UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

July 3, 2006
(Date of Report)

ULTRALIFE BATTERIES, INC.

(Exact name of registrant as specified in its charter)

Delaware (State of incorporation)		000-20852 (Commission File Number)		16-1387013 (IRS Employer Identification No.)

2000 Technology Parkway, Newark, New York (Address of principal executive offices)		14513 (Zip Code)

(315) 332-7100
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

     Explanatory Note: This Current Report on Form 8-K is being filed to amend Item 9.01 of the Current Report on Form 8-K filed by Ultralife Batteries, Inc. (the “Registrant”) on July 10, 2006, as amended by the Current Report on Form 8-K/A filed by the Registrant on July 21, 2006. In accordance with the instructions to Item 9.01 of Form 8-K, this amendment provides (1) the audited and unaudited historical financial statements of the business acquired, as required by Item 9.01(a) of Form 8-K, as well as (2) the unaudited pro forma financial information for the combination of the Registrant and the business acquired, using the Registrant’s fiscal reporting periods, as required by Item 9.01(b) of Form 8-K and Article 11 of Regulation S-X. As previously reported, the business acquired by the Registrant consisted of substantially all of the assets of McDowell Research, Ltd. McDowell Research, Ltd. is indirectly wholly-owned by McDowell Research Holdings, Inc. through the ownership by McDowell Research Holdings, Inc. of two wholly-owned subsidiary corporations. Accordingly, the provided financial statements are for McDowell Research Holdings, Inc. and have been prepared on a consolidated basis.

Item 9.01 Financial Statements and Exhibits.

(a)

Financial Statements of Business Acquired.

As required by Item 9.01(a) of Form 8-K, the audited financial statements of McDowell Research Holdings, Inc. as of and for the fiscal year ended December 31, 2005 and the unaudited financial statements of McDowell Research Holdings, Inc. as of and for the six months ended June 30, 2006 and 2005 are attached together as Exhibit 99.1 to this Current Report.

(b)

Pro Forma Financial Information.

As required by Item 9.01(b) of Form 8-K, the pro forma financial information of the Registrant, reflecting the acquisition of substantially all of the assets of McDowell Research, Ltd., for the fiscal year ended December 31, 2005 and as of and for the six months ended July 1, 2006 is attached as Exhibit 99.2 to this Current Report.

(d)

Exhibits.

	23.1		Consent of Pattillo, Brown & Hill, L.L.P.
	99.1		Financial Statements of McDowell Research Holdings, Inc.
	99.2		Unaudited Pro Forma Condensed Combined Financial Information for Ultralife Batteries, Inc.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 to the Current Report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Forms S-3 (Nos. 333-136742, 333-110426, 333-90984 and 333-67808) and Forms S-8 (Nos. 333-136738, 333-136737, 333-117662, 333-114271, 333-60984 and 333-31930) of Ultralife Batteries, Inc. of our report dated February 20, 2006 relating to the consolidated financial statements of McDowell Research Holdings, Inc. for the year ended December 31, 2005, as well as our report dated August 31, 2006 relating to the unaudited consolidated financial statements of McDowell Research Holdings, Inc. for the six-month periods ended June 30, 2006 and 2005, which appear in Ultralife Batteries, Inc.’s Form 8-K filed with the Securities and Exchange Commission on July 10, 2006, as amended.

/s/ Pattillo, Brown & Hill, L.L.P

Pattillo, Brown & Hill, L.L.P.
Waco, Texas
September 15, 2006

EXHIBIT 99.1

McDOWELL RESEARCH HOLDINGS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2006 AND 2005
AND
FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2006 AND 2005

McDOWELL RESEARCH HOLDINGS, INC.

FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2006 AND 2005

CONTENTS

		Page
		Number
Independent Auditors’ Report		1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets		2 — 3
Consolidated Statements of Income		4
Consolidated Statements of Changes in Stockholders’ Equity		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		7 — 12

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors
McDowell Research Holdings, Inc.
Waco, Texas

     We have reviewed the accompanying consolidated balance sheets of McDowell Research Holdings, Inc., as of June 30, 2006 and 2005, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the six-month periods then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these consolidated financial statements is the representation of the Company’s management.

     A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express an opinion.

     Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements in order for them to be in conformity with generally accepted accounting principles.

/s/ Pattillo, Brown & Hill, L.L.P.

