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FY
No
CYLU
CYALUME TECHNOLOGIES HOLDINGS, INC.
Yes
false
Smaller Reporting Company
2011
10-K
2011-12-31
0001335293
No
--12-31
16135000
134000
222000
<div style="font: 10pt Times New Roman, Times, Serif">
<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’
EQUITY</b></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">
<b>Preferred Stock</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 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> </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">
 </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">
 </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">
 </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 (“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 wasan 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">
 </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">
 </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">
 </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> </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">
 </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">
 </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">
<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">
 </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">
 </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">
 </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 “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.</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">
During the years ended December 31, 2011 and 2010, total expense
recorded for share-based compensation was $1.2 million and $1.2
million, respectively. The following presents how share-based
expenses are included in our consolidated statements of income (in
thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: center"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Year Ended December 31,</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: center"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2011</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2010</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 76%; text-align: left">Cost of goods sold</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">100</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Sales and marketing</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">168</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">88</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">General and administrative</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">721</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">857</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
218</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
199</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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </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">
 </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">
 </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">
 </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">
 </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’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:</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">
 </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"> </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">
 </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"> </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"> </td>
<td style="text-align: right">4.6 - 10</td>
<td style="text-align: justify"> </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 – 3.12</td>
<td style="text-align: justify">%</td>
<td style="text-align: right">1.81 – 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"> </td>
<td style="text-align: right">None</td>
<td style="text-align: justify"> </td>
</tr>
<tr style="vertical-align: top; background-color: White">
<td style="text-align: justify">Volatility</td>
<td style="text-align: right">29.92 – 30.16</td>
<td style="text-align: justify">%</td>
<td style="text-align: right">26.94 – 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"> </td>
<td style="text-align: right">None</td>
<td style="text-align: justify"> </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">
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">
 </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">
 </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Shares<br />
(in thousands)</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Weighted Average<br />
Exercise Price</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </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%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">578</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 8.1pt">Granted <sup>(1)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">615</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.07</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 8.1pt">Exercised</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 8.1pt">Forfeited</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(49</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.65</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 0">Outstanding at December 31, 2010</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,144</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.75</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">140</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4.24</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 8.1pt">Exercised <sup>(3)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(2</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.65</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 8.1pt">Forfeited</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(11</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.65</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
7.78</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-left: 0">Outstanding at December 31, 2011</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
1,166</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </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"> </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"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
 </td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
923</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
 </td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
3.37</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">
 </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">
 </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">
 </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">
 </td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Options Outstanding</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Options Exercisable</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="6" style="font-weight: bold; text-align: center">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Weighted</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="6" style="font-weight: bold; text-align: center">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Average</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Weighted</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Weighted</td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="6" style="font-weight: bold; text-align: center">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Number</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Remaining</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Average</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Number</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Average</td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="6" style="font-weight: bold; text-align: center">
Range of</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Outstanding</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Contractual</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Exercise</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Exercisable</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Exercise</td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Exercise Prices</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
(in thousands)</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Term (Years)</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
(in thousands)</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </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"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 12%; text-align: right">2.00</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right">160</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 11%; text-align: right">3.58</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 11%; text-align: right">2.00</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 11%; text-align: right">160</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"> </td>
<td style="text-align: right">2.01</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4.00</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">779</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">7.80</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.42</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">600</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.42</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left"> </td>
<td style="text-align: right">4.01</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">6.00</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">192</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">8.50</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4.67</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">142</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4.67</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt; text-align: right">6.01</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt; text-align: right">8.00</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</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; text-align: left"> </td>
<td style="padding-bottom: 2.5pt; text-align: right"> </td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt; text-align: right"> </td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
 </td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
1,131</td>
<td style="padding-bottom: 2.5pt; text-align: left">
<sup>(1)</sup></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
 </td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
7.32</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
 </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"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; 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: 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">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">
 </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">
 </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">
 </td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="5" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Options Outstanding</td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="5" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Options Exercisable</td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: center">Weighted</td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: justify"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: center">Average</td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Weighted</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: justify"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Weighted</td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: justify">
 </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Number</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: center">Remaining</td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Average</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: center">Number</td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Average</td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="6" style="font-weight: bold; text-align: center">
Range of</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Outstanding</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: center">Contractual</td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Exercise</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: center">Exercisable</td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Exercise</td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Exercise Prices</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
(in thousands)</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Term (Years)</td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
(in thousands)</td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </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"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 12%; text-align: right">4.00</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right">35</td>
<td style="width: 1%; text-align: left"><sup>(1)</sup></td>
<td style="width: 1%"> </td>
<td style="width: 13%; text-align: right">7.48</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 11%; text-align: right">3.65</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 13%; text-align: right">21<sup>(2)</sup></td>
<td style="width: 1%"> </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"> </td>
</tr>
</table>
<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: 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">
 </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">
