SEC Filing | Ultralife Corporation

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ulbi20210630_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 0-20852

ULTRALIFE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation of organization)

2000 Technology Parkway Newark, New York 14513

(Address of principal executive offices) (Zip Code)

16-1387013

(I.R.S. Employer Identification No.)

(315) 332-7100

(Registrant's telephone number, including area code:)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.10 par value per share	ULBI	NASDAQ
(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒

	Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No☒

As of July 26, 2021, the registrant had 16,053,207 shares of common stock outstanding.

ULTRALIFE CORPORATION AND SUBSIDIARIES

INDEX

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):

	Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	1

	Consolidated Statements of Income and Comprehensive Income for the Three and Six-Month Periods Ended June 30, 2021 and June 30, 2020	2

	Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2021 and June 30, 2020	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six-Month Periods Ended June 30, 2021 and June 30, 2020	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION

Item 6.	Exhibits	26

	Signatures	27

PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except share amounts)

(Unaudited)

	June 30,			December 31,
	2021			2020
ASSETS
Current assets:
Cash	$	15,828		$	10,653
Trade accounts receivable, net of allowance for doubtful accounts of $332 and $317, respectively		18,712			21,054
Inventories, net		27,414			28,193
Prepaid expenses and other current assets		2,351			4,596
Total current assets		64,305			64,496
Property, plant and equipment, net		22,720			22,850
Goodwill		27,115			27,018
Other intangible assets, net		8,936			9,209
Deferred income taxes, net		11,459			11,836
Other noncurrent assets		1,985			2,292
Total Assets	$	136,520		$	137,701

*LIABILITIES AND STOCKHOLDERS’ EQUITY*
Current Liabilities:
Accounts payable	$	9,545		$	10,839
Current portion of long-term debt		624			1,361
Accrued compensation and related benefits		1,396			1,748
Accrued expenses and other current liabilities		3,966			4,758
Total current liabilities		15,531			18,706
Deferred income taxes		492			515
Other noncurrent liabilities		1,260			1,557
Total liabilities		17,283			20,778

Commitments and contingencies (Note 8)

Stockholders’ equity:
Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued		-			-
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,474,676 shares at June 30, 2021 and 20,373,519 shares at December 31, 2020; outstanding – 16,051,707 shares at June 30, 2021 and 15,959,984 shares at December 31, 2020		2,047			2,037
Capital in excess of par value		186,138			185,464
Accumulated deficit		(46,116	)		(47,598	)
Accumulated other comprehensive loss		(1,586	)		(1,782	)
Treasury stock - at cost; 4,422,969 shares at June 30, 2021 and 4,413,535 shares at December 31, 2020		(21,388	)		(21,321	)
Total Ultralife Corporation equity		119,095			116,800
Non-controlling interest		142			123
Total stockholders’ equity		119,237			116,923

Total liabilities and stockholders’ equity	$	136,520		$	137,701

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

ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands except per share amounts)
(Unaudited)

	Three-month period ended					Six-month period ended
	June 30, 2021			June 30, 2020		June 30, 2021			June 30, 2020

Revenues	$	26,770		$	28,560	$	52,743		$	54,374
Cost of products sold		19,503			20,597		38,498			39,077
Gross profit		7,267			7,963		14,245			15,297

Operating expenses:
Research and development		1,853			1,275		3,500			2,823
Selling, general and administrative		4,323			4,394		8,702			8,695
Total operating expenses		6,176			5,669		12,202			11,518

Operating income		1,091			2,294		2,043			3,779

Other expense (income):
Interest and financing expense		55			106		111			280
Miscellaneous		(34	)		11		(34	)		(71	)
Total other expense		21			117		77			209

Income before income tax provision		1,070			2,177		1,966			3,570
Income tax provision		248			499		465			818

Net income		822			1,678		1,501			2,752

Net income attributable to non-controlling interest		11			20		19			35

Net income attributable to Ultralife Corporation		811			1,658		1,482			2,717

Other comprehensive income (loss):
Foreign currency translation adjustments		93			42		196			(765	)