August 31, 2006

401 WEST HIGHWAY 6 • P. O. BOX 20725 • WACO, TX 76702-0725 • (254) 772-4901 • FAX: (254) 772-4920 • www.pbhcpa.com
AFFILIATE OFFICES: BROWNSVILLE, TX (956) 544-7778 • HILLSBORO, TX (254) 582-2583
TEMPLE, TX (254) 791-3460 • ALBUQUERQUE, NM (505) 266-5904

McDOWELL RESEARCH HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2006 AND 2005
(UNAUDITED)

ASSETS

		2006				2005
CURRENT ASSETS
Cash		$	566,591			$	1,438,348
Receivables
Trade net of allowance for uncollectible accounts of $38,487and $40,512, respectively			4,347,288				3,400,227
Prepayments of inventory			666,396				—
Inventories			4,312,360				1,174,912
Total Current Assets			9,892,635				6,013,487
PROPERTY, PLANT AND EQUIPMENT
Building			727,000				727,000
Leasehold improvements			211,792				211,792
Machinery and equipment			638,547				636,192
Office equipment			375,561				389,540
Automobiles			333,605				363,170
Furniture and fixtures			21,189				21,189
Computer software			41,847				17,858
			2,349,541				2,366,741
Less accumulated depreciation			(757,247	)			(497,035	)
Total Property, Plant and Equipment			1,592,294				1,869,706
Total Assets		$	11,484,929			$	7,883,193

See accompanying notes and accountants’ review report.

LIABILITIES AND STOCKHOLDERS’ EQUITY

		2006				2005
CURRENT LIABILITIES
Current maturities of long-term debt		$	292,928			$	134,805
Accounts payable, trade			1,790,567				1,191,166
Accrued liabilities
Salaries, wages and commissions			121,288				165,970
Payroll and other taxes			39,801				27,798
Vacation			86,379				73,107
Property tax			33,038				29,704
Other			115,061				—
Deferred revenue			20,973				—
Retirement plan payable			54,108				103,240
Total Current Liabilities			2,554,143				1,725,790
NONCURRENT LIABILITIES
Long-term debt, net of current maturities			775,110				930,487
Total Noncurrent Liabilities			775,110				930,487
Total Liabilities			3,329,253				2,656,277
STOCKHOLDERS’ EQUITY
Common stock- par value $1 - authorized 100,000 shares, issued 2,162 shares, outstanding 2,162 shares			2,162				2,162
Paid-in capital			4,819,783				4,819,783
Retained earnings			3,333,731				404,971
Total Stockholders’ Equity			8,155,676				5,226,916
Total Liabilities and Stockholders’ Equity		$	11,484,929			$	7,883,193

See accompanying notes and accountants’ review report.

McDOWELL RESEARCH HOLDINGS, INC.

CONSOLIDATED STATEMENT OF INCOME

FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2006 AND 2005
(UNAUDITED)

		2006				2005
SALES		$	12,573,546			$	10,053,960
COST OF GOODS SOLD			(5,734,952	)			(5,354,535	)
GROSS MARGIN			6,838,594				4,699,425
OPERATING EXPENSES
Selling expense			(1,102,039	)			(773,932	)
General and administrative expense			(2,696,046	)			(3,444,899	)
Total Operating Expenses			(3,798,085	)			(4,218,831	)
INCOME FROM OPERATIONS			3,040,509				480,594
NONOPERATING INCOME (EXPENSE)
Interest expense			(116,246	)			(107,473	)
Interest income			10,080				31,850
Total Nonoperating Income (Expense)			(106,166	)			(75,623	)
NET INCOME		$	2,934,343			$	404,971

See accompanying notes and accountants’ review report.

McDOWELL RESEARCH HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2006 AND 2005
(UNAUDITED)

														Total
		Common				Paid-in				Retained				Stockholders’
		Stock				Capital				Earnings				Equity
Balance, December 31, 2004		$	—			$	5,784,931			$	—			$	5,784,931
Sale of stock			2,162				—				—				2,162
Contributions			—				121,338				—				121,338
Net income for the 6-month period			—				—				404,971				404,971
Distributions			—				(1,086,486	)			—				(1,086,486	)
Balance, June 30, 2005			2,162				4,819,783				404,971				5,226,916
Sale of stock			—				—				—				—
Contributions			—				—				—				—
Net income for the 6-month period			—				—				994,417				994,417
Distributions			—				—				—				—
Balance, December 31, 2005			2,162				4,819,783				1,399,388				6,221,333
Sale of stock			—				—				—				—
Contributions			—				—				—				—
Net income for the 6-month period			—				—				2,934,343				2,934,343
Distributions			—				—				( 1,000,000	)			(1,000,000	)
Balance, June 30, 2006		$	2,162			$	4,819,783			$	3,333,731			$	8,155,676

See accompanying notes and accountants’ review report.

McDOWELL RESEARCH HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2006 AND 2005
(UNAUDITED)

		2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	2,934,343			$	404,971
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			118,663				140,884
Gain on disposal of property, plant and equipment			16,426				6,800
Change in assets and liabilities:
(Increase) decrease in receivables			250,723				(336,297	)
(Increase) decrease in inventories			(2,806,322	)			(326,250	)
(Decrease) increase in accounts payable and accrued liabilities			(658,836	)			(396,678	)
(Decrease) increase in deferred revenue			(28,197	)			(172,953	)
(Decrease) increase in retirement plan payable			(152,479	)			103,240
Total Adjustments			(3,260,022	)			(981,254	)
NET CASH USED BY OPERATING ACTIVITIES			(325,679	)			(576,283	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment			(2,355	)			(207,255	)
NET CASH USED BY INVESTING ACTIVITIES			(2,355	)			(207,255	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable from related party			37,656				200
Proceeds from long-term debt			150,000				115,564
Payment of long-term debt			(224,251	)			(82,539	)
Distributions paid			(1,000,000	)			(1,087,628	)
NET CASH USED BY FINANCING ACTIVITIES			(1,036,595	)			(1,054,403	)
NET DECREASE IN CASH			(1,364,629	)			(1,837,941	)
CASH, BEGINNING			1,931,220				3,276,289
CASH, ENDING		$	566,591			$	1,438,348
SUPPLEMENTAL DISCLOSURES
Interest expense		$	116,246			$	107,473

See accompanying notes and accountants’ review report.