 </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">
 </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">
 </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">
 </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Shares<br />
(in thousands)</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Weighted<br />
Average Grant<br />
Date Fair Value</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </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%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">179</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 8.1pt">Granted</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">252</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.59</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(106</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.43</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
3.25</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-left: 0">Outstanding at December 31, 2010</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">324</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.61</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 8.1pt">Granted</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">131</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4.00</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(174</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.48</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
3.25</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-left: 0; padding-bottom: 2.5pt">Outstanding at
December 31, 2011</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
 </td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
277</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </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">
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">
 </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">
 </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">
 </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">
 </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">
 </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" 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"> </td>
</tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </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%"> </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%"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
(670</td>
<td style="padding-bottom: 2.5pt; text-align: left">)</td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
Changes in accumulated other comprehensive loss due to derivative
instruments and hedging activities are as follows (all amounts in
thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 88%">Balance, December 31, 2009</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</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> </td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td>Balance, December 31, 2010</td>
<td> </td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">41</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</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">Balance, December 31, 2011</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
(170</td>
<td style="padding-bottom: 2.5pt; text-align: left">)</td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
Changes in accumulated other comprehensive loss due to currency
translation adjustments (all amounts in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 88%; padding-left: 0">Balance, December 31,
2009</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">27</td>
<td style="width: 1%; text-align: left"> </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> </td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 0">Balance, December 31, 2010</td>
<td> </td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</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; padding-left: 0">Balance,
December 31, 2011</td>
<td style="padding-bottom: 2.5pt"> </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>
</div>
-3851000
4402000
430000
1115000
18568000
-67000
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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">
 </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"> </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">
 </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 $24,000 per month from September 1, 2011 through August
31, 2013; thereafter the monthly lease payments will be adjusted to
reflect the changes of average cost per square foot as reported by
Newmark Knight and Frank in their 2nd Quarter New Jersey Industrial
Market Report, Average Asking Rate for Somerset County.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
Future minimum lease payments under non-cancelable lease
obligations at December 31, 2011 are as follows (all amounts in
thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; border-bottom: Black 1pt solid; text-align: left">
Year Ending December 31,</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="2"> </td>
<td style="padding-bottom: 1pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 88%; text-align: left">2012 <sup>(1)</sup></td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">430</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">2013</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">363</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">2014</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">339</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">2015</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">310</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">2016</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">192</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</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; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
<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: 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">
 </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">
<b>Legal</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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">
 </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 “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.</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">
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.</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">
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">
 </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">
 </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">
 </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’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">
 </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">
 </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
(“Selway”) 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">
 </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">·</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">·</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">·</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">·</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">·</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">
 </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">
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.</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">
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.</p>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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
“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.</p>
</div>
134000
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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">
$720,000</td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: center">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: center">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
The following is a reconciliation of the beginning and ending
aggregate carrying amounts of the asset retirement obligation for
the years ended December 31, 2011 and 2010 (all amounts in
thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
</p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Year Ended December 31,</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: center"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
2011</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
2010</td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 76%; text-align: left">Balance, beginning</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">166</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Additional liabilities incurred</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Liabilities settled</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Accretion expense</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">9</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">8</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">Revisions in
estimated cash flows</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</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">Balance, ending</td>
<td style="padding-bottom: 2.5pt"> </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"> </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"> </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">
 </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">
 </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>
</div>
4000
41000
1089000
-38000
16173000
1207000
0.02
1150000
-1008000
-1267000
-150000
1323000
<div style="font: 10pt Times New Roman, Times, Serif">
<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"> </td>
<td style="width: 0.25in"><b>25.</b></td>
<td style="text-align: justify"><b>SUBSEQUENT EVENT</b></td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">
 </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"> </td>
<td style="width: 0.25in"> </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’ expiration date to July 29,
2018 and (ii) reducing their exercise price to $1.50 per
share.</td>
</tr>
</table>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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. (“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
<font style="color: black">Combat Training Solutions, Inc.
(“CTS”)</font>.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">
 </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’s and CTSAS’ 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">
 </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’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">
 </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">
 </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">
 </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 (“U.S. GAAP”). All significant
intercompany balances and transactions have been eliminated in
consolidation.</p>
</div>
304000
327000
1888000
7000
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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; border-bottom: Black 1pt solid">
Year Ending December 31,</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="2"> </td>
<td style="padding-bottom: 1pt"> </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%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">2013</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">17</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">2014</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">17</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">2015</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">2016</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt">Thereafter</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</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">Total minimum lease payments</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">97</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">92</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </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"> </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">
Of the $73,000 capital lease obligation, $43,000 is expected to be
repaid before December 31, 2012.</p>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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">
 </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">
 </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’ 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">
 </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"> </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 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 <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">
 </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> </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">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">
 </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">
 </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’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">
 </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">
 </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 (“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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-decoration: none">
 </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">
 </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">
 </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"> </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">
 </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">
 </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.
