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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><B>As filed with the Securities and Exchange
Commission on April 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><B>File No. 333-</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>UNITED STATES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITIES AND EXCHANGE COMMISSION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Washington, D.C. 20549</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>FORM S-1</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>REGISTRATION STATEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>UNDER THE SECURITIES ACT OF 1933</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CYALUME TECHNOLOGIES HOLDINGS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Exact Name of Registrant as Specified in
Charter)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <TD STYLE="width: 33%; padding: 0; font-weight: bold; text-align: center; text-indent: 0">Delaware</TD>
    <TD STYLE="width: 34%; padding-right: 0; padding-left: 0; text-align: center">&nbsp;<B>3640</B></TD>
    <TD STYLE="width: 33%; padding: 0; font-weight: bold; text-align: center; text-indent: 0">20-3200738</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-align: center; text-indent: 0">(State or Other</TD>
    <TD STYLE="padding-right: 0; text-align: center; padding-left: 0">(Primary Standard Industrial</TD>
    <TD STYLE="padding: 0; text-align: center; text-indent: 0">(IRS Employer</TD></TR>
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    <TD STYLE="padding: 0; text-indent: 0">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center">Jurisdiction of Incorporation</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center"><FONT STYLE="color: black">or
        Organization</FONT>)</P></TD>
    <TD STYLE="padding-right: 0; text-align: center; padding-left: 0">Classification Code Number)</TD>
    <TD STYLE="padding: 0; text-align: center; text-indent: 0">Identification Number)</TD></TR>
</TABLE>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>96 Windsor Street</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>West Springfield, MA 01089</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(413) 858-2500</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Address, Including Zip Code, and Telephone
Number,</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Including Area Code, of Registrant&rsquo;s
Principal Executive Offices)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Zivi Nedivi</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>President and Chief Executive Officer</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>96 Windsor Street</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>West Springfield, MA 01089</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(413) 858-2500</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Name, Address, Including Zip Code, and
Telephone Number,</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Including Area Code, of Agent for Service)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><I>Copies to:</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Mitchell S. Nussbaum, Esq.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Giovanni Caruso, Esq.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Loeb &amp; Loeb LLP</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>345 Park Avenue</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>New York, New York 10154</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(212) 407-4000</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Fax: (212) 407-4990</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Approximate date of
commencement of proposed sale to the public: From time to time after the effective date of this registration statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If any of the securities
being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. &nbsp; <FONT STYLE="font-family: Wingdings">x</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If this Form is filed
to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
<FONT STYLE="font-family: Wingdings">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. <FONT STYLE="font-family: Wingdings">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. <FONT STYLE="font-family: Wingdings">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of &lsquo;&lsquo;large accelerated filer,&rsquo;&rsquo; &lsquo;&lsquo;accelerated filer&rsquo;&rsquo;
and &lsquo;&lsquo;smaller reporting company&rsquo;&rsquo; in Rule 12b-2 of the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 35%; padding-right: 0.8pt">Large accelerated filer &nbsp; <FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD STYLE="width: 20%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 45%; padding-right: 0.8pt">Accelerated filer &nbsp; <FONT STYLE="font-family: Wingdings">&uml;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">Non-accelerated filer &nbsp; <FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Smaller reporting company <FONT STYLE="font-family: Wingdings">x</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">(Do not check if smaller reporting company)</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CALCULATION OF REGISTRATION FEE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; border-bottom: Black 1pt solid">Title&nbsp;of&nbsp;Each&nbsp;Class&nbsp;of&nbsp;Securities&nbsp;to be&nbsp;Registered</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Amount</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>to be</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Registered <SUP>(1)</SUP></B></P></TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Proposed <BR>Maximum <BR>Offering <BR>Price&nbsp;per <BR>Unit</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Proposed</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Maximum</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Aggregate</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Offering</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Price <SUP>(2)</SUP></B></P></TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Amount&nbsp;of <BR>Registration <BR>Fee</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 44%; font-size: 10pt; text-indent: -8.8pt; padding-left: 8.8pt">Shares of common stock, par value $.001 per share <SUP>(3)</SUP></TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,983,647</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">2.93</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">(4)</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">5,802,167</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">674</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Total</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,983,647</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">5,802,167</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">674</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<HR SIZE="1" STYLE="color: Black; width: 100%">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%; padding-right: 0.8pt">(1)</TD>
    <TD STYLE="width: 97%; padding-right: 0.8pt; text-align: justify">Pursuant to Rule 416 of the Securities Act of 1933, as amended, the shares of common stock offered hereby also include such presently indeterminate number of shares of the Registrant&rsquo;s common stock as shall be issued by the Registrant to the selling stockholders named in this registration statement as a result of stock splits, stock dividends or similar transactions.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(2)</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(3)</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Represents shares of the Registrant&rsquo;s common stock being registered for resale that have been issued to the selling stockholders named in this registration statement.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(4)</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on average of the bid and asked price of the Registrant&rsquo;s common stock on April 19, 2012, as quoted through the Over-The-Counter Bulletin Board.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to Rule
429 under the Securities Act of 1933, the Prospectus included in this Registration Statement is a combined prospectus
relating to this Registration Statement and Registration Statements nos. 333-173546, 333-173403 and 333-157827, which were
previously filed by the Registrant on Form S-1 and have been declared effective by the SEC. This Registration Statement,
which is a new registration statement, also constitutes Post-Effective Amendment No. 3 on Form S-1 to Registration Statement
no. 333-157827 and Post-Effective Amendment No. 1 to Registration Statements nos. 333-173546 and 333-173403 Each such
Post-Effective Amendment shall hereafter become effective concurrently with the effectiveness of this registration statement
in accordance with Section 8(c) of the Securities Act of 1933.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">T<B>he Registrant
hereby agrees to amend this registration statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter, become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may determine.</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; color: red"><B>The information in this
prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SUBJECT TO COMPLETION dated April 30,
2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>14,969,696 Shares of Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CYALUME TECHNOLOGIES HOLDINGS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">This prospectus relates
to 14,969,696 shares of common stock of Cyalume Technologies Holdings, Inc. (&lsquo;&lsquo;Cyalume,&rsquo;&rsquo; &lsquo;&lsquo;Company,&rsquo;&rsquo;
&lsquo;&lsquo;we,&rsquo;&rsquo; &lsquo;&lsquo;our&rsquo;&rsquo; or &lsquo;&lsquo;us&rsquo;&rsquo;), a Delaware corporation, that
may be sold from time to time by the Selling Stockholders named in this prospectus. This includes (i) 3,427,471 shares of common
stock held by certain of Cyalume&rsquo;s founding stockholders and their designees, (ii) 775,116 shares of common stock held by
Catalyst Equity Management, (iii) an aggregate of 7,697,129 shares held by the members of GMS Acquisition Partners Holdings, LLC,
(iv) 79,839 shares of common stock issued to a stockholder upon the cashless exercise of warrants, (v) 871,823 shares of common
stock held by certain institutional investors, (vi) 94,118 shares of common stock underlying warrants held by Granite Creek Flexcap
I, L.P., (vii) 65,882 shares of common stock underlying warrants held by Patriot Capital II, L.P., (viii) 712,771 shares of common
stock held by JFC Technologies, LLC and their designees, (ix) 133,584 shares of common stock held by Antonio Colon and his designees,
and (x) 1,111,963 shares of common stock underlying options held by East Shore Ventures, LLC. Cyalume will not receive any of
the proceeds from the sale of the shares under this prospectus, although Cyalume could receive up to $4,243,067 if all of the warrants
held by the Selling Stockholders whose underlying common stock is being registered hereunder are exercised by the warrant holders
paying the exercise price in cash.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The prices at which
the Selling Stockholders may sell their shares will be determined by the prevailing market price for the shares or pursuant to
privately negotiated transactions. Information regarding the Selling Stockholders and the times and manner in which they may offer
and sell the shares under this prospectus is provided under &lsquo;&lsquo;Selling Stockholders&rsquo;&rsquo; and &lsquo;&lsquo;Plan
of Distribution&rsquo;&rsquo; in this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our common stock and
units (defined as consisting of one share of common stock and one warrant to purchase one share of common stock) are traded on
the Over-the-Counter Bulletin Board under the symbols CYLU and CYLUU, respectively. On April 25, 2012, the closing sale price of
the common stock and units was $3.15 and $3.50, respectively. You are urged to obtain current market quotations of common stock
before purchasing any of the shares being offered for sale pursuant to this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><B>INVESTING IN OUR
COMMON STOCK IS HIGHLY RISKY. YOU SHOULD INVEST IN OUR COMMON STOCK ONLY IF YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT. FOR
A DISCUSSION OF SOME OF THE RISKS INVOLVED, SEE &lsquo;&lsquo;RISK FACTORS&rsquo;&rsquo; BEGINNING ON PAGE 3 OF THIS PROSPECTUS.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Neither the Securities
and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a criminal offense.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.25in">_______________ ___,
2012</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><I>This prospectus
is not an offer to sell any securities other than the shares of common stock offered hereby. This prospectus is not an offer to
sell securities in any circumstances in which such an offer is unlawful.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><I>You should rely
only on the information contained in this prospectus. We have not authorized anyone to provide you with different information.
We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information
contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CYALUME TECHNOLOGIES HOLDINGS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>TABLE OF CONTENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 91%; padding-right: 0.8pt">Prospectus Summary</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 6%; padding-right: 0.8pt">1</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-right: 0.8pt">The Offering</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">2</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Risk Factors</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">3</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Use of Proceeds</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">7</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Price Range of Securities and Dividends</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">7</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">9</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Business</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">16</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Management</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">22</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Executive Compensation</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">26</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Selling Stockholders</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">34</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Plan of Distribution</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">37</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Principal Stockholders</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">39</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Certain Relationships and Related Transactions</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">41</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Description of Securities</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">42</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Shares Eligible for Future Sale</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">45</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Legal Matters</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">46</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Experts</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">46</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Where You Can Find Additional Information</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">46</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Index to Financial Statements</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">F-1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PROSPECTUS SUMMARY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><I>This summary highlights
key information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial
statements included elsewhere in this prospectus. It may not contain all of the information that is important to you. You should
read the entire prospectus, including &lsquo;&lsquo;Risk Factors, &rsquo;&rsquo; the consolidated financial statements and the
related notes thereto and condensed consolidated financial statements and the related notes thereto, and the other documents to
which this prospectus refers, before making an investment decision. In this prospectus, the terms the &lsquo;&lsquo;Cyalume,&rsquo;&rsquo;
&lsquo;&lsquo;we,&rsquo;&rsquo; &lsquo;&lsquo;our&rsquo;&rsquo; and &lsquo;&lsquo;us&rsquo;&rsquo; refer to Cyalume Technologies
Holdings, Inc., a Delaware corporation, and its subsidiaries.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Overview</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Cyalume Technologies
Holdings, Inc. (&ldquo;Cyalume&rdquo;) is a holding company whose primary business operations are conducted through its wholly-owned
subsidiaries Cyalume Technologies, Inc. and Cyalume Specialty Products, Inc. We refer to Cyalume Technologies, Inc. as &lsquo;&lsquo;CTI&rsquo;&rsquo;;
which includes its wholly-owned subsidiaries, Cyalume Technologies, S.A.S. (&lsquo;&lsquo;CTSAS&rsquo;&rsquo;), Combat Training
Solutions, Inc. (&ldquo;CTS&rdquo;) and Cyalume Realty, Inc. (&ldquo;CRI&rdquo;). CTSAS is located in Aix-en-Provence, France while
CTS and CRI are located in Colorado. We refer to Cyalume Specialty Products, Inc. as &ldquo;CSP&rdquo;.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">CTI is <FONT STYLE="color: black">a
global, technology-based manufacturer primarily producing products where light is generated through a chemical reaction known as
chemiluminescence. Our most popular product is a 6 inch light stick. </FONT>A light stick is a translucent flexible plastic tube
that is partly filled with one chemical ingredient and also with a glass container (&lsquo;&lsquo;ampoule&rsquo;&rsquo;) that contains
a complementary reactive chemical. When the tube is bent enough to break the glass ampoule, the chemicals contained within the
plastic tube mix and light is generated. We also use chemiluminescent technology to make products providing day/night marking and
illumination as components of ammunition. <FONT STYLE="color: black">In addition, a variety of reflective products are produced
that both reflect direct light back and retain energy for a short period of time so they continue to glow after the light source
is removed. Reflective products include a variety of patches and safety belts. Both chemiluminescent and reflective products may
employ infrared technology that allows observation of the product with proper night vision goggles. </FONT>Products are manufactured
at both the West Springfield and Aix-en-Provence locations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">CSP is a researcher,
developer and manufacturer of highly specialized chemical products to the pharmaceutical, military and other markets and, has expertise
in the chemical light business. Products are manufactured in the New Jersey location.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Corporate Information</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our executive offices
are located at 96 Windsor Street, West Springfield MA, 01089 and the telephone number is (413) 858-2500. Our website is <I><U>www.cyalume.com</U>.</I>
Information contained in the website does not constitute part of this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Risks Affecting Us</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In evaluating the
resale of the shares of our common stock, you should carefully read this prospectus and especially consider the factors discussed
in the section titled &lsquo;&lsquo;Risk Factors.&rsquo;&rsquo;&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>THE OFFERING</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">This prospectus relates
to the resale by the Selling Stockholders identified in this prospectus of up to 14,969,696 shares of our common stock which consists
of the following: 3,427,471 shares of common stock held by certain of Cyalume&rsquo;s founding stockholders and their designees,
775,116 shares of common stock held by Catalyst Equity Management, an aggregate of 7,697,129 shares held by the members of GMS
Acquisition Partners Holdings, LLC, 79,839 shares of common stock issued to a stockholder upon the cashless exercise of warrants,
871,823 shares of common stock held by certain institutional investors, 94,118 shares of common stock underlying warrants held
by Granite Creek Flexcap I, L.P., 65,882 shares of common stock underlying warrants held by Patriot Capital II, L.P., 712,771 shares
of common stock held by JFC Technologies, LLC and their designees, 133,584 shares of common stock held by Antonio Colon and his
designees, and 1,111,963 shares of common stock underlying options held by East Shore Ventures, LLC.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of April 25, 2012,
we had a total of 18,285,092 shares of common stock issued and outstanding, and outstanding securities convertible or exercisable
into 4,965,131 shares of common stock, consisting of: (i) 2,298,464 shares underlying outstanding exercisable warrants and/or options
and (ii) 2,666,667 shares underlying outstanding convertible, subordinated debt. We will not receive any proceeds from any sale
of shares of common stock by the Selling Stockholders, although if the 1,271,963 warrants are converted into shares of our common
stock, we will receive $4,243,067 if all of the warrants are exercised by the warrant holders paying the exercise price in cash
and we will have 19,557,055 shares of common stock issued and outstanding. Unless a waiver is obtained from our lenders, any proceeds
from the issuance of equity will be applied to outstanding senior debt. The Selling Stockholders may sell their shares of common
stock from time to time at prevailing market prices.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>RISK FACTORS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">You should carefully
consider the following risk factors, together with all of the other information included in this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Risks Related to our Business</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Budget constraints of the U.S. or
foreign governments could reduce revenue.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Sales for which federal or foreign governments
and militaries thereof are the ultimate customer accounted for more than 90% of our business in 2011 and 2010. The administration
of the President of the U.S. is proposing reductions in overall defense spending. Defense budget discussions are also being discussed
in other countries where we provide products to the military. The overall outcome is highly uncertain as well as the extent to
which any reductions would directly affect purchases of our products and services. Budget reductions, re-allocations of existing
budgets, or spending constraints affecting military spending could cause delays or reductions in the number and value of orders
for products, which could reduce revenues.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Failure to obtain and/or maintain
required export and other licenses could reduce revenue.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A portion of our business depends upon
obtaining and maintaining required export licenses. Failure to obtain or maintain required licenses could result in the termination
of certain products being sold. In addition, CTI and/or our employees may be required in the future to maintain certain facility
security clearances. If CTI or our employees were found not to be in compliance, we could be excluded from bidding on certain contracts,
removed from projects and/or fined, all of which would adversely impact our financial condition and good standing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We operate under fixed price contracts
with limited annual price escalation features and failure to control costs may reduce profitability.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Much of our revenues result from fixed
price contracts. Unanticipated increases in the cost of raw materials, labor and overhead could result in less profitability on
such contracts. Some raw materials are affected by the prices of other commodities that are not under our control. These include
certain chemicals and plastics whose costs are a function of oil prices.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Some of our contracts include provisions
for annual price escalations, based on bench-marks such as the consumer price index or the producers&rsquo; price index. Annual
escalations received may or may not correlate to the price changes in the materials and services that we purchase.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If we are unable to design, manufacture,
and market product offerings in a timely and efficient manner, we may not remain competitive.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Some markets are characterized by continuing
technological advancement, changes in customer requirements, and evolving product standards. Accordingly, we devote a substantial
amount of resources to product development. To compete successfully, we must develop and market new products that provide increasingly
higher levels of performance and reliability. Product development is highly uncertain and we cannot guarantee that we will successfully
develop new products. Our inability to develop and market these products or to achieve customer acceptance of these products could
limit our ability to compete in the market or to grow revenues at satisfactory rates of growth.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition, we offer a wide variety of
products. If the design, manufacturing or marketing of a product, or products, is not successful and we must allocate more resources
to ensure the products&rsquo; success, it could lower the profitability of the product, or products, or affect customer perceptions
as to the quality of the products and services being offered.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We purchase the majority of raw materials
from a limited number of venders. A disruption in supply may cause delays in manufacturing.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The majority of chemicals, plastics, glass
and packaging materials are purchased from a limited number of venders. A disruption in supply from any of these venders could
affect our ability to manufacture finished goods for sale on a timely basis. We maintain a safety margin of inventory of these
raw materials to rely on in the event of a disruption. However, safety stock may not be adequate in the event of an extended disruption.
Additionally, we have identified other vendors from which we could purchase these items in the event of a disruption from existing
vendors. The risk of disruption of our chemical supplies should be significantly mitigated when the vast majority of our chemical
light requirements are produced by CSP, our wholly-owned subsidiary, beginning in 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Changes in foreign currency exchange
rates could affect financial results.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">CTI and CTSAS manufacture products in and
sell products from the U.S. and France, respectively. Products sold by CTI are priced in U.S. dollars and most raw material components
are purchased in U.S. dollars. Products sold by CTSAS are priced predominantly in euros and most of CTSAS&rsquo; raw material purchases
from third parties are priced in euros. Significant changes in foreign exchange rates will affect reported financial results. CTI
enters into short-term financial hedges (less than six months in duration) against currency risk relating to the billing and collection
of revenues from CTI&rsquo;s sales to CTSAS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We are subject to various government
regulations that could cause delays in the delivery of new products and may subject us to audits or other similar review processes.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a supplier to agencies of various federal,
state, local, and foreign governments, we are obligated to comply with a variety of regulations governing operations and the workplace.
Unforeseen problems may impact our ability to bring new products to market on a timely basis, secure new contracts or require us
to make potentially costly changes to operations which could reduce profitability in order to obtain contracts. Furthermore, some
new products will be developed in conjunction with the U.S. Military or the militaries of other nations, which largely dictate
the timing of the product development process and over which we have limited control.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Inability to effectively integrate
future acquisitions could reduce profitability.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2011 we acquired two businesses.
We plan to make additional acquisitions in future years, which will require that we effectively and efficiently integrate operations,
systems and personnel from those businesses. This process requires, among other things, that we continually evaluate operational
and financial systems and controls and enhance those systems and controls as necessary. If we are unable to successfully integrate
these acquisitions, it could reduce profitability and detract from future growth opportunities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We are reliant upon key personnel
and the loss of these key personnel could result in the deterioration or loss of relationships with certain customers or suppliers,
which could result in a loss of business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We depend on the expertise, experience
and continued services of senior management and other key employees. Our operations and most decisions concerning the business
will be made or significantly influenced by these individuals. The loss of members of senior management or other key employees
could result in the deterioration or loss of relationships with certain customers or suppliers, which could result in a loss of
business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Revenue, operating results and profitability
will fluctuate, which may lead to volatility in the market price of our common stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Revenue, operating results and profitability
have fluctuated both on an annual and quarterly basis and, will likely continue to fluctuate. Changes in product mix sold and the
timing of sales to customers contribute to the possible material variability of revenue, operating results and profitability. Such
volatility may not meet the expectations of management, securities analysts or investors, which in turn may contribute to significant
fluctuations in the market price of our common stock.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Revenue, operating results and profitability
may be reduced by any major redeployment of troops.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Many of our military products are used
both for training and live theater purposes. Generally, per capita soldier consumption of these products is believed to be relatively
consistent between the two purposes. The U.S. military has reduced the number of American military personnel stationed in Iraq
and has stated plans to decrease the number of American military personnel in Afghanistan. Any major troop realignments, if significant
enough in number, could result in a temporary reduction in overall product consumption until troops are redeployed for training
or another live theater application.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We operate in increasingly competitive
market segments, which may make it more difficult to successfully bid on future contracts.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We expect competition to increase in the
future, especially in the ammunition market. We also expect that some competitors, or potential competitors, will feel increasing
pressure to underbid government and commercial projects, in order to deploy their workforces and maintain or step up their activity
levels. This may make it more difficult to prevail on competitive bids for contracts to the degree we have historically enjoyed,
to increase revenue and profitability.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Most new contracts will likely be
subject to competitive bidding, which adds difficulty to accurately predicting the timing of sales and the allocation of resources.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Most governmental agencies and many commercial
customers require that their significant contracts be competitively bid. Typically they utilize the &lsquo;&lsquo;Request for Proposal&rsquo;&rsquo;
(&ldquo;RFP&rdquo;) method where several competitors submit their sealed proposals for a particular project, or the &lsquo;&lsquo;Request
for Qualifications&rsquo;&rsquo; (&ldquo;RFQ&rdquo;) process where competitors submit their qualifications for consideration by
the customer. Some contracts open for bidding utilize the standard &lsquo;&lsquo;Straight Bid&rsquo;&rsquo; process where the detailed
specifications for products are published and lenders submit a &lsquo;&lsquo;Bid&rsquo;&rsquo; or fixed price, for the contract.
Other competitive bidding processes are also utilized. Our success in responding to an RFP, RFQ, Straight Bid, or other competitive
bidding process is dependent upon the quality of our estimating process, knowledge of the industry, knowledge of our customers
and other factors requiring significant judgment and expertise. Because of the nature of the bidding process, we cannot know if
we will be successful on any given bid, which adds difficulty to accurately predicting the timing of sales and the allocation of
resources.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our ability to win new contracts
depends on factors outside our control, which could limit revenue and profitability growth.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our revenue and profitability growth is
generally dependent upon the ability to win new contracts. This depends on a number of factors we cannot control, including substitution
of our products with products based on an alternative technology. For example, currently, certain battery or electrically powered
products may be used as alternatives to some of our chemical light products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Governmental agencies may investigate
and audit our contracts and, if any improprieties are found, we may be required to refund revenues, pay unexpected taxes, forego
anticipated revenues and/or may be subject to penalties and sanctions, including prohibitions on bidding in competitive bidding
processes.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Governmental agencies generally have the
authority to audit and investigate our contracts with them. As part of that process, some governmental agencies may review our
performance on the contract, pricing practices, change orders, and compliance with the terms of the contracts, and applicable laws,
regulations and standards. If the agency determines that we have improperly billed the governmental entity, we could be required
to refund revenues, or forgo anticipated revenues. If a government audit uncovers improper or illegal activities, or otherwise
determines that these activities have occurred, we may be subject to civil and criminal penalties and administrative sanctions,
including termination of contracts, forfeitures of profits, suspension of payments, fines and suspension or disqualification from
doing business with the government.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If we fail to satisfy contractual
obligations, our ability to compete for future contracts could be limited.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Failure to comply with contract requirements
or to meet customer&rsquo;s performance expectations when fulfilling a contract could injure our reputation, which, in turn, could
impact our ability to compete for new contracts. Failure to meet contractual obligations could also result in substantial lost
revenues.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We may be unsuccessful in resolving
pending litigation relating to contractual disputes with Omniglow, LLC, which could result in having to pay damages to Omniglow,
LLC. Omniglow, LLC purchased the novelty business of CTI&rsquo;s predecessor on January 23, 2006. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">CTI is still in the process of resolving
pending litigation relating to several contractual disputes arising from the separation of our businesses from Omniglow, LLC. If
CTI is not successful in settling the litigation and if CTI does not prevail on the merits of the case, then the current judgment
against CTI would be upheld, which could require it to pay damages to Omniglow, LLC. Based on court findings issued to-date, and
assuming a significantly adverse outcome, we have accrued a liability on the balance sheet as of December 31, 2011 of approximately
$3.6 million. According to the Stock Purchase Agreement dated December 19, 2008, between the former owners and us, the former owners
retained the responsibility for paying for all costs and liabilities associated with Civil Action 06-706. Accordingly, we have
recorded a receivable for this indemnity in the amount of $3.7 million. While we believe the former owners retain the intent and
capacity to pay any damages, there is no assurance such will be the case.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Because we do not intend to pay dividends
on common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have never declared or paid any cash
dividends on common stock. We currently intend to retain all future earnings, if any, for use in the operations and expansion of
the business. As a result, we do not anticipate paying cash dividends in the foreseeable future. Any future determination as to
the declaration and payment of cash dividends will be at the discretion of our Board of Directors and will depend on factors our
Board of Directors deems relevant, including among others, results of operations, financial condition and cash requirements, business
prospects, and the terms of credit facilities and other financing arrangements. The debt financing arrangements put into place
in connection with the acquisition of CTI prohibit CTI from providing us with funds to pay a dividend. Accordingly, realization
of a gain on stockholders&rsquo; investments will depend on the appreciation of the price of our common stock. There is no guarantee
that our common stock will appreciate in value.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our securities are quoted on the
Over-the-Counter Bulletin Board, which may limit the liquidity and price of our securities more than if the securities were quoted
or listed on the NASDAQ or the AMEX markets.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our securities are quoted on the Over-the-Counter
Bulletin Board, a NASD-sponsored and operated inter-dealer automated quotation system. Quotation of our securities on the Over-the-Counter
Bulletin Board will limit the liquidity and price of securities more than if the securities were quoted or listed on NASDAQ or
AMEX</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We currently have a small number of beneficial
holders, which we believe contributes significantly to limited trading and to limiting the liquidity and price of securities. Furthermore,
we believe this contributes to unexpected price volatility.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If we fail to meet financial covenants
with our lenders, they would be able to declare an event of default.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If we were unable to meet the financial
covenants specified in loan documents, our lenders would be able to declare an event of default. If an event of default were declared,
all debts to the lender could become due and payable immediately, which could result in ceasing operations unless new arrangements
were made. While management would negotiate and expect to obtain appropriate waivers or other amendments to cure any such default,
there is no assurance management would be successful.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>USE OF PROCEEDS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We will not receive
any proceeds from the sale of the shares of common stock by the Selling Stockholders. The proceeds from the sale of each Selling
Stockholder&rsquo;s shares of common stock will belong to that Selling Stockholder, although if the warrants to purchase 1,271,963
shares of our common stock are exercised for cash, we will receive $4,243,067. Unless a waiver is obtained from our lenders, any
proceeds from the issuance of equity will be applied to outstanding senior debt, which bears annual interest at approximately 6%
and has a maturity date of December 19, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PRICE RANGE OF SECURITIES AND DIVIDENDS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify; text-indent: 0.25in">Our common
stock and units, are quoted on the Over-the-Counter Bulletin Board under the symbols &lsquo;&lsquo;CYLU&rsquo;&rsquo; and &lsquo;&lsquo;CYLUU,&rsquo;&rsquo;
respectively. The following table sets forth the high and low sales information for our common stock, common stock and units for
the period from January 1, 2010 through April 25, 2012. The Over-the-Counter Bulletin Board quotations reflect inter-dealer prices,
are without retail markup, markdowns or commissions, and may not represent actual transactions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR>
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD COLSPAN="5" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid"><B>Common Stock</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD COLSPAN="5" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid"><B>Units</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD></TR>
<TR>
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid"><B>High</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid"><B>Low</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid"><B>High</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid"><B>Low</B></TD><TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD></TR>
<TR>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 44%; font-size: 10pt; text-align: left">First quarter 2010</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3.85</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3.35</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3.50</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3.50</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Second quarter 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.74</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.00</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Third quarter 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">5.00</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.01</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Fourth quarter 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">4.20</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.25</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">First quarter 2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">5.90</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">4.01</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Second quarter 2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">5.05</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">4.00</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Third quarter 2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">4.60</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">2.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Fourth quarter 2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">5.95</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">2.10</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left">First quarter 2012 <BR></TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.85</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.20</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Second quarter 2012 through April 25</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">2.25</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.50</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">There have been no transactions in Units since the first quarter
of 2009.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Number of Holders of Common Stock</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of April 25, 2012,
there were of record 180 holders of our common stock and one holder of units. Cyalume believes that the number of beneficial holders
of each of these securities is significantly greater than the number of record holders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Dividends</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><FONT STYLE="color: black">We
have never declared or paid cash dividends on common stock and do not anticipate declaring or paying cash dividends on common stock
in the foreseeable future. Payments of future dividends on common stock, if any, will be at the discretion of our Board of Directors
after taking into account various factors, including financial condition, operating results, current and anticipated cash needs,
plans for expansion and other factors that our Board of Directors may deem relevant. </FONT>The debt financing arrangements put
into place in connection with the acquisition of CTI prohibit CTI from providing us with funds to pay a dividend.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Securities Authorized for Issuance under
Equity Compensation Plans</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">The following table shows the
number of shares of common stock underlying options as of December 31, 2011, the average exercise price of those options and the
number of shares of our common stock available to be issued under equity compensation plans as of December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="13" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Equity Compensation Plan Information</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Plan category</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Number of securities to be issued upon exercise of outstanding options, warrants and rights <BR>(a)</TD><TD STYLE="padding-bottom: 1pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Weighted-average exercise price of outstanding options, warrants and rights <BR>(b)</TD><TD STYLE="padding-bottom: 1pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) <BR>(c)</TD><TD STYLE="padding-bottom: 1pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; font-size: 10pt; text-align: left; padding-left: 5.4pt">Equity compensation plans approved by security holders</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,166,333</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3.44</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">197,419</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 5.4pt">Equity compensation plans not approved by security holders</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-left: 5.4pt">Total</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,166,333</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.44</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">197,419</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.25in"><B>MANAGEMENT&rsquo;S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Overview </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">In the following discussion,
references to &ldquo;Cyalume&rdquo;, &ldquo;we&rdquo;, &ldquo;our&rdquo;, or the &ldquo;Company&rdquo; mean Cyalume Technologies
Holdings, Inc. on a consolidated basis. CTI means Cyalume Technologies, Inc. including its wholly-owned subsidiary Cyalume Technologies,
S.A.S. (&ldquo;CTSAS&rdquo;); CSP means Cyalume Specialty Products, Inc. and, CTS means Combat Training Solutions, Inc. Amounts
discussed are generally approximations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><FONT STYLE="color: black">We
are a global, technology-based manufacturer primarily </FONT>providing tactical and training solutions to the military of the U.S.
and other select countries, through both products and services. We manufacture chemical light, reflective and battlefield effects
simulator products while our services include planning and implementing tactical training exercises simulating real world experiences.
We also sell products into the law enforcement, commercial/public safety, and other markets. <FONT STYLE="color: black">During
2011, we acquired two businesses (CTS and CSP) that are highly complementary with our business and growth plans. We are actively
searching for additional acquisitions that would complement our existing business.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><FONT STYLE="color: black">The
majority of revenues are derived from sales for the ultimate use by the U.S. Military and various other militaries around the globe.
For 2011 there were four direct customers each with revenues greater than 10% of our total revenues: </FONT>NAMSA, Rheinmetall
Waffe Munition, LC Industries<FONT STYLE="color: black">, and the Defense Supply Center of the U.S. Military, which together accounted
for approximately 66% of total revenues. Additional revenues are derived from sales to commercial markets, including law enforcement
and public safety. In the military markets there are longer-term, </FONT>fixed-price, indefinite-quantity<FONT STYLE="color: black">
contracts lasting three to five years. They generally provide higher margins because the products are more technologically advanced,
versus some of the commercial markets, where advanced technology/performance is generally not as important and therefore competition
is greater, resulting in lower margins. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Our business is managed and
financial results are reported as one segment. Our CEO, who is our chief operating decision maker, focuses on consolidated results
to make strategic and tactical decisions. There are several reasons for this. The majority of products are similar in each market
and based on the same technologies. Thus management pays attention to individual products as well as individual customers and contracts
in terms of pricing and costing. For our largest selling product line, the 6-inch light stick (in its various permutations of color
and duration), the manufacturing processes are similar and both the U.S. and European plants make these products. Therefore, the
6-inch light sticks can be and are made at both plants and can be produced and shipped from one plant to the other to help meet
peak periods of demand. In addition, important functions such as marketing and research and development (&ldquo;R&amp;D&rdquo;)
manage their activities and allocate their resources from a strategic viewpoint and generally not on the basis of where a product
is made or who it might be sold to. Overall financial performance is evaluated based on the following consolidated items: revenues;
gross profit and gross margin; selling/research and development/administrative expenses; and cash flow. Consolidated EBITDA (earnings
before interest, taxes, depreciation and amortization) is used as a performance measure of operational cash flows. Consolidated
EBITDA is also the key financial performance component for our lenders covenant compliance. Product performance is evaluated based
on unit cost of production and number of units produced and sold across all markets. All of these measures are evaluated against
results for prior periods and against budgets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Cyalume is currently a smaller
reporting company based on outstanding equity held by non-affiliates having a market value under $75 million as of our most recently
completed second quarter. Therefore, only two years of audited financial statements are presented.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in"><B>Critical Accounting Policies</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Use of Estimates</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
Estimates are used when accounting for certain items such as reserves for inventory, accounts receivable and deferred tax assets;
assessing the carrying value of intangible assets including goodwill; determining the useful lives of property, plant and equipment
and intangible assets; determining asset retirement obligations; and, determining the fair value of contingent consideration. Estimates
are based on historical experience, where applicable, and assumptions that we believe are reasonable under the circumstances. Due
to the inherent uncertainty involved with estimates, actual results may differ.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Revenue Recognition</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Revenue from the sale of products
or providing of services is recognized when the earnings process is complete and the risks and rewards of ownership have transferred
to the customer. Depending on the terms of the individual sales arrangement with our customer, sales are recognized at either the
shipping point or upon receipt by the customer. Costs and related expenses to manufacture the products are recorded as costs of
goods sold when the related revenue is recognized.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">We have several significant
contracts providing for the sale of indefinite quantities of items at fixed per unit prices, subject to adjustment for certain
economic factors. Revenue under these contracts is recognized when goods ordered under the contracts are received by the customer.
Whenever costs change, we review the pricing under these contracts to determine whether they require the sale of products at a
loss. To date, we have no loss contracts which would require the accrual of future losses in the current financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Income Taxes</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are recognized when,
based upon available evidence, realization of the assets is more likely than not.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In assessing the realization of long-term
deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized.
The realization of deferred income tax assets depends upon future taxable income in years before net operating loss carryforwards
expire. We evaluate the recoverability of deferred income tax assets on a quarterly basis. If we determine that it is more likely
than not that deferred income tax assets will not be recovered, we establish a valuation allowance against some or all deferred
income tax assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">When tax returns are filed, it is highly
certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position
is recognized in the financial statements in the period during which, based on all available evidence, it is more likely than not
that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax
positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest amount of tax benefit that is more than 50&nbsp;percent likely of being realized upon settlement
with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceeds the amount measured
as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing authorities upon examination.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">We classify interest on tax
deficiencies as interest expense and income tax penalties as other miscellaneous expenses. &nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">In February 2012, we completed
an audit by the IRS of our tax returns for the years 2008 and 2009. There were no adjustments to those tax returns.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Goodwill</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Goodwill is deemed to have an indefinite
life and accordingly, is not subject to annual amortization. Goodwill is subject to annual impairment reviews, and, if conditions
warrant (a &ldquo;triggering event&rdquo;), interim reviews based upon its estimated fair value. Impairment charges, if any, are
recorded in the period in which the impairment is determined.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We performed the first step of the traditional
two-step process for assessing goodwill for impairment as of August 31, 2011. That first step of the two-step process requires
a comparison of our estimated fair value versus our carrying (book) value per our consolidated financial statements. If our carrying
value exceeded our fair value, further analysis (step 2 of the two-step process) would be required to determine the amount, if
any, that our goodwill was impaired as of August 31, 2011. Step 1 of our analysis indicated that our fair value was significantly
greater than our carrying value as of August 31, 2011, therefore step 2 of the goodwill impairment assessment was not required
and our goodwill was not considered to be impaired. Further, we noted no events or circumstances that occurred subsequent to August
31, 2011 that indicated that goodwill impairment existed as of December 31, 2011.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Intangible Assets</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><FONT STYLE="color: black">Intangible
assets include developed technologies and patents, customer relationships, customer backlog, non-compete agreements and certain
trade names, which are amortized over their estimated useful lives, and other trademarks and trade names, which are considered
to have indefinite useful lives and therefore are not amortized. The carrying amounts of intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that those carrying amounts may not be recoverable. Costs incurred to register
new patents or defend existing patents are capitalized while costs to renew or extend</FONT> the term of intangible assets are
expensed when incurred.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><B><I>Contingent Consideration
</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">We purchased both CSP and CTS
using a combination of cash, common stock and contingent consideration. The contingent consideration represents the present value
of payments expected to be made in 2014 to the sellers of the businesses following the achievement of certain financial performance
targets in 2012 and 2013. The contingent consideration is updated to fair value at the end of each reporting period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Considerable judgment is applied
by management when estimating the fair value of the contingent consideration. The contingent consideration liabilities&rsquo; fair
value is determined by calculating the present value of the estimated liability that is expected to be paid in the future. This
requires the use of (i) estimated future discount rates and (ii) hypothetical scenarios in which the consideration could be earned
and weighting those scenarios based on our expectations that those scenarios will actually occur. Such assumptions may not reflect
actual future results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Inventories</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><FONT STYLE="color: black">Inventories
are stated at the lower of cost (on a first-in first-out (&ldquo;FIFO&rdquo;) method) or net realizable value. We periodically
review the realizability of inventory. Provisions are recorded for potential obsolescence which requires management&rsquo;s judgment.
Conditions impacting the realizability of inventory could cause actual write-offs to be materially</FONT> different than provisions
for <FONT STYLE="color: black">obsolescence</FONT>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Foreign Operations and Currency</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><FONT STYLE="color: black">Accounts
of our foreign subsidiary are recorded using their local currency (the euro) as the functional currency. For consolidation, revenues
and expenses are converted to U.S. dollars using the average exchange rate for the month in which they were recorded. Assets and
liabilities are converted to U.S. dollars using the exchange rate in effect as of the balance sheet date. Equity transactions are
converted to U.S. dollars using the exchange rate in effect as of the date of the transaction. Translation gains and losses are
reported as a component of accumulated other comprehensive income or loss. Gains and losses resulting from transactions which are
denominated in other than the functio</FONT>nal currencies are reported as other income, net in the statement of income in the
period the gain or loss occurred.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Business Combinations</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We use the &ldquo;acquisition method&rdquo;
to account for all business combinations. All acquisitions are reviewed to determine if they constitute a &ldquo;business&rdquo;
under U.S. GAAP. All identifiable assets and liabilities of an acquired business are recorded at their fair values as of the date
we obtain control of the business. The fair values of identifiable assets and liabilities are estimated using a variety of approaches
allowed under U.S. GAAP, including appraisals and present value techniques. Any excess of the consideration paid to acquire the
business over the fair values of the acquired and identifiable assets and liabilities is recorded as goodwill. We determine the
date we obtain control of a business to be the date on which we gain the ability to determine the direction of management and policies
over that acquired business.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Recent Accounting Pronouncements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.7pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following are recent accounting pronouncements
that have affected our consolidated financial statements or may affect them in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In September 2011, the Financial Accounting
Standards Board (&rdquo;FASB&rdquo;) issued Accounting Standards Update No. 2011-08, <I>Testing Goodwill for Impairment</I> (&ldquo;ASU
2011-08&rdquo;), which amends ASC 350 <I>Intangibles&mdash;Goodwill and Other</I>. ASU 2011-08 allows an entity to first assess
qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under ASU
2011-08, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on
a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments
include a number of events and circumstances, such as financial performance, economic conditions and loss of key personnel, for
an entity to consider in conducting the qualitative assessment. ASU 2011-08 is effective for annual and interim goodwill impairment
tests performed for fiscal years beginning after December 15, 2011. Early application is permitted. We adopted ASU 2011-08 for
our annual goodwill impairment test performed as of August 31, 2011 with no material impact on our financial position or results
of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 114.55pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In June 2011, the FASB issued Accounting
Standards Update No. 2011-05, <I>Presentation of Comprehensive Income</I> (&ldquo;ASU 2011-05&rdquo;), which amends ASC 220 Comprehensive
Income. ASU 2011-05 requires that comprehensive income be presented either in a single continuous statement of comprehensive income
or in two separate but consecutive statements. ASU 2011-05 does not change the items that must be reported in comprehensive income
or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 does not affect how earnings per
share is calculated or presented. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2011 and must be applied retrospectively. Early application is permitted. Because we currently present comprehensive
income within our consolidated statement of changes in stockholders' equity and comprehensive income, we will need to change our
presentation of comprehensive income upon adopting ASU 2011-05. In December 2011, certain guidance in ASU 2011-05 was deferred
by Accounting Standards Update No. 2011-12 <I>Deferral of the Effective Date for Amendments to the Presentation of Reclassifications
of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05</I> (&ldquo;ASU 2011-12&rdquo;).
ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments of items out
of accumulated other comprehensive income. Because we don&rsquo;t expect any such reclassification adjustments, we do not anticipate
that the adoption of ASU 2011-12 will have a material impact on our financial position or the results of our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">In May 2011, the FASB issued
Accounting Standards Update No. 2011-04, <I>Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs</I> (&quot;ASU 2011-04&quot;), which amends ASC 820 <I>Fair Value Measurement</I>. ASU 2011-04 improves the
comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP
and International Financial Reporting Standards. The amended guidance changes the wording used to describe many requirements in
U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify
the FASB's intent about the application of existing fair value measurement and disclosure requirements. Although ASU 2011-04 is
not expected to have a significant effect on practice, it changes some fair value measurement principles and disclosure requirements.
ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and must be applied prospectively. Early
application is not permitted. We do not anticipate that the adoption of ASU 2011-04 will have a material impact on our financial
position or the results of our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Results of Operations </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Overall Perspective</I>: Financial results
for 2011 were disappointing as revenues significantly decreased. We believe that the uncertainty resulting from the budget setting
issues/delays by the U.S. government, combined with the drawdown/reassignment of military troops in Iraq, had a significant adverse
impact on our business.<FONT STYLE="color: black"> Many of our products are sold under indefinite quantity type contracts whereby
we fulfill orders as they are placed by customers. We do not have insight into why military customers order at the times or quantities
that they do, however, we saw no indication that the underlying usage of our products has diminished. </FONT> However, our customer,
LCI, reported that in response to the budget and troop matters just noted, during 2011 they decreased the amount of inventory of
our products that they carried by several million U.S. dollars. In addition, from discussions with various military personnel,
our belief is that the U.S. Military also drew down their stocks of our products. These stocking drawdowns directly and adversely
impacted our revenues. We expect the softness in sales we experienced in the later part of 2011 to continue into 2012, at least
until the second quarter.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><I>Revenues</I>:&nbsp;&nbsp;&nbsp;&nbsp;Total
revenues for 2011 of $34.7 million decreased by approximately $3.3 million from 2010. Price increases under long-term military
contracts accounted for approximately just under 2% of the 2011 revenues. The following table depicts revenues by sales category,
as discussed in Item 1: Business. This table is prepared to help analyze major trends / impacts on the business. In managing the
business, we do not prepare profitability statements or track assets / costs by these categories; the business is operated as a
single segment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: center">Category ($ in millions)</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Change</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; font-size: 10pt; padding-left: 5.4pt">Military (non-ammunition)</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">23.8</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">27.6</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">(3.8</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-left: 5.4pt">Ammunition</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5.2</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">7.4</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(2.2</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Law enforcement / commercial / public safety</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">3.8</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">3.0</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">0.8</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-left: 5.4pt">Subtotal</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">32.8</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">38.0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(5.2</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt; padding-left: 5.4pt">Other</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1.9</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1.9</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt; padding-left: 5.4pt">Total</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">34.7</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">38.0</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">(3.3</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Military (non-ammunition): We
believe that the stocking drawdowns discussed above are the predominant reason for this decrease for 2011 from the prior year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Ammunition: Revenues decreased
due to lower purchases by the military of existing products and sales of new products did not meet expectations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Law enforcement / commercial
/ public safety: There were no significant events that caused the increase in sales; the increase was attributable to new customers
and increased sales to existing customers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Other revenues were generated
from our subsidiary CSP, which was purchased during 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><I>Gross profit:</I> Gross profit
at $16.1 million for 2011 decreased approximately $3.0 million compared to 2010. The gross margin for 2011 was 46.5% compared to
50.4% for 2010. Of this 3.9%, most of it was attributable to lower production resulting in decreased overhead absorption. The remainder
of the difference, representing the net effect of product mix changes, cost increases and sales price increases, was negligible.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><I>Expenses:</I> Sales and marketing
expenses increased primarily due to the hiring of additional sales personnel and the addition of the ongoing expenses of CSP and
CTS, whose combined selling expenses in 2011 were $.1 million. General &amp; administrative expenses increased primarily due to
legal and other professional fees related to the process of acquiring both CSP and CTS, as well as the addition of the ongoing
expenses of both. CSP and CTS&rsquo; general &amp; administrative expenses in 2011 totaled $1.5 million. Research and development
expenses increased primarily due to the addition of the ongoing expenses of CSP, whose research and development expenses totaled
$.2 million in 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><I>Interest expense, net</I>:
Interest expense declined in 2011 due to lower outstanding debt levels.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Amortization of intangible assets and
impairment losses</I>: Amortization expense for 2011was only slightly higher than the prior year as the amortization expense of
intangible assets for both CSP and CTS was less than $0.2 million due to the abbreviated amount of time they were consolidated
into our results in 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><I>Other income, net</I>: Other
income in 2011 primarily represented amounts earned for research and development work performed by us. These amounts are recorded
when earned. The other income recorded in 2010 was primarily the collection of account receivable balances that had been written
off in prior years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: black"><I>Provision
for (benefit from) income taxes:</I> The reduction in pre-tax net income from 2010 to 2011 is the primary factor in the $2.0 million
change in the 2011 benefit from income taxes over the 2010 provision for income taxes. </FONT>The effective tax rate for 2011 of
(961%) is lower than the 2010 rate of 39% primarily due to the reduction of the valuation allowance on foreign tax credits as well
as due to the creation of additional foreign tax credits on earnings of our foreign subsidiary.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><I>Foreign exchange rates:</I>
If 2011&rsquo;s operating results in foreign currencies from CTSAS had been translated using the foreign exchange rates used to
translate 2010&rsquo;s operating results, 2011 revenues would have been approximately $0.5 million lower than reported and 2011
net income would have been approximately $0.1 million lower than reported.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Balance Sheet </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Accounts receivable were higher
at the end of 2011 compared to the prior year. Of this increase, approximately $1.0 million is attributable to CSP and CTS. The
remainder of the increase is due to timing differences for billing / collections.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Inventories were higher at the
end of 2011 compared to the prior year. Of this increase, approximately $1.5 million was attributable to CSP and CTS, which we
acquired in 2011. Inventory balances fluctuate from a combination of recent sales activity and the timing of purchases of raw materials.
Certain raw materials are purchased only several times a year due to long lead times and the desire to purchase in bulk, while
other materials are purchased more frequently.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Property, plant and equipment
increased at the end of 2011 over the prior year. The majority of the increase is attributable to the acquisitions of CSP and CTS
in 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Net intangible assets increased
at the end of 2011 over the prior year. Excluding the intangible assets acquired from CSP and CTS would have resulted in a decrease
from the prior year of approximately $1.5 million since costs incurred to register new patents or defend existing patents was more
than offset by amortization.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Accounts payable and accrued
expenses at the end of 2011, on a combined basis, decreased from the prior year by $0.4 million. Excluding the accounts payable
and accrued expenses acquired from CSP and CTS, the 2011 total would have decreased by $0.9 million, largely due to the timing
of vender payments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Net non-current deferred income
tax liabilities decreased at the end of 2011 over the prior year, primarily as a result of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify; padding-right: 0.05in">Decreased by foreign tax credits generated;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify; padding-right: 0.05in">Net decrease to the balance of unrepatriated earnings of CTSAS;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify; padding-right: 0.05in">Decreased by non-deductible stock-based compensation for tax purposes;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify; padding-right: 0.05in">Net increases to the financial reporting carrying value of various identified
intangible assets as a result of:</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Times New Roman, Times, Serif">o</FONT></TD><TD STYLE="text-align: justify; padding-right: 0.05in">the increase in deferred tax liability required to be recognized on identified
intangible assets as a result of the acquisition of CTS stock, and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Times New Roman, Times, Serif">o</FONT></TD><TD STYLE="text-align: justify; padding-right: 0.05in">decreased by annual amortization expense of previously acquired identified
intangible assets;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify; padding-right: 0.05in">Net increases to the carrying value of fixed assets as a result of annual
depreciation expense differences.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">A valuation allowance of approximately
$3.9 million still remains on deferred federal tax assets for the carryforward of foreign tax credits, which we do not anticipate
using in the near-term. The utilization of this asset is dependent upon generation of significant revenues from sources outside
the U.S. During 2011, we reduced the valuation allowance from $4.1 million to $3.9 million due to the expected use of foreign tax
credits in the near term.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">We had federal net operating
loss carryforwards amounting to $2.4 million and $5.0 million at December 31, 2011 and 2010, respectively. The net operating loss
carryforward at December 31, 2011 expires in fiscal years 2025 through 2029. Internal Revenue Code Section 382 limits utilization
of these losses to $3.2 million per year. It is possible that future changes in ownership could result in changes to the amounts
allowed by IRC Section 382. State net operating loss carryforwards amounted to $3.5 million and $6.2 million as of December 31,
2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Derivatives liability decreased
in 2011 over the prior year due primarily to the value of interest rate swaps trending towards a $0 fair value as their maturity
in December 2013 approaches. Secondarily, the derivatives liability decreased due to an increase in the value of currency forward
contracts; that increase in value is due to changes in foreign exchange rates after we entered into those contracts.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have recorded an approximately $3.6
million litigation award payable and a related approximately $3.7 million receivable from a related party. This payable and receivable
are based on a July 2011 ruling against CTI under Civil Action No. 06-706.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Liquidity and Capital Resources </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2011, cash was $3.0
million versus $4.1 million as of December 31, 2010. Net cash provided by operating activities declined due mostly to the decrease
in revenues leading to lower amounts of cash received from customers. Also contributing were timing differences affecting tax payments,
vender payments and collections of receivables. Net cash used in investing activities increased due mostly to the use of $2.5 million
of cash for the acquisitions of CSP and CTS, which is net of cash acquired of $.2 million. Net cash provided by financing activities
increased due primarily to lower principal payments on our notes payable and line of credit in 2011 and to proceeds from the issuance
of our common stock during 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Capital expenditures for 2012
are expected to be funded from existing cash and operating cash flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">We are actively searching for
potential acquisitions that would complement our existing business. Any acquisition could be financed by a combination of cash,
equity and/or debt. During 2011, we purchased two businesses: CSP for $2.5 million cash, 712,771 shares of our common stock valued
at $2.5 million and, contingent consideration to be earned if certain financial targets are met during 2012 and 2013; and, CTS
for $0.25 million cash, a promissory note for $0.25 million payable April 5, 2012, 133,584 shares of our common stock valued at
$0.5 million and, contingent consideration to be earned if certain financial targets are met during 2012 and 2013. The contingent
consideration, if earned, is payable by a combination of cash and our common stock in 2014. We have recorded a liability of $3.7
million for this contingent consideration; the actual amount to be paid for this liability ranges from $0 to $12.75 million in
cash and our common stock. If earned, we expect to be able to pay the cash portion out of incremental cash generated by the acquired
business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">On March 18, 2011 we sold 871,823
unregistered shares of common stock to institutional investors in a private placement at a price of $4.60 per share. These unregistered
shares were sold under exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Rule
506 of Regulation D as promulgated by the Securities and Exchange Commission under the Securities Act. We registered those shares
for resale within 45 days of the sale. The consideration paid by investors consisted of approximately $3.5 million in cash and
the cancellation of 1,015,000 public warrants, which were valued at $.50 per warrant. Proceeds were used for the acquisitions of
CSP and CTS and for general corporate purposes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">In July 2011, we closed on securities
exchange agreements with several subordinated note holders whereby we issued 736,334 shares of common stock as payment in full
for $3.4 million of principal and accrued interest. The common stock was also valued at $4.60 per share. Settling these notes payable
eliminated the need for a substantial cash outlay in 2014 to repay these notes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">Scheduled principal and interest
cash payments on senior and subordinated debt for 2012 are $1.9 million and $1.7 million, respectively, compared to $1.8 million
and $1.9 million, respectively, in 2011. Interest payments in 2012 will be lower than 2011 due to a lower debt balance from the
continuing monthly principal payments to be made on the senior debt. All 2012 principal and interest payments, as well as the related
party note payable of $0.25 million, are expected to be funded from existing cash and operating cash flows. We believe we will
have adequate cash to sustain our operations during 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: black">We achieved
our financial covenants as of December 31, 2011. </FONT>To guard against the possibility of not meeting lenders&rsquo; financial
covenants that might be caused by continuing softness in demand, we obtained amendments to our credit agreements that reset financial
covenants.<FONT STYLE="color: black"> The reset amended financial covenants are effective beginning in 2012. We expect to meet
our financial covenants for 2012 and that cash provided by the business will be adequate to meet our needs, exclusive of any requirements
for acquisitions. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">The Company did not pay a dividend
in 2011 and has no plans to do so.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.25in"><B>BUSINESS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Background</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Cyalume Technologies Holdings, Inc. (&lsquo;&lsquo;Cyalume,&rsquo;&rsquo;
&lsquo;&lsquo;Company,&rsquo;&rsquo; &lsquo;&lsquo;we,&rsquo;&rsquo; &lsquo;&lsquo;our&rsquo;&rsquo; or &lsquo;&lsquo;us&rsquo;&rsquo;)
is a Delaware corporation that was incorporated on July 19, 2005 to acquire, through merger, capital stock exchange, asset acquisition
or other similar business combination, one or more businesses in the homeland security, national security and/or command and control
industries or businesses relating to the manufacture of products for use in such industries.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 19, 2008, pursuant to the terms
of a stock purchase agreement dated February 14, 2008 and amended October 22, 2008, December 17, 2008 and December 18, 2008, we,
through a wholly-owned subsidiary, acquired all of the outstanding securities of Cyalume Technologies, Inc. (&ldquo;CTI&rdquo;)
from GMS Acquisition Partners Holdings, LLC (&ldquo;GMS&rdquo;).&nbsp;&nbsp;On that day, we filed a Fifth Amended and Restated
Certificate of Incorporation that, among other things, changed our name to Cyalume Technologies Holdings, Inc. removed certain
provisions that, giving effect to Cyalume&rsquo;s acquisition of CTI, were no longer applicable and folded the acquisition subsidiary
into Cyalume Technologies Holdings, Inc.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the stock purchase agreement,
at the closing of the acquisition, the following consideration was paid by Cyalume:</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 3%; padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 91%; padding-right: 0.8pt; text-align: justify">Repayment of $40.3 million of indebtedness of CTI, including $38.9 million in principal and $1.4 million in interest, prepayment penalties and other debt retirement expenses;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Payment of $425,000 of unpaid acquisition expenses;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">6,430,928 shares of Cyalume&rsquo;s common stock to the members of GMS;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">$30.2 million in cash to holders of GMS Acquisition&rsquo;s Series A Preferred Units and Series B Preferred Units; and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">$3,500 to the escrow agent.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the stock purchase agreement,
as amended, 1,505,646 of the 6,430,928 shares of Cyalume common stock paid to GMS at the closing of the acquisition were deposited
in escrow and 4,925,282 shares were issued to GMS. On December 26, 2008, GMS distributed 4,925,282 of its shares to its members
in proportion to each such member&rsquo;s respective percentage membership interests. Of these 4,925,282 shares, 32,903 were repurchased
by us and retired in February 2009.&nbsp;&nbsp;In March 2009, 138,165 additional shares were issued to the 19 members of GMS at
the direction of GMS pursuant to the working capital provisions of the stock purchase agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At the closing, we also paid (i) SMH Capital,
Inc. 150,000 shares of stock in lieu of $1.2 million in cash due for a finder&rsquo;s fee; (ii) $400,000 in fees to our counsel;
and, (iii) to Rodman &amp; Renshaw, LLC in partial payment of $2.1 million of deferred underwriting expenses, $250,000 in cash
and 93,750 shares of common stock (which were returned on December 30, 2008 and exchanged with the deferred underwriting fees for
a note in the aggregate principal amount of $1.8 million) having an agreed-upon value of $750,000. We also agreed to pay $647,000
of the remaining acquisition expenses to counsel over a period of time after the acquisition and to accept the liability for $425,000
of payments to GMS&rsquo; counsel.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 31, 2011, through a wholly-owned
subsidiary named Cyalume Specialty Products, Inc. (&ldquo;CSP&rdquo;), we acquired substantially all of the assets of JFC Technologies,
LLC (&ldquo;JFC&rdquo;), a specialty chemical manufacturer. CSP was established as a Delaware corporation in 2011 and is located
in Bound Brook, New Jersey. CSP provides products to the pharmaceutical, military and other markets and, has expertise in the chemical
light business. We believe that this acquisition of JFC will: significantly reduce our current supply chain risks; allow us to
maintain less of a strategic stockpile of key chemical components; strengthen our existing chemical light research and development
expertise; and strengthen our ability to protect our proprietary technology for new products and their chemical formulas that we
plan to introduce into the market.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 22, 2011, CTI acquired all
of the outstanding common stock of Combat Training Solutions, Inc. (&ldquo;CTS&rdquo;), a Colorado corporation established in 2005,
and located in Colorado Springs, CO. CTS manufactures battlefield effects simulator devices and provides tactical training to the
military utilizing such products. We believe that CTS&rsquo; products and services are a good fit with our business strategy and
existing products. For example, many of CTS&rsquo; products can be adapted to utilize chemical light, thereby increasing their
efficacy for night-time applications.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We maintain principal executive offices
at 96 Windsor Street, West Springfield, Massachusetts 01089. Our telephone number is (413) 858-2500. The various reports we file
with the SEC, including annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, and current reports on Form
8-K are available on our website (www.cyalume.com) free of charge. Our website also contains the charters for the Audit, Nominating
and Compensation Committees of the Board of Directors as well as our Code of Conduct and Ethics and, our Insider Trading Policy.
The documents are also available free of charge from our Corporate Secretary at our executive offices.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Current Business </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our primary focus is providing tactical
and training solutions to the military of the U.S., and other select countries, through both products and services. We manufacture
chemical light, reflective and battlefield effects simulator products while our services include planning and implementing tactical
training exercises simulating real world experiences. We also sell products into the law enforcement, commercial, and other markets.
The following strategies are employed to provide for long-term success.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><I>Utilizing Patent Protection. </I>We have and will continue to pursue patent protection of developed
technology, and to aggressively defend against violations of our patents.</TD></TR>                                                                                   <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><I>Making Environmentally Friendly and Safe to Use Products. </I>Our products are designed to be
effective but very safe to use and friendly to the environment. Chemicals used in our chemical light products are non-toxic and
phthalate free.</TD></TR>                         <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><I>Increasing Product Diversification. </I>We intend to continue to diversify into additional products
and applications utilizing current technology and technology now under development. Product diversification allows us to present
a more complete line of products that meet current and projected user needs, as well as reducing dependence on a relatively small
number of products for financial and competitive success.</TD></TR>                                                                   <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><I>Continually Improving Products and Performance.</I> We are committed to product improvement
and rely on a dedicated in-house team of highly experienced engineers and chemists that are complemented on an as needed basis
by third-party expertise.</TD></TR>                                   <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><I>Pursuing Strategic Partnering and Acquisitions. </I>We actively seek partners who can help us
advance our technologies or introduce products to the market, especially where established partners may help us attain faster market
penetration. In addition, we are seeking additional businesses to acquire that will complement our existing products and further
strengthen our ability to achieve profitable growth.</TD></TR>                                                              <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Products and Services</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We primarily provide products of three
general types: those producing chemical light; those that have reflective qualities; and, those that simulate battlefield devices.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Products producing chemical light rely on a chemical reaction known as chemiluminescence. The base
product is known as a &lsquo;&lsquo;light stick&rsquo;&rsquo; and is typically 6 inches in length. A light stick is a translucent
flexible plastic tube that is partly filled with one chemical ingredient and also with a glass container (&lsquo;&lsquo;ampoule&rsquo;&rsquo;)
that contains a complementary reactive chemical. When the tube is bent enough to break the glass ampoule, the chemicals contained
within the plastic tube mix and light is generated. Chemiluminescent products come in varying shapes, sizes and functions, and
provide light in different colors, intensity and durations. These include:</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Times New Roman, Times, Serif">o</FONT></TD><TD STYLE="text-align: justify">Light sticks that come in lengths ranging from 1.5 inches to 15 inches, and having durations for
specified light output that range from 5 minutes to 24 hours. Colors emitted include red, blue, white, yellow, green, orange and
infrared.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Times New Roman, Times, Serif">o</FONT></TD><TD STYLE="text-align: justify">Components to training and tactical ammunition that provide day/night marking and illumination
capabilities. Day/night marking rounds increase the effectiveness of weapons training by providing a night-time training ability
where, in many cases, one did not exist before. Chemical light munitions are preferable to traditional tracer or training rounds
for two reasons. Traditional tracer or pyrotechnic training munitions contain fire-producing elements that can start range fires.
Additionally, traditional tracer or pyrotechnic training munitions experience &lsquo;&lsquo;duds&rsquo;&rsquo;, or unexploded rounds.
These unexploded rounds present future safety hazards and must be found and defused. Chemical light training ammunition payloads
cannot start range fires and do not present future safety hazards from unexploded rounds, making their use not only more economical
but safer for military personnel.</TD></TR>                                           <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Reflective products include patches that can reflect white light or infrared, and reflective safety
belts. Our reflective products assist the military by allowing soldiers to identify individuals as &lsquo;friend or foe&rsquo;
by employing infrared technology. These infrared products, such as flag and general identification patches, can only be seen with
the proper night vision goggles. These products help prevent injuries and death due to friendly fire by providing the proper identification
markings during night-time activities. We also produce safety belts that are worn, for example, by military police. These belts
both reflect direct light back and retain light energy for a short period of time so they continue to &lsquo;&lsquo;glow&rsquo;&rsquo;
after the light source is removed.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Our battlefield effects simulator devices are non-pyrotechnic and designed to safely simulate the
life threatening devices soldiers encounter on the battlefield. These include: pipe bombs, IED&rsquo;s, landmines and suicide bomber
vests. In addition, we expect to be introducing a simulator hand grenade in the first half of 2012 that is non-pyrotechnic. By
the end of 2012, we expect to be providing these simulator devices incorporating our chemical light technology, which should enhance
the number of training applications by increasing their effectiveness in nighttime training.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We do not sell products
as novelties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We manufacture products in West Springfield,
MA; Bound Brook, NJ; and Aix-en-Provence, France.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Services include: training on the proper
utilization of our simulator devices; battlefield scenario planning; and, providing live training exercises. In these exercises
we hire and provide &ldquo;battlefield actors&rdquo;, people trained to act as insurgents or the indigenous population. The &ldquo;actors&rsquo;
we hire and train may have lived in the country or speak the language of the country that the training is simulated to take place
in, making the training as realistic as possible.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Markets</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our sales efforts are primarily focused on military (non-ordnance)
and ammunition markets and, to a lesser extent, law enforcement, commercial/public safety, and other markets.</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">                                                                                                                                          <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Military</B></TD></TR>                                                                                                                                                                        <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The military (non-ordnance) market accounted
for approximately 69% of total revenue in 2011 and 73% in 2010. We sell chemiluminescent devices, primarily light sticks in varying
colors, lengths and durations of light output, as well as flat chemiluminescent disks and reflective patches and belts. The primary
users of these products are the U.S. Military and militaries participating in the NATO Maintenance and Supply Agency (&ldquo;NAMSA&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Critical events, risks and uncertainties
regarding the military market include the continued use by the U.S. and NATO militaries, the ability to remain on the cutting edge
of chemical light technology, the ability to generate additional uses of our products by additional militaries around the world,
and managing costs to remain competitively priced. There are also uncertainties of future price increases customarily found in
the renewal contracts which would affect revenues and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Ammunition</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The ammunition market accounted for approximately
15% of total revenues in 2011 and 19% in 2010. Nearly all of these revenues represent sales of chemiluminescent payloads and components
to Rheinmetall Waffe Munition (RWM), which incorporates our products into its rounds and then sells the finished rounds to the
military.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Critical events, risks and uncertainties
regarding the ammunition market include the expansion and acceptance of the existing products to the United States military and
other foreign militaries. The introduction of additional calibers is perceived as a vital opportunity to increase our revenues
and improve results of operations over the long-term.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Law Enforcement and Commercial/Public Safety</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The law enforcement and commercial/public
safety markets represented approximately 11% of total revenues in 2011 and 8% in 2010. Sales are made to different industries and
governmental agencies, including manufacturing companies, transportation companies, hotels and police, fire and EMS departments.
These products provide emergency light in different ways to different buyers. For example, hotels use light sticks in halls and
stairwells for use in power outages and police departments use them in tactical operations and traffic control.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The critical risks and uncertainties in
the commercial and public safety market include the need for the continued introduction and promotion of successful products to
police, fire and homeland security departments. Our ability to generate demand from potential customers is the greatest factor
in success or failure in this market. The commercial and public safety market is more sensitive to pricing than the military markets
as customers may not choose to purchase the best available product, but may rather purchase lower quality, lower priced goods from
competitors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The uncertainty of new products from competitors
is always a risk that could dilute our existing military market share of chemical light products as well as ammunition and safety
products.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Other</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">With the acquisition of the JFC business
(now known as CSP), we now provide specialty chemicals to a variety of customers including chemical, defense and pharmaceutical
companies. For 2011, these revenues represented approximately 5% of total revenues and none in 2010. While the primary purpose
of CSP is to support our chemical light product business, we will continue to pursue these chemical sales which contribute to overhead
recovery and overall profitability as well as provide other benefits. Capital expenditures for non-chemical light related production
are expected to be minimal.</P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Customers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>Military (non-ordnance):</I></B> We depend significantly on long-term contracts with two
key customers: LC Industries (&ldquo;LCI&rdquo;) and NAMSA. We also do business directly with the U.S. Military through the Defense
Supply Center in Philadelphia (&ldquo;DSCP&rdquo;).</TD></TR>                                                             <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.55in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>LC Industries</B></TD></TR>                                                                                                                                                                                           <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">We indirectly supply the U.S.
Department of Defense (&ldquo;U.S. DOD&rdquo;) through a contract with LCI, a manufacturer/distributor and a member of the National
Industries for the Blind. LCI, in turn, has a direct contract with the U.S. DOD that operates under the program guidelines of &ldquo;Ability
One&rdquo;, a federal program that creates jobs for the visually impaired and severely disabled. Under our contract with LCI, we
sell components to LCI, which assembles and packages products, and then sells/distributes them directly to the U.S. military. Each
of the items sold by LCI to the U.S. military is classified by a National Stock Number (&ldquo;NSN&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">Our contract with LCI was entered
into June 1, 2004 and had an initial term of five years, followed by three automatic five-year renewal terms unless the agreement
is cancelled. This contract was renewed in 2009 for another five year period. The contract between LCI and the U.S. military is
an IDIQ contract (indefinite demand, indefinite quantity) with fixed prices subject to annual renegotiation. Through agreement
with LCI, we share in any price increases received by LCI. Revenues to LCI accounted for approximately 20% of total revenues in
2011 and 37% in 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.55in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>NAMSA</B></TD></TR>                                                                                                                                                                                   <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.8in; text-align: justify">We have direct contracts with
NAMSA, the administrative services arm serving the non-U.S. NATO countries. NAMSA re-awarded these contracts to us in August 2008.