Comprehensive income attributable to Ultralife Corporation	$	904		$	1,700	$	1,678		$	1,952

Net income per share attributable to Ultralife common stockholders – basic	$	.05		$	.10	$	.09		$	.17

Net income per share attributable to Ultralife common stockholders – diluted	$	.05		$	.10	$	.09		$	.17

Weighted average shares outstanding – basic		16,019			15,882		15,997			15,880
Potential common shares		241			251		197			234
Weighted average shares outstanding - diluted		16,260			16,133		16,194			16,114

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

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Six-month period ended
	June 30, 2021			June 30, 2020
OPERATING ACTIVITIES:
Net income	$	1,501		$	2,752
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,460			1,161
Amortization of intangible assets		310			295
Amortization of financing fees		52			24
Stock-based compensation		370			534
Deferred income taxes		345			633
Changes in operating assets and liabilities:
Accounts receivable		2,390			3,578
Inventories		864			1,507
Prepaid expenses and other assets		2,536			1,307
Accounts payable and other liabilities		(2,873	)		(2,909	)
Net cash provided by operating activities		6,955			8,882

INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(1,225	)		(1,533	)
Proceeds from sale of equipment		-			120
Net cash used in investing activities		(1,225	)		(1,413	)

FINANCING ACTIVITIES:
Payment of credit facilities		(789	)		(6,410	)
Proceeds from exercise of stock options		314			76
Tax withholdings on stock-based awards		(67	)		(15	)
Net cash used in financing activities		(542	)		(6,349	)

Effect of exchange rate changes on cash		(13	)		(136	)

INCREASE IN CASH		5,175			984

Cash, Beginning of period		10,653			7,405
Cash, End of period	$	15,828		$	8,389

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

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands except share amounts)

(Unaudited)

					Capital			Accumulated
	Common Stock				in Excess			Other									Non-
	*Number of*				*of Par*			*Comprehensive*			*Accumulated*			*Treasury*			*Controlling*
	*Shares*		*Amount*		*Value*			*Income (Loss)*			*Deficit*			*Stock*			*Interest*		*Total*

Balance – December 31, 2019		20,268,050	$	2,026	$	184,292		$	(2,531	)	$	(52,830	)	$	(21,231	)	$	24	$	109,750
Net income												2,717						35		2,752
Stock option exercises		16,631		2		74														76
Stock-based compensation – stock options						470														470
Stock-based compensation -restricted stock						64														64
Vesting of restricted stock		12,501		2											(15	)				(13	)
Foreign currency translation adjustments									(765	)										(765	)
Balance – June 30, 2020		20,297,182	$	2,030	$	184,900		$	(3,296	)	$	(50,113	)	$	(21,246	)	$	59	$	112,334

Balance – December 31, 2020		20,373,519	$	2,037	$	185,464		$	(1,782	)	$	(47,598	)	$	(21,321	)	$	123	$	116,923
Net income												1,482						19		1,501
Stock option exercises		88,656		9		305									(52	)				262
Stock-based compensation – stock options						337														337
Stock-based compensation -restricted stock						33														33
Vesting of restricted stock		12,501		1		(1	)								(15	)				(15	)
Foreign currency translation adjustments									196											196
Balance – June 30, 2021		20,474,676	$	2,047	$	186,138		$	(1,586	)	$	(46,116	)	$	(21,388	)	$	142	$	119,237

Balance – March 31, 2020		20,281,516	$	2,028	$	184,550		$	(3,338	)	$	(51,771	)	$	(21,239	)	$	39	$	110,269
Net income												1,658						20		1,678
Stock option exercises		8,998		1		46														47
Stock-based compensation – stock options						278														278
Stock-based compensation -restricted stock						26														26
Vesting of restricted stock		6,668		1											(7	)				(6	)
Foreign currency translation adjustments									42											42
Balance – June 30, 2020		20,297,182	$	2,030	$	184,900		$	(3,296	)	$	(50,113	)	$	(21,246	)	$	59	$	112,334

