with respect to such Lease;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(G) the other party to such Lease is not an Affiliate of, and otherwise does not have
any economic interest in, Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(H) Target has not subleased, licensed or otherwise granted any Person the right to use
or occupy such Leased Real Property or any portion thereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(I) Target has not collaterally assigned or granted any other Lien in such Lease or any
interest therein; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(J) there are no Liens on the estate or interest created by such Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;The Leased Real Property identified in Section&nbsp;4(l)(ii) of the Disclosure Schedule
(collectively, the &#147;<B><I>Real Property</I></B>&#148;), comprises all of the real property used or intended to be used
in, or otherwise related to, Target&#146;s business; and Target is not a party to any agreement or
option to purchase any real property or interest therein.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;All buildings, structures, fixtures, building systems and equipment, and all components
thereof, including the roof, foundation, load-bearing walls and other structural elements thereof,
heating, ventilation, air conditioning, mechanical, electrical, plumbing and other building
systems, environmental control, remediation and abatement systems, sewer, storm and waste water
systems, irrigation and other water distribution systems, parking facilities, fire protection,
security and surveillance systems, and telecommunications, computer, wiring and cable
installations, included in the Real Property (the &#147;<B><I>Improvements</I></B>&#148;) are in good condition and repair
and sufficient for the operation of Target&#146;s business. There are no structural deficiencies or
latent defects affecting any of the Improvements and there are no facts or conditions affecting any
of the Improvements which would, individually or in the aggregate, interfere in any respect with
the use or occupancy of the Improvements or any portion thereof in the operation of Target&#146;s
business as currently conducted thereon.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;There is no condemnation, expropriation or other proceeding in eminent domain, pending or
threatened, affecting any parcel of Real Property or any portion thereof or interest therein. There
is no injunction, decree, order, writ or judgment outstanding, nor any claims, litigation,
administrative actions or similar proceedings, pending or threatened, relating to the ownership,
lease, use or occupancy of the Real Property or any portion thereof, or the operation of Target&#146;s
business as currently conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;The Real Property is in compliance with all applicable building, zoning, subdivision,
health and safety and other land use laws, including the Americans with Disabilities Act of 1990,
as amended, and all insurance requirements affecting the Real Property (collectively, the &#147;<B><I>Real
Property Laws</I></B>&#148;), and the current use and occupancy of the Real Property and operation of Target&#146;s
business thereon does not violate any Real Property Laws. Target has not received any notice of
violation of any Real Property Law and there is no basis for the issuance of any such notice or the
taking of any action for such violation. There is no pending or anticipated change in any Real
Property Law that will materially impair the ownership, lease, use or occupancy of any Real
Property or any portion thereof in the continued operation of Target&#146;s business as currently
conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Each parcel of Real Property has direct vehicular and pedestrian access to a public
street adjoining the Real Property, or has vehicular and pedestrian access to a public street via
an insurable, permanent, irrevocable and appurtenant easement benefiting such parcel of Real
Property, and such access is not dependent on any land or other real property interest which is not
included in the Real Property. None of the Improvements or any portion thereof is dependent for its
access, use or operation on any land, building, improvement or other real property interest which
is not included in the Real Property.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;All water, oil, gas, electrical, steam, compressed air, telecommunications, sewer,
storm and waste water systems and other utility services or systems for the Real Property have been
installed and are operational and sufficient for the operation of Target&#146;s business as currently
conducted thereon. Each such utility service enters the Real Property from an adjoining public
street or valid private easement in favor of the supplier of such utility service or appurtenant to
such Real Property, and is not dependent for its access, use or operation on any land, building,
improvement or other real property interest which is not included in the Real Property.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;All certificates of occupancy, permits, licenses, franchises, approvals and
authorizations (collectively, the &#147;<B><I>Real Property Permits</I></B>&#148;) of all governmental authorities, boards
of fire underwriters, associations or any other entity having jurisdiction over the Real Property
which are required or appropriate to use or occupy the Real Property or operate Target&#146;s business
as currently conducted thereon, have been issued and are in full force and effect. Section&nbsp;4(l)(ix)
of the Disclosure Schedule lists all material Real Property Permits held by Target with respect to
each parcel of Real Property. Target has delivered to Buyer a true and complete copy of all Real
Property Permits. Target has not received any notice from any governmental authority or other
entity having jurisdiction over the Real Property threatening a suspension, revocation,
modification or cancellation of any Real Property Permit and there is no basis for the issuance of
any such notice or the taking of any such action. The Real Property Permits are transferable to
Buyer without the consent or approval of the issuing governmental authority or entity, no
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">disclosure, filing or other action by Target is required in connection with such transfer, and
Buyer shall not be required to assume any additional liabilities or obligations under the Real
Property Permits as a result of such transfer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;The classification of each parcel of Real Property under applicable zoning laws,
ordinances and regulations permits the use and occupancy of such parcel and the operation of
Target&#146;s business as currently conducted thereon, and permits the Improvements located thereon as
currently constructed, used and occupied. There are sufficient parking spaces, loading docks and
other facilities at such parcel to comply with such zoning laws, ordinances and regulations.
Target&#146;s use or occupancy of the Real Property or any portion thereof or the operation of Target&#146;s
business as currently conducted thereon is not dependent on a &#147;permitted non-conforming use&#148; or
&#147;permitted non-conforming structure&#148; or similar variance, exemption or approval from any
governmental authority.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;The current use and occupancy of the Real Property and the operation of Target&#146;s business
as currently conducted thereon does not violate any easement, covenant, condition, restriction or
similar provision in any instrument of record or other unrecorded agreement affecting such Real
Property (the &#147;<B><I>Encumbrance Documents</I></B>&#148;). Neither Sellers nor Target has received any notice of
violation of any Encumbrance Documents, and there is no basis for the issuance of any such notice
or the taking of any action for such violation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;None of the Improvements encroach on any land which is not included in the Real Property
or on any easement affecting such Real Property, or violate any building lines or set-back lines,
and there are no encroachments onto any of the Real Property, or any portion thereof, which
encroachment would interfere with the use or occupancy of such Real Property or the continued
operation of Target&#146;s business as currently conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;Each parcel of Real Property is a separate lot for real estate tax and assessment
purposes, and no other real property is included in such tax parcel. There are no Taxes,
assessments, fees, charges or similar costs or expenses imposed by any governmental authority,
association or other entity having jurisdiction over the Real Property (collectively, the &#147;<B><I>Real
Estate Impositions</I></B>&#148;) with respect to any Real Property or portion thereof which are delinquent.