The base contract period was for three years and NAMSA has the option to extend for another two years. NAMSA exercised the first
of those two years; we are currently in the first option year. The contracts contain provisions for pricing escalations. Revenues
through NAMSA accounted for approximately 22% of total revenues in 2011 and 17% in 2010.<B></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.8in; text-align: justify"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.55in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>DSCP</B></TD></TR>                                                                                                                                                                                  <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.8in; text-align: justify">We had approximately 10% of our
revenue processed through this agency in 2011 and 3% in 2010. We have one long-term contract that is an indefinite demand / indefinite
quantity type, and accounted for less than 2% of total revenue in both years; the remainder comes from contracts bid and won during
the year for various products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.8in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>Ammunition</I>: </B>Ammunition sales to RWM comprised approximately 14% of total revenue
in 2011 and 19% in 2010. Sales are made under purchase orders awarded to us throughout the year as RWM receives orders from various
militaries.</TD></TR>                     <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>Law Enforcement, Commercial/Public Safety, Other</I>: </B>Sales in this category are made
to a variety of distributors, retailers, other businesses and various municipalities&rsquo; police and fire departments, none of
whom individually represent more than 10% of sales.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Sales and Marketing</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the military (non-ordnance) market,
we sell primarily through distributors such as NAMSA and LCI. We have found this to be an efficient and effective model and therefore
use this model for the law enforcement and commercial/public safety markets as well. Accordingly, we are utilizing the abilities
of distributors who have established key relations with end-users, rather than attempting to sell direct to consumers. The distributors
take deliveries from us and then resell our products through their distribution networks to third-party customers, thereby expanding
the market for our products at minimal cost to us. In the ammunition market, we sell directly to the prime contractor having the
direct contract with the military.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Competitive Strengths</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We believe we have many advantages as compared
to our competition. For example, we:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">                                                                                                                                          <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify">Own
more patents in the chemiluminescent light field than any competitor.</TD></TR>
<TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify">Have an active research and development function focused on improving existing technologies and
developing new ones for which patent protection will be sought.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify">Have a wide assortment of products that helps meet the needs of major customers.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify">Have high quality, high performance products, while many competitors rely on lower priced/lower
quality products.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify"><B>Competition</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">For chemiluminescent products
for the military (non-ordnance) market, we believe that we have no direct major competitors and that our products are the only
ones that currently meet official U.S. and NAMSA military specifications. There are several Asian manufacturers of novelty quality
products that occasionally attempt to direct sell their products as military quality, including the fraudulent use of military
stock numbers that are placed on the products which we believe have not passed testing. In these cases we rely on the appropriate
U.S. and NAMSA agency offices to inspect and reject such products as being non-compliant. We maintain an active program of monitoring
such behavior and bringing any such actions to the attention of the appropriate agency personnel.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the ammunition market, the development
period for a new product before final testing and acceptance by the military can be many years. We anticipate that, as acceptance
of chemical light applications grow in this market, additional competition will emerge as this market represents potentially large
revenues. We are defending against this by continuing to invest in technology upgrades in order to stay ahead of any competitors.
In addition, where appropriate, we file patents to protect newly developed technology. Also, we review all products submitted by
any competitors in military contract bidding processes to determine whether they meet specifications.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the commercial/public safety chemical
light markets, we compete with a variety of manufacturers and distributors of novelty products. While these manufacturers and distributors
appear to lack the quality, market presence and ability to significantly upgrade existing products, customers in these markets
may seek lower prices without consideration for these other factors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Employees</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">As of December 31, 2011 we had
168 full-time, and 68 on-call part-time employees for participating in training simulations as needed. We operate in local labor
markets that provide an adequate supply of labor to compensate for any turnover. We are not party to any collective bargaining
agreements, have not experienced any work stoppages and consider our relationship with employees to be sound.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Employee Benefits</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For our U.S. employees, we offer wages
and benefits that we consider to be competitive in the markets in which we operate. Benefits include medical, dental, life, and
disability insurance coverage, paid vacations and holidays and an employee 401(k) savings plan. CTSAS offers its employees benefits
consistent with French law and market conditions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Supply Chain</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We currently purchase key raw materials,
primarily chemicals, plastics, glass and packaging materials from a limited number of suppliers. We have long-term relationships
with these suppliers, and maintain annual purchase orders or, in the case of major chemicals, have a ten-year contract in place
which does not expire until the second half of 2012. There are no minimum required purchases under such contracts. In the event
of a disruption in the supply of any of the key items, we have identified alternative sources of supply. A stock of raw materials
is kept on hand to continue production in the event of an extended supply disruption, providing us time to find alternative suppliers.
Raw materials are not considered to be a scarce commodity and we have not experienced supply disruptions in the past. With the
expiration of the chemical contract in 2012, we will begin producing the vast majority of our chemical light requirements through
CSP, our wholly-owned subsidiary.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The CTI West Springfield facility currently
purchases most of its chemicals from a Chinese manufacturer through the long-term contract. Nearly all other materials, including
plastics and glass, are purchased domestically. The CTSAS Aix-en-Provence facility purchases most of its chemicals from our West
Springfield facility after they have been modified for specific applications. CTSAS purchases its glass, plastics and most other
materials from within the European community.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Research and Development</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have an active research and development
group with full-time chemists and engineers at both the West Springfield and Bound Brook facilities. Additionally, we utilize consulting
chemists as needed for specific projects. Our research and development group is focused on maintaining the high level of quality
of existing products; developing improvements to existing products; and, developing new technologies and products with viable commercial
applications. We maintain an active program of soliciting feedback and ideas from end-users of products. We incurred research and
development expense of $1.9 million and $1.7 million during the years ended December 31, 2011 and 2010, respectively. Additionally,
we incurred $0.2 million in capitalized costs for filing new patents in 2011 and $0.3 million in 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Intellectual Property</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: black">We rely on the
ability to develop patentable technology to help ensure the commercial success of products and technology. Once patents are issued,
we follow an active program of monitoring competitors&rsquo; products to ensure that our intellectual property is not violated.
We currently hold and maintain 55 active U.S. patents, of which we obtained 30 through the two acquisitions in 2011. Additional
new patents are pending. Many of these patents are also registered in various foreign countries. These patents include </FONT>phthalate
free formulations,<FONT STYLE="color: black"> formulas for creating a more consistent light for longer periods, a bio-degradable
light stick, f</FONT>lat disks employing a translucent aluminum pouch instead of an ampoule, <FONT STYLE="color: black">and various
battlefield effects simulators.</FONT> We expect to file for additional patents during 2012 and thereafter. Patents typically have
a 20-year life from date of filing. We had no key patents expire in 2011 and no key patents scheduled to expire in 2012. We do
not anticipate a near-term decline in sales as a result of any expiring or expired patents.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Government Regulations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We are subject to the jurisdiction of the
State Department of the United States under the International Traffic in Arms Regulations (&ldquo;ITAR&rdquo;). Specifically, chemical
light infrared products, which are exported from the West Springfield facility to foreign militaries, are subject to these regulations.
We must periodically re-register with the State Department for exporting purposes and last did so in June 2011. The renewal that
was granted expires June 30, 2012 and is subject to renewal again at that time. We are in good standing with the State Department
and the ITAR. We must obtain approval from the State Department for each and every export shipment of chemical light infrared products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition, with the two acquisitions,
we now also maintain appropriate licenses with the Food &amp; Drug Administration (&ldquo;FDA&rdquo;), the Drug Enforcement Agency
(&ldquo;DEA&rdquo;) and, the Bureau of Alcohol, Tobacco, Firearms and Explosives. All such licenses are current and expected to
be renewed at the appropriate time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Environmental</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We are in compliance with all local, state
and national environmental regulations under which we are subject to regulation. All appropriate permits are in place. The cost
of compliance with environmental regulations has been and is expected to continue to be negligible.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Backlog</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A significant portion of our revenue is
generated under indefinite quantity, fixed-price contracts whereby we fulfill orders as they are placed by customers. Once orders
are received they are typically fulfilled within three months. As of December 31, 2011 we had total open sales and purchase orders
for products that approximated $5.3 million, versus $4.5 million at December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Segments</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have only one segment for financial reporting purposes under
accounting principles generally accepted in the United States.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>MANAGEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Directors and Executive Officers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table sets forth certain
information with respect to each Director, Executive Officers and Key Employees as of April 25, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 28%; border-bottom: black 1.5pt solid; padding-right: 0.8pt; font-weight: bold">Name</TD>
    <TD STYLE="width: 3%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 6%; border-bottom: black 1.5pt solid; padding-right: 0.8pt; font-weight: bold; text-align: right">Age</TD>
    <TD STYLE="width: 3%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 45%; border-bottom: black 1.5pt solid">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center"><B>Position with Cyalume and Principal</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center"><B>Occupation</B></P></TD>
    <TD STYLE="width: 3%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 12%; border-bottom: black 1.5pt solid">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center"><B>Held Office</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center"><B>Since</B></P></TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Winston Churchill</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">71</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director and Chairman of the Board</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2006</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Yaron Eitan</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">56</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director and Vice Chairman of the Board</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2006</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Zivi Nedivi</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">53</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">President and Chief Executive Officer <SUP>(1)</SUP></TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2012</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Michael Bielonko</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">59</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Chief Financial Officer &amp; Secretary</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2008</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Edgar (Earl) Cranor</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">54</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Vice-President - Technology &ndash; CTI</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2006</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Tomas Ogas</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">55</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Vice-President - Operations &ndash; CTI</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2007</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">James Schleck</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">42</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">President of CSP</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2011</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Antonio Colon</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">54</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Senior Vice President of Sales &ndash; CTI</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2011</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Jason Epstein</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">38</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2008</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Andrew Intrater</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">50</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2009</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">John G. Meyer, Jr.</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">67</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2011</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Thomas G. Rebar</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">49</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2007</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Yair Shamir</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">66</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2008</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">James Valentine</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">65</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2011</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>To be nominated for the vacant director position, previously held by Derek Dunaway.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Background of Officers and Directors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Winston Churchill </I></B>has been
our Chairman of the Board since May 31, 2006 and was our Secretary from June 22, 2007 through December 19, 2008. Mr. Churchill
is also a member of the Board of Directors of CTI. Mr. Churchill has been a member of SCP Private Equity Management Company, LLC
since 2000. From 1993 to the present he has been the President of CIP Capital Management, Inc., a management company, and Chairman
of CIP Capital, Inc., an investment company and a director of both. He is currently a Director of Innovative Solutions and Support,
Inc. (NASDAQ: ISSC), a company engaged in the design, manufacture, and sale of flight information computers, flat panel displays,
and monitoring systems; Amkor Technology, Inc. (NASDAQ: AMKR), a supplier of semiconductor packaging and test services, Rodman
&amp; Renshaw Capital Group (NASDAQ: RODM), a full-service investment bank providing corporate finance, strategic advisory and
related services and Griffin Land &amp; Nurseries, Inc. (NASDAQ: GRIF), a real estate and landscape nursery business. Mr. Churchill
is a past director (2000-2007) of Auxilium Pharmaceuticals, Inc. (NASDAQ: AUXL), a company that develops and commercializes pharmaceutical
products for urologic and sexual health disorders. Mr. Churchill holds a B.S. in Physics, Summa Cum Laude, from Fordham University,
an MA in Economics from Oxford University, where he was a Rhodes Scholar, and a JD law degree from Yale Law School. Mr. Churchill&rsquo;s
extensive leadership, business and financial experience qualify him to serve as a director.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Yaron Eitan</I></B> has been our
Vice Chairman of the Board since December 19, 2008 and was our Chief Executive Officer and President from May 31, 2006 through
December 19, 2008. Mr. Eitan is also a member of the Board of Directors of CTI. In 1998, Mr. Eitan founded Selway Partners LLC,
a holding company focused on technology investments, and has been its President and Chief Executive Officer since that time. From
July 2002 to the present, Mr. Eitan has been a member of SCP Private Equity Management Company, LLC, a private equity and venture
capital management company. Mr. Eitan is the Chairman and/or board member of several privately-held technology companies. Mr. Eitan
holds an M.B.A. from the Wharton School of Business of the University of Pennsylvania. Mr. Eitan&rsquo;s leadership, business and
technology experience qualify him to serve as a director.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Zivi Nedivi</I></B> has been our
President and Chief Executive Officer since April 2, 2012. Mr. Nedivi came to Cyalume from Axiom Investment Advisors, LLC, a hedge
fund specializing in currencies where he was a special advisor from 2009 to 2011 and the CEO from 2008 to 2009. Prior to that,
from 2006 to 2008, he was the COO of Lumenis Ltd, a global leader in medical and aesthetic lasers and light based technology. Mr.
Nedivi was the President and CEO of Kellstrom Aerospace, LLC, an industry leader in the airborne equipment segments of the international
aviation services aftermarket and its predecessor company, Kellstrom Industries, from 1990 to 2005. He continues to serve as an
observer on Kellstrom Aerospace's board of directors. Prior to his business career, Mr. Nedivi served as an F-15 fighter pilot
in the Israeli Air Force, where he attained the rank of Major. He is a graduate of the Israel Air Force Academy and holds a Bachelor's
degree in business administration from California Coast University.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Michael Bielonko</I></B> has been
Chief Financial Officer and Secretary of Cyalume since December 19, 2008 and Chief Financial Officer and Secretary of CTI since
January 23, 2006. From 2005 until he joined CTI, he was employed as the Chief Financial Officer of CTM Group, Inc., a New Hampshire
based company servicing equipment in malls and at tourist sites. From September 1999 until December 2004, Mr. Bielonko served as
the Chief Financial Officer of Omni Facility Services, a New York City based provider of facility maintenance services. Mr. Bielonko
served as a Director of Omni Facility Services Canada, Ltd., a Toronto based facility maintenance company from May 2006 to June
2008. Mr. Bielonko has a B.S. and an M.B.A. from the University of Connecticut.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Edgar (Earl) Cranor</I></B> has been
the Vice President - Technology of CTI since January 23, 2006. Previously, he was employed by CTI in a variety of positions, including
serving as the Vice President of Research and Development. Mr. Cranor joined CTI in 1993, with the acquisition of the Chemical
Light Division of American Cyanamid, where he had served as Director of Operations. Mr. Cranor has a B.S. in Chemical Engineering
from Auburn University. He is responsible for nearly all of CTI&rsquo;s current patents.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Tomas Ogas</I></B> has been the Vice
President &ndash; Operations of CTI since May 2007. Mr. Ogas was employed by Pitney Bowes, Inc. from 1979 to 2007, where he last
served as a director of operations for Latin America.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>James Schleck</I></B> has been the
President of Cyalume Specialty Products since September 2011 following the acquisition of his former company, JFC Technologies,
LLC. At JFC he served in various capacities including President and CEO for over 17 years. Mr. Schleck is a former Army Officer
and is a graduate of the U.S. Army's Airborne, Air Assault and Ranger Schools. Mr. Schleck holds a BS degree from the United States
Military Academy, an MBA from Columbia University and an M.Ed from Rutgers University.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Antonio Colon</I></B> has been the
Senior Vice President of Sales for CTI since December 2011. Prior to joining CTI, Mr. Colon was the President and CEO of Combat
Training Solutions, Inc. from 2005 through 2011, which was acquired by CTI in December 2011. Mr. Colon is a former aerospace engineer
and a retired Air Force officer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Jason Epstein</I></B> has been a Director of Cyalume since
December 19, 2008 and is also a Director of CTI, a position held since 2007. Mr. Epstein has been a Senior Partner of Columbus
Nova since 2002. He is currently a Director of Deerfield Capital Corp. (NASDAQ: DFR), a company engaged in investment management
and other investing activities. Mr. Epstein received his B.A. from Tufts University in 1996 and currently serves on the Tufts Board
of Overseers. Mr. Epstein is one of Cova&rsquo;s two designees to the Board of Directors. We believe that Mr. Epstein&rsquo;s leadership
and business experience qualify him to serve as a director.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Andrew Intrater</I></B> has been
a Director of Cyalume since September 1, 2009. Mr. Intrater is the <FONT STYLE="color: black">CEO and Senior Managing Partner of
Columbus Nova and serves on the Executive and Investment Committees for Columbus Nova. Mr. Intrater also serves on the Board of
Directors for </FONT>Deerfield Capital Corp. (NASDAQ: DFR), a company engaged in investment management and other investing activities<FONT STYLE="color: black">.
Mr. Intrater served on the Board of Directors (2007 &ndash; 2011) for HQ Sustainable Maritime Industries, Inc. (AMEX: HQS), </FONT>an
integrated aquaculture and aquatic product processing company, with operations based in China's South Sea. <FONT STYLE="color: black">Mr.
Intrater completed his B.S. in Chemical Engineering at the Rutgers University College of Engineering and graduate studies in Materials
Science at the Columbia University School of Mines. </FONT>Mr. Intrater is one of Cova&rsquo;s two designees to the Board of Directors.
We believe that Mr. Intrater&rsquo;s leadership, global and business experience qualify him to serve as a director.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>John G. Meyer, Jr.</I></B> has been
a Director of Cyalume since June 16, 2011. Mr. Meyer has been since 2003, a Director of The Allied Defense Group, Inc. (OTCQB:
ADGI), a multinational defense business, which prior to the sale of substantially all its assets, was focused on the manufacture
and sale of ammunition and ammunition related products for use by the U.S. and foreign governments. He was also the Chief Executive
Officer of Heckler &amp; Koch, a German small arms manufacturing company, from June&nbsp;2005 to August&nbsp;2007; and the Chief
Executive Officer of The Allied Defense Group, Inc. from June&nbsp;2003 to June 2005. Prior to his business career, Mr. Meyer served
in the United States Army as its most senior Public Affairs Officer and retiring as a Major General. Mr. Meyer received a Bachelor&rsquo;s
degree from Florida State University and a Masters Degree from Sam Houston State University. Mr.&nbsp;Meyer has proven business
acumen, having served as the chief executive officer of several defense industry companies and his military background provides
the Board with relevant industry experience which qualify him to serve as a director.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Thomas G. Rebar</I></B> has served
as a Director of Cyalume since August 6, 2007. Mr. Rebar has been a Partner of SCP Private Equity Management, LLC since 1996. Mr.
Rebar is currently a Director of several privately-held companies. Mr. Rebar has served as the chair of our audit committee since
January 2009. Mr. Rebar received his B.S. summa cum laude from the University of Scranton and an M.B.A. from New York University
Graduate School of Business Administration. Mr. Rebar&rsquo;s leadership, business and financial experience qualify him to serve
as a director.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Yair Shamir</I></B> has been a Director
of Cyalume since December 19, 2008. Mr. Shamir is the Chairman and Managing Partner of Catalyst Investments and the Chairman of
IAI, Israeli Aerospace Industries. Mr. Shamir served in the Israeli Air Force as a pilot and commander from 1963 to 1988. During
his term in the Air Force, Mr. Shamir attained the rank of colonel and served as head of the electronics department, the highest
professional electronics position within the Air Force. He currently serves as a Director of several publicly traded companies
such as DSP Group Corporation (NASDAQ: DSGP) since October 1996, Orckit Communications Ltd. (NASDAQ: ORCT) since July 2008 and
Commtouch Software Ltd. (NASDAQ: CTCH) since March 2008 and also serves as Director of a few private hi-tech companies. Mr. Shamir
holds a B.Sc. Electronics Engineering from the Technion, Israel Institute of Technology. Mr. Shamir&rsquo;s leadership, global,
business and military experience qualify him to serve as a director.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Mr. Shamir also served as a member of the
Board of Directors of Mercury Interactive, LLC from 1997 to 2005. In September 2008, Mr. Shamir settled a complaint filed by the
SEC which alleged that certain independent Directors of Mercury (including Mr. Shamir) recklessly approved backdated stock option
grants and reviewed and signed public filings that contained materially false and misleading disclosures about Mercury&rsquo;s
stock option grants and company expenses. Without admitting or denying the allegations in the SEC&rsquo;s complaint, in order to
settle the charges against them, each of the independent Directors implicated (including Mr. Shamir) agreed to permanent injunctions
against violating certain provisions of the securities laws, paid a financial penalty, and retained the ability to serve as a Director
or officer of U.S. public companies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>James Valentine </I></B>has been
a Director of Cyalume since November 23, 2011. Mr. Valentine is the President and Chairman of Valentine &amp; Company. His particular
expertise involves the organization, governance and financing of emerging growth companies involved in technology infrastructure
and services. He has served in a variety of key management positions as well as a financier and investor. His previous experience
has included being the Chief Executive Officer of QoS Networks LTD, a company providing IP services on a global basis, being the
Chief Executive Officer of North American Wireless Inc, a company engaged in the design, construction and operation of nationwide
wireless infrastructure services. Mr. Valentine was a General Partner of Montgomery Securities, serving as Managing Director of
the Corporate Finance Technology Group. Mr. Valentine serves on the boards of directors of Hi Tech Services, Inc., NextGen Technology
Services, LLC, Tri Alpha Energy Inc. and Wireless Project Development Corporation. He serves on the Advisory Boards of Kline Hawkes
California, LP; Kline Hawkes California SBIC, LP, and Kline Hawkes Pacific, LP. Mr. Valentine practiced law in San Francisco specializing
in financial transactions. Mr. Valentine received his B.A. with High Honors from the University of Florida and his Juris Doctor
from Harvard Law School. Mr. Valentine is Kline Hawkes designee to the Board of Directors. We believe that Mr. Valentine&rsquo;s
leadership, global and business experience qualify him to serve as a director.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Meetings and Committees of the Board
of Directors </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the year ended December 31, 2011,
the Board of Directors met six times and took action by written consent on five occasions. All of the directors attended at least
75% of the meetings except Jason Epstein, Andrew Intrater and Yair Shamir. Each director is expected to participate, either in
person or via teleconference, in meetings of our Board of Directors and meetings of committees of our Board of Directors in which
each director is a member, and to spend the time necessary to properly discharge such director&rsquo;s respective duties and responsibilities.
We do not have a written policy with regard to directors&rsquo; attendance at annual meetings of stockholders; however, all directors
are encouraged to attend the annual meeting. The Board of Directors has determined that Messrs. Churchill, Eitan, Epstein, Intrater,
Meyer, Rebar, Shamir and Valentine are each independent directors as defined in Rule 4200 of the Nasdaq Marketplace Rules and applicable
Securities and Exchange Commission (&ldquo;SEC&rdquo;) regulations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Compensation Committee.</I> On January
13, 2009, the Board of Directors formed a Compensation Committee and adopted a written charter on that date. Serving on the Compensation
Committee are Yaron Eitan, Jason Epstein and John Meyer, each of whom is independent as defined in Rule 5605(a)(2) of the Listing
Rules. The Compensation Committee held one meeting and took action by written consent on two occasions during 2011. The charter
is available to security holders on our website, <I>www.cyalume.com</I>. The charter sets forth responsibilities, authority and
specific duties of the Compensation Committee. The Compensation Committee reviews and recommends to the board the compensation
for the CEO and non-employee directors of our Company, and reviews the CEO&rsquo;s compensation recommendations for all other corporate
officers. It also reviews the general policy relating to compensation and benefits for all employees. The Compensation Committee
has been designated by the Board of Directors to administer the Cyalume Technologies Holdings, Inc. 2009 Omnibus Securities and
Incentive Plan.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><I>Nominating Committee.</I>
On January 13, 2009, the Board of Directors formed a Nominating Committee and adopted a written charter on that date. Winston Churchill
(Chairman), Andrew Intrater and Yair Shamir, each of whom is independent as defined in Rule 5605(a)(2) of the Listing Rules, serve
on this committee. The charter is available to security holders on our website, <I>www.cyalume.com</I>. The Nominating Committee
did not meet during 2011 but took action by written consent on two occasions during 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The Nominating Committee
will consider director candidates recommended by security holders. Potential nominees to the Board of Directors are required to
have such experience in business or financial matters as would make such nominee an asset to the Board of Directors and may, under
certain circumstances, be required to be &ldquo;independent&rdquo;, as such term is defined under Rule 5605 of the Listing Rules
and applicable SEC regulations. Stockholders wishing to submit the name of a person as a potential nominee to the Board of Directors
must send the name, address, and a brief (no more than 500 words) biographical description of such potential nominee to the Nominating
and Corporate Governance Committee at the following address: Nominating Committee of the Board of Directors, c/o Cyalume Technologies
Holdings, Inc., 96 Windsor Street, West Springfield, Massachusetts 01089. Potential director nominees will be evaluated by personal
interview, such interview to be conducted by one or more members of the Nominating Committee, and/or any other method the Nominating
Committee deems appropriate, which may, but need not, include a questionnaire. The Nominating Committee may solicit or receive
information concerning potential nominees from any source it deems appropriate. The Nominating Committee need not engage in an
evaluation process unless (i) there is a vacancy on the Board of Directors, (ii) a director is not standing for re-election, or
(iii) the Nominating Committee does not intend to recommend the nomination of a sitting director for re-election. A potential director
nominee recommended by a security holder will not be evaluated differently from any other potential nominee. Although it has not
done so in the past, the Nominating Committee may retain search firms to assist in identifying suitable director candidates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The Board of Directors
does not have a formal policy on director candidate qualifications. The Board of Directors may consider those factors it deems
appropriate in evaluating director nominees made either by the Board or stockholders, including judgment, skill, strength of character,
experience with businesses and organizations comparable in size or scope to us, experience and skill relative to other Board members,
and specialized knowledge or experience. Depending upon the current needs of the Board, certain factors may be weighed more or
less heavily. In considering candidates for the Board, the directors evaluate the entirety of each candidate&rsquo;s credentials
and do not have any specific minimum qualifications that must be met. <FONT STYLE="color: black">&ldquo;Diversity,&rdquo; as such,
is not a criterion that the Committee considers<I>. </I></FONT>The directors will consider candidates from any reasonable source,
including current Board members, stockholders, professional search firms or other persons. The directors will not evaluate candidates
differently based on who has made the recommendation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Executive Committee.</I> On January
13, 2009, the Board of Directors formed an Executive Committee. Yaron Eitan (Chairman), Winston Churchill and Jason Epstein serve
on this committee. The Executive Committee exercises the powers of the Board between meetings of the full Board of Directors. The
Executive Committee did not meet during 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><I>Audit Committee.</I>
The Audit Committee is established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Thomas G. Rebar
(Chairman) and Yair Shamir serve on this committee. We anticipate that the Directors will appoint a third member to the Audit Committee.
The Audit Committee held six meetings during 2011. The Board of Directors has determined that Thomas Rebar is an &ldquo;audit committee
financial expert&rdquo;. The Board of Directors has determined that each of the members of the Audit Committee are independent
as defined in Rule 5605(a)(2) of the Listing Rules.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The Audit Committee operates
under a written charter adopted by the Board of Directors and assists the Board of Directors by overseeing the performance of the
independent auditors and the quality and integrity of our internal accounting, auditing and financial reporting practices. The
Audit Committee is responsible for retaining and, as necessary, terminating, the independent auditors, annually reviews the qualifications,
performance and independence of the independent auditors and the audit plan, fees and audit results, and pre-approves audit and
non-audit services to be performed by the auditors and related fees. The Audit Committee charter is available on our website, www.cyalume.com.&nbsp;&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Compensation Committee Interlocks and
Insider Participation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2011, no current or former officer
or employee of CTI participated in deliberations of Cyalume&rsquo;s Board of Directors concerning Executive Officer compensation.
Yaron Eitan, Thomas G. Rebar and Winston Churchill are each principals of SCP Private Equity Management LLC.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Code of Ethics</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We adopted a code of ethics on January
13, 2009, which is available on our website, <I><U>www.cyalume.com</U></I>.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>EXECUTIVE COMPENSATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Overview</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our Executive Officers are: Zivi Nedivi,
who has been President and Chief Executive Officer since April 2, 2012 and Michael Bielonko, who has been Chief Financial Officer
and Secretary since December 19, 2008. Derek Dunaway was our Chief Executive Officer until his resignation on March 30, 2012, which
was effective on April 2, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our Key Employees are: Edgar (Earl) Cranor,
who been Vice President of Technology of CTI since January 2006; Tomas Ogas, who has been Vice President of Operations of CTI since
May 2007; James Schleck, who has been the President of CSP since August 2011 and Antonio Colon who is the Senior Vice President
of Sales since December 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We did not renew our long-term employment
agreements with Monte Pickens who was previously our Executive Vice President of Sales and Thomas McCarthy who was our Vice President
of Government and Military Sales. Monte Pickens has entered into a consulting agreement with us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Compensation Philosophy</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The overriding goal of our executive compensation
program is to recruit and retain key executives and motivate them to achieve maximum results. To this end, we design and manage
our programs with the following objectives in mind:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; padding-right: 0.8pt; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="width: 94%; padding-right: 0.8pt; text-align: justify">Generating significant stockholder value, while practicing good corporate governance,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Maximizing the alignment between our short-term and long-term results and executive pay, and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Providing market-competitive compensation, while considering our financial resources.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Administration of Executive Compensation
Programs</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In January 2009, we formed a Compensation
Committee of the Board of Directors comprised of three outside, independent Directors which will administer all compensation programs
for its officers, key employees, and outside Directors. This Committee works with management to design key compensation policies
and programs, as well as sound governance practices, to ensure that our compensation programs reflect best practices and strongly
contribute to our growth and success. The two named Executive Officers and four Key Employees all have entered into employment
agreements with us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The compensation for senior executives
is comprised of four elements: a base salary, an annual performance bonus, equity awards and benefits. On March 3, 2009, Cyalume&rsquo;s
Board of Directors adopted the Cyalume 2009 Omnibus Securities and Incentive Plan for employees and Directors, which is administered
by the Compensation Committee. Awards granted pursuant to the stock incentive plan are described below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In developing salary ranges, potential
bonus payouts, equity awards and benefit plans, the Compensation Committee takes into account: 1) competitive compensation among
comparable companies and for similar positions in the market, 2) relevant incentives and rewards for senior management for improving
stockholder value while building Cyalume into a successful company, 3) individual performance, 4) how best to retain key executives,
5) the overall performance of Cyalume and its various key component entities, 6) Cyalume&rsquo;s ability to pay and 7) other relevant
factors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">All executives were involved in decisions
relating to their compensation. We believe that executives are fairly compensated.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Summary Compensation Table</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following table
shows information concerning the annual compensation for services provided to us by our Chief Executive Officer and our two most
highly compensated employees other than the Chief Executive Officer during 2011 and 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; border-bottom: Black 1pt solid">Name and Principal Position</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Salary <BR>($)</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Earned <BR>Bonus <BR>($)</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Stock Awards</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($) <SUP>(1)</SUP></B></P></TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Option Awards</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($) <SUP>(1)</SUP></B></P></TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>All Other</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Compensation</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($) <SUP>(2)</SUP></B></P></TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Total <BR>Compensation <BR>($)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 12%; font-size: 10pt; text-align: left">Derek Dunaway,</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">2011</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">333,442</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 12%; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">12,993</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 12%; font-size: 10pt; text-align: right">346,435</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">President &amp; CEO <SUP>(3) </SUP></TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">350,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">150,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">205,125</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">37,200</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">12,814</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">755,139</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Michael Bielonko,</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2011</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">209,592</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">13,438</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">223,031</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">CFO Secretary</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">220,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">88,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">201,525</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">12,162</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">521,687</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Monte Pickens,</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2011</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">224,373</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">9,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">233,373</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">EVP- Sales of CTI <SUP>(4)</SUP></TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">100,962</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">36,458</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">40,100</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">23,250</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">200,770</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD></TR>
</TABLE>
<p></p>
<p></p>
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 36pt"></TD><TD STYLE="width: 22.5pt">(1)</TD><TD STYLE="text-align: justify; padding-right: 0.25in">The amounts in these columns reflect the aggregate full grant date fair
value of each award computed in accordance with ASC Topic 718, <I>Compensation-Stock Compensation</I>. For restricted stock, the
fair value per share is equal to the closing price of our stock on the date of the grant. For stock options, the fair value per
share is based on certain assumptions included in Note 19 to our audited financial statements for the year ended December&nbsp;31,
2011 included in our annual report on Form 10-K for the year ended December&nbsp;31, 2011.</TD></TR>                                                                                                    <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify; padding-right: 0.25in">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 36pt"></TD><TD STYLE="width: 22.5pt">(2)</TD><TD>Consists of an automobile and gas allowance.</TD></TR>                                                                                                                         <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 36pt"></TD><TD STYLE="width: 22.5pt">(3)</TD><TD>Derek Dunaway resigned as President &amp; CEO on March 30, 2012, effective April 2, 2012.</TD></TR>                                                                                                                                                                      <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>(4)</TD><TD>Monte Pickens resigned as Executive Vice President of Sales on April 25, 2012, effective May 1, 2012.</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Equity Compensation Awards</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">There were no equity awards during 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 4, 2010, the Compensation Committee
of the Board of Directors authorized the issuance of the following to certain of our officers: 72,500 restricted shares of common
stock and 45,000 restricted options. On December 16, 2010, the Board of Directors ratified the Compensation Committee&rsquo;s decision
to issue 107,500 restricted shares of common stock to certain of our officers.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Outstanding Equity Awards at December
31, 2011 Year-End</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="18" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Option Awards</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="14" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Stock Awards</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="18" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Equity Incentive Plan Awards:</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="14" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Equity Incentive Plan Awards:</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; border-bottom: Black 1pt solid">Name</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Number of securities underlying unexercised options (#) <BR>exercisable</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of securities underlying unexercised options (#) unexercisable</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Number of securities <BR>underlying unexercised <BR>unearned options (#)</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Option exercise <BR>price ($)</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Option expiration <BR>date</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of <BR> shares of <BR> stock that <BR> have not vested<BR> (#)</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Market <BR> value of <BR> shares of <BR> stock that<BR> have not vested <BR> ($) <SUP>(1)</SUP></B></TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of <BR> unearned shares<BR> that <BR> have not<BR> vested<BR> (#)</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><BR><B>Market or<BR> payout value<BR> of unearned<BR> shares that<BR> have not<BR> vested </B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($) <SUP>(1)</SUP></B></P></TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">Derek</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">133,334</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">66,666</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">(2)</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3.00</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3/3/2019</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">Dunaway</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">6,667</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">13,333</TD><TD STYLE="font-size: 10pt; text-align: left">(3)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.65</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3/3/2020</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">64,166</TD><TD STYLE="font-size: 10pt; text-align: left">(5)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">240,623</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">Michael</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">Bielonko</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">44,166</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">165,623</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">Monte</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">10,000</TD><TD STYLE="font-size: 10pt; text-align: left">(4)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.25</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">8/1/2020</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">Pickens</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">10,000</TD><TD STYLE="font-size: 10pt; text-align: left">(7)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">37,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">The market price of our common stock (OTCBB: CYLU) on December 31, 2011 was $3.75 per share.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">These options vest in the following increments: 66,666 on 3/3/2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(3)</TD><TD STYLE="text-align: justify">These options vest in the following increments: 6,667 on 1/1/2012 and 6,666 on 1/1/2013. Subsequent
to 12/31/2011, in conjunction with Mr. Dunaway&rsquo;s separation agreement, the 6,666 awards scheduled to vest on 1/1/2013 have
vested in full as of May 14, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(4)</TD><TD STYLE="text-align: justify">These options vest in the following increments: 5,000 on 8/1/2012 and 5,000 on 8/1/2013.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(5)</TD><TD STYLE="text-align: justify">These restricted shares vest in the following increments: 17,500 on 1/1/2012, 16,666 on 3/3/2012,
17,500 on 1/1/2013 and 12,500 on 1/1/2014. Subsequent to 12/31/2011, in conjunction with Mr. Dunaway&rsquo;s separation agreement,
the 17,500 awards and the 12,500 awards scheduled to vest on 1/1/2013 and 1/1/2014, respectively have vested in full as of April
2, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(6)</TD><TD STYLE="text-align: justify">These restricted shares vest in the following increments: 17,500 on 1/1/2012, 17,500 on 1/1/2013
and 9,166 on 1/1/2014.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(7)</TD><TD STYLE="text-align: justify">These restricted shares vest in the following increments: 3,334 on 1/1/2012, 3,333 on 1/1/2013
and 3,333 on 1/1/2014.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;<B>Employment / Other Agreements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following discussion
summarizes the material terms of current employment and other agreements with Executive Officers and Key Employees:&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Zivi Nedivi<FONT STYLE="font-weight: normal; font-style: normal">
The Company, CTI and East Shore Ventures, LLC (the &ldquo;Consultant&rdquo;), a limited liability company owned by Mr. Nedivi,
entered into a services agreement, effective April 2, 2012, which provides that Mr. Nedivi will serve as the Company&rsquo;s Chief
Executive Officer and member of the Company&rsquo;s board of directors. The agreement has an initial term of three years and continues
for successive one-year periods unless terminated by either party upon 60 days written notice prior to its anniversary/expiration
date or if terminated pursuant to certain events or for cause.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">During the term of
the agreement, the Consultant will earn an annual cash fee of $450,000 (the &ldquo;Cash Fee&rdquo;), subject to annual increases
at the discretion of the Company&rsquo;s board. The Consultant is also eligible for bonus consideration based on certain predetermined
annual performance targets (&ldquo;Annual Performance Targets&rdquo;). If the Company&rsquo;s performance meets, but does not exceed,
the Annual Performance Targets for a given fiscal year, the amount of the bonus for such fiscal year shall equal 140% of the annualized
rate of the Cash Fee in effect as of the end of such fiscal year. If the Company&rsquo;s performance exceeds the Annualized Performance
Targets for a given fiscal year, the amount of the bonus for such fiscal year shall equal 140% of the annualized rate of the Cash
Fee in effect as of the end of such fiscal year, plus an additional 1% of such annualized rate for each 1% by which the Company&rsquo;s
performance exceeds the Annualized Performance Targets for such fiscal year. If the Company&rsquo;s performance fails to meet the
Annualized Performance Targets for a given fiscal year, the amount of the bonus for such fiscal year shall equal 140% of the annualized
rate of the Cash Fee in effect as of the end of such fiscal year, less 2% of such annualized rate for each 1% by which the Company&rsquo;s
performance failed to meet the Annualized Performance Targets for such fiscal year, provided, however, that Consultant shall not
be eligible for any bonus for a given fiscal year in which the Company&rsquo;s performance was less than or equal to 70% of the
Annualized Performance Targets for such fiscal year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Consultant also received
an option to purchase up to 1,111,963 shares of the Company&rsquo;s common stock at an exercise price per share of $3.60 (the &ldquo;Option&rdquo;).
The Option becomes exercisable annually in five equal installments on each of the first five anniversaries of the approval of the
issuance of the Option. The Option (i) will not become exercisable as to 141,333 of the Shares unless a proportional number of
shares underlying the warrants issued to Granite Creek FlexCap I, L.P. and/or Patriot Capital II, LP are exercised; (ii) provides
that, in the event that, prior to the date that the Option is fully exercisable, (A) there is a Change of Control (as defined in
the services agreement) or (B) Consultant&rsquo;s engagement under the services agreement is terminated by the Company without
Cause or by Consultant for Good Reason (each as defined in the services agreement), the Option shall become fully exercisable as
of the date of such Change of Control or termination, provided, however, that, if such termination of Consultant&rsquo;s engagement
occurs within the first eighteen (18) months after the date of the agreement, then only two-fifths (2/5) of the Option shall become
fully exercisable as of the date of such termination; (iii) for piggyback registration rights; and (iv) that Consultant will receive
a cash payment equal to the Tax Payment (as defined in the services agreement).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In the event Consultant&rsquo;s
engagement is terminated by the Company without Cause or by non-renewal, or by Consultant pursuant for Good Reason, in addition
to the amounts accrued to him, Consultant is entitled to receive an amount equal to the Cash Fee in effect immediately prior to
the Termination Date for a six-month period, subject to Consultant and Mr. Nedivi each signing a release of claims in favor the
Company and its affiliates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">During the term of
the services agreement and for a period of two years thereafter (subject to certain adjustments set forth in the services agreement)
Consultant and Mr. Nedivi are subject to confidentiality, non-solicitation and non-competition, non-interference and non-disparagement
provisions. Pursuant to the services agreement, Mr. Nedivi will devote all of his business time (subject to certain limited exceptions)
to providing services to the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">Pursuant to the services agreement, subject
to limitations imposed by law, the Company and CTI shall indemnify and hold harmless Consultant and Mr. Nedivi to the fullest extent
permitted by law from and against any and all claims, damages, expenses (including attorneys&rsquo; fees), judgments, penalties,
fines, settlements, and all other liabilities incurred or paid by him in connection with the investigation, defense, prosecution,
settlement or appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative and to which Consultant and/or Mr. Nedivi was or is a party or is threatened to be made a party by reason of the
fact that Consultant and/or Mr. Nedivi is or was an officer, employee or agent of a member of the Company or any Company subsidiary,
or by reason of anything done or not done by Consultant and/or Mr. Nedivi in any such capacity or capacities, provided that Consultant
and/or Mr. Nedivi, as applicable, acted in good faith, in a manner that was not grossly negligent or constituted willful misconduct
and in a manner it or he reasonably believed to be in or not opposed to the best interests of the Company or any Company subsidiary,
and, with respect to any criminal action or proceeding, had no reasonable cause to believe it or his conduct was unlawful.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Michael
Bielonko <FONT STYLE="font-weight: normal; font-style: normal">Mr. Bielonko&rsquo;s employment agreement, effective April 19, 2012,
provides that Mr. Bielonko will be employed as CTI&rsquo;s Chief Financial Officer. The contract has an initial term of three years
and shall continue for successive one-year periods unless terminated by either party upon 30 days written notice prior to the anniversary/expiration
date or terminated pursuant to certain events or for cause. Mr. Bielonko receives an annual base salary of $187,000, subject to
annual adjustments at the sole discretion of the board of directors. Annually, Mr. Bielonko is entitled to a cash bonus of up to
25% of annual base salary based on the achievement of revenue targets and EBITDA targets, all determined by the board of directors.
Mr. Bielonko is also eligible to receive annually an equity bonus of up to 25% of annual base pay subject to achieving the same
criteria for the cash bonus. If Mr. Bielonko voluntarily resigns or is terminated for cause during the period of employment, then
he is not entitled to receive any benefit or compensation following the date of termination. If terminated without cause during
his initial term, Mr. Bielonko is entitled to severance of an amount equal to six months of his annual base salary. If terminated
without cause subsequent to his initial term, Mr. Bielonko is entitled to receive severance of an amount equal to six months of
his annual base salary. If Mr. Bielonko is terminated without cause pursuant to a change in control, he is entitled to receive
an amount equal to six months of his annual base salary in addition to his other severance benefits.</FONT></P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Earl Cranor
<FONT STYLE="font-weight: normal; font-style: normal">Mr. Cranor&rsquo;s employment agreement, effective April 25, 2012, provides
that Mr. Cranor will be employed as CTI&rsquo;s Technology Vice President. The contract has an initial term of three years and
shall continue for successive one-year periods unless terminated by either party upon 30 days written notice prior to the anniversary/expiration
date or terminated pursuant to certain events or for cause. Mr. Cranor receives an annual base salary of $182,750, subject to annual
adjustments at the sole discretion of the board of directors. Annually, Mr. Cranor is entitled to a cash bonus of up to 25% of
annual base salary based on the achievement of revenue targets and EBITDA targets, all determined by the board of directors. Mr.
Cranor is also eligible to receive annually an equity bonus of up to 25% of annual base pay subject to achieving the same criteria
for the cash bonus. If Mr. Cranor voluntarily resigns or is terminated for cause during the period of employment, then he is not
entitled to receive any benefit or compensation following the date of termination. If terminated without cause during his initial
term, Mr. Cranor is entitled to severance of an amount equal to six months of his annual base salary. If terminated without cause
subsequent to his initial term, Mr. Cranor is entitled to receive severance of an amount equal to six months of his annual base
salary. If Mr. Cranor is terminated without cause pursuant to a change in control, he is entitled to receive an amount equal to
six months of his annual base salary in addition to his other severance benefits.</FONT></P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Tomas
Ogas <FONT STYLE="font-weight: normal; font-style: normal">Mr. Ogas&rsquo;s employment agreement, effective April 25, 2012, provides
that Mr. Ogas will be employed as CTI&rsquo;s Operations Vice President. The contract has an initial term of three years and shall
continue for successive one-year periods unless terminated by either party upon 30 days written notice prior to the anniversary/expiration
date or terminated pursuant to certain events or for cause. Mr. Ogas receives an annual base salary of $170,000, subject to annual
adjustments at the sole discretion of the board of directors. Annually, Mr. Ogas is entitled to a cash bonus of up to 25% of
annual base salary based on the achievement of revenue targets and EBITDA targets, all determined by the board of directors. Mr.
Ogas is also eligible to receive annually an equity bonus of up to 10% of annual base pay subject to achieving the same criteria
for the cash bonus. If Mr. Ogas voluntarily resigns or is terminated for cause during the period of employment, then he is not
entitled to receive any benefit or compensation following the date of termination. If terminated without cause during his initial
term, Mr. Ogas is entitled to severance of an amount equal to six months of his annual base salary. If terminated without cause
subsequent to his initial term, Mr. Ogas is entitled to receive severance of an amount equal to six months of his annual base salary.
If Mr. Ogas is terminated without cause pursuant to a change in control, he is entitled to receive an amount equal to six months
of his annual base salary in addition to his other severance benefits.</FONT></P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">James
Schleck <FONT STYLE="font-weight: normal; font-style: normal">Mr. Schleck&rsquo;s employment agreement, effective August 31, 2011,
provides that Mr. Schleck will be employed as CSP&rsquo;s President. The contract has an initial term that expires on December
31, 2013 and shall continue for successive one-year periods unless terminated by either party upon 30 days written notice prior
to the anniversary/expiration date or terminated pursuant to certain events or for cause. Mr. Schleck receives an annual base salary
of $150,000, subject to annual adjustments at the sole discretion of the board of directors. Annually, Mr. Schleck is entitled
to a cash bonus of up to 20% of annual base salary based on the achievement of revenue targets, EBITDA targets and specific objectives,
all determined by the board of directors and an additional cash bonus of 20% of annual base salary based on the achievement of
a certain EBITDA goal. Mr. Schleck is also eligible to receive an equity bonus of based on the achievement of a certain EBITDA
goals. If Mr. Schleck voluntarily resigns or is terminated for cause during the period of employment, then he is not entitled to
receive any benefit or compensation following the date of termination. If terminated without cause during his initial term, Mr.
Schleck is entitled to severance of an amount equal to six months of his annual base salary. If terminated without cause subsequent
to his initial term, Mr. Schleck is entitled to receive severance of an amount equal to six months of his annual base salary.</FONT></P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Antonio
Colon <FONT STYLE="font-weight: normal; font-style: normal">Mr. Colon&rsquo;s employment agreement, effective December 22, 2011,
provides that Mr. Colon will be employed as CTI&rsquo;s Senior Vice President of Sales. The contract has an initial term that expires
on December 31, 2013 and shall continue for successive one-year periods unless terminated by either party upon 30 days written
notice prior to the anniversary/expiration date or terminated pursuant to certain events or for cause. Mr. Colon receives an annual
base salary of $200,000, subject to annual adjustments at the sole discretion of the board of directors. Annually, Mr. Colon is
entitled to a cash bonus of up to 25% of annual base salary based on the achievement of revenue targets, EBITDA targets and specific
objectives, all determined by the board of directors. If Mr. Colon voluntarily resigns or is terminated for cause during the period
of employment, then he is not entitled to receive any benefit or compensation following the date of termination. If terminated
without cause during his initial term, Mr. Colon is entitled to severance of an amount equal to six months of his annual base salary.
If terminated without cause subsequent to his initial term, Mr. Colon is entitled to receive severance of an amount equal to his
annual base salary.</FONT></P>

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<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Retirement Plans</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We do not provide any retirement plans
or deferred compensation plans to named Executive Officers that are not generally available to all other employees.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Severance Arrangements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Assuming the employment of our named executive
officers were to be terminated without cause, each as of December 31, 2011, the following individuals would be entitled to payments
in the amounts set forth opposite to their name in the below table:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="width: 75%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Cash Severance</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">No Change in Control</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Change in Control</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; font-size: 10pt; text-align: left; text-indent: 0in; padding-left: 5.4pt">Derek Dunaway <SUP>(1)</SUP></TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 17%; font-size: 10pt; text-align: right">437,500</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 17%; font-size: 10pt; text-align: right">787,500</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0in; padding-left: 5.4pt">Michael Bielonko <SUP>(2)</SUP></TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">302,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">522,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0in; padding-left: 5.4pt">Monte Pickens <SUP>(3)</SUP></TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">645,667</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">895,833</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.75in; text-align: justify; text-indent: 0in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">Derek Dunaway resigned as President and CEO on March 30, 2012, effective April 2, 2012. His separation
agreement calls for salary continuation, totaling $350,000, as well as accelerated vesting of certain previously awarded equity
compensation.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">Michael Bielonko has entered into a new employment agreement, effective April 19, 2012, that would
result in lesser amounts actually being paid to him than shown in the table if he were terminated as of the date of this prospectus.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(3)</TD><TD STYLE="text-align: justify">Monte Pickens resigned as Executive Vice President on April 25, 2012, effective May 1, 2012. His
separation agreement calls for salary continuation, totaling $212,500. Mr. Pickens has also retained previously awarded equity
compensation as a result of his new consulting agreement with us.</TD></TR>                                                                           <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">We are not obligated
to make any cash payments to these executives if their employment is terminated by us for cause or by death or disability, other
than the payment of accrued but unpaid annual salary and bonus, if any, and reimbursement of accrued but unpaid business expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">Assuming the employment
of our named executive officers were to be terminated without cause or for good reason, each as of December 31, 2011, the following
individuals would be entitled to accelerated vesting of their outstanding stock options and common stock awards described in the
table below:</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="width: 75%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Value
of Equity Awards: </B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Termination Without<BR> Cause <SUP>(1)</SUP></B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P></TD><TD STYLE="padding-bottom: 1pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Value of Equity Awards: </B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>In
Connection With a<BR> Change in Control <SUP>(1)</SUP></B></P></TD><TD STYLE="padding-bottom: 1pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; font-size: 10pt; text-align: left; text-indent: 0in">Derek Dunaway <SUP>(2)</SUP></TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 17%; font-size: 10pt; text-align: right">540,619</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 17%; font-size: 10pt; text-align: right">540,619</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0in">Michael Bielonko</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">165,623</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">165,623</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0in">Monte Pickens <SUP>(3)</SUP></TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">75,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">75,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>


<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">                                                                                                                                          <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>(1)</TD><TD STYLE="text-align: justify">The market price of our common stock on the OTCBB on December 31, 2011 was $3.75 per share.</TD></TR>
<TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">Derek Dunaway resigned as President and CEO on March 30, 2012, effective April 2, 2012. Pursuant
to his separation agreement, all of Mr. Dunaway&rsquo;s outstanding equity awards are vested in full.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(3)</TD><TD>Monte Pickens resigned as Executive Vice President on April 25, 2012, effective May 1, 2012. In accordance with his separation
agreement, Mr. Pickens has retained all outstanding equity awards as a result of his new consulting agreement with us.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Director Compensation</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our director compensation policy for 2011
was to provide each non-employee director with an award of 7,500 options to purchase common stock at $4.50 per share as compensation
for services rendered from their election on June 16, 2011 until the next annual meeting. John G. Meyer, Jr. was compensated with
an additional 50,000 options to purchase common stock at $4.60 per share which vest equally in three annual installments. In addition,
John G. Meyer, Jr. also receives $25,000 annually, paid in quarterly installments. No other compensation was paid to non-employee
directors. All directors are reimbursed for travel and other expenses directly related to activities as directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table provides compensation
information for our non-employee directors for 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; border-bottom: Black 1pt solid">Name</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fees <BR> Earned or<BR> Paid in <BR> Cash <BR> ($)</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Stock <BR> Awards <BR> ($)</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Option <BR> Awards <BR> ($) <SUP>(1)</SUP></B></TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Total <BR>($)</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Total Number of Option Awards <BR>Outstanding <BR>at December 31, 2011 (#)</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 30%; font-size: 10pt; text-align: left">Winston Churchill</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">15,825</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">15,825</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">22,500</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Yaron Eitan</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">22,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Jason Epstein</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">22,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Andrew Intrater</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Frank Kline <SUP>(2)</SUP></TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">22,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">John G. Meyer, Jr.</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">12,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">116,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">129,325</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">82,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Thomas G. Rebar</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">22,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Yair Shamir</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,825</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">22,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">James Valentine <SUP>(3)</SUP></TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&mdash;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="width: 90%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0">(1)</TD><TD STYLE="padding-right: 40.5pt">The amounts reflect the amounts recognized in accordance with ASC 718, <I>Compensation-Stock
Compensation</I>. Assumptions used in the calculation of these amounts are included in Note 19 to our audited financial statements
for the year ended December&nbsp;31, 2011 included in our annual report on Form 10-K for the year ended December&nbsp;31, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="width: 90%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0">(2)</TD><TD>On November 23, 2011, Frank Kline resigned from the Board of Directors.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="width: 90%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0">(3)</TD><TD>On November 23, 2011, James Valentine was appointed to the Board of Directors.</TD></TR></TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Cyalume&rsquo;s subsidiaries did not pay
their Directors any compensation other than the repayment of expenses incurred in performing their functions as a Director.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Insider Trading and Speculation Policy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have established policies prohibiting
our officers, Directors and employees from purchasing or selling Cyalume securities while in possession of material, non-public
information, or otherwise using such information for their personal benefit or in any manner that would violate applicable laws
and regulations. In addition, our policies prohibit our officers, Directors and employees from speculating in our stock, which
includes short selling (profiting if the market price of our stock decreases), buying or selling publicly traded options (including
writing covered calls), hedging, or other types of derivative arrangements that have a similar economic effect.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SELLING STOCKHOLDERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Selling Stockholders may from time
to time offer and sell any or all of the shares of our common stock set forth below pursuant to this prospectus. When we refer
to &lsquo;&lsquo;Selling Stockholders&rsquo;&rsquo; in this prospectus, we mean the persons listed in the table below, and the
pledges, donees, permitted transferees, assignees, successors and others who later come to hold any of the Selling Stockholders&rsquo;
interests in shares of our common stock other than through a public sale.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">The following
table sets forth, as of April 25, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.8pt; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="width: 92%; padding-right: 0.8pt; text-align: justify">the name of the Selling Stockholders for whom we are registering shares for resale to the public,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">the number of shares of common stock that the Selling Stockholders beneficially owned prior to the offering for resale of the shares under this prospectus,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">the number of shares of our common stock that may be offered for resale for the account of the Selling Stockholders pursuant to this prospectus, and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">the number and percentage of shares of our common stock to be beneficially owned by the Selling Stockholders after the offering of the resale shares, assuming all of the offered resale shares are sold by the Selling Stockholders.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 17 and 18, 2008, GMS and certain
designees purchased an aggregate of 2,252,050 shares of Cyalume common stock from public stockholders in privately negotiated transactions
at a price per share that ranged between $8.01 and $8.03, for an aggregate purchase price of $18,054,322. On that date Winston
Churchill, our Chairman, agreed to purchase (or have his designees purchase) the 2,252,050 shares of Cyalume common stock purchased
by GMS and certain of its designees for up to $10.0 million. The purchase by Mr. Churchill and his designees was divided into two
tranches. On January 15, 2009, Mr. Churchill and his designees purchased 625,000 shares of Cyalume common stock at a purchase price
of $4.00 per share, for $2.5 million in cash from GMS. Pursuant to the agreement between GMS and Mr. Churchill, GMS has an option
to sell to Mr. Churchill or his designees an additional 1,562,500 shares of Cyalume&rsquo;s common stock at $4.80 per share for
an aggregate purchase price of $7,500,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We cannot advise you as to whether the
Selling Stockholders will in fact sell any or all of such shares of common stock. In addition, the Selling Stockholders may have
sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, the
shares of our common stock in transactions exempt from the registration requirements of the Securities Act after the date on which
it provided the information set forth on the table below. This table is prepared solely based on information supplied to us by
the listed Selling Stockholders, any Schedules 13D or 13G and Forms 3 and 4, and other public documents filed with the SEC, and
assumes the sale of all of the shares offered hereby. None of the Selling Stockholders has had within the past three years, any
position, office or other material relationship with us or with our predecessor or affiliates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Name of Selling Stockholder</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Number of</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Shares of</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Common Stock</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Beneficially</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Owned Prior</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>to the</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Offering <SUP>(1)</SUP></B></P></TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Total <BR>Number of <BR>Shares of <BR>Common Stock <BR>Owned Being <BR>Registered</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Number of</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Shares of</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Common Stock</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Beneficially</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Owned After</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>the Offering <SUP>(1)</SUP></B></P></TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Percentage of</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Common Stock</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Beneficially</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Owned After the</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Offering <SUP>(1)</SUP></B></P></TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 44%; font-size: 10pt; text-align: left">Winston Churchill</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,397,277</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">(2)</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,371,277</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">26,000</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">*</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Yaron Eitan</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">672,743</TD><TD STYLE="font-size: 10pt; text-align: left">(3)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">604,993</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">67,750</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Amit Avnet</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">167,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">167,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Ehud Barak</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">93,750</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">93,750</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Isaac Applbaum</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">104,665</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">93,750</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">10,915</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Marc L. Abramowitz</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">99,985</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">93,750</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">6,235</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Archie Clemins</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">108,750</TD><TD STYLE="font-size: 10pt; text-align: left">(4)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">93,750</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Joseph T. Gorman</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">108,750</TD><TD STYLE="font-size: 10pt; text-align: left">(4)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">93,750</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Catalyst Private Equity Partners (Israel) II LP</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">797,616</TD><TD STYLE="font-size: 10pt; text-align: left">(5)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">775,116</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">22,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Cova Small Cap Holdings, LLC</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4,024,339</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4,024,339</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Kline Hawkes Pacific, L.P</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,223,345</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,223,345</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Stephen Weinroth</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">305,636</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">305,636</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">The Volpe Revocable Trust</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">326,061</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">326,061</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">The Charlton T. Volpe 2003 Irrevocable Trust</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">40,758</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">40,758</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">The Dwight Andrew Volpe 2004 Irrevocable Trust</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">40,758</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">40,758</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Kline Hawkes Pacific Friends Fund, L.P.</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">102,087</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">102,087</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Jim Valentine</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">76,347</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">76,347</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Joseph M. Cohen</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">109,964</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">109,964</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Bruce Raben</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">30,539</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">30,539</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Marceau Schlumberger</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">21,992</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">21,992</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Paul Lipari Living Trust</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,022</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,022</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Murray Schwartz</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">20,313</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">20,313</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Emil Jachmann</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">170,814</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">170,814</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Michael Bielonko</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">86,831</TD><TD STYLE="font-size: 10pt; text-align: left">(7)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">41,373</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">45,458</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Tom McCarthy</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">53,873</TD><TD STYLE="font-size: 10pt; text-align: left">(7)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">41,373</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">12,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Earl Cranor</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">254,873</TD><TD STYLE="font-size: 10pt; text-align: left">(7)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">41,373</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">213,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1.28</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Paul Challenger</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">13,791</TD><TD STYLE="font-size: 10pt; text-align: left">(7)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">13,791</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Sandor Weisz</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">51,244</TD><TD STYLE="font-size: 10pt; text-align: left">(6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">51,244</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">LKCM Private Discipline Master Fund, SPC</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">79,839</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">79,839</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Sharbaugh Trust U/A dtd 12/14/92 FBO John Justin Churchill</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">125,000</TD><TD STYLE="font-size: 10pt; text-align: left">(8)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">125,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Ira Brind</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">25,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">25,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Lotman Holdings, Inc.</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">80,000</TD><TD STYLE="font-size: 10pt; text-align: left">(9)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">80,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Lucy C. Danziger</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">12,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">12,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">LC Danziger Trust dated 6/14/51</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">12,500</TD><TD STYLE="font-size: 10pt; text-align: left">(10)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">12,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">James J. Kim</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">125,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">125,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Thomas and Kathleen Lynch</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Charles C. Freyer</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Roger A. &amp; Helena S. Carolin (tenants by entirety)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Thomas G. Rebar</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">197,636</TD><TD STYLE="font-size: 10pt; text-align: left">(11)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">174,136</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">23,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Wayne B. Weisman</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">174,140</TD><TD STYLE="font-size: 10pt; text-align: left">(12)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">174,140</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Doron Cohen</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">74,175</TD><TD STYLE="font-size: 10pt; text-align: left">(13)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">74,175</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Province of British Columbia (nominee: (Hare &amp; Co))</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">140,695</TD><TD STYLE="font-size: 10pt; text-align: left">(14)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">140,695</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Wellington Trust Company, National Association Multiple Collective Investment Funds Trust, Emerging Companies Portfolio (nominee: ( Wellington Trust Company, National Association Multiple Collective Investment Funds Trust, Emerging Companies Portfolio C/O BBH &amp; Co.))</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">283,739</TD><TD STYLE="font-size: 10pt; text-align: left">(14)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">283,739</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Wellington Trust Company, National Association Multiple Common Trust Funds Trust, Emerging Companies Portfolio (nominee: (Landwatch &amp; Co))</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">75,673</TD><TD STYLE="font-size: 10pt; text-align: left">(14)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">75,673</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Dow Employees' Pension Plan (nominee: (Kane &amp; Co))</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">91,000</TD><TD STYLE="font-size: 10pt; text-align: left">(14)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">91,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Oregon Public Employees Retirement Fund (nominee: (Westcoast &amp; Co))</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">201,945</TD><TD STYLE="font-size: 10pt; text-align: left">(14)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">201,945</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Radian Group Inc. (nominee: (Ell &amp; Co))</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">38,826</TD><TD STYLE="font-size: 10pt; text-align: left">(14)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">38,826</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Union Carbide Employees' Pension Plan (nominee: (Kane &amp; Co))</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">39,945</TD><TD STYLE="font-size: 10pt; text-align: left">(14)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">39,945</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Granite Creek Flexcap I, L.P.</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">94,118</TD><TD STYLE="font-size: 10pt; text-align: left">(15)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">94,118</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Patriot Capital II, L.P.</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">65,882</TD><TD STYLE="font-size: 10pt; text-align: left">(16)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">65,882</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">JFC Technologies, LLC</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">605,934</TD><TD STYLE="font-size: 10pt; text-align: left">(17)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">605,934</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Arthur Cornelson</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">28,490</TD><TD STYLE="font-size: 10pt; text-align: left">(18)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">28,490</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Hemant Desai</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">28,490</TD><TD STYLE="font-size: 10pt; text-align: left">(18)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">28,490</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Dina Kisver</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">14,245</TD><TD STYLE="font-size: 10pt; text-align: left">(18)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">14,245</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Sham Redkar</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">14,245</TD><TD STYLE="font-size: 10pt; text-align: left">(18)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">14,245</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Cheng Guo</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">14,245</TD><TD STYLE="font-size: 10pt; text-align: left">(18)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">14,245</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Vilas Chopdekar</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">7,122</TD><TD STYLE="font-size: 10pt; text-align: left">(18)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">7,122</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Antonio Colon</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">125,928</TD><TD STYLE="font-size: 10pt; text-align: left">(19)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">125,928</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">David Tolson</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3,828</TD><TD STYLE="font-size: 10pt; text-align: left">(19)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3,828</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Christopher Younger</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3,828</TD><TD STYLE="font-size: 10pt; text-align: left">(19)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3,828</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">East Shore Ventures, LLC</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">(20)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,111,963</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">* Represents beneficial ownership of less than one percent of
our outstanding shares.</P>

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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%; text-align: justify">(1)</TD>
    <TD STYLE="width: 96%; text-align: justify">Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, securities that are currently convertible or exercisable into shares of our common stock, or convertible or exercisable into shares of our common stock within 60 days of the date hereof are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to the following table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder&rsquo;s name. The percentage of beneficial ownership is based on 18,285,092 shares of common stock outstanding as of April 25, 2012.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(2)</TD>
    <TD STYLE="text-align: justify">Consists of (i) 1,372,277 shares of common stock held directly, (ii) options to purchase 25,000 shares of common stock held directly.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(3)</TD>
    <TD STYLE="text-align: justify">Consists of (i) 650,243 shares of common stock held directly, (ii) options to purchase 22,500 shares of common stock held directly (iii) 83,250 shares of common stock held by Selway Capital, LLC and (iv) 5,000 shares of common stock held by Mr. Eitan&rsquo;s child.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(4)</TD>
    <TD STYLE="text-align: justify">Consists of 93,750 shares and options to purchase 15,000 shares of common stock.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(5)</TD>
    <TD STYLE="text-align: justify">Consists of (i) 775,116 shares of common stock held directly and (ii) options to purchase 22,500 shares of common stock owned by Yair Shamir, who has voting and dispositive power of Catalyst Private Equity Partners (Israel) II LP.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(6)</TD>
    <TD STYLE="text-align: justify">Such holder is a member of GMS Acquisition Partners Holdings, LLC. Beneficial ownership reflects shares attributable to such member by GMS without giving effect to certain expenses that could decrease the number of shares beneficially owned by such member.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(7)</TD>
    <TD STYLE="text-align: justify">In addition to such holder being a member of GMS Acquisition Partners Holdings, LLC (see (7) above), includes shares and options granted under the 2009 Omnibus Securities and Incentive Plan.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(8)</TD>
    <TD STYLE="text-align: justify">Thomas J. Sharbaugh is the trustee of the Sharbaugh Trust U/A dated 12/14/92 FBO John Justin Churchill.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(9)</TD>
    <TD STYLE="text-align: justify">Herbert Lotman controls Lotman Holdings, Inc.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(10)</TD>
    <TD STYLE="text-align: justify">Frederick and Lucy Danziger control the LC Danziger Trust dated 6/14/51.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(11)</TD>
    <TD STYLE="text-align: justify">Consists of (i) 174,136 shares of common stock held directly, (ii) options to purchase 22,500 shares of common stock held directly.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(12)</TD>
    <TD STYLE="text-align: justify">Consists of 174,140 shares of common stock held directly.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(13)</TD>
    <TD STYLE="text-align: justify">Consists of 74,175 shares of common stock held directly.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(14)</TD>
    <TD STYLE="text-align: justify">Wellington Management Company, LLP (&ldquo;Wellington Management&rdquo;) is an investment adviser registered under the Investment Advisers Act. Wellington Management, in such capacity, may be deemed to share beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) over the shares held by its client accounts. The business address of Wellington Management, is 280 Congress Street, Boston, MA 02210.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(15)</TD>
    <TD STYLE="text-align: justify">Consists entirely of warrants to purchase our common stock. Granite Creek Partners, LLC (&ldquo;Granite Creek&rdquo;)&nbsp;&nbsp;has the power to vote and dispose of the shares underlying such warrants. The business address of Granite Creek is 222 West Adams Street, Suite 1980, Chicago, IL 60606.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(16)</TD>
    <TD STYLE="text-align: justify">Consists entirely of warrants to purchase our common stock. Thomas O. Holland, Jr. has the power to vote and dispose of the shares underlying such warrants. The business address of Mr. Holland is 509 S. Exeter Street, Suite 210, Baltimore, MD 21202.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(17)</TD>
    <TD STYLE="text-align: justify">Consists of restricted stock issued in conjunction with an asset purchase agreement relating to our acquisition of certain assets of JFC Technologies, LLC in August 2011. James G. Schleck has the power to vote and dispose of the shares.&nbsp; The business address of Mr. Schleck is 100 West Main Street, Bound Brook, NJ 08805.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(18)</TD>
    <TD STYLE="text-align: justify">Consists of restricted stock issued in conjunction with an asset purchase agreement relating to our acquisition of certain assets of JFC Technologies, LLC in August 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(19)</TD>
    <TD STYLE="text-align: justify">Consists of restricted stock issued in conjunction with a stock purchase agreement relating to our acquisition of the stock of Combat Training Solutions, Inc. in December 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">(20)</TD>
    <TD STYLE="text-align: justify">Consists entirely of options to purchase our common stock, which are not currently exercisable.&nbsp; Zivi Nedivi, our President and Chief Executive Officer, has the power to vote and dispose of the shares underlying such warrants. The business address of Mr. Nedivi is P.O. Box 1767, New York, NY 10150.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.5in">&nbsp;&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PLAN OF DISTRIBUTION</B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are registering
the Common Stock issued to the Selling Stockholders to permit the resale of these shares of Common Stock by the holders of the
Common Stock from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the
Selling Stockholders of the Common Stock. We will bear all fees and expenses incident to our obligation to register the Common
Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Selling Stockholders
may sell all or a portion of the Common Stock beneficially owned by them and offered hereby from time to time directly or through
one or more underwriters, broker-dealers or agents. If the Common Stock is sold through underwriters or broker-dealers, the Selling
Stockholders will be responsible for underwriting discounts or commissions or agent's commissions. The Common Stock may be sold
on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale, in
the over-the-counter market or in transactions otherwise than on these exchanges or systems or in the over-the-counter market and
in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions.