 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:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">
 </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"> </td>
<td style="font-weight: bold; text-decoration: none; padding-bottom: 1pt">
 </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">
 </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"> </td>
<td style="text-decoration: none; text-align: left"> </td>
<td style="text-decoration: none; text-align: center">See (1)</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">Purchased
customer relationships</td>
<td style="text-decoration: none"> </td>
<td style="text-decoration: none; text-align: left"> </td>
<td style="text-decoration: none; text-align: center">9 – 13
years</td>
<td style="text-decoration: none; text-align: left"> </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"> </td>
<td style="width: 1%; text-decoration: none; text-align: left">
 </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"> </td>
<td style="text-decoration: none; text-align: left"> </td>
<td style="text-decoration: none; text-align: center">4 months</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">Non-compete agreements</td>
<td style="text-decoration: none"> </td>
<td style="text-decoration: none; text-align: left"> </td>
<td style="text-decoration: none; text-align: center">5 years</td>
<td style="text-decoration: none; text-align: left"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-decoration: none">
 </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’ 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">
 </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’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.</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">
 </p>
<p style="margin: 0; text-decoration: none"></p>
<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">
 </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">
 </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’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.</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">
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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </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">
 </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">
 </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"> </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 “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.</font></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">
<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> </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’ 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.</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">
<b>Revenue Recognition</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<b> </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">
 </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">
 </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">
 </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">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </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"> </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> </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">
 </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 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">
 </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">
 </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">
 </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">
 </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">
 </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">
 </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 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">
 </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.  </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">
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">
 </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">
 </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 “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.</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">
 </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" 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"> </td>
</tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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> </sup></td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-weight: bold">Basic:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </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%"> </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> </sup></td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">2,613</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 9pt">Weighted average shares</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">16,911,103</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">15,483,243</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9pt">Basic income per common share</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">.02</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">.17</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="font-weight: bold">Diluted:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 9pt">Net income (in
thousands)</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">327</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">2,613</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: 9pt">Adjustments to net
income assuming convertible notes payable are converted to common
stock:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </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">Reversal of
interest expense on convertible notes payable (in thousands)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"><sup>(1)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">406</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: 0.25in">Write off of
unamortized costs of issuing convertible notes payable (in
thousands)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </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’ estimated effect on provision for income taxes
(in thousands)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">327</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,439</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9pt">Weighted average shares</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">16,911,103</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">15,483,243</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: 9pt">Effect of dilutive
securities</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,559,535</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,323,032</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9pt">Weighted average shares, as
adjusted</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">18,470,638</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">16,806,275</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">.02</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">.15</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">
</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: 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">
 </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">
 </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" nowrap="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"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </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%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">4,979,088</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">6,420,756</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify">Convertible notes payable</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,666,667</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<b> </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">
 </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">
 </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">
 </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">
 </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">
 </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">
 </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">
 </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">
 </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">
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">
 </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">
 </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">
 </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">
 </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">
 </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 “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.</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">
 </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">
 </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">
 </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
(”FASB”) issued Accounting Standards Update No.
2011-08, <i>Testing Goodwill for Impairment</i> (“ASU
2011-08”), which amends ASC 350 <i>Intangibles—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">
 </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> (“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 <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> (“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.</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">
 </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> ("ASU 2011-04"),
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>
</div>
-778000
<div style="FONT: 10pt Times New Roman, Times, Serif">
<p style="TEXT-ALIGN: center; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b>Cyalume Technologies Holdings, Inc.</b></p>
<p style="TEXT-ALIGN: center; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b>Consolidated Financial Statement Schedule</b></p>
<p style="TEXT-ALIGN: center; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b>Schedule II – Valuation and Qualifying Accounts</b></p>
<p style="TEXT-ALIGN: center; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
<b>(in thousands)</b></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
 </p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"></p>
<table style="WIDTH: 100%; FONT: 10pt Times New Roman, Times, Serif; MARGIN-LEFT: 0px" cellspacing="0" cellpadding="0">
<tr style="VERTICAL-ALIGN: bottom">
<td> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">
 </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="6">Additions</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">
 </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
<td style="TEXT-ALIGN: center" colspan="2"> </td>
<td style="PADDING-BOTTOM: 1pt"> </td>
</tr>
<tr style="VERTICAL-ALIGN: bottom">
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold">
Description</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">Balance at<br />
Beginning<br />
of Period</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">Charged<br />
to costs<br />
and<br />
expenses</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">Charged to<br />
other<br />
accounts<br />
(Describe)</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">Deductions<br />
(Describe)</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
<td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center; FONT-WEIGHT: bold" colspan="2">Balance<br />
at End of<br />
Period</td>
<td style="PADDING-BOTTOM: 1pt; FONT-WEIGHT: bold"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="FONT-WEIGHT: bold">Year ended December 31,
2010</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="FONT-STYLE: italic"> </td>
<td style="TEXT-ALIGN: left; FONT-STYLE: italic"> </td>
<td style="TEXT-ALIGN: right; FONT-STYLE: italic"> </td>
<td style="TEXT-ALIGN: left; FONT-STYLE: italic"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-LEFT: 0.12in; WIDTH: 36%">
Allowance for Doubtful Accounts</td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 9%">239</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 9%">42</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 9%">—</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 9%">(219</td>
<td style="TEXT-ALIGN: left; WIDTH: 5%">)<sup>(1)(2)</sup></td>
<td style="WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
<td style="TEXT-ALIGN: right; WIDTH: 9%">62</td>
<td style="TEXT-ALIGN: left; WIDTH: 1%"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-LEFT: 0.12in">Deferred Tax
Asset Valuation Allowance</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">6,039</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(1,977</td>
