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xbrli:shares
iso4217:USD
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UNIVERSAL POWER GROUP INC.
0001372000
upg
Yes
No
--12-31
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false
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<div align="justify" style="text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-weight: bold; display: inline;">NOTE A — BASIS OF PRESENTATION</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="tab2">   </font> The condensed consolidated interim unaudited financial statements of Universal Power Group, Inc. (“UPG” or the “Company”) included in this quarterly report have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included for the three-month periods ended March 31, 2012 and 2011.  The results for the three-month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the full year.  Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  The unaudited condensed consolidated financial statements included in this filing should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on April 5, 2012.  The condensed consolidated balance sheet of the Company as of December 31, 2011 has been derived from the audited consolidated balance sheet as of that date.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="a1209ac38-44f1-45fb-ba45-abddcd9534c9">   </font> The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation<font style="font-size: 10pt; display: inline;">.</font></font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div align="left" style="text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-weight: bold; display: inline;">NOTE B — ORGANIZATION</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="tab2">   </font> Universal Power Group, Inc. (“UPG” or the “Company”), a Texas corporation, is a distributor and supplier of batteries and related power accessories to a diverse range of industries, and a provider of third-party fulfillment and logistics services and value-added solutions.  The Company’s primary logistics center is located in Carrollton, Texas and regional logistic centers are located in Las Vegas, Nevada and Atlanta, Georgia.  The Company’s customers are primarily located in the United States.  A small portion of the Company’s sales is to customers located in the United Kingdom, Australia, Ireland, Japan, China, Canada and Latin America.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="a1cf6c196-b5e4-4b58-9e6d-4b7a903819be">   </font> Until December 20, 2006, the Company was a wholly owned consolidated subsidiary of Zunicom, Inc. (“Zunicom”), a Texas corporation, whose stock is quoted on the OTC Bulletin Board under the symbol “ZNCM.OB.”  On December 20, 2006, the U.S. Securities and Exchange Commission declared effective a registration statement filed by the Company registering the sale of 3,000,000 shares of its common stock, including 1,000,000 shares owned by Zunicom (the “IPO”).  As a result of the IPO, Zunicom’s interest in the Company was reduced to 40%.  Zunicom no longer owns a controlling interest in UPG; however, as the largest shareholder, Zunicom does have significant influence over UPG.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="a660a0604-3a97-401c-8ed8-804922f9d372">   </font> On January 8, 2009, the Company formed a limited liability company under the name Monarch Outdoor Adventures LLC d/b/a Monarch Hunting (“Monarch”), through which it acquired all of the tangible and intangible assets of a manufacturer and retailer of high-quality hunting products including battery and solar powered deer feeders, hunting blinds, stands and accessories for approximately $892,000.  Monarch is located in Arlington, Texas and has customers throughout the United States.  Monarch’s revenue and assets are not material to the Company<font style="font-family: times new roman; display: inline;">’</font>s consolidated financial statements. <font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="font-family: times new roman; font-size: 10pt; display: inline;">At March 31, 2012, the carring value of Monarch’s assets was approximately $400,000. On May 4, 2012, the Company sold Monarch for $130,000.  See Note K.</font></font></font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="a109953b7-0ec5-4fc5-9846-3e0c02ed3052">   </font> On April 20, 2011, the Company completed an acquisition of substantially all of the business assets of Progressive Technologies, Inc. (“PTI”), a North Carolina company that designs and builds custom battery packs.  The acquisition consideration totaled approximately $3,300,000.  PTI’s expertise in lithium-ion battery packs, among other chemistries, further enhances the Company’s product and service offerings.  In addition, PTI’s products will strengthen the Company’s position in the medical field and other market segments.  On September 1, 2011, PTI changed its legal name to ProTechnologies, Inc.</font></div>