The Selling Stockholders may use any one or more of the following methods when selling shares:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">block trades in which the broker-dealer will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">purchases by a broker-dealer as principal and resale by the broker-dealer for its account;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">an exchange distribution in accordance with the rules of the applicable exchange;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">privately negotiated transactions;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">settlement of short sales entered into after the effective date of the registration statement of
which this prospectus is a part;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares
at a stipulated price per share;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify">through the writing or settlement of options or other hedging transactions, whether such options
are listed on an options exchange or otherwise;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">a combination of any such methods of sale; and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="color: black">any other method permitted pursuant to applicable law.</FONT></TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Selling Stockholders
also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act,
as permitted by that rule, or Section 4(1) under the Securities Act, if available, rather than under this prospectus, provided
that they meet the criteria and conform to the requirements of those provisions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Broker-dealers engaged
by the Selling Stockholders may arrange for other broker-dealers to participate in sales. If the Selling Stockholders effect such
transactions by selling Common Stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or
agents may receive commissions in the form of discounts, concessions or commissions from the Selling Stockholders or commissions
from purchasers of the Common Stock for whom they may act as agent or to whom they may sell as principal. Such commissions will
be in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction
will not be in excess of a customary brokerage commission in compliance with NASD Rule 2440; and in the case of a principal transaction
a markup or markdown in compliance with NASD IM-2440.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In connection with
sales of the Common Stock or otherwise, the Selling Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging in positions they
assume. The Selling Stockholders may also sell Common Stock short and if such short sale shall take place after the date that this
Registration Statement is declared effective by the Commission, the Selling Stockholders may deliver Common Stock covered by this
prospectus to close out short positions and to return borrowed shares in connection with such short sales. The Selling Stockholders
may also loan or pledge Common Stock to broker-dealers that in turn may sell such shares, to the extent permitted by applicable
law. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions
or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution
of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction). Notwithstanding the foregoing, the Selling Stockholders have
been advised that they may not use shares registered on this registration statement to cover short sales of our Common Stock made
prior to the date the registration statement, of which this prospectus forms a part, has been declared effective by the SEC.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Selling Stockholders
may, from time to time, pledge or grant a security interest in some or all of the Common Stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties may offer and sell the Common Stock from time
to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act of 1933, as amended, amending, if necessary, the list of Selling Stockholders to include the pledgee, transferee
or other successors in interest as Selling Stockholders under this prospectus. The Selling Stockholders also may transfer and donate
the Common Stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Selling Stockholders
and any broker-dealer or agents participating in the distribution of the Common Stock may be deemed to be &ldquo;underwriters&rdquo;
within the meaning of Section 2(11) of the Securities Act in connection with such sales. In such event, any commissions paid, or
any discounts or concessions allowed to, any such broker-dealer or agent and any profit on the resale of the shares purchased by
them may be deemed to be underwriting commissions or discounts under the Securities Act. Selling Stockholders who are &quot;underwriters&quot;
within the meaning of Section 2(11) of the Securities Act will be subject to the applicable prospectus delivery requirements of
the Securities Act and may be subject to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17
of the Securities Act and Rule&nbsp;10b-5 under the Securities Exchange Act of 1934, as amended, or the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each Selling Stockholder
has informed us that it is not a registered broker-dealer and does not have any written or oral agreement or understanding, directly
or indirectly, with any person to distribute the Common Stock. Upon our being notified in writing by a Selling Stockholder that
any material arrangement has been entered into with a broker-dealer for the sale of Common Stock through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus
will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such Selling Stockholder
and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the Common Stock was
sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s)
did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other
facts material to the transaction. In no event shall any broker-dealer receive fees, commissions and markups, which, in the aggregate,
would exceed eight percent (8%).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the securities
laws of some states, the Common Stock may be sold in such states only through registered or licensed brokers or dealers. In addition,
in some states the Common Stock may not be sold unless such shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied with.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There can be no assurance
that any Selling Stockholder will sell any or all of the Common Stock registered pursuant to the shelf registration statement,
of which this prospectus forms a part.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each Selling Stockholder
and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation
M of the Exchange Act, which may limit the timing of purchases and sales of any of the Common Stock by the Selling Stockholder
and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged
in the distribution of the Common Stock to engage in market-making activities with respect to the Common Stock. All of the foregoing
may affect the marketability of the Common Stock and the ability of any person or entity to engage in market-making activities
with respect to the Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will pay all expenses
of the registration of the Common Stock pursuant to the registration rights agreement, including, without limitation, Securities
and Exchange Commission filing fees and expenses of compliance with state securities or &ldquo;blue sky&rdquo; laws; <I>provided</I>,
<I>however</I>, that each Selling Stockholder will pay all underwriting discounts and selling commissions, if any and any related
legal expenses incurred by it. We will indemnify the Selling Stockholders against certain liabilities, including some liabilities
under the Securities Act, in accordance with the registration rights agreement, or the Selling Stockholders will be entitled to
contribution. We may be indemnified by the Selling Stockholders against civil liabilities, including liabilities under the Securities
Act, that may arise from any written information furnished to us by the Selling Stockholders specifically for use in this prospectus,
in accordance with the related registration rights agreements, or we may be entitled to contribution.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PRINCIPAL STOCKHOLDERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth certain information regarding beneficial ownership of Cyalume&rsquo;s common stock by each person who is known by us
to beneficially own more than 5% of our common stock. The table also identifies the stock ownership of each of our Directors, each
of our named Executive Officers, and all Directors and officers as a group. Except as otherwise indicated, the stockholders listed
in the table have sole voting and investment powers with respect to the shares indicated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Shares of common stock
which an individual or group has a right to acquire within 60 days pursuant to the exercise or conversion of options, warrants
or other similar convertible or derivative securities are deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The applicable percentage
of ownership is based on 18,285,092 shares outstanding as of April 25, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; border-bottom: Black 1pt solid"><B>Name and Address of Beneficial Owner <SUP>(1)</SUP></B></TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Amount and <BR>Nature of <BR>Beneficial <BR>Ownership</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center; border-bottom: Black 1pt solid">Approximate <BR>Percentage of <BR>Common Stock</TD><TD STYLE="padding-bottom: 1pt; font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Winston J. Churchill (2)</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,397,277</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">7.64</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Yaron Eitan (3)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">672,743</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.68</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Zivi Nedivi (4)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Michael Bielonko (5)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">86,831</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Jason Epstein (6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">22,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Andrew Intrater (7)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">John G. Meyer, Jr. (8)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">32,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Thomas G. Rebar (9)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">197,637</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1.08</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Yair Shamir (10)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">797,616</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4.36</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">James Valentine</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">76,346</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">*</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Kline Hawkes Pacific Advisors, LLC (11)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,320,815</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">12.69</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Cova Small Cap Holdings, LLC (6)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4,024,339</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">22.01</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">All Directors and Executive Officers as a group and their affiliates</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">9,643,604</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">52.74</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
</TABLE>

<HR STYLE="color: Black">


<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%; padding-right: 0.8pt; font-family: Symbol">*</TD>
    <TD STYLE="width: 97%; padding-right: 0.8pt; padding-left: 3.5pt">Less than 1%.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%; padding-right: 0.8pt">(1)</TD>
    <TD STYLE="width: 96%; padding-right: 0; padding-left: 0; text-align: justify">The business address of each of our officers and Directors is 96 Windsor Street, West Springfield, Massachusetts 01089</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(2)</TD>
    <TD STYLE="padding-right: 0; padding-left: 0; text-align: justify">Based on information contained in a Schedule 13G filed by Winston Churchill on February 14, 2012.&nbsp; Consists of (i) 1,372,277 shares of common stock held directly, (ii) options to purchase 25,000 shares of common stock held directly.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(3)</TD>
    <TD STYLE="padding-right: 0; padding-left: 0; text-align: justify">Based on information contained in a Schedule 13G filed by Yaron Eitan on February 14, 2012.&nbsp; Consists of (i) 561,993 shares of common stock held directly, (ii) options to purchase 22,500 shares of common stock held directly, (iii) 83,250 shares of common stock held by Selway Capital, LLC, Mr. Eitan is the Manager of Selway Capital, LLC and (iv) 5,000 shares of common stock held by Mr. Eitan&rsquo;s minor child.&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(4)</TD>
    <TD STYLE="padding-right: 0; padding-left: 0; text-align: justify">Does not include options to purchase 1,111,963 shares held by East Shore Ventures, LLC which vest in five equal annual increments starting on April 2, 2013.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(5)</TD>
    <TD STYLE="padding-right: 0; padding-left: 0; text-align: justify">Consists of: (i) 86,831 shares of common stock, of which 44,166 shares vest in various increments starting on January 1, 2012.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(6)</TD>
    <TD STYLE="padding-right: 0; padding-left: 0; text-align: justify">Based on information contained in a Schedule 13D/A filed by GMS Acquisition Partners Holdings, LLC, Cova Small Cap Holdings, LLC (&ldquo;Cova&rdquo;), Jason Epstein, Andrew Intrater, Renova US Holdings Ltd, Columbus Nova Investments IV Ltd, CN Special Opportunity Fund Ltd. and CN Credit Opportunities Fund 2007-1 Ltd on August 12, 2009, as well as subsequent issuances by us.&nbsp;&nbsp;Mr. Epstein directly holds an option to purchase 22,500 shares of our Common Stock; however, pursuant to a privately negotiated agreement with Cova, Mr. Epstein has agreed to transfer ownership of all common stock underlying the stock option to Cova upon exercise of the stock option.&nbsp;&nbsp;Cova is an affiliate of Renova U.S. Management LLC, in which Mr. Epstein serves as a Manager and participates in a profit sharing plan.&nbsp;&nbsp;Mr. Epstein disclaims beneficial ownership over the 4,024,339 shares of common stock held of record by Cova.&nbsp;&nbsp;Cova may be deemed to own an aggregate of 5,332,367 shares of common stock by virtue of their having entered into in an Investors Rights Agreement with GMS Acquisition Partners Holdings, LLC, an entity controlled by Cova. Andrew Intrater has voting and dispositive power over the shares of common stock held by Cova.&nbsp;&nbsp;Cova&rsquo;s business address is Citigroup Center, 153 E. 53 <SUP>rd</SUP> St., 58<SUP>th</SUP> Floor, New York, NY 10022.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(7)</TD>
    <TD STYLE="padding-right: 0; padding-left: 0; text-align: justify">Includes a stock option to purchase 15,000 shares of common stock held of record by Mr. Intrater. Cova is an affiliate of Renova U.S. Management LLC, in which Mr. Intrater serves as the Managing Partner and participates in a profit sharing plan.&nbsp;&nbsp;Mr. Intrater disclaims beneficial ownership over the 4,024,339 shares of common stock held of record by Cova.</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; width: 4%">(8)</TD>
    <TD STYLE="padding-right: 0; padding-left: 0; text-align: justify; width: 96%">Includes options to purchase&nbsp;32,500 shares of common stock held directly.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(9)</TD>
    <TD STYLE="padding-right: 0; padding-left: 0; text-align: justify">Consists of: (i) options to purchase 22,500 shares of common stock held directly and (ii) 175,137 shares of common stock held directly.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(10)</TD>
    <TD STYLE="padding-right: 0; padding-left: 0; text-align: justify">Consists of (i) options to purchase&nbsp;22,500 shares of common stock held directly and (ii) 775,116 shares of common stock owned by Catalyst Private Equity Partners (Israel) II LP, over which Yair Shamir has voting and dispositive power.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">(11)</TD>
    <TD STYLE="padding-right: 0; padding-left: 0; text-align: justify">Kline Hawkes business address is 11726 San Vicente Blvd., Suite 300, Los Angeles, CA 90049.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">Related Party Debt</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 15pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">During 2011, we repaid
unsecured notes payable to three stockholders (Messrs. Winston Churchill, Thomas G. Rebar and Wayne Weisman, partners of SCP Private
Equity Management Company, LLC (&ldquo;SCP&rdquo;)) along with all accrued interest, totaling $1,165,121, via the issuance of 253,288
common shares. SCP also owns stock in Cyalume and three Directors are members of SCP. These notes payable were in principal amounts
of $800,000, $100,000 and $100,000, respectively. Each note bore interest at 6%, which was calculated quarterly and paid in-kind
(added to the unpaid principal balance). At December 31, 2010, outstanding principal on these notes totaled $1.1 million.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Management Agreement
with Board Member</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On October 1, 2009,
we entered into a management agreement with Selway Capital, LLC (&ldquo;Selway&rdquo;) that provides for (but is not limited to)
the following services to be performed by Selway on our behalf:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; margin-left: 0.25in">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%; text-align: justify">&bull;</TD>
    <TD STYLE="width: 97%; text-align: justify">Strategic development and implementation as well as consultation with our chief executive officer on a regular basis as per his reasonable requests;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&bull;</TD>
    <TD STYLE="text-align: justify">Identifying strategic partnerships with companies with which Selway has relationships and access, including building partnerships with companies in Israel, Singapore, India and Europe. The focus will be on the expansion of our munitions business;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&bull;</TD>
    <TD STYLE="text-align: justify">Advise and support us investor relations strategy;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&bull;</TD>
    <TD STYLE="text-align: justify">Advise and support future fund raising, including identifying sources of capital in the United States; and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&bull;</TD>
    <TD STYLE="text-align: justify">Support our mergers and acquisitions strategy and play an active role in due diligence and analysis.</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The management agreement
stipulated that these services would be performed by Yaron Eitan, an employee of Selway and a member of our Board of Directors,
with assistance, as needed, from other employees of Selway. The management agreement was retroactive to August 1, 2009, expires
on October 1, 2012 and could be terminated by either us or Selway upon 30-days written notice or upon our default in payment or
Selway&rsquo;s failure to perform services under the management agreement. Under the management agreement, we indemnified Selway
and Selway indemnified us against certain losses that could have been incurred while carrying out its obligations under the management
agreement. Through July 2010, Selway&rsquo;s compensation for these services was $41,667 per month. However, we were only required
to pay $16,000 per month, with the balance of $25,667 per month remaining unpaid until our senior lender consented to such payment.
We also reimbursed Selway for costs incurred specifically on our behalf for these services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Additionally, Selway
was able to earn a $210,000 bonus, payable in cash or common stock at the discretion of our Board of Directors. That bonus for
the year ended December 31, 2009 was approved by our Board of Directors on March 17, 2010 and is reflected in the 2009 consolidated
financial statements. Accordingly, 60,000 shares of common stock, valued at $210,000, were issued to Selway in 2010 for this bonus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On July 29, 2010 we
amended our management agreement (the &ldquo;Amended Management Agreement&rdquo;) with Selway. Pursuant to the Amended Management
Agreement, (i) the compensation payable to Selway was reduced to $11,667 and (ii) we issued to Selway 45,000 shares of common stock
in full satisfaction of all accrued and unpaid liabilities (including all management fees) owed to Selway pursuant to the management
agreement through July 2010. Those 45,000 shares were issued in July 2010. There is no provision for an additional bonus in the
Amended Management Agreement. Other terms and conditions of the management agreement remained unchanged.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DESCRIPTION OF SECURITIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>General</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We are authorized
to issue 50,000,000 shares of common stock, par value $.001, and 1,000,000 shares of preferred stock, par value $.001. As of the
date of this prospectus, 18,285,092 shares of common stock are outstanding, held by 180 holders of record. No shares of preferred
stock are currently outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Holders of our common
stock are entitled to one vote for each share on all matters submitted to a vote of stockholders and do not have cumulative voting
rights. Subject to the preferences and rights, if any, applicable to preferred stock, holders of our common stock are entitled
to receive dividends if and when declared by the Board of Directors. Subject to the prior rights of the holders, if any, of preferred
shares, holders of common stock are entitled to share ratably in any distribution of our assets upon liquidation, dissolution or
winding-up, after satisfaction of all debts and other liabilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Preferred Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Shares of preferred
stock may be issued from time to time in one or more series. Our Board of Directors, without approval of the stockholders, are
authorized to designate series of preferred stock and to fix the rights, privileges, restrictions and conditions to be attached
to each such series. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting power of the common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of the date of
this prospectus, there are no outstanding shares of preferred stock of any series.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Warrants</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have 160,000 private
warrants currently outstanding entitling the registered holder to purchase one share of common stock at $1.50 per share and 1,111,963
private warrants currently outstanding entitling the registered holder to purchase one share of common stock at $3.60 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In connection with
the transaction with Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P., we issued to Granite Creek Flexcap I, L.P. and
Patriot Capital II, L.P. warrants to purchase up to 160,000 shares of our common stock on July 29, 2010. The warrants terminate
five years after issuance and are exercisable for $1.50 per share of our common stock according to the amendment with Granite Creek
Flexcap I, L.P. and Patriot Capital II, L.P., which was completed on March 30, 2012. The warrants are exercisable on a cashless
basis at the option of Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P. The warrants have standard anti-dilution protection
upon a distribution of dividends or a reclassification of Cyalume&rsquo;s common stock in connection with the issuance of the warrants.
The agreement provides that Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P. will be entitled to demand and piggyback
registration rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On April 2, 2012,
in connection with a Management Services Agreement with East Shore Ventures, LLC, we issued East Shore Ventures, LLC warrants to
purchase up to 1,111,963 shares of our common stock, which vest in five equal installments on the anniversary date of the agreement.
The agreement provided that options exercisable for an aggregate of up to 141,333 shares will not vest on such anniversaries unless,
and until, a proportional number of shares underlying the warrants issued to Granite Creek FlexCap I, L.P. and/or Patriot Capital
II, LP are exercised. The warrants terminate ten years after issuance and are exercisable for $3.60. The warrants are exercisable
on a cashless basis at the option of East Shore Ventures, LLC. The warrants have standard anti-dilution protection upon a distribution
of dividends or a reclassification of Cyalume&rsquo;s common stock in connection with the issuance of the warrants. The agreement
provides that East Shore Ventures, LLC will be entitled to demand and piggyback registration rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Unissued Shares of Capital Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><I>Common</I> <I>Stock.</I>
<I>&nbsp;</I> As of April 25, 2012, we had 18,285,092 shares of common stock outstanding and 31,714,908 authorized and unissued
common stock were available for future issuance without additional stockholder approval. While the additional shares are not designed
to deter or prevent a change of control, under some circumstances we could use them to create voting impediments or to frustrate
persons seeking to effect a takeover or otherwise gain control, by, for example, issuing shares in private placements to purchasers
who might side with the Board of Directors in opposing a hostile takeover bid.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><I>Preferred Stock.</I>
Our Fifth Amended and Restated Certificate of Incorporation grants the Board of Directors the authority, without any further vote
or action by stockholders, to issue preferred stock in one or more series, fix the number of shares constituting the series and
establish the preferences, limitations and relative rights, including dividend rights, dividend rate, voting rights, terms of redemption,
redemption price or prices, redemption rights and liquidation preferences of the shares of the series. The existence of authorized
but unissued preferred stock could reduce our attractiveness as a target for an unsolicited takeover bid, since we could, for example,
issue preferred stock to parties who might oppose such a takeover bid, or issue shares with terms the potential acquirer may find
unattractive. This may have the effect of delaying or preventing a change in control, discourage bids for the common stock at a
premium over the market price, and adversely affect the market price, and voting and other rights of holders of common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Limitation of Liability of Directors
and Officers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our Fifth Amended
and Restated Certificate of Incorporation provides that no Director will be personally liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a Director, except to the extent this limitation or exemption is not permitted by the Delaware
General Corporation Law. As currently enacted, the Delaware General Corporation Law permits a corporation to provide in its certificate
of incorporation that a Director will not be personally liable to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except for liability for: (i) any breach of the Director&rsquo;s duty of loyalty; (ii)
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) payments of unlawful
dividends or unlawful stock repurchases or redemptions or (iv) any transaction from which the Director derived an improper personal
benefit.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a
successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The principal effect
of this provision is that a stockholder will be unable to recover monetary damages against a director for breach of fiduciary duty
unless the stockholder can demonstrate that one of the exceptions listed above applies. This provision, however, does not eliminate
or limit liability arising under federal securities laws. Our charter does not eliminate the fiduciary duties of our directors.
The inclusion of this provision in our charter may, however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an action, if successful, might otherwise have benefited
us or our stockholders. This provision should not affect the availability of equitable remedies such as injunction or rescission
based upon a director&rsquo;s breach of his or her fiduciary duties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Delaware General
Corporation Law provides that a corporation may indemnify its directors and officers as well as its other employees and agents
against judgments, fines, amounts paid in settlement and expenses, including attorneys&rsquo; fees, in connection with various
proceedings, other than an action brought by or in the right of the corporation, if such person acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal
action or proceeding, if he or she had no reasonable cause to believe his or her conduct was unlawful. A similar standard is applicable
in the case of an action brought by or in the right of the corporation (commonly known as &lsquo;&lsquo;derivative suits&rsquo;&rsquo;),
except that indemnification in such a case may only extend to expenses, including attorneys&rsquo; fees, incurred in connection
with the defense or settlement of such actions, and the statute requires court approval before there can be any indemnification
where the person seeking indemnification has been found liable to the corporation. Our charter and, with regard to our officers,
our bylaws, provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. Under these
provisions and subject to the Delaware General Corporation Law, we are required to indemnify our directors and officers for all
judgments, fines, settlements, legal fees and other expenses incurred in connection with pending or threatened legal proceedings
because of the director&rsquo;s or officer&rsquo;s position with us or another entity that the director or officer serves as a
director, officer, employee or agent at our request, subject to various conditions, and to advance funds to the our directors and
officers before final disposition of such proceedings to enable them to defend against such proceedings. To receive indemnification,
the director or officer must have been successful in the legal proceeding or have acted in good faith and in what was reasonably
believed to be a lawful manner in our best interest. The bylaws also specifically authorize us to maintain insurance on behalf
of any person who is or was or has agreed to become a director, officer, employee or agent of us, or is or was serving at our request
as a director, officer, employee or agent of another entity, against certain liabilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Change of Control Provisions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A number of provisions
in our charter and bylaws and under Delaware law may make it more difficult to acquire control of us. These provisions may have
the effect of delaying, deferring, discouraging, preventing or rendering more difficult a future takeover attempt which is not
approved by our Board of Directors, but which individual stockholders may deem to be in their best interests or in which they may
receive a substantial premium over then-current market prices. As a result, stockholders who might desire to participate in such
a transaction may not have an opportunity to do so. These provisions may also adversely affect the prevailing market price of the
common stock. These provisions are intended to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; padding-right: 0.8pt; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="width: 94%; padding-right: 0.8pt; text-align: justify">Enhance the likelihood of continuity and stability in the Board of Directors;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Discourage some types of transactions that may involve an actual or threatened change in control;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Discourage certain tactics that may be used in proxy fights;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt">Ensure that the Board of Directors will have sufficient time to act in our best interest and the best interest of our stockholders; and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt">Encourage persons seeking to acquire control to consult first with the Board of Directors to negotiate the terms of any proposed business combination or offer.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Transfer Agent and Registrar</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Transfer Agent
and Registrar for our common stock, warrants and units is American Stock Transfer &amp; Trust Company, LLC, 59 Maiden Lane, Plaza
Level, New York, NY 10038, (718) 921-8124.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SHARES ELIGIBLE FOR FUTURE SALE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of April 25, 2012,
we had 18,285,092 shares outstanding. Of these shares, 9,315,645 are restricted under the Securities Act of 1933, as amended (the
&ldquo;Securities Act&rdquo;) and 8,969,447 are freely tradable without restriction or further registration under the Securities
Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><FONT STYLE="color: black">Our
Board of Directors adopted the Cyalume Technologies Holdings, Inc. 2009 Omnibus Securities and Incentive Plan (the &ldquo;Plan&rdquo;).
Under the Plan, two million shares have been reserved for potential issuance as incentives to certain employees and non-employees.
Subsequent to approval by shareholders at the 2009 Annual Meeting of Shareholders, we filed Form S-8 with the SEC to register the
shares under the Plan. Issuance of shares under the Plan will not provide capital and will cause dilution of earnings per share.</FONT>
Under the Plan, we are authorized to issue up to two million shares of common stock, of which 197,419 shares are available for
future awards as of April 25, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In connection with
a subordinated, convertible debt financing with Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P., we issued Granite Creek
Flexcap I, L.P. and Patriot Capital II, L.P. warrants to purchase up to 160,000 shares of our common stock on July 29, 2010. The
warrants terminate five years after issuance and are exercisable for $1.50 per share of our common stock. The warrants contain
provisions for cashless exercise and standard anti-dilution protection upon a distribution of dividends or a reclassification of
our common stock in connection with the issuance of the warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In connection with
a management services agreement with East Shore Ventures, LLC, we issued East Shore Ventures, LLC warrants to purchase up to 1,111,963
shares of our common stock on April 2, 2012. The warrants vest in five equal installments on the anniversary date of the agreement,
terminate ten years after issuance and are exercisable for $3.60 per share of our common stock. The warrants contain provisions
for cashless exercise and standard anti-dilution protection upon a distribution of dividends or a reclassification of our common
stock in connection with the issuance of the warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Therefore, there will
be an aggregate of 1,271,963 shares that may be issued in the future upon exercise of outstanding warrants, consisting of 160,000
warrants issued to Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P and 1,111,963 warrants issued to East Shore Ventures,
LLC.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><I>Rule 144</I> <I>.</I>
Rule 144 is unavailable for the resale of restricted securities initially issued by a &lsquo;&lsquo;blank-check&rsquo;&rsquo; or
&lsquo;&lsquo;shell&rsquo;&rsquo; company, both before and after an initial business combination, despite technical compliance
with the requirements of Rule 144. Accordingly, such restricted securities can be resold only through a registered offering or
pursuant to another exemption from registration. Notwithstanding the foregoing, a person who beneficially owns restricted securities
of a company which:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; text-align: justify">has ceased to qualify as a &lsquo;&lsquo;blank-check&rsquo;&rsquo; or &lsquo;&lsquo;shell&rsquo;&rsquo; company;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; text-align: justify">is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0">has filed all reports and other materials required
        to be filed by Section 13 or 15(d), as applicable, during the preceding 12</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0">months (or such shorter period that the company was
        required to file such reports and materials); and</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt">has filed certain information with the SEC (&lsquo;&lsquo;Form 10 information&rsquo;&rsquo;) reflecting that it is no longer a &lsquo;&lsquo;blank-check&rsquo;&rsquo; or &lsquo;&lsquo;shell&rsquo;&rsquo; company may, after one year has elapsed from the filing of the &lsquo;&lsquo;Form 10 information,&rsquo;&rsquo; within any three-month period resell a number of such restricted securities that does not, with respect to the ordinary shares, exceed the greater of either of the following:</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">1% of the total number of ordinary shares then outstanding; or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; font-family: Symbol">&middot;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0">for securities trading on a national securities exchange,
        the average weekly trading volume of the ordinary shares during</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0">the four calendar weeks preceding the filing of a
        notice on Form 144 with respect to the sale.</P></TD></TR>
<TR>
    <TD STYLE="width: 25px">&nbsp;</TD>
    <TD STYLE="width: 23px">&nbsp;</TD>
    <TD STYLE="width: 1px">&nbsp;</TD>
    <TD STYLE="width: 23px">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Sales under Rule 144
are also limited based on the availability of current public information about us, and, in the case of sales by affiliates, by
manner of sale provisions and notice requirements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As of April 25, 2012, 17,438,737 shares
of our common stock were eligible for resale pursuant to Rule 144.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We can make no prediction
about the effect that market sales of our common stock or the availability for sale of our common stock will have on its market
price. Sales of substantial amounts of common stock in the public market could adversely affect the market price for our securities
and could impair our future ability to raise capital through the sale of common stock or securities linked to it.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>LEGAL MATTERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The validity of the
securities offered in this prospectus is being passed upon for us by Loeb &amp; Loeb LLP, New York, New York.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>EXPERTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The consolidated
financial statements and schedule included in this prospectus and elsewhere in the registration statement have been so
included in reliance upon the report of Grant Thornton LLP, successor to the practice of CCR LLP and independent registered
public accountants, upon the authority of said firm as experts in giving said reports.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>WHERE YOU CAN FIND ADDITIONAL INFORMATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have filed with
the SEC a registration statement on Form S-1, which includes exhibits, schedules and amendments, under the Securities Act, with
respect to the shares to be sold in this offering. Although this prospectus, which forms a part of the registration statement,
contains all material information included in the registration statement, parts of the registration statement have been omitted
as permitted by rules and regulations of the SEC. We refer you to the registration statement and its exhibits for further information
about us, our securities and this offering. The registration statement and its exhibits, as well as our other reports filed with
the SEC, can be inspected and copied at the SEC&rsquo;s public reference room at 100 F Street, N.E., Washington, D.C. 20549-1004.
The public may obtain information about the operation of the public reference room by calling the SEC at 1-800-SEC-0330. In addition,
the SEC maintains a web site at <I><U>http://www.sec.gov</U>&nbsp;</I> which contains the Form S-1 and other reports, proxy and
information statements and information regarding issuers that file electronically with the SEC. We are subject to the information
reporting requirements of the Securities Exchange Act of 1934, and we will file reports, proxy statements and other information
with the SEC.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>INDEX TO FINANCIAL STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Cyalume Technologies Holdings, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Years ended December 31, 2011 and 2010</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none"><B>&nbsp;</B></P>

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<TR STYLE="vertical-align: top; text-decoration: none">
    <TD STYLE="width: 76%; text-autospace: none; font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 5%; text-autospace: none; font-weight: bold; text-align: center; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 19%; text-autospace: none; font-weight: bold; text-align: center; text-decoration: none; border-bottom: Black 1pt solid">Page</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none">
    <TD STYLE="text-autospace: none; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: rgb(204,255,204)">
    <TD STYLE="text-autospace: none; text-decoration: none">Report of Independent Registered Public Accounting Firm</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">F-2</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: White">
    <TD STYLE="text-autospace: none; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: rgb(204,255,204)">
    <TD STYLE="text-autospace: none; text-decoration: none">Consolidated Financial Statements :</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: White">
    <TD STYLE="text-autospace: none; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in; text-autospace: none; text-decoration: none">Consolidated Statements of Income</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">F-3</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: White">
    <TD STYLE="padding-left: 0.25in; text-autospace: none; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in; text-autospace: none; text-decoration: none">Consolidated Balance Sheets</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">F-4</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: White">
    <TD STYLE="padding-left: 0.25in; text-autospace: none; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in; text-autospace: none; text-decoration: none">Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">F-5</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: White">
    <TD STYLE="padding-left: 0.25in; text-autospace: none; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in; text-autospace: none; text-decoration: none">Consolidated Statements of Cash Flows</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">F-6</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: White">
    <TD STYLE="padding-left: 0.25in; text-autospace: none; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in; text-autospace: none; text-decoration: none">Notes to Consolidated Financial Statements</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">F-7</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: White">
    <TD STYLE="text-autospace: none; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: rgb(204,255,204)">
    <TD STYLE="text-autospace: none; text-decoration: none">Schedule II&mdash;Valuation and Qualifying Accounts</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">S-1</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: White">
    <TD STYLE="text-autospace: none; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-decoration: none; background-color: rgb(204,255,204)">
    <TD STYLE="text-autospace: none; text-decoration: none">Signatures</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-autospace: none; text-align: center; text-decoration: none">S-2</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">Board of Directors and Shareholders</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">Cyalume Technologies Holdings, Inc.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-decoration: none">We have audited the accompanying consolidated
balance sheet of Cyalume Technologies Holdings, Inc. (a Delaware corporation) and subsidiaries (the &ldquo;Company&rdquo;) as of
December 31, 2011, and the related consolidated statements of income, changes in stockholders&rsquo; equity and comprehensive income,
and cash flows for the year then ended. Our audit of the basic consolidated financial statements included the financial statement
schedule listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedule are the responsibility
of the Company&rsquo;s management. Our responsibility is to express an opinion on these financial statements and financial statement
schedule based on our audit. The consolidated financial statements of the Company as of and for the year ended December 31, 2010
were audited by CCR LLP. We have since succeeded to the practice of such firm.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-decoration: none">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 are free of material misstatement. The Company
is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company&rsquo;s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-decoration: none">In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Cyalume Technologies Holdings,
Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">/s/ GRANT THORNTON LLP</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">Glastonbury, Connecticut</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">April 16, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Cyalume Technologies Holdings, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Consolidated Statements of Income</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>(in thousands, except shares and per
share information)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">For the Year</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">For the Year</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">Ended</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">Ended</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">December 31,</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">December 31,</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="width: 74%; text-decoration: none">Revenues</TD><TD STYLE="width: 1%; text-decoration: none">&nbsp;</TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left">$</TD><TD STYLE="width: 10%; text-decoration: none; text-align: right">34,703</TD><TD STYLE="width: 1%; text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; text-decoration: none">&nbsp;</TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left">$</TD><TD STYLE="width: 10%; text-decoration: none; text-align: right">38,024</TD><TD STYLE="width: 1%; text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">Cost of goods sold</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">18,568</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">18,857</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left">Gross profit</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">16,135</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">19,167</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left">Other expenses (income):</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Sales and marketing</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">4,402</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">3,471</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">General and administrative</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">6,135</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">5,520</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Research and development</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,888</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,663</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Interest expense, net</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">2,330</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">2,559</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Interest expense &ndash; related party</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">43</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">66</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Amortization of intangible assets</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,805</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,794</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Other income, net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(430</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(184</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">Total other expenses</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">16,173</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">14,889</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left">Income (loss) before income taxes</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(38</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">4,278</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">Provision for (benefit from) income taxes</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(365</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-decoration: none; text-align: right">1,665</TD><TD STYLE="padding-bottom: 1pt; text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">Net income</TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 2.5pt double">327</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 2.5pt double">2,613</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Net income per common share:</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; padding-left: 9pt">Basic</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">$</TD><TD STYLE="text-decoration: none; text-align: right">.02</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">$</TD><TD STYLE="text-decoration: none; text-align: right">.17</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; padding-left: 9pt">Diluted</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">$</TD><TD STYLE="text-decoration: none; text-align: right">.02</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">$</TD><TD STYLE="text-decoration: none; text-align: right">.15</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Weighted average shares used to compute net income per common share:</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; padding-left: 9pt">Basic</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">16,911,103</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">15,483,243</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; padding-left: 9pt">Diluted</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">18,470,638</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">16,806,275</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">The accompanying notes are an integral part
of these consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Cyalume Technologies Holdings, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Consolidated Balance Sheets</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>(in thousands, except shares and per
share information)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">December&nbsp;31,</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">December&nbsp;31,</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="font-weight: bold; text-decoration: none">Assets</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left">Current assets:</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-decoration: none; padding-left: 9pt">Cash</TD><TD STYLE="width: 1%; text-decoration: none">&nbsp;</TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left">$</TD><TD STYLE="width: 10%; text-decoration: none; text-align: right">2,951</TD><TD STYLE="width: 1%; text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; text-decoration: none">&nbsp;</TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left">$</TD><TD STYLE="width: 10%; text-decoration: none; text-align: right">4,086</TD><TD STYLE="width: 1%; text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Accounts receivable, net of allowance for doubtful accounts of $206 and $62, respectively</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">3,339</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,925</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; padding-left: 9pt">Inventories</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">11,393</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">9,920</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Income taxes refundable</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">38</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Deferred income taxes</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">386</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">931</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt; padding-bottom: 1pt">Prepaid expenses and other current assets</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">559</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">429</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left">Total current assets</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">18,666</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">17,291</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Property, plant and equipment, net</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">10,417</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">8,509</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; padding-left: 9pt">Goodwill</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">55,329</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">51,244</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Other intangible assets, net</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">22,007</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">20,912</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Due from related party</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">3,721</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Restricted cash</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">600</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt; padding-bottom: 1pt">Other noncurrent assets</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">154</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">286</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">Total assets</TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 2.5pt double">110,894</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 2.5pt double">98,242</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-decoration: none; text-align: left">Liabilities and Stockholders&rsquo; Equity</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left">Current liabilities:</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Current portion of notes payable</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">$</TD><TD STYLE="text-decoration: none; text-align: right">1,592</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">$</TD><TD STYLE="text-decoration: none; text-align: right">1,453</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Accounts payable</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,948</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">2,185</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Accrued expenses</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">2,179</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">2,362</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Notes payable to related party</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">250</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Current portion of capital lease obligation</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">43</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt; padding-bottom: 1pt">Income tax payable</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">700</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left">Total current liabilities</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">6,012</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">6,700</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Notes payable, net of current portion</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">18,975</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">22,715</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Notes payable due to related parties, net of current portion</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,131</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Line of credit due to related party</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">755</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Deferred income taxes</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">7,145</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">8,147</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Contingent consideration</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">3,699</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; padding-left: 9pt">Derivatives</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">273</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">365</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Asset retirement obligation</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">175</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">166</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Capital lease obligation, net of current portion</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">30</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt; padding-bottom: 1pt">Contingent legal obligation</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">3,627</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left">Total liabilities</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">40,691</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">39,224</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left">Commitments and contingencies</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left">Stockholders' equity</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Preferred stock, $0.001 par value; 1,000,000 shares authorized, no shares issued or outstanding</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Common stock, $0.001 par value; 50,000,000 shares authorized; 18,311,228 and 15,748,570 issued and outstanding, respectively</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">18</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">16</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Additional paid-in capital</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">100,334</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">89,452</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Accumulated deficit</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(29,453</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(29,780</TD><TD STYLE="text-decoration: none; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Accumulated other comprehensive loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(696</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(670</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">Total stockholders&rsquo; equity</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">70,203</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">59,018</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">Total liabilities and stockholders' equity</TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 2.5pt double">110,894</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 2.5pt double">98,242</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">The accompanying notes are an integral part
of these consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Cyalume Technologies Holdings,&nbsp;Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Consolidated Statements of Changes in
Stockholders' Equity and Comprehensive Income</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>(in thousands,
except shares)&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">Accumulated</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">Common
    Stock</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">Additional</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">Other</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">Total</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">Number</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">Paid-In</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">Accumulated</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">Comprehensive</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">Stockholders&rsquo;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center"><FONT STYLE="font-size: 7pt">Comprehensive</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">of
    Shares</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">Amount</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">Capital</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">Deficit</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">Loss</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">Equity</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">Income</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="width: 23%; text-decoration: none"><FONT STYLE="font-size: 7pt">Balance at December&nbsp;31, 2009</FONT></TD><TD STYLE="width: 1%; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 8%; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">15,405,570</FONT></TD><TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="width: 8%; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">15</FONT></TD><TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="width: 8%; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">87,926</FONT></TD><TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="width: 8%; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(32,393</FONT></TD><TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="width: 1%; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="width: 8%; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(16</FONT></TD><TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="width: 1%; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="width: 8%; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">55,532</FONT></TD><TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 8%; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Share-based compensation expense</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">298,000</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">1,181</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">1,181</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Common stock issued to settle payable to
    related party</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">45,000</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">1</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">145</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">146</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Warrants issued in conjunction with convertible
    debt</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">200</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">200</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Foreign currency translation adjustments</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(486</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(486</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(486</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Unrealized loss on cash flow hedges, net
    of taxes of $100</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(168</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(168</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(168</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Net income</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">2,613</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">2,613</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;&nbsp;&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">2,613</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">Comprehensive income</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;&nbsp;&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">1,959</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">Balance at December&nbsp;31, 2010</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;&nbsp;&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">15,748,570</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">16</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">89,452</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 7pt">(29,780</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 7pt">(670</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">59,018</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Shares issued &ndash; private placement</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">871,823</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">1</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">3,431</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">3,432</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">Shares issued &ndash; cashless option exercise</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">450</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">Shares issued &ndash; cashless warrant exercise</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">6,060</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Shares issued &ndash; extinguishment of notes
    payable</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">483,046</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">2,212</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">2,212</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Shares issued &ndash; extinguishment of notes
    payable to related party</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">253,288</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">1,160</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">1,160</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Shares issued &ndash; business combinations</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">846,355</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">1</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">2,999</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">3,000</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Repurchase and retirement of common stock</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(28,114</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(134</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(134</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Share-based compensation expense</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">129,750</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">1,207</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">1,207</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Adjustment to the accounting for warrants
    issued in July 2010 in conjunction with issuance of subordinated term loan <BR></FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">7</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">7</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Foreign currency translation adjustments</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(67</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(67</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">(67</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Unrealized gain on cash flow hedges, net
    of taxes of $(23)</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">41</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">41</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">41</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">Net income</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">327</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">327</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;&nbsp;&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">327</FONT></TD><TD STYLE="text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">Comprehensive income</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;&nbsp;&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">&mdash;</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">301</FONT></TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">Balance at December&nbsp;31, 2011</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;&nbsp;&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">18,311,228</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">18</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">100,334</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 7pt">(29,453</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 7pt">(696</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 7pt">)</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">70,203</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-decoration: none; text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-decoration: none; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">The accompanying notes are an integral part
of these consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Cyalume Technologies Holdings,&nbsp;Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Consolidated Statements of Cash Flows</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>(in thousands)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">For the Year</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">For the Year</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">Ended</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">Ended</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">December 31,</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center">December 31,</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="font-weight: bold; text-decoration: none; text-align: left">Cash flows from operating activities:</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; text-decoration: none; text-align: left; padding-left: 9pt">Net income</TD><TD STYLE="width: 1%; text-decoration: none">&nbsp;</TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left">$</TD><TD STYLE="width: 10%; text-decoration: none; text-align: right">327</TD><TD STYLE="width: 1%; text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; text-decoration: none">&nbsp;</TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left">$</TD><TD STYLE="width: 10%; text-decoration: none; text-align: right">2,613</TD><TD STYLE="width: 1%; text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Adjustments to reconcile net income to net cash&nbsp; provided by operating activities:</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 0.25in">Depreciation of property, plant and equipment</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,150</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">833</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; padding-left: 0.25in">Amortization</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">2,281</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">2,142</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 0.25in">(Benefit from) provision for deferred income taxes</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(1,267</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">948</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 0.25in">Stock-based compensation expense</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,207</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,181</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 0.25in">Other non-cash expenses</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">304</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">315</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 0.25in">Changes in operating assets and liabilities:</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 27pt">Accounts receivable</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(1,115</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,295</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; padding-left: 27pt">Inventories</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(37</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(740</TD><TD STYLE="text-decoration: none; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 27pt">Prepaid expenses and other current assets</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(125</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">2</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 27pt">Accounts payable and accrued liabilities</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(1,008</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(561</TD><TD STYLE="text-decoration: none; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 27pt">Restricted cash</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">150</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt; padding-left: 27pt">Income taxes payable, net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-decoration: none; text-align: right">976</TD><TD STYLE="padding-bottom: 1pt; text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left">Net cash provided by operating activities</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,089</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">9,004</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-decoration: none; text-align: left">Cash flows from investing activities:</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Payments relating to business combinations, net of $222 cash acquired</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(2,528</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Proceeds from disposal of long-lived assets</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">207</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; padding-bottom: 1pt; padding-left: 9pt">Purchases of long-lived assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,323</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,626</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left">Net cash used in investing activities</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(3,851</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(1,419</TD><TD STYLE="text-decoration: none; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-decoration: none; text-align: left">Cash flows from financing activities:</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Net repayment of line of credit</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(3,200</TD><TD STYLE="text-decoration: none; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Proceeds from notes payable and warrants</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">7,942</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Principal payments on notes payable</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(1,753</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(9,890</TD><TD STYLE="text-decoration: none; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Payments to reacquire and retire common stock</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(134</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Net payments of debt issue costs</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(271</TD><TD STYLE="text-decoration: none; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-left: 9pt">Proceeds from issuance of common stock</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">3,432</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Principal payments on capital lease obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-decoration: none; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left">Net cash provided by (used in) financing activities</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">1,541</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(5,419</TD><TD STYLE="text-decoration: none; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">Effect of exchange rate changes on cash</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-decoration: none; text-align: right">86</TD><TD STYLE="padding-bottom: 1pt; text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(83</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left">Net increase (decrease) in cash</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">(1,135</TD><TD STYLE="text-decoration: none; text-align: left">)</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right">2,083</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; padding-bottom: 1pt">Cash, beginning of period</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">4,086</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 1pt solid">2,003</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; padding-bottom: 2.5pt">Cash, end of period</TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 2.5pt double">2,951</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-decoration: none; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-decoration: none; text-align: right; border-bottom: Black 2.5pt double">4,086</TD><TD STYLE="text-decoration: none; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">The accompanying notes are an integral part
of these consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Cyalume Technologies Holdings, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-decoration: none"><B>Notes to Consolidated Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-decoration: none"><TR STYLE="vertical-align: top; text-decoration: none">
<TD STYLE="width: 0; text-decoration: none"></TD><TD STYLE="width: 0.25in; text-decoration: none"><B>1.</B></TD><TD STYLE="text-align: justify; text-decoration: none"><B>BACKGROUND AND DESCRIPTION OF BUSINESS</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">These consolidated financial
statements and footnotes include the financial position and operations of Cyalume Technologies Holdings, Inc. (&ldquo;Cyalume&rdquo;),
a holding company that is the sole shareholder of Cyalume Technologies, Inc. (&ldquo;CTI&rdquo;) and of Cyalume Specialty Products,
Inc. (&ldquo;CSP&rdquo;). CTI is the sole shareholder of Cyalume Technologies, SAS (&ldquo;CTSAS&rdquo;), Cyalume Realty, Inc.
(&ldquo;CRI&rdquo;) and <FONT STYLE="color: black">Combat Training Solutions, Inc. (&ldquo;CTS&rdquo;)</FONT>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">CTI and CTSAS manufacture and
sell chemiluminescent products and reflective and photoluminescent materials to military, ammunition, commercial and public safety
markets. CTSAS is located in France and represents us in certain international markets, primarily Europe and the Middle East. CTI
sells to customers in all other geographic markets. CTI&rsquo;s and CTSAS&rsquo; business operations constitute the majority, based
on revenues and assets, of our consolidated business operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">CSP manufactures and sells <FONT STYLE="color: black">high-performance
specialty polymers and pharmaceutical products to customers predominantly in the pharmaceutical and military polymer markets. CSP&rsquo;s
operations are located in Bound Brook, New Jersey.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">CRI owns land located in Colorado
Springs, Colorado.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">CTS provides its customers with
realistic training simulation devices and their associated consumables. These products allow military and law enforcement professionals
to maintain operational readiness through safe, live training and hands-on situational exercises.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">The accompanying consolidated
financial statements include the accounts of Cyalume, CTI, CSP, CTSAS, CRI and CTS and are prepared in accordance with accounting
principles generally accepted in the United States of America (&ldquo;U.S. GAAP&rdquo;). All significant intercompany balances
and transactions have been eliminated in consolidation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-decoration: none"><TR STYLE="vertical-align: top; text-decoration: none">
<TD STYLE="width: 0; text-decoration: none"></TD><TD STYLE="width: 0.25in; text-decoration: none"><B>2.</B></TD><TD STYLE="text-decoration: none"><B>SIGNIFICANT ACCOUNTING POLICIES</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-decoration: none"><B>Reclassifications</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-decoration: none">Certain prior year amounts have been reclassified
to conform to the 2011 presentation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-decoration: none">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">Foreign Operations</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none"><FONT STYLE="color: black">The
accounting records of CTSAS are maintained in Euros, their local and functional currency. Revenue and expense transactions are
translated to U.S. dollars using the average exchange rate of the month in which the transaction took place. Assets and liabilities
are translated to U.S. dollars using the exchange rate in effect as of the balance sheet date. Equity transactions are translated
to U.S. dollars using the exchange rate in effect as of the date of the equity transaction. Translation gains and losses are reported
as a component of accumulated other comprehensive income within stockholders&rsquo; equity. Gains and losses resulting from transactions
which are denominated in other than the functio</FONT>nal currencies are reported as other income or loss in the statement of income
in the period the gain or loss occurred.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">Comprehensive Income</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none"><FONT STYLE="font-weight: normal">Comprehensive
income<I> </I>accounts for changes in stockholders&rsquo; equity resulting from non-stockholder sources. All transactions that
would cause comprehensive income to differ from net income have been recorded and disclosed and relate to (i) the translation of
the accounts of our foreign <FONT STYLE="color: windowtext">subsidiary and (ii) the effective portion of activities designated
as hedges for hedge accounting purposes.</FONT></FONT></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none"><B>Use of Estimates</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">The preparation of financial
statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods. Estimates are used when accounting for certain items such
as provisions for inventory, accounts receivable and deferred tax assets; assessing the carrying value of intangible assets including
goodwill; determining the useful lives of property, plant and equipment and intangible assets; and in determining asset retirement
obligations. Estimates are based on historical experience, where applicable, and assumptions that we believe are reasonable under
the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none"><B>Accounts Receivable</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">Accounts receivable are recorded
at the aggregate unpaid amount less any allowance for doubtful accounts. The allowance is based on historical bad debt experience
and the specific identification of accounts deemed uncollectible. We determine an account receivable&rsquo;s delinquency status
based on its contractual terms. Interest is not charged on outstanding balances. Accounts are written-off only when all methods
of recovery have been exhausted. We control credit risk through initial credit evaluations and approvals, credit limits, and monitoring
procedures. We perform ongoing credit evaluations of customers, but do not require collateral to secure accounts receivable.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">Inventories</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">Inventories
are stated at the lower of cost (on a first-in first-out (&ldquo;FIFO&rdquo;) method) or net realizable value. The cost of
inventory consists of raw material content, labor costs to produce the inventory and overhead costs incurred during
production of the inventory. We periodically review the realizability of inventory. Provisions are recorded for potential
obsolescence which requires management&rsquo;s judgment. Conditions impacting the realizability of inventory could cause
actual write-offs to be materially different than provisions for obsolescence.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">Property, Plant and Equipment</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">Property, plant and equipment
are stated at cost. Depreciation is computed under the straight-line method over the estimated useful lives of four to eight years
for equipment and 30 years for buildings and improvements.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">Goodwill</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none"><FONT STYLE="font-weight: normal">Goodwill
is deemed to have an indefinite life and accordingly, is not subject to annual amortization. Goodwill is subject to annual impairment
reviews as of August 31, and, if conditions warrant, interim reviews based upon its estimated fair value. Impairment charges, if
any, are recorded in the period in which the impairment is determined.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">Intangible Assets</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">Intangible assets are amortized
over their estimated useful lives. &nbsp;Costs associated with renewing or extending the terms associated with intangible assets
are expensed as incurred.&nbsp; Costs to third parties that are related to internally developing or successfully defending an intangible
asset are capitalized as part of the intangible asset developed or defended and amortized over that asset&rsquo;s useful life.
Such costs to third parties that are related to patent applications that are ultimately rejected by the relevant government authority
are expensed upon rejection. The useful lives used for amortization of intangible assets are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 95%; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-decoration: none; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-decoration: none; text-align: center; border-bottom: Black 1pt solid">Useful lives</TD><TD STYLE="font-weight: bold; text-decoration: none; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none; text-align: left">Patents and developed technologies</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: center">See (1)</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left">Purchased customer relationships</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: center">9 &ndash; 13 years</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 82%; text-decoration: none; text-align: left">Trademarks and trade names</TD><TD STYLE="width: 1%; text-decoration: none">&nbsp;</TD>
    <TD STYLE="width: 1%; text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-decoration: none; text-align: center">(2)</TD><TD STYLE="width: 1%; text-decoration: none; text-align: left"></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-decoration: none; text-align: left">Customer backlog</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: center">4 months</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Non-compete agreements</TD><TD STYLE="text-decoration: none">&nbsp;</TD>
    <TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD><TD STYLE="text-decoration: none; text-align: center">5 years</TD><TD STYLE="text-decoration: none; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-decoration: none"><TR STYLE="vertical-align: top; text-decoration: none">
<TD STYLE="width: 0.25in; text-decoration: none"></TD><TD STYLE="width: 0.25in; text-decoration: none">(1)</TD><TD STYLE="text-align: justify; text-decoration: none; padding-left: 9pt; text-indent: -9pt">Each patent has its own legal expiration date and therefore its own useful life. Generally, our
patents&rsquo; legal lives begin when the related patent application is filed with the relevant government authority and ends 20
years thereafter. We begin amortizing patent costs incurred when the relevant government authority approves the related patent.
Patents recorded as of December 31, 2011 will expire in years 2012 through 2031.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-decoration: none"><TR STYLE="vertical-align: top; text-decoration: none">
<TD STYLE="width: 0.25in; text-decoration: none"></TD><TD STYLE="width: 0.25in; text-decoration: none">(2)</TD><TD STYLE="text-align: justify; text-decoration: none; padding-left: 9pt; text-indent: -9pt">Trademarks and trade names of CTI are deemed to have an indefinite life and accordingly, are not
subject to annual amortization. CTI&rsquo;s trademarks and trade names are subject to annual impairment reviews as of August 31,
and, if conditions warrant, interim reviews based upon their estimated fair value. Impairment charges, if any, are recorded in
the period in which the impairment is determined. Our annual impairment review as of August 31, 2011 indicated that no impairment
of CTI&rsquo;s trademarks or trade names had occurred. We expect to use CTS&rsquo; trademark for approximately two years as of
December 31, 2011 and therefore the cost of CTS&rsquo; trademark will be amortized over that period.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in; text-decoration: none">&nbsp;</P>



<P STYLE="margin: 0; text-decoration: none"></P>

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<P STYLE="margin: 0; text-decoration: none"></P>
<P STYLE="margin: 0"></P>

<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Long-Lived Assets</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Long-lived assets, such as intangible
assets (except for trademarks and trade names) and property, plant and equipment, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Such reviews are based on a comparison
of the asset&rsquo;s undiscounted cash flows to the recorded carrying value for the asset. If the asset&rsquo;s recorded carrying
value exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset, the
asset is written-down to its estimated fair value. To estimate that fair value, we will use the most appropriate valuation technique
for the circumstances and for which sufficient data is available.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Impairment charges, if any,
are recorded in the period in which the impairment is determined. In the event of an impairment charge, the identifiable assets&rsquo;
post-impairment carrying value will continue to be amortized or depreciated over their useful lives and be reviewed periodically
for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
No impairment charges were recorded in the years ended December 31, 2011 and 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Debt Issuance Costs</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Costs paid to lenders to obtain
financing are presented as discounts on the related debt and are amortized to interest expense over the term of the related financing,
using the effective interest method (unless the financing is a line of credit, in which case the straight-line method is used).
Such costs paid to third parties are presented as assets and are amortized to interest expense in the same manner as costs paid
to lenders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Derivatives</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="font-weight: normal">Derivatives
are recorded at their fair value as of the balance sheet date. If a derivative qualifies for &ldquo;hedge accounting&rdquo; under
U.S. GAAP and has been designated as a hedge by us, then we record the &ldquo;effectively hedged&rdquo; portion, as defined by
U.S. GAAP, of changes in such derivatives&rsquo; fair value in accumulated other comprehensive loss, which is a component of our
stockholders&rsquo; equity. We record (i) ineffectively hedged portions of such changes in fair value or (ii) changes in the fair
value of derivatives not designated as a hedge in our consolidated statement of income in the period the change occurred. On the
consolidated statement of cash flows, cash flows from derivative instruments accounted for as cash flow hedges are classified in
the same category as the cash flows from the items being hedged.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Common Stock Purchase Warrants</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Common stock purchase warrants
issued and currently outstanding are recorded at their initial fair value and reported in stockholders&rsquo; equity as increases
to additional paid-in capital. These warrants are reported as equity, rather than liabilities, since (i) the warrants may not be
net-cash settled, (ii) the warrant contract limits the number of shares to be delivered in a net-share settlement and (iii) we
have sufficient unissued common shares available to settle outstanding warrants. Subsequent changes in fair value from the warrants&rsquo;
initial fair value are not recognized as long as the warrants continue to merit classification as equity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Revenue Recognition</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Revenue from the sale of products
or the providing of services is recognized when the earnings process is complete, the amount of revenue can be determined, and
the risks and rewards of ownership have transferred to the customer. <FONT STYLE="color: black">Depending on the terms of the individual
sales arrangement with our customer, product sales are recognized at either the shipping point or upon receipt by the customer.
</FONT>Costs and related expenses to manufacture the products are recorded as costs of goods sold when the related revenue is recognized.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We have several significant
contracts providing for the sale of indefinite quantities of products at fixed per unit prices, subject to adjustment for certain
economic factors. Revenue under these contracts is recognized when products ordered under the contracts are received by the customer.
Whenever costs change, we review the pricing under these contracts to determine whether they require the sale of products at a
loss. To date, we have no loss contracts which would require the accrual of future losses in the current financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Taxes Collected from Customers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Sales taxes collected from customers
are not considered revenue and are included in accounts payable and accrued expenses until remitted to the taxing authorities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Shipping and Handling Costs</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="font-weight: normal">Outbound
shipping and handling costs are included in sales and marketing expenses in the accompanying consolidated statements of income.
These costs were $449,000 and $411,000 for the years ended December 31, 2011 and 2010, respectively. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Advertising Costs</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Advertising costs are expensed
as incurred and are included in sales and marketing<B> </B>expenses in the accompanying consolidated statements of income. Advertising
expense was $125,000 and $81,000 for the years ended December 31, 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Stock-Based Compensation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We incur stock-based compensation
related to awards of common stock, restricted common stock and options to employees and non-employees. Those awards are measured
at their fair value on the date the award is granted and are recognized in our consolidated financial statements over the period
the grantee is required to provide services in exchange for the award. When recognized as an expense, the fair value of the award,
less estimated forfeitures, is recognized on a straight-line basis over the award service period; if there is no such service period,
then the entire fair value of the award is recognized as expense on the grant date. See Note 19 for further information regarding
stock-based compensation awards and related valuation assumptions and expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Income Taxes</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using
enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are recognized
when, based upon available evidence, realization of the assets is more likely than not.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In assessing the realization
of long-term deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will
be realized. The realization of deferred income tax assets depends upon future taxable income in years before net operating loss
carryforwards expire. We evaluate the recoverability of deferred income tax assets on a quarterly basis. If we determine that it
is more likely than not that deferred income tax assets will not be recovered, we establish a valuation allowance against some
or all deferred income tax assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">When tax returns are filed,
it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are
subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.
The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence,
it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not
recognition threshold are measured as the largest amount of tax benefit that is more than 50&nbsp;percent likely of being realized
upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceeds
the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet
along with any associated interest and penalties that would be payable to the taxing authorities upon examination.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We classify interest on tax
deficiencies as interest expense and income tax penalties as other miscellaneous expenses. &nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In February 2012, we completed
an audit by the IRS of our tax returns for the years 2008 and 2009. There were no adjustments to those tax returns.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>Net Income per Common Share</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Basic net income per common
share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per common
share is computed by dividing net income by the weighted average number of common shares and dilutive potential common share equivalents
then outstanding. Potential common share equivalents consist of (i) shares issuable upon the exercise of warrants and options (using
the &ldquo;treasury stock&rdquo; method), (ii) unvested restricted stock awards (using the &ldquo;treasury stock&rdquo; method)
and (iii) shares issuable upon conversion of convertible notes using the &ldquo;if-converted&rdquo; method.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><SUP>&nbsp;</SUP></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">Basic:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 76%; text-align: left; padding-left: 9pt">Net income (in thousands)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">327</TD><TD STYLE="width: 1%; text-align: left"><SUP>&nbsp;</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">2,613</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">Weighted average shares</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,911,103</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,483,243</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Basic income per common share</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">.02</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">.17</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">Diluted:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Net income (in thousands)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">327</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,613</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Adjustments to net income assuming convertible notes payable are converted to common stock:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Reversal of interest expense on convertible notes payable (in thousands)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left"><SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">406</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Write off of unamortized costs of issuing convertible notes payable (in thousands)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(854</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Adjustments&rsquo; estimated effect on provision for income taxes (in thousands)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">274</TD><TD STYLE="text-align: left"><SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Income available to common stockholders for diluted net income per common share (in thousands)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">327</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,439</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Weighted average shares</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,911,103</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,483,243</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Effect of dilutive securities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,559,535</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,323,032</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Weighted average shares, as adjusted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">18,470,638</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,806,275</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">Diluted income per common share</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">.02</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">.15</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">The 2011 calculation of diluted income per common share does not assume convertible notes are converted
to common stock since the effect would be antidilutive.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(2)</SUP></TD><TD STYLE="text-align: justify">Assumes an effective tax rate of approximately 39%.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The following potentially dilutive
common share equivalents were excluded from the calculation of diluted net income per common share because their effect was antidilutive
for each of the periods presented:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year Ended December 31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Options and warrants</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">4,979,088</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">6,420,756</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Convertible notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,666,667</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>Segments</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We only have one reportable
segment as defined under U.S. GAAP.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>Fair Value</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Under U.S. GAAP, we are required
to record certain financial assets and liabilities at fair value and may choose to record other financial assets and financial
liabilities at fair value as well. Also under U.S. GAAP, we are required to record nonfinancial assets and liabilities at fair
value due to events that may or may not recur in the future, such as an impairment event. When we are required to record such assets
and liabilities at fair value, that fair value is estimated using an exit price, representing the amount that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants. That fair value is determined
<FONT STYLE="color: black">based on significant inputs contained in a fair value hierarchy as follows:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.75in; text-align: left"><B>Level 1</B></TD><TD STYLE="text-align: justify">Quoted prices for identical assets or liabilities in
active markets to which we have access at the measurement date.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.75in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.75in; text-align: left"><B>Level 2</B></TD><TD STYLE="text-align: justify">Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly or indirectly.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.75in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.75in; text-align: left"><B>Level 3</B></TD><TD STYLE="text-align: justify">Unobservable inputs for the asset or liability.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The determination of where assets
and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">There are three general valuation
techniques that may be used to measure fair value, as described below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 1.5in; text-align: left"><B>Market Approach</B></TD><TD STYLE="text-align: left">Uses prices and other relevant information generated
by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale
transactions, market trades, or other sources.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-align: justify; text-indent: -1.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 1.5in; text-align: left"><B>Cost Approach</B></TD><TD STYLE="text-align: left">Based on the amount that currently would be required
to replace the service capacity of an asset (replacement cost).</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-align: justify; text-indent: -1.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 1.5in; text-align: left"><B>Income Approach</B></TD><TD STYLE="text-align: left">Uses valuation techniques to convert future amounts to
a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing
models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market
interest rate.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Business Combinations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">We use the &ldquo;acquisition method&rdquo;
to account for all business combinations. All acquisitions are reviewed to determine if they constitute a &ldquo;business&rdquo;
under U.S. GAAP. All identifiable assets and liabilities of an acquired business are recorded at their fair values as of the date
we obtain control of the business. The fair values of identifiable assets and liabilities are estimated using a variety of approaches
allowed under U.S. GAAP, including appraisals and present value techniques. Any excess of the consideration paid to acquire the
business over the fair values of the acquired and identifiable assets and liabilities is recorded as goodwill. We determine the
date we obtain control of a business to be the date on which we gain the ability to determine the direction of management and policies
over that acquired business.</P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>Recent Accounting Pronouncements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The following are recent accounting
pronouncements that have affected our consolidated financial statements or may affect them in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In September 2011, the
Financial Accounting Standards Board (&rdquo;FASB&rdquo;) issued Accounting Standards Update No. 2011-08, <I>Testing Goodwill
for Impairment</I> (&ldquo;ASU 2011-08&rdquo;), which amends ASC 350 <I>Intangibles&mdash;Goodwill and Other</I>. ASU 2011-08
allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step
quantitative goodwill impairment test. Under ASU 2011-08, an entity would not be required to calculate the fair value of a
reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair
value is less than its carrying amount. The amendments include a number of events and circumstances, such as financial
performance, economic conditions and loss of key personnel, for an entity to consider in conducting the qualitative
assessment. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning
after December 15, 2011. Early application is permitted. We adopted ASU 2011-08  for our annual goodwill impairment
test performed as of August 31, 2011 with no material impact on our financial position or results of operations.</P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 114.55pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In June 2011, the FASB issued
Accounting Standards Update No. 2011-05, <I>Presentation of Comprehensive Income</I> (&ldquo;ASU 2011-05&rdquo;), which amends
ASC 220 Comprehensive Income. ASU 2011-05 requires that comprehensive income be presented either in a single continuous statement
of comprehensive income or in two separate but consecutive statements. ASU 2011-05 does not change the items that must be reported
in comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 does not
affect how earnings per share is calculated or presented. ASU 2011-05 is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2011 and must be applied retrospectively. Early application is permitted. Because we
currently present comprehensive income within our consolidated statement of changes in stockholders' equity and comprehensive
income, we will need to change our presentation of comprehensive income upon adopting ASU 2011-05. In December 2011, certain guidance
in ASU 2011-05 was deferred by Accounting Standards Update No. 2011-12 <I>Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05
</I>(&ldquo;ASU 2011-12&rdquo;). ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification
adjustments of items out of accumulated other comprehensive income. Because we don&rsquo;t expect any such reclassification adjustments,
we do not anticipate that the adoption of ASU 2011-12 will have a material impact on our financial position or the results of
our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In May 2011, the FASB issued
Accounting Standards Update No. 2011-04, <I>Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs</I> (&quot;ASU 2011-04&quot;), which amends ASC 820 <I>Fair Value Measurement</I>. ASU 2011-04 improves the
comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP
and International Financial Reporting Standards. The amended guidance changes the wording used to describe many requirements in
U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify
the FASB's intent about the application of existing fair value measurement and disclosure requirements. Although ASU 2011-04 is
not expected to have a significant effect on practice, it changes some fair value measurement principles and disclosure requirements.
ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and must be applied prospectively. Early
application is not permitted. We do not anticipate that the adoption of ASU 2011-04 will have a material impact on our financial
position or the results of our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>3.</B></TD><TD><B>BUSINESS COMBINATIONS</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><I>Cyalume <FONT STYLE="color: black">Specialty Products,
Inc.</FONT></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In 2011, Cyalume created a
new, wholly owned subsidiary (Cyalume Specialty Products, Inc., or &ldquo;CSP&rdquo;) that, on August 31, 2011, entered into an
Asset Purchase Agreement (&ldquo;APA&rdquo;) with JFC Technologies, LLC (&ldquo;JFC&rdquo;) and the stockholders of JFC. Pursuant
to the APA, effective September 1, 2011, CSP acquired from JFC substantially all of its business assets and a portion of its liabilities
for cash and 712,771 shares of Cyalume common stock plus other consideration that is contingent on future financial performance
of CSP. In connection with entering into the APA, we entered into a registration rights agreement with the former stockholders
of JFC pursuant to which we are required to file a registration statement by May 1, 2012 with the Securities and Exchange Commission
registering these shares for resale.&nbsp;We will not incur any obligation to the former stockholders of JFC if these shares are
not registered by May 1, 2012.</P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">JFC was a leading researcher,
developer and manufacturer of specialty chemicals with operations in Bound Brook, New Jersey. CSP&rsquo;s acquisition of JFC&rsquo;s
business assets and liabilities is expected to augment our research, development and production capabilities. These operations
offer a wide range of services that will accelerate the development and deployment of new chemical-light products by CTI and CTSAS
and provide additional sources of revenues and business opportunities. We also believe that vertically integrating the chemical
manufacturing process at a United States-based facility will allow us to more effectively manage our supply chain.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The purchase price consisted
of (in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Consideration</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><SUP>&nbsp;</SUP></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Cash&nbsp;Acquired</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Cash&nbsp;&nbsp;Paid,&nbsp;Net&nbsp;of<BR> Cash&nbsp;Acquired</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; padding-left: 0.7pt">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">2,500</TD><TD STYLE="width: 1%; text-align: left"><SUP>&nbsp;</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">200</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">2,300</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.7pt">712,771 shares of Cyalume common stock, at fair value</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,500</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.7pt">Contingent consideration, at fair value</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,573</TD><TD STYLE="padding-bottom: 1pt; text-align: left"><SUP>(1)</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 0.7pt">Total consideration</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">6,573</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><SUP>&nbsp;</SUP></TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">The contingent consideration liability has increased to $1,632,000 as of December 31, 2011.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The contingent consideration
ranges from $0 to $7 million and is based on the financial performance of the acquired business during the combined calendar years
2012 and 2013, to be paid after calendar year 2013 when CSP&rsquo;s financial performance is known. These payments, if any, will
consist of a minimum of 30% cash and the remainder paid in Cyalume common stock. The cash-portion of the payment can be greater
than 30% at our discretion. Up to $5 million of the contingent payment is based on CSP achieving the following average earnings
before interest, taxes, depreciation and amortization (&ldquo;EBITDA&rdquo;) thresholds for the calendar years ending December
31, 2012 and 2013:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 53%; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; font-weight: bold; text-align: center">Average&nbsp;2012&nbsp;and&nbsp;2013&nbsp;EBITDA&nbsp;Thresholds</TD>
    <TD STYLE="width: 2%; padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 45%; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; font-weight: bold; text-align: center">Contingent&nbsp;Payment</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$1,300,000 +</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$5,000,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$1,100,000 - $1,299,999</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$3,000,000 - $4,900,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$1,000,000 - $1,099,999</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$2,200,000 - $2,920,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$900,000 - $999,999</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$1,500,000 - $2,130,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$800,000 - $899,999</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$800,000 - $1,430,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$700,000 &ndash; 799,999</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$400,000 - $790,000</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">An additional payment of $2,000,000
is contingent upon CSP achieving average EBITDA of $1,800,000 for calendar years ending December 31, 2012 and 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">See Note 23 for a description
of how we estimate the fair value of this contingent consideration on a recurring basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="color: black">The
preliminary allocation of the fair value of the assets acquired and liabilities assumed are as follows</FONT> (all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%; padding-left: 0">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">200</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0">Restricted cash <SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">750</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0">Accounts receivable <SUP>(2)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">359</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0">Inventories</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,015</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0">Other current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0">Property, plant and equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,062</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0">Patents</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0">Customer backlog</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">140</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0">Customer relationships</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">920</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0">Non-compete agreements</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">160</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt; padding-left: 0">Goodwill <SUP>(3)</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,978</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.12in">Total assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,635</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">130</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0">Accrued expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">122</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0">Customer prepayments</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0">Line of credit <SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">750</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0">Deferred tax liability</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">56</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0">Total liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,062</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 0.12in">Net assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">6,573</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">The $750,000 line of credit, which is payable to one of the sellers, is secured by the $750,000
of restricted cash. The line of credit accrues interest at an annual rate of 2%, calculated quarterly, and this interest is added
to the principal amount outstanding on the line of credit. If CSP&rsquo;s net working capital, as defined in the APA, does not
exceed certain amounts and other restrictions are not met, CSP may use all or a portion of the restricted cash for its general
business purposes. The amount of restricted cash that CSP may use is determined as of the last day of every calendar-year quarter.