Balance – March 31, 2021		20,416,511	$	2,042	$	185,674		$	(1,679	)	$	(46,927	)	$	(21,380	)	$	131	$	117,861
Net income												811						11		822
Stock option exercises		51,497		5		278														283
Stock-based compensation – stock options						174														174
Stock-based compensation -restricted stock						12														12
Vesting of restricted stock		6,668													(8	)				(8	)
Foreign currency translation adjustments									93											93
Balance – June 30, 2021		20,474,676	$	2,047	$	186,138		$	(1,586	)	$	(46,116	)	$	(21,388	)	$	142	$	119,237

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

ULTRALIFE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share amounts)

(Unaudited)

1.	*BASIS OF PRESENTATION*

The accompanying unaudited Consolidated Financial Statements of Ultralife Corporation and its subsidiaries (the “Company”, “Ultralife”, “we” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and footnotes for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the Consolidated Financial Statements have been included. Results for interim periods should not be considered indicative of results to be expected for any subsequent interim period or the full year. Reference should be made to the Consolidated Financial Statements and related notes thereto contained in our Form 10-K for the year ended December 31, 2020.

The December 31, 2020 consolidated balance sheet information referenced herein was derived from audited Consolidated Financial Statements but does not include all disclosures required by GAAP.

Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.

Recently Adopted Accounting Guidance

Effective January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)”. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. Adoption of the new standard did not materially impact the Company’s Consolidated Financial Statements.

Recent Accounting Guidance Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments”, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently assessing the impact that adopting this new accounting standard will have on our Consolidated Financial Statements.

2.	*DEBT*

On May 1, 2019, Ultralife, Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), and CLB, INC., a Texas corporation and wholly owned subsidiary of SWE (“CLB”), as borrowers, entered into the First Amendment Agreement (the “First Amendment Agreement”) with KeyBank National Association (“KeyBank” or the “Bank”), as lender and administrative agent, to amend the Credit and Security Agreement by and among Ultralife and KeyBank dated May 31, 2017 (the “Credit Agreement”, and together with the First Amendment Agreement, the “Amended Credit Agreement”).

The Amended Credit Agreement, among other things, provides for a five-year, $8,000 senior secured term loan (the “Term Loan Facility”) and extends the term of the $30,000 senior secured revolving credit facility (the “Revolving Credit Facility”, and together with the Term Loan Facility, the “Credit Facilities”) through May 31, 2022. Up to six months prior to May 31, 2022, the Revolving Credit Facility may be increased to $50,000 with the Bank’s concurrence.

As of June 30, 2021, the Company had $685 outstanding principal on the Term Loan Facility, all of which is included in current portion of long-term debt on the Consolidated Balance Sheet, and no amounts outstanding on the Revolving Credit Facility. As of June 30, 2021, total unamortized debt issuance costs of $61 associated with the Amended Credit Agreement, including placement, renewal and legal fees, are classified as a reduction of the current portion of long-term debt on the Consolidated Balance Sheet. Debt issuance costs are amortized to interest expense over the remaining term of the Credit Facilities.

The Company is required to repay the borrowings under the Term Loan Facility in sixty (60) equal consecutive monthly payments which commenced on May 31, 2019, in arrears, together with applicable interest. All unpaid principal and accrued and unpaid interest with respect to the Term Loan Facility is due and payable in full on April 30, 2024. All unpaid principal and accrued and unpaid interest with respect to the Revolving Credit Facility is due and payable in full on May 31, 2022. The Company may voluntarily prepay principal amounts outstanding at any time subject to certain restrictions. The Company made voluntary prepayments of $4,200 during the year ended December 31, 2020. No other voluntary prepayments have been made as of June 30, 2021.

In addition to the customary affirmative and negative covenants, the Company must maintain a consolidated fixed charge coverage ratio equal to or greater than 1.15 to 1.0, and a consolidated senior leverage ratio equal to or less than 2.5 to 1.0, each as defined in the Amended Credit Agreement. The Company was in full compliance with its covenants under the Amended Credit Agreement as of June 30, 2021.