McDOWELL RESEARCH HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2006 AND 2005

1.		BASIS OF PRESENTATION
		The financial statements presented herein are unaudited and do not contain all information required by accounting principles generally accepted in the United States of America to be included in a full set of financial statements.
		In the opinion of the Company, the unaudited financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2006 and 2005, and its results of operations and its cash flows for the six-month periods then ended.
		The results of operations for the six-month periods ended June 30, 2006 and 2005, may not be indicative of the results of operations for the full fiscal year or any future period.

2.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Following is a summary of certain significant accounting policies of McDowell Research Holdings, Inc. These policies conform to generally accepted accounting principles and have been consistently applied in preparation of these financial statements.

     Organization

			McDowell Research, Ltd. (the Ltd.) is engaged primarily in the development, manufacture, distribution and sale of power systems, battery chargers, and accessories for demanding customer requirements.
			On October 1, 2005, McDowell RF Systems, Inc., a captive engineering company engaged primarily in the design of RF amplification systems for the Company, was merged into McDowell Research, Ltd. The entire year’s income and expenses of McDowell RF Systems, Inc. were included in the consolidation as if it had been consolidated effective January 1, 2005.

     Principle of Consolidation

McDowell Research Holdings, Inc. (the Company) is a Texas Sub S Corporation for financial and tax reporting purposes. McDowell Research GP, Inc. (the GP) is 100% owned by the Company. McDowell Research LP, Inc. (the LP) is 100% owned by the Company. McDowell Research, Ltd. (formerly McDowell Research Corporation) is 1% owned by the GP and 99% owned by the LP. Therefore, these financial statements are consolidated after the elimination of all material intercompany transactions and account balances.

(continued)

2.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from the estimates.

     Cash and Cash Equivalents

For the purpose of the statement of cash flows, cash and cash equivalents are defined as cash on hand and cash in bank accounts.

     Accounts Receivable

Accounts receivable arise in the normal course of business. It is the policy of management to review the outstanding accounts receivable in the six-month period, as well as the bad debt write-offs experienced in the past, and establish an allowance for doubtful accounts. As of June 30, 2006 and 2005, the allowance for doubtful accounts amounted to $38,487 and $40,512, respectively.

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Additions to and improvements of property, plant and equipment that exceed $5,000 are capitalized. Maintenance and repair costs are expensed as incurred. When assets are retired or otherwise disposed of, the cost of the assets and related accumulated depreciation are removed from the accounts. Any profit or loss on retirements is reflected in earnings for the period. Depreciation is computed using the straight-line method for all assets. Estimated useful lives are as follows:

Buildings				15 years
Leasehold improvements				15 years
Machinery, equipment and furniture				3 - 7 years
Automotive				5 years

     Inventories

Inventories are valued at average cost, not in excess of current market cost, with cost computed on the first-in, first-out basis. Inventoried costs incurred under contracts are stated at the actual production cost and other related costs incurred to date, less amounts applied to units delivered.

     Income Taxes

Federal income taxes have not been provided for as the Company and the Affiliates are S Corporations as defined in the Internal Revenue Code. Net income under this election is taxed at the stockholder level.

(continued)

2.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Research and Development

Research and development expenditures are expensed as incurred.

     Concentration of Credit Risk

			The Ltd. is a manufacturer of power systems, battery chargers, and accessories primarily for military application. During the six-month period ended June 30, 2006, the Ltd. had sales to 7 customers in excess of 55% of total sales. The sales to the largest customer were 30% of total sales. Sales to the next largest customer totaled 7% of total sales.
			The Ltd. extends unsecured credit to the majority of its customers. As of June 30, 2006 and 2005, outstanding credit to customers totaled $4,384,075 and $3,440,739, respectively.
			Additionally, the Ltd. maintains cash in excess of the FDIC limit in a financial institution. As of June 30, 2006 and 2005, amounts exceeding the FDIC limit were $499,268 and $1,668,931.

3.		PROPERTY, PLANT AND EQUIPMENT

		Balance												Balance
		12/31/05				Additions				Deletions				06/30/06
Building		$	727,000			$	—			$	—			$	727,000
Leasehold improvements			211,792				—				—				211,792
Machinery and equipment			636,192				2,355				—				638,547
Office equipment			375,561				—				—				375,561
Automobiles			363,170				—				(29,565	)			333,605
Furniture and fixtures			21,189				—				—				21,189
Computer software			41,847				—				—				41,847
			2,376,751				2,355				(29,565	)			2,349,541
Accumulated depreciation			(651,723	)			(118,663	)			13,139				(757,247	)
Total Property, Plant and Equipment		$	1,725,028			$	(116,308	)		$	(16,426	)		$	1,592,294

Depreciation expense totaled $118,663, and $140,884, respectively, at June 30, 2006 and 2005.