On any such quarter end, the line of credit must be repaid by the amount CSP&rsquo;s working capital, as defined in the APA, is
greater than $1.5 million. Additionally, any remaining restricted cash balance in excess of $375,000 as of December 31, 2012 must
be used to repay the line of credit. As of December 31, 2013, any remaining restricted cash balance must be repaid to the seller
and the line of credit and accrued interest thereon must be repaid.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(2)</SUP></TD><TD STYLE="text-align: justify">The gross contractual accounts receivable is $359,000, which equals the accounts receivables&rsquo;
fair value of $359,000 since the contractual accounts receivable are expected to be collected.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(3)</SUP></TD><TD STYLE="text-align: justify">Goodwill of $3.1 million is expected to be deductible for tax purposes. The amount of
                                                                            goodwill recorded under U.S. GAAP has not changed from the acquisition date through December 31, 2011. Goodwill resulted
                                                                            from                                                                             this transaction because we believe the
                                                                            acquisition of JFC&rsquo;s business assets and liabilities will augment our research, development and production
                                                                            capabilities. These operations offer a wide range of services that will accelerate the development and deployment of new
                                                                            chemical-light products by CTI and CTSAS and provide additional sources of revenues and business opportunities. We also
                                                                            believe that vertically integrating the chemical manufacturing process at a United States-based facility will allow us to
                                                                            more effectively manage our supply chain.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">CSP&rsquo;s revenues and net
loss are included in our <FONT STYLE="font-family: Times New Roman, Times, Serif">consolidated statements of income and total $1,933,000
and $44,000 since we acquired CSP.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><I>Combat Training Solutions, Inc.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">On December 22, 2011, CTI entered
into a Stock Purchase Agreement (&ldquo;SPA&rdquo;) with Combat Training Solutions, Inc. (&ldquo;CTS&rdquo;) and the sole stockholder
of CTS. CTS, based in Colorado Springs, Colorado, provides customers with realistic training simulation devices and their associated
consumables. These products allow military and law enforcement professionals to maintain operational readiness through safe, live
training and hands-on situational exercises. Pursuant to the SPA, CTI purchased all of the issued and outstanding capital stock
of CTS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In a related transaction on
December 22, 2011, Cyalume Realty, Inc. (&ldquo;CRI&rdquo;), a subsidiary of CTI, purchased a piece of land located in Colorado
Springs, Colorado.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The consideration consisted
of:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Consideration</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><SUP>&nbsp;</SUP></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Cash&nbsp;Acquired</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Cash&nbsp;&nbsp;Paid,&nbsp;Net&nbsp;of<BR> Cash&nbsp;Acquired</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; padding-left: 0.7pt">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">250</TD><TD STYLE="width: 1%; text-align: left"><SUP>&nbsp;</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">22</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">228</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.7pt">133,584 shares of Cyalume common stock, at fair value</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">500</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.7pt">Note payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">250</TD><TD STYLE="text-align: left"><SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.7pt">Contingent consideration, at fair value</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,067</TD><TD STYLE="padding-bottom: 1pt; text-align: left"><SUP>(2)</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 0.7pt">Total consideration</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,067</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><SUP>&nbsp;</SUP></TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">The note is payable in full to the seller of CTS on April 5, 2012 at 0% interest.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0in"><SUP>(2)</SUP></TD><TD STYLE="text-align: justify">The contingent consideration liability is still $2,067,000 as of December 31, 2011</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><SUP>&nbsp;</SUP></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The contingent consideration
ranges from $0 to $5.75 million and is based on the financial performance of the acquired business during the combined calendar
years 2012 and 2013, to be paid after calendar year 2013 when CTS&rsquo; financial performance is known. Up to $5.5 million of
the contingent payment is based on CTS achieving the following cumulative gross margin thresholds during the calendar years ending
December 31, 2012 and 2013:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 53%; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; font-weight: bold; text-align: center">Cumulative&nbsp;2012&nbsp;and&nbsp;2013&nbsp;Gross&nbsp;Margin&nbsp;Thresholds</TD>
    <TD STYLE="width: 2%; padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 45%; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center"><B>Contingent&nbsp;Payment&nbsp;</B><SUP>(1)</SUP></TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$8,500,000 +</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$5,500,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$8,000,000 &ndash; $8,499,999</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$5,000,000 - $5,425,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$7,500,000 - $7,999,999</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$4,250,000 - $4,925,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$7,000,000 - $7,499,999</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$3,500,000 - $4,175,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$6,500,000 - $6,999,999</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$2,750,000 - $3,425,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$6,000,000 - $6,499,999</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">$2,000,000 - $2,675,000</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD>These payments, if any, will consist of a minimum of 40% cash and the remainder paid in Cyalume common stock. The cash-portion
of the payment can be greater than 40% at our discretion.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">An additional payment of $250,000
in Cyalume common stock is contingent upon CTS achieving cumulative gross margin of $6,000,000 during calendar years ending December
31, 2012 and 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">See Note 23 for a description
of how we estimate the fair value of this contingent consideration on a recurring basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="color: black">The
preliminary allocation of the fair value of the assets acquired and liabilities assumed are as follows</FONT> (all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">22</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accounts receivable <SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">112</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Inventories</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">529</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Property, plant and equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">842</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Patents</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">410</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Trade Names / Trademarks</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">90</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Customer relationships</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">840</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Non-compete agreements</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">140</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Goodwill <SUP>(2)</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,107</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.12in">Total assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,092</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">102</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accrued expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">181</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Deferred tax liability</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">742</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Total liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,025</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 0.12in">Net assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,067</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD>The gross contractual accounts receivable is $122,000, which is greater than the accounts receivables&rsquo; fair value of
$112,000 due to $10,000 of contractual accounts receivable not expected to be collected.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(2)</SUP></TD><TD>Goodwill acquired is not expected to be deductible for tax purposes since CTS&rsquo; stock was acquired. The amount of
                                                                            goodwill recorded under U.S. GAAP has not changed from the acquisition date through December 31, 2011. Goodwill resulted
                                                                            from                                                                             this transaction because we believe CTS
                                                                            augments our position in the non-explosive training and ammunition market and will allow us to develop new products with
                                                                            training and tactical applications.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">CTS&rsquo; revenues and net
loss are included in our <FONT STYLE="font-family: Times New Roman, Times, Serif">consolidated statements of income and total $0
and $42,000 since we acquired CTS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><I>Pro Forma Information (unaudited)</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The following unaudited pro
forma financial summary is presented as if the acquisitions of CSP and CTS were completed as of January 1, 2010. The pro forma
combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated
on that date, or of the future operations of the combined entities. The pro forma results for net income include adjustments for
depreciation, intangible asset amortization, inventory step-up amortization and rent expense. The pro forma weighted average shares
used to compute net income per common share (basic and diluted) differ from the weighted average shares used in the consolidated
statements of income in order to reflect the 712,771 shares of Cyalume common stock issued for to acquire CSP and the 133,584 shares
of Cyalume common stock issued for to acquire CTS as being issued on January 1, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 0">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Twelve&nbsp;Months&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 0">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left; padding-left: 0">Revenues (in thousands)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">42,594</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">47,639</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0">Net income (in thousands)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,496</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,707</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0">Net income per common share:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.12in">Basic</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">.08</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">.17</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.12in">Diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">.08</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">.15</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0">Weighted average shares used to compute net income per common share:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.12in">Basic</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,757,458</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,329,598</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.12in">Diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">19,316,993</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,652,630</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The nature and amount of pro
forma adjustments directly attributable to the business combinations are as follows (in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Twelve&nbsp;Months&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left; padding-left: 0">Revenues, as reported (in thousands)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">34,703</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">38,024</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0; text-indent: 0">Pro forma adjustments:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 8.1pt">CTS and CSP revenues prior to acquisition by Cyalume</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">7,891</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">9,615</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Pro forma revenues</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">42,594</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">47,639</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 8.1pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Net income, as reported (in thousands)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">327</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,613</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Pro forma adjustments:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.1pt">CTS and CSP net income prior to acquisition by Cyalume</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,055</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,034</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.1pt">Effect of activities/assets/liabilities not acquired by Cyalume</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">365</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(362</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.1pt">Expensing of acquisition-date inventory fair value adjustment into cost of goods sold</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">73</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(338</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.1pt">Depreciation of property, plant and equipment acquired</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(72</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">244</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 8.1pt">Amortization of intangible assets acquired</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(252</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(484</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Pro forma net income</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,496</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,707</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>4.</B></TD><TD><B>INVENTORIES</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><FONT STYLE="color: black">Inventories consist of
the following</FONT> (all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Raw materials</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">6,230</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">5,469</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Work-in-process</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,296</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,237</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Finished goods</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,867</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,214</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">11,393</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">9,920</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>5.</B></TD><TD><B>PREPAID EXPENSES AND OTHER CURRENT ASSETS</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">Prepaid expenses and other current assets consist
of the following (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Value added taxes receivable</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">100</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">37</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Prepaid expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">332</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">268</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Currency forward contracts</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Debt issuance costs, current portion</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">120</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">111</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Other</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">13</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">559</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">429</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>6.</B></TD><TD><B>PROPERTY, PLANT AND EQUIPMENT</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><FONT STYLE="color: black">Property, plant and equipment
consist of the following</FONT> (all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%">Land</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1,901</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1,279</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Building and improvements</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,134</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,003</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Machinery and equipment</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">7,992</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,710</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,027</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,992</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less: accumulated depreciation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,610</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,483</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">10,417</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">8,509</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">During 2011, we entered into
two leases that were accounted for as capital leases. <FONT STYLE="color: black">At December 31, 2011, machinery and equipment
includes $77,000 of assets recorded under capital leases. Accumulated amortization on those capital leases totaled $0 as of December
31, 2011. In 2011, amortization expense for those assets was $0.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>7.</B></TD><TD><B>GOODWILL</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Goodwill represents the excess
of the cost of acquiring CTI and CTSAS in 2008 and CSP and CTS in 2011 over the net fair value assigned to the assets acquired
and liabilities assumed in those acquisitions. Changes in the carrying amount of goodwill consist of the following (all amounts
in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%">Balance on December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">51,244</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Fiscal year 2010 changes</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Balance on December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">51,244</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Goodwill acquired as part of the acquisition of CSP</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,978</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Goodwill acquired as part of the acquisition of CTS</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,107</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Balance on December 31, 2011</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">55,329</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We performed the
first step of the traditional two-step process for assessing goodwill for impairment as of August 31, 2011. That first step
of the two-step process requires a comparison of our estimated fair value versus our carrying (book) value per our
consolidated financial statements. If our carrying value exceeded our fair value, further analysis (step 2 of the two-step
process) would be required to determine the amount, if any, that our goodwill was impaired as of August 31, 2011. Step 1 of
our analysis indicated that our fair value was significantly greater than our carrying value as of August 31, 2011, therefore
step 2 of the goodwill impairment assessment was not required and our goodwill was not considered to be impaired. Further, we
noted no events or circumstances that occurred subsequently to August 31, 2011 that indicated that goodwill impairment
existed as of&nbsp;December 31, 2011.</P>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>8.</B></TD><TD><B>OTHER INTANGIBLE ASSETS</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><FONT STYLE="color: black">Intangible assets as of
December 31, 2011 consist of the following</FONT> (all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Cost</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Accumulated<BR> Amortization</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net&nbsp;Book&nbsp;Value</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; text-align: left; padding-left: 0.7pt">Developed technologies, including patents <SUP>(1)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">13,608</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">3,640</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">9,968</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.7pt">Trademarks and trade names <SUP>(2)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,428</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,427</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.7pt">Purchased customer relationships <SUP>(3)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,465</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,142</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,323</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.7pt">Customer backlog <SUP>(4)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">140</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">140</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt; padding-left: 0.7pt">Non-compete agreements <SUP>(5)</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">300</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">11</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">289</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 5.4pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">28,941</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">6,934</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">22,007</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">Includes a patent obtained in the acquisition of CSP (see Note 3) with a cost of $50,000 that is
expected to be fully amortized in August 2026. Also includes patents obtained in the acquisition of CTS (see Note 3) with a cost
of $410,000 that is expected to be fully amortized in December 2021.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(2)</SUP></TD><TD STYLE="text-align: justify">Includes a trade name obtained in the acquisition of CTS (see Note 3) with a cost of $90,000 that
is expected to be fully amortized in December 2013.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: black"><SUP>(3)</SUP></FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="color: black">Includes customer relationships obtained in the acquisition of CSP (</FONT>see
Note 3) with a cost of $920,000 that is expected to be fully amortized in December 2019.<FONT STYLE="color: black"> Also includes
customer relationships obtained in the acquisition of CTS (</FONT>see Note 3) with a cost of $840,000 that is expected to be fully
amortized in December 2021.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(4)</SUP></TD><TD STYLE="text-align: justify"><FONT STYLE="color: black">Includes customer backlog obtained in the acquisition of CSP (</FONT>see
Note 3) with a cost of $140,000 that was fully amortized in December 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(5)</SUP></TD><TD STYLE="text-align: justify"><FONT STYLE="color: black">Includes non-compete agreement obtained in the acquisition of CSP (</FONT>see
Note 3) with a cost of $160,000 that is expected to be fully amortized in August 2016.<FONT STYLE="color: black"> Also includes
non-compete agreement obtained in the acquisition of CTS (</FONT>see Note 3) with a cost of $140,000 that is expected to be fully
amortized in December 2016.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><FONT STYLE="color: black">Intangible assets as of
December 31, 2010 consist of the following</FONT> (all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Cost</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Accumulated<BR> Amortization</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net&nbsp;Book&nbsp;Value</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; text-align: left; padding-left: 0.7pt">Developed technologies, including patents</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">12,972</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">2,497</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">10,475</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.7pt">Trademarks and trade names</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,332</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,332</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.7pt">Purchased customer relationships</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,753</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,648</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,105</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 0.7pt">Non-compete agreements</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">267</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">267</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 5.4pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">26,324</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">5,412</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">20,912</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Except for the trade name obtained
in the acquisition of CTS, trademarks and trade names have indefinite lives and therefore, they are not amortized. Trademarks can
be renewed without substantial cost. On average, these non-amortized trademarks renew in approximately 3 years. If trademark and
trade names are not renewed, then expected future cash flows associated with trademarks and trade names could be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Amortization of intangible assets
was $1.8 million and $1.8 million for the years ended December 31, 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">During 2011, we capitalized
$5,000 and $175,000 of costs paid to third parties to create or defend trademarks and patents, respectively. We expect the patent-related
costs to be amortized over approximately 20 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We do not consider any intangible
assets to have residual value.<FONT STYLE="color: black"> </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The future amortization expense
relating to intangible assets for the next five years and beyond is estimated at December 31, 2011 to be (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid; text-align: left">Year&nbsp;Ending&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%; text-align: left">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">2,163</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,162</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,118</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,118</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2016</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,106</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; text-align: left">Thereafter</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">6,002</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">16,669</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>9.</B></TD><TD><B>OTHER NONCURRENT ASSETS</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><FONT STYLE="color: black">Other noncurrent assets
consist of the following</FONT> (all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Debt issuance costs, net</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">154</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">272</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Other</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">14</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">154</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">286</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="color: black">Debt
issuance costs consist of unamortized costs paid to third parties to obtain senior debt, a line of credit</FONT> <FONT STYLE="color: black">and
convertible notes that will be amortized to interest expense using the effective interest method through 2014. Amortization of
current (see Note 5) and noncurrent capitalized debt issuance costs was $109,000 and $75,000 for the years ended December 31, 2011
and 2010, respectively. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="color: black">The
future amortization expense for each of the five succeeding years and beyond relating to current and noncurrent capitalized debt
issuance costs is </FONT>(all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid; text-align: left">Year&nbsp;Ending&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%; text-align: left">2012 <SUP>(1)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">120</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">126</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">2016</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">274</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD>See Note 5 for the current portion of capitalized debt <FONT STYLE="color: black">issuance </FONT>costs of $120,000 expected
to be amortized in 2012.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">More information regarding the
restricted cash and the related line of credit, which were a result of the acquisition of CSP, can be found in Note 3. The amount
of restricted cash has been reduced from $750,000 as of the acquisition date to $600,000 as of December 31, 2011 due to our use
of that cash for general business purposes as described in Note 3.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>10.</B></TD><TD><B>ACCRUED EXPENSES</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><FONT STYLE="color: black">Accrued expenses consist
of the following</FONT> (all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%">Payroll</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1,192</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1,600</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Interest</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">187</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">166</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Professional fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">328</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">148</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Related party payable <SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Other</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">436</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">448</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,179</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,362</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">In conjunction with the acquisition of CTS, we agreed to assume CTS&rsquo; monthly lease and utility
payments for building space that CTS leased from the seller. This building space is not utilized by us. We are required to pay
these costs until the building is sold, but no later than December 2014. We estimate these monthly payments to be approximately
$3,000 per month and we estimate the building will be sold in December 2012, therefore we have estimated the liability as of December
31, 2011 to be $36,000.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>11.</B></TD><TD><B>LINES OF CREDIT</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We have a line of credit with
a maximum borrowing capacity of $5.0 million with <FONT STYLE="color: black">TD Bank N.A. </FONT>(&ldquo;TD Bank&rdquo;). The amount
we may borrow from this line of credit is dependent mainly on accounts receivable and inventory balances. Interest is payable monthly
and is determined, at our discretion, based on (i) the Prime Rate, plus a margin percentage that is based on financial performance
(not to be less than 6% in total) or (ii) an adjusted LIBOR rate (subject to a 2% interest rate floor), plus a margin percentage
that is based on financial performance. The line of credit&rsquo;s interest rate at December 31, 2011 was 6.25%. The line of credit
expires on December 19, 2012. This line of credit is subject to (i) the same restrictive covenants and (ii) the same collateral
and guarantees as the senior debt Term Loan and the senior debt Real Estate Loan described in Note 12. At December 31, 2011 and
2010, there were no outstanding borrowings on this line of credit.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">CTSAS has lines of credit with
a combined maximum borrowing capacity of &euro;1.3 million ($1.7 million as of December 31, 2011), under which there were no outstanding
borrowings at December 31, 2011 and 2010. The lines&rsquo; interest rates are variable, based on the Euro Overnight Index Average
and the 3-month Euro Interbank Offered Rate. The lines are collateralized by substantially all business assets of CTSAS. The lines
have indefinite termination dates, but can be renegotiated periodically.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>12.</B></TD><TD><B>NOTES PAYABLE</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">Outstanding notes payable consist of (all amounts
in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="color: #31849B; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Senior Debt - Term Loan</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">10,807</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">12,435</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Senior Debt - Real Estate Loan</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,929</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,054</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Subordinated Term Loan</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Note payable to Rodman &amp; Renshaw</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,135</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">21,236</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,124</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Less: Unamortized debt issuance costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(669</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(956</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less: Current portion of notes payable, including current portion of unamortized debt issuance costs</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,592</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,453</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Notes payable, net of current portion</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">18,975</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">22,715</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">Debt issuance costs will be amortized to interest
expense using the effective interest method over the life of the loan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>Senior Debt </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">CTI has two loans payable to
TD Bank, NA (&ldquo;TD Bank&rdquo;); a Term Loan and a Real Estate Loan, that were originally entered into on December 19, 2008,
and which were amended and restated as of July 29, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The Term Loan was originally
payable in monthly principal installments ranging from $319,000 to $468,000, plus monthly interest payments as described below,
that commenced on February 1, 2009, plus a one-time principal payment of $3.0 million due on or before April 30, 2010. On July
29, 2010, in conjunction with the issuance of the Subordinated Term Loan (see discussion below) and the use of $7.2 million of
the Subordinated Term Loan&rsquo;s proceeds to reduce principal outstanding on the Term Loan, TD Bank modified the monthly principal
installments to $148,000, beginning in February 2011, plus a one-time principal payment of $7.3 million due at maturity in December
2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Interest payments on 60% of
the Term Loan&rsquo;s principal balance are hedged using a pay-fixed, receive-variable interest rate swap to reduce exposure to
changes in cash payments caused by changes in interest rates on the Term Loan. See Note 16 for details on the interest rate swap.
Interest on the 60% interest rate-swapped portion of the Term Loan is payable monthly and determined based on 1-month LIBOR, plus
a margin percentage that is based on financial performance. The total interest rate on the swapped portion of the Term Loan was
6.53% at December 31, 2011. Interest on the remaining 40% of the Term Loan is also payable monthly and is determined based on 1-month
LIBOR (subject to a 2% interest rate floor) plus a margin percentage that is based on financial performance. At December 31, 2010,
the total interest rate on the portion of the Term Loan that was not subject to an interest rate hedging relationship was 6.0%.
The Term Loan is collateralized by all of the assets of CTI (except CTI&rsquo;s equity interests in CTSAS, of which only 65% is
collateral of the Term Loan) and is guaranteed by Cyalume. The Term Loan requires various restrictive financial and nonfinancial
covenants, such as a maximum leverage ratio, debt service coverage ratio and limitations on capital expenditures and dividends,
which we are in compliance with as of December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Simultaneous with the $7.2 million
repayment of a portion of the Term Loan in July 2010, our interest rate swaps (see Note 16) were modified to incorporate this repayment
since it was not anticipated in the original swap agreement. This allows us to continue to assume that these hedges meet the criteria
for the shortcut method for assessing hedge effectiveness; therefore, the hedge is assumed to still be 100% effective.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The Real Estate Loan was originally
payable in monthly principal installments of $10,000, plus monthly interest payments as described below, that commenced on February
1, 2009, plus a one-time principal payment of $1.9 million at maturity (December 19, 2013). In July 2010, we made an unscheduled
$207,000 principal payment, which reduced our one-time principal payment due at maturity in December 2013 to $1.7 million.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Interest payments on the Real
Estate Loan principal balance are hedged using a pay-fixed, receive-variable interest rate swap to reduce exposure to changes in
cash payments caused by changes in interest rates on the Real Estate Loan. See Note 16 for details on the interest rate swap. Interest
is payable monthly and is determined based on 1-month LIBOR plus a margin percentage that is based on financial performance. The
Real Estate Loan&rsquo;s total interest rate at December 31, 2011 was 6.42%. The Real Estate Loan is secured by a mortgage of the
real property (land and building) located in West Springfield, MA, and is guaranteed by Cyalume. The Real Estate Loan requires
various restrictive financial and nonfinancial covenants, such as a maximum leverage ratio, debt service coverage ratio and limitations
on capital expenditures and dividends, which we are in compliance with as of December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The TD Bank line of credit described
in Note 11, the Term Loan and the Real Estate Loan are senior in payment priority to all other notes payable and lines of credit.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Subordinated Term Loan</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">On July 29, 2010 we issued a
Subordinated Term Loan of $8.5 million to Granite Creek Partners Agent, LLC (&ldquo;Granite Creek&rdquo;) that matures March 19, 2014. Interest
is payable monthly beginning September 1, 2010 at a rate of 11% per annum. No principal payments are required until maturity. We
have the right to prepay the loan in whole or in part at any time without penalty.&nbsp;The Subordinated Term Loan ranks&nbsp;junior
to all debt held by TD Bank, N.A. but senior to all other remaining long-term debt including existing and future subordinated debt.
The Subordinated Term Loan is convertible at any time by Granite Creek into 2,666,667 shares of common stock at a conversion price
of approximately $3.19 per share. No portion of the Subordinated Term Loan has been converted to our common stock. Our common stock&rsquo;s
closing market price on December 31, 2011 was $3.75 per share; therefore the loan&rsquo;s if-converted value of approximately $10
million exceeds their unpaid principal balance by $1.5 million as of December 31, 2011. We determined that the convertible notes&rsquo;
conversion feature was not a beneficial conversion feature under U.S. GAAP.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Simultaneous with the issuance
of the Subordinated Term Loan, we issued warrants to repay certain costs of obtaining the convertible notes. The warrants have
a five-year term and allow the holder to purchase 160,000 shares of common stock at $2 per share through July 29, 2015. In accordance
with U.S. GAAP, we allocated a portion of the $8.5 million gross proceeds from the issuance of the loan to the warrants based on
the relative<FONT STYLE="text-underline-style: none; color: windowtext"> fair values </FONT>of the debt instrument without the
warrants and of the warrants themselves at<FONT STYLE="text-underline-style: none; color: windowtext"> time of issuance</FONT>.
The portion of the proceeds so allocated to the warrants ($207,000) was recorded as a debt discount and an increase to additional
paid-in capital on our consolidated balance sheet. The $207,000 debt discount is being amortized to interest expense using the
effective interest method over the life of the convertible notes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">As of December 31, 2011, the
carrying value of the Subordinated Term Loan was approximately $7.9 million, computed as follows (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Principal amount of loan</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">8,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">8,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less: unamortized debt issuance costs</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(635</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(858</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">7,865</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">7,642</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Interest costs for the Subordinated
Term Loan are as follows (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Contractual interest coupon rate</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">948</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">390</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Amortization of related debt issuance costs</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">225</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">81</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Total interest recognized</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,173</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">471</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Effective interest rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15.1</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14.2</TD><TD STYLE="text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Simultaneous with the issuance
of the convertible notes in 2010, we amended our management agreement with Selway Capital, LLC (see Note 18).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Other Subordinated Third-Party
Debt</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We had a note payable that was
entered into in December 2008 with Rodman &amp; Renshaw, LLC (&ldquo;Rodman&rdquo;). Principal and accrued interest payable on
this note payable totaled approximately $2.2 million as of June 30, 2011. On June 30, 2011, we entered into a securities exchange
agreement with Rodman in which Rodman agreed to accept, subject to certain conditions being met, 483,046 shares of our common stock
as payment in full of all principal and accrued interest on this note. The transaction closed in July 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Future Minimum Payments</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">As of December 31, 2011, future
minimum payments due for notes payable for each of the five succeeding years and beyond are as follows (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid">Year&nbsp;Ending&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%; text-align: left">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1,901</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,835</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2016</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Thereafter</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">21,236</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Amortization of the debt discount
was $294,000 and $273,000 for the years <FONT STYLE="color: black">ended December 31, 2011 and 2010, respectively. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>13.</B></TD><TD><B>FINANCING ARRANGEMENTS WITH RELATED PARTIES</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We had notes payable to three
stockholders (Messrs. Winston Churchill, Thomas Rebar and Wayne Weisman, partners of SCP Private Equity Management Company, LLC
(&ldquo;SCP&rdquo;)). SCP also owns stock in Cyalume and three Directors are members of SCP. Principal and accrued interest payable
on these notes payable totaled approximately $1.2 million as of July 7, 2011. On July 7, 2011, these stockholders each entered
into a securities exchange agreement in which they agreed to accept, subject to certain conditions being met, an aggregate of 253,288
shares of our common stock as payment in full of all principal and accrued interest on these notes. These transactions closed in
July 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In 2011, we incurred a $750,000
line of credit in conjunction with the acquisition of CSP. See Note 3 for more information regarding this line of credit, principal
and accrued interest on which totals approximately $755,000 as of December 31, 2011. The lender is a related party due to the lender
being our employee and a stockholder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In 2011, we incurred a $250,000
note payable in conjunction with the acquisition of CTS. See Note 3 for more information regarding this note, principal and accrued
interest on which totals approximately $250,000 as of December 31, 2011. The lender is a related party due to the lender being
our employee and a stockholder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>14.</B></TD><TD STYLE="text-align: justify"><B>CAPITAL LEASE OBLIGATIONS</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">During 2011, we entered into
two leases that were accounted for as capital leases. As of December 31, 2011, future minimum lease payments under capital leases
together with the present value of the net minimum lease payments were as follows (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid">Year&nbsp;Ending&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%; text-align: left">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">63</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2016</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Thereafter</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Total minimum lease payments</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">97</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less: estimated executory costs included in total minimum lease payments</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(5</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Net minimum lease payments</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">92</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less: amount representing interest</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(19</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Present value of net minimum lease payments</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">73</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Of the $73,000 capital lease
obligation, $43,000 is expected to be repaid before December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>15.</B></TD><TD><B>INCOME TAXES</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><FONT STYLE="color: black">The
components of income (loss) before income taxes are as follows:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; font-size: 10pt">Domestic</TD><TD STYLE="width: 1%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 9%; font-size: 10pt; text-align: right">(2,623</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">)</TD><TD STYLE="width: 1%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 9%; font-size: 10pt; text-align: right">2,054</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt; padding-left: 0in">Foreign</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">2,585</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">2,224</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">(38</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">4,278</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><FONT STYLE="color: black">Provision for (benefit
from) income taxes consisted of the following</FONT> (all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Current:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.12in">Federal</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.12in">State</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 76%; padding-left: 0.12in">Foreign</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">902</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">717</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Deferred:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.12in">Federal</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,235</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">648</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.12in">State</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">384</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 0.12in">Foreign</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(63</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(84</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Provision for (benefit from) income taxes</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(365</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,665</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The principal sources of these differences relate to the carrying value of identified
intangible assets, inventories, fixed asset, certain accruals and reserves<FONT STYLE="color: black">. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="color: black">Deferred
income tax assets and liabilities consist of the following </FONT>(all amounts in thousands):<FONT STYLE="color: black"> </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December&nbsp;31,&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December&nbsp;31,&nbsp;2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Current</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Non-current</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Current</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Non-current</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deferred tax assets:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 52%; padding-left: 9pt">Federal</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">726</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">6,777</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1,575</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">5,259</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">State</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">511</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">495</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">346</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Foreign</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">11</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Less: valuation allowance (1)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,874</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4,062</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,273</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,114</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,070</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,543</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deferred tax liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Federal</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(658</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(7,694</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(887</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(7,196</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">State</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(171</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,986</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(235</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,841</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 9pt">Foreign</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(58</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(579</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="color: black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: black; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: black; text-align: right">(17</TD><TD STYLE="padding-bottom: 1pt; color: black; text-align: left">)</TD><TD STYLE="color: black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: black; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: black; text-align: right">(653</TD><TD STYLE="padding-bottom: 1pt; color: black; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(887</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(10,259</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,139</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(9,690</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Deferred tax assets (liabilities)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">386</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="color: black; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: black; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: black; text-align: right">(7,145</TD><TD STYLE="padding-bottom: 2.5pt; color: black; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">931</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(8,147</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.5in">(1)</TD><TD STYLE="width: 0%; text-align: left"></TD><TD STYLE="text-align: justify">During 2011, we reduced the valuation allowance from $4.1 million to $3.9 million due to the
                                                                              expected use of foreign tax credits in the near term.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">Principal components of our net liability representing deferred income tax balances are as follows <FONT STYLE="font: 10pt Times New Roman, Times, Serif">(all
amounts in thousands):</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Intangible assets</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(6,760</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(7,852</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Property, plant and equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(837</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(621</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">U.S. loss carryforwards and tax credits, net <SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,063</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,024</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Subsidiary income <SUP>(2)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,554</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,044</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Stock-based compensation expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">655</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">433</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Reserves, accruals and other</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">588</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">718</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Interest rate swaps</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">86</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">126</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(6,759</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(7,216</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">U.S. net operating loss carryforwards expire in 2025 through 2029. The realization of these assets
is based on estimates of future taxable income.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0in"><SUP>(2)</SUP></TD><TD STYLE="text-align: justify">A deferred tax liability has been recorded for income taxes which may become payable upon distribution
of earnings of CTSAS, our French subsidiary. The estimated amount of tax that might be payable with regard to any distribution
of foreign subsidiary earnings is reported net of foreign taxes paid, which are creditable against our domestic tax liability.
We do not permanently reinvest our foreign subsidiary&rsquo;s earnings. We continually evaluate our assertion; if our foreign business
needs change, so may our assertion.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Income taxes computed using
the federal statutory income tax rate differ from our effective tax rate primarily due to the following (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; padding-left: 0">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year Ended December 31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; padding-left: 0">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left; padding-left: 0">Provision for federal income taxes expected at 34% statutory rate</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(13</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1,455</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0">Increase (reduction) resulting from:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.12in">Tax on global activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(29</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">143</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.12in">State income taxes, less federal income tax benefit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">390</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.12in">Change in valuation account <SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(188</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,977</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.12in">Change in prior year undistributed earnings of CTSAS <SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,399</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.12in">Prior year true up</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(141</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">185</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 0.12in">Other</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(9</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">70</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 0">Provision for (benefit from) income taxes</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(365</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,665</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">Included in the change in the valuation account in 2010 is an amount associated with the change
in prior year undistributed earnings of CTSAS of $1,901.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>16.</B></TD><TD STYLE="text-align: justify"><B>DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Derivatives held by us as of
December 31, 2011 consist of the following (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 96%; border-collapse: collapse; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: windowtext 1pt solid; text-autospace: none; font-weight: bold">Derivative&nbsp;Instrument</TD>
    <TD STYLE="text-autospace: none">&nbsp;</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; text-autospace: none; font-weight: bold; text-align: center">Balance&nbsp;Sheet&nbsp;Location</TD>
    <TD STYLE="text-autospace: none">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-autospace: none; font-weight: bold; text-align: center">Fair&nbsp;Value</TD>
    <TD STYLE="text-autospace: none">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="width: 23%; vertical-align: bottom; text-autospace: none">Currency forward contracts</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-autospace: none">&nbsp;</TD>
    <TD STYLE="width: 60%; vertical-align: bottom; text-autospace: none">Prepaid expenses and other current assets</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-autospace: none">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: bottom; text-autospace: none">$</TD>
    <TD STYLE="width: 9%; vertical-align: bottom; padding-right: 1.45pt; text-autospace: none; text-align: right">4</TD>
    <TD STYLE="width: 2%; vertical-align: bottom; text-autospace: none">&nbsp;</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom; text-autospace: none">Interest rate swaps</TD>
    <TD STYLE="vertical-align: top; text-autospace: none">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-autospace: none">Derivatives (noncurrent liabilities)</TD>
    <TD STYLE="vertical-align: top; text-autospace: none">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-autospace: none">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 1.45pt; text-autospace: none; text-align: right">(273</TD>
    <TD STYLE="vertical-align: bottom; text-autospace: none">)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Derivatives held by us as of
December 31, 2010 consist of the following (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 96%; border-collapse: collapse; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: windowtext 1pt solid; text-autospace: none; font-weight: bold">Derivative&nbsp;Instrument</TD>
    <TD STYLE="text-autospace: none">&nbsp;</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; text-autospace: none; font-weight: bold; text-align: center">Balance&nbsp;Sheet&nbsp;Location</TD>
    <TD STYLE="text-autospace: none">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-autospace: none; font-weight: bold; text-align: center">Fair&nbsp;Value</TD>
    <TD STYLE="text-autospace: none">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="width: 23%; vertical-align: bottom; text-autospace: none">Currency forward contracts</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-autospace: none">&nbsp;</TD>
    <TD STYLE="width: 60%; vertical-align: bottom; text-autospace: none">Derivatives (noncurrent liabilities)</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-autospace: none">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: bottom; text-autospace: none">$</TD>
    <TD STYLE="width: 9%; vertical-align: bottom; padding-right: 1.45pt; text-autospace: none; text-align: right">(28</TD>
    <TD STYLE="width: 2%; vertical-align: bottom; text-autospace: none">)</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom; text-autospace: none">Interest rate swaps</TD>
    <TD STYLE="vertical-align: top; text-autospace: none">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-autospace: none">Derivatives (noncurrent liabilities)</TD>
    <TD STYLE="vertical-align: top; text-autospace: none">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-autospace: none">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 1.45pt; text-autospace: none; text-align: right">(337</TD>
    <TD STYLE="vertical-align: bottom; text-autospace: none">)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Currency Forward Contracts</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">CTSAS&rsquo; functional currency
is the Euro. Periodically, CTSAS purchases inventory from CTI, which requires payment in U.S. dollars. Beginning in 2009, and only
under certain circumstances, we use currency forward contracts to mitigate CTSAS&rsquo; exposure to changes in the Euro-to-U.S.
dollar exchange rate upon payment of these inventory purchases. Such currency forward contracts typically have durations of less
than six months. We report these currency forward contracts at their fair value. This relationship has not been designated as a
hedge and therefore all changes in these currency forward contracts&rsquo; fair value are recorded in other income, net on our
consolidated statement of income. We held one such currency forward contracts at December 31, 2011 and two such currency forward
contracts at December 31, 2010. See Note 23 for a description of how we estimate the fair value of these contracts.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Interest Rate Swaps</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In December 2008, we entered
into two pay-fixed, receive-variable, interest rate swaps to reduce exposure to changes in cash payments caused by changes in interest
rates on the Term Loan and the Real Estate Loan. Both relationships are designated as cash flow hedges and meet the criteria for
the shortcut method for assessing hedge effectiveness; therefore, the hedge is assumed to be 100% effective and all changes in
the fair value of the interest rate swaps are recorded in comprehensive income. See Note 19 for a description of changes in accumulated
other comprehensive loss due to derivatives and hedging activities. Such changes were due to unrealized gains and losses on the
interest rate swaps. These unrealized gains and losses must be reclassified in whole or in part into earnings if, and when, a comparison
of the swap(s) and the related hedged cash flows demonstrates that the shortcut method is no longer applicable. We expect these
hedges to meet the criteria of the shortcut method for the duration of the hedging relationship, which ends upon maturity of the
Term Loan and Real Estate Loan, and therefore we do not expect to reclassify any portion of these unrealized losses from accumulated
other comprehensive loss to earnings in the future. See Note 23 for a description of how we estimate the fair value of these swaps.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Effect of Derivatives on
Statement of Income</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The effect of derivative instruments
(a) designated as cash flow hedges and (b) not designated as hedging instruments on our consolidated statement of income for year
ended December 31, 2011 was as follows (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Gain&nbsp;(Loss)</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Gain&nbsp;(Loss)</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Gain&nbsp;(Loss)</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>In&nbsp;AOCL&nbsp;<SUP>(1)</SUP></B></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Reclassified&nbsp;<SUP>(2)</SUP></B></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>in&nbsp;Earnings&nbsp;<SUP>(3)</SUP></B></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Derivatives designated as cash flow hedges:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 64%; text-align: left; padding-left: 0.12in">Interest rate swaps, net of taxes of $(23)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">41</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Derivatives not designated as hedging instruments:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.12in">Currency forward contracts</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">32</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 18pt"></TD><TD STYLE="width: 13.5pt"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">Amount recognized in accumulated other comprehensive loss (AOCL) (effective portion and net of
taxes) during 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 18pt"></TD><TD STYLE="width: 13.5pt"><SUP>(2)</SUP></TD><TD STYLE="text-align: justify">Amount of gain (loss) originally recorded in AOCL but reclassified from AOCL into earnings during
2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 18pt"></TD><TD STYLE="width: 13.5pt"><SUP>(3)</SUP></TD><TD STYLE="text-align: justify">Amount of gain (loss) recognized in earnings on the derivative (ineffective portion and amount
excluded from effectiveness testing) reported in other income, net during 2011.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The effect of derivative instruments
(a) designated as cash flow hedges and (b) not designated as hedging instruments on our consolidated statement of income for year
ended December 31, 2010 was as follows (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Gain&nbsp;(Loss)</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Gain&nbsp;(Loss)</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Gain&nbsp;(Loss)</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>In&nbsp;AOCL&nbsp;<SUP>(1)</SUP></B></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Reclassified&nbsp;<SUP>(2)</SUP></B></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>in&nbsp;Earnings&nbsp;<SUP>(3)</SUP></B></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Derivatives designated as cash flow hedges:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 64%; text-align: left; padding-left: 0.12in">Interest rate swaps, net of taxes of $100</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(168</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Derivatives not designated as hedging instruments:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.12in">Currency forward contracts</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(50</TD><TD STYLE="text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 18pt"></TD><TD STYLE="width: 13.5pt"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">Amount recognized in accumulated other comprehensive loss (AOCL) (effective portion and net of
taxes) during 2010.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 18pt"></TD><TD STYLE="width: 13.5pt"><SUP>(2)</SUP></TD><TD STYLE="text-align: justify">Amount of gain (loss) originally recorded in AOCL but reclassified from AOCL into earnings during
2010.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 18pt"></TD><TD STYLE="width: 13.5pt"><SUP>(3)</SUP></TD><TD STYLE="text-align: justify">Amount of gain (loss) recognized in earnings on the derivative (ineffective portion and amount
excluded from effectiveness testing) reported in other income, net during 2010.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: -13.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>17.</B></TD><TD><B>ASSET RETIREMENT OBLIGATION</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We have an obligation to remediate
certain known occurrences of asbestos at our manufacturing facility in West Springfield, Massachusetts. The significant assumptions
used to estimate the obligation are:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 96%; border-collapse: collapse; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; text-autospace: none">Annual inflation rate</TD>
    <TD STYLE="width: 30%; padding-right: 1.45pt; text-autospace: none; text-align: right">5.54%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-autospace: none">Credit-adjusted risk-free rate</TD>
    <TD STYLE="padding-right: 1.45pt; text-autospace: none; text-align: right">5.37%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-autospace: none">Initial estimated remediation costs (undiscounted and not adjusted for inflation)</TD>
    <TD STYLE="padding-right: 1.45pt; text-autospace: none; text-align: right">$200,000 ($41,000 paid in 2007)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-autospace: none">Estimated remediation completion date</TD>
    <TD STYLE="padding-right: 1.45pt; text-autospace: none; text-align: right">December 19, 2038</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-autospace: none">Estimated remediation cost on December 19, 2038</TD>
    <TD STYLE="padding-right: 1.45pt; text-autospace: none; text-align: right">$720,000</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The following is a reconciliation
of the beginning and ending aggregate carrying amounts of the asset retirement obligation for the years ended December 31, 2011
and 2010 (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">2011</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">2010</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Balance, beginning</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">166</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">158</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Additional liabilities incurred</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Liabilities settled</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accretion expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Revisions in estimated cash flows</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Balance, ending</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">175</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><SUP>(1)</SUP></TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">166</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">The difference between the $175,000 liability as of December 31, 2011 and the estimated undiscounted
future payments of $720,000 is estimated inflation between December 31, 2011 and December 19, 2038.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Accretion expense on the asset
retirement obligation is included in general and administrative expenses in the accompanying consolidated statements of income.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>18.</B></TD><TD><B>COMMITMENTS AND CONTINGENCIES</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>Contingent Consideration</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">See Note 3 for a description
of contingent consideration liabilities resulting from our 2011 acquisitions of CSP and CTS. See Note 23 for an estimate of the
fair values of those liabilities and a description of how we estimate those fair values.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Operating Leases</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We lease certain equipment,
automobiles and other assets under cancelable and non-cancelable operating leases. Expenses associated with these leases totaled
$171,000 and $37,000 in 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Included in these leases is
a market-based, related-party lease which CSP assumed in conjunction with the business combination discussed in Note 3. CSP entered
into the lease with an entity controlled by one of our stockholders for industrial-use property located in Bound Brook, New Jersey,
U.S.A. The lease ends on August 31, 2016, with extension options available, and requires lease payments of $24,000 per month from
September 1, 2011 through August 31, 2013; thereafter the monthly lease payments will be adjusted to reflect the changes of average
cost per square foot as reported by Newmark Knight and Frank in their 2nd Quarter New Jersey Industrial Market Report, Average
Asking Rate for Somerset County.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Future minimum lease payments
under non-cancelable lease obligations at December 31, 2011 are as follows (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid; text-align: left">Year&nbsp;Ending&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%; text-align: left">2012 <SUP>(1)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">430</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">363</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">339</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">310</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2016</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">192</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; text-align: left">Thereafter</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,634</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">Includes the estimated related-party lease payments of the $36,000 described in Note 10.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>Legal</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><I>Civil Action No. 06-706 in Superior Court of the
Commonwealth of Massachusetts</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">On January 23, 2006, before
we owned CTI, the former owners of CTI (from whom we purchased CTI) (the &ldquo;Former Owners&rdquo;) acquired all of the outstanding
capital stock of Omniglow Corporation (the &ldquo;Transaction&rdquo;) and changed the name of the company to Cyalume Technologies,
Inc. Prior to, or substantially simultaneously with, the Transaction, CTI sold certain assets and liabilities related to Omniglow
Corporation&rsquo;s novelty and retail business to certain former Omniglow Corporation stockholders and management (&ldquo;the
Omniglow Buyers&rdquo;). This was done because CTI sought to retain only the Omniglow Corporation assets and current liabilities
associated with its government, military and safety business. During 2006, CTI and the Omniglow Buyers commenced litigation and
arbitration proceedings against one another. Claims include breaches of a lease and breaches of various other agreements between
CTI and the Omniglow Buyers. These proceedings are known as Civil Action No. 06-706 in Superior Court of the Commonwealth of Massachusetts.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">On December 19, 2008, while
Civil Action 06-706 was still unresolved, we acquired CTI (the &ldquo;Acquisition&rdquo;). According to the Stock Purchase Agreement
between the Former Owners and us, the Former Owners retained the responsibility for paying for all costs and liabilities associated
with Civil Action No. 06-706.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">On July 18, 2011, CTI received
an Order for Entry of Final Judgment in Civil Action No. 06-706 in which the Court awarded approximately $2.6 million in damages
to Omniglow, LLC. Prejudgment interest at the rate of twelve (12%) percent per annum since the filing of the complaint in 2006
will accrue on approximately $1.3 million of the damages. The Court also awarded Omniglow, LLC reimbursement of attorney fees and
costs of approximately $235,000, on which interest at the rate of twelve (12%) percent per annum will accrue beginning with the
date of the final ruling.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Although we will appeal the
final judgment, we have recorded a contingent legal
obligation in the full amount of the final ruling (approximately $3.6 million) on our consolidated balance sheet as of December
31, 2011. Since the Former Owners (i) retained the responsibility for paying the costs and liabilities associated with Civil Action
No. 06-706 and (ii) are related parties under U.S. GAAP due to their ownership interest in us and their membership on our board
of directors, we have recorded approximately $3.7 million, which includes the $3.6 million contingent legal obligation and other
costs we have incurred while litigating Civil Action No. 06-706, as due from related party on our consolidated balance sheet as
of December 31, 2011. We believe that the related party receivable is collectible. CTI has filed motions for reconsideration and
amendment of findings. In addition, CTI has prepared and will file an appeal of the final decision with the Massachusetts appellate
court.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><I>Complaint Regarding Failure
to Deliver Warrants</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">On February 27,
2012, Raviv Shefet filed a complaint (Docket No. 3:12-cv-30040) in the Springfield, Massachusetts Federal District Court,
alleging that we failed to deliver common stock warrants to Shefet on a timely basis for services rendered by Shefet prior to
April 2008. Shefet seeks damages in an amount to be proven at trial and such other relief as the court deems just and
equitable. Shefet claims damages could be as much as $0.9 million. On February 27, 2012, we received a Notice of a lawsuit
and request to waive service of a summons from Shefet&rsquo;s attorney. We have accepted the notice and have 60 days to
respond to the complaint. We intend to vigorously defend this complaint. No accrual has been recorded for this matter since
the amount of loss, if any, cannot be reasonably estimated. We do not believe the outcome of this matter will have a material
effect on our financial results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Management Agreement with
Board Member</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><FONT STYLE="color: black">On
October 1, 2009</FONT>, we entered into a Management Agreement with Selway Capital, LLC (&ldquo;Selway&rdquo;) that provides for
(but is not limited to) the following services to be performed by Selway on our behalf:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Strategic development and implementation as well as consultation to our chief executive officer
on a regular basis as per his reasonable requests;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Identifying strategic partners with companies with which Selway has relationships and access. In
this connection, Selway will focus on building partnerships with companies in Israel, Singapore, India and Europe. The focus will
be on the expansion of our munitions business;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Advise and support us on our investor relations strategy;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Advise and support our future fund raising, including identifying sources of capital in the United
States; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Support our mergers and acquisitions strategy and play an active role in our due diligence and
analysis.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The management agreement stipulates
that these services would be performed by Yaron Eitan, an employee of Selway and a member of our Board of Directors, with assistance,
as needed, from other employees of Selway. The management agreement expires on October 1, 2012 and can be terminated by either
us or Selway upon 30-days written notice or upon our default in payment or Selway&rsquo;s failure to perform services under the
management agreement. Under the management agreement, we indemnified Selway and Selway indemnified us against certain losses that
could have been incurred while carrying out its obligations under the management agreement. Per the management agreement and subsequent
amendments thereto, Selway&rsquo;s compensation for these services is currently $11,667 per month. We also reimburse Selway for
costs incurred specifically on our behalf for these services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">On July 29, 2010 we amended
our management agreement (the &ldquo;Amended Management Agreement&rdquo;) with Selway. Pursuant to the Amended Management Agreement,
(i) the compensation payable to Selway was reduced from $41,667 to $11,667 per month and (ii) we issued to Selway 45,000 shares
of common stock in full satisfaction of all accrued and unpaid liabilities (including all management fees) owed to Selway pursuant
to the management agreement through July 2010. Those 45,000 shares were issued in July 2010. There is no provision for an additional
bonus in the Amended Management Agreement. Other terms and conditions of the management agreement remained unchanged.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>19.</B></TD><TD STYLE="text-align: justify"><B>STOCKHOLDERS&rsquo; EQUITY</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Preferred Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We are authorized to issue 1,000,000
shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time
by our Board of Directors. No preferred stock was issued or outstanding as of December 31, 2011 or 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We are authorized to issue 50,000,000
shares of common stock. Stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders.
Stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions
applicable to the common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Other Equity Instruments</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">As of December 31, 2011, we
had 3,254,256 common stock purchase warrants (&ldquo;warrants&rdquo;) outstanding that were not related to stock-based compensation,
of which 2,975,506 were sold in a public offering, 160,000 were issued in 2010 in conjunction with the Subordinated Term Loan (see
Note 12) and 118,750 were sold to a third party. Also outstanding at December 31, 2011 was<FONT STYLE="text-transform: uppercase">
</FONT>an option to purchase up to a total of 731,250 units. Each unit consisted of one share of common stock and one common stock
purchase warrant. All of these instruments were recorded as equity transactions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><I>Public Offering Warrants</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">On May 1, 2007 we sold 7,312,500
units in our initial public offering for $58.5 million, or $8.00 per unit. Each warrant entitles the holder to purchase one share
of common stock at an exercise price of $5.00 per share. These warrants expire April 25, 2012. These warrants are redeemable by
us at a price of $0.01 per warrant upon a 30-day notice, only in the event that the last sales price of the common stock is at
least $11.50 per share for any 20 trading days within a 30-trading-day period ending on the third business day prior to the date
on which notice of redemption is given. The common stock underlying the warrants has been registered under the Securities Act of
1933.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In 2011, 1,056,500 of these
warrants were exercised on a cashless basis in exchange for 6,060 common shares. There were no warrants exercised in 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><I>Warrants Sold to a Third
Party </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">On October 15, 2008, we sold
118,750 common stock purchase warrants and 593,750 shares of common stock for a combined price of $4.8 million. Each warrant entitles
the holder to purchase one share of common stock at an exercise price of $5.00 per share. These warrants expire on April 25, 2012
unless redeemed earlier.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><I>Options to Purchase Units</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In connection with our initial
public offering on April 25, 2007, we sold to the representative of the underwriter an option to purchase up to a total of 731,250
units for $100. Each unit consists of one share of common stock and one common stock purchase warrant. Each warrant entitles the
holder to purchase one share of common stock at an exercise price of $5.50 per share, which may be exercised on a cashless basis.
This option is exercisable at $8.80 per unit upon the completion of an acquisition of a business (which occurred on December 19,
2008). This option expires five years from the date of our initial public offering (April 25, 2012). We accounted for this option
as a cost of raising capital and have included the instrument as equity in the financial statements. Accordingly, there was no
net impact on financial position or results of operations, except for the recording of the proceeds from the sale. We estimated,
based upon a Black-Scholes model, that the fair value of the purchase option on the date of sale was $3.40 per unit (or $2.5 million
in the aggregate), using an expected term of 5 years, volatility of 44%, and a risk-free rate of 5%.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Share-Based Compensation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">On March 3, 2009, our Board
of Directors adopted the Cyalume Technologies Holdings, Inc. 2009 Omnibus Securities and Incentive Plan (the &ldquo;Plan&rdquo;).
The Plan was approved during our Annual Meeting of Stockholders on June 18, 2009. The purpose of the Plan is to benefit stockholders
by assisting us in attracting, retaining and providing incentives to key management employees and non-employee directors of, and
non-employee consultants to, Cyalume Technologies Holdings, Inc. and its subsidiaries, and to align the interests of such employees,
non-employee directors and non-employee consultants with those of stockholders. Accordingly, the Plan provides for the granting
of Distribution Equivalent Rights, Incentive Stock Options, Non-Qualified Stock Options, Performance Share Awards, Performance
Unit Awards, Restricted Stock Awards, Stock Appreciation Rights, Tandem Stock Appreciation Rights, Unrestricted Stock Awards or
any combination of the foregoing, as may be best suited to the circumstances of the particular employee, director or consultant
as provided herein. Under the Plan, we are authorized to issue up to two million shares of common stock, of which 197,419 shares
are available for future awards as of December 31, 2011. Awards under the Plan can impose various service periods and other terms
upon the awardee, however the maximum term of options or similar instruments granted under the Plan is ten years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">During the years ended December
31, 2011 and 2010, total expense recorded for share-based compensation was $1.2 million and $1.2 million, respectively. The following
presents how share-based expenses are included in our consolidated statements of income (in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Cost of goods sold</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">100</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">37</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Sales and marketing</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">168</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">88</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">General and administrative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">721</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">857</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Research and development</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">218</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">199</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,207</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><SUP>(1)</SUP></TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,181</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><SUP>(2)</SUP></TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">The related recognized tax benefit in our consolidated statement of income is $307,000.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">The related recognized tax benefit in our consolidated statement of income is $341,000.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We do not currently possess
any treasury shares, therefore any issuance of stock for any share-based compensation award is expected to be from new shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><I>Stock Option and Warrant
Awards</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We use a Black-Scholes pricing
model to value all stock options and warrants awarded as stock-based compensation. We estimated the expected term of the options
and warrants awarded under stock-based compensation arrangements individually based on the estimated term of the award, the exercise
price of the award, the estimated risk-free interest rate over the award&rsquo;s estimated term, estimated annual dividend yield
and the estimated volatility of our common stock over the award&rsquo;s estimated term. Since our common stock did not have sufficient
trading history that was representative of an operating company as of each award&rsquo;s grant date, each award&rsquo;s volatility
assumption was derived using historical data of another public company operating in our industry. We believe the volatility estimate
calculated from that company is a reasonable benchmark to use in estimating the expected volatility of our common stock; however,
that estimated volatility may not necessarily be representative of the volatility of the underlying securities in the future. Our
risk-free interest rate assumptions are based on U.S. Treasury securities issued with maturities similar to the expected terms
of the awards. The fair value of each award is estimated on the date of grant using the Black-Scholes pricing model with the following
assumptions for awards to employees and non-employees:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 96%; border-collapse: collapse; margin-left: 0.25in">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 69%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 13%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center">2011</TD>
    <TD STYLE="width: 2%; font-weight: bold; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 14%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center">2010</TD>
    <TD STYLE="width: 2%; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Estimated term (years)</TD>
    <TD STYLE="text-align: right">10</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: right">4.6 - 10</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-align: justify">Risk-free interest rate</TD>
    <TD STYLE="text-align: right">2.23 &ndash; 3.12</TD>
    <TD STYLE="text-align: justify">%</TD>
    <TD STYLE="text-align: right">1.81 &ndash; 3.77</TD>
    <TD STYLE="text-align: justify">%</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Estimated dividend yield</TD>
    <TD STYLE="text-align: right">None</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: right">None</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-align: justify">Volatility</TD>
    <TD STYLE="text-align: right">29.92 &ndash; 30.16</TD>
    <TD STYLE="text-align: justify">%</TD>
    <TD STYLE="text-align: right">26.94 &ndash; 33.56</TD>
    <TD STYLE="text-align: justify">%</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Discount for post-vesting restrictions</TD>
    <TD STYLE="text-align: right">None</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: right">None</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Stock options and warrants awarded
as of December 31, 2011 will generally vest in zero to 2 years. Options awarded to executive officers and other management typically
are earned based on meeting Board-determined or CEO-determined performance goals unique to each award recipient and require continued
employment over the vesting period. Options awarded to members of the Board of Directors typically vest on the grant date. Options
and warrants awarded typically expire 10 years after the grant date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Stock option and warrant activity
related to share-based compensation is summarized as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares<BR> (in&nbsp;thousands)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted&nbsp;Average<BR> Exercise&nbsp;Price</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; padding-left: 0">Outstanding at December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">578</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">4.32</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.1pt">Granted <SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">615</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.07</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 8.1pt">Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.1pt">Forfeited</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(49</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.65</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.1pt">Expired</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0">Outstanding at December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,144</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.75</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 8.1pt">Granted <SUP>(2)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">140</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.24</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.1pt">Exercised <SUP>(3)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.65</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 8.1pt">Forfeited</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(11</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.65</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.1pt">Expired</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(105</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">7.78</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0">Outstanding at December 31, 2011</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,166</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3.44</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0; padding-bottom: 2.5pt"><FONT STYLE="color: black">Exercisable at December 31, 2011 </FONT><SUP>(4)</SUP></TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">923</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3.37</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">The weighted-average grant-date fair value of awards granted was $1.56.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">The weighted-average grant-date fair value of awards granted was $1.92.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(3)</TD><TD STYLE="text-align: justify">The intrinsic value of awards exercised was $2,000. These options were exercised on a cashless
basis, therefore no cash was received at exercise. The tax benefit realized from this exercise insignificant.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(4)</TD><TD STYLE="text-align: justify">The aggregate intrinsic value of such awards exercisable at December 31, 2011 is $491,000. The
weighted-average remaining contractual term of such awards is 7.12 years.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The following table summarizes
information about stock options and warrants related to stock-based compensation that (i) are not subject to performance conditions
and (ii) are vested or are expected to vest as of December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options&nbsp;Outstanding</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options&nbsp;Exercisable</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Weighted</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Average</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Weighted</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Weighted</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Number</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Remaining</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Average</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Number</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Average</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Range&nbsp;of</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Outstanding</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Contractual</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Exercise</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Exercisable</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Exercise</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Exercise&nbsp;Prices</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(in&nbsp;thousands)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Term&nbsp;(Years)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(in&nbsp;thousands)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">0.00</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">2.00</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">160</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 11%; text-align: right">3.58</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">2.00</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 11%; text-align: right">160</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">2.00</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.01</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.00</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">779</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.80</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.42</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">600</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.42</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.01</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.00</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">192</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.50</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.67</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">142</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.67</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">6.01</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">8.00</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,131</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><SUP>(1)</SUP></TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">7.32</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3.36</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">902</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><SUP>(2)</SUP></TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3.36</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">The aggregate intrinsic value of these stock options and warrants is $549,000 as of December 31,
2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">The aggregate intrinsic value of these stock options and warrants is $489,000 as of December 31,
2011. The weighted-average remaining contractual term for these options is 7.11 years as of December 31, 2011.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The following table summarizes
information about stock options related to stock-based compensation that (i) are subject to performance conditions and (ii) are
vested or are expected to vest as of December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="5" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options&nbsp;Outstanding</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="5" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options&nbsp;Exercisable</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Weighted</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Average</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Weighted</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Weighted</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Number</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Remaining</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Average</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Number</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Average</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Range&nbsp;of</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Outstanding</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Contractual</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Exercise</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Exercisable</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Exercise</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Exercise&nbsp;Prices</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(in&nbsp;thousands)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Term&nbsp;(Years)</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(in&nbsp;thousands)</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">2.01</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">4.00</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">35</TD><TD STYLE="width: 1%; text-align: left"><SUP>(1)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right">7.48</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">3.65</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right">21<SUP>(2)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">3.65</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">The aggregate intrinsic value of these stock options is $3,500 as of December 31, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">The aggregate intrinsic value of these stock options is $2,000 as of December 31, 2011. The weighted-average
remaining contractual term for these options is 7.47 years as of December 31, 2011.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">As of December 31, 2011, there
was $306,000 of unrecognized compensation cost related to nonvested option awards which is expected to be recognized over a weighted-average
period of 1.6 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><I>Stock Awards</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We value stock awards at the
closing market price of the underlying shares on the trading day previous to the grant date, adjusted for expected forfeitures.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Nonvested restricted common
stock related to stock-based compensation is summarized as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares<BR> (in&nbsp;thousands)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted<BR> Average&nbsp;Grant<BR> Date&nbsp;Fair&nbsp;Value</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; padding-left: 0">Outstanding at December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">179</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">3.43</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.1pt">Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">252</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.59</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: black; padding-left: 8.1pt"><FONT STYLE="color: black">Vested </FONT><SUP>(1)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(106</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.43</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.1pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3.25</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0">Outstanding at December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">324</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.61</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.1pt">Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">131</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.00</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: black; padding-left: 8.1pt"><FONT STYLE="color: black">Vested </FONT><SUP>(2)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(174</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.48</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.1pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3.25</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0; padding-bottom: 2.5pt">Outstanding at December 31, 2011</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">277</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3.88</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">As of December 31, 2011, there
are 116,000 stock awards that will vest upon fulfilling service conditions and 161,000 stock awards that will vest upon fulfilling
performance conditions and service conditions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">The total fair value of restricted common stock awards that vested during 2010 was $371,000.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">The total fair value of restricted common stock awards that vested during 2011 was $696,000</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">As of December 31, 2011, there
was $533,000 of unrecognized compensation cost related to nonvested stock awards which is expected to be recognized over a weighted-average
period of 1.75 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Accumulated Other Comprehensive
Loss</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The ending accumulated balances
for each item in accumulated other comprehensive loss are as follows (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Foreign currency translation loss</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(526</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(459</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Unrealized loss on cash flow hedges, net of taxes</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(170</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(211</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(696</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(670</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Changes in accumulated other
comprehensive loss due to derivative instruments and hedging activities are as follows (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%">Balance, December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(43</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Unrealized loss on interest rate swaps, net of taxes of $100</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(168</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Unrealized losses (gains) reclassified to current period earnings</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Balance, December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(211</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Unrealized gain on cash flow hedges, net of taxes of $(23)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">41</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Unrealized losses (gains) reclassified to current period earnings</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Balance, December 31, 2011</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(170</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Changes in accumulated other
comprehensive loss due to currency translation adjustments (all amounts in thousands):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%; padding-left: 0">Balance, December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">27</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0">Adjustments due to translation of CTSAS financial statements from Euros into U.S. Dollars</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(486</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0">Reclassifications to current period earnings</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0">Balance, December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(459</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0">Adjustments due to translation of CTSAS financial statements from Euros into U.S. Dollars</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(67</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0">Reclassifications to current period earnings</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 0">Balance, December 31, 2011</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(526</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>20.</B></TD><TD><B>EMPLOYEE BENEFIT PLANS</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The CTI Employee Savings and
Retirement Plan (the &ldquo;ESRP&rdquo;), is intended to be qualified under Section 401(k) of the Internal Revenue Code. Employees
of CTI, CTS and CSP who have reached the age of 18 are eligible for participation on the first entry date after three months of
service. Entry dates are the first day of January, April, July and October. Employees may defer receiving compensation up to the
maximum amount permitted under the Internal Revenue Code. Matching contributions to the ESRP equal (i) 3% of employee compensation
plus (ii) 50% of the next 2% of employee compensation. For the years ended December 31, 2011 and 2010, employer matching contributions
were $224,000 and $220,000, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>21.</B></TD><TD><B>OTHER INCOME, NET</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In 2011, we received approximately
$470,000 from various companies for research and development work performed by us. Amounts received in 2010 were not significant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>22.</B></TD><TD><B>CONCENTRATIONS</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Sales Concentrations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In 2011, 66% of our revenue
was received from four customers. In 2010, 77% of our revenue was received from four customers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Geographic Concentrations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We sell to customers located
in the United States of America and in international market. Revenues to customers outside the United States represent 39% and
33% of net revenues for the years ended December 31, 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">CTSAS&rsquo; operations are
our only operations outside the United States of America. CTSAS&rsquo; net assets were $6,093,000 and $6,653,000 as of December
31, 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Concentrations of Credit
Risk Arising from Financial Instruments</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">As of December 31, 2010, two
customers combined represented 48% of gross accounts receivable and no other customer owed more than 10% of gross accounts receivable.