There is no pending or threatened increase or special assessment or reassessment of any Real Estate
Impositions for such parcel.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv)&nbsp;None of the Real Property or any portion thereof is located in a flood hazard area (as
defined by the Federal Emergency Management Agency).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(m)&nbsp;Intellectual Property</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Target owns and possesses or has the right to use pursuant to a valid and enforceable,
written license, sublicense, agreement, or permission all Intellectual Property necessary or
desirable for the operation of the businesses of Target as presently conducted and as presently
proposed to be conducted. Each item of Intellectual Property owned or used by Target immediately
prior to the Closing hereunder will be owned or available for use by Target on identical terms and
conditions immediately subsequent to the Closing hereunder. Target has
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">taken all necessary and desirable action to maintain and protect each item of Intellectual
Property that Target owns or uses.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Target has not interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and none of Sellers and the
directors and officers (and employees with responsibility for Intellectual Property matters) of
Target has ever received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim that Target must
license or refrain from using any Intellectual Property rights of any third party). To the
Knowledge of any Seller and the directors and officers (and employees with responsibility for
Intellectual Property matters) of Target, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property rights of Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Section&nbsp;4(m)(iii) of the Disclosure Schedule identifies each patent or registration that
has been issued to Target with respect to any of its Intellectual Property, identifies each pending
patent application or application for registration which Target has made with respect to any of its
Intellectual Property, and identifies each license, sublicense, agreement, or other permission
which Target has granted to any third party with respect to any of its Intellectual Property
(together with any exceptions). Sellers have delivered to Buyer correct and complete copies of all
such patents, registrations, applications, licenses, sublicenses, agreements, and permissions (as
amended to date). Section&nbsp;4(m)(iii) of the Disclosure Schedule also identifies each material
unregistered trademark, service mark, trade name, corporate name or Internet domain name, computer
software item (other than commercially available off-the-shelf software purchased or licensed for
less than a total cost of $1,000 in the aggregate) and each material unregistered copyright used by
Target in connection with any of its businesses. With respect to each item of Intellectual Property
required to be identified in Section&nbsp;4(m)(iii) of the Disclosure Schedule:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) Target owns and possesses all right, title, and interest in and to the item, free
and clear of any Lien, license, or other restriction or limitation regarding use or
disclosure;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the item is not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or, to the Knowledge of any Seller and the directors and officers (and
employees with responsibility for Intellectual Property matters) of Target, is threatened
which challenges the legality, validity, enforceability, use, or ownership of the item, and
there are no grounds for the same;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) Target has never agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to the item; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) no loss or expiration of the item is threatened, pending, or reasonably
foreseeable, except for patents expiring at the end of their statutory terms (and
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">not as a result of any act or omission by Sellers or Target, including without
limitation, a failure by Sellers or Target to pay any required maintenance fees).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Section&nbsp;4(m)(iv) of the Disclosure Schedule identifies each item of Intellectual Property
that any third party owns and that Target uses pursuant to license, sublicense, agreement, or
permission. Sellers have delivered to Buyer correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With respect to each item of
Intellectual Property required to be identified in Section&nbsp;4(m)(iv) of the Disclosure Schedule:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) the license, sublicense, agreement, or permission covering the item is legal,
valid, binding, enforceable, and in full force and effect;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the license, sublicense, agreement, or permission will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following consummation
of the transactions contemplated hereby;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) no party to the license, sublicense, agreement, or permission is in breach or
default, and no event has occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or acceleration thereunder;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) no party to the license, sublicense, agreement, or permission has repudiated any
provision thereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) with respect to each sublicense, the representations and warranties set forth in
subsections (A)&nbsp;through (D)&nbsp;above are true and correct with respect to the underlying
license;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(F) the underlying item of Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(G) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or, to the Knowledge of any Seller and the directors and officers (and
employees with responsibility for Intellectual Property matters) of Target, is threatened
that challenges the legality, validity, or enforceability of the underlying item of
Intellectual Property, and there are no grounds for the same; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(H) Target has not granted any sublicense or similar right with respect to the license,
sublicense, agreement, or permission.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;To the Knowledge of any Seller and the directors and officers (and employees with
responsibility for Intellectual Property matters) of Target: (A)&nbsp;Target has not in the past nor
will interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued operation of its
businesses as presently conducted; (B)&nbsp;there are no facts that indicate a likelihood of any of the
foregoing; and (C)&nbsp;no notices regarding any of the foregoing (including, without limitation, any
demands or offers to license any Intellectual Property from any third party) have been received.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Sellers have taken all necessary and desirable action to maintain and protect all of the
Intellectual Property of Target and will continue to maintain and protect all of the Intellectual
Property of Target prior to Closing so as not to adversely affect the validity or enforceability
thereof. To the Knowledge of any Seller, the owners of any of the Intellectual Property licensed to
Target have taken all necessary and desirable action to maintain and protect the Intellectual
Property covered by such license.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Sellers have complied in all material respects with and are presently in compliance in
all material respects with all foreign, federal, state, local, governmental (including, but not
limited to, the Federal Trade Commission and State Attorneys General), administrative or regulatory
laws, regulations, guidelines and rules applicable to any Intellectual Property and Sellers shall
take all steps necessary to ensure such compliance until Closing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(n)&nbsp;Tangible Assets</B>. Target owns or leases all buildings, machinery, equipment, and other
tangible assets necessary for the conduct of their businesses as presently conducted and as
presently proposed to be conducted. Each such tangible asset is free from defects (patent and
latent), has been maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable for the purposes for which
it presently is used and presently is proposed to be used.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(o)&nbsp;Inventory</B>. The inventory of Target consists of raw materials and supplies, manufactured
and purchased parts, goods in process, and finished goods, all of which is merchantable and fit for
the purpose for which it was procured or manufactured, and none of which is slow-moving, obsolete,
damaged, or defective, subject only to the reserve for inventory writedown set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(p)&nbsp;Contracts</B>. Section 4(p) of the Disclosure Schedule lists the following contracts and other
agreements to which Target is a party:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;any agreement (or group of related agreements) for the lease of personal property to or
from any Person regardless of amount;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;any agreement (or group of related agreements) for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more than one year, result in a
loss to Target, or involve consideration in excess of $10,000;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;any agreement concerning a partnership or joint venture;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;any agreement (or group of related agreements) under which it has created, incurred,
assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;any agreement concerning confidentiality or non-competition;
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;any agreement with any Seller and any of Sellers&#146; Affiliates (other than Target);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;any profit sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance, or other plan or arrangement for the benefit of its current or former
directors, officers, and employees;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;any collective bargaining agreement;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;any agreement for the employment of any individual on a full-time, part-time, consulting,
or other basis providing annual compensation in excess of $10,000 or providing severance benefits;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;any agreement under which it has advanced or loaned any amount to any of its directors,
officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;any agreement under which the consequences of a default or termination could have a
Material Adverse Effect;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;any agreement under which it has granted any Person any registration rights (including,
without limitation, demand and piggyback registration rights);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;any agreement under which Target has advanced or loaned any other Person any amounts;
or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv)&nbsp;any other agreement (or group of related agreements) the performance of which involves
consideration in excess of $10,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sellers have delivered to Buyer a correct and complete copy of each written agreement (as amended
to date) listed in Section 4(p) of the Disclosure Schedule and a written summary setting forth the
terms and conditions of each oral agreement referred to in Section 4(p) of the Disclosure Schedule.
With respect to each such agreement: (A)&nbsp;the agreement is legal, valid, binding, enforceable, and
in full force and effect; (B)&nbsp;the agreement will continue to be legal, valid, binding, enforceable,
and in full force and effect on identical terms following the consummation of the transactions
contemplated hereby; (C)&nbsp;no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit termination, modification,
or acceleration, under the agreement; and (D)&nbsp;no party has repudiated any provision of the
agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(q)&nbsp;Notes and Accounts Receivable</B>. All notes and accounts receivable of Target are reflected
properly on their books and records, are valid receivables subject to no setoffs or counterclaims,
are current and collectible, and will be collected in accordance with their terms at their recorded
amounts, subject only to the reserve for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of Target. All accounts receivable collected
by Buyer shall be applied on a first in, first out basis. Buyer shall continue Target&#146;s customary
collection practices following Closing and shall provide Sellers with all normal and customary
information relating to the accounts receivable that were in
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">existence on the Closing Date, including all normal aging reports, following the Closing. Any
accounts receivable determined by Buyer to be uncollectible shall be reassigned to Sellers,
subject, however, to Buyer&#146;s indemnification rights hereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(r)&nbsp;Powers of Attorney</B>. There are no outstanding powers of attorney executed on behalf of
Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(s)&nbsp;Insurance</B>. Section 4(s) of the Disclosure Schedule sets forth the following information
with respect to each insurance policy (including policies providing property, casualty, liability,
and workers&#146; compensation coverage and bond and surety arrangements) to which Target has been a
party, a named insured, or otherwise the beneficiary of coverage at any time within the past 10
years:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;the name, address, and telephone number of the agent;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;the name of the insurer, the name of the policyholder, and the name of each covered
insured;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;the policy number and the period of coverage;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;the scope (including an indication of whether the coverage was on a claims made,
occurrence, or other basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;a description of any retroactive premium adjustments or other loss-sharing arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">With respect to each such insurance policy: (A)&nbsp;the policy is legal, valid, binding, enforceable,
and in full force and effect; (B)&nbsp;the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the consummation of the
transaction contemplated hereby; (C)&nbsp;neither Target nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of notices), and no
event has occurred which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under the policy; and (D)&nbsp;no party
to the policy has repudiated any provision thereof. Target has been covered during the past 10
years by insurance in scope and amount customary and reasonable for the businesses in which they
have engaged during the aforementioned period. Section 4(s) of the Disclosure Schedule describes
any self-insurance arrangements affecting Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(t)&nbsp;Litigation</B>. Section 4(t) of the Disclosure Schedule sets forth each instance in which
Target (i)&nbsp;is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or
(ii)&nbsp;is a party or, to the Knowledge of any Seller and the directors and officers (and employees
with responsibility for litigation matters) of Target, is threatened to be made a party to any