4.		INVENTORIES

Inventories of the Ltd. are compromised of the following at June 30, 2006 and 2005:

		2006				2005
Raw materials		$	2,577,209			$	848,662
Work in process			808,646				326,250
Finished goods			926,505				—
Total Inventory		$	4,312,360			$	1,174,912

5.		LONG-TERM DEBT
		Long-term debt consists of the following:

		Six Months Ended
		06/30/06				06/30/05
Note payable to Central National Bank, in monthly installments of $2,854.58 through December 14, 2007, including interest at 5.85%, collateralized by equipment.		$	51,520			$	81,460
Note payable to Central National Bank, in monthly installments of $673 through December 15, 2008, including interest at 4.25%, collateralized by a vehicle.			19,108				26,193
Note payable to Daimler Chrysler, in monthly installments of $1,187 through April 7, 2008, with interest at 6.1%, collateralized by a vehicle.			23,637				36,023
Note payable to Central National Bank, in monthly installments of $1,517.57 through April 5, 2007, with interest at 4.0%, collateralized by a vehicle.			14,878				32,104
Note payable to Central National Bank, in monthly installments of $1,607.02 through April 5, 2007, with interest at 4.0%, collateralized by a vehicle.			15,755				33,997
Note payable to Central National Bank, in monthly installments of $2,319 through April 7, 2008, with interest at 5.5%, collateralized by a vehicle.			48,379				72,767
Note payable to Central National Bank, in monthly installments of $979.28 through May 28, 2009, with interest at 6.75%, collateralized by equipment.			31,670				40,789
Note payable to Texas First State Bank, in monthly installments of $1,025 through March 26, 2006, including interest at 3.99%, collateralized by vehicle.			—				9,072
Revolving line-of-credit to Central National Bank, due in September 2006, with interest at prime rate adjusted daily, collateralized by accounts receivable and inventory.			150,000				—
Note payable to Central National Bank, in monthly installments of $845 through April 2, 2007, including interest at 5.5%, collateralized by a vehicle.			8,168				17,576
			363,115				349,981
Capital lease (see footnote 6)			704,923				715,311
Less current maturities			(292,928	)			(71,505	)
		$	775,110			$	993,787

(continued)

5.		LONG-TERM DEBT (Continued)
		Future maturities of long-term debt are as follows:

		Amount
2006		$	292,928
2007			114,603
2008			53,011
2009			24,774
2010			25,613
Thereafter			557,109
		$	1,068,038

6.		LEASE OBLIGATION — BUILDINGS
		The Ltd.’s administrative offices and manufacturing space located in Waco, Texas, are leased under a month-to-month capital lease. For capitalization purposes, it is assumed that the lease is the length of the underlying loan, which expires in 2017. Base rent for the premises does not include real estate taxes and other operating expenses for which the Ltd. is separately liable. Annual base rent on the premises is $207,600, payable in monthly installments of $17,300 each. The landlord is a related entity that is owned by the shareholders of the Ltd.
		The Ltd. also leases a facility in Woodinville, Washington, under a 39-month operating lease expiring in March 2007 from a non-related third party. Base rent for the premises does not include real estate taxes and other operating expenses for which the Ltd. is separately liable. Annual base rent on the premises is $73,248, payable in monthly installments of $6,104 each.
		Minimum annual payments under the leases as of June 30, 2006, for the next five years are as follows:

		Waco				Woodinville				Total
2006		$	207,600			$	73,248			$	280,848
2007			207,600				18,312				225,912
2008			207,600				—				207,600
2009			207,600				—				207,600
2010			207,600				—				207,600
Thereafter			1,245,600				—				1,245,600
		$	2,283,600			$	91,560			$	2,375,160

7.		RESEARCH AND DEVELOPMENT
		The Ltd. is currently funding research projects for the development of new products. Research and development expense totaled $150,000 and $1,039,618, respectively, in the six-month periods ended June 30, 2006 and 2005.
8.		PROFIT-SHARING PLAN
		The Ltd. maintains a salary reduction/profit-sharing plan under the Safe Harbor provisions of Section 401(k) of the Internal Revenue Code. The Plan covers substantially all employees of Ltd. who have completed one year of service with the Ltd. and have reached the age of 21. The Plan is contributory by the employees. The Ltd. makes a yearly 3% mandatory safe harbor contribution and may make discretionary profit sharing contributions. The Ltd. elected to make discretionary profit sharing and safe harbor contributions for the year ended December 31, 2006. The Ltd. has accrued approximately $54,108 and $103,250 of this amount as of June 30, 2006 and 2005, respectively.
9.		CONTINGENCIES
		The Ltd. provides the end user with a four (4) year warranty on the majority of products sold. Based upon the Ltd.’s historical warranty claims, no reserve for the future economic impact of potential warranty claims has been included in these statements. Future claims will be recognized as warranty expense in the year incurred. It is expected that future claims will be immaterial.
10.		SUBSEQUENT EVENT
		The shareholders sold the assets of Ltd. on July 3, 2006.