These accounts receivable were collected in full in the first quarter of 2011. As of December 31, 2011, four customers combined
represented 50% of gross accounts receivable and no other customer owed more than 10% of gross accounts receivable. All but $112,000
of these accounts receivable were collected in full in the first quarter of 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We maintain cash in several
different financial institutions in amounts that typically exceed U.S. federally insured limits and in financial institutions in
international jurisdictions where insurance is not provided. We have not experienced any losses in such accounts and believe we
are not exposed to significant credit risk.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>23.</B></TD><TD><B>FAIR VALUES OF ASSETS AND LIABILITIES</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Assets and liabilities itemized
below were measured at fair value on a recurring basis at December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Level&nbsp;1<BR> Quoted<BR> Prices&nbsp;in<BR> Active<BR> Markets<BR>
for<BR> Identical<BR> Assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Level&nbsp;2<BR> Significant<BR> Other<BR> Observable<BR> Inputs</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Level&nbsp;3<BR> Significant<BR> Unobservable<BR> Inputs</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Assets/<BR> Liabilities<BR> At&nbsp;Fair<BR> Value</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%; text-align: left">Interest rate swaps (see Note 16) <SUP>(1)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(273</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(273</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Currency forward contracts (see Note 16) <SUP>(2)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Contingent consideration (see Note 3) <SUP>(3)</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,699</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,699</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(269</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,699</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,430</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

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<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(1)</SUP></TD><TD STYLE="text-align: justify">The fair values of the swaps are determined by discounting the estimated cash flows to be received
and paid due to the swaps over the swap&rsquo;s contractual lives using an estimated risk-free interest rate for each swap settlement
date (an income approach).</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(2)</SUP></TD><TD STYLE="text-align: justify">The fair value of these contracts is determined by multiplying the notional amount of the contract
by the difference between (a) the U.S. dollar amount due on the contract at maturity and (b) the foreign exchange rate as of the
date the contract is valued (the balance sheet date). Because the contracts typically have a short duration, the value is not discounted
using a present value technique (an income approach).</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><SUP>(3)</SUP></TD><TD STYLE="text-align: justify">The contingent consideration liabilities&rsquo; fair value is determined by calculating the present
value of the estimated liability that is expected to be paid in the future (an income approach). We estimated the undiscounted
liability we expect to pay in the future by developing various hypothetical scenarios in which the consideration could be earned
and weighting those scenarios based on our expectations that those scenarios will actually occur.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Assets and liabilities itemized
below were measured at fair value on a recurring basis at December 31, 2010:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Level&nbsp;1<BR> Quoted<BR> Prices&nbsp;in<BR> Active<BR> Markets<BR>
for<BR> Identical<BR> Assets</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Level&nbsp;2<BR> Significant<BR> Other<BR> Observable<BR> Inputs</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Level&nbsp;3<BR> Significant<BR> Unobservable<BR> Inputs</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Assets/<BR> Liabilities<BR>
At&nbsp;Fair<BR>
Value</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%; text-align: left">Interest rate swaps</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(337</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(337</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Currency forward contracts</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(28</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(28</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(365</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(365</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The table below presents reconciliations
for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for
the years ended December 31 2011 and 2010:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Contingent consideration:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Balance at the beginning of period</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left; padding-left: 0.12in">Initial recognition of the liabilities</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">(3,640</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.12in">Unrealized gains (losses) in earnings <SUP>(1)</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(59</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 0in">Balance at the end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(3,699</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: black"><SUP>(1)</SUP></FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="color: black">R</FONT>ecorded in other income, net on our consolidated statement of
income.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We have other financial instruments,
such as cash, accounts receivable, due from related party, accounts payable, accrued expenses, notes payable and line of credit
whose carrying amounts approximate fair value.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>24.</B></TD><TD STYLE="text-align: justify"><B>SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Cash Paid for Interest and
Income Taxes </B>(all amounts in thousands)<FONT STYLE="color: black">:</FONT><B> </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; padding-left: 0.7pt">Interest</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1,857</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">2,162</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.7pt">Income taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,682</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">195</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>Non-Cash Investing and Financing
Activities </B>(all amounts in thousands)<FONT STYLE="color: black">:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left; padding-left: 0.7pt">Issued 712,771 shares of our common stock to effect the acquisition of CSP</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">2,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.7pt">Issued 133,584 shares of our common stock to effect the acquisition of CTS</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.7pt">Issued note payable to effect the acquisition of CTS</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Issued 483,046 shares of our common stock to repay note payable and accrued interest thereon</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,212</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Issued 253,288 shares of our common stock to repay related party notes payable to three stockholders and accrued interest thereon</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,160</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Fixed assets acquired through capital lease obligations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">77</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Payment of accounts payable due to related parties by issuing common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">146</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Warrants issued in conjunction with convertible debt</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">200</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Debt issuance costs withheld from proceeds of the Subordinated Term Loan</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">858</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0">&nbsp;</TD>
    <TD STYLE="width: 0.25in"><B>25.</B></TD>
    <TD STYLE="text-align: justify"><B>SUBSEQUENT EVENT</B></TD></TR>
</TABLE>

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<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0">&nbsp;</TD>
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="text-align: justify">In March 2012, we reached agreement to amend certain financial covenants in our financing
    arrangements with TD Bank and Granite Creek (see Notes 11 and 12). Additionally, we have agreed to amend the 160,000
    warrants     described in Note 12 by (i) extending the warrants&rsquo; expiration date to July 29, 2018 and (ii) reducing
    their exercise price to $1.50 per share.</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Cyalume Technologies Holdings, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Financial Statement Schedule</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Schedule II &ndash; Valuation and Qualifying
Accounts</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(in thousands)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-left: 0">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Additions</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Description</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Balance&nbsp;at<BR> Beginning<BR>
of&nbsp;Period</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Charged<BR>
to&nbsp;costs<BR>
and<BR> expenses</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Charged&nbsp;to<BR> other<BR>
accounts<BR> (Describe)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Deductions<BR> (Describe)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Balance<BR>
at&nbsp;End&nbsp;of<BR> Period</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">Year ended December&nbsp;31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="font-style: italic">&nbsp;</TD>
    <TD STYLE="font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="font-style: italic; text-align: right">&nbsp;</TD><TD STYLE="font-style: italic; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 36%; text-align: left; padding-left: 0.12in">Allowance for Doubtful Accounts</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">239</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">42</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">(219</TD><TD STYLE="width: 5%; text-align: left">)<SUP>(1)(2)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">62</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.12in">Deferred Tax Asset Valuation Allowance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,039</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,977</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,062</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">Year ended December&nbsp;31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="font-style: italic">&nbsp;</TD>
    <TD STYLE="font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="font-style: italic; text-align: right">&nbsp;</TD><TD STYLE="font-style: italic; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.12in">Allowance for Doubtful Accounts</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">62</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">140</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10</TD><TD STYLE="text-align: left"><SUP>(3)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(6</TD><TD STYLE="text-align: left">)<SUP>(2)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">206</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.12in">Deferred Tax Asset Valuation Allowance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,062</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(188</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,874</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>Write-offs</TD></TR></TABLE>

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<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(2)</TD><TD><FONT STYLE="color: black">Currency translation</FONT></TD></TR></TABLE>

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<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(3)</TD><TD>Acquisition-date adjustment of estimated uncollectable accounts receivable of CTS.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P></p>
<HR STYLE="color: Black">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>You should rely only on the information
contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this
prospectus or any prospectus supplement. This prospectus is not an offer of these securities in any jurisdiction where an offer
and sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or any sale of our common stock.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>14,969,696 Shares Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CYALUME TECHNOLOGIES HOLDINGS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<HR STYLE="color: Black; width: 20%">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PRELIMINARY PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<HR STYLE="color: Black; width: 20%">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<HR STYLE="color: Black">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PART II</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INFORMATION NOT REQUIRED IN PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Item 13. Other Expenses of Issuance
and Distribution</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 86%; font-size: 10pt; text-align: left">SEC Registration fee</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">674</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Accounting fees and expense</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">20,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Printing and engraving expenses</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Legal fees and expenses</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">10,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Miscellaneous</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">2,500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Total</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">33,174</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 14. Indemnification of Directors and Officers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our Fifth Amended
and Restated Certificate of Incorporation provides that all Directors, officers, employees and agents of the registrant shall be
entitled to be indemnified by us to the fullest extent permitted by Section 145 of the Delaware General Corporation Law.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">Section 145 of the Delaware General Corporation
Law concerning indemnification of officers, Directors, employees and agents is set forth below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">&lsquo;&lsquo;Section 145. Indemnification of officers,
directors, employees and agents; insurance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 27pt">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses (including attorneys&rsquo; fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if
the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person&rsquo;s
conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and
in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that the person&rsquo;s conduct was unlawful.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 27pt">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact
that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys&rsquo; fees) actually and reasonably incurred by the person in connection with the defense
or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court shall deem proper.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 27pt">(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including attorneys&rsquo; fees) actually and reasonably incurred
by such person in connection therewith.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 27pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only
as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee
or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made, with respect to a person who is a director or officer at the time
of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than
a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion,
or (4) by the stockholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expenses
(including attorneys&rsquo; fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys&rsquo;
fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if
any, as the corporation deems appropriate.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not
be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person&rsquo;s official
capacity and as to action in another capacity while holding such office.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person&rsquo;s status as such, whether or not the corporation
would have the power to indemnify such person against such liability under this section.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">(h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
purposes of this section, references to &lsquo;&lsquo;the corporation&rsquo;&rsquo; shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or
surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
purposes of this section, references to &lsquo;&lsquo;other enterprises&rsquo;&rsquo; shall include employee benefit plans; references
to &lsquo;&lsquo;fines&rsquo;&rsquo; shall include any excise taxes assessed on a person with respect to any employee benefit plan;
and references to &lsquo;&lsquo;serving at the request of the corporation&rsquo;&rsquo; shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee
or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and
in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner &lsquo;&lsquo;not opposed to the best interests of the corporation&rsquo;&rsquo;
as referred to in this section.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The indemnification and advancement of
expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue
as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 27pt">(j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.
The Court of Chancery may summarily determine a corporation&rsquo;s obligation to advance expenses (including attorneys&rsquo;
fees).&rsquo;&rsquo;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 27pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a
successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">Paragraph B of Article Seventh of our Fifth Amended
and Restated Certificate of Incorporation provides:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&lsquo;&lsquo;The
Corporation, to the full extent permitted by Section 145 of the GCL, as amended from time to time, shall indemnify all persons
whom it may indemnify pursuant thereto. Expenses (including attorneys&rsquo; fees) incurred by an officer or director in defending
any civil, criminal, administrative, or investigative action, suit or proceeding for which such officer or director may be entitled
to indemnification hereunder shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized hereby.&rsquo;&rsquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Registrant&rsquo;s
amended and restated certificate of incorporation also provides that no director of the Corporation shall be liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision of the Registrant&rsquo;s
amended and restated certificate of incorporation shall not eliminate or limit the liability of a director (a) for any breach of
the director&rsquo;s duty of loyalty to the Registrant or its stockholders; (b) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the Delaware General Corporation Law; or
(d) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this provision
of the Registrant&rsquo;s amended and restated certificate of incorporation shall be prospective only and shall not adversely affect
any right or protection of, or any limitation of the liability of, a director of the Registrant existing at, or arising out of
facts or incidents occurring prior to, the effective date of such repeal or modification.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><I>Bylaws.</I> <I>&nbsp;</I>
The Registrant&rsquo;s bylaws provide for the indemnification of the officers and directors of the Registrant to the fullest extent
permitted by the DGCL. The bylaws provide that each person who was or is made a party to, or is threatened to be made a party to,
any civil or criminal action, suit or proceeding by reason of the fact that such person is or was a director or officer of the
Registrant shall be indemnified and held harmless by the Registrant to the fullest extent authorized by the DGCL against all expense,
liability and loss, including, without limitation, attorneys&rsquo; fees, incurred by such person in connection therewith, if such
person acted in good faith and in a manner such person reasonably believed to be or not opposed to the best interests of the Registrant
and had no reason to believe that such person&rsquo;s conduct was illegal.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><I>Insurance.</I>
The Registrant maintains directors and officers liability insurance, which covers Directors and officers of the Registrant against
certain claims or liabilities arising out of the performance of their duties.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in"><B>Item 15. Recent Sales of Unregistered Securities.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On December 22, 2011
we issued an aggregate of 133,584 shares of our common stock to three accredited investors, pursuant to a stock purchase agreement.
The shares of our common stock issued in this transaction were issued in reliance upon an exemption from registration afforded
under Section 4(2) of the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;), for transactions not involving
a public offering, and Regulation D, promulgated thereunder. Such shares are being registered hereunder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On August 31, 2011
we issued an aggregate of 712,771 shares of our common stock to one accredited investor, pursuant to a asset purchase agreement.
The shares of our common stock issued in this transaction were issued in reliance upon an exemption from registration afforded
under Section 4(2) of the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;), for transactions not involving
a public offering, and Regulation D, promulgated thereunder. Such shares are being registered hereunder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On July 1, 2011 we
issued an aggregate of 253,288 shares of our common stock to three accredited investors, pursuant to a securities exchange agreement.
The shares of our common stock issued in this transaction were issued in reliance upon an exemption from registration afforded
under Section 4(2) of the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;), for transactions not involving
a public offering, and Regulation D, promulgated thereunder. Such shares are being registered hereunder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On July 1, 2011 we
issued an aggregate of 483,046 shares of our common stock to one accredited investor, pursuant to a securities exchange agreement.
The shares of our common stock issued in this transaction were issued in reliance upon an exemption from registration afforded
under Section 4(2) of the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;), for transactions not involving
a public offering, and Regulation D, promulgated thereunder. Such shares are being registered hereunder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On March 18, 2011
we issued an aggregate of 871,823 shares of our common stock to seven accredited investors, pursuant to a stock purchase agreement.
The shares of our common stock issued in this transaction were issued in reliance upon an exemption from registration afforded
under Section 4(2) of the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;), for transactions not involving
a public offering, and Regulation D, promulgated thereunder. Such shares are being registered hereunder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On or about August
1, 2010 and February 1, 2011 we issued 20,000 and 20,000 shares of our common stock, respectively to Cameron Associates, Inc. for
investor relation services pursuant to a service agreement dated August 1, 2010. The shares of our common stock issued to this
consultant were not registered under the Securities Act in reliance upon the exemption from the registration requirements provided
in Section 4(2) of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On or about February
4, 2010 and July 29, 2010 we issued 60,000 and 45,000 shares of our common stock, respectively to Selway Capital, LLC for management
fees pursuant to a management agreement dated October 1, 2009 and amended on July 29, 2010. The shares of our common stock issued
to this consultant were not registered under the Securities Act in reliance upon the exemption from the registration requirements
provided in Section 4(2) of the Securities Act.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 16, Exhibits and Financial Statement Schedules.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">(a) The following exhibits are filed as part of this
Registration Statement:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="width: 9%; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Exhibit Number</TD>
    <TD NOWRAP STYLE="width: 2%; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="width: 89%; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold">Description</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">2.1</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: -5.4pt; padding-left: 5.4pt">Stock Purchase Agreement dated February 14, 2008 by and among Vector Intersect Acquisition Corporation, as the Parent, Cyalume Acquisition Corp., a Delaware corporation, as the Purchaser, Cyalume Technologies, Inc. and GMS Acquisition Partners Holdings, LLC. (1)</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">2.2</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Amendment No. 1 to Stock Purchase Agreement, dated October 22, 2008. (2)</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">2.3</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Amendment No. 2 to Stock Purchase Agreement, dated December 17, 2008. (3)</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">2.4</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Amendment No. 3 to Stock Purchase Agreement, dated December 18, 2008. (3)</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">3.1</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Fifth Amended and Restated Certificate of Incorporation. (3)</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">3.2</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">By-laws. (4)</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.1</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Specimen Common Stock Certificate. (4)</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.2</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">Specimen Unit Certificate. (4)</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.3</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Specimen Warrant Certificate. (4)</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.4</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">Form of Unit Purchase Option to be granted to the representative. (4)</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.5</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Registration Rights Agreement dated March 18, 2011. (8)</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">5.1</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">*</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Opinion of Loeb &amp; Loeb LLP</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.1</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Form of Stock Escrow Agreement among the Registrant, American Stock Transfer &amp; Trust Company and the Initial Stockholders. (4)</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.2</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Form of Registration Rights Agreement among the Registrant, the Initial Stockholders and the Private Placement Purchasers. (4)</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.3</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">Subordinated Loan Agreement dated as of July 29, 2010 among Cyalume Technologies, Inc., Cyalume Technologies Holdings, Inc., the Lenders and other financial institutions or other entities from time to time parties thereto and Granite Creek Partners Agent, LLC as Agent. (5)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.4</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Subordinated Security and Pledge Agreement dated as of July 29, 2010 between Cyalume Technologies, Inc. and Granite Creek Partners Agent, LLC. (5)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.5</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Subordinated Guaranty Agreement dated as of July 29, 2010 entered into by Cyalume Technologies Holdings, Inc. for the benefit of Granite Creek Partners Agent, LLC. (5)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.6</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Subordinated Stock Pledge Agreement dated as of July 29, 2010 entered into by Cyalume Technologies Holdings, Inc. (5)</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.7</TD>
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 29, 2010 among Cyalume Technologies, Inc., Cyalume Technologies Holdings, Inc., the Lenders and the other financial institutions or other entities from time to time parties thereto and TD Bank, N.A., a national banking association, as Agent and as Lender. (5)</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.8</TD>
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Form of Warrant issued to Granite Creek FlexCap I, L.P. (5)</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.9</TD>
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Form of Warrant issued to Patriot Capital II, LP. (5)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.10</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Registration Rights Agreement between CTHI and Granite Creek FlexCap I, L.P. (5)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.11</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Registration Rights Agreement between CTHI and Patriot Capital II, LP. (5)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.12</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Registration Rights Agreement between CTHI and Patriot Capital II, LP. (5)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.13</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Extension of deadline (contained in the TD Bank Second Amendment to Credit Agreement and Limited Waiver dated December 7, 2009) <FONT STYLE="color: black">to receive at least $3.0 million in new subordinated debt or from an equity offering from June 30, 2010 to July 31, 2010. (7)</FONT></TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.14</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Share Purchase Agreement dated March 18, 2011. (8)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.15</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Amendment No. 1 to the Employee Agreement of Derek Dunaway dated May 9, 2011. (9)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.16</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Amendment No. 1 to the Employee Agreement of Edgar E. Cranor dated May 9, 2011. (9)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.17</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Securities Exchange Agreement between Cyalume Technologies Holdings, Inc. and Rodman Principal Investments, LLC dated June 30, 2011. (10) (10.1)</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.18</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Securities Exchange Agreement between Cyalume Technologies Holdings, Inc. and Winston Churchill dated July 7, 2011. (10) (10.2)</TD></TR>
</TABLE>
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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="width: 9%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 2%; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="width: 89%; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.19</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Securities Exchange Agreement between Cyalume Technologies Holdings, Inc. and Thomas Rebar dated July 7, 2011. (10) (10.3)</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.20</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Securities Exchange Agreement between Cyalume Technologies Holdings, Inc. and Wayne Weisman dated July 7, 2011. (10) (10.4)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.21</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Amendment No. 2 to the Employee Agreement of Derek Dunaway. (11) (10.5)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.22</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Amendment No. 1 to the Employee Agreement of Michael Bielonko. (11) (10.6)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.23</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Amendment No. 2 to the Employee Agreement of Edgar E. Cranor. (11) (10.7)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.24</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Asset Purchase Agreement dated August 31, 2011 among Cyalume Technologies Holdings, Inc., Cyalume Specialty Products, Inc., JFC Technologies, LLC and Selling Members of Seller. (11) (10.8)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.25</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Registration Rights Agreement between Cyalume Technologies Holdings, Inc., James G. Schleck, James R. Schleck, Jame Fine Chemical, Inc., and JFC Technologies, LLC dated as of August 31, 2011. (11) (10.9)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.26</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Lease Agreement between Brook Industrial Park, LLC and Cyalume Specialty Products, Inc. (11) (10.10)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.27</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Stock Purchase Agreement dated December 22, 2011 among Cyalume Technologies Inc., Cyalume Technologies Holdings, Inc., Combat Training Solutions, Inc., and Antonio Colon. (15) (10.27)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.28</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Registration Rights Agreement, dated as of December 22, 2011, between Cyalume Technologies Holdings, Inc., and Antonio Colon. (15) (10.28)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.29</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Cyalume Technologies Holdings, Inc. 2009 Omnibus Securities and Incentive Plan. (12)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.30</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Second Amendment to Amended and Restated Revolving Credit and Term Loan Agreement between Cyalume Technologies, Inc., Cyalume Technologies Holdings, Inc., Combat Training Solutions, Inc., Cyalume Realty, Inc., Cyalume Specialty Products, Inc. and TD Bank, N.A. dated March 30, 2012. (15) (10.30)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.31</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Second Amendment to Subordinated Loan Agreement between Cyalume Technologies, Inc., Cyalume Technologies Holdings, Inc., Combat Training Solutions, Inc., Cyalume Realty, Inc., Cyalume Specialty Products, Inc., Granite Creek Partners Agent, LLC, Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P. dated March 30, 2012.&nbsp; (15) (10.31)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.32</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Services Agreement by and among the Company, Cyalume Technologies, Inc. and East Shore Ventures, LLC dated as of April 2, 2012. (13) (10.1)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.33</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Inducement Agreement by and between East Shore Ventures, LLC and Zivi Nedivi (13) (10.2)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">10.34</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Separation Agreement and General Release by and between Cyalume Technologies, Inc. and Derek Dunaway effective as of April 2, 2012 (13) (10.3)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">14.1</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Code of Conduct and Ethics. (15)&nbsp; (14.1)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">16.1</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Letter from CCR LLP. (14)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">21.1</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Subsidiaries of the Registrant. (15)&nbsp; (21.1)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">23.1</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">*</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Consent of Grant Thornton LLP</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">23.2</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">*</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Consent of Loeb &amp; Loeb LLP (included in Exhibit 5.1)</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">24.1</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Power of Attorney (included on signature page of this Registration Statement)</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">101.INS</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">XBRL Instance Document</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">101.SCH</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">XBRL Taxonomy Extension Schema Document</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">101.CAL</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">XBRL Taxonomy Extension Calculation Linkbase Document</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">101.DEF</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">XBRL Taxonomy Extension Definition Linkbase Document</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">101.LAB</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">XBRL Taxonomy Extension Label Linkbase Document</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">101.PRE</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">XBRL Taxonomy Extension Presentation Linkbase Document</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">(1)</TD>
    <TD>Incorporated by reference to the Current Report on Form 8-K dated February 14, 2008 and filed with the Commission February 21, 2008.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 24px">(2)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to the Current Report on Form 8-K dated October 22, 2008 and filed with the Commission November 4, 2008.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 24px">(3)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to the Current Report on Form 8-K dated December 17, 2008 and filed with the Commission December 23, 2008.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 24px">(4)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-127644) filed August 18, 2005.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 24px">(5)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to the Current Report on Form 8-K dated July 29, 2010 and filed with the Commission August 3, 2010.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 24px">(6)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to the Current Report on Form 8-K dated April 30, 2010 and filed with the Commission May 6, 2010.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 24px">(7)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to the Current Report on Form 8-K dated June 30, 2010 and filed with the Commission July 8, 2010.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 24px">(8)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to the Current Report on Form 8-K dated March 18, 2011 and filed with the Commission March 21, 2011.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 24px">(9)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to our Form 10-Q dated June 30, 2011 and filed with the Commission August 10, 2011. The number given in parenthesis indicates the corresponding exhibit number in such Form 10-Q.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 24px">(10)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to the Current Report on Form 8-K dated June 30, 2011 and filed with the Commission July 7, 2011. The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 24px">(11)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to our Form 10-Q dated September 30, 2011 and filed with the Commission November 14, 2011. The number given in parenthesis indicates the corresponding exhibit number in such Form 10-Q.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0%">&nbsp;</TD>
    <TD STYLE="width: 24px">(12)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to Exhibit A of the definitive Proxy Statement filed with the Commission April 30, 2009 pursuant to Regulation 14A of the Exchange Act for our 2009 Annual Meeting of Stockholders.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD>(13)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to the Current Report on Form 8-K dated March 30, 2012 and filed with the Commission April 5, 2012. The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">(14)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to the Current Report on Form 8-K dated November 28, 2011 and filed with the Commission December 2, 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>(15)</TD>
    <TD STYLE="text-align: justify">Incorporated by reference to our Form 10-K dated April 16, 2012 and filed with the Commission April 16, 2012. The number given in parenthesis indicates the corresponding exhibit number in such Form 10-K.</TD></TR>
</TABLE>
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<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><I>*</I></TD><TD>Filed herewith.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 17. Undertakings.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0in">A. The undersigned registrant hereby undertakes:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">(1) To file, during any period in which
offers or sales are being made, a post-effective amendment to this registration statement:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 1in">(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(ii) To reflect in the
prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (&sect; 230.424(b)
of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate
offering price set forth in the &quot;Calculation of Registration Fee&quot; table in the effective registration statement; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(iii) To include any
material information with respect to the plan of distribution not previously disclosed in the registration statement or any material
change to such information in the registration statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(2) That, for the purpose
of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(3) To remove from
registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination
of the offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(4) That, for the purpose
of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the
securities:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The undersigned registrant
undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser
by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered
to offer or sell such securities to such purchaser:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(i) Any preliminary prospectus
or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (&sect; 230.424
of this chapter);</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(ii) Any free writing
prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned
registrant;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(iii) The portion of
any other free writing prospectus relating to the offering containing material information about the undersigned registrant or
its securities provided by or on behalf of the undersigned registrant; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(iv) Any other communication
that is an offer in the offering made by the undersigned registrant to the purchaser.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">B. Insofar as indemnification
for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933,
as amended, and will be governed by the final adjudication of such issue.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SIGNATURES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to the requirements
of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of West Springfield, State of Massachusetts, on the 27th day of April 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt; font-weight: bold">CYALUME TECHNOLOGIES HOLDINGS, INC.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 55%">&nbsp;</TD>
    <TD STYLE="width: 3%; padding-right: 0.8pt">By:</TD>
    <TD STYLE="width: 42%; border-bottom: black 1.5pt solid; padding-right: 0.8pt; padding-left: 9pt">/s/ Zivi Nedivi</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Zivi Nedivi</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">President &amp; Chief Executive Officer</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">KNOW ALL MEN BY THESE
PRESENTS, that each person whose signature appears below constitutes and appoints each of Zivi Nedivi and Michael Bielonko, and
each of them individually, his true and lawful attorney-in-fact, with full power of substitution and resubstitution for him and
in his name, place and stead, in any and all capacities to sign any and all amendments including post-effective amendments to this
registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitute, each acting
alone, may lawfully do or cause to be done by virtue thereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to the requirements
of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the
dates indicated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 42%; border-bottom: black 1.5pt solid; padding-right: 0.8pt; font-weight: bold">Name</TD>
    <TD STYLE="width: 2%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 39%; border-bottom: black 1.5pt solid; padding-right: 0.8pt; font-weight: bold">Title</TD>
    <TD STYLE="width: 2%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 15%; border-bottom: black 1.5pt solid; padding-right: 0.8pt; font-weight: bold">Date</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1.5pt solid; padding-right: 0.8pt; text-align: center">/s/ Zivi Nedivi</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">President and Chief Executive Officer</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">April 27, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">Zivi Nedivi</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">(Principal Executive Officer)</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1.5pt solid; padding-right: 0.8pt; text-align: center">/s/ Michael Bielonko</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Secretary and Chief Financial Officer</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">April 27, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">Michael Bielonko</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">(Principal Financial Officer and Principal Accounting Officer)</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1.5pt solid; padding-right: 0.8pt; text-align: center">/s/ Winston J. Churchill</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Chairman of the Board</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">April 27, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">Winston J. Churchill</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1.5pt solid; padding-right: 0.8pt; text-align: center">/s/ Yaron Eitan</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Vice Chairman of the Board</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">April 27, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">Yaron Eitan</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1.5pt solid; padding-right: 0.8pt; text-align: center">/s/ Jason Epstein</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">April 27, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">Jason Epstein</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1.5pt solid; padding-right: 0.8pt; text-align: center">/s/ Andrew Intrater</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">April 27, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">Andrew Intrater</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1.5pt solid; padding-right: 0.8pt; text-align: center">/s/ John G. Meyer, Jr.</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">April 27, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">John G. Meyer, Jr.</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1.5pt solid; padding-right: 0.8pt; text-align: center">/s/ Thomas G. Rebar</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">April 27, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">Thomas G. Rebar</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1.5pt solid; padding-right: 0.8pt; text-align: center">/s/ Yair Shamir</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">April 27, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">Yair Shamir</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1.5pt solid; padding-right: 0.8pt; text-align: center">/s/ James Valentine</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">April 27, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">James Valentine</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
</TABLE>

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{"company-data": {"conformed-name": "Cyalume Technologies Holdings, Inc.", "cik": "0001335293", "assigned-sic": "3640", "irs-number": "203200738", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-181039", "film-number": "12794577"}, "business-address": {"street1": "96 WINDSOR STREET,", "city": "WEST SPRINGFIELD", "state": "MA", "zip": "01089", "phone": "(413) 858-2500"}, "mail-address": {"street1": "96 WINDSOR STREET,", "city": "WEST SPRINGFIELD", "state": "MA", "zip": "01089"}, "former-company": {"former-conformed-name": "Vector Intersect Security Acquisition Corp.", "date-changed": "20050804"}}
As filed with the Securities and Exchange
Commission on April 30, 2012
File No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CYALUME TECHNOLOGIES HOLDINGS, INC.
(Exact Name of Registrant as Specified in
Charter)
Delaware
3640
20-3200738
(State or Other
(Primary Standard Industrial
(IRS Employer
Jurisdiction of Incorporation
or
        Organization
)
Classification Code Number)
Identification Number)
96 Windsor Street
West Springfield, MA 01089
(413) 858-2500
(Address, Including Zip Code, and Telephone
Number,
Including Area Code, of Registrant's
Principal Executive Offices)
Zivi Nedivi
President and Chief Executive Officer
96 Windsor Street
West Springfield, MA 01089
(413) 858-2500
(Name, Address, Including Zip Code, and
Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Mitchell S. Nussbaum, Esq.
Giovanni Caruso, Esq.
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
(212) 407-4000
Fax: (212) 407-4990
Approximate date of
commencement of proposed sale to the public: From time to time after the effective date of this registration statement.
If any of the securities
being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box.
x
If this Form is filed
to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
¨
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
¨
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of ''large accelerated filer,'' ''accelerated filer''
and ''smaller reporting company'' in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
x
(Do not check if smaller reporting company)
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Amount
to be
Registered
(1)
Proposed
Maximum
Offering
Price per
Unit
Proposed
Maximum
Aggregate
Offering
Price
(2)
Amount of
Registration
Fee
Shares of common stock, par value $.001 per share
(3)
1,983,647
$
2.93
(4)
$
5,802,167
$
674
Total
1,983,647
$
5,802,167
$
674
(1)
Pursuant to Rule 416 of the Securities Act of 1933, as amended, the shares of common stock offered hereby also include such presently indeterminate number of shares of the Registrant's common stock as shall be issued by the Registrant to the selling stockholders named in this registration statement as a result of stock splits, stock dividends or similar transactions.
(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
(3)
Represents shares of the Registrant's common stock being registered for resale that have been issued to the selling stockholders named in this registration statement.
(4)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on average of the bid and asked price of the Registrant's common stock on April 19, 2012, as quoted through the Over-The-Counter Bulletin Board.
Pursuant to Rule
429 under the Securities Act of 1933, the Prospectus included in this Registration Statement is a combined prospectus
relating to this Registration Statement and Registration Statements nos. 333-173546, 333-173403 and 333-157827, which were
previously filed by the Registrant on Form S-1 and have been declared effective by the SEC. This Registration Statement,
which is a new registration statement, also constitutes Post-Effective Amendment No. 3 on Form S-1 to Registration Statement
no. 333-157827 and Post-Effective Amendment No. 1 to Registration Statements nos. 333-173546 and 333-173403 Each such
Post-Effective Amendment shall hereafter become effective concurrently with the effectiveness of this registration statement
in accordance with Section 8(c) of the Securities Act of 1933.
T
he Registrant
hereby agrees to amend this registration statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter, become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this
prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION dated April 30,
2012
PROSPECTUS
14,969,696 Shares of Common Stock
CYALUME TECHNOLOGIES HOLDINGS, INC.
This prospectus relates
to 14,969,696 shares of common stock of Cyalume Technologies Holdings, Inc. (''Cyalume,'' ''Company,''
''we,'' ''our'' or ''us''), a Delaware corporation, that
may be sold from time to time by the Selling Stockholders named in this prospectus. This includes (i) 3,427,471 shares of common
stock held by certain of Cyalume's founding stockholders and their designees, (ii) 775,116 shares of common stock held by
Catalyst Equity Management, (iii) an aggregate of 7,697,129 shares held by the members of GMS Acquisition Partners Holdings, LLC,
(iv) 79,839 shares of common stock issued to a stockholder upon the cashless exercise of warrants, (v) 871,823 shares of common
stock held by certain institutional investors, (vi) 94,118 shares of common stock underlying warrants held by Granite Creek Flexcap
I, L.P., (vii) 65,882 shares of common stock underlying warrants held by Patriot Capital II, L.P., (viii) 712,771 shares of common
stock held by JFC Technologies, LLC and their designees, (ix) 133,584 shares of common stock held by Antonio Colon and his designees,
and (x) 1,111,963 shares of common stock underlying options held by East Shore Ventures, LLC. Cyalume will not receive any of
the proceeds from the sale of the shares under this prospectus, although Cyalume could receive up to $4,243,067 if all of the warrants
held by the Selling Stockholders whose underlying common stock is being registered hereunder are exercised by the warrant holders
paying the exercise price in cash.
The prices at which
the Selling Stockholders may sell their shares will be determined by the prevailing market price for the shares or pursuant to
privately negotiated transactions. Information regarding the Selling Stockholders and the times and manner in which they may offer
and sell the shares under this prospectus is provided under ''Selling Stockholders'' and ''Plan
of Distribution'' in this prospectus.
Our common stock and
units (defined as consisting of one share of common stock and one warrant to purchase one share of common stock) are traded on
the Over-the-Counter Bulletin Board under the symbols CYLU and CYLUU, respectively. On April 25, 2012, the closing sale price of
the common stock and units was $3.15 and $3.50, respectively. You are urged to obtain current market quotations of common stock
before purchasing any of the shares being offered for sale pursuant to this prospectus.
INVESTING IN OUR
COMMON STOCK IS HIGHLY RISKY. YOU SHOULD INVEST IN OUR COMMON STOCK ONLY IF YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT. FOR
A DISCUSSION OF SOME OF THE RISKS INVOLVED, SEE ''RISK FACTORS'' BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
Neither the Securities
and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a criminal offense.
_______________ ___,
2012
This prospectus
is not an offer to sell any securities other than the shares of common stock offered hereby. This prospectus is not an offer to
sell securities in any circumstances in which such an offer is unlawful.
You should rely
only on the information contained in this prospectus. We have not authorized anyone to provide you with different information.
We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information
contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.
CYALUME TECHNOLOGIES HOLDINGS, INC.
TABLE OF CONTENTS
Prospectus Summary
1
The Offering
2
Risk Factors
3
Use of Proceeds
7
Price Range of Securities and Dividends
7
Management's Discussion and Analysis of Financial Condition and Results of Operations
9
Business
16
Management
22
Executive Compensation
26
Selling Stockholders
34
Plan of Distribution
37
Principal Stockholders
39
Certain Relationships and Related Transactions
41
Description of Securities
42
Shares Eligible for Future Sale
45
Legal Matters
46
Experts
46
Where You Can Find Additional Information
46
Index to Financial Statements
F-1
PROSPECTUS SUMMARY
This summary highlights
key information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial
statements included elsewhere in this prospectus. It may not contain all of the information that is important to you. You should
read the entire prospectus, including ''Risk Factors, '' the consolidated financial statements and the
related notes thereto and condensed consolidated financial statements and the related notes thereto, and the other documents to
which this prospectus refers, before making an investment decision. In this prospectus, the terms the ''Cyalume,''
''we,'' ''our'' and ''us'' refer to Cyalume Technologies
Holdings, Inc., a Delaware corporation, and its subsidiaries.
Overview
Cyalume Technologies
Holdings, Inc. ("Cyalume") is a holding company whose primary business operations are conducted through its wholly-owned
subsidiaries Cyalume Technologies, Inc. and Cyalume Specialty Products, Inc. We refer to Cyalume Technologies, Inc. as ''CTI'';
which includes its wholly-owned subsidiaries, Cyalume Technologies, S.A.S. (''CTSAS''), Combat Training
Solutions, Inc. ("CTS") and Cyalume Realty, Inc. ("CRI"). CTSAS is located in Aix-en-Provence, France while
CTS and CRI are located in Colorado. We refer to Cyalume Specialty Products, Inc. as "CSP".
CTI is
a
global, technology-based manufacturer primarily producing products where light is generated through a chemical reaction known as
chemiluminescence. Our most popular product is a 6 inch light stick.
A light stick is a translucent flexible plastic tube
that is partly filled with one chemical ingredient and also with a glass container (''ampoule'') that contains
a complementary reactive chemical. When the tube is bent enough to break the glass ampoule, the chemicals contained within the
plastic tube mix and light is generated. We also use chemiluminescent technology to make products providing day/night marking and
illumination as components of ammunition.
In addition, a variety of reflective products are produced
that both reflect direct light back and retain energy for a short period of time so they continue to glow after the light source
is removed. Reflective products include a variety of patches and safety belts. Both chemiluminescent and reflective products may
employ infrared technology that allows observation of the product with proper night vision goggles.
Products are manufactured
at both the West Springfield and Aix-en-Provence locations.
CSP is a researcher,
developer and manufacturer of highly specialized chemical products to the pharmaceutical, military and other markets and, has expertise
in the chemical light business. Products are manufactured in the New Jersey location.
Corporate Information
Our executive offices
are located at 96 Windsor Street, West Springfield MA, 01089 and the telephone number is (413) 858-2500. Our website is
www.cyalume.com
.
Information contained in the website does not constitute part of this prospectus.
Risks Affecting Us
In evaluating the
resale of the shares of our common stock, you should carefully read this prospectus and especially consider the factors discussed
in the section titled ''Risk Factors.''
1
THE OFFERING
This prospectus relates
to the resale by the Selling Stockholders identified in this prospectus of up to 14,969,696 shares of our common stock which consists
of the following: 3,427,471 shares of common stock held by certain of Cyalume's founding stockholders and their designees,
775,116 shares of common stock held by Catalyst Equity Management, an aggregate of 7,697,129 shares held by the members of GMS
Acquisition Partners Holdings, LLC, 79,839 shares of common stock issued to a stockholder upon the cashless exercise of warrants,
871,823 shares of common stock held by certain institutional investors, 94,118 shares of common stock underlying warrants held
by Granite Creek Flexcap I, L.P., 65,882 shares of common stock underlying warrants held by Patriot Capital II, L.P., 712,771 shares
of common stock held by JFC Technologies, LLC and their designees, 133,584 shares of common stock held by Antonio Colon and his
designees, and 1,111,963 shares of common stock underlying options held by East Shore Ventures, LLC.
As of April 25, 2012,
we had a total of 18,285,092 shares of common stock issued and outstanding, and outstanding securities convertible or exercisable
into 4,965,131 shares of common stock, consisting of: (i) 2,298,464 shares underlying outstanding exercisable warrants and/or options
and (ii) 2,666,667 shares underlying outstanding convertible, subordinated debt. We will not receive any proceeds from any sale
of shares of common stock by the Selling Stockholders, although if the 1,271,963 warrants are converted into shares of our common
stock, we will receive $4,243,067 if all of the warrants are exercised by the warrant holders paying the exercise price in cash
and we will have 19,557,055 shares of common stock issued and outstanding. Unless a waiver is obtained from our lenders, any proceeds
from the issuance of equity will be applied to outstanding senior debt. The Selling Stockholders may sell their shares of common
stock from time to time at prevailing market prices.
2
RISK FACTORS
You should carefully
consider the following risk factors, together with all of the other information included in this prospectus.
Risks Related to our Business
Budget constraints of the U.S. or
foreign governments could reduce revenue.
Sales for which federal or foreign governments
and militaries thereof are the ultimate customer accounted for more than 90% of our business in 2011 and 2010. The administration
of the President of the U.S. is proposing reductions in overall defense spending. Defense budget discussions are also being discussed
in other countries where we provide products to the military. The overall outcome is highly uncertain as well as the extent to
which any reductions would directly affect purchases of our products and services. Budget reductions, re-allocations of existing
budgets, or spending constraints affecting military spending could cause delays or reductions in the number and value of orders
for products, which could reduce revenues.
Failure to obtain and/or maintain
required export and other licenses could reduce revenue.
A portion of our business depends upon
obtaining and maintaining required export licenses. Failure to obtain or maintain required licenses could result in the termination
of certain products being sold. In addition, CTI and/or our employees may be required in the future to maintain certain facility
security clearances. If CTI or our employees were found not to be in compliance, we could be excluded from bidding on certain contracts,
removed from projects and/or fined, all of which would adversely impact our financial condition and good standing.
We operate under fixed price contracts
with limited annual price escalation features and failure to control costs may reduce profitability.
Much of our revenues result from fixed
price contracts. Unanticipated increases in the cost of raw materials, labor and overhead could result in less profitability on
such contracts. Some raw materials are affected by the prices of other commodities that are not under our control. These include
certain chemicals and plastics whose costs are a function of oil prices.
Some of our contracts include provisions
for annual price escalations, based on bench-marks such as the consumer price index or the producers' price index. Annual
escalations received may or may not correlate to the price changes in the materials and services that we purchase.
If we are unable to design, manufacture,
and market product offerings in a timely and efficient manner, we may not remain competitive.
Some markets are characterized by continuing
technological advancement, changes in customer requirements, and evolving product standards. Accordingly, we devote a substantial
amount of resources to product development. To compete successfully, we must develop and market new products that provide increasingly
higher levels of performance and reliability. Product development is highly uncertain and we cannot guarantee that we will successfully
develop new products. Our inability to develop and market these products or to achieve customer acceptance of these products could
limit our ability to compete in the market or to grow revenues at satisfactory rates of growth.
In addition, we offer a wide variety of
products. If the design, manufacturing or marketing of a product, or products, is not successful and we must allocate more resources
to ensure the products' success, it could lower the profitability of the product, or products, or affect customer perceptions
as to the quality of the products and services being offered.
3
We purchase the majority of raw materials
from a limited number of venders. A disruption in supply may cause delays in manufacturing.
The majority of chemicals, plastics, glass
and packaging materials are purchased from a limited number of venders. A disruption in supply from any of these venders could
affect our ability to manufacture finished goods for sale on a timely basis. We maintain a safety margin of inventory of these
raw materials to rely on in the event of a disruption. However, safety stock may not be adequate in the event of an extended disruption.
Additionally, we have identified other vendors from which we could purchase these items in the event of a disruption from existing
vendors. The risk of disruption of our chemical supplies should be significantly mitigated when the vast majority of our chemical
light requirements are produced by CSP, our wholly-owned subsidiary, beginning in 2012.
Changes in foreign currency exchange
rates could affect financial results.
CTI and CTSAS manufacture products in and
sell products from the U.S. and France, respectively. Products sold by CTI are priced in U.S. dollars and most raw material components
are purchased in U.S. dollars. Products sold by CTSAS are priced predominantly in euros and most of CTSAS' raw material purchases
from third parties are priced in euros. Significant changes in foreign exchange rates will affect reported financial results. CTI
enters into short-term financial hedges (less than six months in duration) against currency risk relating to the billing and collection
of revenues from CTI's sales to CTSAS.
We are subject to various government
regulations that could cause delays in the delivery of new products and may subject us to audits or other similar review processes.
As a supplier to agencies of various federal,
state, local, and foreign governments, we are obligated to comply with a variety of regulations governing operations and the workplace.
Unforeseen problems may impact our ability to bring new products to market on a timely basis, secure new contracts or require us
to make potentially costly changes to operations which could reduce profitability in order to obtain contracts. Furthermore, some
new products will be developed in conjunction with the U.S. Military or the militaries of other nations, which largely dictate
the timing of the product development process and over which we have limited control.
Inability to effectively integrate
future acquisitions could reduce profitability.
During 2011 we acquired two businesses.
We plan to make additional acquisitions in future years, which will require that we effectively and efficiently integrate operations,
systems and personnel from those businesses. This process requires, among other things, that we continually evaluate operational
and financial systems and controls and enhance those systems and controls as necessary. If we are unable to successfully integrate
these acquisitions, it could reduce profitability and detract from future growth opportunities.
We are reliant upon key personnel
and the loss of these key personnel could result in the deterioration or loss of relationships with certain customers or suppliers,
which could result in a loss of business.
We depend on the expertise, experience
and continued services of senior management and other key employees. Our operations and most decisions concerning the business
will be made or significantly influenced by these individuals. The loss of members of senior management or other key employees
could result in the deterioration or loss of relationships with certain customers or suppliers, which could result in a loss of
business.
Revenue, operating results and profitability
will fluctuate, which may lead to volatility in the market price of our common stock.
Revenue, operating results and profitability
have fluctuated both on an annual and quarterly basis and, will likely continue to fluctuate. Changes in product mix sold and the
timing of sales to customers contribute to the possible material variability of revenue, operating results and profitability. Such
volatility may not meet the expectations of management, securities analysts or investors, which in turn may contribute to significant
fluctuations in the market price of our common stock.
4
Revenue, operating results and profitability
may be reduced by any major redeployment of troops.
Many of our military products are used
both for training and live theater purposes. Generally, per capita soldier consumption of these products is believed to be relatively
consistent between the two purposes. The U.S. military has reduced the number of American military personnel stationed in Iraq
and has stated plans to decrease the number of American military personnel in Afghanistan. Any major troop realignments, if significant
enough in number, could result in a temporary reduction in overall product consumption until troops are redeployed for training
or another live theater application.
We operate in increasingly competitive
market segments, which may make it more difficult to successfully bid on future contracts.
We expect competition to increase in the
future, especially in the ammunition market. We also expect that some competitors, or potential competitors, will feel increasing
pressure to underbid government and commercial projects, in order to deploy their workforces and maintain or step up their activity
levels. This may make it more difficult to prevail on competitive bids for contracts to the degree we have historically enjoyed,
to increase revenue and profitability.
Most new contracts will likely be
subject to competitive bidding, which adds difficulty to accurately predicting the timing of sales and the allocation of resources.
Most governmental agencies and many commercial
customers require that their significant contracts be competitively bid. Typically they utilize the ''Request for Proposal''
("RFP") method where several competitors submit their sealed proposals for a particular project, or the ''Request
for Qualifications'' ("RFQ") process where competitors submit their qualifications for consideration by
the customer. Some contracts open for bidding utilize the standard ''Straight Bid'' process where the detailed
specifications for products are published and lenders submit a ''Bid'' or fixed price, for the contract.
Other competitive bidding processes are also utilized. Our success in responding to an RFP, RFQ, Straight Bid, or other competitive
bidding process is dependent upon the quality of our estimating process, knowledge of the industry, knowledge of our customers
and other factors requiring significant judgment and expertise. Because of the nature of the bidding process, we cannot know if
we will be successful on any given bid, which adds difficulty to accurately predicting the timing of sales and the allocation of
resources.
Our ability to win new contracts
depends on factors outside our control, which could limit revenue and profitability growth.
Our revenue and profitability growth is
generally dependent upon the ability to win new contracts. This depends on a number of factors we cannot control, including substitution
of our products with products based on an alternative technology. For example, currently, certain battery or electrically powered
products may be used as alternatives to some of our chemical light products.
Governmental agencies may investigate
and audit our contracts and, if any improprieties are found, we may be required to refund revenues, pay unexpected taxes, forego
anticipated revenues and/or may be subject to penalties and sanctions, including prohibitions on bidding in competitive bidding
processes.
Governmental agencies generally have the
authority to audit and investigate our contracts with them. As part of that process, some governmental agencies may review our
performance on the contract, pricing practices, change orders, and compliance with the terms of the contracts, and applicable laws,
regulations and standards. If the agency determines that we have improperly billed the governmental entity, we could be required
to refund revenues, or forgo anticipated revenues. If a government audit uncovers improper or illegal activities, or otherwise
determines that these activities have occurred, we may be subject to civil and criminal penalties and administrative sanctions,
including termination of contracts, forfeitures of profits, suspension of payments, fines and suspension or disqualification from
doing business with the government.
If we fail to satisfy contractual
obligations, our ability to compete for future contracts could be limited.
Failure to comply with contract requirements
or to meet customer's performance expectations when fulfilling a contract could injure our reputation, which, in turn, could
impact our ability to compete for new contracts. Failure to meet contractual obligations could also result in substantial lost
revenues.
5
We may be unsuccessful in resolving
pending litigation relating to contractual disputes with Omniglow, LLC, which could result in having to pay damages to Omniglow,
LLC. Omniglow, LLC purchased the novelty business of CTI's predecessor on January 23, 2006.
CTI is still in the process of resolving
pending litigation relating to several contractual disputes arising from the separation of our businesses from Omniglow, LLC. If
CTI is not successful in settling the litigation and if CTI does not prevail on the merits of the case, then the current judgment
against CTI would be upheld, which could require it to pay damages to Omniglow, LLC. Based on court findings issued to-date, and
assuming a significantly adverse outcome, we have accrued a liability on the balance sheet as of December 31, 2011 of approximately
$3.6 million. According to the Stock Purchase Agreement dated December 19, 2008, between the former owners and us, the former owners
retained the responsibility for paying for all costs and liabilities associated with Civil Action 06-706. Accordingly, we have
recorded a receivable for this indemnity in the amount of $3.7 million. While we believe the former owners retain the intent and
capacity to pay any damages, there is no assurance such will be the case.
Because we do not intend to pay dividends
on common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.
We have never declared or paid any cash
dividends on common stock. We currently intend to retain all future earnings, if any, for use in the operations and expansion of
the business. As a result, we do not anticipate paying cash dividends in the foreseeable future. Any future determination as to
the declaration and payment of cash dividends will be at the discretion of our Board of Directors and will depend on factors our
Board of Directors deems relevant, including among others, results of operations, financial condition and cash requirements, business
prospects, and the terms of credit facilities and other financing arrangements. The debt financing arrangements put into place
in connection with the acquisition of CTI prohibit CTI from providing us with funds to pay a dividend. Accordingly, realization
of a gain on stockholders' investments will depend on the appreciation of the price of our common stock. There is no guarantee
that our common stock will appreciate in value.
Our securities are quoted on the
Over-the-Counter Bulletin Board, which may limit the liquidity and price of our securities more than if the securities were quoted
or listed on the NASDAQ or the AMEX markets.
Our securities are quoted on the Over-the-Counter
Bulletin Board, a NASD-sponsored and operated inter-dealer automated quotation system. Quotation of our securities on the Over-the-Counter
Bulletin Board will limit the liquidity and price of securities more than if the securities were quoted or listed on NASDAQ or
AMEX
We currently have a small number of beneficial
holders, which we believe contributes significantly to limited trading and to limiting the liquidity and price of securities. Furthermore,
we believe this contributes to unexpected price volatility.
If we fail to meet financial covenants
with our lenders, they would be able to declare an event of default.
If we were unable to meet the financial
covenants specified in loan documents, our lenders would be able to declare an event of default. If an event of default were declared,
all debts to the lender could become due and payable immediately, which could result in ceasing operations unless new arrangements
were made. While management would negotiate and expect to obtain appropriate waivers or other amendments to cure any such default,
there is no assurance management would be successful.
6
USE OF PROCEEDS
We will not receive
any proceeds from the sale of the shares of common stock by the Selling Stockholders. The proceeds from the sale of each Selling
Stockholder's shares of common stock will belong to that Selling Stockholder, although if the warrants to purchase 1,271,963
shares of our common stock are exercised for cash, we will receive $4,243,067. Unless a waiver is obtained from our lenders, any
proceeds from the issuance of equity will be applied to outstanding senior debt, which bears annual interest at approximately 6%
and has a maturity date of December 19, 2013.
PRICE RANGE OF SECURITIES AND DIVIDENDS
Our common
stock and units, are quoted on the Over-the-Counter Bulletin Board under the symbols ''CYLU'' and ''CYLUU,''
respectively. The following table sets forth the high and low sales information for our common stock, common stock and units for
the period from January 1, 2010 through April 25, 2012. The Over-the-Counter Bulletin Board quotations reflect inter-dealer prices,
are without retail markup, markdowns or commissions, and may not represent actual transactions.
Common Stock
Units
High
Low
High
Low
First quarter 2010
$
3.85
$
3.35
$
3.50
$
3.50
Second quarter 2010
$
3.74
$
3.00
$
3.50
$
3.50
Third quarter 2010
$
5.00
$
3.01
$
3.50
$
3.50
Fourth quarter 2010
$
4.20
$
3.25
$
3.50
$
3.50
First quarter 2011
$
5.90
$
4.01
$
3.50
$
3.50
Second quarter 2011
$
5.05
$
4.00
$
3.50
$
3.50
Third quarter 2011
$
4.60
$
2.50
$
3.50
$
3.50
Fourth quarter 2011
$
5.95
$
2.10
$
3.50
$
3.50
First quarter 2012
$
3.85
$
3.20
$
3.50
$
3.50
Second quarter 2012 through April 25
$
3.50
$
2.25
$
3.50
$
3.50
There have been no transactions in Units since the first quarter
of 2009.
Number of Holders of Common Stock
As of April 25, 2012,
there were of record 180 holders of our common stock and one holder of units. Cyalume believes that the number of beneficial holders
of each of these securities is significantly greater than the number of record holders.
Dividends
We
have never declared or paid cash dividends on common stock and do not anticipate declaring or paying cash dividends on common stock
in the foreseeable future. Payments of future dividends on common stock, if any, will be at the discretion of our Board of Directors
after taking into account various factors, including financial condition, operating results, current and anticipated cash needs,
plans for expansion and other factors that our Board of Directors may deem relevant.
The debt financing arrangements put
into place in connection with the acquisition of CTI prohibit CTI from providing us with funds to pay a dividend.
7
Securities Authorized for Issuance under
Equity Compensation Plans
The following table shows the
number of shares of common stock underlying options as of December 31, 2011, the average exercise price of those options and the
number of shares of our common stock available to be issued under equity compensation plans as of December 31, 2011.
Equity Compensation Plan Information
Plan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
Weighted-average exercise price of outstanding options, warrants and rights
(b)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
Equity compensation plans approved by security holders
1,166,333
3.44
197,419
Equity compensation plans not approved by security holders
—
—
—
Total
1,166,333
3.44
197,419
8
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
In the following discussion,
references to "Cyalume", "we", "our", or the "Company" mean Cyalume Technologies
Holdings, Inc. on a consolidated basis. CTI means Cyalume Technologies, Inc. including its wholly-owned subsidiary Cyalume Technologies,
S.A.S. ("CTSAS"); CSP means Cyalume Specialty Products, Inc. and, CTS means Combat Training Solutions, Inc. Amounts
discussed are generally approximations.
We
are a global, technology-based manufacturer primarily
providing tactical and training solutions to the military of the U.S.
and other select countries, through both products and services. We manufacture chemical light, reflective and battlefield effects
simulator products while our services include planning and implementing tactical training exercises simulating real world experiences.
We also sell products into the law enforcement, commercial/public safety, and other markets.
During
2011, we acquired two businesses (CTS and CSP) that are highly complementary with our business and growth plans. We are actively
searching for additional acquisitions that would complement our existing business.
The
majority of revenues are derived from sales for the ultimate use by the U.S. Military and various other militaries around the globe.
For 2011 there were four direct customers each with revenues greater than 10% of our total revenues:
NAMSA, Rheinmetall
Waffe Munition, LC Industries
, and the Defense Supply Center of the U.S. Military, which together accounted
for approximately 66% of total revenues. Additional revenues are derived from sales to commercial markets, including law enforcement
and public safety. In the military markets there are longer-term,
fixed-price, indefinite-quantity
contracts lasting three to five years. They generally provide higher margins because the products are more technologically advanced,
versus some of the commercial markets, where advanced technology/performance is generally not as important and therefore competition
is greater, resulting in lower margins.
Our business is managed and
financial results are reported as one segment. Our CEO, who is our chief operating decision maker, focuses on consolidated results
to make strategic and tactical decisions. There are several reasons for this. The majority of products are similar in each market
and based on the same technologies. Thus management pays attention to individual products as well as individual customers and contracts
in terms of pricing and costing. For our largest selling product line, the 6-inch light stick (in its various permutations of color
and duration), the manufacturing processes are similar and both the U.S. and European plants make these products. Therefore, the
6-inch light sticks can be and are made at both plants and can be produced and shipped from one plant to the other to help meet
peak periods of demand. In addition, important functions such as marketing and research and development ("R&D")
manage their activities and allocate their resources from a strategic viewpoint and generally not on the basis of where a product
is made or who it might be sold to. Overall financial performance is evaluated based on the following consolidated items: revenues;
gross profit and gross margin; selling/research and development/administrative expenses; and cash flow. Consolidated EBITDA (earnings
before interest, taxes, depreciation and amortization) is used as a performance measure of operational cash flows. Consolidated
EBITDA is also the key financial performance component for our lenders covenant compliance. Product performance is evaluated based
on unit cost of production and number of units produced and sold across all markets. All of these measures are evaluated against
results for prior periods and against budgets.
Cyalume is currently a smaller
reporting company based on outstanding equity held by non-affiliates having a market value under $75 million as of our most recently
completed second quarter. Therefore, only two years of audited financial statements are presented.
Critical Accounting Policies
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
Estimates are used when accounting for certain items such as reserves for inventory, accounts receivable and deferred tax assets;
assessing the carrying value of intangible assets including goodwill; determining the useful lives of property, plant and equipment
and intangible assets; determining asset retirement obligations; and, determining the fair value of contingent consideration. Estimates
are based on historical experience, where applicable, and assumptions that we believe are reasonable under the circumstances. Due
to the inherent uncertainty involved with estimates, actual results may differ.
9
Revenue Recognition
Revenue from the sale of products
or providing of services is recognized when the earnings process is complete and the risks and rewards of ownership have transferred
to the customer. Depending on the terms of the individual sales arrangement with our customer, sales are recognized at either the
shipping point or upon receipt by the customer. Costs and related expenses to manufacture the products are recorded as costs of
goods sold when the related revenue is recognized.
We have several significant
contracts providing for the sale of indefinite quantities of items at fixed per unit prices, subject to adjustment for certain
economic factors. Revenue under these contracts is recognized when goods ordered under the contracts are received by the customer.
Whenever costs change, we review the pricing under these contracts to determine whether they require the sale of products at a
loss. To date, we have no loss contracts which would require the accrual of future losses in the current financial statements.
Income Taxes
Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are recognized when,
based upon available evidence, realization of the assets is more likely than not.
In assessing the realization of long-term
deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized.
The realization of deferred income tax assets depends upon future taxable income in years before net operating loss carryforwards
expire. We evaluate the recoverability of deferred income tax assets on a quarterly basis. If we determine that it is more likely
than not that deferred income tax assets will not be recovered, we establish a valuation allowance against some or all deferred
income tax assets.
When tax returns are filed, it is highly
certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position
is recognized in the financial statements in the period during which, based on all available evidence, it is more likely than not
that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax
positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement
with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceeds the amount measured
as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing authorities upon examination.
We classify interest on tax
deficiencies as interest expense and income tax penalties as other miscellaneous expenses.
In February 2012, we completed
an audit by the IRS of our tax returns for the years 2008 and 2009. There were no adjustments to those tax returns.
Goodwill
Goodwill is deemed to have an indefinite
life and accordingly, is not subject to annual amortization. Goodwill is subject to annual impairment reviews, and, if conditions
warrant (a "triggering event"), interim reviews based upon its estimated fair value. Impairment charges, if any, are
recorded in the period in which the impairment is determined.
We performed the first step of the traditional
two-step process for assessing goodwill for impairment as of August 31, 2011. That first step of the two-step process requires
a comparison of our estimated fair value versus our carrying (book) value per our consolidated financial statements. If our carrying
value exceeded our fair value, further analysis (step 2 of the two-step process) would be required to determine the amount, if
any, that our goodwill was impaired as of August 31, 2011. Step 1 of our analysis indicated that our fair value was significantly
greater than our carrying value as of August 31, 2011, therefore step 2 of the goodwill impairment assessment was not required
and our goodwill was not considered to be impaired. Further, we noted no events or circumstances that occurred subsequent to August
31, 2011 that indicated that goodwill impairment existed as of December 31, 2011.
10
Intangible Assets
Intangible
assets include developed technologies and patents, customer relationships, customer backlog, non-compete agreements and certain
trade names, which are amortized over their estimated useful lives, and other trademarks and trade names, which are considered
to have indefinite useful lives and therefore are not amortized. The carrying amounts of intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that those carrying amounts may not be recoverable. Costs incurred to register
new patents or defend existing patents are capitalized while costs to renew or extend
the term of intangible assets are
expensed when incurred.
Contingent Consideration
We purchased both CSP and CTS
using a combination of cash, common stock and contingent consideration. The contingent consideration represents the present value
of payments expected to be made in 2014 to the sellers of the businesses following the achievement of certain financial performance
targets in 2012 and 2013. The contingent consideration is updated to fair value at the end of each reporting period.
Considerable judgment is applied
by management when estimating the fair value of the contingent consideration. The contingent consideration liabilities' fair
value is determined by calculating the present value of the estimated liability that is expected to be paid in the future. This
requires the use of (i) estimated future discount rates and (ii) hypothetical scenarios in which the consideration could be earned
and weighting those scenarios based on our expectations that those scenarios will actually occur. Such assumptions may not reflect
actual future results.
Inventories
Inventories
are stated at the lower of cost (on a first-in first-out ("FIFO") method) or net realizable value. We periodically
review the realizability of inventory. Provisions are recorded for potential obsolescence which requires management's judgment.
Conditions impacting the realizability of inventory could cause actual write-offs to be materially
different than provisions
for
obsolescence
.
Foreign Operations and Currency
Accounts
of our foreign subsidiary are recorded using their local currency (the euro) as the functional currency. For consolidation, revenues
and expenses are converted to U.S. dollars using the average exchange rate for the month in which they were recorded. Assets and
liabilities are converted to U.S. dollars using the exchange rate in effect as of the balance sheet date. Equity transactions are
converted to U.S. dollars using the exchange rate in effect as of the date of the transaction. Translation gains and losses are
reported as a component of accumulated other comprehensive income or loss. Gains and losses resulting from transactions which are
denominated in other than the functio
nal currencies are reported as other income, net in the statement of income in the
period the gain or loss occurred.
Business Combinations
We use the "acquisition method"
to account for all business combinations. All acquisitions are reviewed to determine if they constitute a "business"
under U.S. GAAP. All identifiable assets and liabilities of an acquired business are recorded at their fair values as of the date
we obtain control of the business. The fair values of identifiable assets and liabilities are estimated using a variety of approaches
allowed under U.S. GAAP, including appraisals and present value techniques. Any excess of the consideration paid to acquire the
business over the fair values of the acquired and identifiable assets and liabilities is recorded as goodwill. We determine the
date we obtain control of a business to be the date on which we gain the ability to determine the direction of management and policies
over that acquired business.
11
Recent Accounting Pronouncements
The following are recent accounting pronouncements
that have affected our consolidated financial statements or may affect them in the future.
In September 2011, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update No. 2011-08,
Testing Goodwill for Impairment
("ASU
2011-08"), which amends ASC 350
Intangibles—Goodwill and Other
. ASU 2011-08 allows an entity to first assess
qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under ASU
2011-08, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on
a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments
include a number of events and circumstances, such as financial performance, economic conditions and loss of key personnel, for
an entity to consider in conducting the qualitative assessment. ASU 2011-08 is effective for annual and interim goodwill impairment
tests performed for fiscal years beginning after December 15, 2011. Early application is permitted. We adopted ASU 2011-08 for
our annual goodwill impairment test performed as of August 31, 2011 with no material impact on our financial position or results
of operations.
In June 2011, the FASB issued Accounting
Standards Update No. 2011-05,
Presentation of Comprehensive Income
("ASU 2011-05"), which amends ASC 220 Comprehensive
Income. ASU 2011-05 requires that comprehensive income be presented either in a single continuous statement of comprehensive income
or in two separate but consecutive statements. ASU 2011-05 does not change the items that must be reported in comprehensive income
or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 does not affect how earnings per
share is calculated or presented. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2011 and must be applied retrospectively. Early application is permitted. Because we currently present comprehensive
income within our consolidated statement of changes in stockholders' equity and comprehensive income, we will need to change our
presentation of comprehensive income upon adopting ASU 2011-05. In December 2011, certain guidance in ASU 2011-05 was deferred
by Accounting Standards Update No. 2011-12
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications
of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05
("ASU 2011-12").
ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments of items out
of accumulated other comprehensive income. Because we don't expect any such reclassification adjustments, we do not anticipate
that the adoption of ASU 2011-12 will have a material impact on our financial position or the results of our operations.
In May 2011, the FASB issued
Accounting Standards Update No. 2011-04,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs
("ASU 2011-04"), which amends ASC 820
Fair Value Measurement
. ASU 2011-04 improves the
comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP
and International Financial Reporting Standards. The amended guidance changes the wording used to describe many requirements in
U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify
the FASB's intent about the application of existing fair value measurement and disclosure requirements. Although ASU 2011-04 is
not expected to have a significant effect on practice, it changes some fair value measurement principles and disclosure requirements.
ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and must be applied prospectively. Early
application is not permitted. We do not anticipate that the adoption of ASU 2011-04 will have a material impact on our financial
position or the results of our operations.
Results of Operations
Overall Perspective
: Financial results
for 2011 were disappointing as revenues significantly decreased. We believe that the uncertainty resulting from the budget setting
issues/delays by the U.S. government, combined with the drawdown/reassignment of military troops in Iraq, had a significant adverse
impact on our business.
Many of our products are sold under indefinite quantity type contracts whereby
we fulfill orders as they are placed by customers. We do not have insight into why military customers order at the times or quantities
that they do, however, we saw no indication that the underlying usage of our products has diminished.
However, our customer,
LCI, reported that in response to the budget and troop matters just noted, during 2011 they decreased the amount of inventory of
our products that they carried by several million U.S. dollars. In addition, from discussions with various military personnel,
our belief is that the U.S. Military also drew down their stocks of our products. These stocking drawdowns directly and adversely
impacted our revenues. We expect the softness in sales we experienced in the later part of 2011 to continue into 2012, at least
until the second quarter.
12
Revenues
:    Total
revenues for 2011 of $34.7 million decreased by approximately $3.3 million from 2010. Price increases under long-term military
contracts accounted for approximately just under 2% of the 2011 revenues. The following table depicts revenues by sales category,
as discussed in Item 1: Business. This table is prepared to help analyze major trends / impacts on the business. In managing the
business, we do not prepare profitability statements or track assets / costs by these categories; the business is operated as a
single segment.
Category ($ in millions)
2011
2010
Change
Military (non-ammunition)
$
23.8
$
27.6
$
(3.8
)
Ammunition
5.2
7.4
(2.2
)
Law enforcement / commercial / public safety
3.8
3.0
0.8
Subtotal
32.8
38.0
(5.2
)
Other
1.9
—
1.9
Total
$
34.7
$
38.0
$
(3.3
)
Military (non-ammunition): We
believe that the stocking drawdowns discussed above are the predominant reason for this decrease for 2011 from the prior year.
Ammunition: Revenues decreased
due to lower purchases by the military of existing products and sales of new products did not meet expectations.
Law enforcement / commercial
/ public safety: There were no significant events that caused the increase in sales; the increase was attributable to new customers
and increased sales to existing customers.
Other revenues were generated
from our subsidiary CSP, which was purchased during 2011.
Gross profit:
Gross profit
at $16.1 million for 2011 decreased approximately $3.0 million compared to 2010. The gross margin for 2011 was 46.5% compared to
50.4% for 2010. Of this 3.9%, most of it was attributable to lower production resulting in decreased overhead absorption. The remainder
of the difference, representing the net effect of product mix changes, cost increases and sales price increases, was negligible.
Expenses:
Sales and marketing
expenses increased primarily due to the hiring of additional sales personnel and the addition of the ongoing expenses of CSP and
CTS, whose combined selling expenses in 2011 were $.1 million. General & administrative expenses increased primarily due to
legal and other professional fees related to the process of acquiring both CSP and CTS, as well as the addition of the ongoing
expenses of both. CSP and CTS' general & administrative expenses in 2011 totaled $1.5 million. Research and development
expenses increased primarily due to the addition of the ongoing expenses of CSP, whose research and development expenses totaled
$.2 million in 2011.
Interest expense, net
:
Interest expense declined in 2011 due to lower outstanding debt levels.
Amortization of intangible assets and
impairment losses
: Amortization expense for 2011was only slightly higher than the prior year as the amortization expense of
intangible assets for both CSP and CTS was less than $0.2 million due to the abbreviated amount of time they were consolidated
into our results in 2011.
Other income, net
: Other
income in 2011 primarily represented amounts earned for research and development work performed by us. These amounts are recorded
when earned. The other income recorded in 2010 was primarily the collection of account receivable balances that had been written
off in prior years.
Provision
for (benefit from) income taxes:
The reduction in pre-tax net income from 2010 to 2011 is the primary factor in the $2.0 million
change in the 2011 benefit from income taxes over the 2010 provision for income taxes.
The effective tax rate for 2011 of
(961%) is lower than the 2010 rate of 39% primarily due to the reduction of the valuation allowance on foreign tax credits as well
as due to the creation of additional foreign tax credits on earnings of our foreign subsidiary.
Foreign exchange rates:
If 2011's operating results in foreign currencies from CTSAS had been translated using the foreign exchange rates used to
translate 2010's operating results, 2011 revenues would have been approximately $0.5 million lower than reported and 2011
net income would have been approximately $0.1 million lower than reported.
13
Balance Sheet
Accounts receivable were higher
at the end of 2011 compared to the prior year. Of this increase, approximately $1.0 million is attributable to CSP and CTS. The
remainder of the increase is due to timing differences for billing / collections.
Inventories were higher at the
end of 2011 compared to the prior year. Of this increase, approximately $1.5 million was attributable to CSP and CTS, which we
acquired in 2011. Inventory balances fluctuate from a combination of recent sales activity and the timing of purchases of raw materials.
Certain raw materials are purchased only several times a year due to long lead times and the desire to purchase in bulk, while
other materials are purchased more frequently.
Property, plant and equipment
increased at the end of 2011 over the prior year. The majority of the increase is attributable to the acquisitions of CSP and CTS
in 2011.
Net intangible assets increased
at the end of 2011 over the prior year. Excluding the intangible assets acquired from CSP and CTS would have resulted in a decrease
from the prior year of approximately $1.5 million since costs incurred to register new patents or defend existing patents was more
than offset by amortization.
Accounts payable and accrued
expenses at the end of 2011, on a combined basis, decreased from the prior year by $0.4 million. Excluding the accounts payable
and accrued expenses acquired from CSP and CTS, the 2011 total would have decreased by $0.9 million, largely due to the timing
of vender payments.
Net non-current deferred income
tax liabilities decreased at the end of 2011 over the prior year, primarily as a result of the following:
·
Decreased by foreign tax credits generated;
·
Net decrease to the balance of unrepatriated earnings of CTSAS;
·
Decreased by non-deductible stock-based compensation for tax purposes;
·
Net increases to the financial reporting carrying value of various identified
intangible assets as a result of:
o
the increase in deferred tax liability required to be recognized on identified
intangible assets as a result of the acquisition of CTS stock, and
o
decreased by annual amortization expense of previously acquired identified
intangible assets;
·
Net increases to the carrying value of fixed assets as a result of annual
depreciation expense differences.
A valuation allowance of approximately
$3.9 million still remains on deferred federal tax assets for the carryforward of foreign tax credits, which we do not anticipate
using in the near-term. The utilization of this asset is dependent upon generation of significant revenues from sources outside
the U.S. During 2011, we reduced the valuation allowance from $4.1 million to $3.9 million due to the expected use of foreign tax
credits in the near term.
We had federal net operating
loss carryforwards amounting to $2.4 million and $5.0 million at December 31, 2011 and 2010, respectively. The net operating loss
carryforward at December 31, 2011 expires in fiscal years 2025 through 2029. Internal Revenue Code Section 382 limits utilization
of these losses to $3.2 million per year. It is possible that future changes in ownership could result in changes to the amounts
allowed by IRC Section 382. State net operating loss carryforwards amounted to $3.5 million and $6.2 million as of December 31,
2011 and 2010, respectively.