<div align="left" style="text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-weight: bold; display: inline;">NOTE C — STOCK-BASED COMPENSATION</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="tab2">   </font><font style="font-family: times new roman,times;" size="2"> At March 31, 2012, common shares reserved for future issuance include 1,980,000 shares issuable under the 2006 Stock Option Plan, as amended, as well as 20,000 shares issuable upon exercise of options not granted under the 2006 Stock Option Plan.  At March 31, 2012, there were 1,403,842 options outstanding under the 2006 Stock Option Plan, and 576,158  options are available for future grants.</font></font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline; ; font-family: times new roman,times;" size="2"><font style="letter-spacing: 9pt;" id="a986de5da-a10e-4cae-a564-e1287d77ac74">   </font> There were no options granted during the three months ended March 31, 2012 or 2011.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline; ; font-family: times new roman,times;" size="2"><font style="letter-spacing: 9pt;" id="a9c0c1e52-b6ac-4879-a15d-5fa2b4b48b09">   </font> At March 31, 2012, the aggregate intrinsic value of options outstanding and exercisable was $177,931.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline; ; font-family: times new roman,times;" size="2"><font style="letter-spacing: 9pt;" id="ab35b6476-7e68-4f60-bf93-4e0c44567c58">   </font> At March 31, 2012, all outstanding options under the 2006 Stock Option Plan were fully vested with no remaining unrecognized compensation expense.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline; ; font-family: times new roman,times;" size="2"><font style="letter-spacing: 9pt;" id="a26000bf1-6f83-4034-ad3d-cd4b570f6439">   </font> On June 25, 2007, Zunicom issued restricted stock to certain employees of UPG for past and future services.  The Company amortized the fair value of 398,144 shares, which had not been forfeited, as compensation expense over the 48 month vesting period.  Compensation expense related to these shares was recorded at $0 and $15,000 during March 31, 2012 and 2011, respectively</font></div>
<div id="hdr"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman,times;" size="2"><font style="letter-spacing: 9pt;" id="a45549b5e-425d-4b25-b4c1-1fff76dc937b">   </font> On June 24, 2011, Zunicom issued an additional 99,538 restricted shares of its common stock to the same Company employees who received the grant in June 2007 and who were still employed by the Company. As a condition to this grant, <font style="font-family: times new roman; font-size: 10pt; display: inline;">the grantees agreed to extend the restricted period on the shares issued in June 2007 for an additional three years.  As a result, all 497,682 shares will vest on June 24, 2014.  The Company is amortizing the fair value as compensation expense over the 36-month vesting period in accordance with ASC Topic 718, <font style="font-style: italic; display: inline;">Compensation – Stock Compensation</font>.  Approximately $2,800 and $0 compensation expense related to these shares was recorded during the three-month periods ended March 31, 2012 and 2011, respectively.  At March 31, 2012, there is approximately $26,000 of remaining unrecognized compensation expense associated with this grant.</font></font></div>
<div align="left" style="text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-weight: bold; display: inline;">NOTE D — EARNINGS PER SHARE</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="tab2">   </font> Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="a979be67c-0a2a-4f53-a7a3-9b1af7238893">   </font> Diluted net income per share is computed by dividing net income by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period.  The Company’s common stock equivalents include all common stock issuable upon the exercise of outstanding stock options and warrants.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="a57083ebb-795b-4b65-83bd-b720925050a3">   </font> For the three-month period ended March 31, 2012,  the dilutive effect of 852,592 stock options is included in the calculation and 571,250 stock options are excluded from the calculation as they are antidilutive.  For the three-month period ended March 31, 2011, the dilutive effect of 146,250 stock options is included in the calculation and 1,255,592  stock options and 300,000 warrants are excluded from the calculation as they are antidilutive.