McDOWELL RESEARCH HOLDINGS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED
DECEMBER 31, 2005

WITH INDEPENDENT AUDITORS’ REPORT

McDOWELL RESEARCH HOLDINGS, INC.

FOR THE YEAR ENDED
DECEMBER 31, 2005

CONTENTS

		Page
		Number
Independent Auditors’ Report			1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet			2 — 3
Consolidated Statement of Income			4
Consolidated Statement of Changes in Stockholders’ Equity			5
Consolidated Statement of Cash Flow			6
Notes to Consolidated Financial Statements			7 — 12

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors
McDowell Research Holdings, Inc.
Waco, Texas

     We have audited the accompanying consolidated balance sheet of McDowell Research Holdings, Inc., as of December 31, 2005, and the related consolidated statement of income, changes in stockholders’ equity, and cash flow for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

     We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of McDowell Research Holdings, Inc., as of December 31, 2005, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles.

/s/ Pattillo, Brown & Hill, L.L.P.

February 20, 2006

401 WEST HIGHWAY 6 • P. O. BOX 20725 • WACO, TX 76702-0725 • (254) 772-4901 • FAX: (254) 772-4920 • www.pbhcpa.com
AFFILIATE OFFICES: BROWNSVILLE, TX (956) 544-7778 • HILLSBORO, TX (254) 582-2583
TEMPLE, TX (254) 791-3460 • ALBUQUERQUE, NM (505) 266-5904

McDOWELL RESEARCH HOLDINGS, INC.

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2005

ASSETS

CURRENT ASSETS
Cash		$	1,931,220
Receivables
Trade net of allowance for uncollectible accounts of $40,511			4,586,144
Employees			10,167
Inventories			2,165,944
Total Current Assets			8,693,475
PROPERTY, PLANT AND EQUIPMENT
Building			727,000
Leasehold improvements			211,792
Machinery and equipment			636,192
Office equipment			375,561
Automobiles			363,170
Furniture and fixtures			21,189
Computer software			41,847
			2,376,751
Less accumulated depreciation			(651,723	)
Total Property, Plant and Equipment			1,725,028
Total Assets		$	10,418,503

The accompanying notes are an integral part of these consolidated financial statements.

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Current maturities of long-term debt		$	142,928
Accounts payable, trade			2,332,405
Accrued liabilities
Salaries, wages and commissions			476,540
Payroll and other taxes			21,745
Vacation			43,490
Property tax			64,916
Other			8,530
Deferred revenue			49,170
Retirement plan payable			206,587
Total Current Liabilities			3,346,311
NONCURRENT LIABILITES
Long-term debt, net of current maturities			850,859
Total Noncurrent Liabilites			850,859
Total Liabilites			4,197,170
STOCKHOLDERS’ EQUITY
Common stock- par value $1 - authorized 100,000 shares, issued 2,162 shares, outstanding 2,162 share			2,162
Paid-in capital			4,819,783
Retained earnings			1,399,388
Total Stockholders’ Equity			6,221,333
Total Liabilities and Stockholders’ Equity		$	10,418,503

The accompanying notes are an integral part of these consolidated financial statements.

McDOWELL RESEARCH HOLDINGS, INC.

CONSOLIDATED STATEMENT OF INCOME

FOR THE YEAR ENDED
DECEMBER 31, 2005

SALES		$	21,702,378
COST OF GOODS SOLD			(10,437,855	)
GROSS MARGIN			11,264,523
OPERATING EXPENSES
Selling expense			(1,627,251	)
General and administrative expense			(8,079,034	)
Total Operating Expenses			(9,706,285	)
INCOME FROM OPERATIONS			1,558,238
NONOPERATING INCOME (EXPENSE)
Interest expense			(219,330	)
Interest income			60,480
Total Nonoperating Income (Expense)			(158,850	)
NET INCOME		$	1,399,388

The accompanying notes are an integral part of these consolidated financial statements.

McDOWELL RESEARCH HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED
DECEMBER 31, 2005

														Total
		Common				Paid-in				Retained				Stockholders’
		Stock				Capital				Earnings				Equity
Balance, December 31, 2004		$	—			$	5,784,931			$	—			$	5,784,931
Sale of stock			2,162				—				—				2,162
Contributions			—				121,338				—				121,338
Net income for the year			—				—				1,399,388				1,399,388
Distributions			—				(1,086,486	)			—				(1,086,486	)
Balance, December 31, 2005		$	2,162			$	4,819,783			$	1,399,388			$	6,221,333

The accompanying notes are an integral part of these consolidated financial statements.