Derivatives liability decreased
in 2011 over the prior year due primarily to the value of interest rate swaps trending towards a $0 fair value as their maturity
in December 2013 approaches. Secondarily, the derivatives liability decreased due to an increase in the value of currency forward
contracts; that increase in value is due to changes in foreign exchange rates after we entered into those contracts.
We have recorded an approximately $3.6
million litigation award payable and a related approximately $3.7 million receivable from a related party. This payable and receivable
are based on a July 2011 ruling against CTI under Civil Action No. 06-706.
14
Liquidity and Capital Resources
As of December 31, 2011, cash was $3.0
million versus $4.1 million as of December 31, 2010. Net cash provided by operating activities declined due mostly to the decrease
in revenues leading to lower amounts of cash received from customers. Also contributing were timing differences affecting tax payments,
vender payments and collections of receivables. Net cash used in investing activities increased due mostly to the use of $2.5 million
of cash for the acquisitions of CSP and CTS, which is net of cash acquired of $.2 million. Net cash provided by financing activities
increased due primarily to lower principal payments on our notes payable and line of credit in 2011 and to proceeds from the issuance
of our common stock during 2011.
Capital expenditures for 2012
are expected to be funded from existing cash and operating cash flows.
We are actively searching for
potential acquisitions that would complement our existing business. Any acquisition could be financed by a combination of cash,
equity and/or debt. During 2011, we purchased two businesses: CSP for $2.5 million cash, 712,771 shares of our common stock valued
at $2.5 million and, contingent consideration to be earned if certain financial targets are met during 2012 and 2013; and, CTS
for $0.25 million cash, a promissory note for $0.25 million payable April 5, 2012, 133,584 shares of our common stock valued at
$0.5 million and, contingent consideration to be earned if certain financial targets are met during 2012 and 2013. The contingent
consideration, if earned, is payable by a combination of cash and our common stock in 2014. We have recorded a liability of $3.7
million for this contingent consideration; the actual amount to be paid for this liability ranges from $0 to $12.75 million in
cash and our common stock. If earned, we expect to be able to pay the cash portion out of incremental cash generated by the acquired
business.
On March 18, 2011 we sold 871,823
unregistered shares of common stock to institutional investors in a private placement at a price of $4.60 per share. These unregistered
shares were sold under exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Rule
506 of Regulation D as promulgated by the Securities and Exchange Commission under the Securities Act. We registered those shares
for resale within 45 days of the sale. The consideration paid by investors consisted of approximately $3.5 million in cash and
the cancellation of 1,015,000 public warrants, which were valued at $.50 per warrant. Proceeds were used for the acquisitions of
CSP and CTS and for general corporate purposes.
In July 2011, we closed on securities
exchange agreements with several subordinated note holders whereby we issued 736,334 shares of common stock as payment in full
for $3.4 million of principal and accrued interest. The common stock was also valued at $4.60 per share. Settling these notes payable
eliminated the need for a substantial cash outlay in 2014 to repay these notes.
Scheduled principal and interest
cash payments on senior and subordinated debt for 2012 are $1.9 million and $1.7 million, respectively, compared to $1.8 million
and $1.9 million, respectively, in 2011. Interest payments in 2012 will be lower than 2011 due to a lower debt balance from the
continuing monthly principal payments to be made on the senior debt. All 2012 principal and interest payments, as well as the related
party note payable of $0.25 million, are expected to be funded from existing cash and operating cash flows. We believe we will
have adequate cash to sustain our operations during 2012.
We achieved
our financial covenants as of December 31, 2011.
To guard against the possibility of not meeting lenders' financial
covenants that might be caused by continuing softness in demand, we obtained amendments to our credit agreements that reset financial
covenants.
The reset amended financial covenants are effective beginning in 2012. We expect to meet
our financial covenants for 2012 and that cash provided by the business will be adequate to meet our needs, exclusive of any requirements
for acquisitions.
The Company did not pay a dividend
in 2011 and has no plans to do so.
15
BUSINESS
Background
Cyalume Technologies Holdings, Inc. (''Cyalume,''
''Company,'' ''we,'' ''our'' or ''us'')
is a Delaware corporation that was incorporated on July 19, 2005 to acquire, through merger, capital stock exchange, asset acquisition
or other similar business combination, one or more businesses in the homeland security, national security and/or command and control
industries or businesses relating to the manufacture of products for use in such industries.
On December 19, 2008, pursuant to the terms
of a stock purchase agreement dated February 14, 2008 and amended October 22, 2008, December 17, 2008 and December 18, 2008, we,
through a wholly-owned subsidiary, acquired all of the outstanding securities of Cyalume Technologies, Inc. ("CTI")
from GMS Acquisition Partners Holdings, LLC ("GMS").  On that day, we filed a Fifth Amended and Restated
Certificate of Incorporation that, among other things, changed our name to Cyalume Technologies Holdings, Inc. removed certain
provisions that, giving effect to Cyalume's acquisition of CTI, were no longer applicable and folded the acquisition subsidiary
into Cyalume Technologies Holdings, Inc.
Pursuant to the stock purchase agreement,
at the closing of the acquisition, the following consideration was paid by Cyalume:
·
Repayment of $40.3 million of indebtedness of CTI, including $38.9 million in principal and $1.4 million in interest, prepayment penalties and other debt retirement expenses;
·
Payment of $425,000 of unpaid acquisition expenses;
·
6,430,928 shares of Cyalume's common stock to the members of GMS;
·
$30.2 million in cash to holders of GMS Acquisition's Series A Preferred Units and Series B Preferred Units; and
·
$3,500 to the escrow agent.
Pursuant to the stock purchase agreement,
as amended, 1,505,646 of the 6,430,928 shares of Cyalume common stock paid to GMS at the closing of the acquisition were deposited
in escrow and 4,925,282 shares were issued to GMS. On December 26, 2008, GMS distributed 4,925,282 of its shares to its members
in proportion to each such member's respective percentage membership interests. Of these 4,925,282 shares, 32,903 were repurchased
by us and retired in February 2009.  In March 2009, 138,165 additional shares were issued to the 19 members of GMS at
the direction of GMS pursuant to the working capital provisions of the stock purchase agreement.
At the closing, we also paid (i) SMH Capital,
Inc. 150,000 shares of stock in lieu of $1.2 million in cash due for a finder's fee; (ii) $400,000 in fees to our counsel;
and, (iii) to Rodman & Renshaw, LLC in partial payment of $2.1 million of deferred underwriting expenses, $250,000 in cash
and 93,750 shares of common stock (which were returned on December 30, 2008 and exchanged with the deferred underwriting fees for
a note in the aggregate principal amount of $1.8 million) having an agreed-upon value of $750,000. We also agreed to pay $647,000
of the remaining acquisition expenses to counsel over a period of time after the acquisition and to accept the liability for $425,000
of payments to GMS' counsel.
On August 31, 2011, through a wholly-owned
subsidiary named Cyalume Specialty Products, Inc. ("CSP"), we acquired substantially all of the assets of JFC Technologies,
LLC ("JFC"), a specialty chemical manufacturer. CSP was established as a Delaware corporation in 2011 and is located
in Bound Brook, New Jersey. CSP provides products to the pharmaceutical, military and other markets and, has expertise in the chemical
light business. We believe that this acquisition of JFC will: significantly reduce our current supply chain risks; allow us to
maintain less of a strategic stockpile of key chemical components; strengthen our existing chemical light research and development
expertise; and strengthen our ability to protect our proprietary technology for new products and their chemical formulas that we
plan to introduce into the market.
On December 22, 2011, CTI acquired all
of the outstanding common stock of Combat Training Solutions, Inc. ("CTS"), a Colorado corporation established in 2005,
and located in Colorado Springs, CO. CTS manufactures battlefield effects simulator devices and provides tactical training to the
military utilizing such products. We believe that CTS' products and services are a good fit with our business strategy and
existing products. For example, many of CTS' products can be adapted to utilize chemical light, thereby increasing their
efficacy for night-time applications.
We maintain principal executive offices
at 96 Windsor Street, West Springfield, Massachusetts 01089. Our telephone number is (413) 858-2500. The various reports we file
with the SEC, including annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, and current reports on Form
8-K are available on our website (www.cyalume.com) free of charge. Our website also contains the charters for the Audit, Nominating
and Compensation Committees of the Board of Directors as well as our Code of Conduct and Ethics and, our Insider Trading Policy.
The documents are also available free of charge from our Corporate Secretary at our executive offices.
16
Current Business
Our primary focus is providing tactical
and training solutions to the military of the U.S., and other select countries, through both products and services. We manufacture
chemical light, reflective and battlefield effects simulator products while our services include planning and implementing tactical
training exercises simulating real world experiences. We also sell products into the law enforcement, commercial, and other markets.
The following strategies are employed to provide for long-term success.
·
Utilizing Patent Protection.
We have and will continue to pursue patent protection of developed
technology, and to aggressively defend against violations of our patents.
·
Making Environmentally Friendly and Safe to Use Products.
Our products are designed to be
effective but very safe to use and friendly to the environment. Chemicals used in our chemical light products are non-toxic and
phthalate free.
·
Increasing Product Diversification.
We intend to continue to diversify into additional products
and applications utilizing current technology and technology now under development. Product diversification allows us to present
a more complete line of products that meet current and projected user needs, as well as reducing dependence on a relatively small
number of products for financial and competitive success.
·
Continually Improving Products and Performance.
We are committed to product improvement
and rely on a dedicated in-house team of highly experienced engineers and chemists that are complemented on an as needed basis
by third-party expertise.
·
Pursuing Strategic Partnering and Acquisitions.
We actively seek partners who can help us
advance our technologies or introduce products to the market, especially where established partners may help us attain faster market
penetration. In addition, we are seeking additional businesses to acquire that will complement our existing products and further
strengthen our ability to achieve profitable growth.
Products and Services
We primarily provide products of three
general types: those producing chemical light; those that have reflective qualities; and, those that simulate battlefield devices.
·
Products producing chemical light rely on a chemical reaction known as chemiluminescence. The base
product is known as a ''light stick'' and is typically 6 inches in length. A light stick is a translucent
flexible plastic tube that is partly filled with one chemical ingredient and also with a glass container (''ampoule'')
that contains a complementary reactive chemical. When the tube is bent enough to break the glass ampoule, the chemicals contained
within the plastic tube mix and light is generated. Chemiluminescent products come in varying shapes, sizes and functions, and
provide light in different colors, intensity and durations. These include:
o
Light sticks that come in lengths ranging from 1.5 inches to 15 inches, and having durations for
specified light output that range from 5 minutes to 24 hours. Colors emitted include red, blue, white, yellow, green, orange and
infrared.
o
Components to training and tactical ammunition that provide day/night marking and illumination
capabilities. Day/night marking rounds increase the effectiveness of weapons training by providing a night-time training ability
where, in many cases, one did not exist before. Chemical light munitions are preferable to traditional tracer or training rounds
for two reasons. Traditional tracer or pyrotechnic training munitions contain fire-producing elements that can start range fires.
Additionally, traditional tracer or pyrotechnic training munitions experience ''duds'', or unexploded rounds.
These unexploded rounds present future safety hazards and must be found and defused. Chemical light training ammunition payloads
cannot start range fires and do not present future safety hazards from unexploded rounds, making their use not only more economical
but safer for military personnel.
·
Reflective products include patches that can reflect white light or infrared, and reflective safety
belts. Our reflective products assist the military by allowing soldiers to identify individuals as 'friend or foe'
by employing infrared technology. These infrared products, such as flag and general identification patches, can only be seen with
the proper night vision goggles. These products help prevent injuries and death due to friendly fire by providing the proper identification
markings during night-time activities. We also produce safety belts that are worn, for example, by military police. These belts
both reflect direct light back and retain light energy for a short period of time so they continue to ''glow''
after the light source is removed.
17
·
Our battlefield effects simulator devices are non-pyrotechnic and designed to safely simulate the
life threatening devices soldiers encounter on the battlefield. These include: pipe bombs, IED's, landmines and suicide bomber
vests. In addition, we expect to be introducing a simulator hand grenade in the first half of 2012 that is non-pyrotechnic. By
the end of 2012, we expect to be providing these simulator devices incorporating our chemical light technology, which should enhance
the number of training applications by increasing their effectiveness in nighttime training.
We do not sell products
as novelties.
We manufacture products in West Springfield,
MA; Bound Brook, NJ; and Aix-en-Provence, France.
Services include: training on the proper
utilization of our simulator devices; battlefield scenario planning; and, providing live training exercises. In these exercises
we hire and provide "battlefield actors", people trained to act as insurgents or the indigenous population. The "actors'
we hire and train may have lived in the country or speak the language of the country that the training is simulated to take place
in, making the training as realistic as possible.
Markets
Our sales efforts are primarily focused on military (non-ordnance)
and ammunition markets and, to a lesser extent, law enforcement, commercial/public safety, and other markets.
·
Military
The military (non-ordnance) market accounted
for approximately 69% of total revenue in 2011 and 73% in 2010. We sell chemiluminescent devices, primarily light sticks in varying
colors, lengths and durations of light output, as well as flat chemiluminescent disks and reflective patches and belts. The primary
users of these products are the U.S. Military and militaries participating in the NATO Maintenance and Supply Agency ("NAMSA").
Critical events, risks and uncertainties
regarding the military market include the continued use by the U.S. and NATO militaries, the ability to remain on the cutting edge
of chemical light technology, the ability to generate additional uses of our products by additional militaries around the world,
and managing costs to remain competitively priced. There are also uncertainties of future price increases customarily found in
the renewal contracts which would affect revenues and results of operations.
·
Ammunition
The ammunition market accounted for approximately
15% of total revenues in 2011 and 19% in 2010. Nearly all of these revenues represent sales of chemiluminescent payloads and components
to Rheinmetall Waffe Munition (RWM), which incorporates our products into its rounds and then sells the finished rounds to the
military.
Critical events, risks and uncertainties
regarding the ammunition market include the expansion and acceptance of the existing products to the United States military and
other foreign militaries. The introduction of additional calibers is perceived as a vital opportunity to increase our revenues
and improve results of operations over the long-term.
·
Law Enforcement and Commercial/Public Safety
The law enforcement and commercial/public
safety markets represented approximately 11% of total revenues in 2011 and 8% in 2010. Sales are made to different industries and
governmental agencies, including manufacturing companies, transportation companies, hotels and police, fire and EMS departments.
These products provide emergency light in different ways to different buyers. For example, hotels use light sticks in halls and
stairwells for use in power outages and police departments use them in tactical operations and traffic control.
The critical risks and uncertainties in
the commercial and public safety market include the need for the continued introduction and promotion of successful products to
police, fire and homeland security departments. Our ability to generate demand from potential customers is the greatest factor
in success or failure in this market. The commercial and public safety market is more sensitive to pricing than the military markets
as customers may not choose to purchase the best available product, but may rather purchase lower quality, lower priced goods from
competitors.
The uncertainty of new products from competitors
is always a risk that could dilute our existing military market share of chemical light products as well as ammunition and safety
products.
18
·
Other
With the acquisition of the JFC business
(now known as CSP), we now provide specialty chemicals to a variety of customers including chemical, defense and pharmaceutical
companies. For 2011, these revenues represented approximately 5% of total revenues and none in 2010. While the primary purpose
of CSP is to support our chemical light product business, we will continue to pursue these chemical sales which contribute to overhead
recovery and overall profitability as well as provide other benefits. Capital expenditures for non-chemical light related production
are expected to be minimal.
Customers
·
Military (non-ordnance):
We depend significantly on long-term contracts with two
key customers: LC Industries ("LCI") and NAMSA. We also do business directly with the U.S. Military through the Defense
Supply Center in Philadelphia ("DSCP").
·
LC Industries
We indirectly supply the U.S.
Department of Defense ("U.S. DOD") through a contract with LCI, a manufacturer/distributor and a member of the National
Industries for the Blind. LCI, in turn, has a direct contract with the U.S. DOD that operates under the program guidelines of "Ability
One", a federal program that creates jobs for the visually impaired and severely disabled. Under our contract with LCI, we
sell components to LCI, which assembles and packages products, and then sells/distributes them directly to the U.S. military. Each
of the items sold by LCI to the U.S. military is classified by a National Stock Number ("NSN").
Our contract with LCI was entered
into June 1, 2004 and had an initial term of five years, followed by three automatic five-year renewal terms unless the agreement
is cancelled. This contract was renewed in 2009 for another five year period. The contract between LCI and the U.S. military is
an IDIQ contract (indefinite demand, indefinite quantity) with fixed prices subject to annual renegotiation. Through agreement
with LCI, we share in any price increases received by LCI. Revenues to LCI accounted for approximately 20% of total revenues in
2011 and 37% in 2010.
·
NAMSA
We have direct contracts with
NAMSA, the administrative services arm serving the non-U.S. NATO countries. NAMSA re-awarded these contracts to us in August 2008.
The base contract period was for three years and NAMSA has the option to extend for another two years. NAMSA exercised the first
of those two years; we are currently in the first option year. The contracts contain provisions for pricing escalations. Revenues
through NAMSA accounted for approximately 22% of total revenues in 2011 and 17% in 2010.
·
DSCP
We had approximately 10% of our
revenue processed through this agency in 2011 and 3% in 2010. We have one long-term contract that is an indefinite demand / indefinite
quantity type, and accounted for less than 2% of total revenue in both years; the remainder comes from contracts bid and won during
the year for various products.
·
Ammunition
:
Ammunition sales to RWM comprised approximately 14% of total revenue
in 2011 and 19% in 2010. Sales are made under purchase orders awarded to us throughout the year as RWM receives orders from various
militaries.
·
Law Enforcement, Commercial/Public Safety, Other
:
Sales in this category are made
to a variety of distributors, retailers, other businesses and various municipalities' police and fire departments, none of
whom individually represent more than 10% of sales.
Sales and Marketing
For the military (non-ordnance) market,
we sell primarily through distributors such as NAMSA and LCI. We have found this to be an efficient and effective model and therefore
use this model for the law enforcement and commercial/public safety markets as well. Accordingly, we are utilizing the abilities
of distributors who have established key relations with end-users, rather than attempting to sell direct to consumers. The distributors
take deliveries from us and then resell our products through their distribution networks to third-party customers, thereby expanding
the market for our products at minimal cost to us. In the ammunition market, we sell directly to the prime contractor having the
direct contract with the military.
19
Competitive Strengths
We believe we have many advantages as compared
to our competition. For example, we:
·
Own
more patents in the chemiluminescent light field than any competitor.
·
Have an active research and development function focused on improving existing technologies and
developing new ones for which patent protection will be sought.
·
Have a wide assortment of products that helps meet the needs of major customers.
·
Have high quality, high performance products, while many competitors rely on lower priced/lower
quality products.
Competition
For chemiluminescent products
for the military (non-ordnance) market, we believe that we have no direct major competitors and that our products are the only
ones that currently meet official U.S. and NAMSA military specifications. There are several Asian manufacturers of novelty quality
products that occasionally attempt to direct sell their products as military quality, including the fraudulent use of military
stock numbers that are placed on the products which we believe have not passed testing. In these cases we rely on the appropriate
U.S. and NAMSA agency offices to inspect and reject such products as being non-compliant. We maintain an active program of monitoring
such behavior and bringing any such actions to the attention of the appropriate agency personnel.
For the ammunition market, the development
period for a new product before final testing and acceptance by the military can be many years. We anticipate that, as acceptance
of chemical light applications grow in this market, additional competition will emerge as this market represents potentially large
revenues. We are defending against this by continuing to invest in technology upgrades in order to stay ahead of any competitors.
In addition, where appropriate, we file patents to protect newly developed technology. Also, we review all products submitted by
any competitors in military contract bidding processes to determine whether they meet specifications.
In the commercial/public safety chemical
light markets, we compete with a variety of manufacturers and distributors of novelty products. While these manufacturers and distributors
appear to lack the quality, market presence and ability to significantly upgrade existing products, customers in these markets
may seek lower prices without consideration for these other factors.
Employees
As of December 31, 2011 we had
168 full-time, and 68 on-call part-time employees for participating in training simulations as needed. We operate in local labor
markets that provide an adequate supply of labor to compensate for any turnover. We are not party to any collective bargaining
agreements, have not experienced any work stoppages and consider our relationship with employees to be sound.
Employee Benefits
For our U.S. employees, we offer wages
and benefits that we consider to be competitive in the markets in which we operate. Benefits include medical, dental, life, and
disability insurance coverage, paid vacations and holidays and an employee 401(k) savings plan. CTSAS offers its employees benefits
consistent with French law and market conditions.
Supply Chain
We currently purchase key raw materials,
primarily chemicals, plastics, glass and packaging materials from a limited number of suppliers. We have long-term relationships
with these suppliers, and maintain annual purchase orders or, in the case of major chemicals, have a ten-year contract in place
which does not expire until the second half of 2012. There are no minimum required purchases under such contracts. In the event
of a disruption in the supply of any of the key items, we have identified alternative sources of supply. A stock of raw materials
is kept on hand to continue production in the event of an extended supply disruption, providing us time to find alternative suppliers.
Raw materials are not considered to be a scarce commodity and we have not experienced supply disruptions in the past. With the
expiration of the chemical contract in 2012, we will begin producing the vast majority of our chemical light requirements through
CSP, our wholly-owned subsidiary.
20
The CTI West Springfield facility currently
purchases most of its chemicals from a Chinese manufacturer through the long-term contract. Nearly all other materials, including
plastics and glass, are purchased domestically. The CTSAS Aix-en-Provence facility purchases most of its chemicals from our West
Springfield facility after they have been modified for specific applications. CTSAS purchases its glass, plastics and most other
materials from within the European community.
Research and Development
We have an active research and development
group with full-time chemists and engineers at both the West Springfield and Bound Brook facilities. Additionally, we utilize consulting
chemists as needed for specific projects. Our research and development group is focused on maintaining the high level of quality
of existing products; developing improvements to existing products; and, developing new technologies and products with viable commercial
applications. We maintain an active program of soliciting feedback and ideas from end-users of products. We incurred research and
development expense of $1.9 million and $1.7 million during the years ended December 31, 2011 and 2010, respectively. Additionally,
we incurred $0.2 million in capitalized costs for filing new patents in 2011 and $0.3 million in 2010.
Intellectual Property
We rely on the
ability to develop patentable technology to help ensure the commercial success of products and technology. Once patents are issued,
we follow an active program of monitoring competitors' products to ensure that our intellectual property is not violated.
We currently hold and maintain 55 active U.S. patents, of which we obtained 30 through the two acquisitions in 2011. Additional
new patents are pending. Many of these patents are also registered in various foreign countries. These patents include
phthalate
free formulations,
formulas for creating a more consistent light for longer periods, a bio-degradable
light stick, f
lat disks employing a translucent aluminum pouch instead of an ampoule,
and various
battlefield effects simulators.
We expect to file for additional patents during 2012 and thereafter. Patents typically have
a 20-year life from date of filing. We had no key patents expire in 2011 and no key patents scheduled to expire in 2012. We do
not anticipate a near-term decline in sales as a result of any expiring or expired patents.
Government Regulations
We are subject to the jurisdiction of the
State Department of the United States under the International Traffic in Arms Regulations ("ITAR"). Specifically, chemical
light infrared products, which are exported from the West Springfield facility to foreign militaries, are subject to these regulations.
We must periodically re-register with the State Department for exporting purposes and last did so in June 2011. The renewal that
was granted expires June 30, 2012 and is subject to renewal again at that time. We are in good standing with the State Department
and the ITAR. We must obtain approval from the State Department for each and every export shipment of chemical light infrared products.
In addition, with the two acquisitions,
we now also maintain appropriate licenses with the Food & Drug Administration ("FDA"), the Drug Enforcement Agency
("DEA") and, the Bureau of Alcohol, Tobacco, Firearms and Explosives. All such licenses are current and expected to
be renewed at the appropriate time.
Environmental
We are in compliance with all local, state
and national environmental regulations under which we are subject to regulation. All appropriate permits are in place. The cost
of compliance with environmental regulations has been and is expected to continue to be negligible.
Backlog
A significant portion of our revenue is
generated under indefinite quantity, fixed-price contracts whereby we fulfill orders as they are placed by customers. Once orders
are received they are typically fulfilled within three months. As of December 31, 2011 we had total open sales and purchase orders
for products that approximated $5.3 million, versus $4.5 million at December 31, 2010.
Segments
We have only one segment for financial reporting purposes under
accounting principles generally accepted in the United States.
21
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain
information with respect to each Director, Executive Officers and Key Employees as of April 25, 2012:
Name
Age
Position with Cyalume and Principal
Occupation
Held Office
Since
Winston Churchill
71
Director and Chairman of the Board
2006
Yaron Eitan
56
Director and Vice Chairman of the Board
2006
Zivi Nedivi
53
President and Chief Executive Officer
(1)
2012
Michael Bielonko
59
Chief Financial Officer & Secretary
2008
Edgar (Earl) Cranor
54
Vice-President - Technology – CTI
2006
Tomas Ogas
55
Vice-President - Operations – CTI
2007
James Schleck
42
President of CSP
2011
Antonio Colon
54
Senior Vice President of Sales – CTI
2011
Jason Epstein
38
Director
2008
Andrew Intrater
50
Director
2009
John G. Meyer, Jr.
67
Director
2011
Thomas G. Rebar
49
Director
2007
Yair Shamir
66
Director
2008
James Valentine
65
Director
2011
(1)
To be nominated for the vacant director position, previously held by Derek Dunaway.
Background of Officers and Directors
Winston Churchill
has been
our Chairman of the Board since May 31, 2006 and was our Secretary from June 22, 2007 through December 19, 2008. Mr. Churchill
is also a member of the Board of Directors of CTI. Mr. Churchill has been a member of SCP Private Equity Management Company, LLC
since 2000. From 1993 to the present he has been the President of CIP Capital Management, Inc., a management company, and Chairman
of CIP Capital, Inc., an investment company and a director of both. He is currently a Director of Innovative Solutions and Support,
Inc. (NASDAQ: ISSC), a company engaged in the design, manufacture, and sale of flight information computers, flat panel displays,
and monitoring systems; Amkor Technology, Inc. (NASDAQ: AMKR), a supplier of semiconductor packaging and test services, Rodman
& Renshaw Capital Group (NASDAQ: RODM), a full-service investment bank providing corporate finance, strategic advisory and
related services and Griffin Land & Nurseries, Inc. (NASDAQ: GRIF), a real estate and landscape nursery business. Mr. Churchill
is a past director (2000-2007) of Auxilium Pharmaceuticals, Inc. (NASDAQ: AUXL), a company that develops and commercializes pharmaceutical
products for urologic and sexual health disorders. Mr. Churchill holds a B.S. in Physics, Summa Cum Laude, from Fordham University,
an MA in Economics from Oxford University, where he was a Rhodes Scholar, and a JD law degree from Yale Law School. Mr. Churchill's
extensive leadership, business and financial experience qualify him to serve as a director.
Yaron Eitan
has been our
Vice Chairman of the Board since December 19, 2008 and was our Chief Executive Officer and President from May 31, 2006 through
December 19, 2008. Mr. Eitan is also a member of the Board of Directors of CTI. In 1998, Mr. Eitan founded Selway Partners LLC,
a holding company focused on technology investments, and has been its President and Chief Executive Officer since that time. From
July 2002 to the present, Mr. Eitan has been a member of SCP Private Equity Management Company, LLC, a private equity and venture
capital management company. Mr. Eitan is the Chairman and/or board member of several privately-held technology companies. Mr. Eitan
holds an M.B.A. from the Wharton School of Business of the University of Pennsylvania. Mr. Eitan's leadership, business and
technology experience qualify him to serve as a director.
22
Zivi Nedivi
has been our
President and Chief Executive Officer since April 2, 2012. Mr. Nedivi came to Cyalume from Axiom Investment Advisors, LLC, a hedge
fund specializing in currencies where he was a special advisor from 2009 to 2011 and the CEO from 2008 to 2009. Prior to that,
from 2006 to 2008, he was the COO of Lumenis Ltd, a global leader in medical and aesthetic lasers and light based technology. Mr.
Nedivi was the President and CEO of Kellstrom Aerospace, LLC, an industry leader in the airborne equipment segments of the international
aviation services aftermarket and its predecessor company, Kellstrom Industries, from 1990 to 2005. He continues to serve as an
observer on Kellstrom Aerospace's board of directors. Prior to his business career, Mr. Nedivi served as an F-15 fighter pilot
in the Israeli Air Force, where he attained the rank of Major. He is a graduate of the Israel Air Force Academy and holds a Bachelor's
degree in business administration from California Coast University.
Michael Bielonko
has been
Chief Financial Officer and Secretary of Cyalume since December 19, 2008 and Chief Financial Officer and Secretary of CTI since
January 23, 2006. From 2005 until he joined CTI, he was employed as the Chief Financial Officer of CTM Group, Inc., a New Hampshire
based company servicing equipment in malls and at tourist sites. From September 1999 until December 2004, Mr. Bielonko served as
the Chief Financial Officer of Omni Facility Services, a New York City based provider of facility maintenance services. Mr. Bielonko
served as a Director of Omni Facility Services Canada, Ltd., a Toronto based facility maintenance company from May 2006 to June
2008. Mr. Bielonko has a B.S. and an M.B.A. from the University of Connecticut.
Edgar (Earl) Cranor
has been
the Vice President - Technology of CTI since January 23, 2006. Previously, he was employed by CTI in a variety of positions, including
serving as the Vice President of Research and Development. Mr. Cranor joined CTI in 1993, with the acquisition of the Chemical
Light Division of American Cyanamid, where he had served as Director of Operations. Mr. Cranor has a B.S. in Chemical Engineering
from Auburn University. He is responsible for nearly all of CTI's current patents.
Tomas Ogas
has been the Vice
President – Operations of CTI since May 2007. Mr. Ogas was employed by Pitney Bowes, Inc. from 1979 to 2007, where he last
served as a director of operations for Latin America.
James Schleck
has been the
President of Cyalume Specialty Products since September 2011 following the acquisition of his former company, JFC Technologies,
LLC. At JFC he served in various capacities including President and CEO for over 17 years. Mr. Schleck is a former Army Officer
and is a graduate of the U.S. Army's Airborne, Air Assault and Ranger Schools. Mr. Schleck holds a BS degree from the United States
Military Academy, an MBA from Columbia University and an M.Ed from Rutgers University.
Antonio Colon
has been the
Senior Vice President of Sales for CTI since December 2011. Prior to joining CTI, Mr. Colon was the President and CEO of Combat
Training Solutions, Inc. from 2005 through 2011, which was acquired by CTI in December 2011. Mr. Colon is a former aerospace engineer
and a retired Air Force officer.
Jason Epstein
has been a Director of Cyalume since
December 19, 2008 and is also a Director of CTI, a position held since 2007. Mr. Epstein has been a Senior Partner of Columbus
Nova since 2002. He is currently a Director of Deerfield Capital Corp. (NASDAQ: DFR), a company engaged in investment management
and other investing activities. Mr. Epstein received his B.A. from Tufts University in 1996 and currently serves on the Tufts Board
of Overseers. Mr. Epstein is one of Cova's two designees to the Board of Directors. We believe that Mr. Epstein's leadership
and business experience qualify him to serve as a director.
Andrew Intrater
has been
a Director of Cyalume since September 1, 2009. Mr. Intrater is the
CEO and Senior Managing Partner of
Columbus Nova and serves on the Executive and Investment Committees for Columbus Nova. Mr. Intrater also serves on the Board of
Directors for
Deerfield Capital Corp. (NASDAQ: DFR), a company engaged in investment management and other investing activities
.
Mr. Intrater served on the Board of Directors (2007 – 2011) for HQ Sustainable Maritime Industries, Inc. (AMEX: HQS),
an
integrated aquaculture and aquatic product processing company, with operations based in China's South Sea.
Mr.
Intrater completed his B.S. in Chemical Engineering at the Rutgers University College of Engineering and graduate studies in Materials
Science at the Columbia University School of Mines.
Mr. Intrater is one of Cova's two designees to the Board of Directors.
We believe that Mr. Intrater's leadership, global and business experience qualify him to serve as a director.
John G. Meyer, Jr.
has been
a Director of Cyalume since June 16, 2011. Mr. Meyer has been since 2003, a Director of The Allied Defense Group, Inc. (OTCQB:
ADGI), a multinational defense business, which prior to the sale of substantially all its assets, was focused on the manufacture
and sale of ammunition and ammunition related products for use by the U.S. and foreign governments. He was also the Chief Executive
Officer of Heckler & Koch, a German small arms manufacturing company, from June 2005 to August 2007; and the Chief
Executive Officer of The Allied Defense Group, Inc. from June 2003 to June 2005. Prior to his business career, Mr. Meyer served
in the United States Army as its most senior Public Affairs Officer and retiring as a Major General. Mr. Meyer received a Bachelor's
degree from Florida State University and a Masters Degree from Sam Houston State University. Mr. Meyer has proven business
acumen, having served as the chief executive officer of several defense industry companies and his military background provides
the Board with relevant industry experience which qualify him to serve as a director.
23
Thomas G. Rebar
has served
as a Director of Cyalume since August 6, 2007. Mr. Rebar has been a Partner of SCP Private Equity Management, LLC since 1996. Mr.
Rebar is currently a Director of several privately-held companies. Mr. Rebar has served as the chair of our audit committee since
January 2009. Mr. Rebar received his B.S. summa cum laude from the University of Scranton and an M.B.A. from New York University
Graduate School of Business Administration. Mr. Rebar's leadership, business and financial experience qualify him to serve
as a director.
Yair Shamir
has been a Director
of Cyalume since December 19, 2008. Mr. Shamir is the Chairman and Managing Partner of Catalyst Investments and the Chairman of
IAI, Israeli Aerospace Industries. Mr. Shamir served in the Israeli Air Force as a pilot and commander from 1963 to 1988. During
his term in the Air Force, Mr. Shamir attained the rank of colonel and served as head of the electronics department, the highest
professional electronics position within the Air Force. He currently serves as a Director of several publicly traded companies
such as DSP Group Corporation (NASDAQ: DSGP) since October 1996, Orckit Communications Ltd. (NASDAQ: ORCT) since July 2008 and
Commtouch Software Ltd. (NASDAQ: CTCH) since March 2008 and also serves as Director of a few private hi-tech companies. Mr. Shamir
holds a B.Sc. Electronics Engineering from the Technion, Israel Institute of Technology. Mr. Shamir's leadership, global,
business and military experience qualify him to serve as a director.
Mr. Shamir also served as a member of the
Board of Directors of Mercury Interactive, LLC from 1997 to 2005. In September 2008, Mr. Shamir settled a complaint filed by the
SEC which alleged that certain independent Directors of Mercury (including Mr. Shamir) recklessly approved backdated stock option
grants and reviewed and signed public filings that contained materially false and misleading disclosures about Mercury's
stock option grants and company expenses. Without admitting or denying the allegations in the SEC's complaint, in order to
settle the charges against them, each of the independent Directors implicated (including Mr. Shamir) agreed to permanent injunctions
against violating certain provisions of the securities laws, paid a financial penalty, and retained the ability to serve as a Director
or officer of U.S. public companies.
James Valentine
has been
a Director of Cyalume since November 23, 2011. Mr. Valentine is the President and Chairman of Valentine & Company. His particular
expertise involves the organization, governance and financing of emerging growth companies involved in technology infrastructure
and services. He has served in a variety of key management positions as well as a financier and investor. His previous experience
has included being the Chief Executive Officer of QoS Networks LTD, a company providing IP services on a global basis, being the
Chief Executive Officer of North American Wireless Inc, a company engaged in the design, construction and operation of nationwide
wireless infrastructure services. Mr. Valentine was a General Partner of Montgomery Securities, serving as Managing Director of
the Corporate Finance Technology Group. Mr. Valentine serves on the boards of directors of Hi Tech Services, Inc., NextGen Technology
Services, LLC, Tri Alpha Energy Inc. and Wireless Project Development Corporation. He serves on the Advisory Boards of Kline Hawkes
California, LP; Kline Hawkes California SBIC, LP, and Kline Hawkes Pacific, LP. Mr. Valentine practiced law in San Francisco specializing
in financial transactions. Mr. Valentine received his B.A. with High Honors from the University of Florida and his Juris Doctor
from Harvard Law School. Mr. Valentine is Kline Hawkes designee to the Board of Directors. We believe that Mr. Valentine's
leadership, global and business experience qualify him to serve as a director.
Meetings and Committees of the Board
of Directors
During the year ended December 31, 2011,
the Board of Directors met six times and took action by written consent on five occasions. All of the directors attended at least
75% of the meetings except Jason Epstein, Andrew Intrater and Yair Shamir. Each director is expected to participate, either in
person or via teleconference, in meetings of our Board of Directors and meetings of committees of our Board of Directors in which
each director is a member, and to spend the time necessary to properly discharge such director's respective duties and responsibilities.
We do not have a written policy with regard to directors' attendance at annual meetings of stockholders; however, all directors
are encouraged to attend the annual meeting. The Board of Directors has determined that Messrs. Churchill, Eitan, Epstein, Intrater,
Meyer, Rebar, Shamir and Valentine are each independent directors as defined in Rule 4200 of the Nasdaq Marketplace Rules and applicable
Securities and Exchange Commission ("SEC") regulations.
Compensation Committee.
On January
13, 2009, the Board of Directors formed a Compensation Committee and adopted a written charter on that date. Serving on the Compensation
Committee are Yaron Eitan, Jason Epstein and John Meyer, each of whom is independent as defined in Rule 5605(a)(2) of the Listing
Rules. The Compensation Committee held one meeting and took action by written consent on two occasions during 2011. The charter
is available to security holders on our website,
www.cyalume.com
. The charter sets forth responsibilities, authority and
specific duties of the Compensation Committee. The Compensation Committee reviews and recommends to the board the compensation
for the CEO and non-employee directors of our Company, and reviews the CEO's compensation recommendations for all other corporate
officers. It also reviews the general policy relating to compensation and benefits for all employees. The Compensation Committee
has been designated by the Board of Directors to administer the Cyalume Technologies Holdings, Inc. 2009 Omnibus Securities and
Incentive Plan.
24
Nominating Committee.
On January 13, 2009, the Board of Directors formed a Nominating Committee and adopted a written charter on that date. Winston Churchill
(Chairman), Andrew Intrater and Yair Shamir, each of whom is independent as defined in Rule 5605(a)(2) of the Listing Rules, serve
on this committee. The charter is available to security holders on our website,
www.cyalume.com
. The Nominating Committee
did not meet during 2011 but took action by written consent on two occasions during 2011.
The Nominating Committee
will consider director candidates recommended by security holders. Potential nominees to the Board of Directors are required to
have such experience in business or financial matters as would make such nominee an asset to the Board of Directors and may, under
certain circumstances, be required to be "independent", as such term is defined under Rule 5605 of the Listing Rules
and applicable SEC regulations. Stockholders wishing to submit the name of a person as a potential nominee to the Board of Directors
must send the name, address, and a brief (no more than 500 words) biographical description of such potential nominee to the Nominating
and Corporate Governance Committee at the following address: Nominating Committee of the Board of Directors, c/o Cyalume Technologies
Holdings, Inc., 96 Windsor Street, West Springfield, Massachusetts 01089. Potential director nominees will be evaluated by personal
interview, such interview to be conducted by one or more members of the Nominating Committee, and/or any other method the Nominating
Committee deems appropriate, which may, but need not, include a questionnaire. The Nominating Committee may solicit or receive
information concerning potential nominees from any source it deems appropriate. The Nominating Committee need not engage in an
evaluation process unless (i) there is a vacancy on the Board of Directors, (ii) a director is not standing for re-election, or
(iii) the Nominating Committee does not intend to recommend the nomination of a sitting director for re-election. A potential director
nominee recommended by a security holder will not be evaluated differently from any other potential nominee. Although it has not
done so in the past, the Nominating Committee may retain search firms to assist in identifying suitable director candidates.
The Board of Directors
does not have a formal policy on director candidate qualifications. The Board of Directors may consider those factors it deems
appropriate in evaluating director nominees made either by the Board or stockholders, including judgment, skill, strength of character,
experience with businesses and organizations comparable in size or scope to us, experience and skill relative to other Board members,
and specialized knowledge or experience. Depending upon the current needs of the Board, certain factors may be weighed more or
less heavily. In considering candidates for the Board, the directors evaluate the entirety of each candidate's credentials
and do not have any specific minimum qualifications that must be met.
"Diversity," as such,
is not a criterion that the Committee considers
.
The directors will consider candidates from any reasonable source,
including current Board members, stockholders, professional search firms or other persons. The directors will not evaluate candidates
differently based on who has made the recommendation.
Executive Committee.
On January
13, 2009, the Board of Directors formed an Executive Committee. Yaron Eitan (Chairman), Winston Churchill and Jason Epstein serve
on this committee. The Executive Committee exercises the powers of the Board between meetings of the full Board of Directors. The
Executive Committee did not meet during 2011.
Audit Committee.
The Audit Committee is established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Thomas G. Rebar
(Chairman) and Yair Shamir serve on this committee. We anticipate that the Directors will appoint a third member to the Audit Committee.
The Audit Committee held six meetings during 2011. The Board of Directors has determined that Thomas Rebar is an "audit committee
financial expert". The Board of Directors has determined that each of the members of the Audit Committee are independent
as defined in Rule 5605(a)(2) of the Listing Rules.
The Audit Committee operates
under a written charter adopted by the Board of Directors and assists the Board of Directors by overseeing the performance of the
independent auditors and the quality and integrity of our internal accounting, auditing and financial reporting practices. The
Audit Committee is responsible for retaining and, as necessary, terminating, the independent auditors, annually reviews the qualifications,
performance and independence of the independent auditors and the audit plan, fees and audit results, and pre-approves audit and
non-audit services to be performed by the auditors and related fees. The Audit Committee charter is available on our website, www.cyalume.com.
Compensation Committee Interlocks and
Insider Participation
During 2011, no current or former officer
or employee of CTI participated in deliberations of Cyalume's Board of Directors concerning Executive Officer compensation.
Yaron Eitan, Thomas G. Rebar and Winston Churchill are each principals of SCP Private Equity Management LLC.
Code of Ethics
We adopted a code of ethics on January
13, 2009, which is available on our website,
www.cyalume.com
.
25
EXECUTIVE COMPENSATION
Overview
Our Executive Officers are: Zivi Nedivi,
who has been President and Chief Executive Officer since April 2, 2012 and Michael Bielonko, who has been Chief Financial Officer
and Secretary since December 19, 2008. Derek Dunaway was our Chief Executive Officer until his resignation on March 30, 2012, which
was effective on April 2, 2012.
Our Key Employees are: Edgar (Earl) Cranor,
who been Vice President of Technology of CTI since January 2006; Tomas Ogas, who has been Vice President of Operations of CTI since
May 2007; James Schleck, who has been the President of CSP since August 2011 and Antonio Colon who is the Senior Vice President
of Sales since December 2011.
We did not renew our long-term employment
agreements with Monte Pickens who was previously our Executive Vice President of Sales and Thomas McCarthy who was our Vice President
of Government and Military Sales. Monte Pickens has entered into a consulting agreement with us.
Compensation Philosophy
The overriding goal of our executive compensation
program is to recruit and retain key executives and motivate them to achieve maximum results. To this end, we design and manage
our programs with the following objectives in mind:
·
Generating significant stockholder value, while practicing good corporate governance,
·
Maximizing the alignment between our short-term and long-term results and executive pay, and
·
Providing market-competitive compensation, while considering our financial resources.
Administration of Executive Compensation
Programs
In January 2009, we formed a Compensation
Committee of the Board of Directors comprised of three outside, independent Directors which will administer all compensation programs
for its officers, key employees, and outside Directors. This Committee works with management to design key compensation policies
and programs, as well as sound governance practices, to ensure that our compensation programs reflect best practices and strongly
contribute to our growth and success. The two named Executive Officers and four Key Employees all have entered into employment
agreements with us.
The compensation for senior executives
is comprised of four elements: a base salary, an annual performance bonus, equity awards and benefits. On March 3, 2009, Cyalume's
Board of Directors adopted the Cyalume 2009 Omnibus Securities and Incentive Plan for employees and Directors, which is administered
by the Compensation Committee. Awards granted pursuant to the stock incentive plan are described below.
In developing salary ranges, potential
bonus payouts, equity awards and benefit plans, the Compensation Committee takes into account: 1) competitive compensation among
comparable companies and for similar positions in the market, 2) relevant incentives and rewards for senior management for improving
stockholder value while building Cyalume into a successful company, 3) individual performance, 4) how best to retain key executives,
5) the overall performance of Cyalume and its various key component entities, 6) Cyalume's ability to pay and 7) other relevant
factors.
All executives were involved in decisions
relating to their compensation. We believe that executives are fairly compensated.
26
Summary Compensation Table
The following table
shows information concerning the annual compensation for services provided to us by our Chief Executive Officer and our two most
highly compensated employees other than the Chief Executive Officer during 2011 and 2010.
Name and Principal Position
Year
Salary
($)
Earned
Bonus
($)
Stock Awards
($)
(1)
Option Awards
($)
(1)
All Other
Compensation
($)
(2)
Total
Compensation
($)
Derek Dunaway,
2011
333,442
—
—
—
12,993
346,435
President & CEO
(3)
2010
350,000
150,000
205,125
37,200
12,814
755,139
Michael Bielonko,
2011
209,592
—
—
—
13,438
223,031
CFO Secretary
2010
220,000
88,000
201,525
—
12,162
521,687
Monte Pickens,
2011
224,373
—
—
—
9,000
233,373
EVP- Sales of CTI
(4)
2010
100,962
36,458
40,100
23,250
—
200,770
(1)
The amounts in these columns reflect the aggregate full grant date fair
value of each award computed in accordance with ASC Topic 718,
Compensation-Stock Compensation
. For restricted stock, the
fair value per share is equal to the closing price of our stock on the date of the grant. For stock options, the fair value per
share is based on certain assumptions included in Note 19 to our audited financial statements for the year ended December 31,
2011 included in our annual report on Form 10-K for the year ended December 31, 2011.
(2)
Consists of an automobile and gas allowance.
(3)
Derek Dunaway resigned as President & CEO on March 30, 2012, effective April 2, 2012.
(4)
Monte Pickens resigned as Executive Vice President of Sales on April 25, 2012, effective May 1, 2012.
Equity Compensation Awards
There were no equity awards during 2011.
On February 4, 2010, the Compensation Committee
of the Board of Directors authorized the issuance of the following to certain of our officers: 72,500 restricted shares of common
stock and 45,000 restricted options. On December 16, 2010, the Board of Directors ratified the Compensation Committee's decision
to issue 107,500 restricted shares of common stock to certain of our officers.
27
Outstanding Equity Awards at December
31, 2011 Year-End
Option Awards
Stock Awards
Equity Incentive Plan Awards:
Equity Incentive Plan Awards:
Name
Number of securities underlying unexercised options (#)
exercisable
Number of securities underlying unexercised options (#) unexercisable
Number of securities
underlying unexercised
unearned options (#)
Option exercise
price ($)
Option expiration
date
Number of
shares of
stock that
have not vested
(#)
Market
value of
shares of
stock that
have not vested
($)
(1)
Number of
unearned shares
that
have not
vested
(#)
Market or
payout value
of unearned
shares that
have not
vested
($)
(1)
Derek
133,334
66,666
(2)
—
$
3.00
3/3/2019
—
—
—
—
Dunaway
6,667
13,333
(3)
—
$
3.65
3/3/2020
—
—
—
—
—
—
—
—
—
64,166
(5)
240,623
—
—
Michael
—
—
—
—
—
—
—
—
—
Bielonko
—
—
—
—
—
44,166
(6)
165,623
—
—
Monte
5,000
10,000
(4)
—
$
3.25
8/1/2020
—
—
—
—
Pickens
—
—
—
—
—
10,000
(7)
37,500
—
—
(1)
The market price of our common stock (OTCBB: CYLU) on December 31, 2011 was $3.75 per share.
(2)
These options vest in the following increments: 66,666 on 3/3/2012.
(3)
These options vest in the following increments: 6,667 on 1/1/2012 and 6,666 on 1/1/2013. Subsequent
to 12/31/2011, in conjunction with Mr. Dunaway's separation agreement, the 6,666 awards scheduled to vest on 1/1/2013 have
vested in full as of May 14, 2012.
(4)
These options vest in the following increments: 5,000 on 8/1/2012 and 5,000 on 8/1/2013.
(5)
These restricted shares vest in the following increments: 17,500 on 1/1/2012, 16,666 on 3/3/2012,
17,500 on 1/1/2013 and 12,500 on 1/1/2014. Subsequent to 12/31/2011, in conjunction with Mr. Dunaway's separation agreement,
the 17,500 awards and the 12,500 awards scheduled to vest on 1/1/2013 and 1/1/2014, respectively have vested in full as of April
2, 2012.
(6)
These restricted shares vest in the following increments: 17,500 on 1/1/2012, 17,500 on 1/1/2013
and 9,166 on 1/1/2014.
(7)
These restricted shares vest in the following increments: 3,334 on 1/1/2012, 3,333 on 1/1/2013
and 3,333 on 1/1/2014.
28
Employment / Other Agreements
The following discussion
summarizes the material terms of current employment and other agreements with Executive Officers and Key Employees:
Zivi Nedivi
The Company, CTI and East Shore Ventures, LLC (the "Consultant"), a limited liability company owned by Mr. Nedivi,
entered into a services agreement, effective April 2, 2012, which provides that Mr. Nedivi will serve as the Company's Chief
Executive Officer and member of the Company's board of directors. The agreement has an initial term of three years and continues
for successive one-year periods unless terminated by either party upon 60 days written notice prior to its anniversary/expiration
date or if terminated pursuant to certain events or for cause.
During the term of
the agreement, the Consultant will earn an annual cash fee of $450,000 (the "Cash Fee"), subject to annual increases
at the discretion of the Company's board. The Consultant is also eligible for bonus consideration based on certain predetermined
annual performance targets ("Annual Performance Targets"). If the Company's performance meets, but does not exceed,
the Annual Performance Targets for a given fiscal year, the amount of the bonus for such fiscal year shall equal 140% of the annualized
rate of the Cash Fee in effect as of the end of such fiscal year. If the Company's performance exceeds the Annualized Performance
Targets for a given fiscal year, the amount of the bonus for such fiscal year shall equal 140% of the annualized rate of the Cash
Fee in effect as of the end of such fiscal year, plus an additional 1% of such annualized rate for each 1% by which the Company's
performance exceeds the Annualized Performance Targets for such fiscal year. If the Company's performance fails to meet the
Annualized Performance Targets for a given fiscal year, the amount of the bonus for such fiscal year shall equal 140% of the annualized
rate of the Cash Fee in effect as of the end of such fiscal year, less 2% of such annualized rate for each 1% by which the Company's
performance failed to meet the Annualized Performance Targets for such fiscal year, provided, however, that Consultant shall not
be eligible for any bonus for a given fiscal year in which the Company's performance was less than or equal to 70% of the
Annualized Performance Targets for such fiscal year.
Consultant also received
an option to purchase up to 1,111,963 shares of the Company's common stock at an exercise price per share of $3.60 (the "Option").
The Option becomes exercisable annually in five equal installments on each of the first five anniversaries of the approval of the
issuance of the Option. The Option (i) will not become exercisable as to 141,333 of the Shares unless a proportional number of
shares underlying the warrants issued to Granite Creek FlexCap I, L.P. and/or Patriot Capital II, LP are exercised; (ii) provides
that, in the event that, prior to the date that the Option is fully exercisable, (A) there is a Change of Control (as defined in
the services agreement) or (B) Consultant's engagement under the services agreement is terminated by the Company without
Cause or by Consultant for Good Reason (each as defined in the services agreement), the Option shall become fully exercisable as
of the date of such Change of Control or termination, provided, however, that, if such termination of Consultant's engagement
occurs within the first eighteen (18) months after the date of the agreement, then only two-fifths (2/5) of the Option shall become
fully exercisable as of the date of such termination; (iii) for piggyback registration rights; and (iv) that Consultant will receive
a cash payment equal to the Tax Payment (as defined in the services agreement).
In the event Consultant's
engagement is terminated by the Company without Cause or by non-renewal, or by Consultant pursuant for Good Reason, in addition
to the amounts accrued to him, Consultant is entitled to receive an amount equal to the Cash Fee in effect immediately prior to
the Termination Date for a six-month period, subject to Consultant and Mr. Nedivi each signing a release of claims in favor the
Company and its affiliates.
During the term of
the services agreement and for a period of two years thereafter (subject to certain adjustments set forth in the services agreement)
Consultant and Mr. Nedivi are subject to confidentiality, non-solicitation and non-competition, non-interference and non-disparagement
provisions. Pursuant to the services agreement, Mr. Nedivi will devote all of his business time (subject to certain limited exceptions)
to providing services to the Company.
Pursuant to the services agreement, subject
to limitations imposed by law, the Company and CTI shall indemnify and hold harmless Consultant and Mr. Nedivi to the fullest extent
permitted by law from and against any and all claims, damages, expenses (including attorneys' fees), judgments, penalties,
fines, settlements, and all other liabilities incurred or paid by him in connection with the investigation, defense, prosecution,
settlement or appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative and to which Consultant and/or Mr. Nedivi was or is a party or is threatened to be made a party by reason of the
fact that Consultant and/or Mr. Nedivi is or was an officer, employee or agent of a member of the Company or any Company subsidiary,
or by reason of anything done or not done by Consultant and/or Mr. Nedivi in any such capacity or capacities, provided that Consultant
and/or Mr. Nedivi, as applicable, acted in good faith, in a manner that was not grossly negligent or constituted willful misconduct
and in a manner it or he reasonably believed to be in or not opposed to the best interests of the Company or any Company subsidiary,
and, with respect to any criminal action or proceeding, had no reasonable cause to believe it or his conduct was unlawful.
29
Michael
Bielonko
Mr. Bielonko's employment agreement, effective April 19, 2012,
provides that Mr. Bielonko will be employed as CTI's Chief Financial Officer. The contract has an initial term of three years
and shall continue for successive one-year periods unless terminated by either party upon 30 days written notice prior to the anniversary/expiration
date or terminated pursuant to certain events or for cause. Mr. Bielonko receives an annual base salary of $187,000, subject to
annual adjustments at the sole discretion of the board of directors. Annually, Mr. Bielonko is entitled to a cash bonus of up to
25% of annual base salary based on the achievement of revenue targets and EBITDA targets, all determined by the board of directors.
Mr. Bielonko is also eligible to receive annually an equity bonus of up to 25% of annual base pay subject to achieving the same
criteria for the cash bonus. If Mr. Bielonko voluntarily resigns or is terminated for cause during the period of employment, then
he is not entitled to receive any benefit or compensation following the date of termination. If terminated without cause during
his initial term, Mr. Bielonko is entitled to severance of an amount equal to six months of his annual base salary. If terminated
without cause subsequent to his initial term, Mr. Bielonko is entitled to receive severance of an amount equal to six months of
his annual base salary. If Mr. Bielonko is terminated without cause pursuant to a change in control, he is entitled to receive
an amount equal to six months of his annual base salary in addition to his other severance benefits.
Earl Cranor
Mr. Cranor's employment agreement, effective April 25, 2012, provides
that Mr. Cranor will be employed as CTI's Technology Vice President. The contract has an initial term of three years and
shall continue for successive one-year periods unless terminated by either party upon 30 days written notice prior to the anniversary/expiration
date or terminated pursuant to certain events or for cause. Mr. Cranor receives an annual base salary of $182,750, subject to annual
adjustments at the sole discretion of the board of directors. Annually, Mr. Cranor is entitled to a cash bonus of up to 25% of
annual base salary based on the achievement of revenue targets and EBITDA targets, all determined by the board of directors. Mr.
Cranor is also eligible to receive annually an equity bonus of up to 25% of annual base pay subject to achieving the same criteria
for the cash bonus. If Mr. Cranor voluntarily resigns or is terminated for cause during the period of employment, then he is not
entitled to receive any benefit or compensation following the date of termination. If terminated without cause during his initial
term, Mr. Cranor is entitled to severance of an amount equal to six months of his annual base salary. If terminated without cause
subsequent to his initial term, Mr. Cranor is entitled to receive severance of an amount equal to six months of his annual base
salary. If Mr. Cranor is terminated without cause pursuant to a change in control, he is entitled to receive an amount equal to
six months of his annual base salary in addition to his other severance benefits.
Tomas
Ogas
Mr. Ogas's employment agreement, effective April 25, 2012, provides
that Mr. Ogas will be employed as CTI's Operations Vice President. The contract has an initial term of three years and shall
continue for successive one-year periods unless terminated by either party upon 30 days written notice prior to the anniversary/expiration
date or terminated pursuant to certain events or for cause. Mr. Ogas receives an annual base salary of $170,000, subject to annual
adjustments at the sole discretion of the board of directors. Annually, Mr. Ogas is entitled to a cash bonus of up to 25% of
annual base salary based on the achievement of revenue targets and EBITDA targets, all determined by the board of directors. Mr.
Ogas is also eligible to receive annually an equity bonus of up to 10% of annual base pay subject to achieving the same criteria
for the cash bonus. If Mr. Ogas voluntarily resigns or is terminated for cause during the period of employment, then he is not
entitled to receive any benefit or compensation following the date of termination. If terminated without cause during his initial
term, Mr. Ogas is entitled to severance of an amount equal to six months of his annual base salary. If terminated without cause
subsequent to his initial term, Mr. Ogas is entitled to receive severance of an amount equal to six months of his annual base salary.
If Mr. Ogas is terminated without cause pursuant to a change in control, he is entitled to receive an amount equal to six months
of his annual base salary in addition to his other severance benefits.
James
Schleck
Mr. Schleck's employment agreement, effective August 31, 2011,
provides that Mr. Schleck will be employed as CSP's President. The contract has an initial term that expires on December
31, 2013 and shall continue for successive one-year periods unless terminated by either party upon 30 days written notice prior
to the anniversary/expiration date or terminated pursuant to certain events or for cause. Mr. Schleck receives an annual base salary
of $150,000, subject to annual adjustments at the sole discretion of the board of directors. Annually, Mr. Schleck is entitled
to a cash bonus of up to 20% of annual base salary based on the achievement of revenue targets, EBITDA targets and specific objectives,
all determined by the board of directors and an additional cash bonus of 20% of annual base salary based on the achievement of
a certain EBITDA goal. Mr. Schleck is also eligible to receive an equity bonus of based on the achievement of a certain EBITDA
goals. If Mr. Schleck voluntarily resigns or is terminated for cause during the period of employment, then he is not entitled to
receive any benefit or compensation following the date of termination. If terminated without cause during his initial term, Mr.
Schleck is entitled to severance of an amount equal to six months of his annual base salary. If terminated without cause subsequent
to his initial term, Mr. Schleck is entitled to receive severance of an amount equal to six months of his annual base salary.
Antonio
Colon
Mr. Colon's employment agreement, effective December 22, 2011,
provides that Mr. Colon will be employed as CTI's Senior Vice President of Sales. The contract has an initial term that expires
on December 31, 2013 and shall continue for successive one-year periods unless terminated by either party upon 30 days written
notice prior to the anniversary/expiration date or terminated pursuant to certain events or for cause. Mr. Colon receives an annual
base salary of $200,000, subject to annual adjustments at the sole discretion of the board of directors. Annually, Mr. Colon is
entitled to a cash bonus of up to 25% of annual base salary based on the achievement of revenue targets, EBITDA targets and specific
objectives, all determined by the board of directors. If Mr. Colon voluntarily resigns or is terminated for cause during the period
of employment, then he is not entitled to receive any benefit or compensation following the date of termination. If terminated
without cause during his initial term, Mr. Colon is entitled to severance of an amount equal to six months of his annual base salary.
If terminated without cause subsequent to his initial term, Mr. Colon is entitled to receive severance of an amount equal to his
annual base salary.
30
Retirement Plans
We do not provide any retirement plans
or deferred compensation plans to named Executive Officers that are not generally available to all other employees.
Severance Arrangements
Assuming the employment of our named executive
officers were to be terminated without cause, each as of December 31, 2011, the following individuals would be entitled to payments
in the amounts set forth opposite to their name in the below table:
Cash Severance
No Change in Control
Change in Control
Derek Dunaway
(1)
$
437,500
$
787,500
Michael Bielonko
(2)
$
302,500
$
522,500
Monte Pickens
(3)
$
645,667
$
895,833
(1)
Derek Dunaway resigned as President and CEO on March 30, 2012, effective April 2, 2012. His separation
agreement calls for salary continuation, totaling $350,000, as well as accelerated vesting of certain previously awarded equity
compensation.
(2)
Michael Bielonko has entered into a new employment agreement, effective April 19, 2012, that would
result in lesser amounts actually being paid to him than shown in the table if he were terminated as of the date of this prospectus.
(3)
Monte Pickens resigned as Executive Vice President on April 25, 2012, effective May 1, 2012. His
separation agreement calls for salary continuation, totaling $212,500. Mr. Pickens has also retained previously awarded equity
compensation as a result of his new consulting agreement with us.
We are not obligated
to make any cash payments to these executives if their employment is terminated by us for cause or by death or disability, other
than the payment of accrued but unpaid annual salary and bonus, if any, and reimbursement of accrued but unpaid business expenses.
Assuming the employment
of our named executive officers were to be terminated without cause or for good reason, each as of December 31, 2011, the following
individuals would be entitled to accelerated vesting of their outstanding stock options and common stock awards described in the
table below:
Value
of Equity Awards:
Termination Without
Cause
(1)
Value of Equity Awards:
In
Connection With a
Change in Control
(1)
Derek Dunaway
(2)
$
540,619
$
540,619
Michael Bielonko
$
165,623
$
165,623
Monte Pickens
(3)
$
75,000
$
75,000
(1)
The market price of our common stock on the OTCBB on December 31, 2011 was $3.75 per share.
(2)
Derek Dunaway resigned as President and CEO on March 30, 2012, effective April 2, 2012. Pursuant
to his separation agreement, all of Mr. Dunaway's outstanding equity awards are vested in full.
(3)
Monte Pickens resigned as Executive Vice President on April 25, 2012, effective May 1, 2012. In accordance with his separation
agreement, Mr. Pickens has retained all outstanding equity awards as a result of his new consulting agreement with us.
31
Director Compensation
Our director compensation policy for 2011
was to provide each non-employee director with an award of 7,500 options to purchase common stock at $4.50 per share as compensation
for services rendered from their election on June 16, 2011 until the next annual meeting. John G. Meyer, Jr. was compensated with
an additional 50,000 options to purchase common stock at $4.60 per share which vest equally in three annual installments. In addition,
John G. Meyer, Jr. also receives $25,000 annually, paid in quarterly installments. No other compensation was paid to non-employee
directors. All directors are reimbursed for travel and other expenses directly related to activities as directors.
The following table provides compensation
information for our non-employee directors for 2011.
Name
Fees
Earned or
Paid in
Cash
($)
Stock
Awards
($)
Option
Awards
($)
(1)
Total
($)
Total Number of Option Awards
Outstanding
at December 31, 2011 (#)
Winston Churchill
—
—
15,825
15,825
22,500
Yaron Eitan
—
—
15,825
15,825
22,500
Jason Epstein
—
—
15,825
15,825
22,500
Andrew Intrater
—
—
15,825
15,825
15,000
Frank Kline
(2)
—
—
15,825
15,825
22,500
John G. Meyer, Jr.
12,500
—
116,825
129,325
82,500
Thomas G. Rebar
—
—
15,825
15,825
22,500
Yair Shamir
—
—
15,825
15,825
22,500
James Valentine
(3)
—
—
—
—
—
(1)
The amounts reflect the amounts recognized in accordance with ASC 718,
Compensation-Stock
Compensation
. Assumptions used in the calculation of these amounts are included in Note 19 to our audited financial statements
for the year ended December 31, 2011 included in our annual report on Form 10-K for the year ended December 31, 2011.
(2)
On November 23, 2011, Frank Kline resigned from the Board of Directors.
(3)
On November 23, 2011, James Valentine was appointed to the Board of Directors.
Cyalume's subsidiaries did not pay
their Directors any compensation other than the repayment of expenses incurred in performing their functions as a Director.
Insider Trading and Speculation Policy
We have established policies prohibiting
our officers, Directors and employees from purchasing or selling Cyalume securities while in possession of material, non-public
information, or otherwise using such information for their personal benefit or in any manner that would violate applicable laws
and regulations. In addition, our policies prohibit our officers, Directors and employees from speculating in our stock, which
includes short selling (profiting if the market price of our stock decreases), buying or selling publicly traded options (including
writing covered calls), hedging, or other types of derivative arrangements that have a similar economic effect.
32
SELLING STOCKHOLDERS
The Selling Stockholders may from time
to time offer and sell any or all of the shares of our common stock set forth below pursuant to this prospectus. When we refer
to ''Selling Stockholders'' in this prospectus, we mean the persons listed in the table below, and the
pledges, donees, permitted transferees, assignees, successors and others who later come to hold any of the Selling Stockholders'
interests in shares of our common stock other than through a public sale.
The following
table sets forth, as of April 25, 2012:
·
the name of the Selling Stockholders for whom we are registering shares for resale to the public,
·
the number of shares of common stock that the Selling Stockholders beneficially owned prior to the offering for resale of the shares under this prospectus,
·
the number of shares of our common stock that may be offered for resale for the account of the Selling Stockholders pursuant to this prospectus, and
·
the number and percentage of shares of our common stock to be beneficially owned by the Selling Stockholders after the offering of the resale shares, assuming all of the offered resale shares are sold by the Selling Stockholders.
On December 17 and 18, 2008, GMS and certain
designees purchased an aggregate of 2,252,050 shares of Cyalume common stock from public stockholders in privately negotiated transactions
at a price per share that ranged between $8.01 and $8.03, for an aggregate purchase price of $18,054,322. On that date Winston
Churchill, our Chairman, agreed to purchase (or have his designees purchase) the 2,252,050 shares of Cyalume common stock purchased
by GMS and certain of its designees for up to $10.0 million. The purchase by Mr. Churchill and his designees was divided into two
tranches. On January 15, 2009, Mr. Churchill and his designees purchased 625,000 shares of Cyalume common stock at a purchase price
of $4.00 per share, for $2.5 million in cash from GMS. Pursuant to the agreement between GMS and Mr. Churchill, GMS has an option
to sell to Mr. Churchill or his designees an additional 1,562,500 shares of Cyalume's common stock at $4.80 per share for
an aggregate purchase price of $7,500,000.
We cannot advise you as to whether the
Selling Stockholders will in fact sell any or all of such shares of common stock. In addition, the Selling Stockholders may have
sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, the
shares of our common stock in transactions exempt from the registration requirements of the Securities Act after the date on which
it provided the information set forth on the table below. This table is prepared solely based on information supplied to us by
the listed Selling Stockholders, any Schedules 13D or 13G and Forms 3 and 4, and other public documents filed with the SEC, and
assumes the sale of all of the shares offered hereby. None of the Selling Stockholders has had within the past three years, any
position, office or other material relationship with us or with our predecessor or affiliates.
Name of Selling Stockholder
Number of
Shares of
Common Stock
Beneficially
Owned Prior
to the
Offering
(1)
Total
Number of
Shares of
Common Stock
Owned Being
Registered
Number of
Shares of
Common Stock
Beneficially
Owned After
the Offering
(1)
Percentage of
Common Stock
Beneficially
Owned After the
Offering
(1)
Winston Churchill
1,397,277
(2)
1,371,277
26,000
*
Yaron Eitan
672,743
(3)
604,993
67,750
*
Amit Avnet
167,500
167,500
0
*
Ehud Barak
93,750
93,750
0
*
Isaac Applbaum
104,665
93,750
10,915
*
Marc L. Abramowitz
99,985
93,750
6,235
*
Archie Clemins
108,750
(4)
93,750
15,000
*
Joseph T. Gorman
108,750
(4)
93,750
15,000
*
Catalyst Private Equity Partners (Israel) II LP
797,616
(5)
775,116
22,500
*
Cova Small Cap Holdings, LLC
4,024,339
(6)
4,024,339
0
*
Kline Hawkes Pacific, L.P
2,223,345
(6)
2,223,345
0
*
Stephen Weinroth
305,636
(6)
305,636
0
*
The Volpe Revocable Trust
326,061
(6)
326,061
0
*
The Charlton T. Volpe 2003 Irrevocable Trust
40,758
(6)
40,758
0
*
The Dwight Andrew Volpe 2004 Irrevocable Trust
40,758
(6)
40,758
0
*
Kline Hawkes Pacific Friends Fund, L.P.