Borrowings under the Credit Facilities are secured by substantially all the assets of the Company. Availability under the Revolving Credit Facility is subject to certain borrowing base limits based on receivables and inventories.

Interest will accrue on outstanding indebtedness under the Credit Facilities at the Base Rate or the Overnight LIBOR Rate, as selected by the Company, plus the applicable margin. The Base Rate is the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 50 basis points, and (c) the Overnight LIBOR Rate plus 100 basis points. The applicable margin ranges from zero (0) to negative 50 basis points for the Base Rate and from 185 to 215 basis points for the Overnight LIBOR Rate and are determined based on the Company’s senior leverage ratio.

The Company must pay a quarterly fee of 0.1% to 0.2% based on the average daily unused availability under the Revolving Credit Facility.

Payments must be made by the Company to the extent borrowings exceed the maximum amount then permitted to be drawn on the Credit Facilities and from the proceeds of certain transactions. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and the Bank will have other customary remedies including resort to the security interest the Company provided to the Bank.

3.	*EARNINGS PER SHARE*

Basic earnings per share (“EPS”) is computed by dividing net income attributable to Ultralife by the weighted-average shares outstanding during the period. Diluted EPS includes the dilutive effect of securities, if any, and is calculated using the treasury stock method. For the three-month period ended June 30, 2021, 906,404 stock options and 14,164 restricted stock awards were included in the calculation of diluted EPS as such securities are dilutive. Inclusion of these securities resulted in 240,259 additional shares in the calculation of fully diluted earnings per share. For the comparable three-month period ended June 30, 2020, 866,910 stock options and 19,165 restricted stock awards were included in the calculation of diluted EPS resulting in 250,561 additional shares in the calculation of fully diluted earnings per share. For the six-month periods ended June 30, 2021 and June 30, 2020, 659,488 and 866,910 stock options and 14,164 and 19,165 restricted stock awards, respectively, were included in the calculation of diluted EPS as such securities are dilutive. Inclusion of these securities resulted in 197,848 and 234,532 additional shares, respectively, in the calculation of fully diluted EPS.

There were 414,916 and 896,167 outstanding stock options for the three-month periods ended June 30, 2021 and June 30, 2020, respectively, which were not included in EPS as the effect would be anti-dilutive. There were 414,916 and 896,167 outstanding stock options for the six-month periods ended June 30, 2021 and June 30, 2020, respectively, which were not included in EPS as the effect would be anti-dilutive.

4.	*SUPPLEMENTAL BALANCE SHEET INFORMATION*

Fair Value Measurements and Disclosures

The fair value of financial instruments approximated their carrying values at June 30, 2021 and December 31, 2020. The fair value of cash, accounts receivable, accounts payable, accrued liabilities, and the current portion of long-term debt approximates carrying value due to the short-term nature of these instruments.

Cash

The composition of the Company’s cash was as follows:

	June 30,		December 31,
	2021		2020
Cash	$	15,740	$	10,562
Restricted cash		88		91
Total	$	15,828	$	10,653

As of June 30, 2021 and December 31, 2020, restricted cash included $88 and $91, respectively, of euro-denominated deposits withheld by the Dutch tax authorities and third-party value-added tax (VAT) representatives in connection with a previously utilized logistics arrangement in the Netherlands. Restricted cash is included as a component of the cash balance for purposes of the Consolidated Statements of Cash Flows.