action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial
or administrative agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings, hearings, and investigations set forth in
Section 4(t) of the Disclosure Schedule could result in any Material Adverse Change. None of Seller
and the directors and officers (and employees with responsibility for litigation matters) of
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Target has any reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against Target or that there is any Basis for the
foregoing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(u)&nbsp;Product Warranty</B>. Each product manufactured, sold, leased, or delivered by Target has been
in conformity with all applicable contractual commitments and all express and implied warranties,
and Target has no Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for product warranty claims set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of Target. Section 4(u) of the
Disclosure Schedule includes copies of the standard terms and conditions of sale or lease for
Target (containing applicable guaranty, warranty, and indemnity provisions). No product
manufactured, sold, leased, or delivered by Target is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale or lease set forth in Section
4(u) of the Disclosure Schedule.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v)&nbsp;Product Liability</B>. Target has no Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(w)&nbsp;Employees</B>. Except as set forth on Section 4(w) of the Disclosure Schedule, to the
Knowledge of Sellers and the directors and officers (and employees with responsibility for
employment matters) of Target, no executive, key employee, or group of employees has any plans to
terminate employment with Target. Target is not a party to or bound by any collective bargaining
agreement, nor has Target experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. Target has not committed any unfair labor practice. None of
Sellers and the directors and officers (and employees with responsibility for employment matters)
of Target has any Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(x)&nbsp;Employee Benefits</B>. Target does not have any employee benefit plans and collective
bargaining, employment or severance agreements or other similar arrangements which Target, or any
ERISA Affiliate, has ever sponsored, maintained, or to which contributions are made or have ever
been made, or for which obligations have been incurred, for the benefit of employees or former
employees of Target or an ERISA Affiliate, including, without limitation, (1)&nbsp;any &#147;employee benefit
plan&#148; (within the meaning of Section&nbsp;3(3) of ERISA), (2)&nbsp;any profit-sharing, deferred compensation,
bonus, stock option, stock purchase, pension, retainer, consulting, retirement, severance, welfare
or incentive plan, agreement or arrangement, (3)&nbsp;any plan, agreement or arrangement providing for
&#147;fringe benefits&#148; or perquisites to employees, officers, directors or agents, including but not
limited to benefits relating to automobiles, clubs, vacation, child care, parenting, sabbatical,
sick leave, tuition reimbursement, medical, dental, hospitalization, life insurance, disability
insurance and other types of insurance, and (4)&nbsp;any employment agreement. The plans, agreements and
arrangements described in this Section 4(x) are referred to herein as &#147;<B><I>Employee Benefit Plans</I></B>.&#148;
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(y)&nbsp;Guaranties</B>. Target is not a guarantor or otherwise is liable for any Liability or
obligation (including indebtedness) of any other Person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(z)&nbsp;Environmental, Health, and Safety Matters</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Target and its predecessors and Affiliates have complied and are in compliance with all
Environmental, Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Without limiting the generality of the foregoing, Target and its Affiliates have obtained
and complied with, and are in compliance with, all permits, licenses and other authorizations that
are required pursuant to Environmental, Health, and Safety Requirements for the occupation of their
facilities and the operation of their business; a list of all such permits, licenses and other
authorizations is set forth on Section 4(z) of the Disclosure Schedule.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Neither Target nor, to its Knowledge, its predecessors or Affiliates has received any
written or oral notice, report or other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any Liabilities or potential Liabilities,
including any investigatory, remedial or corrective obligations, relating to any of them or its
facilities arising under Environmental, Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;To knowledge of Target, none of the following exists at any property or facility owned or
operated by Target: (1)&nbsp;underground storage tanks, (2)&nbsp;asbestos-containing material in any form or
condition, (3)&nbsp;materials or equipment containing polychlorinated biphenyls, or (4)&nbsp;landfills,
surface impoundments, or disposal areas.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;Neither Target nor, to its Knowledge, its predecessors or Affiliates have treated, stored,
disposed of, arranged for or permitted the disposal of, transported, handled, or released any
substance, including without limitation any hazardous substance, or owned or operated any property
or facility (and no such property or facility is contaminated by any such substance) in a manner
that has given or would give rise to Liabilities, including any Liability for response costs,
corrective action costs, personal injury, property damage, natural resources damages or attorney
fees, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (&#147;<B><I>CERCLA</I></B>&#148;), the Solid Waste Disposal Act, as amended (&#147;<B><I>SWDA</I></B>&#148;) or any other
Environmental, Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Neither this Agreement nor the consummation of the transaction that is the subject of
this Agreement will result in any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of the so-called
&#147;transaction-triggered&#148; or &#147;responsible property transfer&#148; Environmental, Health, and Safety
Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Neither Target nor, to its Knowledge, its predecessors or Affiliates has, either
expressly or by operation of law, assumed or undertaken any Liability, including without limitation
any obligation for corrective or remedial action, of any other Person relating to Environmental,
Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;No facts, events or conditions relating to the past or present facilities, properties
or operations of Target or, to its Knowledge, its predecessors or Affiliates will
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">prevent, hinder or limit continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements, or give rise to any other Liabilities pursuant to
Environmental, Health, and Safety Requirements, including without limitation any relating to onsite
or offsite releases or threatened releases of hazardous materials, substances or wastes, personal
injury, property damage or natural resources damage.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(aa)&nbsp;Certain Business Relationships with Target</B>. None of Sellers, their Affiliates, Sellers&#146;
directors, officers, employees and stockholders and Target&#146;s directors, officers, employees, and
stockholders has been involved in any business arrangement or relationship with Target within the
past 12&nbsp;months, and none of Sellers, their Affiliates, Sellers&#146; directors, officers, employees and
stockholders and Target&#146;s directors, officers, employees, and stockholders owns any asset, tangible
or intangible, which is used in the business of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(bb)&nbsp;Customers and Suppliers</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Section&nbsp;4(bb) of the Disclosure Schedule lists the 10 largest customers of Target for each
of the two most recent fiscal years and sets forth opposite the name of each such customer the
percentage of consolidated net sales attributable to such customer. Section&nbsp;4(bb) of the Disclosure
Schedule also lists any additional current customers that Target anticipates shall be among the 10
largest customers for the current fiscal year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Since the date of the Most Recent Balance Sheet, no supplier of Target has indicated that
it shall stop, or decrease the rate of, supplying materials, products or services to Target, and no
customer listed on Section&nbsp;4(bb) of the Disclosure Schedule has indicated that it shall stop, or
decrease the rate of, buying materials, products or services from Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(cc)&nbsp;Disclosure</B>. The representations and warranties contained in this Section&nbsp;4 do not contain
any untrue statement of a material fact or omit to state any material fact necessary in order to
make the statements and information contained in this Section&nbsp;4 not misleading.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 5. PRE-CLOSING COVENANTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Parties agree as follows with respect to the period between the execution of this
Agreement and the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;General</B>. Each of the Parties will use his or its best efforts to take all action and to do
all things necessary, proper, or advisable in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing
conditions set forth in Section&nbsp;7 below).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Notices and Consents</B>. Sellers will cause Target to give any notices to third parties, and
will cause Target to use its best efforts to obtain any third party consents referred to in Section
4(c) above, the Lease Consents, and the items set forth on Section 5(b) of the Disclosure Schedule.
Each of the Parties will (and Sellers will cause Target to) give any notices to, make any filings
with, and use its best efforts to obtain any authorizations, consents, and
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">approvals of governments and governmental agencies in connection with the matters referred to
in Section&nbsp;3(a)(ii), Section&nbsp;3(b)(ii), and Section 4(c) above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Operation of Business</B>. Sellers will not cause or permit Target to engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, Sellers will not cause or permit Target to (i)&nbsp;declare,
set aside, or pay any dividend or make any distribution whatsoever with respect to its capital
stock (whether in cash or in kind) or redeem, purchase, or otherwise acquire any of its capital
stock except distributions to Sellers in an amount approved by Buyer calculated to cover Sellers&#146;
income tax liability resulting from the Sellers&#146; allocable shares of Target&#146;s earnings through the
Closing Date, or (ii)&nbsp;otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in Section 4(h) above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Preservation of Business</B>. Sellers will cause Target to keep its business and properties
substantially intact, including its present operations, physical facilities, working conditions,
insurance policies, and relationships with lessors, licensors, suppliers, customers, and employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Full Access</B>. Sellers will permit, and Sellers will cause Target to permit,
representatives of Buyer (including legal counsel and accountants) to have full access at all
reasonable times, and in a manner so as not to interfere with the normal business operations of
Target, to all premises, properties, personnel, books, records (including Tax records), contracts,
and documents of or pertaining to Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Notice of Developments</B>. Sellers will give prompt written notice to Buyer of any material
adverse development causing a breach of any of the representations and warranties in Section&nbsp;4
above. Each Party will give prompt written notice to the others of any material adverse development
causing a breach of any of his or its own representations and warranties in Section&nbsp;3 above. No
disclosure by any Party pursuant to this Section&nbsp;5(f), however, shall be deemed to amend or
supplement Annex I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Exclusivity</B>. Sellers will not (and Sellers will not cause or permit Target to) (i)
solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any substantial portion of the
assets, of Target (including any acquisition structured as a merger, consolidation, or share
exchange) or (ii)&nbsp;participate in any discussions or negotiations regarding, furnish any information
with respect to, assist or participate in, or facilitate in any other manner any effort or attempt
by any Person to do or seek any of the foregoing. Neither Seller will vote his Target Shares in
favor of any such acquisition. Sellers will notify Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(h)&nbsp;</B>&#091;INTENTIONALLY OMITTED&#093;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;Leases</B>. Except to the extent necessary to satisfy the Closing conditions set forth in
Section&nbsp;7 below, Sellers will not cause or permit any of Target&#146;s Leases to be amended, modified,
extended, renewed or terminated, nor shall Target enter into any new lease, sublease,
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">license or other agreement for the use or occupancy of any real property, without the prior
written consent of Buyer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(j)&nbsp;Tax Matters</B>. Without the prior written consent of Buyer, Target shall not make or change
any election, change an annual accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment relating
to Target, surrender any right to claim a refund of Taxes, consent to any extension or waiver of
the limitation period applicable to any Tax claim or assessment relating to Target, or take any
other similar action relating to the filing of any Tax Return or the payment of any Tax, if such
election, adoption, change, amendment, agreement, settlement, surrender, consent or other action
would have the effect of increasing the Tax liability of Target for any period ending after the
Closing Date or decreasing any Tax attribute of Target existing on the Closing Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(k)&nbsp;S Corporation Status</B>. Target and Sellers shall not revoke Target&#146;s election to be taxed
as an S corporation within the meaning of Code Section&nbsp;1361 and Section&nbsp;1362. Target and Sellers
shall not take or allow any action, other than the sale of Target&#146;s stock pursuant to this
Agreement, which would result in the termination of Target&#146;s status as a validly electing S
corporation within the meaning of Code Section&nbsp;1361 and Section&nbsp;1362.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(l)&nbsp;Employee Benefits and Welfare Matters</B>. &#091;INTENTIONALLY OMITTED&#093;
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 6. POST-CLOSING COVENANTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Parties agree as follows with respect to the period following the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;General</B>. In case at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the Parties will take such further
action (including the execution and delivery of such further instruments and documents) as any
other Party reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under Section&nbsp;8 below).