102,087
(6)
102,087
0
*
Jim Valentine
76,347
(6)
76,347
0
*
Joseph M. Cohen
109,964
(6)
109,964
0
*
Bruce Raben
30,539
(6)
30,539
0
*
Marceau Schlumberger
21,992
(6)
21,992
0
*
Paul Lipari Living Trust
15,022
(6)
15,022
0
*
Murray Schwartz
20,313
(6)
20,313
0
*
Emil Jachmann
170,814
(6)
170,814
0
*
Michael Bielonko
86,831
(7)
41,373
45,458
*
Tom McCarthy
53,873
(7)
41,373
12,500
*
Earl Cranor
254,873
(7)
41,373
213,500
1.28
%
Paul Challenger
13,791
(7)
13,791
0
*
Sandor Weisz
51,244
(6)
51,244
0
*
LKCM Private Discipline Master Fund, SPC
79,839
79,839
0
*
Sharbaugh Trust U/A dtd 12/14/92 FBO John Justin Churchill
125,000
(8)
125,000
0
*
Ira Brind
25,000
25,000
0
*
Lotman Holdings, Inc.
80,000
(9)
80,000
0
*
Lucy C. Danziger
12,500
12,500
0
*
LC Danziger Trust dated 6/14/51
12,500
(10)
12,500
0
*
James J. Kim
125,000
125,000
0
*
Thomas and Kathleen Lynch
2,500
2,500
0
*
Charles C. Freyer
5,000
5,000
0
*
Roger A. & Helena S. Carolin (tenants by entirety)
5,000
5,000
0
*
Thomas G. Rebar
197,636
(11)
174,136
23,500
*
Wayne B. Weisman
174,140
(12)
174,140
0
*
Doron Cohen
74,175
(13)
74,175
0
*
Province of British Columbia (nominee: (Hare & Co))
140,695
(14)
140,695
0
*
Wellington Trust Company, National Association Multiple Collective Investment Funds Trust, Emerging Companies Portfolio (nominee: ( Wellington Trust Company, National Association Multiple Collective Investment Funds Trust, Emerging Companies Portfolio C/O BBH & Co.))
283,739
(14)
283,739
0
*
Wellington Trust Company, National Association Multiple Common Trust Funds Trust, Emerging Companies Portfolio (nominee: (Landwatch & Co))
75,673
(14)
75,673
0
*
Dow Employees' Pension Plan (nominee: (Kane & Co))
91,000
(14)
91,000
0
*
Oregon Public Employees Retirement Fund (nominee: (Westcoast & Co))
201,945
(14)
201,945
0
*
Radian Group Inc. (nominee: (Ell & Co))
38,826
(14)
38,826
0
*
Union Carbide Employees' Pension Plan (nominee: (Kane & Co))
39,945
(14)
39,945
0
*
Granite Creek Flexcap I, L.P.
94,118
(15)
94,118
0
*
Patriot Capital II, L.P.
65,882
(16)
65,882
0
*
JFC Technologies, LLC
605,934
(17)
605,934
0
*
Arthur Cornelson
28,490
(18)
28,490
0
*
Hemant Desai
28,490
(18)
28,490
0
*
Dina Kisver
14,245
(18)
14,245
0
*
Sham Redkar
14,245
(18)
14,245
0
*
Cheng Guo
14,245
(18)
14,245
0
*
Vilas Chopdekar
7,122
(18)
7,122
0
*
Antonio Colon
125,928
(19)
125,928
0
*
David Tolson
3,828
(19)
3,828
0
*
Christopher Younger
3,828
(19)
3,828
0
*
East Shore Ventures, LLC
0
(20)
1,111,963
0
*
* Represents beneficial ownership of less than one percent of
our outstanding shares.
33
(1)
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, securities that are currently convertible or exercisable into shares of our common stock, or convertible or exercisable into shares of our common stock within 60 days of the date hereof are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to the following table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name. The percentage of beneficial ownership is based on 18,285,092 shares of common stock outstanding as of April 25, 2012.
(2)
Consists of (i) 1,372,277 shares of common stock held directly, (ii) options to purchase 25,000 shares of common stock held directly.
(3)
Consists of (i) 650,243 shares of common stock held directly, (ii) options to purchase 22,500 shares of common stock held directly (iii) 83,250 shares of common stock held by Selway Capital, LLC and (iv) 5,000 shares of common stock held by Mr. Eitan's child.
(4)
Consists of 93,750 shares and options to purchase 15,000 shares of common stock.
(5)
Consists of (i) 775,116 shares of common stock held directly and (ii) options to purchase 22,500 shares of common stock owned by Yair Shamir, who has voting and dispositive power of Catalyst Private Equity Partners (Israel) II LP.
(6)
Such holder is a member of GMS Acquisition Partners Holdings, LLC. Beneficial ownership reflects shares attributable to such member by GMS without giving effect to certain expenses that could decrease the number of shares beneficially owned by such member.
(7)
In addition to such holder being a member of GMS Acquisition Partners Holdings, LLC (see (7) above), includes shares and options granted under the 2009 Omnibus Securities and Incentive Plan.
(8)
Thomas J. Sharbaugh is the trustee of the Sharbaugh Trust U/A dated 12/14/92 FBO John Justin Churchill.
(9)
Herbert Lotman controls Lotman Holdings, Inc.
(10)
Frederick and Lucy Danziger control the LC Danziger Trust dated 6/14/51.
(11)
Consists of (i) 174,136 shares of common stock held directly, (ii) options to purchase 22,500 shares of common stock held directly.
(12)
Consists of 174,140 shares of common stock held directly.
(13)
Consists of 74,175 shares of common stock held directly.
(14)
Wellington Management Company, LLP ("Wellington Management") is an investment adviser registered under the Investment Advisers Act. Wellington Management, in such capacity, may be deemed to share beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) over the shares held by its client accounts. The business address of Wellington Management, is 280 Congress Street, Boston, MA 02210.
(15)
Consists entirely of warrants to purchase our common stock. Granite Creek Partners, LLC ("Granite Creek")  has the power to vote and dispose of the shares underlying such warrants. The business address of Granite Creek is 222 West Adams Street, Suite 1980, Chicago, IL 60606.
(16)
Consists entirely of warrants to purchase our common stock. Thomas O. Holland, Jr. has the power to vote and dispose of the shares underlying such warrants. The business address of Mr. Holland is 509 S. Exeter Street, Suite 210, Baltimore, MD 21202.
(17)
Consists of restricted stock issued in conjunction with an asset purchase agreement relating to our acquisition of certain assets of JFC Technologies, LLC in August 2011. James G. Schleck has the power to vote and dispose of the shares.  The business address of Mr. Schleck is 100 West Main Street, Bound Brook, NJ 08805.
(18)
Consists of restricted stock issued in conjunction with an asset purchase agreement relating to our acquisition of certain assets of JFC Technologies, LLC in August 2011.
(19)
Consists of restricted stock issued in conjunction with a stock purchase agreement relating to our acquisition of the stock of Combat Training Solutions, Inc. in December 2011.
(20)
Consists entirely of options to purchase our common stock, which are not currently exercisable.  Zivi Nedivi, our President and Chief Executive Officer, has the power to vote and dispose of the shares underlying such warrants. The business address of Mr. Nedivi is P.O. Box 1767, New York, NY 10150.
34
PLAN OF DISTRIBUTION
We are registering
the Common Stock issued to the Selling Stockholders to permit the resale of these shares of Common Stock by the holders of the
Common Stock from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the
Selling Stockholders of the Common Stock. We will bear all fees and expenses incident to our obligation to register the Common
Stock.
The Selling Stockholders
may sell all or a portion of the Common Stock beneficially owned by them and offered hereby from time to time directly or through
one or more underwriters, broker-dealers or agents. If the Common Stock is sold through underwriters or broker-dealers, the Selling
Stockholders will be responsible for underwriting discounts or commissions or agent's commissions. The Common Stock may be sold
on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale, in
the over-the-counter market or in transactions otherwise than on these exchanges or systems or in the over-the-counter market and
in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions.
The Selling Stockholders may use any one or more of the following methods when selling shares:
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
·
an exchange distribution in accordance with the rules of the applicable exchange;
·
privately negotiated transactions;
·
settlement of short sales entered into after the effective date of the registration statement of
which this prospectus is a part;
·
broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares
at a stipulated price per share;
·
through the writing or settlement of options or other hedging transactions, whether such options
are listed on an options exchange or otherwise;
·
a combination of any such methods of sale; and
·
any other method permitted pursuant to applicable law.
The Selling Stockholders
also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act,
as permitted by that rule, or Section 4(1) under the Securities Act, if available, rather than under this prospectus, provided
that they meet the criteria and conform to the requirements of those provisions.
Broker-dealers engaged
by the Selling Stockholders may arrange for other broker-dealers to participate in sales. If the Selling Stockholders effect such
transactions by selling Common Stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or
agents may receive commissions in the form of discounts, concessions or commissions from the Selling Stockholders or commissions
from purchasers of the Common Stock for whom they may act as agent or to whom they may sell as principal. Such commissions will
be in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction
will not be in excess of a customary brokerage commission in compliance with NASD Rule 2440; and in the case of a principal transaction
a markup or markdown in compliance with NASD IM-2440.
35
In connection with
sales of the Common Stock or otherwise, the Selling Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging in positions they
assume. The Selling Stockholders may also sell Common Stock short and if such short sale shall take place after the date that this
Registration Statement is declared effective by the Commission, the Selling Stockholders may deliver Common Stock covered by this
prospectus to close out short positions and to return borrowed shares in connection with such short sales. The Selling Stockholders
may also loan or pledge Common Stock to broker-dealers that in turn may sell such shares, to the extent permitted by applicable
law. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions
or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution
of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction). Notwithstanding the foregoing, the Selling Stockholders have
been advised that they may not use shares registered on this registration statement to cover short sales of our Common Stock made
prior to the date the registration statement, of which this prospectus forms a part, has been declared effective by the SEC.
The Selling Stockholders
may, from time to time, pledge or grant a security interest in some or all of the Common Stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties may offer and sell the Common Stock from time
to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act of 1933, as amended, amending, if necessary, the list of Selling Stockholders to include the pledgee, transferee
or other successors in interest as Selling Stockholders under this prospectus. The Selling Stockholders also may transfer and donate
the Common Stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.
The Selling Stockholders
and any broker-dealer or agents participating in the distribution of the Common Stock may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act in connection with such sales. In such event, any commissions paid, or
any discounts or concessions allowed to, any such broker-dealer or agent and any profit on the resale of the shares purchased by
them may be deemed to be underwriting commissions or discounts under the Securities Act. Selling Stockholders who are "underwriters"
within the meaning of Section 2(11) of the Securities Act will be subject to the applicable prospectus delivery requirements of
the Securities Act and may be subject to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17
of the Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Each Selling Stockholder
has informed us that it is not a registered broker-dealer and does not have any written or oral agreement or understanding, directly
or indirectly, with any person to distribute the Common Stock. Upon our being notified in writing by a Selling Stockholder that
any material arrangement has been entered into with a broker-dealer for the sale of Common Stock through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus
will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such Selling Stockholder
and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the Common Stock was
sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s)
did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other
facts material to the transaction. In no event shall any broker-dealer receive fees, commissions and markups, which, in the aggregate,
would exceed eight percent (8%).
Under the securities
laws of some states, the Common Stock may be sold in such states only through registered or licensed brokers or dealers. In addition,
in some states the Common Stock may not be sold unless such shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied with.
There can be no assurance
that any Selling Stockholder will sell any or all of the Common Stock registered pursuant to the shelf registration statement,
of which this prospectus forms a part.
Each Selling Stockholder
and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation
M of the Exchange Act, which may limit the timing of purchases and sales of any of the Common Stock by the Selling Stockholder
and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged
in the distribution of the Common Stock to engage in market-making activities with respect to the Common Stock. All of the foregoing
may affect the marketability of the Common Stock and the ability of any person or entity to engage in market-making activities
with respect to the Common Stock.
We will pay all expenses
of the registration of the Common Stock pursuant to the registration rights agreement, including, without limitation, Securities
and Exchange Commission filing fees and expenses of compliance with state securities or "blue sky" laws;
provided
,
however
, that each Selling Stockholder will pay all underwriting discounts and selling commissions, if any and any related
legal expenses incurred by it. We will indemnify the Selling Stockholders against certain liabilities, including some liabilities
under the Securities Act, in accordance with the registration rights agreement, or the Selling Stockholders will be entitled to
contribution. We may be indemnified by the Selling Stockholders against civil liabilities, including liabilities under the Securities
Act, that may arise from any written information furnished to us by the Selling Stockholders specifically for use in this prospectus,
in accordance with the related registration rights agreements, or we may be entitled to contribution.
36
PRINCIPAL STOCKHOLDERS
The following table
sets forth certain information regarding beneficial ownership of Cyalume's common stock by each person who is known by us
to beneficially own more than 5% of our common stock. The table also identifies the stock ownership of each of our Directors, each
of our named Executive Officers, and all Directors and officers as a group. Except as otherwise indicated, the stockholders listed
in the table have sole voting and investment powers with respect to the shares indicated.
Shares of common stock
which an individual or group has a right to acquire within 60 days pursuant to the exercise or conversion of options, warrants
or other similar convertible or derivative securities are deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table.
The applicable percentage
of ownership is based on 18,285,092 shares outstanding as of April 25, 2012.
Name and Address of Beneficial Owner
(1)
Amount and
Nature of
Beneficial
Ownership
Approximate
Percentage of
Common Stock
Winston J. Churchill (2)
1,397,277
7.64
%
Yaron Eitan (3)
672,743
3.68
%
Zivi Nedivi (4)
0
0
%
Michael Bielonko (5)
86,831
*
Jason Epstein (6)
22,500
*
Andrew Intrater (7)
15,000
*
John G. Meyer, Jr. (8)
32,500
*
Thomas G. Rebar (9)
197,637
1.08
%
Yair Shamir (10)
797,616
4.36
%
James Valentine
76,346
*
Kline Hawkes Pacific Advisors, LLC (11)
2,320,815
12.69
%
Cova Small Cap Holdings, LLC (6)
4,024,339
22.01
%
All Directors and Executive Officers as a group and their affiliates
9,643,604
52.74
%
*
Less than 1%.
(1)
The business address of each of our officers and Directors is 96 Windsor Street, West Springfield, Massachusetts 01089
(2)
Based on information contained in a Schedule 13G filed by Winston Churchill on February 14, 2012.  Consists of (i) 1,372,277 shares of common stock held directly, (ii) options to purchase 25,000 shares of common stock held directly.
(3)
Based on information contained in a Schedule 13G filed by Yaron Eitan on February 14, 2012.  Consists of (i) 561,993 shares of common stock held directly, (ii) options to purchase 22,500 shares of common stock held directly, (iii) 83,250 shares of common stock held by Selway Capital, LLC, Mr. Eitan is the Manager of Selway Capital, LLC and (iv) 5,000 shares of common stock held by Mr. Eitan's minor child.
(4)
Does not include options to purchase 1,111,963 shares held by East Shore Ventures, LLC which vest in five equal annual increments starting on April 2, 2013.
(5)
Consists of: (i) 86,831 shares of common stock, of which 44,166 shares vest in various increments starting on January 1, 2012.
(6)
Based on information contained in a Schedule 13D/A filed by GMS Acquisition Partners Holdings, LLC, Cova Small Cap Holdings, LLC ("Cova"), Jason Epstein, Andrew Intrater, Renova US Holdings Ltd, Columbus Nova Investments IV Ltd, CN Special Opportunity Fund Ltd. and CN Credit Opportunities Fund 2007-1 Ltd on August 12, 2009, as well as subsequent issuances by us.  Mr. Epstein directly holds an option to purchase 22,500 shares of our Common Stock; however, pursuant to a privately negotiated agreement with Cova, Mr. Epstein has agreed to transfer ownership of all common stock underlying the stock option to Cova upon exercise of the stock option.  Cova is an affiliate of Renova U.S. Management LLC, in which Mr. Epstein serves as a Manager and participates in a profit sharing plan.  Mr. Epstein disclaims beneficial ownership over the 4,024,339 shares of common stock held of record by Cova.  Cova may be deemed to own an aggregate of 5,332,367 shares of common stock by virtue of their having entered into in an Investors Rights Agreement with GMS Acquisition Partners Holdings, LLC, an entity controlled by Cova. Andrew Intrater has voting and dispositive power over the shares of common stock held by Cova.  Cova's business address is Citigroup Center, 153 E. 53
rd
St., 58
th
Floor, New York, NY 10022.
(7)
Includes a stock option to purchase 15,000 shares of common stock held of record by Mr. Intrater. Cova is an affiliate of Renova U.S. Management LLC, in which Mr. Intrater serves as the Managing Partner and participates in a profit sharing plan.  Mr. Intrater disclaims beneficial ownership over the 4,024,339 shares of common stock held of record by Cova.
37
(8)
Includes options to purchase 32,500 shares of common stock held directly.
(9)
Consists of: (i) options to purchase 22,500 shares of common stock held directly and (ii) 175,137 shares of common stock held directly.
(10)
Consists of (i) options to purchase 22,500 shares of common stock held directly and (ii) 775,116 shares of common stock owned by Catalyst Private Equity Partners (Israel) II LP, over which Yair Shamir has voting and dispositive power.
(11)
Kline Hawkes business address is 11726 San Vicente Blvd., Suite 300, Los Angeles, CA 90049.
38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Debt
During 2011, we repaid
unsecured notes payable to three stockholders (Messrs. Winston Churchill, Thomas G. Rebar and Wayne Weisman, partners of SCP Private
Equity Management Company, LLC ("SCP")) along with all accrued interest, totaling $1,165,121, via the issuance of 253,288
common shares. SCP also owns stock in Cyalume and three Directors are members of SCP. These notes payable were in principal amounts
of $800,000, $100,000 and $100,000, respectively. Each note bore interest at 6%, which was calculated quarterly and paid in-kind
(added to the unpaid principal balance). At December 31, 2010, outstanding principal on these notes totaled $1.1 million.
Management Agreement
with Board Member
On October 1, 2009,
we entered into a management agreement with Selway Capital, LLC ("Selway") that provides for (but is not limited to)
the following services to be performed by Selway on our behalf:
•
Strategic development and implementation as well as consultation with our chief executive officer on a regular basis as per his reasonable requests;
•
Identifying strategic partnerships with companies with which Selway has relationships and access, including building partnerships with companies in Israel, Singapore, India and Europe. The focus will be on the expansion of our munitions business;
•
Advise and support us investor relations strategy;
•
Advise and support future fund raising, including identifying sources of capital in the United States; and
•
Support our mergers and acquisitions strategy and play an active role in due diligence and analysis.
The management agreement
stipulated that these services would be performed by Yaron Eitan, an employee of Selway and a member of our Board of Directors,
with assistance, as needed, from other employees of Selway. The management agreement was retroactive to August 1, 2009, expires
on October 1, 2012 and could be terminated by either us or Selway upon 30-days written notice or upon our default in payment or
Selway's failure to perform services under the management agreement. Under the management agreement, we indemnified Selway
and Selway indemnified us against certain losses that could have been incurred while carrying out its obligations under the management
agreement. Through July 2010, Selway's compensation for these services was $41,667 per month. However, we were only required
to pay $16,000 per month, with the balance of $25,667 per month remaining unpaid until our senior lender consented to such payment.
We also reimbursed Selway for costs incurred specifically on our behalf for these services.
Additionally, Selway
was able to earn a $210,000 bonus, payable in cash or common stock at the discretion of our Board of Directors. That bonus for
the year ended December 31, 2009 was approved by our Board of Directors on March 17, 2010 and is reflected in the 2009 consolidated
financial statements. Accordingly, 60,000 shares of common stock, valued at $210,000, were issued to Selway in 2010 for this bonus.
On July 29, 2010 we
amended our management agreement (the "Amended Management Agreement") with Selway. Pursuant to the Amended Management
Agreement, (i) the compensation payable to Selway was reduced to $11,667 and (ii) we issued to Selway 45,000 shares of common stock
in full satisfaction of all accrued and unpaid liabilities (including all management fees) owed to Selway pursuant to the management
agreement through July 2010. Those 45,000 shares were issued in July 2010. There is no provision for an additional bonus in the
Amended Management Agreement. Other terms and conditions of the management agreement remained unchanged.
39
DESCRIPTION OF SECURITIES
General
We are authorized
to issue 50,000,000 shares of common stock, par value $.001, and 1,000,000 shares of preferred stock, par value $.001. As of the
date of this prospectus, 18,285,092 shares of common stock are outstanding, held by 180 holders of record. No shares of preferred
stock are currently outstanding.
Common Stock
Holders of our common
stock are entitled to one vote for each share on all matters submitted to a vote of stockholders and do not have cumulative voting
rights. Subject to the preferences and rights, if any, applicable to preferred stock, holders of our common stock are entitled
to receive dividends if and when declared by the Board of Directors. Subject to the prior rights of the holders, if any, of preferred
shares, holders of common stock are entitled to share ratably in any distribution of our assets upon liquidation, dissolution or
winding-up, after satisfaction of all debts and other liabilities.
Preferred Stock
Shares of preferred
stock may be issued from time to time in one or more series. Our Board of Directors, without approval of the stockholders, are
authorized to designate series of preferred stock and to fix the rights, privileges, restrictions and conditions to be attached
to each such series. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting power of the common stock.
As of the date of
this prospectus, there are no outstanding shares of preferred stock of any series.
Warrants
We have 160,000 private
warrants currently outstanding entitling the registered holder to purchase one share of common stock at $1.50 per share and 1,111,963
private warrants currently outstanding entitling the registered holder to purchase one share of common stock at $3.60 per share.
In connection with
the transaction with Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P., we issued to Granite Creek Flexcap I, L.P. and
Patriot Capital II, L.P. warrants to purchase up to 160,000 shares of our common stock on July 29, 2010. The warrants terminate
five years after issuance and are exercisable for $1.50 per share of our common stock according to the amendment with Granite Creek
Flexcap I, L.P. and Patriot Capital II, L.P., which was completed on March 30, 2012. The warrants are exercisable on a cashless
basis at the option of Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P. The warrants have standard anti-dilution protection
upon a distribution of dividends or a reclassification of Cyalume's common stock in connection with the issuance of the warrants.
The agreement provides that Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P. will be entitled to demand and piggyback
registration rights.
On April 2, 2012,
in connection with a Management Services Agreement with East Shore Ventures, LLC, we issued East Shore Ventures, LLC warrants to
purchase up to 1,111,963 shares of our common stock, which vest in five equal installments on the anniversary date of the agreement.
The agreement provided that options exercisable for an aggregate of up to 141,333 shares will not vest on such anniversaries unless,
and until, a proportional number of shares underlying the warrants issued to Granite Creek FlexCap I, L.P. and/or Patriot Capital
II, LP are exercised. The warrants terminate ten years after issuance and are exercisable for $3.60. The warrants are exercisable
on a cashless basis at the option of East Shore Ventures, LLC. The warrants have standard anti-dilution protection upon a distribution
of dividends or a reclassification of Cyalume's common stock in connection with the issuance of the warrants. The agreement
provides that East Shore Ventures, LLC will be entitled to demand and piggyback registration rights.
Unissued Shares of Capital Stock
Common
Stock.
As of April 25, 2012, we had 18,285,092 shares of common stock outstanding and 31,714,908 authorized and unissued
common stock were available for future issuance without additional stockholder approval. While the additional shares are not designed
to deter or prevent a change of control, under some circumstances we could use them to create voting impediments or to frustrate
persons seeking to effect a takeover or otherwise gain control, by, for example, issuing shares in private placements to purchasers
who might side with the Board of Directors in opposing a hostile takeover bid.
40
Preferred Stock.
Our Fifth Amended and Restated Certificate of Incorporation grants the Board of Directors the authority, without any further vote
or action by stockholders, to issue preferred stock in one or more series, fix the number of shares constituting the series and
establish the preferences, limitations and relative rights, including dividend rights, dividend rate, voting rights, terms of redemption,
redemption price or prices, redemption rights and liquidation preferences of the shares of the series. The existence of authorized
but unissued preferred stock could reduce our attractiveness as a target for an unsolicited takeover bid, since we could, for example,
issue preferred stock to parties who might oppose such a takeover bid, or issue shares with terms the potential acquirer may find
unattractive. This may have the effect of delaying or preventing a change in control, discourage bids for the common stock at a
premium over the market price, and adversely affect the market price, and voting and other rights of holders of common stock.
Limitation of Liability of Directors
and Officers
Our Fifth Amended
and Restated Certificate of Incorporation provides that no Director will be personally liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a Director, except to the extent this limitation or exemption is not permitted by the Delaware
General Corporation Law. As currently enacted, the Delaware General Corporation Law permits a corporation to provide in its certificate
of incorporation that a Director will not be personally liable to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except for liability for: (i) any breach of the Director's duty of loyalty; (ii)
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) payments of unlawful
dividends or unlawful stock repurchases or redemptions or (iv) any transaction from which the Director derived an improper personal
benefit.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a
successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
41
The principal effect
of this provision is that a stockholder will be unable to recover monetary damages against a director for breach of fiduciary duty
unless the stockholder can demonstrate that one of the exceptions listed above applies. This provision, however, does not eliminate
or limit liability arising under federal securities laws. Our charter does not eliminate the fiduciary duties of our directors.
The inclusion of this provision in our charter may, however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an action, if successful, might otherwise have benefited
us or our stockholders. This provision should not affect the availability of equitable remedies such as injunction or rescission
based upon a director's breach of his or her fiduciary duties.
The Delaware General
Corporation Law provides that a corporation may indemnify its directors and officers as well as its other employees and agents
against judgments, fines, amounts paid in settlement and expenses, including attorneys' fees, in connection with various
proceedings, other than an action brought by or in the right of the corporation, if such person acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal
action or proceeding, if he or she had no reasonable cause to believe his or her conduct was unlawful. A similar standard is applicable
in the case of an action brought by or in the right of the corporation (commonly known as ''derivative suits''),
except that indemnification in such a case may only extend to expenses, including attorneys' fees, incurred in connection
with the defense or settlement of such actions, and the statute requires court approval before there can be any indemnification
where the person seeking indemnification has been found liable to the corporation. Our charter and, with regard to our officers,
our bylaws, provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. Under these
provisions and subject to the Delaware General Corporation Law, we are required to indemnify our directors and officers for all
judgments, fines, settlements, legal fees and other expenses incurred in connection with pending or threatened legal proceedings
because of the director's or officer's position with us or another entity that the director or officer serves as a
director, officer, employee or agent at our request, subject to various conditions, and to advance funds to the our directors and
officers before final disposition of such proceedings to enable them to defend against such proceedings. To receive indemnification,
the director or officer must have been successful in the legal proceeding or have acted in good faith and in what was reasonably
believed to be a lawful manner in our best interest. The bylaws also specifically authorize us to maintain insurance on behalf
of any person who is or was or has agreed to become a director, officer, employee or agent of us, or is or was serving at our request
as a director, officer, employee or agent of another entity, against certain liabilities.
Change of Control Provisions
A number of provisions
in our charter and bylaws and under Delaware law may make it more difficult to acquire control of us. These provisions may have
the effect of delaying, deferring, discouraging, preventing or rendering more difficult a future takeover attempt which is not
approved by our Board of Directors, but which individual stockholders may deem to be in their best interests or in which they may
receive a substantial premium over then-current market prices. As a result, stockholders who might desire to participate in such
a transaction may not have an opportunity to do so. These provisions may also adversely affect the prevailing market price of the
common stock. These provisions are intended to:
·
Enhance the likelihood of continuity and stability in the Board of Directors;
·
Discourage some types of transactions that may involve an actual or threatened change in control;
·
Discourage certain tactics that may be used in proxy fights;
·
Ensure that the Board of Directors will have sufficient time to act in our best interest and the best interest of our stockholders; and
·
Encourage persons seeking to acquire control to consult first with the Board of Directors to negotiate the terms of any proposed business combination or offer.
Transfer Agent and Registrar
The Transfer Agent
and Registrar for our common stock, warrants and units is American Stock Transfer & Trust Company, LLC, 59 Maiden Lane, Plaza
Level, New York, NY 10038, (718) 921-8124.
42
SHARES ELIGIBLE FOR FUTURE SALE
As of April 25, 2012,
we had 18,285,092 shares outstanding. Of these shares, 9,315,645 are restricted under the Securities Act of 1933, as amended (the
"Securities Act") and 8,969,447 are freely tradable without restriction or further registration under the Securities
Act.
Our
Board of Directors adopted the Cyalume Technologies Holdings, Inc. 2009 Omnibus Securities and Incentive Plan (the "Plan").
Under the Plan, two million shares have been reserved for potential issuance as incentives to certain employees and non-employees.
Subsequent to approval by shareholders at the 2009 Annual Meeting of Shareholders, we filed Form S-8 with the SEC to register the
shares under the Plan. Issuance of shares under the Plan will not provide capital and will cause dilution of earnings per share.
Under the Plan, we are authorized to issue up to two million shares of common stock, of which 197,419 shares are available for
future awards as of April 25, 2012.
In connection with
a subordinated, convertible debt financing with Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P., we issued Granite Creek
Flexcap I, L.P. and Patriot Capital II, L.P. warrants to purchase up to 160,000 shares of our common stock on July 29, 2010. The
warrants terminate five years after issuance and are exercisable for $1.50 per share of our common stock. The warrants contain
provisions for cashless exercise and standard anti-dilution protection upon a distribution of dividends or a reclassification of
our common stock in connection with the issuance of the warrants.
In connection with
a management services agreement with East Shore Ventures, LLC, we issued East Shore Ventures, LLC warrants to purchase up to 1,111,963
shares of our common stock on April 2, 2012. The warrants vest in five equal installments on the anniversary date of the agreement,
terminate ten years after issuance and are exercisable for $3.60 per share of our common stock. The warrants contain provisions
for cashless exercise and standard anti-dilution protection upon a distribution of dividends or a reclassification of our common
stock in connection with the issuance of the warrants.
Therefore, there will
be an aggregate of 1,271,963 shares that may be issued in the future upon exercise of outstanding warrants, consisting of 160,000
warrants issued to Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P and 1,111,963 warrants issued to East Shore Ventures,
LLC.
Rule 144
.
Rule 144 is unavailable for the resale of restricted securities initially issued by a ''blank-check'' or
''shell'' company, both before and after an initial business combination, despite technical compliance
with the requirements of Rule 144. Accordingly, such restricted securities can be resold only through a registered offering or
pursuant to another exemption from registration. Notwithstanding the foregoing, a person who beneficially owns restricted securities
of a company which:
·
has ceased to qualify as a ''blank-check'' or ''shell'' company;
·
is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
·
has filed all reports and other materials required
        to be filed by Section 13 or 15(d), as applicable, during the preceding 12
months (or such shorter period that the company was
        required to file such reports and materials); and
·
has filed certain information with the SEC (''Form 10 information'') reflecting that it is no longer a ''blank-check'' or ''shell'' company may, after one year has elapsed from the filing of the ''Form 10 information,'' within any three-month period resell a number of such restricted securities that does not, with respect to the ordinary shares, exceed the greater of either of the following:
·
1% of the total number of ordinary shares then outstanding; or
·
for securities trading on a national securities exchange,
        the average weekly trading volume of the ordinary shares during
the four calendar weeks preceding the filing of a
        notice on Form 144 with respect to the sale.
Sales under Rule 144
are also limited based on the availability of current public information about us, and, in the case of sales by affiliates, by
manner of sale provisions and notice requirements.
As of April 25, 2012, 17,438,737 shares
of our common stock were eligible for resale pursuant to Rule 144.
We can make no prediction
about the effect that market sales of our common stock or the availability for sale of our common stock will have on its market
price. Sales of substantial amounts of common stock in the public market could adversely affect the market price for our securities
and could impair our future ability to raise capital through the sale of common stock or securities linked to it.
43
LEGAL MATTERS
The validity of the
securities offered in this prospectus is being passed upon for us by Loeb & Loeb LLP, New York, New York.
EXPERTS
The consolidated
financial statements and schedule included in this prospectus and elsewhere in the registration statement have been so
included in reliance upon the report of Grant Thornton LLP, successor to the practice of CCR LLP and independent registered
public accountants, upon the authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with
the SEC a registration statement on Form S-1, which includes exhibits, schedules and amendments, under the Securities Act, with
respect to the shares to be sold in this offering. Although this prospectus, which forms a part of the registration statement,
contains all material information included in the registration statement, parts of the registration statement have been omitted
as permitted by rules and regulations of the SEC. We refer you to the registration statement and its exhibits for further information
about us, our securities and this offering. The registration statement and its exhibits, as well as our other reports filed with
the SEC, can be inspected and copied at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549-1004.
The public may obtain information about the operation of the public reference room by calling the SEC at 1-800-SEC-0330. In addition,
the SEC maintains a web site at
http://www.sec.gov
which contains the Form S-1 and other reports, proxy and
information statements and information regarding issuers that file electronically with the SEC. We are subject to the information
reporting requirements of the Securities Exchange Act of 1934, and we will file reports, proxy statements and other information
with the SEC.
44
INDEX TO FINANCIAL STATEMENTS
Cyalume Technologies Holdings, Inc.
Years ended December 31, 2011 and 2010
Page
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Financial Statements :
Consolidated Statements of Income
F-3
Consolidated Balance Sheets
F-4
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial Statements
F-7
Schedule II—Valuation and Qualifying Accounts
S-1
Signatures
S-2
F-
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Cyalume Technologies Holdings, Inc.
We have audited the accompanying consolidated
balance sheet of Cyalume Technologies Holdings, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
December 31, 2011, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income,
and cash flows for the year then ended. Our audit of the basic consolidated financial statements included the financial statement
schedule listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement
schedule based on our audit. The consolidated financial statements of the Company as of and for the year ended December 31, 2010
were audited by CCR LLP. We have since succeeded to the practice of such firm.
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 are free of material misstatement. The Company
is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Cyalume Technologies Holdings,
Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ GRANT THORNTON LLP
Glastonbury, Connecticut
April 16, 2012
F-
2
Cyalume Technologies Holdings, Inc.
Consolidated Statements of Income
(in thousands, except shares and per
share information)
For the Year
For the Year
Ended
Ended
December 31,
December 31,
2011
2010
Revenues
$
34,703
$
38,024
Cost of goods sold
18,568
18,857
Gross profit
16,135
19,167
Other expenses (income):
Sales and marketing
4,402
3,471
General and administrative
6,135
5,520
Research and development
1,888
1,663
Interest expense, net
2,330
2,559
Interest expense – related party
43
66
Amortization of intangible assets
1,805
1,794
Other income, net
(430
)
(184
)
Total other expenses
16,173
14,889
Income (loss) before income taxes
(38
)
4,278
Provision for (benefit from) income taxes
(365
)
1,665
Net income
$
327
$
2,613
Net income per common share:
Basic
$
.02
$
.17
Diluted
$
.02
$
.15
Weighted average shares used to compute net income per common share:
Basic
16,911,103
15,483,243
Diluted
18,470,638
16,806,275
The accompanying notes are an integral part
of these consolidated financial statements.
F-
3
Cyalume Technologies Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except shares and per
share information)
December 31,
December 31,
2011
2010
Assets
Current assets:
Cash
$
2,951
$
4,086
Accounts receivable, net of allowance for doubtful accounts of $206 and $62, respectively
3,339
1,925
Inventories
11,393
9,920
Income taxes refundable
38
—
Deferred income taxes
386
931
Prepaid expenses and other current assets
559
429
Total current assets
18,666
17,291
Property, plant and equipment, net
10,417
8,509
Goodwill
55,329
51,244
Other intangible assets, net
22,007
20,912
Due from related party
3,721
—
Restricted cash
600
—
Other noncurrent assets
154
286
Total assets
$
110,894
$
98,242
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of notes payable
$
1,592
$
1,453
Accounts payable
1,948
2,185
Accrued expenses
2,179
2,362
Notes payable to related party
250
—
Current portion of capital lease obligation
43
—
Income tax payable
—
700
Total current liabilities
6,012
6,700
Notes payable, net of current portion
18,975
22,715
Notes payable due to related parties, net of current portion
—
1,131
Line of credit due to related party
755
—
Deferred income taxes
7,145
8,147
Contingent consideration
3,699
—
Derivatives
273
365
Asset retirement obligation
175
166
Capital lease obligation, net of current portion
30
—
Contingent legal obligation
3,627
—
Total liabilities
40,691
39,224
Commitments and contingencies
—
—
Stockholders' equity
Preferred stock, $0.001 par value; 1,000,000 shares authorized, no shares issued or outstanding
—
—
Common stock, $0.001 par value; 50,000,000 shares authorized; 18,311,228 and 15,748,570 issued and outstanding, respectively
18
16
Additional paid-in capital
100,334
89,452
Accumulated deficit
(29,453
)
(29,780
)
Accumulated other comprehensive loss
(696
)
(670
)
Total stockholders' equity
70,203
59,018
Total liabilities and stockholders' equity
$
110,894
$
98,242
The accompanying notes are an integral part
of these consolidated financial statements.
F-
4
Cyalume Technologies Holdings, Inc.
Consolidated Statements of Changes in
Stockholders' Equity and Comprehensive Income
(in thousands,
except shares)
Accumulated
Common
    Stock
Additional
Other
Total
Number
Paid-In
Accumulated
Comprehensive
Stockholders'
Comprehensive
of
    Shares
Amount
Capital
Deficit
Loss
Equity
Income
Balance at December 31, 2009
15,405,570
$
15
$
87,926
$
(32,393
)
$
(16
)
$
55,532
Share-based compensation expense
298,000
—
1,181
—
—
1,181
$
—
Common stock issued to settle payable to
    related party
45,000
1
145
—
—
146
—
Warrants issued in conjunction with convertible
    debt
—
—
200
—
—
200
—
Foreign currency translation adjustments
—
—
—
—
(486
)
(486
)
(486
)
Unrealized loss on cash flow hedges, net
    of taxes of $100
—
—
—
—
(168
)
(168
)
(168
)
Net income
—
—
—
2,613
—
2,613
2,613
Comprehensive income
—
—
—
—
—
—
$
1,959
Balance at December 31, 2010
15,748,570
$
16
$
89,452
$
(29,780
)
$
(670
)
$
59,018
Shares issued – private placement
871,823
1
3,431
—
—
3,432
—
Shares issued – cashless option exercise
450
—
—
—
—
—
—
Shares issued – cashless warrant exercise
6,060
—
—
—
—
—
—
Shares issued – extinguishment of notes
    payable
483,046
—
2,212
—
—
2,212
—
Shares issued – extinguishment of notes
    payable to related party
253,288
—
1,160
—
—
1,160
—
Shares issued – business combinations
846,355
1
2,999
—
—
3,000
—
Repurchase and retirement of common stock
(28,114
)
—
(134
)
—
—
(134
)
—
Share-based compensation expense
129,750
—
1,207
—
—
1,207
—
Adjustment to the accounting for warrants
    issued in July 2010 in conjunction with issuance of subordinated term loan
—
—
7
—
—
7
—
Foreign currency translation adjustments
—
—
—
—
(67
)
(67
)
(67
)
Unrealized gain on cash flow hedges, net
    of taxes of $(23)
—
—
—
—
41
41
41
Net income
—
—
327
—
327
327
Comprehensive income
—
—
—
—
—
—
$
301
Balance at December 31, 2011
18,311,228
$
18
$
100,334
$
(29,453
)
$
(696
)
$
70,203
The accompanying notes are an integral part
of these consolidated financial statements.
F-
5
Cyalume Technologies Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
For the Year
For the Year
Ended
Ended
December 31,
December 31,
2011
2010
Cash flows from operating activities:
Net income
$
327
$
2,613
Adjustments to reconcile net income to net cash  provided by operating activities:
Depreciation of property, plant and equipment
1,150
833
Amortization
2,281
2,142
(Benefit from) provision for deferred income taxes
(1,267
)
948
Stock-based compensation expense
1,207
1,181
Other non-cash expenses
304
315
Changes in operating assets and liabilities:
Accounts receivable
(1,115
)
1,295
Inventories
(37
)
(740
)
Prepaid expenses and other current assets
(125
)
2
Accounts payable and accrued liabilities
(1,008
)
(561
)
Restricted cash
150
—
Income taxes payable, net
(778
)
976
Net cash provided by operating activities
1,089
9,004
Cash flows from investing activities:
Payments relating to business combinations, net of $222 cash acquired
(2,528
)
—
Proceeds from disposal of long-lived assets
—
207
Purchases of long-lived assets
(1,323
)
(1,626
)
Net cash used in investing activities
(3,851
)
(1,419
)
Cash flows from financing activities:
Net repayment of line of credit
—
(3,200
)
Proceeds from notes payable and warrants
—
7,942
Principal payments on notes payable
(1,753
)
(9,890
)
Payments to reacquire and retire common stock
(134
)
—
Net payments of debt issue costs
—
(271
)
Proceeds from issuance of common stock
3,432
—
Principal payments on capital lease obligations
(4
)
—
Net cash provided by (used in) financing activities
1,541
(5,419
)
Effect of exchange rate changes on cash
86
(83
)
Net increase (decrease) in cash
(1,135
)
2,083
Cash, beginning of period
4,086
2,003
Cash, end of period
$
2,951
$
4,086
The accompanying notes are an integral part
of these consolidated financial statements.
F-
6
Cyalume Technologies Holdings, Inc.
Notes to Consolidated Financial Statements
1.
BACKGROUND AND DESCRIPTION OF BUSINESS
These consolidated financial
statements and footnotes include the financial position and operations of Cyalume Technologies Holdings, Inc. ("Cyalume"),
a holding company that is the sole shareholder of Cyalume Technologies, Inc. ("CTI") and of Cyalume Specialty Products,
Inc. ("CSP"). CTI is the sole shareholder of Cyalume Technologies, SAS ("CTSAS"), Cyalume Realty, Inc.
("CRI") and
Combat Training Solutions, Inc. ("CTS")
.
CTI and CTSAS manufacture and
sell chemiluminescent products and reflective and photoluminescent materials to military, ammunition, commercial and public safety
markets. CTSAS is located in France and represents us in certain international markets, primarily Europe and the Middle East. CTI
sells to customers in all other geographic markets. CTI's and CTSAS' business operations constitute the majority, based
on revenues and assets, of our consolidated business operations.
CSP manufactures and sells
high-performance
specialty polymers and pharmaceutical products to customers predominantly in the pharmaceutical and military polymer markets. CSP's
operations are located in Bound Brook, New Jersey.
CRI owns land located in Colorado
Springs, Colorado.
CTS provides its customers with
realistic training simulation devices and their associated consumables. These products allow military and law enforcement professionals
to maintain operational readiness through safe, live training and hands-on situational exercises.
The accompanying consolidated
financial statements include the accounts of Cyalume, CTI, CSP, CTSAS, CRI and CTS and are prepared in accordance with accounting
principles generally accepted in the United States of America ("U.S. GAAP"). All significant intercompany balances
and transactions have been eliminated in consolidation.
2.
SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain prior year amounts have been reclassified
to conform to the 2011 presentation.
Foreign Operations
The
accounting records of CTSAS are maintained in Euros, their local and functional currency. Revenue and expense transactions are
translated to U.S. dollars using the average exchange rate of the month in which the transaction took place. Assets and liabilities
are translated to U.S. dollars using the exchange rate in effect as of the balance sheet date. Equity transactions are translated
to U.S. dollars using the exchange rate in effect as of the date of the equity transaction. Translation gains and losses are reported
as a component of accumulated other comprehensive income within stockholders' equity. Gains and losses resulting from transactions
which are denominated in other than the functio
nal currencies are reported as other income or loss in the statement of income
in the period the gain or loss occurred.
Comprehensive Income
Comprehensive
income
accounts for changes in stockholders' equity resulting from non-stockholder sources. All transactions that
would cause comprehensive income to differ from net income have been recorded and disclosed and relate to (i) the translation of
the accounts of our foreign
subsidiary and (ii) the effective portion of activities designated
as hedges for hedge accounting purposes.
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods. Estimates are used when accounting for certain items such
as provisions for inventory, accounts receivable and deferred tax assets; assessing the carrying value of intangible assets including
goodwill; determining the useful lives of property, plant and equipment and intangible assets; and in determining asset retirement
obligations. Estimates are based on historical experience, where applicable, and assumptions that we believe are reasonable under
the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.
F-
7
Accounts Receivable
Accounts receivable are recorded
at the aggregate unpaid amount less any allowance for doubtful accounts. The allowance is based on historical bad debt experience
and the specific identification of accounts deemed uncollectible. We determine an account receivable's delinquency status
based on its contractual terms. Interest is not charged on outstanding balances. Accounts are written-off only when all methods
of recovery have been exhausted. We control credit risk through initial credit evaluations and approvals, credit limits, and monitoring
procedures. We perform ongoing credit evaluations of customers, but do not require collateral to secure accounts receivable.
Inventories
Inventories
are stated at the lower of cost (on a first-in first-out ("FIFO") method) or net realizable value. The cost of
inventory consists of raw material content, labor costs to produce the inventory and overhead costs incurred during
production of the inventory. We periodically review the realizability of inventory. Provisions are recorded for potential
obsolescence which requires management's judgment. Conditions impacting the realizability of inventory could cause
actual write-offs to be materially different than provisions for obsolescence.
Property, Plant and Equipment
Property, plant and equipment
are stated at cost. Depreciation is computed under the straight-line method over the estimated useful lives of four to eight years
for equipment and 30 years for buildings and improvements.
Goodwill
Goodwill
is deemed to have an indefinite life and accordingly, is not subject to annual amortization. Goodwill is subject to annual impairment
reviews as of August 31, and, if conditions warrant, interim reviews based upon its estimated fair value. Impairment charges, if
any, are recorded in the period in which the impairment is determined.
Intangible Assets
Intangible assets are amortized
over their estimated useful lives.  Costs associated with renewing or extending the terms associated with intangible assets
are expensed as incurred.  Costs to third parties that are related to internally developing or successfully defending an intangible
asset are capitalized as part of the intangible asset developed or defended and amortized over that asset's useful life.
Such costs to third parties that are related to patent applications that are ultimately rejected by the relevant government authority
are expensed upon rejection. The useful lives used for amortization of intangible assets are as follows:
Useful lives
Patents and developed technologies
See (1)
Purchased customer relationships
9 – 13 years
Trademarks and trade names
(2)
Customer backlog
4 months
Non-compete agreements
5 years
(1)
Each patent has its own legal expiration date and therefore its own useful life. Generally, our
patents' legal lives begin when the related patent application is filed with the relevant government authority and ends 20
years thereafter. We begin amortizing patent costs incurred when the relevant government authority approves the related patent.
Patents recorded as of December 31, 2011 will expire in years 2012 through 2031.
(2)
Trademarks and trade names of CTI are deemed to have an indefinite life and accordingly, are not
subject to annual amortization. CTI's trademarks and trade names are subject to annual impairment reviews as of August 31,
and, if conditions warrant, interim reviews based upon their estimated fair value. Impairment charges, if any, are recorded in
the period in which the impairment is determined. Our annual impairment review as of August 31, 2011 indicated that no impairment
of CTI's trademarks or trade names had occurred. We expect to use CTS' trademark for approximately two years as of
December 31, 2011 and therefore the cost of CTS' trademark will be amortized over that period.
F-
8
Long-Lived Assets
Long-lived assets, such as intangible
assets (except for trademarks and trade names) and property, plant and equipment, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Such reviews are based on a comparison
of the asset's undiscounted cash flows to the recorded carrying value for the asset. If the asset's recorded carrying
value exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset, the
asset is written-down to its estimated fair value. To estimate that fair value, we will use the most appropriate valuation technique
for the circumstances and for which sufficient data is available.
Impairment charges, if any,
are recorded in the period in which the impairment is determined. In the event of an impairment charge, the identifiable assets'
post-impairment carrying value will continue to be amortized or depreciated over their useful lives and be reviewed periodically
for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
No impairment charges were recorded in the years ended December 31, 2011 and 2010.
Debt Issuance Costs
Costs paid to lenders to obtain
financing are presented as discounts on the related debt and are amortized to interest expense over the term of the related financing,
using the effective interest method (unless the financing is a line of credit, in which case the straight-line method is used).
Such costs paid to third parties are presented as assets and are amortized to interest expense in the same manner as costs paid
to lenders.
Derivatives
Derivatives
are recorded at their fair value as of the balance sheet date. If a derivative qualifies for "hedge accounting" under
U.S. GAAP and has been designated as a hedge by us, then we record the "effectively hedged" portion, as defined by
U.S. GAAP, of changes in such derivatives' fair value in accumulated other comprehensive loss, which is a component of our
stockholders' equity. We record (i) ineffectively hedged portions of such changes in fair value or (ii) changes in the fair
value of derivatives not designated as a hedge in our consolidated statement of income in the period the change occurred. On the
consolidated statement of cash flows, cash flows from derivative instruments accounted for as cash flow hedges are classified in
the same category as the cash flows from the items being hedged.
Common Stock Purchase Warrants
Common stock purchase warrants
issued and currently outstanding are recorded at their initial fair value and reported in stockholders' equity as increases
to additional paid-in capital. These warrants are reported as equity, rather than liabilities, since (i) the warrants may not be
net-cash settled, (ii) the warrant contract limits the number of shares to be delivered in a net-share settlement and (iii) we
have sufficient unissued common shares available to settle outstanding warrants. Subsequent changes in fair value from the warrants'
initial fair value are not recognized as long as the warrants continue to merit classification as equity.
Revenue Recognition
Revenue from the sale of products
or the providing of services is recognized when the earnings process is complete, the amount of revenue can be determined, and
the risks and rewards of ownership have transferred to the customer.
Depending on the terms of the individual
sales arrangement with our customer, product sales are recognized at either the shipping point or upon receipt by the customer.
Costs and related expenses to manufacture the products are recorded as costs of goods sold when the related revenue is recognized.
We have several significant
contracts providing for the sale of indefinite quantities of products at fixed per unit prices, subject to adjustment for certain
economic factors. Revenue under these contracts is recognized when products ordered under the contracts are received by the customer.
Whenever costs change, we review the pricing under these contracts to determine whether they require the sale of products at a
loss. To date, we have no loss contracts which would require the accrual of future losses in the current financial statements.
Taxes Collected from Customers
Sales taxes collected from customers
are not considered revenue and are included in accounts payable and accrued expenses until remitted to the taxing authorities.
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9
Shipping and Handling Costs
Outbound
shipping and handling costs are included in sales and marketing expenses in the accompanying consolidated statements of income.
These costs were $449,000 and $411,000 for the years ended December 31, 2011 and 2010, respectively.
Advertising Costs
Advertising costs are expensed
as incurred and are included in sales and marketing
expenses in the accompanying consolidated statements of income. Advertising
expense was $125,000 and $81,000 for the years ended December 31, 2011 and 2010, respectively.
Stock-Based Compensation
We incur stock-based compensation
related to awards of common stock, restricted common stock and options to employees and non-employees. Those awards are measured
at their fair value on the date the award is granted and are recognized in our consolidated financial statements over the period
the grantee is required to provide services in exchange for the award. When recognized as an expense, the fair value of the award,
less estimated forfeitures, is recognized on a straight-line basis over the award service period; if there is no such service period,
then the entire fair value of the award is recognized as expense on the grant date. See Note 19 for further information regarding
stock-based compensation awards and related valuation assumptions and expenses.
Income Taxes
Deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using
enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are recognized
when, based upon available evidence, realization of the assets is more likely than not.
In assessing the realization
of long-term deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will
be realized. The realization of deferred income tax assets depends upon future taxable income in years before net operating loss
carryforwards expire. We evaluate the recoverability of deferred income tax assets on a quarterly basis. If we determine that it
is more likely than not that deferred income tax assets will not be recovered, we establish a valuation allowance against some
or all deferred income tax assets.
When tax returns are filed,
it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are
subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.
The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence,
it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not
recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized
upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceeds
the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet
along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
We classify interest on tax
deficiencies as interest expense and income tax penalties as other miscellaneous expenses.
In February 2012, we completed
an audit by the IRS of our tax returns for the years 2008 and 2009. There were no adjustments to those tax returns.
Net Income per Common Share
Basic net income per common
share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per common
share is computed by dividing net income by the weighted average number of common shares and dilutive potential common share equivalents
then outstanding. Potential common share equivalents consist of (i) shares issuable upon the exercise of warrants and options (using
the "treasury stock" method), (ii) unvested restricted stock awards (using the "treasury stock" method)
and (iii) shares issuable upon conversion of convertible notes using the "if-converted" method.
F-
10
Year Ended December 31,
2011
2010
Basic:
Net income (in thousands)
$
327
$
2,613
Weighted average shares
16,911,103
15,483,243
Basic income per common share
$
.02
$
.17
Diluted:
Net income (in thousands)
$
327
$
2,613
Adjustments to net income assuming convertible notes payable are converted to common stock:
Reversal of interest expense on convertible notes payable (in thousands)
—
(1)
406
Write off of unamortized costs of issuing convertible notes payable (in thousands)
—
(854
)
Adjustments' estimated effect on provision for income taxes (in thousands)
—
274
(2)
Income available to common stockholders for diluted net income per common share (in thousands)
327
2,439
Weighted average shares
16,911,103
15,483,243
Effect of dilutive securities
1,559,535
1,323,032
Weighted average shares, as adjusted
18,470,638
16,806,275
Diluted income per common share
$
.02
$
.15
(1)
The 2011 calculation of diluted income per common share does not assume convertible notes are converted
to common stock since the effect would be antidilutive.
(2)
Assumes an effective tax rate of approximately 39%.
The following potentially dilutive
common share equivalents were excluded from the calculation of diluted net income per common share because their effect was antidilutive
for each of the periods presented:
Year Ended December 31,
2011
2010
Options and warrants
4,979,088
6,420,756
Convertible notes payable
2,666,667
—
Segments
We only have one reportable
segment as defined under U.S. GAAP.
Fair Value
Under U.S. GAAP, we are required
to record certain financial assets and liabilities at fair value and may choose to record other financial assets and financial
liabilities at fair value as well. Also under U.S. GAAP, we are required to record nonfinancial assets and liabilities at fair
value due to events that may or may not recur in the future, such as an impairment event. When we are required to record such assets
and liabilities at fair value, that fair value is estimated using an exit price, representing the amount that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants. That fair value is determined
based on significant inputs contained in a fair value hierarchy as follows:
Level 1
Quoted prices for identical assets or liabilities in
active markets to which we have access at the measurement date.
Level 2
Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly or indirectly.
Level 3
Unobservable inputs for the asset or liability.
The determination of where assets
and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
F-
11
There are three general valuation
techniques that may be used to measure fair value, as described below:
Market Approach
Uses prices and other relevant information generated
by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale
transactions, market trades, or other sources.
Cost Approach
Based on the amount that currently would be required
to replace the service capacity of an asset (replacement cost).
Income Approach
Uses valuation techniques to convert future amounts to
a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing
models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market
interest rate.
Business Combinations
We use the "acquisition method"
to account for all business combinations. All acquisitions are reviewed to determine if they constitute a "business"
under U.S. GAAP. All identifiable assets and liabilities of an acquired business are recorded at their fair values as of the date
we obtain control of the business. The fair values of identifiable assets and liabilities are estimated using a variety of approaches
allowed under U.S. GAAP, including appraisals and present value techniques. Any excess of the consideration paid to acquire the
business over the fair values of the acquired and identifiable assets and liabilities is recorded as goodwill. We determine the
date we obtain control of a business to be the date on which we gain the ability to determine the direction of management and policies
over that acquired business.
Recent Accounting Pronouncements
The following are recent accounting
pronouncements that have affected our consolidated financial statements or may affect them in the future.
In September 2011, the
Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-08,
Testing Goodwill
for Impairment
("ASU 2011-08"), which amends ASC 350
Intangibles—Goodwill and Other
. ASU 2011-08
allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step
quantitative goodwill impairment test. Under ASU 2011-08, an entity would not be required to calculate the fair value of a
reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair
value is less than its carrying amount. The amendments include a number of events and circumstances, such as financial
performance, economic conditions and loss of key personnel, for an entity to consider in conducting the qualitative
assessment. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning
after December 15, 2011. Early application is permitted. We adopted ASU 2011-08  for our annual goodwill impairment
test performed as of August 31, 2011 with no material impact on our financial position or results of operations.
In June 2011, the FASB issued
Accounting Standards Update No. 2011-05,
Presentation of Comprehensive Income
("ASU 2011-05"), which amends
ASC 220 Comprehensive Income. ASU 2011-05 requires that comprehensive income be presented either in a single continuous statement
of comprehensive income or in two separate but consecutive statements. ASU 2011-05 does not change the items that must be reported
in comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 does not
affect how earnings per share is calculated or presented. ASU 2011-05 is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2011 and must be applied retrospectively. Early application is permitted. Because we
currently present comprehensive income within our consolidated statement of changes in stockholders' equity and comprehensive
income, we will need to change our presentation of comprehensive income upon adopting ASU 2011-05. In December 2011, certain guidance
in ASU 2011-05 was deferred by Accounting Standards Update No. 2011-12
Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05
("ASU 2011-12"). ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification
adjustments of items out of accumulated other comprehensive income. Because we don't expect any such reclassification adjustments,
we do not anticipate that the adoption of ASU 2011-12 will have a material impact on our financial position or the results of
our operations.
F-
12
In May 2011, the FASB issued
Accounting Standards Update No. 2011-04,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs
("ASU 2011-04"), which amends ASC 820
Fair Value Measurement
. ASU 2011-04 improves the
comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP
and International Financial Reporting Standards. The amended guidance changes the wording used to describe many requirements in
U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify
the FASB's intent about the application of existing fair value measurement and disclosure requirements. Although ASU 2011-04 is
not expected to have a significant effect on practice, it changes some fair value measurement principles and disclosure requirements.
ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and must be applied prospectively. Early
application is not permitted. We do not anticipate that the adoption of ASU 2011-04 will have a material impact on our financial
position or the results of our operations.
3.
BUSINESS COMBINATIONS
Cyalume
Specialty Products,
Inc.
In 2011, Cyalume created a
new, wholly owned subsidiary (Cyalume Specialty Products, Inc., or "CSP") that, on August 31, 2011, entered into an
Asset Purchase Agreement ("APA") with JFC Technologies, LLC ("JFC") and the stockholders of JFC. Pursuant
to the APA, effective September 1, 2011, CSP acquired from JFC substantially all of its business assets and a portion of its liabilities
for cash and 712,771 shares of Cyalume common stock plus other consideration that is contingent on future financial performance
of CSP. In connection with entering into the APA, we entered into a registration rights agreement with the former stockholders
of JFC pursuant to which we are required to file a registration statement by May 1, 2012 with the Securities and Exchange Commission
registering these shares for resale. We will not incur any obligation to the former stockholders of JFC if these shares are
not registered by May 1, 2012.
JFC was a leading researcher,
developer and manufacturer of specialty chemicals with operations in Bound Brook, New Jersey. CSP's acquisition of JFC's
business assets and liabilities is expected to augment our research, development and production capabilities. These operations
offer a wide range of services that will accelerate the development and deployment of new chemical-light products by CTI and CTSAS
and provide additional sources of revenues and business opportunities. We also believe that vertically integrating the chemical
manufacturing process at a United States-based facility will allow us to more effectively manage our supply chain.
The purchase price consisted
of (in thousands):
Consideration
Cash Acquired
Cash  Paid, Net of
Cash Acquired
Cash
$
2,500
$
200
$
2,300
712,771 shares of Cyalume common stock, at fair value
2,500
Contingent consideration, at fair value
1,573
(1)
Total consideration
$
6,573
(1)
The contingent consideration liability has increased to $1,632,000 as of December 31, 2011.
The contingent consideration
ranges from $0 to $7 million and is based on the financial performance of the acquired business during the combined calendar years
2012 and 2013, to be paid after calendar year 2013 when CSP's financial performance is known. These payments, if any, will
consist of a minimum of 30% cash and the remainder paid in Cyalume common stock. The cash-portion of the payment can be greater
than 30% at our discretion. Up to $5 million of the contingent payment is based on CSP achieving the following average earnings
before interest, taxes, depreciation and amortization ("EBITDA") thresholds for the calendar years ending December
31, 2012 and 2013:
Average 2012 and 2013 EBITDA Thresholds
Contingent Payment
$1,300,000 +
$5,000,000
$1,100,000 - $1,299,999
$3,000,000 - $4,900,000
$1,000,000 - $1,099,999
$2,200,000 - $2,920,000
$900,000 - $999,999
$1,500,000 - $2,130,000
$800,000 - $899,999
$800,000 - $1,430,000
$700,000 – 799,999
$400,000 - $790,000
An additional payment of $2,000,000
is contingent upon CSP achieving average EBITDA of $1,800,000 for calendar years ending December 31, 2012 and 2013.
See Note 23 for a description
of how we estimate the fair value of this contingent consideration on a recurring basis.
F-
13
The
preliminary allocation of the fair value of the assets acquired and liabilities assumed are as follows
(all amounts in thousands)
:
Cash
$
200
Restricted cash
(1)
750
Accounts receivable
(2)
359
Inventories
1,015
Other current assets
1
Property, plant and equipment
1,062
Patents
50
Customer backlog
140
Customer relationships
920
Non-compete agreements
160
Goodwill
(3)
2,978
Total assets
7,635
Accounts payable
130
Accrued expenses
122
Customer prepayments
4
Line of credit
(1)
750
Deferred tax liability
56
Total liabilities
1,062
Net assets
$
6,573
(1)
The $750,000 line of credit, which is payable to one of the sellers, is secured by the $750,000
of restricted cash. The line of credit accrues interest at an annual rate of 2%, calculated quarterly, and this interest is added
to the principal amount outstanding on the line of credit. If CSP's net working capital, as defined in the APA, does not
exceed certain amounts and other restrictions are not met, CSP may use all or a portion of the restricted cash for its general
business purposes. The amount of restricted cash that CSP may use is determined as of the last day of every calendar-year quarter.
On any such quarter end, the line of credit must be repaid by the amount CSP's working capital, as defined in the APA, is
greater than $1.5 million. Additionally, any remaining restricted cash balance in excess of $375,000 as of December 31, 2012 must
be used to repay the line of credit. As of December 31, 2013, any remaining restricted cash balance must be repaid to the seller
and the line of credit and accrued interest thereon must be repaid.
(2)
The gross contractual accounts receivable is $359,000, which equals the accounts receivables'
fair value of $359,000 since the contractual accounts receivable are expected to be collected.
(3)
Goodwill of $3.1 million is expected to be deductible for tax purposes. The amount of
                                                                            goodwill recorded under U.S. GAAP has not changed from the acquisition date through December 31, 2011. Goodwill resulted
                                                                            from                                                                             this transaction because we believe the
                                                                            acquisition of JFC's business assets and liabilities will augment our research, development and production
                                                                            capabilities. These operations offer a wide range of services that will accelerate the development and deployment of new
                                                                            chemical-light products by CTI and CTSAS and provide additional sources of revenues and business opportunities. We also
                                                                            believe that vertically integrating the chemical manufacturing process at a United States-based facility will allow us to
                                                                            more effectively manage our supply chain.
CSP's revenues and net
loss are included in our
consolidated statements of income and total $1,933,000
and $44,000 since we acquired CSP.
Combat Training Solutions, Inc.
On December 22, 2011, CTI entered
into a Stock Purchase Agreement ("SPA") with Combat Training Solutions, Inc. ("CTS") and the sole stockholder
of CTS. CTS, based in Colorado Springs, Colorado, provides customers with realistic training simulation devices and their associated
consumables. These products allow military and law enforcement professionals to maintain operational readiness through safe, live
training and hands-on situational exercises. Pursuant to the SPA, CTI purchased all of the issued and outstanding capital stock
of CTS.
In a related transaction on
December 22, 2011, Cyalume Realty, Inc. ("CRI"), a subsidiary of CTI, purchased a piece of land located in Colorado
Springs, Colorado.
F-
14
The consideration consisted
of:
Consideration
Cash Acquired
Cash  Paid, Net of
Cash Acquired
Cash
$
250
$
22
$
228
133,584 shares of Cyalume common stock, at fair value
500
Note payable
250
(1)
Contingent consideration, at fair value
2,067
(2)
Total consideration
$
3,067
(1)
The note is payable in full to the seller of CTS on April 5, 2012 at 0% interest.
(2)
The contingent consideration liability is still $2,067,000 as of December 31, 2011
The contingent consideration
ranges from $0 to $5.75 million and is based on the financial performance of the acquired business during the combined calendar
years 2012 and 2013, to be paid after calendar year 2013 when CTS' financial performance is known. Up to $5.5 million of
the contingent payment is based on CTS achieving the following cumulative gross margin thresholds during the calendar years ending
December 31, 2012 and 2013:
Cumulative 2012 and 2013 Gross Margin Thresholds
Contingent Payment
(1)
$8,500,000 +
$5,500,000
$8,000,000 – $8,499,999
$5,000,000 - $5,425,000
$7,500,000 - $7,999,999
$4,250,000 - $4,925,000
$7,000,000 - $7,499,999
$3,500,000 - $4,175,000
$6,500,000 - $6,999,999
$2,750,000 - $3,425,000
$6,000,000 - $6,499,999
$2,000,000 - $2,675,000
(1)
These payments, if any, will consist of a minimum of 40% cash and the remainder paid in Cyalume common stock. The cash-portion
of the payment can be greater than 40% at our discretion.
An additional payment of $250,000
in Cyalume common stock is contingent upon CTS achieving cumulative gross margin of $6,000,000 during calendar years ending December
31, 2012 and 2013.
See Note 23 for a description
of how we estimate the fair value of this contingent consideration on a recurring basis.
The
preliminary allocation of the fair value of the assets acquired and liabilities assumed are as follows
(all amounts in thousands)
:
Cash
$
22
Accounts receivable
(1)
112
Inventories
529
Property, plant and equipment
842
Patents
410
Trade Names / Trademarks
90
Customer relationships
840
Non-compete agreements
140
Goodwill
(2)
1,107
Total assets
4,092
Accounts payable
102
Accrued expenses
181
Deferred tax liability
742
Total liabilities
1,025
Net assets
$
3,067
(1)
The gross contractual accounts receivable is $122,000, which is greater than the accounts receivables' fair value of
$112,000 due to $10,000 of contractual accounts receivable not expected to be collected.
(2)
Goodwill acquired is not expected to be deductible for tax purposes since CTS' stock was acquired. The amount of
                                                                            goodwill recorded under U.S. GAAP has not changed from the acquisition date through December 31, 2011. Goodwill resulted
                                                                            from                                                                             this transaction because we believe CTS
                                                                            augments our position in the non-explosive training and ammunition market and will allow us to develop new products with
                                                                            training and tactical applications.
CTS' revenues and net
loss are included in our
consolidated statements of income and total $0
and $42,000 since we acquired CTS.
F-
15
Pro Forma Information (unaudited)
The following unaudited pro
forma financial summary is presented as if the acquisitions of CSP and CTS were completed as of January 1, 2010. The pro forma
combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated
on that date, or of the future operations of the combined entities. The pro forma results for net income include adjustments for
depreciation, intangible asset amortization, inventory step-up amortization and rent expense. The pro forma weighted average shares
used to compute net income per common share (basic and diluted) differ from the weighted average shares used in the consolidated
statements of income in order to reflect the 712,771 shares of Cyalume common stock issued for to acquire CSP and the 133,584 shares
of Cyalume common stock issued for to acquire CTS as being issued on January 1, 2010.
Twelve Months Ended December 31,
2011
2010
Revenues (in thousands)
$
42,594
$
47,639
Net income (in thousands)
$
1,496
$
2,707
Net income per common share:
Basic
$
.08
$
.17
Diluted
$
.08
$
.15
Weighted average shares used to compute net income per common share:
Basic
17,757,458
16,329,598
Diluted
19,316,993
17,652,630
The nature and amount of pro
forma adjustments directly attributable to the business combinations are as follows (in thousands):
Twelve Months Ended December 31,
2011
2010
Revenues, as reported (in thousands)
$
34,703
$
38,024
Pro forma adjustments:
CTS and CSP revenues prior to acquisition by Cyalume
7,891
9,615
Pro forma revenues
42,594
47,639
Net income, as reported (in thousands)
$
327
$
2,613
Pro forma adjustments:
CTS and CSP net income prior to acquisition by Cyalume
1,055
1,034
Effect of activities/assets/liabilities not acquired by Cyalume
365
(362
)
Expensing of acquisition-date inventory fair value adjustment into cost of goods sold
73
(338
)
Depreciation of property, plant and equipment acquired
(72
)
244
Amortization of intangible assets acquired
(252
)
(484
)
Pro forma net income
$
1,496
$
2,707
4.
INVENTORIES
Inventories consist of
the following
(all amounts in thousands)
:
2011
2010
Raw materials
$
6,230
$
5,469
Work-in-process
3,296
3,237
Finished goods
1,867
1,214
$
11,393
$
9,920
F-
16
5.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist
of the following (all amounts in thousands):
2011
2010
Value added taxes receivable
$
100
$
37
Prepaid expenses
332
268
Currency forward contracts
4
—
Debt issuance costs, current portion
120
111
Other
3
13
$
559
$
429
6.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment
consist of the following
(all amounts in thousands)
:
2011
2010
Land
$
1,901
$
1,279
Building and improvements
3,134
3,003
Machinery and equipment
7,992
5,710
13,027
9,992
Less: accumulated depreciation
(2,610
)
(1,483
)
$
10,417
$
8,509
During 2011, we entered into
two leases that were accounted for as capital leases.