<td style="TEXT-ALIGN: left">)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">—</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">—</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">4,062</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="FONT-WEIGHT: bold">Year ended December 31,
2011</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="FONT-STYLE: italic"> </td>
<td style="TEXT-ALIGN: left; FONT-STYLE: italic"> </td>
<td style="TEXT-ALIGN: right; FONT-STYLE: italic"> </td>
<td style="TEXT-ALIGN: left; FONT-STYLE: italic"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right"> </td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-LEFT: 0.12in">Allowance for
Doubtful Accounts</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">62</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">140</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">10</td>
<td style="TEXT-ALIGN: left"><sup>(3)</sup></td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(6</td>
<td style="TEXT-ALIGN: left">)<sup>(2)</sup></td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">206</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
<tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom">
<td style="TEXT-ALIGN: left; PADDING-LEFT: 0.12in">Deferred Tax
Asset Valuation Allowance</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">4,062</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">(188</td>
<td style="TEXT-ALIGN: left">)</td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">—</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">—</td>
<td style="TEXT-ALIGN: left"> </td>
<td> </td>
<td style="TEXT-ALIGN: left"> </td>
<td style="TEXT-ALIGN: right">3,874</td>
<td style="TEXT-ALIGN: left"> </td>
</tr>
</table>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"></p>
<p style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">
  </p>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 0px"></td>
<td style="WIDTH: 0.25in">(1)</td>
<td>Write-offs</td>
</tr>
</table>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 0px"></td>
<td style="WIDTH: 0.25in">(2)</td>
<td><font style="COLOR: black">Currency translation</font></td>
</tr>
</table>
<table style="MARGIN-TOP: 0pt; FONT: 10pt Times New Roman, Times, Serif; MARGIN-BOTTOM: 0pt" cellspacing="0" cellpadding="0" width="100%">
<tr style="VERTICAL-ALIGN: top">
<td style="WIDTH: 0px"></td>
<td style="WIDTH: 0.25in">(3)</td>
<td>Acquisition-date adjustment of estimated uncollectable accounts
receivable of CTS.</td>
</tr>
</table>
</div>
-2330000
-23000
2281000
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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 Instrument</td>
<td style="text-autospace: none"> </td>
<td style="border-bottom: windowtext 1pt solid; text-autospace: none; font-weight: bold; text-align: center">
Balance Sheet Location</td>
<td style="text-autospace: none"> </td>
<td colspan="2" style="border-bottom: windowtext 1pt solid; text-autospace: none; font-weight: bold; text-align: center">
Fair Value</td>
<td style="text-autospace: none"> </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">
 </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">
 </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">
 </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"> </td>
<td style="vertical-align: bottom; text-autospace: none">
Derivatives (noncurrent liabilities)</td>
<td style="vertical-align: top; text-autospace: none"> </td>
<td style="vertical-align: bottom; text-autospace: none">
 </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">
 </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">
 </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 Instrument</td>
<td style="text-autospace: none"> </td>
<td style="border-bottom: windowtext 1pt solid; text-autospace: none; font-weight: bold; text-align: center">
Balance Sheet Location</td>
<td style="text-autospace: none"> </td>
<td colspan="2" style="border-bottom: windowtext 1pt solid; text-autospace: none; font-weight: bold; text-align: center">
Fair Value</td>
<td style="text-autospace: none"> </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">
 </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">
 </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"> </td>
<td style="vertical-align: bottom; text-autospace: none">
Derivatives (noncurrent liabilities)</td>
<td style="vertical-align: top; text-autospace: none"> </td>
<td style="vertical-align: bottom; text-autospace: none">
 </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">
 </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> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
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.</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">
 </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">
 </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">
 </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">
 </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">
 </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"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Gain (Loss)</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Gain (Loss)</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Gain (Loss)</td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
<b>In AOCL <sup>(1)</sup></b></td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
<b>Reclassified <sup>(2)</sup></b></td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
<b>in Earnings <sup>(3)</sup></b></td>
<td style="padding-bottom: 1pt; font-weight: bold"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </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 $(23)</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">41</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">—</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">—</td>
<td style="width: 1%; text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </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">Currency forward
contracts</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">32</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">
 </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">
 </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">
 </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"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Gain (Loss)</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Gain (Loss)</td>
<td style="font-weight: bold"> </td>
<td style="font-weight: bold"> </td>
<td colspan="2" style="font-weight: bold; text-align: center">
Gain (Loss)</td>
<td style="font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
<b>In AOCL <sup>(1)</sup></b></td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
<b>Reclassified <sup>(2)</sup></b></td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
<b>in Earnings <sup>(3)</sup></b></td>
<td style="padding-bottom: 1pt; font-weight: bold"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </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 $100</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">(168</td>
<td style="width: 1%; text-align: left">)</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">—</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">—</td>
<td style="width: 1%; text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </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">Currency forward
contracts</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </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">
 </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>
</div>
0.02
1805000
34703000
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </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%"> </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"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td>Work-in-process</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3,296</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3,237</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">Finished
goods</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
1,867</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
1,214</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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
9,920</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
</tr>
</table>
</div>
3432000
<div style="font: 10pt Times New Roman, Times, Serif">
<table cellpadding="0" cellspacing="0" width="100%" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">
<tr style="vertical-align: top">
<td style="width: 0"></td>
<td style="width: 0.25in"><b>6.</b></td>
<td><b>PROPERTY, PLANT AND EQUIPMENT</b></td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<font style="color: black">Property, plant and equipment consist of
the following</font> (all amounts in thousands)<font style="color: black">:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<b> </b></p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2011</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2010</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 76%">Land</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">1,901</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Building and improvements</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3,134</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3,003</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">Machinery and
equipment</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
7,992</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
5,710</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">13,027</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">9,992</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: accumulated
depreciation</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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 $0.</font></p>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<table cellpadding="0" cellspacing="0" width="100%" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">
<tr style="vertical-align: top">
<td style="width: 0"></td>
<td style="width: 0.25in"><b>7.</b></td>
<td><b>GOODWILL</b></td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
Goodwill represents the excess of the cost of acquiring CTI and
CTSAS in 2008 and CSP and CTS in 2011 over the net fair value
assigned to the assets acquired and liabilities assumed in those
acquisitions. Changes in the carrying amount of goodwill consist of
the following (all amounts in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<b> </b></p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 88%">Balance on December 31, 2009</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">51,244</td>
<td style="width: 1%; text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td>Balance on December 31, 2010</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">51,244</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,978</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">Goodwill acquired
as part of the acquisition of CTS</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
1,107</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">Balance on December 31, 2011</td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<b>  </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 December 31,
2011.</p>
</div>
-365000
16911103
125000
86000
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid">
Level 1<br />
Quoted<br />
Prices in<br />
Active<br />
Markets<br />
for<br />
Identical<br />
Assets</td>
<td style="padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid">
Level 2<br />
Significant<br />
Other<br />
Observable<br />
Inputs</td>
<td style="padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid">
Level 3<br />
Significant<br />
Unobservable<br />
Inputs</td>
<td style="padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid">Assets/<br />
Liabilities<br />
At Fair<br />
Value</td>
<td style="padding-bottom: 1pt"> </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%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">—</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">—</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">(273</td>
<td style="width: 1%; text-align: left">)</td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Currency forward contracts (see Note
16) <sup>(2)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left; padding-bottom: 1pt">Contingent
consideration (see Note 3) <sup>(3)</sup></td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">$</td>
<td style="border-bottom: Black 1pt solid; text-align: right">