Sellers acknowledge and agree that from and after the Closing Buyer will be entitled to possession
of all documents, books, records (including Tax records), agreements, and financial data of any
sort relating to Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Litigation Support</B>. In the event and for so long as any Party actively is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand in connection with (i)&nbsp;any transaction contemplated under this Agreement or (ii)&nbsp;any
fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date involving Target,
each of the other Parties will cooperate with him or it and his or its counsel in the contest or
defense, make available their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending Party is entitled
to indemnification therefor under Section&nbsp;8 below).
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Transition</B>. Sellers will not take any action that is designed or intended to have the
effect of discouraging any lessor, licensor, customer, supplier, or other business associate of
Target from maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. Sellers shall refer all customer inquiries relating to
the businesses of Target to Buyer from and after the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Confidentiality</B>. Each of the parties hereto will treat and hold as such all of the
Confidential Information of the other parties, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to such other party or
destroy, at the request and option of disclosing party, all tangible embodiments (and all copies)
of the Confidential Information which are in his, her, or its possession. In the event that any
party is requested or required pursuant to written or oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar
process to disclose any Confidential Information, such party will notify the disclosing party
promptly of the request or requirement so that the disclosing party may seek an appropriate
protective order or waive compliance with the provisions of this Section&nbsp;6(d). If, in the absence
of a protective order or the receipt of a waiver hereunder, any of receiving parties is, on the
advice of counsel, compelled to disclose any Confidential Information to any tribunal or party in a
proceeding therein or else stand liable for contempt, such party may disclose the Confidential
Information to the tribunal or such person involved in such action; provided, however, that the
disclosing party shall use his, her, or its best efforts to obtain, at the reasonable request of
the disclosing party, an order or other assurance that confidential treatment will be accorded to
such portion of the Confidential Information required to be disclosed as the disclosing party shall
designate. The foregoing provisions shall not apply to any Confidential Information that is
generally available to the public immediately prior to the time of disclosure unless such
Confidential Information is so available due to the actions of a Party, nor shall the foregoing
provisions apply to Buyer to the extent Buyer is required to disclose such information in order to
comply with its disclosure obligations as a publicly-traded company under applicable federal
securities laws and stock exchange rules and listing standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Release of Target by Sellers</B>. Effective at and (only)&nbsp;upon Closing, Sellers (the
&#147;<B><I>Releasing Party</I></B>&#148;) hereby irrevocably and unconditionally releases and forever discharges the
Target and its respective successors and assigns (the &#147;<B><I>Released Parties</I></B>&#148;) from any and all claims,
charges, complaints, causes of action, damages, agreements and liabilities of any kind or nature
whatsoever, including any claim by Sellers against the Target for indemnification or for advances
with respect to actions or omissions (or claims or allegations thereof) of Sellers prior to the
Closing in their capacities as shareholders, officers, directors or employees of the Target
(&#147;<B><I>Released Claims</I></B>&#148;), whether known or unknown and whether at law or in equity, arising from conduct
occurring on or prior to the Closing Date, including without limitation any Released Claims
relating to or arising out of any Seller&#146;s ownership of securities of Target; provided that (i)
nothing contained herein shall release Released Parties from any of their post-Closing obligations
and liabilities to Releasing Party created under this Agreement or constitute a waiver of any
claims that Releasing Party may bring or have for indemnification by the Released Parties under
Section&nbsp;8, and (ii)&nbsp;this release shall only relate to those claims arising from conduct or
omissions occurring on or before the Closing.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Conditions to Buyer&#146;s Obligation</B>. Buyer&#146;s obligation to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the following
conditions:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;the representations and warranties set forth in Section 3(a) and Section&nbsp;4 above shall be
true and correct in all material respects at and as of the Closing Date, except to the extent that
such representations and warranties are qualified by terms such as &#147;material&#148; and &#147;Material Adverse
Effect,&#148; in which case such representations and warranties shall be true and correct in all
respects at and as of the Closing Date;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Sellers shall have performed and complied with all of their covenants hereunder in all
material respects through the Closing, except to the extent that such covenants are qualified by
terms such as &#147;material&#148; and &#147;Material Adverse Effect,&#148; in which case Sellers shall have performed
and complied with all of such covenants in all respects through the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Target shall have procured all of the third party consents specified in Section 5(b)
above;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;no action, suit, or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A)&nbsp;prevent consummation of any of the transactions contemplated by this Agreement, (B)&nbsp;cause
any of the transactions contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of Buyer to own the Target Shares and to control Target, or (D)&nbsp;affect
adversely the right of Target to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;Sellers shall have delivered to Buyer a certificate to the effect that each of the
conditions specified above in Section&nbsp;7(a)(i)-(iv) is satisfied in all respects;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;the Parties shall have received all other authorizations, consents, and approvals of
governments and governmental agencies referred to in Section&nbsp;3(a)(ii), Section&nbsp;3(b)(ii), and
Section 4(c) above;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Buyer shall have received the resignations, effective as of the Closing, of each
director and officer of Target other than those whom Buyer shall have specified in writing at least
five business days prior to the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;Buyer shall have obtained on terms and conditions satisfactory to it any debt or equity
financing it needs in order to consummate the transactions contemplated hereby and fund the working
capital requirements of Target after the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;all actions to be taken by the Sellers in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments, and other
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">documents required to effect the transactions contemplated hereby shall be satisfactory in
form and substance to Buyer;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;Target shall have obtained and delivered to Buyer a written consent for the assignment of
each of the Leases, and, if requested by Buyer&#146;s lender, a waiver of landlord liens, collateral
assignment of lease or leasehold mortgage from the landlord or other party whose consent thereto is
required under such Lease (the &#147;<B><I>Lease Consents</I></B>&#148;), in form and substance satisfactory to Buyer and
Buyer&#146;s lender;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi) &#091;INTENTIONALLY OMITTED&#093;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii) &#091;INTENTIONALLY OMITTED&#093;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;no damage or destruction or other change has occurred with respect to any of the Real
Property or any portion thereof that, individually or in the aggregate, would materially impair the
use or occupancy of the Real Property or the operation of Target&#146;s business as currently conducted
thereon;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv) &#091;INTENTIONALLY OMITTED&#093;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv)&nbsp;Sellers shall have delivered to Buyer copies of the certificate of incorporation of
Target certified on or soon before the Closing Date by the Secretary of State (or comparable
officer) of the jurisdiction of Target&#146;s incorporation;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi)&nbsp;Sellers shall have delivered to Buyer copies of the certificate of good standing of
Target issued on or soon before the Closing Date by the Secretary of State (or comparable officer)
of the jurisdiction of Target&#146;s organization and of each jurisdiction in which Target is qualified
to do business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvii)&nbsp;Sellers shall have delivered to Buyer a certificate of the secretary or an assistant
secretary of Target, dated the Closing Date, in form and substance reasonably satisfactory to
Buyer, as to (i)&nbsp;no amendments to the Certificate of Incorporation of Target since the date
specified in clause (xv)&nbsp;above; (ii)&nbsp;the bylaws of Target; and (iii)&nbsp;any resolutions of the board
of directors of Target relating to this Agreement and the transactions contemplated hereby;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xviii)&nbsp;Sellers shall have entered into a confidentiality, non-solicitation, non-compete and
non-disparagement agreement (&#147;<B><I>Post-Closing Agreement</I></B>&#148;) with Target on terms satisfactory to Buyer,
and such agreement shall be in full force and effect as of the Closing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xix)&nbsp;Any amounts owed by Target to Sellers shall have been paid in full and, at the request
of Buyer, Sellers shall deliver to Target a release to such effect in form and substance
satisfactory to Buyer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xx)&nbsp;Buyer shall have obtained the approval of its lenders of this Agreement and the
transactions contemplated thereby and there shall be no payment default under Buyer&#146;s loan
agreements with its lenders unless waived by Buyer&#146;s lenders;
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxi)&nbsp;Buyer shall have obtained the approval of its board of directors of this Agreement and
the transactions contemplated thereby;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxii)&nbsp;Target and Sellers shall have delivered to Buyer signed copies of the applicable forms
and attachments thereto required in connection with the Section&nbsp;338(h)(10) Election pursuant to
Section 9(f) below;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiii)&nbsp;Buyer shall have received from Bonadio and Company, LLP audited Financial Statements
of Target for the year ended December&nbsp;31, 2006;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiv)&nbsp;Sellers and Buyer shall have entered into the Registration Rights Agreement; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxv)&nbsp;Buyer&#146;s acquisition of Stationary Power Services, Inc. shall have been completed as of
the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Buyer may waive any condition specified in this Section 7(a) if it executes a writing so stating at
or prior to the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Conditions to Sellers</B>&#146; <B>Obligation</B>. The obligation of Sellers to consummate the