McDOWELL RESEARCH HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED
DECEMBER 31, 2005

CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	1,399,388
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			295,572
Gain on disposal of property, plant and equipment			10,162
Change in assets and liabilities:
(Increase) decrease in receivables			(1,538,970	)
(Increase) decrease in inventories			(1,317,282	)
(Decrease) increase in accounts payable and accrued liabilities			1,408,376
(Decrease) increase in deferred revenue			(123,783	)
(Decrease) increase in retirement plan payable			37,116
Total Adjustments			(1,228,809	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			170,579
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment			(390,841	)
NET CASH USED BY INVESTING ACTIVITIES			(390,841	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable from related party			3,783
Proceeds from long-term debt			115,564
Payment of long-term debt			(154,044	)
Distributions paid			(1,090,110	)
NET CASH USED BY FINANCING ACTIVITIES			(1,124,807	)
NET DECREASE IN CASH			(1,345,069	)
CASH AT BEGINNING OF YEAR			3,276,289
CASH AT END OF YEAR		$	1,931,220
SUPPLEMENTAL DISCLOSURES
Interest expense		$	219,330

The accompanying notes are an integral part of these consolidated financial statements.

McDOWELL RESEARCH HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Following is a summary of certain significant accounting policies of McDowell Research Holdings, Inc. These policies conform to generally accepted accounting principles and have been consistently applied in preparation of these financial statements.

     Organization

McDowell Research, Ltd. (the Ltd.) is engaged primarily in the development, manufacture, distribution and sale of power systems, battery chargers, and accessories for demanding customer requirements.

On October 1, 2005, McDowell RF Systems, Inc., a captive engineering company engaged primarily in the design of RF amplification systems for the Company, was merged into McDowell Research, Ltd. The entire year’s income and expenses of McDowell RF Systems, Inc. were included in the consolidation as if it had been consolidated effective January 1, 2005.

     Principle of Consolidation

McDowell Research Holdings, Inc. (the Company) is a Texas Sub S Corporation for financial and tax reporting purposes. McDowell Research GP, Inc. (the GP) is 100% owned by the Company. McDowell Research LP, Inc. (the LP) is 100% owned by the Company. McDowell Research, Ltd. (formerly McDowell Research Corporation) is 1% owned by the GP and 99% owned by the LP. Therefore, these financial statements are consolidated after the elimination of all material intercompany transactions and account balances.

     Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from the estimates.

     Cash and Cash Equivalents

For the purpose of the statement of cash flows, cash and cash equivalents are defined as cash on hand and cash in bank accounts.

(continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Accounts Receivable

Accounts receivable arise in the normal course of business. It is the policy of management to review the outstanding accounts receivable at year-end, as well as the bad debt write-offs experienced in the past, and establish an allowance for doubtful accounts. As of December 31, 2005, the allowance for doubtful accounts amounted to $40,512.

     Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Additions to and improvements of property, plant and equipment that exceed $5,000 are capitalized. Maintenance and repair costs are expensed as incurred. When assets are retired or otherwise disposed of, the cost of the assets and related accumulated depreciation are removed from the accounts. Any profit or loss on retirements is reflected in earnings for the period. Depreciation is computed using the straight-line method for all assets. Estimated useful lives are as follows:

Buildings		15 years
Leasehold improvements		15 years
Machinery, equipment and furniture		3 — 7 years
Automotive		5 years

     Inventories

Inventories are valued at average cost, not in excess of current market cost, with cost computed on the first-in, first-out basis. Inventoried costs incurred under contracts are stated at the actual production cost and other related costs incurred to date, less amounts applied to units delivered.

     Income Taxes

Federal income taxes have not been provided for as the Company and the Affiliates are S Corporations as defined in the Internal Revenue Code. Net income under this election is taxed at the stockholder level.

     Research and Development

Research and development expenditures are expensed as incurred.

(continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Concentration of Credit Risk

The Ltd. is a manufacturer of power systems, battery chargers, and accessories primarily for military application. During the year ended December 31, 2005, the Ltd. had sales to 10 customers in excess of 46% of total sales. The sales to the largest customer were 20.80% of total sales. Sales to another customer totaled 20% of total sales. Sales to the U.S. military totaled approximately 43.52% of total sales.

The Ltd. extends unsecured credit to the majority of its customers. As of December 31, 2005, outstanding credit to customers totaled $4,626,755.

Additionally, the Ltd. maintains cash in excess of the FDIC limit in a financial institution. As of December 31, 2005, amounts exceeding the FDIC limit were $1,489,935.

2. PROPERTY, PLANT AND EQUIPMENT

		Balance												Balance
		12/31/04				Additions				Deletions				12/31/05
Building		$	727,000			$	—			$	—			$	727,000
Leasehold improvements			155,072				56,720				—				211,792
Machinery and equipment			636,192				—				—				636,192
Office equipment			361,615				34,951				(21,005	)			375,561
Automobiles			311,383				104,752				(52,965	)			363,170
Furniture and fixtures			21,189				—				—				21,189
Computer software			—				41,847				—				41,847
			2,212,451				238,270				(73,970	)			2,376,751
Accumulated depreciation			(395,748	)			(302,631	)			46,656				(651,723	)
Total Property, Plant and Equipment		$	1,816,703			$	(64,361	)		$	(27,314	)		$	1,725,028

Depreciation expense totaled $295,572 at December 31, 2005.

