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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] 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 BATTERIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 16-1387013
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
1350 Route 88 South, Newark, New York 14513
(Address of principal executive offices)
(Zip Code)
(315)-332-7100
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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 __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.10 par value - 7,983,286 shares outstanding as of May 4, 1998.
ULTRALIFE BATTERIES, INC.
INDEX
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1998 and June 30, 1997.................................. 3
Condensed Consolidated Statements of Operations -
Three months and nine months ended
March 31, 1998 and 1997 .......................................... 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 1998 and 1997 ........................ 5
Notes to Condensed Consolidated Financial Statements .............. 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................... 9-12
PART II OTHER INFORMATION
SIGNATURES ................................................................ 13
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Mar. 31, 1998 June 30, 1997
------------- -------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 1,239,034 $ 2,310,725
Available-for-sale securities 11,023,045 19,847,201
Accounts Receivable, net 1,979,032 2,715,728
Inventory 3,575,403 5,302,752
Prepaid Expenses and Other Current Assets 2,406,226 1,661,655
------------ ------------
Total Current Assets 20,222,740 31,838,061
Net Property, Plant & Equipment 28,302,801 18,873,695
Purchased Technology 608,349 683,347
------------ ------------
Total Assets $ 49,133,890 $ 51,395,103
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 3,569,881 $ 2,659,547
Capital Lease Obligation 50,000 --
Customer Advances 1,270,666 1,636,433
Other Liabilities 1,689,676 336,242
------------ ------------
Total Current Liabilities 6,580,223 4,632,222
Long Term Liabilities
Capital Lease Obligation 197,000 --
------------ ------------
Total Long Term Liabilities 197,000 --
Shareholders' Equity
Capital Stock - Par Value 800,670 795,360
Additional Paid In Capital 65,284,947 64,785,814
Unrealized Gain on Investments 1,698,803 1,311,343
Accumulated deficit (25,193,027) (20,115,175)
Foreign Currency Translation Adjustment 67,998 291,041
------------ ------------
Total Shareholders' Equity 42,659,391 47,068,383
Less: Treasury Stock, at Cost (302,724) (305,502)
------------ ------------
Total Liabilities and Shareholders' Equity $ 49,133,890 $ 51,395,103
============ ============
-3-
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Third Quarter, Fiscal 1998
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended March 31, Nine month Ended March 31,
- ---------------------------- ----------------------------
1998 1997 1998 1997
- ------------ ------------ ------------ ------------
Revenues:
$ 3,064,998 $ 4,140,855 Battery sales $ 10,637,847 $ 11,584,874
394,547 240,330 Technology contracts 1,820,523 834,077
- ------------ ------------ ------------ ------------
3,459,545 4,381,185 Total revenue 12,458,370 12,418,951
Cost of Products Sold:
2,326,454 4,033,791 Battery costs 9,116,526 11,159,669
306,196 211,016 Technology contracts 1,566,743 705,503
- ------------ ------------ ------------ ------------
2,632,650 4,244,807 Total cost of products sold 10,683,269 11,865,172
- ------------ ------------ ------------ ------------
826,895 136,378 Gross Profit 1,775,101 553,779
2,179,696 945,977 Research & Development 4,943,484 2,733,225
1,417,151 1,432,180 Selling & Administrative 4,030,215 4,218,865
-- 605,296 Loss on China Development Program -- 605,296
(416,724) 137,700 Loss (gain) on fires (1,612,151) 137,700
- ------------ ------------ ------------ ------------
3,180,123 3,121,153 Total Operating Expenses 7,361,548 7,695,086
- ------------ ------------ ------------ ------------
(2,353,228) (2,984,775) Operating Loss (5,586,447) (7,141,307)
106,196 284,334 Interest Income 533,398 1,085,212
(3,023) -- Miscellaneous (24,799) --
- ------------ ------------ ------------ ------------
$ (2,250,055) $ (2,700,441) Net Loss $ (5,077,848) $ (6,056,095)
============ ============ ============ ============
$ (0.28) $ (0.34) Loss Per Share $ (0.64) $ (0.76)
============ ============ ============ ============
7,985,036 7,922,211 Weighted Average Shares Outstanding 7,995,855 7,923,276
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ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Third Quarter, Fiscal 1998
(Unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended March 31,
---------------------------
1998 1997
------------ ------------