Inventories

Inventories are stated at the lower of cost or net realizable value, net of obsolescence reserves, with cost determined under the first-in, first-out (FIFO) method. The composition of inventories, net was:

	June 30,		December 31,
	2021		2020
Raw materials	$	16,817	$	17,277
Work in process		3,117		3,411
Finished goods		7,480		7,505
Total	$	27,414	$	28,193

Property, Plant and Equipment, Net

Major classes of property, plant and equipment consisted of the following:

	June 30,			December 31,
	2021			2020
Land	$	1,273		$	1,273
Buildings and leasehold improvements		15,407			15,393
Machinery and equipment		62,109			61,048
Furniture and fixtures		2,328			2,235
Computer hardware and software		7,124			6,894
Construction in process		1,189			1,227
		89,430			88,070
Less: Accumulated depreciation		(66,710	)		(65,220	)
Property, plant and equipment, net	$	22,720		$	22,850

Depreciation expense for property, plant and equipment was as follows:

	Three-month period ended				Six-month period ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Depreciation expense	$	730	$	582	$	1,460	$	1,161

Goodwill

The following table summarizes the goodwill activity by segment for the six-month period ended June 30, 2021.

	Battery & Energy		Communications
	Products		Systems		Total
Balance – December 31, 2020	$	15,525	$	11,493	$	27,018
Effect of foreign currency translation		97		-		97
Balance – June 30, 2021	$	15,622	$	11,493	$	27,115

Other Intangible Assets, Net

The composition of other intangible assets was:

	June 30, 2021
			Accumulated
	Cost		Amortization		Net
Trademarks	$	3,412	$	-	$	3,412
Customer relationships		9,207		5,313		3,894
Patents and technology		5,572		5,087		485
Distributor relationships		377		377		-
Trade name		1,530		385		1,145
Total	$	20,098	$	11,162	$	8,936

	December 31, 2020
			Accumulated
	Cost		Amortization		Net
Trademarks	$	3,410	$	-	$	3,410
Customer relationships		9,171		5,115		4,056
Patents and technology		5,557		5,014		543
Distributor relationships		377		377		-
Trade name		1,524		324		1,200
Total	$	20,039	$	10,830	$	9,209

The change in the cost of total intangible assets from December 31, 2020 to June 30, 2021 is a result of the effect of foreign currency translations.

Amortization expense for other intangible assets was as follows:

	Three-month period ended				Six-month period ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Amortization included in:
Research and development	$	33	$	30	$	66	$	61
Selling, general and administrative		123		116		244		234
Total amortization expense	$	156	$	146	$	310	$	295

5.	*STOCK-BASED COMPENSATION*

We recorded non-cash stock compensation expense in each period as follows:

	Three-month period ended				Six-month period ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Stock options	$	174	$	278	$	337	$	470
Restricted stock grants		12		26		33		64
Total	$	186	$	304	$	370	$	534

We have stock options outstanding from various stock-based employee compensation plans for which we record compensation cost relating to share-based payment transactions in our financial statements. As of June 30, 2021, there was $296 of total unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted average period of 0.9 years.

The following table summarizes stock option activity for the six-month period ended June 30, 2021:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2021		1,217,163		$	6.50
Granted		-			-
Exercised		(128,096	)		4.60
Forfeited or expired		(14,663	)		7.07
Outstanding at June 30, 2021		1,074,404		$	6.72		3.78	$	2,037
Vested and expected to vest at June 30, 2021		998,941		$	6.66		3.66	$	1,963
Exercisable at June 30, 2021		744,455		$	6.42		3.05	$	1,710

Cash received from stock option exercises under our stock-based compensation plans for the three-month periods ended June 30, 2021 and June 30, 2020 was $283 and $47, respectively. Cash received from stock option exercises under our stock-based compensation plans for the six-month periods ended June 30, 2021 and June 30, 2020 was $314 and $76, respectively.

In October 2020, 5,000 shares of restricted stock were awarded to an employee at a weighted-average grant date fair value of $6.08 per share. In April 2019, 20,000 shares of restricted stock were awarded to certain of our employees at a weighted-average grant date fair value of $11.12 per share. In January 2018, 17,500 shares of restricted stock were awarded to certain of our employees at a weighted-average grant date fair value of $7.16 per share. All outstanding restricted shares vest in equal annual installments over three (3) years. Unrecognized compensation cost related to these restricted shares was $37 at June 30, 2021, which is expected to be recognized over a weighted average period of 1.5 years.