3. INVENTORIES

Inventories of the Ltd. are compromised of the following at December 31, 2005:

Raw materials		$	1,463,780
Work in process			702,164
Total Inventory		$	2,165,944

4.		LONG-TERM DEBT
		Long-term debt consists of the following:

		2005
Note payable to Central National Bank, in monthly installments of $2,854.58 through December 14, 2007, including interest at 5.85%, collateralized by equipment.		$	66,534
Note payable to Central National Bank, in monthly installments of $673 through December 15, 2008, including interest at 4.25%, collateralized by a vehicle.			22,689
Note payable to Daimler Chrysler, in monthly installments of $1,187 through April 7, 2008, with interest at 6.1%, collateralized by a vehicle.			30,958
Note payable to Central National Bank, in monthly installments of $1,517.57 through April 5, 2007, with interest at 4.0%, collateralized by a vehicle.			23,580
Note payable to Central National Bank, in monthly installments of $1,607.02 through April 5, 2007, with interest at 4.0%, collateralized by a vehicle.			24,970
Note payable to Central National Bank, in monthly installments of $2,319 through April 7, 2008, with interest at 5.5%, collateralized by a vehicle.			60,721
Note payable to Central National Bank, in monthly installments of $979.28 through May 28, 2009, with interest at 6.75%, collateralized by equipment.			36,226
Note payable to Texas First State Bank, in monthly installments of $1,025 through March 26, 2006, including interest at 3.99%, collateralized by vehicle.			3,054
Note payable to Central National Bank, in monthly installments of $845 through April 2, 2007, including interest at 5.5%, collateralized by a vehicle.			12,937
			281,669
Capital lease (see footnote 5)			712,118
Less current maturities			(142,928	)
		$	850,859

(continued)

4.		LONG-TERM DEBT (Continued)
		Future maturities of long-term debt are as follows:

December 31		Amount
2006		$	142,928
2007			114,603
2008			53,011
2009			24,774
2010			25,613
Thereafter			632,858
		$	993,787

5.		LEASE OBLIGATION — BUILDINGS
		The Ltd.’s administrative offices and manufacturing space located in Waco, Texas, are leased under a month-to-month capital lease. For capitalization purposes, it is assumed that the lease is the length of the underlying loan, which expires in 2017. Base rent for the premises does not include real estate taxes and other operating expenses for which the Ltd. is separately liable. Annual base rent on the premises is $207,600, payable in monthly installments of $17,300 each. The landlord is a related entity that is owned by the shareholders of the Ltd..
		The Ltd. also leases a facility in Woodinville, Washington, under a 39-month operating lease expiring in March 2007 from a non-related third party. Base rent for the premises does not include real estate taxes and other operating expenses for which the Ltd. is separately liable. Annual base rent on the premises is $73,248, payable in monthly installments of $6,104 each.
		Minimum annual payments under the leases as of December 31, 2005, for the next five years are as follows:

		Waco				Woodinville				Total
2005		$	207,600			$	73,248			$	280,848
2006			207,600				73,248				280,848
2007			207,600				18,312				225,912
2008			207,600				—				207,600
2009			207,600				—				207,600
Thereafter			1,453,200				—				1,453,200
		$	2,491,200			$	164,808			$	2,656,008

6.		RESEARCH AND DEVELOPMENT
		The Ltd. is currently funding research projects for the development of new products. Research and development expense totaled $1,212,173 in 2005.
7.		PROFIT-SHARING PLAN
		The Ltd. maintains a salary reduction/profit-sharing plan under the Safe Harbor provisions of Section 401(k) of the Internal Revenue Code. The Plan covers substantially all employees of Ltd. who have completed one year of service with the Ltd. and have reached the age of 21. The Plan is contributory by the employees. The Ltd. makes a yearly 3% mandatory safe harbor contribution and may make discretionary profit sharing contributions. The Ltd. elected to make discretionary profit sharing and safe harbor contributions of $224,816 for the year ended December 31, 2005.
8.		CONTINGENCIES
		The Ltd. provides the end user with a four (4) year warranty on the majority of products sold. Based upon the Ltd.’s historical warranty claims, no reserve for the future economic impact of potential warranty claims has been included in these statements. Future claims will be recognized as warranty expense in the year incurred.

EXHIBIT 99.2

ULTRALIFE BATTERIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     The following unaudited pro forma financial statements combine the historical consolidated balance sheets and statements of operations of Ultralife Batteries, Inc. (“Ultralife”) and McDowell Research, Ltd. (“McDowell”), giving effect to the acquisition of substantially all of the assets of McDowell by Ultralife on July 3, 2006 using the purchase method of accounting.