3,699</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
—</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </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"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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 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).</td>
</tr>
</table>
<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: 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">
 </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’ 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">
 </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">
 </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> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Level 1<br />
Quoted<br />
Prices in<br />
Active<br />
Markets<br />
for<br />
Identical<br />
Assets</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Level 2<br />
Significant<br />
Other<br />
Observable<br />
Inputs</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Level 3<br />
Significant<br />
Unobservable<br />
Inputs</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Assets/<br />
Liabilities<br />
At Fair<br />
Value</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </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%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">—</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">—</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
—</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
—</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </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">
 </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">
 </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" 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"> </td>
</tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Contingent consideration:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Balance at the beginning of
period</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </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%"> </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">)</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">—</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; padding-left: 0.12in">
Unrealized gains (losses) in earnings <sup>(1)</sup></td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</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; padding-left: 0in">
Balance at the end of period</td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
—</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">
 </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">
 </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 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>
</div>
-1135000
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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"> </td>
<td style="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">
 </td>
<td colspan="6" style="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Year Ended December 31,</td>
<td style="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">
 </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-size: 10pt; font-weight: bold"> </td>
<td style="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">
 </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">
 </td>
<td style="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">
 </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">
 </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"> </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"> </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">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </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">
 </td>
<td style="font-size: 10pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">
 </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">
 </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">
 </td>
<td style="font-size: 10pt; padding-bottom: 2.5pt"> </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"> </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">
 </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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">
 </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" 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"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td>Current:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 0.12in">Federal</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 0.12in">State</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 76%; padding-left: 0.12in">Foreign</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">902</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">717</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td>Deferred:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 0.12in">Federal</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(1,235</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">648</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 0.12in">State</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">31</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">384</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </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"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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">
 </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):</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">
</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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
December 31, 2011</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
December 31, 2010</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="font-weight: bold"> </td>
<td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">
 </td>
<td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Current</td>
<td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">
 </td>
<td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">
 </td>
<td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Non-current</td>
<td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">
 </td>
<td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">
 </td>
<td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Current</td>
<td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">
 </td>
<td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">
 </td>
<td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Non-current</td>
<td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">
 </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Deferred tax assets:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 52%; padding-left: 9pt">Federal</td>
<td style="width: 1%"> </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"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">6,777</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">1,575</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 9pt">State</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">511</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">200</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">495</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">346</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9pt">Foreign</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">36</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">11</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</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: 9pt">Less:
valuation allowance (1)</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,273</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3,114</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,070</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,543</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Deferred tax liabilities:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9pt">Federal</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(658</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(7,694</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(887</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(171</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(1,986</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(235</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; color: black; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; color: black; text-align: left">
 </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"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </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"> </td>
<td style="color: black; padding-bottom: 2.5pt"> </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"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </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">
 </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 $3.9 million due to the
expected use of foreign tax credits in the near term.</td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
Principal components of our net liability representing deferred
income tax balances are as follows <font style="font: 10pt Times New Roman, Times, Serif">(all amounts in
thousands):</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Year Ended December 31,</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2011</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2010</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 76%; text-align: left">Intangible assets</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">(6,760</td>
<td style="width: 1%; text-align: left">)</td>
<td style="width: 1%"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(837</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,063</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,024</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Subsidiary income <sup>(2)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(1,554</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">655</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">433</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Reserves, accruals and other</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">588</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">718</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">Interest rate
swaps</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
86</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
126</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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </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">
 </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’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">
 </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">
 </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" nowrap="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"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold; padding-left: 0"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </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%"> </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%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 0">Increase (reduction)
resulting from:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </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: 0.12in">Tax on global
activities</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(29</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">143</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">State income
taxes, less federal income tax benefit</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">15</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">390</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: 0.12in">Change in
valuation account <sup>(1)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(188</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,399</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: 0.12in">Prior year true
up</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(141</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">185</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
70</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; padding-left: 0">
Provision for (benefit from) income taxes</td>
<td style="padding-bottom: 2.5pt"> </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"> </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"> </td>
</tr>
</table>