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div align="left" style="text-indent: 0pt; margin-right: 12.25pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-weight: bold; display: inline;">NOTE E — LINE OF CREDIT</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="tab2">   </font> On December 16, 2009, the Company entered into a credit agreement with Wells Fargo under which the Company may borrow up to $30.0 million or up to $40.0 million if it can satisfy certain defined criteria, on a revolving basis (the “Credit Agreement”).  All borrowings under the Credit Agreement are secured by a first lien on all of the Company’s assets.  The Company’s ability to draw on the credit line is limited to an amount equal to 80% of “eligible accounts receivable” and 80% of “eligible inventory” as defined in the Credit Agreement.  In connection with each draw down, the Company has an option to choose either a “Base Rate” or “Eurodollar” loan.  Interest on Base Rate Loans is payable quarterly and interest on Eurodollar Loans is generally payable monthly or quarterly as selected by the Company.  The annual rate of interest payable on Base Rate and Eurodollar loans fluctuate depending upon a number of factors, as described in the Credit Agreement.  At March 31, 2012, all outstanding borrowings under the credit facility were accruing interest at the rate of 2.53% per annum.  The Credit Agreement matures on July 30, 2013.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="a4f551842-613f-4b5d-ae9d-e3bd62078239">   </font> The Credit Agreement contains customary negative covenants restricting the Company’s ability to take certain actions without Wells Fargo’s consent, including incurring additional indebtedness, transferring or encumbering assets, paying dividends or making certain other payments, and acquiring other businesses.  If there is an “event of default”, including failure to pay, bankruptcy, breach of covenants and breach of representations and warranties, all amounts outstanding under the Credit Agreement will become immediately due and payable.  In addition, the Company must maintain certain financial covenants on a quarterly basis.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="a16d8ac5b-a233-4d7b-b7e3-9d139706142e">   </font> At March 31, 2012, approximately $13.9 million was outstanding under the credit facility out of a maximum availability of approximately $19.7 million based on the borrowing formula.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-style: italic; display: inline;"><font style="display: inline;"><font style="letter-spacing: 9pt;" id="a6d1f8c37-2b35-45e3-8bf6-82396a0a0c9d"> </font></font></font><font style="font-family: times new roman; font-size: 10pt; font-style: italic; display: inline;"><font style="display: inline;"><font style="letter-spacing: 9pt;" id="ab9fd39b0-3074-4295-a20e-deea27436925"> </font></font></font><font style="font-family: times new roman; font-size: 10pt; font-style: italic; display: inline;"><font style="display: inline;"><font style="letter-spacing: 9pt;" id="a575ff7c0-9787-4afa-82d6-bb46d86d229d"> </font><font style="text-decoration: underline;">Interest Rate Swap</font></font></font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="display: inline;"><font style="letter-spacing: 9pt;" id="af7e8afef-af3a-4e7e-ab16-7fd54c6f5369">   </font> In connection with the Credit Agreement, the Company terminated an Interest Swap Agreement (“ISA”) it had with its previous lender and, consequently, discontinued hedge accounting as of December 16, 2009.  The Company continues to incur interest expense commensurate with its original, hedged risk, and there is currently no indication that interest payments on the hedged transaction would not continue.  Therefore, the realized losses related to the ISA will not be recognized immediately and will remain in accumulated other comprehensive income (loss).  These losses are reclassified into interest expense over the original contractual term of the ISA starting as of December 16, 2009</font> through July 5, 2012.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-indent: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-weight: bold; display: inline;">NOTE F — CONCENTRATIONS</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="tab2">   </font> At March 31, 2012 and 2011, the Company had receivables due from ADT Security Services, Inc. (“ADT”) in the amount of approximately $2.7 million and $0.3 million, respectively.  During the three months ended March 31, 2012 and 2011, ADT accounted for 11% and 21%, respectively, of  net sales.</font></div>