6.	*INCOME TAXES*

Our effective income tax rate for the six-month periods ended June 30, 2021 and June 30, 2020 was 23.7% and 22.9% respectively. The period-over-period change was primarily attributable to the geographic mix of earnings.

As of December 31, 2020, we have domestic net operating loss (“NOL”) carryforwards of $47,755, which expire 2021 through 2035, and domestic tax credits of $2,070, which expire 2028 through 2039, available to reduce future taxable income. As of June 30, 2021, management has concluded it is more likely than not that these domestic NOL and credit carryforwards will be fully utilized.

As of June 30, 2021, for certain past operations in the U.K., we continue to report a valuation allowance for NOL carryforwards of approximately $11,000, nearly all of which can be carried forward indefinitely. Utilization of the NOLs may be limited due to the change in the past U.K. operation and cannot currently be used to reduce taxable income at our other U.K. subsidiary, Accutronics Ltd. There are no other deferred tax assets related to the past U.K. operations.

As of June 30, 2021, we have not recognized a valuation allowance against our other foreign deferred tax assets, as realization is considered to be more likely than not.

As of June 30, 2021, the Company maintains its assertion that all foreign earnings will be indefinitely reinvested in those operations, other than earnings generated in the U.K.

There were no unrecognized tax benefits related to uncertain tax positions at June 30, 2021 and December 31, 2020.

As a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions. We are routinely subject to examination by taxing authorities in these various jurisdictions. In August 2020, the Internal Revenue Service (“IRS”) completed its examination of the Company’s federal tax returns for 2016-2018 with no material adjustments identified. Our U.S. tax matters for 2019 and 2020 remain subject to IRS examination. Our U.S. tax matters for 2001, 2002, 2005-2007 and 2011-2015 also remain subject to IRS examination due to the remaining availability of NOL carryforwards generated in those years. Our U.S. tax matters for 2001, 2002, 2005-2007 and 2011-2020 remain subject to examination by various state and local tax jurisdictions. Our tax matters for the years 2010 through 2020 remain subject to examination by the respective foreign tax jurisdiction authorities.

7.	*OPERATING LEASES*

The Company has operating leases predominantly for operating facilities. As of June 30, 2021, the remaining lease terms on our operating leases range from less than one (1) year to three (3) years. Renewal options not yet exercised and termination options are not reasonably certain of exercise by the Company. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants.

The components of lease expense for the current and prior-year comparative periods were as follows:

	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Operating lease cost	$	189	$	168	$	376	$	336
Variable lease cost		13		18		32		36
Total lease cost	$	202	$	186	$	408	$	372

Supplemental cash flow information related to leases was as follows:

	Six months ended
	June 30, 2021		June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	365	$	329
Right-of-use assets obtained in exchange for lease liabilities:	$	-	$	-

Supplemental balance sheet information related to leases was as follows:

	Balance Sheet Classification	June 30, 2021			December 31, 2020
Assets:
Operating lease right-of-use asset	Other noncurrent assets	$	1,881		$	2,189

Liabilities:
Current operating lease liability	Accrued expenses and other current liabilities	$	663		$	680
Operating lease liability, net of current portion	Other noncurrent liabilities		1,243			1,524
Total operating lease liability		$	1,906		$	2,204

Weighted-average remaining lease term (years)			2.9			3.3

Weighted-average discount rate			4.5	%		4.5	%

Future minimum lease payments as of June 30, 2021 are as follows:

Maturity of Operating Lease Liabilities
2021		363
2022		700
2023		720
2024		279
Total lease payments		2,062
Less: Imputed interest		156
Present value of remaining lease payments	$	1,906

8.	*COMMITMENTS AND CONTINGENCIES*

a. Purchase Commitments

As of June 30, 2021, we have made commitments to purchase approximately $1,001 of production machinery and equipment.