<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: 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>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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 “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.</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">
 </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’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.</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">
The purchase price consisted of (in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; 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> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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> </sup></td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Cash Acquired</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Cash  Paid, Net of<br />
Cash Acquired</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </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%"> </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> </sup></td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">200</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">2,300</td>
<td style="width: 1%; text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,500</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </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: 0.7pt">
Contingent consideration, at fair value</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt; text-align: right"> </td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt; text-align: right"> </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; padding-left: 0.7pt">
Total consideration</td>
<td style="padding-bottom: 2.5pt"> </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> </sup></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt; text-align: right"> </td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt; text-align: right"> </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">
 </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">
 </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’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:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </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 2012 and 2013 EBITDA Thresholds</td>
<td style="width: 2%; padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; font-weight: bold; text-align: center">
 </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 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">
 </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">
 </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">
 </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">
 </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">
 </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 – 799,999</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">
 </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">
 </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 $1,800,000 for calendar years ending
December 31, 2012 and 2013.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
See Note 23 for a description of how we estimate the fair value of
this contingent consideration on a recurring basis.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<font style="color: black">The preliminary allocation of the fair
value of the assets acquired and liabilities assumed are as
follows</font> (all amounts in thousands)<font style="color: black">:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 88%; padding-left: 0">Cash</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">200</td>
<td style="width: 1%; text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">750</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">Accounts receivable
<sup>(2)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">359</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 0">Inventories</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,015</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">Other current
assets</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 0">Property, plant and
equipment</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,062</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 0">Patents</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">50</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 0">Customer backlog</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">140</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">Customer
relationships</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">920</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 0">Non-compete agreements</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">160</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
2,978</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-left: 0.12in">Total
assets</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">7,635</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 0"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 0">Accounts payable</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">130</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">Accrued expenses</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">122</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 0">Customer
prepayments</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">750</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">
Deferred tax liability</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
56</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: 1pt; padding-left: 0">
Total liabilities</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
1,062</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; padding-left: 0.12in">Net
assets</td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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’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.</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">
 </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’ 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">
 </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’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">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
CSP’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">
 </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">
 </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
(“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.</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">
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.</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">
 </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">
 </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> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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> </sup></td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Cash Acquired</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Cash  Paid, Net of<br />
Cash Acquired</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </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%"> </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> </sup></td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">22</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">228</td>
<td style="width: 1%; text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">500</td>
<td style="text-align: left"><sup> </sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </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: 0.7pt">Note payable</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">250</td>
<td style="text-align: left"><sup>(1)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </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: 0.7pt">
Contingent consideration, at fair value</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt; text-align: right"> </td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt; text-align: right"> </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; padding-left: 0.7pt">
Total consideration</td>
<td style="padding-bottom: 2.5pt"> </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> </sup></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt; text-align: right"> </td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt; text-align: right"> </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">
 </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> </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’ 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">
 </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 2012 and 2013 Gross Margin Thresholds</td>
<td style="width: 2%; padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; font-weight: bold; text-align: center">
 </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 Payment </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">
 </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 – $8,499,999</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-autospace: none; text-align: center">
 </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">
 </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">
 </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">
 </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">
 </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">
 </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">
 </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 $6,000,000
during calendar years ending December 31, 2012 and 2013.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
See Note 23 for a description of how we estimate the fair value of
this contingent consideration on a recurring basis.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<font style="color: black">The preliminary allocation of the fair
value of the assets acquired and liabilities assumed are as
follows</font> (all amounts in thousands)<font style="color: black">:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 88%">Cash</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">22</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Accounts receivable
<sup>(1)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">112</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td>Inventories</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">529</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Property, plant and equipment</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">842</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td>Patents</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">410</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Trade Names / Trademarks</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">90</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Customer relationships</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">840</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td>Non-compete agreements</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">140</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
1,107</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-left: 0.12in">Total
assets</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4,092</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Accounts payable</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">102</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Accrued expenses</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">181</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">Deferred tax
liability</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
742</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: 1pt">Total
liabilities</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
1,025</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; padding-left: 0.12in">Net
assets</td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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’ 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">
 </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’ 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">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
CTS’ 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">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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">
 </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">
 </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Twelve Months Ended December 31,</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 0"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </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%"> </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"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">47,639</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 0">Net income (in