transactions to be performed by them in connection with the Closing is subject to satisfaction of
the following conditions:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;the representations and warranties set forth in Section 3(b) above shall be true and
correct in all material respects at and as of the Closing Date, except to the extent that such
representations and warranties are qualified by terms such as &#147;material&#148; and &#147;Material Adverse
Effect,&#148; in which case such representations and warranties shall be true and correct in all
respects at and as of the Closing Date;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Buyer shall have performed and complied with all of its covenants hereunder in all
material respects through the Closing, except to the extent that such covenants are qualified by
terms such as &#147;material&#148; and &#147;Material Adverse Effect,&#148; in which case Buyer shall have performed
and complied with all of such covenants in all respects through the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;no action, suit, or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A)&nbsp;prevent consummation of any of the transactions contemplated by this Agreement or (B)
cause any of the transactions contemplated by this Agreement to be rescinded following consummation
(and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Buyer shall have delivered to Sellers a certificate to the effect that each of the
conditions specified above in Section&nbsp;7(b)(i)-(iii) is satisfied in all respects;
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;the Parties shall have received all authorizations, consents, and approvals of governments
and governmental agencies referred to in Section&nbsp;3(a)(ii), Section&nbsp;3(b)(ii), and Section 4(c)
above;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;all actions to be taken by Buyer in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably satisfactory in form and substance
to the Sellers; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Buyer and Sellers shall have entered into the Registration Rights Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sellers may waive any condition specified in this Section 7(b) if it executes a writing so stating
at or prior to closing.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Survival of Representations and Warranties</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;All of the representations and warranties of the Parties contained in Section&nbsp;3 of this
Agreement shall survive the Closing hereunder (even if the damaged Party knew or had reason to know
of any misrepresentation or breach of warranty or covenant at the time of Closing) and continue in
full force and effect forever thereafter (subject to any applicable statutes of limitations).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Except for those representations and warranties of the Parties contained in Sections
4(a)-(f) (inclusive), (j), (k)&nbsp;and (z)&nbsp;of this Agreement, all of the representations and warranties
of the Parties contained in Section&nbsp;4 of this Agreement, shall survive the Closing hereunder (even
if the damaged Party knew or had reason to know of any misrepresentation or breach of warranty or
covenant at the time of Closing) and continue in full force and effect for a period of two years
from the Closing Date. This provision shall not extinguish claims that are made within two years of
the Closing Date but that remain unresolved on or after the date that is two years after the
Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;All of the representations and warranties of the Parties contained in Sections&nbsp;4(a)-(f)
(inclusive), (j), (k)&nbsp;and (z)&nbsp;of this Agreement shall survive the Closing hereunder (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of warranty or covenant
at the time of Closing) and continue in full force and effect until the expiration of any
applicable statutes of limitations (after giving effect to any extensions or waivers) plus 60&nbsp;days.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Indemnification Provisions for Buyer&#146;s Benefit</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;In the event Sellers breach (or in the event any third party alleges facts that, if true,
would mean Sellers have breached) any of their representations, warranties, and covenants contained
herein (other than the covenants in Section 2(a) above and the representations and warranties in
Section 3(a) above) and, provided that Buyer makes a written
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">claim for indemnification against Sellers pursuant to Section 11(g) below within the survival
period (if there is an applicable survival period pursuant to Section 8(a) above), then Sellers
shall be obligated to indemnify Buyer from and against the entirety of any Adverse Consequences
Buyer may suffer (including any Adverse Consequences Buyer may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;In the event any Seller breaches (or in the event any third party alleges facts that, if
true, would mean any Seller breached) any of his covenants in Section 2(a) above or any of his
representations and warranties in Section 3(a) above, and provided that Buyer makes a written claim
for indemnification against such Seller pursuant to Section 11(g) below within the survival period
(if there is an applicable survival period pursuant to Section 8(a) above), then such Seller shall
indemnify Buyer from and against the entirety of any Adverse Consequences Buyer may suffer
(including any Adverse Consequences Buyer may suffer after the end of any applicable survival
period) resulting from arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Sellers shall indemnify Buyer from and against the entirety of any Adverse Consequences
Buyer may suffer resulting from, arising out of, relating to, in the nature of, or caused by any
occurrence or circumstance related to Target or its business that first arose, in whole or in part,
on or before the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL THE
AGGREGATE LIABILITY OF ANY SELLER TO BUYER UNDER THIS SECTION 8(B) EXCEED THE PURCHASE PRICE.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Indemnification Provisions for Sellers&#146; Benefit</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;In the event Buyer breaches (or in the event any third party alleges facts that, if true,
would mean Buyer has breached) any of its representations, warranties, and covenants contained
herein and, provided that any Seller makes a written claim for indemnification against Buyer
pursuant to Section 11(g) below within such survival period (if there is an applicable survival
period pursuant to Section 8(a) above), then Buyer shall indemnify the Seller(s) from and against
the entirety of any Adverse Consequences suffered (including any Adverse Consequences suffered
after the end of any applicable survival period) resulting from, arising out of, relating to, in
the nature of, or caused by the breach (or the alleged breach).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Buyer shall indemnify Sellers from and against the entirety of any Adverse Consequences
Sellers may suffer resulting from, arising out of, relating to, in the nature of, or caused by any
occurrence or circumstance related to Target or its business that first arose, in whole or in part,
after the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Matters Involving Third Parties</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;If any third party shall notify any Party (the &#147;<B><I>Indemnified Party</I></B>&#148;) with respect to any
matter (a &#147;<B><I>Third Party Claim</I></B>&#148;) which may give rise to a claim for indemnification against any other
Party (the &#147;<B><I>Indemnifying Party</I></B>&#148;) under this Section&nbsp;8, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; provided, however, that
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent)
the Indemnifying Party thereby is prejudiced.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Any Indemnifying Party will have the right to defend the Indemnified Party against the
Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so
long as (A)&nbsp;the Indemnifying Party notifies the Indemnified Party in writing within 15&nbsp;days after
the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B)&nbsp;the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C)&nbsp;the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D)&nbsp;settlement of, or an adverse judgment with respect to,
the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the continuing business interests
or the reputation of the Indemnified Party, and (E)&nbsp;the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;So long as the Indemnifying Party is conducting the defense of the Third Party Claim in
accordance with Section&nbsp;8(d)(ii) above, (A)&nbsp;the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third Party Claim, (B)&nbsp;the
Indemnified Party will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not
to be withheld unreasonably), and (C)&nbsp;the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld unreasonably).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;In the event any of the conditions in Section&nbsp;8(d)(ii) above is or becomes unsatisfied,
however, (A)&nbsp;the Indemnified Party may defend against, and consent to the entry of any judgment or
enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may
deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B)&nbsp;the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending against the Third Party
Claim (including reasonable attorneys&#146; fees and expenses), and (C)&nbsp;the Indemnifying Parties will
remain responsible for any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section&nbsp;8.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Determination of Adverse Consequences</B>. All indemnification payments under this Section&nbsp;8
and Section 9(a) shall be deemed adjustments to the Purchase Price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Setoff against Holdback Amounts; Priority</B>. Any indemnification to which Buyer is entitled
under this Agreement as a result of any Adverse Consequences Buyer may suffer may, at Buyer&#146;s
election, be satisfied by Buyer setting off such indemnification amounts
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">against any Holdback Amount due Seller&#146;s hereunder, and Buyer shall seek to satisfy such
indemnification amounts against such Holdback Amounts due to Sellers prior to and before seeking to
satisfy such indemnification amounts against other assets of the Sellers. The exercise by Buyer of
such right of setoff shall not preclude Buyer from pursuing other remedies available to Buyer
against Sellers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Other Indemnification Provisions</B>. Buyer and Sellers acknowledge and agree that the
foregoing indemnification provisions in this Section&nbsp;8 shall be the exclusive remedy of Buyer and
Sellers with respect to Target, Sellers, and the transactions contemplated by this Agreement. The
party entitled to indemnification hereunder shall take all reasonable steps to mitigate all
damages, upon and after becoming aware of any event that could reasonably be expected to give rise
to any such losses that are indemnifiable hereunder. No party shall be entitled to indemnification
to the extent of any insurance, or any tax deduction or benefit actually realized, refund or
credit, or any other benefits actually realized resulting from or which may be claimed as a result
of the facts and circumstances relating to any indemnifiable claim. If any damages are covered by
insurance, the party seeking indemnity hereunder shall use all reasonable efforts to recover the
amount of such losses from the insurer of such insurance, which such recovery shall reduce the
amount of such losses to be indemnified. To the extent either party discharges any claims for
indemnification hereunder, that party shall be segregated to all rights of the other parties
against third parties. Each Seller hereby agrees that he will not make any claim for
indemnification against Target by reason of the fact that he was a director, officer, employee, or