b. Product Warranties

We estimate future warranty costs to be incurred for product failure rates, material usage and service costs in the development of our warranty obligations. Estimated future warranty costs are based on actual past experience and are generally estimated as a percentage of sales over the warranty period. Changes in our product warranty liability during the first six months of 2021 and 2020 were as follows:

	Six-month period ended June 30,
	2021			2020
Accrued warranty obligations – beginning	$	149		$	195
Accruals for warranties issued		121			59
Settlements made		(108	)		(26	)
Accrued warranty obligations – ending	$	162		$	228

c. Contingencies and Legal Matters

We are subject to legal proceedings and claims that arise from time to time in the ordinary course of business. We believe that the final disposition of any such matters of which we are currently aware will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, recognizing that legal matters are subject to inherent uncertainties, there exists the possibility that ultimate resolution of current or future legal matters could have a material adverse impact on the Company’s financial position, results of operations or cash flows. We are not aware of any such situations at this time.

9.	*REVENUE RECOGNITION*

Revenues are generated from the sale of products. Performance obligations are met and revenue is recognized upon transfer of control to the customer, which is generally upon shipment. When contract terms require transfer of control upon delivery at a customer’s location, revenue is recognized on the date of delivery. For products shipped under vendor-managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has transferred and there are no further obligations by the Company. Revenue is measured as the amount of consideration we expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return.

Revenues recognized from prior period performance obligations for the six-month periods ended June 30, 2021 and 2020 were not material.

Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 were not material. As of June 30, 2021 and December 31, 2020, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, we have applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations.

10.

BUSINESS SEGMENT INFORMATION

We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes: Lithium 9-volt, cylindrical and various other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies, charging systems and accessories. The Communications Systems segment includes: RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and communications and electronics systems design. We believe that reporting performance at the gross profit level is the best indicator of segment performance.

The components of segment performance were as follows:

Three-month period ended June 30, 2021:

	Battery & Energy Products		Communications Systems		Corporate			Total
Revenues	$	22,875	$	3,895	$	-		$	26,770
Segment contribution		6,016		1,251		(6,176	)		1,091
Other expense						(21	)		(21	)
Income tax provision						(248	)		(248	)
Non-controlling interest						(11	)		(11	)
Net income attributable to Ultralife								$	811

Three-month period ended June 30, 2020:

	Battery & Energy Products		Communications Systems		Corporate			Total
Revenues	$	24,036	$	4,524	$	-		$	28,560
Segment contribution		6,026		1,937		(5,669	)		2,294
Other expense						(117	)		(117	)
Income tax provision						(499	)		(499	)
Non-controlling interest						(20	)		(20	)
Net income attributable to Ultralife								$	1,658

Six-month period ended June 30, 2021:

	Battery & Energy Products		Communications Systems		Corporate			Total
Revenues	$	44,986	$	7,757	$	-		$	52,743
Segment contribution		11,452		2,793		(12,202	)		2,043
Other expense						(77	)		(77	)
Income tax provision						(465	)		(465	)
Non-controlling interest						(19	)		(19	)
Net income attributable to Ultralife								$	1,482

Six-month period ended June 30, 2020:

	Battery & Energy Products		Communications Systems		Corporate			Total
Revenues	$	44,797	$	9,577	$	-		$	54,374
Segment contribution		11,342		3,955		(11,518	)		3,779
Other expense						(209	)		(209	)
Income tax provision						(818	)		(818	)
Non-controlling interest						(35	)		(35	)
Net income attributable to Ultralife								$	2,717

The following tables disaggregate our business segment revenues by major source and geography.