thousands)</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">1,496</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">2,707</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 0">Net income per common share:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 0.12in">Basic</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">.08</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">.17</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 0.12in">Diluted</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">.08</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">.15</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 0.12in">Basic</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">17,757,458</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">16,329,598</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 0.12in">Diluted</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">19,316,993</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">17,652,630</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">
 </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">
 </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> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Twelve Months Ended December 31,</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </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%"> </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"> </td>
<td style="width: 1%"> </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"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </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: 8.1pt">CTS
and CSP revenues prior to acquisition by Cyalume</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
7,891</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
9,615</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">Pro forma
revenues</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
 </td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
42,594</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
 </td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
47,639</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="padding-left: 8.1pt"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Net income, as reported (in
thousands)</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">327</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">2,613</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Pro forma adjustments:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </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">CTS and CSP net
income prior to acquisition by Cyalume</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,055</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,034</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">Effect of
activities/assets/liabilities not acquired by Cyalume</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">365</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">73</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(72</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">244</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: 8.1pt">
Amortization of intangible assets acquired</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
2,707</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
</tr>
</table>
</div>
37000
<div style="font: 10pt Times New Roman, Times, Serif">
<table cellpadding="0" cellspacing="0" width="100%" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">
<tr style="vertical-align: top">
<td style="width: 0"></td>
<td style="width: 0.25in"><b>10.</b></td>
<td><b>ACCRUED EXPENSES</b></td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<font style="color: black">Accrued expenses consist of the
following</font> (all amounts in thousands)<font style="color: black">:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2011</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2010</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 76%">Payroll</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">1,192</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td>Interest</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">187</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">166</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Professional fees</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">328</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">148</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Related party payable
<sup>(1)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">36</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
436</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
448</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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </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>
<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’ 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>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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></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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" 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"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </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%"> </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"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">2,162</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 0.7pt">Income taxes</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">1,682</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">195</td>
<td style="text-align: left"> </td>
</tr>
</table>
<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 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> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="6" 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"> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </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%"> </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"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">—</td>
<td style="width: 1%; text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">500</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</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: 0.7pt">Issued note
payable to effect the acquisition of CTS</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">500</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,212</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,160</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Fixed assets acquired through capital
lease obligations</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">77</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">146</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Warrants issued in conjunction with
convertible debt</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">7</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">200</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">858</td>
<td style="text-align: left"> </td>
</tr>
</table>
</div>
1207000
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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">
 </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">
 </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">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
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.</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">
<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">
 </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">
 </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>
</div>
43000
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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">
 </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> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </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"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Net Book Value</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </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%"> </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"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">3,640</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">9,968</td>
<td style="width: 1%; text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,428</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,427</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: 0.7pt">Purchased
customer relationships <sup>(3)</sup></td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">9,465</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3,142</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">6,323</td>
<td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">140</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">140</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
300</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
11</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
289</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; padding-left: 5.4pt"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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 $140,000 that is expected to be
fully amortized in December 2016.</td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<font style="color: black">Intangible assets as of December 31,
2010 consist of the following</font> (all amounts in
thousands)<font style="color: black">:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Cost</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Accumulated<br />
Amortization</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
Net Book Value</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 64%; text-align: left; padding-left: 0.7pt">
Developed technologies, including patents</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">12,972</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">2,497</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">10,475</td>
<td style="width: 1%; text-align: left"> </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> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,332</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,332</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: 0.7pt">Purchased
customer relationships</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">7,753</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,648</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,105</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
267</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
267</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</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; padding-left: 5.4pt"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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">
 </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">
 </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 $175,000 of costs paid to
third parties to create or defend trademarks and patents,
respectively. We expect the patent-related costs to be amortized
over approximately 20 years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
We do not consider any intangible assets to have residual
value.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
The future amortization expense relating to intangible assets for
the next five years and beyond is estimated at December 31, 2011 to
be (all amounts in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<b> </b></p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; border-bottom: Black 1pt solid; text-align: left">
Year Ending December 31,</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="2"> </td>
<td style="padding-bottom: 1pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 88%; text-align: left">2012</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">2,163</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">2013</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,162</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">2014</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,118</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">2015</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,118</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">2016</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,106</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
6,002</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; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