OPERATING ACTIVITIES
Net loss $ (5,077,848) $ (6,056,095)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 895,387 828,116
Loss on China development program -- 283,500
Foreign currency loss -- (20,316)
Changes in operating assets and liabilities:
Decrease in accounts receivable 736,696 1,014,544
Decrease in inventories 1,727,349 2,295,631
Increase in prepaid expenses
and other current assets (744,571) (814,276)
Increase in accounts payable
and other current liabilities 1,898,001 669,246
------------ ------------
Net cash used in operating activities (564,986) (1,799,650)
------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment (10,002,495) (6,947,314)
Purchase of securities (74,188,407) (34,830,729)
Sales of securities 73,276,081 13,140,094
Maturities of securities 10,126,716 31,284,229
------------ ------------
Net cash provided by (used in) investing activities (788,105) 2,646,280
------------ ------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 504,443 119,126
Purchase treasury stock -- (305,508)
------------ ------------
Net cash provided by (used in) financing activities 504,443 (186,382)
------------ ------------
Effect of exchange rate changes on cash (223,043) --
------------ ------------
Increase (Decrease) in cash and cash equivalents (1,071,691) 660,248
Cash and cash equivalents at beginning of period 2,310,725 1,212,743
------------ ------------
Cash and cash equivalents at end of period $ 1,239,034 $ 1,872,991
============ ============
Supplemental schedule of noncash investing and financing activities:
The Company issued 250 shares of treasury stock to a third party for
professional services during the nine months ending March 31, 1998.
A capital lease obligation of $647,000 was incurred when the Company entered
into a capital lease for land and buildings. $400,000 was paid at the time of
lease inception, resulting in a balance of $247,000 to be paid over 10 years.`
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ULTRALIFE BATTERIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments,which are of a
normal recurring nature, necessary to present fairly the financial position
at March 31, 1998 and the results of operations for the three month and nine
month periods ended March 31, 1998 and 1997 and cash flows for the nine
month periods ended March 31, 1998 and 1997. The results of operations and
cash flows for the three months and nine months ended March 31,1998 are not
necessarily indicative of the results to be expected for the entire year.
The Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction
with the Company's financial statements for the year ended June 30, 1997,
filed on Form 10-K on October 14, 1997.
2. NET LOSS PER SHARE
Net loss per share is calculated by dividing net loss by the weighted
average number of common shares outstanding during the period; common stock
options have not been included since their inclusion would be antidilutive.
3. NEW ACCOUNTING PRONOUNCEMENTS
The Company accounts for net loss per common share in accordance with
the provisions of Statement of Financial Accounting Standards No.128 (SFAS
No. 128), "Earnings Per Share". SFAS No. 128 replaces primary Earnings Per
Share (EPS) with basic EPS. Basic EPS is computed by dividing reported
earnings available to common stockholders by weighted average shares
outstanding. No dilution for common share equivalents is included. Diluted
EPS is still required. The Company is required to adopt SFAS No. 128
retroactively for periods ending after December 15, 1997. On a pro forma
basis, basic EPS and diluted EPS for the three months ended March 31, 1998
and March 31, 1997 and the nine months ended March 31, 1998 and March 31,
1997 were $(0.28), $(0.34), $(0.64), and $(0.76), respectively, the same as
reported EPS.
4. INVENTORIES
Inventories are stated at the lower of cost or market with cost
determined under the first-in, first-out (FIFO) method. The composition of
inventories were: :
June 30, 1997 March 31, 1998
------------------------------
Raw materials $2,993,858 $1,950,368
Work in process 547,468 1,569,562
Finished products 2,647,345 963,270
---------- ----------
6,188,671 4,483,200
Less: Reserve for obsolescence 885,919 907,797
---------- ----------
$5,302,752 $3,575,403
---------- ----------
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5. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization
is computed using the straight-line method over the estimated useful lives
of three to ten years. Betterments, renewals and extraordinary repairs that
extend the life of the assets are capitalized. Other repairs and maintenance
costs are expensed. When sold, the cost and accumulated depreciation
applicable to assets retired are removed from the accounts and the gain or
loss on disposition is recognized in income.