agent of any such entity or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses, or otherwise and
whether such claim is pursuant to any statute, charter document, bylaw, agreement, or otherwise)
with respect to any action, suit, proceeding, complaint, claim, or demand brought by Buyer against
Sellers (whether such action, suit, proceeding, complaint, claim, or demand is pursuant to this
Agreement, applicable law, or otherwise).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 9. TAX MATTERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following provisions shall govern the allocation of responsibility as between Buyer and
Sellers for certain tax matters following the Closing Date:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Tax Indemnification</B>. Sellers shall indemnify Target, Buyer, and each Buyer Affiliate and
hold them harmless from and against without duplication, any loss, claim, liability, expense, or
other damage attributable to (i)&nbsp;all Taxes (or the non-payment thereof) of Target for all Taxable
periods ending on or before the Closing Date and the portion through the end of the Closing Date
for any Taxable period that includes (but does not end on) the Closing Date (&#147;<B><I>Pre-Closing Tax
Period</I></B>&#148;), (ii)&nbsp;all Taxes of any member of an affiliated, consolidated, combined or unitary group of
which Target (or any predecessor of Target) is or was a member on or prior to the Closing Date,
including pursuant to Treasury Regulation&nbsp;Section&nbsp;1.1502-6 or any analogous or similar state,
local, or foreign law or regulation, and (iii)&nbsp;any and all Taxes of any person (other than Target)
imposed on Target as a transferee or successor, by contract or pursuant to any law, rule, or
regulation, which Taxes relate to an event or transaction occurring before the Closing.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <B>Responsibility for Filing Tax Returns</B>. Buyer acknowledges that the Target will no longer
be eligible for S corporation status after the Closing Date. Accordingly, a final Form&nbsp;1120S for
the Target will be required to be prepared for the period January&nbsp;1, 2007 through the end of the
Closing Date. Such income tax return will be provided by the Sellers allocating income and
expenses to this period according to the closing of the books method, in accordance with Section
1377(a)(2) of the Code. At their expense, Sellers shall prepare or caused to be prepared and file
or caused to be filed all Tax Returns for Target for periods ending on or before the Closing Date.
Sellers shall permit Buyer to review and comment on each such Tax Return described in the preceding
sentence prior to filing. Buyer shall have the right to contest the contents of all such Tax
Returns, and any conflict between Sellers, on the one hand, and Buyer, on the other, with respect
thereto shall be resolved by submitting the disagreement to BDO Seidman LLP (&#147;<B><I>Auditor</I></B>&#148;) for
computation, verification or resolution in accordance with the provisions of this Agreement. Buyer
and Sellers shall make readily available to the Auditor all relevant books and records (including
work papers of a party&#146;s independent public accountants) as the Auditor reasonably requests. The
Auditor&#146;s computation or verification of the Tax Returns or resolution of such disputed item or
items thereof (as the case may be), which Buyer and Sellers will instruct the Auditor to deliver to
them within 30&nbsp;days after submission to the Auditor, will be final and binding upon the parties for
all purposes relating to this Section&nbsp;9, and the Auditor&#146; fees and expenses therefor will be borne
by the non-prevailing party or, in the event that each party prevails on some of the issues in
dispute, will be shared proportionately, as determined by the Auditor.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Cooperation on Tax Matters</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Buyer, Target, and Sellers shall cooperate fully, as and to the extent reasonably
requested by the other Party, in connection with the filing of Tax Returns pursuant to Section 9(c)
and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include
the retention and (upon the other Party&#146;s request) the provision of records and information which
are reasonably relevant to any such audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional information and explanation of any
material provided hereunder. Target and Sellers agree (A)&nbsp;to retain all books and records with
respect to Tax matters pertinent to Target relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the extent notified by
Buyer or Sellers, any extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (B)&nbsp;to give the other Party
reasonable written notice prior to transferring, destroying or discarding any such books and
records and, if the other Party so requests, Target or Sellers, as the case may be, shall allow the
other Party to take possession of such books and records.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Buyer and Sellers further agree, upon request, to use their best efforts to obtain any
certificate or other document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Buyer and Sellers further agree, upon request, to provide the other party with all
information that either party may be required to report pursuant to Code Section&nbsp;6043 and all
Treasury Regulations promulgated thereunder.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Buyer shall not without the prior written consent of Sellers file, or cause to be filed,
any amended Tax Return or claim for Tax Refund, with respect to the Target for pre-Closing Tax
Period, to the extent any such filing may adversely affect the liability of the Sellers, unless
advised in writing that such filing is required by law.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Tax Sharing Agreements</B>. All Tax sharing agreements or similar agreements with respect to
or involving Target shall be terminated as of the Closing Date and, after the Closing Date, Target
shall not be bound thereby or have any liability thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Certain Taxes and Fees</B>. All transfer, documentary, sales, use, stamp, registration and
other such Taxes, and all conveyance fees, recording charges and other fees and charges (including
any penalties and interest) incurred in connection with consummation of the transactions
contemplated by this Agreement shall be paid by Sellers when due, and Sellers will, at their own
expense, file all necessary Tax Returns and other documentation with respect to all such Taxes,
fees and charges, and, if required by applicable law, Buyer will, and will cause its Affiliates to,
join in the execution of any such Tax Returns and other documentation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Section&nbsp;</B><B>338(h)(10)</B><B> Election</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;At Buyer&#146;s request, Target and Sellers shall join with Buyer in making an election under
Sections&nbsp;338(h)(10) of the Code and the Treasury Regulations, including Treasury Regulation&nbsp;Section
1.338(h)(10)-1T(c)(1), and any corresponding or similar elections under state, local or foreign Tax
Law (collectively, a &#147;<B><I>Section&nbsp;338(h)(10) Election</I></B>&#148;) with respect to the purchase and sale of the
Target Shares. In such case, Target and Sellers shall include any income, gain, loss, deduction, or
other Tax item resulting from the Section&nbsp;338(h)(10) Election on their Tax Returns to the extent
required by applicable law.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Buyer shall be responsible for the preparation and filing of all forms and documents
required in connection with the Section&nbsp;338(h)(10) Election. Seller shall execute and deliver to
Buyer such documents or forms as are reasonably requested and are required by any law, rule or
regulation to complete properly the Section&nbsp;338(h)(10) Election no later than 60&nbsp;days after the
Closing. For the purposes of executing the Section&nbsp;338 Election, on or prior to the Closing Date,
Sellers and Buyer will execute two copies of the applicable Internal Revenue Service form and all
attachments required to be filed therewith pursuant to applicable Treasury Regulations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Buyer, not less than 30&nbsp;days prior to the date the forms required under Section
338(h)(10) of the Code are required to be filed, will provide Sellers with a valuation statement
reflecting, as of the Closing Date, the fair market values of all of the assets and the liabilities
and obligations of the Target. Buyer and Sellers will file, and will cause their Affiliates to
file, all Tax Returns and statements, forms and schedules in connection therewith in a manner
consistent with such valuation and will take no position contrary thereto unless required to do so
by applicable Tax laws.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;To the extent permitted by state and local law, the principles and procedures of this
section will also apply with respect to Section&nbsp;338(h)(10) Election or equivalent or comparable
provision under state or local law. Sellers will make any election
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">similar to a Section&nbsp;338(h)(10) Election which is optional under any state or local law, and
will cooperate and join in any election made by Target, Buyer or its Affiliates to effect such an
election so as to treat the transaction as a sale of assets for state and local income Tax
purposes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Tax Adjustment</B>. If Buyer makes a Section&nbsp;338(h)(10) Election, and if such Section
338(h)(10) Election causes Sellers&#146; after-Tax net proceeds from the sale of Target&#146;s stock to be
less than the after-Tax net proceeds that Sellers would have received had the Section&nbsp;338(h)(10)
Election not been made, taking into account all appropriate state, federal and local Tax
implications (the &#147;<B><I>Section&nbsp;</I></B><B><I>338(h)(10)</I></B><B><I> Election Liability</I></B>&#148;), then Buyer shall pay to Sellers, in
cash, an aggregate amount determined pursuant to the following scale (the &#147;<B><I>Tax Adjustment</I></B>&#148;):
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;If the aggregate amount of the Section&nbsp;338(h)(10) Election Liability is less than or equal
to $25,000, then Buyer shall pay Sellers the aggregate amount of the Section&nbsp;338(h)(10) Election
Liability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The amount of the Tax Adjustment shall be paid to each eligible Seller prior to the date that any
Tax return is required to be filed in which the Section&nbsp;338(h)(10) Election would have an impact on
a Seller&#146;s Tax liability. If a Tax impact would occur in multiple years, only the amount necessary
to pay a Tax Adjustment for each year shall be paid in that year. In order to be entitled to a Tax
Adjustment each Seller shall provide Buyer with a schedule, not later than 30&nbsp;days before the due
date of the Tax return with respect to which the Tax Adjustment is requested, computing the amount
of the Tax Adjustment. The Tax Adjustment shall reflect the actual calculation of each Seller&#146;s tax
and shall not be based on assumed or hypothetical Tax rates. Buyer shall have the right to contest
the calculation of any requested Tax Adjustment, and any conflict with respect to the calculation
of a Tax Adjustment shall be resolved in accordance with the provisions of Section&nbsp;9(a)(ii).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Tax Refund</B>. Any Tax Refund pertaining to the pre-Closing Period (reduced by any Taxes
imposed on the Target as a result of such refund) shall be for the account of, and paid over to the
Seller.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 10. TERMINATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Termination of Agreement</B>. Certain of the Parties may terminate this Agreement as provided
below:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Buyer and Sellers may terminate this Agreement by mutual written consent at any time prior