</div>
6135000
18470638
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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>
</div>
2528000
1541000
1753000
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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 (“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.</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">
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">
 </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 $250,000 as of December 31, 2011. The lender is a
related party due to the lender being our employee and a
stockholder.</p>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<table cellpadding="0" cellspacing="0" width="100%" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">
<tr style="vertical-align: top">
<td style="width: 0"></td>
<td style="width: 0.25in"><b>12.</b></td>
<td><b>NOTES PAYABLE</b></td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
Outstanding notes payable consist of (all amounts in
thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<b> </b></p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td style="color: #31849B; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2011</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2010</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 76%; text-align: left">Senior Debt - Term
Loan</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">10,807</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Senior Debt - Real Estate Loan</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,929</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,054</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Subordinated Term Loan</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">8,500</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">8,500</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt">Note payable to
Rodman & Renshaw</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
2,135</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td>Total</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">21,236</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">25,124</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Less: Unamortized debt issuance
costs</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(669</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<b> </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> </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> </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 (“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.</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">
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.</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">
 </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’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.</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">
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">
 </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">
 </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’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">
 </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">
 </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">
 </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 (“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.</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">
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">
 </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 $7.9 million, computed as follows (all
amounts in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2011</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2010</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 76%; text-align: left">Principal amount of
loan</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">8,500</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
7,642</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
Interest costs for the Subordinated Term Loan are as follows (all
amounts in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2011</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2010</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 76%; text-align: left">Contractual interest
coupon rate</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">948</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">390</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt">Amortization of
related debt issuance costs</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
225</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
81</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Total interest recognized</td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">1,173</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">471</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Effective interest rate</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">15.1</td>
<td style="text-align: left">%</td>
<td> </td>
<td style="text-align: left"> </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">
 </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">
 </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">
 </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 & Renshaw, LLC (“Rodman”). Principal and
accrued interest payable on this note payable totaled approximately
$2.2 million as of June 30, 2011. On June 30, 2011, we entered into
a securities exchange agreement with Rodman in which Rodman agreed
to accept, subject to certain conditions being met, 483,046 shares
of our common stock as payment in full of all principal and accrued
interest on this note. The transaction closed in July 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<b>Future Minimum Payments</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
As of December 31, 2011, future minimum payments due for notes
payable for each of the five succeeding years and beyond are as
follows (all amounts in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; border-bottom: Black 1pt solid">
Year Ending December 31,</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="2"> </td>
<td style="padding-bottom: 1pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 88%; text-align: left">2012</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">1,901</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">2013</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">10,835</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">2014</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">8,500</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">2015</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">2016</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt">Thereafter</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </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">
Amortization of the debt discount was $294,000 and $273,000 for the
years <font style="color: black">ended December 31, 2011 and 2010,
respectively.</font></p>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<table cellpadding="0" cellspacing="0" width="100%" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">
<tr style="vertical-align: top">
<td style="width: 0"></td>
<td style="width: 0.25in"><b>5.</b></td>
<td><b>PREPAID EXPENSES AND OTHER CURRENT ASSETS</b></td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
Prepaid expenses and other current assets consist of the following
(all amounts in thousands):</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2011</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2010</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 76%; text-align: left">Value added taxes
receivable</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">100</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Prepaid expenses</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">332</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">268</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">Currency forward contracts</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Debt issuance costs, current
portion</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">120</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">111</td>
<td style="text-align: left"> </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"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
3</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
13</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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">
$</td>
<td style="border-bottom: Black 2.5pt double; text-align: right">
429</td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td>
</tr>
</table>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<table cellpadding="0" cellspacing="0" width="100%" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">
<tr style="vertical-align: top">
<td style="width: 0"></td>
<td style="width: 0.25in"><b>9.</b></td>
<td><b>OTHER NONCURRENT ASSETS</b></td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">
<b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<font style="color: black">Other noncurrent assets consist of the
following</font> (all amounts in thousands)<font style="color: black">:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2011</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
<td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">
2010</td>
<td style="padding-bottom: 1pt; font-weight: bold"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 76%; text-align: left">Debt issuance costs,
net</td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">154</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%"> </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"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt">Other</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</td>
<td style="padding-bottom: 1pt; text-align: left"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
14</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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
<b> </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 $75,000 for the years ended December 31, 2011 and
2010, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
 </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">
<font style="color: black">The future amortization expense for each
of the five succeeding years and beyond relating to current and
noncurrent capitalized debt issuance costs is</font> (all amounts
in thousands)<font style="color: black">:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </p>
<table cellpadding="0" cellspacing="0" style="width: 96%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; border-bottom: Black 1pt solid; text-align: left">
Year Ending December 31,</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="2"> </td>
<td style="padding-bottom: 1pt"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="width: 88%; text-align: left">2012 <sup>(1)</sup></td>
<td style="width: 1%"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">120</td>
<td style="width: 1%; text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">2013</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">126</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,204)">
<td style="text-align: left">2014</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">28</td>
<td style="text-align: left"> </td>
</tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">2015</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">—</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">2016</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left">
 </td>
<td style="border-bottom: Black 1pt solid; text-align: right">
—</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; text-align: left"> </td>
<td style="padding-bottom: 2.5pt"> </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"> </td>
</tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in">
 </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">
 </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>
</div>
<div style="font: 10pt Times New Roman, Times, Serif">
<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">
 </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>
(“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.</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">
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.</p>
</div>
327000
-67000
41000
28114
129750
1000
846355
1000
871823
483046
6060
253288
450
-67000
41000
301000
327000
134000
7000
1207000
2999000
3431000
2212000
1160000
3000000
3432000
2212000
1160000
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