At December 31, 2011, machinery and equipment
includes $77,000 of assets recorded under capital leases. Accumulated amortization on those capital leases totaled $0 as of December
31, 2011. In 2011, amortization expense for those assets was $0.
7.
GOODWILL
Goodwill represents the excess
of the cost of acquiring CTI and CTSAS in 2008 and CSP and CTS in 2011 over the net fair value assigned to the assets acquired
and liabilities assumed in those acquisitions. Changes in the carrying amount of goodwill consist of the following (all amounts
in thousands):
Balance on December 31, 2009
$
51,244
Fiscal year 2010 changes
—
Balance on December 31, 2010
51,244
Goodwill acquired as part of the acquisition of CSP
2,978
Goodwill acquired as part of the acquisition of CTS
1,107
Balance on December 31, 2011
$
55,329
We performed the
first step of the traditional two-step process for assessing goodwill for impairment as of August 31, 2011. That first step
of the two-step process requires a comparison of our estimated fair value versus our carrying (book) value per our
consolidated financial statements. If our carrying value exceeded our fair value, further analysis (step 2 of the two-step
process) would be required to determine the amount, if any, that our goodwill was impaired as of August 31, 2011. Step 1 of
our analysis indicated that our fair value was significantly greater than our carrying value as of August 31, 2011, therefore
step 2 of the goodwill impairment assessment was not required and our goodwill was not considered to be impaired. Further, we
noted no events or circumstances that occurred subsequently to August 31, 2011 that indicated that goodwill impairment
existed as of December 31, 2011.
F-
17
8.
OTHER INTANGIBLE ASSETS
Intangible assets as of
December 31, 2011 consist of the following
(all amounts in thousands)
:
Cost
Accumulated
Amortization
Net Book Value
Developed technologies, including patents
(1)
$
13,608
$
3,640
$
9,968
Trademarks and trade names
(2)
5,428
1
5,427
Purchased customer relationships
(3)
9,465
3,142
6,323
Customer backlog
(4)
140
140
—
Non-compete agreements
(5)
300
11
289
$
28,941
$
6,934
$
22,007
(1)
Includes a patent obtained in the acquisition of CSP (see Note 3) with a cost of $50,000 that is
expected to be fully amortized in August 2026. Also includes patents obtained in the acquisition of CTS (see Note 3) with a cost
of $410,000 that is expected to be fully amortized in December 2021.
(2)
Includes a trade name obtained in the acquisition of CTS (see Note 3) with a cost of $90,000 that
is expected to be fully amortized in December 2013.
(3)
Includes customer relationships obtained in the acquisition of CSP (
see
Note 3) with a cost of $920,000 that is expected to be fully amortized in December 2019.
Also includes
customer relationships obtained in the acquisition of CTS (
see Note 3) with a cost of $840,000 that is expected to be fully
amortized in December 2021.
(4)
Includes customer backlog obtained in the acquisition of CSP (
see
Note 3) with a cost of $140,000 that was fully amortized in December 2011.
(5)
Includes non-compete agreement obtained in the acquisition of CSP (
see
Note 3) with a cost of $160,000 that is expected to be fully amortized in August 2016.
Also includes
non-compete agreement obtained in the acquisition of CTS (
see Note 3) with a cost of $140,000 that is expected to be fully
amortized in December 2016.
Intangible assets as of
December 31, 2010 consist of the following
(all amounts in thousands)
:
Cost
Accumulated
Amortization
Net Book Value
Developed technologies, including patents
$
12,972
$
2,497
$
10,475
Trademarks and trade names
5,332
—
5,332
Purchased customer relationships
7,753
2,648
5,105
Non-compete agreements
267
267
—
$
26,324
$
5,412
$
20,912
Except for the trade name obtained
in the acquisition of CTS, trademarks and trade names have indefinite lives and therefore, they are not amortized. Trademarks can
be renewed without substantial cost. On average, these non-amortized trademarks renew in approximately 3 years. If trademark and
trade names are not renewed, then expected future cash flows associated with trademarks and trade names could be adversely affected.
Amortization of intangible assets
was $1.8 million and $1.8 million for the years ended December 31, 2011 and 2010, respectively.
During 2011, we capitalized
$5,000 and $175,000 of costs paid to third parties to create or defend trademarks and patents, respectively. We expect the patent-related
costs to be amortized over approximately 20 years.
F-
18
We do not consider any intangible
assets to have residual value.
The future amortization expense
relating to intangible assets for the next five years and beyond is estimated at December 31, 2011 to be (all amounts in thousands):
Year Ending December 31,
2012
$
2,163
2013
2,162
2014
2,118
2015
2,118
2016
2,106
Thereafter
6,002
$
16,669
9.
OTHER NONCURRENT ASSETS
Other noncurrent assets
consist of the following
(all amounts in thousands)
:
2011
2010
Debt issuance costs, net
$
154
$
272
Other
—
14
$
154
$
286
Debt
issuance costs consist of unamortized costs paid to third parties to obtain senior debt, a line of credit
and
convertible notes that will be amortized to interest expense using the effective interest method through 2014. Amortization of
current (see Note 5) and noncurrent capitalized debt issuance costs was $109,000 and $75,000 for the years ended December 31, 2011
and 2010, respectively.
The
future amortization expense for each of the five succeeding years and beyond relating to current and noncurrent capitalized debt
issuance costs is
(all amounts in thousands)
:
Year Ending December 31,
2012
(1)
$
120
2013
126
2014
28
2015
—
2016
—
$
274
(1)
See Note 5 for the current portion of capitalized debt
issuance
costs of $120,000 expected
to be amortized in 2012.
More information regarding the
restricted cash and the related line of credit, which were a result of the acquisition of CSP, can be found in Note 3. The amount
of restricted cash has been reduced from $750,000 as of the acquisition date to $600,000 as of December 31, 2011 due to our use
of that cash for general business purposes as described in Note 3.
10.
ACCRUED EXPENSES
Accrued expenses consist
of the following
(all amounts in thousands)
:
2011
2010
Payroll
$
1,192
$
1,600
Interest
187
166
Professional fees
328
148
Related party payable
(1)
36
—
Other
436
448
$
2,179
$
2,362
F-
19
(1)
In conjunction with the acquisition of CTS, we agreed to assume CTS' monthly lease and utility
payments for building space that CTS leased from the seller. This building space is not utilized by us. We are required to pay
these costs until the building is sold, but no later than December 2014. We estimate these monthly payments to be approximately
$3,000 per month and we estimate the building will be sold in December 2012, therefore we have estimated the liability as of December
31, 2011 to be $36,000.
11.
LINES OF CREDIT
We have a line of credit with
a maximum borrowing capacity of $5.0 million with
TD Bank N.A.
("TD Bank"). The amount
we may borrow from this line of credit is dependent mainly on accounts receivable and inventory balances. Interest is payable monthly
and is determined, at our discretion, based on (i) the Prime Rate, plus a margin percentage that is based on financial performance
(not to be less than 6% in total) or (ii) an adjusted LIBOR rate (subject to a 2% interest rate floor), plus a margin percentage
that is based on financial performance. The line of credit's interest rate at December 31, 2011 was 6.25%. The line of credit
expires on December 19, 2012. This line of credit is subject to (i) the same restrictive covenants and (ii) the same collateral
and guarantees as the senior debt Term Loan and the senior debt Real Estate Loan described in Note 12. At December 31, 2011 and
2010, there were no outstanding borrowings on this line of credit.
CTSAS has lines of credit with
a combined maximum borrowing capacity of €1.3 million ($1.7 million as of December 31, 2011), under which there were no outstanding
borrowings at December 31, 2011 and 2010. The lines' interest rates are variable, based on the Euro Overnight Index Average
and the 3-month Euro Interbank Offered Rate. The lines are collateralized by substantially all business assets of CTSAS. The lines
have indefinite termination dates, but can be renegotiated periodically.
12.
NOTES PAYABLE
Outstanding notes payable consist of (all amounts
in thousands):
2011
2010
Senior Debt - Term Loan
$
10,807
$
12,435
Senior Debt - Real Estate Loan
1,929
2,054
Subordinated Term Loan
8,500
8,500
Note payable to Rodman & Renshaw
—
2,135
Total
21,236
25,124
Less: Unamortized debt issuance costs
(669
)
(956
)
Less: Current portion of notes payable, including current portion of unamortized debt issuance costs
(1,592
)
(1,453
)
Notes payable, net of current portion
$
18,975
$
22,715
Debt issuance costs will be amortized to interest
expense using the effective interest method over the life of the loan.
Senior Debt
CTI has two loans payable to
TD Bank, NA ("TD Bank"); a Term Loan and a Real Estate Loan, that were originally entered into on December 19, 2008,
and which were amended and restated as of July 29, 2010.
The Term Loan was originally
payable in monthly principal installments ranging from $319,000 to $468,000, plus monthly interest payments as described below,
that commenced on February 1, 2009, plus a one-time principal payment of $3.0 million due on or before April 30, 2010. On July
29, 2010, in conjunction with the issuance of the Subordinated Term Loan (see discussion below) and the use of $7.2 million of
the Subordinated Term Loan's proceeds to reduce principal outstanding on the Term Loan, TD Bank modified the monthly principal
installments to $148,000, beginning in February 2011, plus a one-time principal payment of $7.3 million due at maturity in December
2013.
F-
20
Interest payments on 60% of
the Term Loan's principal balance are hedged using a pay-fixed, receive-variable interest rate swap to reduce exposure to
changes in cash payments caused by changes in interest rates on the Term Loan. See Note 16 for details on the interest rate swap.
Interest on the 60% interest rate-swapped portion of the Term Loan is payable monthly and determined based on 1-month LIBOR, plus
a margin percentage that is based on financial performance. The total interest rate on the swapped portion of the Term Loan was
6.53% at December 31, 2011. Interest on the remaining 40% of the Term Loan is also payable monthly and is determined based on 1-month
LIBOR (subject to a 2% interest rate floor) plus a margin percentage that is based on financial performance. At December 31, 2010,
the total interest rate on the portion of the Term Loan that was not subject to an interest rate hedging relationship was 6.0%.
The Term Loan is collateralized by all of the assets of CTI (except CTI's equity interests in CTSAS, of which only 65% is
collateral of the Term Loan) and is guaranteed by Cyalume. The Term Loan requires various restrictive financial and nonfinancial
covenants, such as a maximum leverage ratio, debt service coverage ratio and limitations on capital expenditures and dividends,
which we are in compliance with as of December 31, 2011.
Simultaneous with the $7.2 million
repayment of a portion of the Term Loan in July 2010, our interest rate swaps (see Note 16) were modified to incorporate this repayment
since it was not anticipated in the original swap agreement. This allows us to continue to assume that these hedges meet the criteria
for the shortcut method for assessing hedge effectiveness; therefore, the hedge is assumed to still be 100% effective.
The Real Estate Loan was originally
payable in monthly principal installments of $10,000, plus monthly interest payments as described below, that commenced on February
1, 2009, plus a one-time principal payment of $1.9 million at maturity (December 19, 2013). In July 2010, we made an unscheduled
$207,000 principal payment, which reduced our one-time principal payment due at maturity in December 2013 to $1.7 million.
Interest payments on the Real
Estate Loan principal balance are hedged using a pay-fixed, receive-variable interest rate swap to reduce exposure to changes in
cash payments caused by changes in interest rates on the Real Estate Loan. See Note 16 for details on the interest rate swap. Interest
is payable monthly and is determined based on 1-month LIBOR plus a margin percentage that is based on financial performance. The
Real Estate Loan's total interest rate at December 31, 2011 was 6.42%. The Real Estate Loan is secured by a mortgage of the
real property (land and building) located in West Springfield, MA, and is guaranteed by Cyalume. The Real Estate Loan requires
various restrictive financial and nonfinancial covenants, such as a maximum leverage ratio, debt service coverage ratio and limitations
on capital expenditures and dividends, which we are in compliance with as of December 31, 2011.
The TD Bank line of credit described
in Note 11, the Term Loan and the Real Estate Loan are senior in payment priority to all other notes payable and lines of credit.
Subordinated Term Loan
On July 29, 2010 we issued a
Subordinated Term Loan of $8.5 million to Granite Creek Partners Agent, LLC ("Granite Creek") that matures March 19, 2014. Interest
is payable monthly beginning September 1, 2010 at a rate of 11% per annum. No principal payments are required until maturity. We
have the right to prepay the loan in whole or in part at any time without penalty. The Subordinated Term Loan ranks junior
to all debt held by TD Bank, N.A. but senior to all other remaining long-term debt including existing and future subordinated debt.
The Subordinated Term Loan is convertible at any time by Granite Creek into 2,666,667 shares of common stock at a conversion price
of approximately $3.19 per share. No portion of the Subordinated Term Loan has been converted to our common stock. Our common stock's
closing market price on December 31, 2011 was $3.75 per share; therefore the loan's if-converted value of approximately $10
million exceeds their unpaid principal balance by $1.5 million as of December 31, 2011. We determined that the convertible notes'
conversion feature was not a beneficial conversion feature under U.S. GAAP.
Simultaneous with the issuance
of the Subordinated Term Loan, we issued warrants to repay certain costs of obtaining the convertible notes. The warrants have
a five-year term and allow the holder to purchase 160,000 shares of common stock at $2 per share through July 29, 2015. In accordance
with U.S. GAAP, we allocated a portion of the $8.5 million gross proceeds from the issuance of the loan to the warrants based on
the relative
fair values
of the debt instrument without the
warrants and of the warrants themselves at
time of issuance
.
The portion of the proceeds so allocated to the warrants ($207,000) was recorded as a debt discount and an increase to additional
paid-in capital on our consolidated balance sheet. The $207,000 debt discount is being amortized to interest expense using the
effective interest method over the life of the convertible notes.
As of December 31, 2011, the
carrying value of the Subordinated Term Loan was approximately $7.9 million, computed as follows (all amounts in thousands):
2011
2010
Principal amount of loan
$
8,500
$
8,500
Less: unamortized debt issuance costs
(635
)
(858
)
$
7,865
$
7,642
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21
Interest costs for the Subordinated
Term Loan are as follows (all amounts in thousands):
2011
2010
Contractual interest coupon rate
$
948
$
390
Amortization of related debt issuance costs
225
81
Total interest recognized
$
1,173
$
471
Effective interest rate
15.1
%
14.2
%
Simultaneous with the issuance
of the convertible notes in 2010, we amended our management agreement with Selway Capital, LLC (see Note 18).
Other Subordinated Third-Party
Debt
We had a note payable that was
entered into in December 2008 with Rodman & Renshaw, LLC ("Rodman"). Principal and accrued interest payable on
this note payable totaled approximately $2.2 million as of June 30, 2011. On June 30, 2011, we entered into a securities exchange
agreement with Rodman in which Rodman agreed to accept, subject to certain conditions being met, 483,046 shares of our common stock
as payment in full of all principal and accrued interest on this note. The transaction closed in July 2011.
Future Minimum Payments
As of December 31, 2011, future
minimum payments due for notes payable for each of the five succeeding years and beyond are as follows (all amounts in thousands):
Year Ending December 31,
2012
$
1,901
2013
10,835
2014
8,500
2015
—
2016
—
Thereafter
—
$
21,236
Amortization of the debt discount
was $294,000 and $273,000 for the years
ended December 31, 2011 and 2010, respectively.
13.
FINANCING ARRANGEMENTS WITH RELATED PARTIES
We had notes payable to three
stockholders (Messrs. Winston Churchill, Thomas Rebar and Wayne Weisman, partners of SCP Private Equity Management Company, LLC
("SCP")). SCP also owns stock in Cyalume and three Directors are members of SCP. Principal and accrued interest payable
on these notes payable totaled approximately $1.2 million as of July 7, 2011. On July 7, 2011, these stockholders each entered
into a securities exchange agreement in which they agreed to accept, subject to certain conditions being met, an aggregate of 253,288
shares of our common stock as payment in full of all principal and accrued interest on these notes. These transactions closed in
July 2011.
In 2011, we incurred a $750,000
line of credit in conjunction with the acquisition of CSP. See Note 3 for more information regarding this line of credit, principal
and accrued interest on which totals approximately $755,000 as of December 31, 2011. The lender is a related party due to the lender
being our employee and a stockholder.
In 2011, we incurred a $250,000
note payable in conjunction with the acquisition of CTS. See Note 3 for more information regarding this note, principal and accrued
interest on which totals approximately $250,000 as of December 31, 2011. The lender is a related party due to the lender being
our employee and a stockholder.
14.
CAPITAL LEASE OBLIGATIONS
During 2011, we entered into
two leases that were accounted for as capital leases. As of December 31, 2011, future minimum lease payments under capital leases
together with the present value of the net minimum lease payments were as follows (all amounts in thousands):
F-
22
Year Ending December 31,
2012
$
63
2013
17
2014
17
2015
—
2016
—
Thereafter
—
Total minimum lease payments
97
Less: estimated executory costs included in total minimum lease payments
(5
)
Net minimum lease payments
92
Less: amount representing interest
(19
)
Present value of net minimum lease payments
$
73
Of the $73,000 capital lease
obligation, $43,000 is expected to be repaid before December 31, 2012.
15.
INCOME TAXES
The
components of income (loss) before income taxes are as follows:
Year Ended December 31,
2011
2010
Domestic
$
(2,623
)
$
2,054
Foreign
2,585
2,224
$
(38
)
$
4,278
Provision for (benefit
from) income taxes consisted of the following
(all amounts in thousands)
:
Year Ended December 31,
2011
2010
Current:
Federal
$
—
$
—
State
—
—
Foreign
902
717
Deferred:
Federal
(1,235
)
648
State
31
384
Foreign
(63
)
(84
)
Provision for (benefit from) income taxes
$
(365
)
$
1,665
Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The principal sources of these differences relate to the carrying value of identified
intangible assets, inventories, fixed asset, certain accruals and reserves
.
Deferred
income tax assets and liabilities consist of the following
(all amounts in thousands):
December 31, 2011
December 31, 2010
Current
Non-current
Current
Non-current
Deferred tax assets:
Federal
$
726
$
6,777
$
1,575
$
5,259
State
511
200
495
346
Foreign
36
11
—
—
Less: valuation allowance (1)
—
(3,874
)
—
(4,062
)
1,273
3,114
2,070
1,543
Deferred tax liabilities:
Federal
(658
)
(7,694
)
(887
)
(7,196
)
State
(171
)
(1,986
)
(235
)
(1,841
)
Foreign
(58
)
(579
)
(17
)
(653
)
(887
)
(10,259
)
(1,139
)
(9,690
)
Deferred tax assets (liabilities)
$
386
$
(7,145
)
$
931
$
(8,147
)
(1)
During 2011, we reduced the valuation allowance from $4.1 million to $3.9 million due to the
                                                                              expected use of foreign tax credits in the near term.
F-
23
Principal components of our net liability representing deferred income tax balances are as follows
(all
amounts in thousands):
Year Ended December 31,
2011
2010
Intangible assets
$
(6,760
)
$
(7,852
)
Property, plant and equipment
(837
)
(621
)
U.S. loss carryforwards and tax credits, net
(1)
1,063
2,024
Subsidiary income
(2)
(1,554
)
(2,044
)
Stock-based compensation expense
655
433
Reserves, accruals and other
588
718
Interest rate swaps
86
126
$
(6,759
)
$
(7,216
)
(1)
U.S. net operating loss carryforwards expire in 2025 through 2029. The realization of these assets
is based on estimates of future taxable income.
(2)
A deferred tax liability has been recorded for income taxes which may become payable upon distribution
of earnings of CTSAS, our French subsidiary. The estimated amount of tax that might be payable with regard to any distribution
of foreign subsidiary earnings is reported net of foreign taxes paid, which are creditable against our domestic tax liability.
We do not permanently reinvest our foreign subsidiary's earnings. We continually evaluate our assertion; if our foreign business
needs change, so may our assertion.
Income taxes computed using
the federal statutory income tax rate differ from our effective tax rate primarily due to the following (all amounts in thousands):
Year Ended December 31,
2011
2010
Provision for federal income taxes expected at 34% statutory rate
$
(13
)
$
1,455
Increase (reduction) resulting from:
Tax on global activities
(29
)
143
State income taxes, less federal income tax benefit
15
390
Change in valuation account
(1)
(188
)
(1,977
)
Change in prior year undistributed earnings of CTSAS
(1)
—
1,399
Prior year true up
(141
)
185
Other
(9
)
70
Provision for (benefit from) income taxes
$
(365
)
$
1,665
(1)
Included in the change in the valuation account in 2010 is an amount associated with the change
in prior year undistributed earnings of CTSAS of $1,901.
16.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Derivatives held by us as of
December 31, 2011 consist of the following (all amounts in thousands):
Derivative Instrument
Balance Sheet Location
Fair Value
Currency forward contracts
Prepaid expenses and other current assets
$
4
Interest rate swaps
Derivatives (noncurrent liabilities)
(273
)
Derivatives held by us as of
December 31, 2010 consist of the following (all amounts in thousands):
Derivative Instrument
Balance Sheet Location
Fair Value
Currency forward contracts
Derivatives (noncurrent liabilities)
$
(28
)
Interest rate swaps
Derivatives (noncurrent liabilities)
(337
)
Currency Forward Contracts
CTSAS' functional currency
is the Euro. Periodically, CTSAS purchases inventory from CTI, which requires payment in U.S. dollars. Beginning in 2009, and only
under certain circumstances, we use currency forward contracts to mitigate CTSAS' exposure to changes in the Euro-to-U.S.
dollar exchange rate upon payment of these inventory purchases. Such currency forward contracts typically have durations of less
than six months. We report these currency forward contracts at their fair value. This relationship has not been designated as a
hedge and therefore all changes in these currency forward contracts' fair value are recorded in other income, net on our
consolidated statement of income. We held one such currency forward contracts at December 31, 2011 and two such currency forward
contracts at December 31, 2010. See Note 23 for a description of how we estimate the fair value of these contracts.
F-
24
Interest Rate Swaps
In December 2008, we entered
into two pay-fixed, receive-variable, interest rate swaps to reduce exposure to changes in cash payments caused by changes in interest
rates on the Term Loan and the Real Estate Loan. Both relationships are designated as cash flow hedges and meet the criteria for
the shortcut method for assessing hedge effectiveness; therefore, the hedge is assumed to be 100% effective and all changes in
the fair value of the interest rate swaps are recorded in comprehensive income. See Note 19 for a description of changes in accumulated
other comprehensive loss due to derivatives and hedging activities. Such changes were due to unrealized gains and losses on the
interest rate swaps. These unrealized gains and losses must be reclassified in whole or in part into earnings if, and when, a comparison
of the swap(s) and the related hedged cash flows demonstrates that the shortcut method is no longer applicable. We expect these
hedges to meet the criteria of the shortcut method for the duration of the hedging relationship, which ends upon maturity of the
Term Loan and Real Estate Loan, and therefore we do not expect to reclassify any portion of these unrealized losses from accumulated
other comprehensive loss to earnings in the future. See Note 23 for a description of how we estimate the fair value of these swaps.
Effect of Derivatives on
Statement of Income
The effect of derivative instruments
(a) designated as cash flow hedges and (b) not designated as hedging instruments on our consolidated statement of income for year
ended December 31, 2011 was as follows (all amounts in thousands):
Gain (Loss)
Gain (Loss)
Gain (Loss)
In AOCL
(1)
Reclassified
(2)
in Earnings
(3)
Derivatives designated as cash flow hedges:
Interest rate swaps, net of taxes of $(23)
$
41
$
—
$
—
Derivatives not designated as hedging instruments:
Currency forward contracts
$
—
$
—
$
32
(1)
Amount recognized in accumulated other comprehensive loss (AOCL) (effective portion and net of
taxes) during 2011.
(2)
Amount of gain (loss) originally recorded in AOCL but reclassified from AOCL into earnings during
2011.
(3)
Amount of gain (loss) recognized in earnings on the derivative (ineffective portion and amount
excluded from effectiveness testing) reported in other income, net during 2011.
The effect of derivative instruments
(a) designated as cash flow hedges and (b) not designated as hedging instruments on our consolidated statement of income for year
ended December 31, 2010 was as follows (all amounts in thousands):
Gain (Loss)
Gain (Loss)
Gain (Loss)
In AOCL
(1)
Reclassified
(2)
in Earnings
(3)
Derivatives designated as cash flow hedges:
Interest rate swaps, net of taxes of $100
$
(168
)
$
—
$
—
Derivatives not designated as hedging instruments:
Currency forward contracts
$
—
$
—
$
(50
)
(1)
Amount recognized in accumulated other comprehensive loss (AOCL) (effective portion and net of
taxes) during 2010.
(2)
Amount of gain (loss) originally recorded in AOCL but reclassified from AOCL into earnings during
2010.
(3)
Amount of gain (loss) recognized in earnings on the derivative (ineffective portion and amount
excluded from effectiveness testing) reported in other income, net during 2010.
17.
ASSET RETIREMENT OBLIGATION
We have an obligation to remediate
certain known occurrences of asbestos at our manufacturing facility in West Springfield, Massachusetts. The significant assumptions
used to estimate the obligation are:
Annual inflation rate
5.54%
Credit-adjusted risk-free rate
5.37%
Initial estimated remediation costs (undiscounted and not adjusted for inflation)
$200,000 ($41,000 paid in 2007)
Estimated remediation completion date
December 19, 2038
Estimated remediation cost on December 19, 2038
$720,000
F-
25
The following is a reconciliation
of the beginning and ending aggregate carrying amounts of the asset retirement obligation for the years ended December 31, 2011
and 2010 (all amounts in thousands):
Year Ended December 31,
2011
2010
Balance, beginning
$
166
$
158
Additional liabilities incurred
—
—
Liabilities settled
—
—
Accretion expense
9
8
Revisions in estimated cash flows
—
—
Balance, ending
$
175
(1)
$
166
(1)
The difference between the $175,000 liability as of December 31, 2011 and the estimated undiscounted
future payments of $720,000 is estimated inflation between December 31, 2011 and December 19, 2038.
Accretion expense on the asset
retirement obligation is included in general and administrative expenses in the accompanying consolidated statements of income.
18.
COMMITMENTS AND CONTINGENCIES
Contingent Consideration
See Note 3 for a description
of contingent consideration liabilities resulting from our 2011 acquisitions of CSP and CTS. See Note 23 for an estimate of the
fair values of those liabilities and a description of how we estimate those fair values.
Operating Leases
We lease certain equipment,
automobiles and other assets under cancelable and non-cancelable operating leases. Expenses associated with these leases totaled
$171,000 and $37,000 in 2011 and 2010, respectively.
Included in these leases is
a market-based, related-party lease which CSP assumed in conjunction with the business combination discussed in Note 3. CSP entered
into the lease with an entity controlled by one of our stockholders for industrial-use property located in Bound Brook, New Jersey,
U.S.A. The lease ends on August 31, 2016, with extension options available, and requires lease payments of $24,000 per month from
September 1, 2011 through August 31, 2013; thereafter the monthly lease payments will be adjusted to reflect the changes of average
cost per square foot as reported by Newmark Knight and Frank in their 2nd Quarter New Jersey Industrial Market Report, Average
Asking Rate for Somerset County.
Future minimum lease payments
under non-cancelable lease obligations at December 31, 2011 are as follows (all amounts in thousands):
Year Ending December 31,
2012
(1)
$
430
2013
363
2014
339
2015
310
2016
192
Thereafter
—
$
1,634
(1)
Includes the estimated related-party lease payments of the $36,000 described in Note 10.
F-
26
Legal
Civil Action No. 06-706 in Superior Court of the
Commonwealth of Massachusetts
On January 23, 2006, before
we owned CTI, the former owners of CTI (from whom we purchased CTI) (the "Former Owners") acquired all of the outstanding
capital stock of Omniglow Corporation (the "Transaction") and changed the name of the company to Cyalume Technologies,
Inc. Prior to, or substantially simultaneously with, the Transaction, CTI sold certain assets and liabilities related to Omniglow
Corporation's novelty and retail business to certain former Omniglow Corporation stockholders and management ("the
Omniglow Buyers"). This was done because CTI sought to retain only the Omniglow Corporation assets and current liabilities
associated with its government, military and safety business. During 2006, CTI and the Omniglow Buyers commenced litigation and
arbitration proceedings against one another. Claims include breaches of a lease and breaches of various other agreements between
CTI and the Omniglow Buyers. These proceedings are known as Civil Action No. 06-706 in Superior Court of the Commonwealth of Massachusetts.
On December 19, 2008, while
Civil Action 06-706 was still unresolved, we acquired CTI (the "Acquisition"). According to the Stock Purchase Agreement
between the Former Owners and us, the Former Owners retained the responsibility for paying for all costs and liabilities associated
with Civil Action No. 06-706.
On July 18, 2011, CTI received
an Order for Entry of Final Judgment in Civil Action No. 06-706 in which the Court awarded approximately $2.6 million in damages
to Omniglow, LLC. Prejudgment interest at the rate of twelve (12%) percent per annum since the filing of the complaint in 2006
will accrue on approximately $1.3 million of the damages. The Court also awarded Omniglow, LLC reimbursement of attorney fees and
costs of approximately $235,000, on which interest at the rate of twelve (12%) percent per annum will accrue beginning with the
date of the final ruling.
Although we will appeal the
final judgment, we have recorded a contingent legal
obligation in the full amount of the final ruling (approximately $3.6 million) on our consolidated balance sheet as of December
31, 2011. Since the Former Owners (i) retained the responsibility for paying the costs and liabilities associated with Civil Action
No. 06-706 and (ii) are related parties under U.S. GAAP due to their ownership interest in us and their membership on our board
of directors, we have recorded approximately $3.7 million, which includes the $3.6 million contingent legal obligation and other
costs we have incurred while litigating Civil Action No. 06-706, as due from related party on our consolidated balance sheet as
of December 31, 2011. We believe that the related party receivable is collectible. CTI has filed motions for reconsideration and
amendment of findings. In addition, CTI has prepared and will file an appeal of the final decision with the Massachusetts appellate
court.
Complaint Regarding Failure
to Deliver Warrants
On February 27,
2012, Raviv Shefet filed a complaint (Docket No. 3:12-cv-30040) in the Springfield, Massachusetts Federal District Court,
alleging that we failed to deliver common stock warrants to Shefet on a timely basis for services rendered by Shefet prior to
April 2008. Shefet seeks damages in an amount to be proven at trial and such other relief as the court deems just and
equitable. Shefet claims damages could be as much as $0.9 million. On February 27, 2012, we received a Notice of a lawsuit
and request to waive service of a summons from Shefet's attorney. We have accepted the notice and have 60 days to
respond to the complaint. We intend to vigorously defend this complaint. No accrual has been recorded for this matter since
the amount of loss, if any, cannot be reasonably estimated. We do not believe the outcome of this matter will have a material
effect on our financial results.
Management Agreement with
Board Member
On
October 1, 2009
, we entered into a Management Agreement with Selway Capital, LLC ("Selway") that provides for
(but is not limited to) the following services to be performed by Selway on our behalf:
·
Strategic development and implementation as well as consultation to our chief executive officer
on a regular basis as per his reasonable requests;
·
Identifying strategic partners with companies with which Selway has relationships and access. In
this connection, Selway will focus on building partnerships with companies in Israel, Singapore, India and Europe. The focus will
be on the expansion of our munitions business;
·
Advise and support us on our investor relations strategy;
·
Advise and support our future fund raising, including identifying sources of capital in the United
States; and
·
Support our mergers and acquisitions strategy and play an active role in our due diligence and
analysis.
F-
27
The management agreement stipulates
that these services would be performed by Yaron Eitan, an employee of Selway and a member of our Board of Directors, with assistance,
as needed, from other employees of Selway. The management agreement expires on October 1, 2012 and can be terminated by either
us or Selway upon 30-days written notice or upon our default in payment or Selway's failure to perform services under the
management agreement. Under the management agreement, we indemnified Selway and Selway indemnified us against certain losses that
could have been incurred while carrying out its obligations under the management agreement. Per the management agreement and subsequent
amendments thereto, Selway's compensation for these services is currently $11,667 per month. We also reimburse Selway for
costs incurred specifically on our behalf for these services.
On July 29, 2010 we amended
our management agreement (the "Amended Management Agreement") with Selway. Pursuant to the Amended Management Agreement,
(i) the compensation payable to Selway was reduced from $41,667 to $11,667 per month and (ii) we issued to Selway 45,000 shares
of common stock in full satisfaction of all accrued and unpaid liabilities (including all management fees) owed to Selway pursuant
to the management agreement through July 2010. Those 45,000 shares were issued in July 2010. There is no provision for an additional
bonus in the Amended Management Agreement. Other terms and conditions of the management agreement remained unchanged.
19.
STOCKHOLDERS' EQUITY
Preferred Stock
We are authorized to issue 1,000,000
shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time
by our Board of Directors. No preferred stock was issued or outstanding as of December 31, 2011 or 2010.
Common Stock
We are authorized to issue 50,000,000
shares of common stock. Stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders.
Stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions
applicable to the common stock.
Other Equity Instruments
As of December 31, 2011, we
had 3,254,256 common stock purchase warrants ("warrants") outstanding that were not related to stock-based compensation,
of which 2,975,506 were sold in a public offering, 160,000 were issued in 2010 in conjunction with the Subordinated Term Loan (see
Note 12) and 118,750 were sold to a third party. Also outstanding at December 31, 2011 was
an option to purchase up to a total of 731,250 units. Each unit consisted of one share of common stock and one common stock
purchase warrant. All of these instruments were recorded as equity transactions.
Public Offering Warrants
On May 1, 2007 we sold 7,312,500
units in our initial public offering for $58.5 million, or $8.00 per unit. Each warrant entitles the holder to purchase one share
of common stock at an exercise price of $5.00 per share. These warrants expire April 25, 2012. These warrants are redeemable by
us at a price of $0.01 per warrant upon a 30-day notice, only in the event that the last sales price of the common stock is at
least $11.50 per share for any 20 trading days within a 30-trading-day period ending on the third business day prior to the date
on which notice of redemption is given. The common stock underlying the warrants has been registered under the Securities Act of
1933.
In 2011, 1,056,500 of these
warrants were exercised on a cashless basis in exchange for 6,060 common shares. There were no warrants exercised in 2010.
Warrants Sold to a Third
Party
On October 15, 2008, we sold
118,750 common stock purchase warrants and 593,750 shares of common stock for a combined price of $4.8 million. Each warrant entitles
the holder to purchase one share of common stock at an exercise price of $5.00 per share. These warrants expire on April 25, 2012
unless redeemed earlier.
F-
28
Options to Purchase Units
In connection with our initial
public offering on April 25, 2007, we sold to the representative of the underwriter an option to purchase up to a total of 731,250
units for $100. Each unit consists of one share of common stock and one common stock purchase warrant. Each warrant entitles the
holder to purchase one share of common stock at an exercise price of $5.50 per share, which may be exercised on a cashless basis.
This option is exercisable at $8.80 per unit upon the completion of an acquisition of a business (which occurred on December 19,
2008). This option expires five years from the date of our initial public offering (April 25, 2012). We accounted for this option
as a cost of raising capital and have included the instrument as equity in the financial statements. Accordingly, there was no
net impact on financial position or results of operations, except for the recording of the proceeds from the sale. We estimated,
based upon a Black-Scholes model, that the fair value of the purchase option on the date of sale was $3.40 per unit (or $2.5 million
in the aggregate), using an expected term of 5 years, volatility of 44%, and a risk-free rate of 5%.
Share-Based Compensation
On March 3, 2009, our Board
of Directors adopted the Cyalume Technologies Holdings, Inc. 2009 Omnibus Securities and Incentive Plan (the "Plan").
The Plan was approved during our Annual Meeting of Stockholders on June 18, 2009. The purpose of the Plan is to benefit stockholders
by assisting us in attracting, retaining and providing incentives to key management employees and non-employee directors of, and
non-employee consultants to, Cyalume Technologies Holdings, Inc. and its subsidiaries, and to align the interests of such employees,
non-employee directors and non-employee consultants with those of stockholders. Accordingly, the Plan provides for the granting
of Distribution Equivalent Rights, Incentive Stock Options, Non-Qualified Stock Options, Performance Share Awards, Performance
Unit Awards, Restricted Stock Awards, Stock Appreciation Rights, Tandem Stock Appreciation Rights, Unrestricted Stock Awards or
any combination of the foregoing, as may be best suited to the circumstances of the particular employee, director or consultant
as provided herein. Under the Plan, we are authorized to issue up to two million shares of common stock, of which 197,419 shares
are available for future awards as of December 31, 2011. Awards under the Plan can impose various service periods and other terms
upon the awardee, however the maximum term of options or similar instruments granted under the Plan is ten years.
During the years ended December
31, 2011 and 2010, total expense recorded for share-based compensation was $1.2 million and $1.2 million, respectively. The following
presents how share-based expenses are included in our consolidated statements of income (in thousands):
Year Ended December 31,
2011
2010
Cost of goods sold
$
100
$
37
Sales and marketing
168
88
General and administrative
721
857
Research and development
218
199
$
1,207
(1)
$
1,181
(2)
(1)
The related recognized tax benefit in our consolidated statement of income is $307,000.
(2)
The related recognized tax benefit in our consolidated statement of income is $341,000.
We do not currently possess
any treasury shares, therefore any issuance of stock for any share-based compensation award is expected to be from new shares.
Stock Option and Warrant
Awards
We use a Black-Scholes pricing
model to value all stock options and warrants awarded as stock-based compensation. We estimated the expected term of the options
and warrants awarded under stock-based compensation arrangements individually based on the estimated term of the award, the exercise
price of the award, the estimated risk-free interest rate over the award's estimated term, estimated annual dividend yield
and the estimated volatility of our common stock over the award's estimated term. Since our common stock did not have sufficient
trading history that was representative of an operating company as of each award's grant date, each award's volatility
assumption was derived using historical data of another public company operating in our industry. We believe the volatility estimate
calculated from that company is a reasonable benchmark to use in estimating the expected volatility of our common stock; however,
that estimated volatility may not necessarily be representative of the volatility of the underlying securities in the future. Our
risk-free interest rate assumptions are based on U.S. Treasury securities issued with maturities similar to the expected terms
of the awards. The fair value of each award is estimated on the date of grant using the Black-Scholes pricing model with the following
assumptions for awards to employees and non-employees:
F-
29
2011
2010
Estimated term (years)
10
4.6 - 10
Risk-free interest rate
2.23 – 3.12
%
1.81 – 3.77
%
Estimated dividend yield
None
None
Volatility
29.92 – 30.16
%
26.94 – 33.56
%
Discount for post-vesting restrictions
None
None
Stock options and warrants awarded
as of December 31, 2011 will generally vest in zero to 2 years. Options awarded to executive officers and other management typically
are earned based on meeting Board-determined or CEO-determined performance goals unique to each award recipient and require continued
employment over the vesting period. Options awarded to members of the Board of Directors typically vest on the grant date. Options
and warrants awarded typically expire 10 years after the grant date.
Stock option and warrant activity
related to share-based compensation is summarized as follows:
Shares
(in thousands)
Weighted Average
Exercise Price
Outstanding at December 31, 2009
578
$
4.32
Granted
(1)
615
3.07
Exercised
—
—
Forfeited
(49
)
3.65
Expired
—
—
Outstanding at December 31, 2010
1,144
3.75
Granted
(2)
140
4.24
Exercised
(3)
(2
)
3.65
Forfeited
(11
)
3.65
Expired
(105
)
7.78
Outstanding at December 31, 2011
1,166
$
3.44
Exercisable at December 31, 2011
(4)
923
3.37
(1)
The weighted-average grant-date fair value of awards granted was $1.56.
(2)
The weighted-average grant-date fair value of awards granted was $1.92.
(3)
The intrinsic value of awards exercised was $2,000. These options were exercised on a cashless
basis, therefore no cash was received at exercise. The tax benefit realized from this exercise insignificant.
(4)
The aggregate intrinsic value of such awards exercisable at December 31, 2011 is $491,000. The
weighted-average remaining contractual term of such awards is 7.12 years.
The following table summarizes
information about stock options and warrants related to stock-based compensation that (i) are not subject to performance conditions
and (ii) are vested or are expected to vest as of December 31, 2011:
Options Outstanding
Options Exercisable
Weighted
Average
Weighted
Weighted
Number
Remaining
Average
Number
Average
Range of
Outstanding
Contractual
Exercise
Exercisable
Exercise
Exercise Prices
(in thousands)
Term (Years)
Price
(in thousands)
Price
$
0.00
$
2.00
160
3.58
$
2.00
160
$
2.00
2.01
4.00
779
7.80
3.42
600
3.42
4.01
6.00
192
8.50
4.67
142
4.67
6.01
8.00
—
—
—
—
—
1,131
(1)
7.32
$
3.36
902
(2)
$
3.36
(1)
The aggregate intrinsic value of these stock options and warrants is $549,000 as of December 31,
2011.
(2)
The aggregate intrinsic value of these stock options and warrants is $489,000 as of December 31,
2011. The weighted-average remaining contractual term for these options is 7.11 years as of December 31, 2011.
F-
30
The following table summarizes
information about stock options related to stock-based compensation that (i) are subject to performance conditions and (ii) are
vested or are expected to vest as of December 31, 2011:
Options Outstanding
Options Exercisable
Weighted
Average
Weighted
Weighted
Number
Remaining
Average
Number
Average
Range of
Outstanding
Contractual
Exercise
Exercisable
Exercise
Exercise Prices
(in thousands)
Term (Years)
Price
(in thousands)
Price
$
2.01
$
4.00
35
(1)
7.48
$
3.65
21
(2)
$
3.65
(1)
The aggregate intrinsic value of these stock options is $3,500 as of December 31, 2011.
(2)
The aggregate intrinsic value of these stock options is $2,000 as of December 31, 2011. The weighted-average
remaining contractual term for these options is 7.47 years as of December 31, 2011.
As of December 31, 2011, there
was $306,000 of unrecognized compensation cost related to nonvested option awards which is expected to be recognized over a weighted-average
period of 1.6 years.
Stock Awards
We value stock awards at the
closing market price of the underlying shares on the trading day previous to the grant date, adjusted for expected forfeitures.
Nonvested restricted common
stock related to stock-based compensation is summarized as follows:
Shares
(in thousands)
Weighted
Average Grant
Date Fair Value
Outstanding at December 31, 2009
179
$
3.43
Granted
252
3.59
Vested
(1)
(106
)
3.43
Forfeited
(1
)
3.25
Outstanding at December 31, 2010
324
3.61
Granted
131
4.00
Vested
(2)
(174
)
3.48
Forfeited
(4
)
3.25
Outstanding at December 31, 2011
277
$
3.88
As of December 31, 2011, there
are 116,000 stock awards that will vest upon fulfilling service conditions and 161,000 stock awards that will vest upon fulfilling
performance conditions and service conditions.
(1)
The total fair value of restricted common stock awards that vested during 2010 was $371,000.
(2)
The total fair value of restricted common stock awards that vested during 2011 was $696,000
As of December 31, 2011, there
was $533,000 of unrecognized compensation cost related to nonvested stock awards which is expected to be recognized over a weighted-average
period of 1.75 years.
Accumulated Other Comprehensive
Loss
The ending accumulated balances
for each item in accumulated other comprehensive loss are as follows (all amounts in thousands):
Year Ended December 31,
2011
2010
Foreign currency translation loss
$
(526
)
$
(459
)
Unrealized loss on cash flow hedges, net of taxes
(170
)
(211
)
$
(696
)
$
(670
)
F-
31
Changes in accumulated other
comprehensive loss due to derivative instruments and hedging activities are as follows (all amounts in thousands):
Balance, December 31, 2009
$
(43
)
Unrealized loss on interest rate swaps, net of taxes of $100
(168
)
Unrealized losses (gains) reclassified to current period earnings
—
Balance, December 31, 2010
(211
)
Unrealized gain on cash flow hedges, net of taxes of $(23)
41
Unrealized losses (gains) reclassified to current period earnings
—
Balance, December 31, 2011
$
(170
)
Changes in accumulated other
comprehensive loss due to currency translation adjustments (all amounts in thousands):
Balance, December 31, 2009
$
27
Adjustments due to translation of CTSAS financial statements from Euros into U.S. Dollars
(486
)
Reclassifications to current period earnings
—
Balance, December 31, 2010
(459
)
Adjustments due to translation of CTSAS financial statements from Euros into U.S. Dollars
(67
)
Reclassifications to current period earnings
—
Balance, December 31, 2011
$
(526
)
20.
EMPLOYEE BENEFIT PLANS
The CTI Employee Savings and
Retirement Plan (the "ESRP"), is intended to be qualified under Section 401(k) of the Internal Revenue Code. Employees
of CTI, CTS and CSP who have reached the age of 18 are eligible for participation on the first entry date after three months of
service. Entry dates are the first day of January, April, July and October. Employees may defer receiving compensation up to the
maximum amount permitted under the Internal Revenue Code. Matching contributions to the ESRP equal (i) 3% of employee compensation
plus (ii) 50% of the next 2% of employee compensation. For the years ended December 31, 2011 and 2010, employer matching contributions
were $224,000 and $220,000, respectively.
21.
OTHER INCOME, NET
In 2011, we received approximately
$470,000 from various companies for research and development work performed by us. Amounts received in 2010 were not significant.
22.
CONCENTRATIONS
Sales Concentrations
In 2011, 66% of our revenue
was received from four customers. In 2010, 77% of our revenue was received from four customers.
Geographic Concentrations
We sell to customers located
in the United States of America and in international market. Revenues to customers outside the United States represent 39% and
33% of net revenues for the years ended December 31, 2011 and 2010, respectively.
CTSAS' operations are
our only operations outside the United States of America. CTSAS' net assets were $6,093,000 and $6,653,000 as of December
31, 2011 and 2010, respectively.
Concentrations of Credit
Risk Arising from Financial Instruments
As of December 31, 2010, two
customers combined represented 48% of gross accounts receivable and no other customer owed more than 10% of gross accounts receivable.
These accounts receivable were collected in full in the first quarter of 2011. As of December 31, 2011, four customers combined
represented 50% of gross accounts receivable and no other customer owed more than 10% of gross accounts receivable. All but $112,000
of these accounts receivable were collected in full in the first quarter of 2012.
We maintain cash in several
different financial institutions in amounts that typically exceed U.S. federally insured limits and in financial institutions in
international jurisdictions where insurance is not provided. We have not experienced any losses in such accounts and believe we
are not exposed to significant credit risk.
F-
32
23.
FAIR VALUES OF ASSETS AND LIABILITIES
Assets and liabilities itemized
below were measured at fair value on a recurring basis at December 31, 2011:
Level 1
Quoted
Prices in
Active
Markets
for
Identical
Assets
Level 2
Significant
Other
Observable
Inputs
Level 3
Significant
Unobservable
Inputs
Assets/
Liabilities
At Fair
Value
Interest rate swaps (see Note 16)
(1)
—
$
(273
)
—
$
(273
)
Currency forward contracts (see Note 16)
(2)
—
4
—
4
Contingent consideration (see Note 3)
(3)
—
—
$
3,699
3,699
$
—
$
(269
)
$
3,699
$
3,430
(1)
The fair values of the swaps are determined by discounting the estimated cash flows to be received
and paid due to the swaps over the swap's contractual lives using an estimated risk-free interest rate for each swap settlement
date (an income approach).
(2)
The fair value of these contracts is determined by multiplying the notional amount of the contract
by the difference between (a) the U.S. dollar amount due on the contract at maturity and (b) the foreign exchange rate as of the
date the contract is valued (the balance sheet date). Because the contracts typically have a short duration, the value is not discounted
using a present value technique (an income approach).
(3)
The contingent consideration liabilities' fair value is determined by calculating the present
value of the estimated liability that is expected to be paid in the future (an income approach). We estimated the undiscounted
liability we expect to pay in the future by developing various hypothetical scenarios in which the consideration could be earned
and weighting those scenarios based on our expectations that those scenarios will actually occur.
Assets and liabilities itemized
below were measured at fair value on a recurring basis at December 31, 2010:
Level 1
Quoted
Prices in
Active
Markets
for
Identical
Assets
Level 2
Significant
Other
Observable
Inputs
Level 3
Significant
Unobservable
Inputs
Assets/
Liabilities
At Fair
Value
Interest rate swaps
—
$
(337
)
—
$
(337
)
Currency forward contracts
—
(28
)
—
(28
)
$
—
$
(365
)
$
—
$
(365
)
The table below presents reconciliations
for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for
the years ended December 31 2011 and 2010:
Year Ended December 31,
2011
2010
Contingent consideration:
Balance at the beginning of period
$
—
$
—
Initial recognition of the liabilities
(3,640
)
—
Unrealized gains (losses) in earnings
(1)
(59
)
—
Balance at the end of period
$
(3,699
)
$
—
(1)
R
ecorded in other income, net on our consolidated statement of
income.
F-
33
We have other financial instruments,
such as cash, accounts receivable, due from related party, accounts payable, accrued expenses, notes payable and line of credit
whose carrying amounts approximate fair value.
24.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid for Interest and
Income Taxes
(all amounts in thousands)
:
Year Ended December 31,
2011
2010
Interest
$
1,857
$
2,162
Income taxes
$
1,682
$
195
Non-Cash Investing and Financing
Activities
(all amounts in thousands)
:
Year Ended December 31,
2011
2010
Issued 712,771 shares of our common stock to effect the acquisition of CSP
2,500
—
Issued 133,584 shares of our common stock to effect the acquisition of CTS
500
—
Issued note payable to effect the acquisition of CTS
500
—
Issued 483,046 shares of our common stock to repay note payable and accrued interest thereon
2,212
—
Issued 253,288 shares of our common stock to repay related party notes payable to three stockholders and accrued interest thereon
1,160
—
Fixed assets acquired through capital lease obligations
77
—
Payment of accounts payable due to related parties by issuing common stock
—
146
Warrants issued in conjunction with convertible debt
7
200
Debt issuance costs withheld from proceeds of the Subordinated Term Loan
—
858
25.
SUBSEQUENT EVENT
In March 2012, we reached agreement to amend certain financial covenants in our financing
    arrangements with TD Bank and Granite Creek (see Notes 11 and 12). Additionally, we have agreed to amend the 160,000
    warrants     described in Note 12 by (i) extending the warrants' expiration date to July 29, 2018 and (ii) reducing
    their exercise price to $1.50 per share.
F-
34
Cyalume Technologies Holdings, Inc.
Consolidated Financial Statement Schedule
Schedule II – Valuation and Qualifying
Accounts
(in thousands)
Additions
Description
Balance at
Beginning
of Period
Charged
to costs
and
expenses
Charged to
other
accounts
(Describe)
Deductions
(Describe)
Balance
at End of
Period
Year ended December 31, 2010
Allowance for Doubtful Accounts
239
42
—
(219
)
(1)(2)
62
Deferred Tax Asset Valuation Allowance
6,039
(1,977
)
—
—
4,062
Year ended December 31, 2011
Allowance for Doubtful Accounts
62
140
10
(3)
(6
)
(2)
206
Deferred Tax Asset Valuation Allowance
4,062
(188
)
—
—
3,874
(1)
Write-offs
(2)
Currency translation
(3)
Acquisition-date adjustment of estimated uncollectable accounts receivable of CTS.
You should rely only on the information
contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this
prospectus or any prospectus supplement. This prospectus is not an offer of these securities in any jurisdiction where an offer
and sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or any sale of our common stock.
14,969,696 Shares Common Stock
CYALUME TECHNOLOGIES HOLDINGS, INC.
PRELIMINARY PROSPECTUS
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance
and Distribution
SEC Registration fee
$
674
Accounting fees and expense
$
20,000
Printing and engraving expenses
$
0
Legal fees and expenses
$
10,000
Miscellaneous
$
2,500
Total
$
33,174
Item 14. Indemnification of Directors and Officers
Our Fifth Amended
and Restated Certificate of Incorporation provides that all Directors, officers, employees and agents of the registrant shall be
entitled to be indemnified by us to the fullest extent permitted by Section 145 of the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation
Law concerning indemnification of officers, Directors, employees and agents is set forth below.
''Section 145. Indemnification of officers,
directors, employees and agents; insurance.
(a)          A
corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if
the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and
in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that the person's conduct was unlawful.
(b)          A
corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact
that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense
or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
(c)          To
the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection therewith.
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1
(d)       Any
indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only
as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee
or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made, with respect to a person who is a director or officer at the time
of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than
a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion,
or (4) by the stockholders.
(e)       Expenses
(including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if
any, as the corporation deems appropriate.
(f)       The
indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not
be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official
capacity and as to action in another capacity while holding such office.
(g)       A
corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under this section.
(h)       For
purposes of this section, references to ''the corporation'' shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or
surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.
(i)       For
purposes of this section, references to ''other enterprises'' shall include employee benefit plans; references
to ''fines'' shall include any excise taxes assessed on a person with respect to any employee benefit plan;
and references to ''serving at the request of the corporation'' shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee
or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and
in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner ''not opposed to the best interests of the corporation''
as referred to in this section.
The indemnification and advancement of
expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue
as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(j)     The
Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.
The Court of Chancery may summarily determine a corporation's obligation to advance expenses (including attorneys'
fees).''
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Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a
successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Paragraph B of Article Seventh of our Fifth Amended
and Restated Certificate of Incorporation provides:
''The
Corporation, to the full extent permitted by Section 145 of the GCL, as amended from time to time, shall indemnify all persons
whom it may indemnify pursuant thereto. Expenses (including attorneys' fees) incurred by an officer or director in defending
any civil, criminal, administrative, or investigative action, suit or proceeding for which such officer or director may be entitled
to indemnification hereunder shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized hereby.''
The Registrant's
amended and restated certificate of incorporation also provides that no director of the Corporation shall be liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision of the Registrant's
amended and restated certificate of incorporation shall not eliminate or limit the liability of a director (a) for any breach of
the director's duty of loyalty to the Registrant or its stockholders; (b) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the Delaware General Corporation Law; or
(d) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this provision
of the Registrant's amended and restated certificate of incorporation shall be prospective only and shall not adversely affect
any right or protection of, or any limitation of the liability of, a director of the Registrant existing at, or arising out of
facts or incidents occurring prior to, the effective date of such repeal or modification.
Bylaws.
The Registrant's bylaws provide for the indemnification of the officers and directors of the Registrant to the fullest extent
permitted by the DGCL. The bylaws provide that each person who was or is made a party to, or is threatened to be made a party to,
any civil or criminal action, suit or proceeding by reason of the fact that such person is or was a director or officer of the
Registrant shall be indemnified and held harmless by the Registrant to the fullest extent authorized by the DGCL against all expense,
liability and loss, including, without limitation, attorneys' fees, incurred by such person in connection therewith, if such
person acted in good faith and in a manner such person reasonably believed to be or not opposed to the best interests of the Registrant
and had no reason to believe that such person's conduct was illegal.
Insurance.
The Registrant maintains directors and officers liability insurance, which covers Directors and officers of the Registrant against
certain claims or liabilities arising out of the performance of their duties.
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3
Item 15. Recent Sales of Unregistered Securities.
On December 22, 2011
we issued an aggregate of 133,584 shares of our common stock to three accredited investors, pursuant to a stock purchase agreement.
The shares of our common stock issued in this transaction were issued in reliance upon an exemption from registration afforded
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), for transactions not involving
a public offering, and Regulation D, promulgated thereunder. Such shares are being registered hereunder.
On August 31, 2011
we issued an aggregate of 712,771 shares of our common stock to one accredited investor, pursuant to a asset purchase agreement.
The shares of our common stock issued in this transaction were issued in reliance upon an exemption from registration afforded
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), for transactions not involving
a public offering, and Regulation D, promulgated thereunder. Such shares are being registered hereunder.
On July 1, 2011 we
issued an aggregate of 253,288 shares of our common stock to three accredited investors, pursuant to a securities exchange agreement.
The shares of our common stock issued in this transaction were issued in reliance upon an exemption from registration afforded
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), for transactions not involving
a public offering, and Regulation D, promulgated thereunder. Such shares are being registered hereunder.
On July 1, 2011 we
issued an aggregate of 483,046 shares of our common stock to one accredited investor, pursuant to a securities exchange agreement.
The shares of our common stock issued in this transaction were issued in reliance upon an exemption from registration afforded
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), for transactions not involving
a public offering, and Regulation D, promulgated thereunder. Such shares are being registered hereunder.
On March 18, 2011
we issued an aggregate of 871,823 shares of our common stock to seven accredited investors, pursuant to a stock purchase agreement.
The shares of our common stock issued in this transaction were issued in reliance upon an exemption from registration afforded
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), for transactions not involving
a public offering, and Regulation D, promulgated thereunder. Such shares are being registered hereunder.
On or about August
1, 2010 and February 1, 2011 we issued 20,000 and 20,000 shares of our common stock, respectively to Cameron Associates, Inc. for
investor relation services pursuant to a service agreement dated August 1, 2010. The shares of our common stock issued to this
consultant were not registered under the Securities Act in reliance upon the exemption from the registration requirements provided
in Section 4(2) of the Securities Act.
On or about February
4, 2010 and July 29, 2010 we issued 60,000 and 45,000 shares of our common stock, respectively to Selway Capital, LLC for management
fees pursuant to a management agreement dated October 1, 2009 and amended on July 29, 2010. The shares of our common stock issued
to this consultant were not registered under the Securities Act in reliance upon the exemption from the registration requirements
provided in Section 4(2) of the Securities Act.
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Item 16, Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed as part of this
Registration Statement:
Exhibit Number
Description
2.1
Stock Purchase Agreement dated February 14, 2008 by and among Vector Intersect Acquisition Corporation, as the Parent, Cyalume Acquisition Corp., a Delaware corporation, as the Purchaser, Cyalume Technologies, Inc. and GMS Acquisition Partners Holdings, LLC. (1)
2.2
Amendment No. 1 to Stock Purchase Agreement, dated October 22, 2008. (2)
2.3
Amendment No. 2 to Stock Purchase Agreement, dated December 17, 2008. (3)
2.4
Amendment No. 3 to Stock Purchase Agreement, dated December 18, 2008. (3)
3.1
Fifth Amended and Restated Certificate of Incorporation. (3)
3.2
By-laws. (4)
4.1
Specimen Common Stock Certificate. (4)
4.2
Specimen Unit Certificate. (4)
4.3
Specimen Warrant Certificate. (4)
4.4
Form of Unit Purchase Option to be granted to the representative. (4)
4.5
Registration Rights Agreement dated March 18, 2011. (8)
5.1
*
Opinion of Loeb & Loeb LLP
10.1
Form of Stock Escrow Agreement among the Registrant, American Stock Transfer & Trust Company and the Initial Stockholders. (4)
10.2
Form of Registration Rights Agreement among the Registrant, the Initial Stockholders and the Private Placement Purchasers. (4)
10.3
Subordinated Loan Agreement dated as of July 29, 2010 among Cyalume Technologies, Inc., Cyalume Technologies Holdings, Inc., the Lenders and other financial institutions or other entities from time to time parties thereto and Granite Creek Partners Agent, LLC as Agent. (5)
10.4
Subordinated Security and Pledge Agreement dated as of July 29, 2010 between Cyalume Technologies, Inc. and Granite Creek Partners Agent, LLC. (5)
10.5
Subordinated Guaranty Agreement dated as of July 29, 2010 entered into by Cyalume Technologies Holdings, Inc. for the benefit of Granite Creek Partners Agent, LLC. (5)
10.6
Subordinated Stock Pledge Agreement dated as of July 29, 2010 entered into by Cyalume Technologies Holdings, Inc. (5)
10.7
Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 29, 2010 among Cyalume Technologies, Inc., Cyalume Technologies Holdings, Inc., the Lenders and the other financial institutions or other entities from time to time parties thereto and TD Bank, N.A., a national banking association, as Agent and as Lender. (5)
10.8
Form of Warrant issued to Granite Creek FlexCap I, L.P. (5)
10.9
Form of Warrant issued to Patriot Capital II, LP. (5)
10.10
Registration Rights Agreement between CTHI and Granite Creek FlexCap I, L.P. (5)
10.11
Registration Rights Agreement between CTHI and Patriot Capital II, LP. (5)
10.12
Registration Rights Agreement between CTHI and Patriot Capital II, LP. (5)
10.13
Extension of deadline (contained in the TD Bank Second Amendment to Credit Agreement and Limited Waiver dated December 7, 2009)
to receive at least $3.0 million in new subordinated debt or from an equity offering from June 30, 2010 to July 31, 2010. (7)
10.14
Share Purchase Agreement dated March 18, 2011. (8)
10.15
Amendment No. 1 to the Employee Agreement of Derek Dunaway dated May 9, 2011. (9)
10.16
Amendment No. 1 to the Employee Agreement of Edgar E. Cranor dated May 9, 2011. (9)
10.17
Securities Exchange Agreement between Cyalume Technologies Holdings, Inc. and Rodman Principal Investments, LLC dated June 30, 2011. (10) (10.1)
10.18
Securities Exchange Agreement between Cyalume Technologies Holdings, Inc. and Winston Churchill dated July 7, 2011. (10) (10.2)
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5
10.19
Securities Exchange Agreement between Cyalume Technologies Holdings, Inc. and Thomas Rebar dated July 7, 2011. (10) (10.3)
10.20
Securities Exchange Agreement between Cyalume Technologies Holdings, Inc. and Wayne Weisman dated July 7, 2011. (10) (10.4)
10.21
Amendment No. 2 to the Employee Agreement of Derek Dunaway. (11) (10.5)
10.22
Amendment No. 1 to the Employee Agreement of Michael Bielonko. (11) (10.6)
10.23
Amendment No. 2 to the Employee Agreement of Edgar E. Cranor. (11) (10.7)
10.24
Asset Purchase Agreement dated August 31, 2011 among Cyalume Technologies Holdings, Inc., Cyalume Specialty Products, Inc., JFC Technologies, LLC and Selling Members of Seller. (11) (10.8)
10.25
Registration Rights Agreement between Cyalume Technologies Holdings, Inc., James G. Schleck, James R. Schleck, Jame Fine Chemical, Inc., and JFC Technologies, LLC dated as of August 31, 2011. (11) (10.9)
10.26
Lease Agreement between Brook Industrial Park, LLC and Cyalume Specialty Products, Inc. (11) (10.10)
10.27
Stock Purchase Agreement dated December 22, 2011 among Cyalume Technologies Inc., Cyalume Technologies Holdings, Inc., Combat Training Solutions, Inc., and Antonio Colon. (15) (10.27)
10.28
Registration Rights Agreement, dated as of December 22, 2011, between Cyalume Technologies Holdings, Inc., and Antonio Colon. (15) (10.28)
10.29
Cyalume Technologies Holdings, Inc. 2009 Omnibus Securities and Incentive Plan. (12)
10.30
Second Amendment to Amended and Restated Revolving Credit and Term Loan Agreement between Cyalume Technologies, Inc., Cyalume Technologies Holdings, Inc., Combat Training Solutions, Inc., Cyalume Realty, Inc., Cyalume Specialty Products, Inc. and TD Bank, N.A. dated March 30, 2012. (15) (10.30)
10.31
Second Amendment to Subordinated Loan Agreement between Cyalume Technologies, Inc., Cyalume Technologies Holdings, Inc., Combat Training Solutions, Inc., Cyalume Realty, Inc., Cyalume Specialty Products, Inc., Granite Creek Partners Agent, LLC, Granite Creek Flexcap I, L.P. and Patriot Capital II, L.P. dated March 30, 2012.  (15) (10.31)
10.32
Services Agreement by and among the Company, Cyalume Technologies, Inc. and East Shore Ventures, LLC dated as of April 2, 2012. (13) (10.1)
10.33
Inducement Agreement by and between East Shore Ventures, LLC and Zivi Nedivi (13) (10.2)
10.34
Separation Agreement and General Release by and between Cyalume Technologies, Inc. and Derek Dunaway effective as of April 2, 2012 (13) (10.3)
14.1
Code of Conduct and Ethics. (15)  (14.1)
16.1
Letter from CCR LLP. (14)
21.1
Subsidiaries of the Registrant. (15)  (21.1)
23.1
*
Consent of Grant Thornton LLP
23.2
*
Consent of Loeb & Loeb LLP (included in Exhibit 5.1)
24.1
*
Power of Attorney (included on signature page of this Registration Statement)
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
(1)
Incorporated by reference to the Current Report on Form 8-K dated February 14, 2008 and filed with the Commission February 21, 2008.
(2)
Incorporated by reference to the Current Report on Form 8-K dated October 22, 2008 and filed with the Commission November 4, 2008.
(3)
Incorporated by reference to the Current Report on Form 8-K dated December 17, 2008 and filed with the Commission December 23, 2008.
(4)
Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-127644) filed August 18, 2005.
(5)
Incorporated by reference to the Current Report on Form 8-K dated July 29, 2010 and filed with the Commission August 3, 2010.
(6)
Incorporated by reference to the Current Report on Form 8-K dated April 30, 2010 and filed with the Commission May 6, 2010.
(7)
Incorporated by reference to the Current Report on Form 8-K dated June 30, 2010 and filed with the Commission July 8, 2010.
(8)
Incorporated by reference to the Current Report on Form 8-K dated March 18, 2011 and filed with the Commission March 21, 2011.
(9)
Incorporated by reference to our Form 10-Q dated June 30, 2011 and filed with the Commission August 10, 2011. The number given in parenthesis indicates the corresponding exhibit number in such Form 10-Q.
(10)
Incorporated by reference to the Current Report on Form 8-K dated June 30, 2011 and filed with the Commission July 7, 2011. The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.
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6
(11)
Incorporated by reference to our Form 10-Q dated September 30, 2011 and filed with the Commission November 14, 2011. The number given in parenthesis indicates the corresponding exhibit number in such Form 10-Q.
(12)
Incorporated by reference to Exhibit A of the definitive Proxy Statement filed with the Commission April 30, 2009 pursuant to Regulation 14A of the Exchange Act for our 2009 Annual Meeting of Stockholders.
(13)
Incorporated by reference to the Current Report on Form 8-K dated March 30, 2012 and filed with the Commission April 5, 2012. The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.
(14)
Incorporated by reference to the Current Report on Form 8-K dated November 28, 2011 and filed with the Commission December 2, 2011.
(15)
Incorporated by reference to our Form 10-K dated April 16, 2012 and filed with the Commission April 16, 2012. The number given in parenthesis indicates the corresponding exhibit number in such Form 10-K.
*
Filed herewith.
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7
Item 17. Undertakings.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which
offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the
prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§ 230.424(b)
of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
(iii) To include any
material information with respect to the plan of distribution not previously disclosed in the registration statement or any material
change to such information in the registration statement.
(2) That, for the purpose
of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from
registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination
of the offering.
(4) That, for the purpose
of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the
securities:
The undersigned registrant
undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser
by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered
to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus
or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§ 230.424
of this chapter);
(ii) Any free writing
prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The portion of
any other free writing prospectus relating to the offering containing material information about the undersigned registrant or
its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication
that is an offer in the offering made by the undersigned registrant to the purchaser.
B. Insofar as indemnification
for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933,
as amended, and will be governed by the final adjudication of such issue.
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8
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of West Springfield, State of Massachusetts, on the 27th day of April 2012.
CYALUME TECHNOLOGIES HOLDINGS, INC.
By:
/s/ Zivi Nedivi
Zivi Nedivi
President & Chief Executive Officer
KNOW ALL MEN BY THESE
PRESENTS, that each person whose signature appears below constitutes and appoints each of Zivi Nedivi and Michael Bielonko, and
each of them individually, his true and lawful attorney-in-fact, with full power of substitution and resubstitution for him and
in his name, place and stead, in any and all capacities to sign any and all amendments including post-effective amendments to this
registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitute, each acting
alone, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements
of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the
dates indicated.
Name
Title
Date
/s/ Zivi Nedivi
President and Chief Executive Officer
April 27, 2012
Zivi Nedivi
(Principal Executive Officer)
/s/ Michael Bielonko
Secretary and Chief Financial Officer
April 27, 2012
Michael Bielonko
(Principal Financial Officer and Principal Accounting Officer)
/s/ Winston J. Churchill
Chairman of the Board
April 27, 2012
Winston J. Churchill
/s/ Yaron Eitan
Vice Chairman of the Board
April 27, 2012
Yaron Eitan
/s/ Jason Epstein
Director
April 27, 2012
Jason Epstein
/s/ Andrew Intrater
Director
April 27, 2012
Andrew Intrater
/s/ John G. Meyer, Jr.
Director
April 27, 2012
John G. Meyer, Jr.
/s/ Thomas G. Rebar
Director
April 27, 2012
Thomas G. Rebar
/s/ Yair Shamir
Director
April 27, 2012
Yair Shamir
/s/ James Valentine
Director
April 27, 2012
James Valentine