to the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Buyer may terminate this Agreement by giving written notice to Sellers on or before the
25<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day following the date of this Agreement if Buyer is not satisfied with the results
of its continuing business, legal, environmental, and accounting due diligence regarding Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Buyer may terminate this Agreement by giving written notice to Sellers at any time prior
to the Closing (A)&nbsp;in the event any Seller has breached any material
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->41<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">representation, warranty, or covenant contained in this Agreement in any material respect,
Buyer has notified the Seller of the breach, and the breach has continued without cure for a period
of 10&nbsp;days after the notice of breach or (B)&nbsp;if the Closing shall not have occurred on or before
November&nbsp;30, 2007, by reason of the failure of any condition precedent under Section 7(a) hereof
(unless the failure results primarily from Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement); and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Sellers may terminate this Agreement by giving written notice to Buyer at any time prior
to the Closing (A)&nbsp;in the event Buyer has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, Sellers have notified Buyer of the
breach, and the breach has continued without cure for a period of 10&nbsp;days after the notice of
breach or (B)&nbsp;if the Closing shall not have occurred on or before November&nbsp;30, 2007, by reason of
the failure of any condition precedent under Section 7(b) hereof (unless the failure results
primarily from Sellers breaching any representation, warranty, or covenant contained in this
Agreement).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Effect of Termination</B>. If any Party terminates this Agreement pursuant to Section 10(a)
above, all rights and obligations of the Parties hereunder shall terminate without any Liability of
any Party to any other Party (except for any Liability of any Party then in breach).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 11. MISCELLANEOUS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Press Releases and Public Announcements; Confidentiality</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;No Party shall issue any press release or make any public announcement relating to the
subject matter of this Agreement without the prior written approval of Buyer and Sellers;
<U>provided</U>, <U>however</U>, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its reasonable best efforts
to advise the other Parties prior to making the disclosure).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Each of the parties hereto will treat and hold as such all of the Confidential
Information of the other parties, refrain from using any of the Confidential Information except in
connection with this Agreement, and deliver promptly to such other party or destroy, at the request
and option of disclosing party, all tangible embodiments (and all copies) of the Confidential
Information which are in his, her, or its possession. In the event that any party is requested or
required pursuant to written or oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar process to disclose any
Confidential Information, such party will notify the disclosing party promptly of the request or
requirement so that the disclosing party may seek an appropriate protective order or waive
compliance with the provisions of this Section&nbsp;11(a)(ii). If, in the absence of a protective order
or the receipt of a waiver hereunder, any of receiving parties is, on the advice of counsel,
compelled to disclose any Confidential Information to any tribunal or party in a proceeding therein
or else stand liable for contempt, such party may disclose the Confidential Information to the
tribunal or such person involved in such action; provided,
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->42<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">however, that the disclosing party shall use his, her, or its best efforts to obtain, at the
reasonable request of the disclosing party, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be disclosed as the
disclosing party shall designate. The foregoing provisions shall not apply to any Confidential
Information that is generally available to the public immediately prior to the time of disclosure
unless such Confidential Information is so available due to the actions of a Party, nor shall the
foregoing provisions apply to Buyer to the extent Buyer is required to disclose such information in
order to comply with its disclosure obligations as a publicly-traded company under applicable
federal securities laws and stock exchange rules and listing standards.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;No Third-Party Beneficiaries</B>. This Agreement shall not confer any rights or remedies upon
any Person other than the Parties and their respective successors and permitted assigns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Entire Agreement</B>. This Agreement (including the documents referred to herein) constitutes
the entire agreement among the Parties and supersedes any prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they relate in any way to
the subject matter hereof, including, but not limited to that certain letter of intent and term
sheet dated as of June&nbsp;4, 2007, as amended or extended, which letter of intent and term sheet are
hereby terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Succession and Assignment</B>. This Agreement shall be binding upon and inure to the benefit
of the Parties named herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of his, her, or its rights, interests, or obligations hereunder
without the prior written approval of Buyer and Sellers; <U>provided</U>, <U>however</U>, that
Buyer may (i)&nbsp;assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii)&nbsp;designate one or more of its Affiliates to perform its obligations hereunder
(in any or all of which cases Buyer nonetheless shall remain responsible for the performance of all
of its obligations hereunder).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Counterparts</B>. This Agreement may be executed in one or more counterparts (including by
means of facsimile), each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Headings</B>. The section headings contained in this Agreement are inserted for convenience
only and shall not affect in any way the meaning or interpretation of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Notices</B>. All notices, requests, demands, claims, and other communications hereunder will
be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed
duly given (i)&nbsp;when delivered personally to the recipient, (ii)&nbsp;one business day after being sent
to the recipient by reputable overnight courier service (charges prepaid), (iii)&nbsp;one business day
after being sent to the recipient by facsimile transmission or electronic mail, or (iv)&nbsp;four
business days after being mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid, and addressed to the intended recipient as set forth below:
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->43<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">If to Buyer:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ultralife Batteries, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2000 Technology Parkway</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Newark, NY 14513</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: General Counsel</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile: (315)&nbsp;331-7048</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">With a copy to:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Harter Secrest &#038; Emery LLP</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1600 Bausch &#038; Lomb Place</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rochester, NY 14604</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: Jeffrey H. Bowen</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile: (585)&nbsp;232-2152</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">If to Sellers:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">William Maher</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">525 Tallahassee Drive</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">St. Petersburg, FL 33702</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile:</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Edward Bellamy</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4902 113<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Avenue North</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Clearwater, FL 33760</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">With a copy to:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Johnson, Pope, Bokor, Ruppel &#038; Burns, LLP</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">911 Chestnut Street</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Clearwater, FL 33756</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: Michael G. Little</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile: 727-462-0365</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Any Party may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice in the manner
herein set forth.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(h)&nbsp;Governing Law</B>. This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of New York without giving effect to any choice or conflict of law
provision or rule (whether of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;Amendments and Waivers</B>. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by Buyer and Sellers. No waiver by any Party of any
provision of this Agreement or any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be valid unless the same shall be in writing and
signed by the Party making such waiver nor shall such waiver be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such default, misrepresentation, or
breach of warranty or covenant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(j)&nbsp;Severability</B>. Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or enforceability of
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->44<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the remaining terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(k)&nbsp;Expenses</B>. Each of Buyer, Sellers and Target will bear his or its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby; <U>provided</U><I>, </I><U>however</U>, that Sellers shall also bear the costs and
expenses of Target (including all of their legal fees and expenses) in connection with this
Agreement and the transactions contemplated hereby in the event that the transactions contemplated
by this Agreement are consummated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(l)&nbsp;Construction</B>. The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of
proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word &#147;including&#148; shall mean including without limitation. The
Parties intend that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation, warranty, or covenant
contained herein in any respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels of specificity)
which the Party has not breached shall not detract from or mitigate the fact that the Party is in
breach of the first representation, warranty, or covenant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(m)&nbsp;Incorporation of Exhibits, Annexes, and Schedules</B>. The Exhibits, Annexes, and Schedules
identified in this Agreement are incorporated herein by reference and made a part hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(n)&nbsp;Specific Performance</B>. Each Party acknowledges and agrees that the other Parties would be
damaged irreparably in the event any provision of this Agreement is not performed in accordance
with its specific terms or otherwise is breached, so that a Party shall be entitled to injunctive