Commercial and Government/Defense Revenue Information:

Three-month period ended June 30, 2021:

	Total Revenue		Commercial			Government/ Defense
Battery & Energy Products	$	22,875	$	16,011		$	6,864
Communications Systems		3,895		-			3,895
Total	$	26,770	$	16,011		$	10,759
				60	%		40	%

Three-month period ended June 30, 2020:

	Total Revenue		Commercial			Government/ Defense
Battery & Energy Products	$	24,036	$	16,172		$	7,864
Communications Systems		4,524		-			4,524
Total	$	28,560	$	16,172		$	12,388
				57	%		43	%

Six-month period ended June 30, 2021:

	Total Revenue		Commercial			Government/ Defense
Battery & Energy Products	$	44,986	$	30,356		$	14,630
Communications Systems		7,757		-			7,757
Total	$	52,743	$	30,356		$	22,387
				58	%		42	%

Six-month period ended June 30, 2020:

	Total Revenue		Commercial			Government/ Defense
Battery & Energy Products	$	44,797	$	30,974		$	13,823
Communications Systems		9,577		-			9,577
Total	$	54,374	$	30,974		$	23,400
				57	%		43	%

U.S. and Non-U.S. Revenue Information¹:

Three-month period ended June 30, 2021:

	Total Revenue		United States			Non-United States
Battery & Energy Products	$	22,875	$	11,813		$	11,062
Communications Systems		3,895		1,953			1,942
Total	$	26,770	$	13,766		$	13,004
				51	%		49	%

Three-month period ended June 30, 2020:

	Total Revenue		United States			Non-United States
Battery & Energy Products	$	24,036	$	14,195		$	9,841
Communications Systems		4,524		4,224			300
Total	$	28,560	$	18,419		$	10,141
				64	%		36	%

Six-month period ended June 30, 2021:

	Total Revenue		United States			Non-United States
Battery & Energy Products	$	44,986	$	24,403		$	20,583
Communications Systems		7,757		3,421			4,336
Total	$	52,743	$	27,824		$	24,919
				53	%		47	%

Six-month period ended June 30, 2020:

	Total Revenue		United States			Non-United States
Battery & Energy Products	$	44,797	$	25,479		$	19,318
Communications Systems		9,577		8,577			1,000
Total	$	54,374	$	34,056		$	20,318
				63	%		37	%

¹Sales classified to U.S. include shipments to U.S.-based prime contractors which in some cases may serve non-U.S. projects.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This report contains certain forward-looking statements and information that are based on the beliefs of management as well as assumptions made by and information currently available to management. The statements contained in this report relating to matters that are not historical facts are forward-looking statements that involve risks and uncertainties, including, but not limited to, the effects of the novel coronavirus disease of 2019 (“COVID-19”); our reliance on certain key customers; possible future declines in demand for the products that use our batteries or communications systems; the unique risks associated with our China operations; potential costs because of the warranties we supply with our products and services; potential disruptions in our supply of raw materials and components; our efforts to develop new commercial applications for our products; reduced U.S. and foreign military spending including the uncertainty associated with government budget approvals; possible breaches in security and other disruptions; variability in our quarterly and annual results and the price of our common stock; safety risks, including the risk of fire; our entrance into new end-markets which could lead to additional financial exposure; fluctuations in the price of oil and the resulting impact on the level of downhole drilling; our ability to retain top management and key personnel; our resources being overwhelmed by our growth prospects; our inability to comply with changes to the regulations for the shipment of our products; our customers’ demand falling short of volume expectations in our supply agreements; possible impairments of our goodwill and other intangible assets; negative publicity concerning Lithium-ion batteries; our exposure to foreign currency fluctuations; the risk that we are unable to protect our proprietary and intellectual property; rules and procedures regarding contracting with the U.S. and foreign governments; our ability to utilize our net operating loss carryforwards; exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; our ability to comply with government regulations regarding the use of “conflict minerals”; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; known and unknown environmental matters; technological innovations in the non-rechargeable and rechargeable battery industries; and other risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those forward-looking statements described herein. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “seek,” “project,” “intend,” “plan,” “may,” “will,” “should,” or words of similar import, and in each case, their negatives, are intended to identify forward-looking statements. For further discussion of certain of the matters described above and other risks and uncertainties, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this quarterly report, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update any risk factors or to publicly announce the results of any revisions to any of the forward-looking statements contained in this Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, 2020 to reflect new information or risks, future events or other developments.