<div align="left" style="text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-weight: bold; display: inline;">NOTE G — LEGAL PROCEEDINGS</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div align="justify" style="text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="font-style: italic; display: inline;">Universal Power Group, Inc.,(Plaintiff and Counterdefendant) v. Randy T. Hardin, Steven W. Crow and Bright Way Group, LLC (Defendants, Counter Plaintiffs and Third-Party Plaintiffs) v. William Tan, Ian Edmonds and Mimi Tan Edmonds (Third-Party Defendants), </font>Cause No. 11-09787-E (In the District Court of Dallas County, Texas, 101<font style="font-size: 70%; vertical-align: text-top; display: inline;">st</font> Judicial District).</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="tab2">   </font> The Company initiated the above referenced case on August 8, 2011 by filing its Original Petition and Application for Temporary Injunction and for Permanent Injunctive Relief against Randy Hardin, a former President of the Company, Bright Way Group, Hardin’s new business venture, and Steven Crow, the Company’s former Vice President of Product Development and Retail Chain Sales.  On March 19, 2012, the parties entered into a settlement agreement whereby the defendants agreed to pay the Company a sum of money and agreed to the entry of a temporary injunction restricting them from contacting certain of the Company’s customers and suppliers until January 1, 2013.  The parties have agreed to dismiss all claims and counterclaims in the lawsuit.</font></div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="a6e72da2e-3f1f-438d-989c-25e37da40ad2">   </font> The Company is not currently party to any legal proceedings than those arising in the ordinary course of business, which management does not believe will have a material adverse effect on the Company’s financial position, operating results, or cash flows, regardless of the outcome.</font></div>
<div align="left" style="text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-weight: bold; display: inline;">NOTE H — INCOME TAXES</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="tab2">   </font> The Company files income tax returns in the U.S. federal jurisdiction and various states.  With a few exceptions, the Company is no longer subject to U.S. state and local income tax examinations by tax authorities for years before 2007.</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="letter-spacing: 9pt;" id="a87ebc7c2-f011-48c2-b6c7-8b0a6e609aa7">   </font> The Company recorded income tax expense of approximately $0.2 million for each of the three-month periods ended March 31, 2012 and 2011, respectively.  The Company's effective tax rate was 40.5% and 36.3% for the three-month period ended March 31, 2012 and 2011, respectively.  The taxes were higher than the statutory rate of 34% primarily as a result of state income taxes and items not deductible for income tax reporting.</font></div>
<div align="left" style="text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-weight: bold; display: inline;">NOTE I — SEGMENT AND GEOGRAPHIC INFORMATION</font></div>
<div style="text-indent: 0pt; display: block;"> </div>
<div style="text-align: left; text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;"><font style="display: inline;"><font style="letter-spacing: 9pt;" id="tab2">   </font> The accounting standard for segment reporting requires enterprises to report financial information and descriptive information about reportable operating segments.  It also establishes standards for related disclosures about products and services, geographic areas and major customers.  The Company evaluated the accounting standard for segment reporting and determined that the Company </font>operates<font style="display: inline;"> in only </font>one segment.</font></div>
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<div align="left" style="text-indent: 0pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; font-weight: bold; display: inline;">NOTE K — SUBSEQUENT EVENT</font></div>
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<div align="left" style="text-indent: 27pt; margin-right: 0pt; margin-left: 0pt; display: block;"><font style="font-family: times new roman; font-size: 10pt; display: inline;">On May 4, 2012, pursuant to a Securities Purchase Agreement, dated as of May 4, 2012 (the “Agreement”), the Company sold all of the issued and outstanding membership interests of Monarch for $130,000. Of the purchase price, $50,000 was paid in cash at closing and $80,000 was evidenced by a 6% secured promissory note due May 1, 2014. The principal amount of the note and all accrued interest thereon is payable in 24 equal monthly installments of $3,692 beginning on June 1, 2012. The note is secured by a pledge of all of the membership interests in Monarch as well as a lien on all of Monarch’s assets. The Agreement contains representations and warranties, covenants and indemnification provisions typical of those in these types of transactions. UPG expects to realize a pre-tax loss of approximately $500,000 related to the sale of Monarch, taking into account continuing lease obligations for the manufacturing facility, in its second-quarter financial results</font></div>
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2195000
2227000