relief to prevent breaches of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in addition to any other remedy to which such Party may be entitled, at
law or in equity. In particular, the Parties acknowledge that the business of Target is unique and
recognize and affirm that in the event Sellers breach this Agreement, money damages would be
inadequate and Buyer would have no adequate remedy at law, so that Buyer shall have the right, in
addition to any other rights and remedies existing in its favor, to enforce its rights and the
other Parties&#146; obligations hereunder not only by action for damages but also by action for specific
performance, injunctive, and/or other equitable relief.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(o)&nbsp;Submission to Jurisdiction</B>. Each of the Parties submits to the jurisdiction of any state
or federal court having jurisdiction in Wayne County, New York, in any action or proceeding arising
out of or relating to this Agreement and agrees that all claims in respect of the action or
proceeding may be heard and determined in any such court. Each Party also agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any other court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->45<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">any other Party with respect thereto. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any
other manner provided by law or at equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(p)&nbsp;Tax Disclosure Authorization</B>. Notwithstanding anything herein to the contrary, the Parties
(and each Affiliate and Person acting on behalf of any Party) agree that each Party (and each
employee, representative, and other agent of such Party) may disclose to any and all Persons,
without limitation of any kind, the transaction&#146;s tax treatment and tax structure (as such terms
are used in Code Sections&nbsp;6011 and 6112 and regulations thereunder) contemplated by this agreement
and all materials of any kind (including opinions or other tax analyses) provided to such Party or
such Person relating to such tax treatment and tax structure, except to the extent necessary to
comply with any applicable federal or state securities laws; <U>provided</U><I>, </I><U>however</U>,
that such disclosure may not be made until the earlier of date of (A)&nbsp;public announcement of
discussions relating to the transaction, (B)&nbsp;public announcement of the transaction, or (C)
execution of an agreement to enter into the transaction. This authorization is not intended to
permit disclosure of any other information including (without limitation) (A)&nbsp;any portion of any
materials to the extent not related to the transaction&#146;s tax treatment or tax structure, (B)&nbsp;the
identities of participants or potential participants, (C)&nbsp;the existence or status of any
negotiations, (D)&nbsp;any pricing or financial information (except to the extent such pricing or
financial information is related to the transaction&#146;s tax treatment or tax structure), or (E)&nbsp;any
other term or detail not relevant to the transaction&#146;s tax treatment or the tax structure.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->46<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">* * * * *
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the Parties hereto have executed this Stock Purchase Agreement as of the
date first above written.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><u>BUYER:</u><BR>
<BR>
Ultralife Batteries, Inc.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ John D. Kavazanjian
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">John D. Kavazanjian&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><u>SELLERS:</u><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ William Maher
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">William Maher, Individually&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left"> /s/ Edward Bellamy
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Edward Bellamy, Individually&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><u>TARGET:</u><BR>
<BR>
Reserve Power Systems, Inc.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ William Maher
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">William Maher&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">President&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->47<!-- /Folio -->
</DIV>



</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>l30016aexv21.htm
<DESCRIPTION>EX-21
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-21</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;21</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">SUBSIDIARIES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a 100% ownership interest in Ultralife Batteries (UK)&nbsp;Ltd., incorporated in the United
Kingdom.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a 100% ownership in ABLE New Energy Co., Limited, incorporated in Hong Kong, which has a
100% ownership in ABLE New Energy Co., Ltd, incorporated in the People&#146;s Republic of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a 100% ownership in McDowell Research Co., Inc., incorporated in Delaware.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a 100% ownership in RedBlack Communications, Inc. (formerly Innovative Solutions
Consulting, Inc.), incorporated in Maryland.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a 100% ownership in Stationary Power Services, Inc., incorporated in Florida.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a 100% ownership in Reserve Power Systems, Inc., incorporated in Florida.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a 51% ownership in Ultralife Batteries India Private Limited, incorporated in India.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->98<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>l30016aexv23w1.htm
<DESCRIPTION>EX-23.1
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-23.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;23.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><b>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</b>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">We hereby consent to the incorporation by reference in the Registration Statements on Forms S-3
(Nos. 333-67808, 333-90984, 333-110426 and 333-136742) and Forms S-8 (Nos. 333-31930, 333-60984,
333-114271, 333-117662, 333-136737 and 333-136738) of Ultralife Batteries, Inc. of our reports
dated March&nbsp;19, 2008 relating to the 2007 consolidated financial statements and schedule, and
the effectiveness of internal control over financial reporting, which appear in this Form 10-K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>/s/ BDO Seidman, LLP</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Troy, Michigan<BR>
March 19, 2008

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->99<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>7
<FILENAME>l30016aexv23w2.htm
<DESCRIPTION>EX-23.2
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-23.2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;23.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><b>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</b>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">We hereby consent to the incorporation by reference in the Registration Statement on Forms S-3
(Nos. 333-67808, 333-90984, 333-110426 and 333-136742) and Forms S-8 (Nos. 333-31930, 333-60984,
333-114271, 333-117662, 333-136737 and 333-136738) of Ultralife Batteries, Inc. of our report
dated March&nbsp;22, 2006 relating to the financial statements and financial statement schedule,
which appears in this Form 10-K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>/s/ PricewaterhouseCoopers LLP</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PricewaterhouseCoopers LLP<BR>
Rochester, New York<BR>
March 18, 2008

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->100<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>8
<FILENAME>l30016aexv31w1.htm
<DESCRIPTION>EX-31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-31.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.1</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">I, John D. Kavazanjian, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this annual report on Form 10-K of Ultralife Batteries, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s internal
control over financial reporting that occurred during the registrant&#146;s most
recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant&#146;s internal control over financial reporting;
and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant&#146;s auditors and the audit committee of registrant&#146;s board of directors (or
persons performing the equivalent functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant&#146;s ability to record,
process, summarize and report financial information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant&#146;s internal control
over financial reporting.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ John D. Kavazanjian
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">John D. Kavazanjian,&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->101<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>9
<FILENAME>l30016aexv31w2.htm
<DESCRIPTION>EX-31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-31.2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.2</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">I, Robert W. Fishback, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this annual report on Form 10-K of Ultralife Batteries, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s internal
control over financial reporting that occurred during the registrant&#146;s most
recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant&#146;s internal control over financial reporting;
and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant&#146;s auditors and the audit committee of registrant&#146;s board of directors (or
persons performing the equivalent functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant&#146;s ability to record,
process, summarize and report financial information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant&#146;s internal control
over financial reporting.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Robert W. Fishback
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Robert W. Fishback,&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Vice President - Finance and<BR>
Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->102<!-- /Folio -->
</DIV>

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<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>10
<FILENAME>l30016aexv32w1.htm
<DESCRIPTION>EX-32.1
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-32.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;32.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Section&nbsp;1350 Certification
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of
2002 (&#147;Section&nbsp;906&#148;), John D. Kavazanjian and Robert W. Fishback, the President and Chief Executive
Officer and Vice President-Finance and Chief Financial Officer, respectively, of Ultralife
Batteries, Inc., certify that ( i ) the Annual Report on Form 10-K for the year ended December&nbsp;31,
2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and (ii)&nbsp;the information contained in such report fairly presents, in all material
respects, the financial condition and results of operations of Ultralife Batteries, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A signed original of this written statement required by Section&nbsp;906 has been provided to Ultralife
Batteries, Inc. and will be retained by Ultralife Batteries, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ John D. Kavazanjian
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">John D. Kavazanjian&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Robert W. Fishback
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Robert W. Fishback&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Vice President-Finance and<BR>
Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->103<!-- /Folio -->
</DIV>




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