     The unaudited pro forma condensed combined statements of operations for the six months ended July 1, 2006 (June 30, 2006 for McDowell) and for the year ended December 31, 2005 are presented to give effect to the acquisition of substantially all of the assets of McDowell as if it had occurred on January 1, 2005. The unaudited pro forma condensed combined balance sheets as of July 1, 2006 (June 30, 2006 for McDowell) are presented to give effect to the acquisition of substantially all of the assets of McDowell on July 1, 2006.

     The unaudited pro forma financial statements are presented for illustrative purposes only and are not intended to represent or be indicative of the consolidated results of operations or the consolidated financial position of Ultralife that would have been reported had the acquisition been consummated as of the dates presented, and should not be viewed to be representative of future operating results or the financial position of Ultralife. The unaudited pro forma financial statements do not reflect any adjustments to conform accounting policies, other than those mentioned in the notes thereto, or to reflect any cost synergies anticipated as a result of the acquisition, or any future acquisition related expenses.

     Certain adjustments made to the unaudited pro forma financial statements have been prepared based on preliminary estimates of the fair values of the net assets from McDowell. The impact of ongoing integration activities and adjustments to the fair value of acquired net tangible and intangible assets of McDowell could cause material differences in the information presented.

     The unaudited pro forma financial statements should be read in conjunction with the historical consolidated financial statements of McDowell included in this Current Report on Form 8-K/A and the consolidated financial statements of Ultralife included in its Quarterly Report on Form 10-Q for the period ended July 1, 2006 and its Annual Report on Form 10-K for the year ended December 31, 2005.

ULTRALIFE BATTERIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 1, 2006
(Amounts In Thousands, Except Per Share Amounts)

		Historical								Pro Forma								Pro Forma
		Ultralife				McDowell				Adjustments								Combined
Revenues		$	39,712			$	12,573			$	(428	)			(D)			$	51,857
Cost of products sold			31,365				5,735				(428	)			(D)
											1,786				(G)				38,458
Gross margin			8,347				6,838				(1,786	)							13,399
Operating expenses:
Research and development			1,844				—				150				(G)				1,994
Selling, general, and administrative			5,814				3,798				(1,936	)			(G)				7,676
Amortization of Intangibles			—				—				836				(B)				836
Total operating expenses			7,658				3,798				(950	)							10,506
Operating income/(loss)			689				3,040				(836	)							2,893
Other income (expense):
Interest income			85				10				(58	)			(C)				37
Interest expense			(412	)			(116	)			(400	)			(A)
											(91	)			(C)				(1,019	)
Gain on insurance settlment			191				—				—								191
Miscellaneous			147				—				—								147
Income/(loss) before income taxes			700				2,934				(1,385	)							2,249
Income tax provision/(benefit) — current			24				—				998				(E)
											(575	)			(F)				447
Income tax provision/(benefit) — deferred			427				—				—								427
Total income taxes			451				—				423								874
Net Income/(Loss)		$	249			$	2,934			$	(1,808	)						$	1,375
Earnings/(Loss) per share — basic		$	0.02															$	0.09
Earnings/(Loss) per share — diluted		$	0.02															$	0.09
Weighted average shares outstanding — basic			14,807																14,807
Weighted average shares outstanding — diluted			15,150																15,150

See accompanying notes to unaudited pro forma condensed combined financial statements.

ULTRALIFE BATTERIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005
(Amounts In Thousands, Except Per Share Amounts)

		Historical								Pro Forma								Pro Forma
		Ultralife				McDowell				Adjustments								Combined
Revenues		$	70,501			$	21,702			$	(1,463	)			(K)			$	90,740
Cost of products sold			58,243				10,438				(1,463	)			(K)
											4,125				(N)				71,343
Gross margin			12,258				11,264				(4,125	)							19,397
Operating expenses:
Research and development			3,751				—				1,367				(N)				5,118
Selling, general, and administrative			11,409				9,706				(5,492	)			(N)				15,623
Amortization of Intangibles			—				—				1,673				(I)				1,673
Total operating expenses			15,160				9,706				(2,452	)							22,414
Operating income/(loss)			(2,902	)			1,558				(1,673	)							(3,017	)
Other income (expense):
Interest income			185				60				(106	)			(J)				139
Interest expense			(821	)			(219	)			(800	)			(H)
											(82	)			(J)				(1,922	)
Gain on insurance settlment			—				—				—								—
Miscellaneous			(318	)			—				—								(318	)
Income/(loss) before income taxes			(3,856	)			1,399				(2,661	)							(5,118	)
Income tax provision/(benefit) — current			3				—				476				(L)
											(1,104	)			(M)				(625	)
Income tax provision/(benefit) — deferred			486				—				—								486
Total income taxes			489				—				(628	)							(139	)
Net Income/(Loss)		$	(4,345	)		$	1,399			$	(2,033	)						$	(4,979	)
Earnings/(Loss) per share — basic		$	(0.30	)														$	(0.34	)
Earnings/(Loss) per share — diluted		$	(0.30	)														$	(0.34	)
Weighted average shares outstanding — basic			14,551																14,551
Weighted average shares outstanding — diluted			14,551																14,551