6. COMMITMENTS and CONTINGENCIES
a. China Program
In July 1992, the Company entered into several agreements related to the
establishment of a manufacturing facility in Changzhou, China, for the
production and distribution in and from China of 2/3A lithium primary
batteries. Changzhou Ultra Power Battery Co., Ltd, a company organized in
China ("China Battery"), purchased from the Company certain technology,
equipment, training and consulting services relating to the design and
operation of a lithium battery manufacturing plant. China Battery was
required to pay approximately $6.0 million to the Company over the first two
years of the agreement, of which approximately $5.6 million has been paid to
date. The Company has been attempting to collect the balance due under this
contract. China Battery has indicated that these payments will not be made
until certain contractual issues have been resolved. Due to China Battery's
questionable willingness to pay, the Company wrote off in fiscal 1997 the
entire balance owed to the Company as well as the Company's investment
aggregating $805,000. Since China Battery has not purchased technology,
equipment, training or consulting services from the Company to produce
batteries other than 2/3A lithium batteries, the Company does not believe
that China Battery has the capacity to become a competitor of the Company.
The Company does not anticipate that the manufacturing or marketing of 2/3A
lithium batteries will be a substantial portion of its product line in the
future. However, in December 1997, China Battery sent to the Company a
letter demanding reimbursement of an unspecified amount of losses they have
incurred plus a refund for certain equipment that the Company sold to China
Battery. The Company has attempted to initiate negotiations to resolve the
dispute. However, an agreement has not yet materialized. Although China
Battery has not taken any additional steps, there can be no assurance that
China Battery will not further pursue such a claim which, if successful,
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company believes that such a claim
is without merit.
b. Legal Matters
A company has filed a claim against the Company seeking amounts related
to commissions and breach of good faith and fair dealings. The Company's
counsel believes that an unfavorable outcome is unlikely in this matter.
-7-
An individual has filed suit claiming the Company interfered with
his opportunity to purchase Dowty Group, PLC (now the Company's U.K.
subsidiary). The claim amounts to $25 million. The Company believes that
the claim is without merit and the Company intends to vigorously defend
its position. At this time, the outcome of this suit is uncertain. An
unfavorable outcome of this suit may have a material adverse impact on
the Company's financial position and results of operations.
A company has alleged infringement of two patents concerning
technology incorporated into the Company's rechargeable batteries. The
Company's counsel has stated, in its opinion, an unfavorable outcome is
remote.
7. LONG TERM DEBT
The Company has entered into a lease/purchase with respect to the
building it now occupies and an adjacent building in Newark, New York,
including surrounding land. Pursuant to the lease, the Company has delivered
a down payment in the amount of $400,000 and is obligated to pay annual
installments against the lease obligation as follows: $50,000 until December
2001, decreasing to approximately $28,000 for the period commencing December
2001 and ending December 2007. Upon expiration of the lease in 2007, the
Company is entitled to purchase the facilities for $1.
8. SUBSEQUENT EVENT
Subsequent to March 31, 1998 the Company completed a public offering for
2,500,000 shares of common stock at a price of $12.50. Net proceeds were
approximately $28,900,000 after deducting underwriting discounts and
commissions and estimated offering expenses
-8-
The discussion and analysis below, and throughout this report, contains
forward-looking statements within the meaning of Section 27A of the Securities
and Exchange Act of 1933 and Section 21E of the Securities and Exchange Act of
1934. Actual results could differ materially from those projected or suggested
in the forward-looking statements.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the accompanying condensed
consolidated financial statements and notes thereto contained herein and the
Company's consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K as of and for the year ended June 30, 1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three months ended March 31, 1998 and 1997
Revenues. Total revenues were $4,381,000 for the three months ended March 31,
1997 ("third quarter 1997") compared to $3,460,000 for the three months ended
March 31,1998 ("third quarter 1998"). Battery sales decreased from $4,141,000 in
the third quarter 1998 to $3,065,000 in the third quarter 1998. The decline in
battery sales was primarily due to lower sales in the Company's United Kingdom
subsidiary where sales declined from $1,899,000 in the third quarter 1997 to
$586,000 in the third quarter 1998. The decline in U.K. sales reflects the
suspension of high rate and seawater battery manufacturing operations following
the December 1996 fire and lower shipments of battery packages assembled for the
British Ministry of Defense. Partially offsetting the shortfall from UK
manufactured batteries was a gain in 9-volt battery sales which increased
approximately 58% during the third quarter 1998 over the same period last year.
The increase in 9-volt battery sales primarily reflects strong demand from smoke
detector original equipment manufacturers. Technology contracts sales increased
from $240,000 in the third quarter 1997 to $395,000 in the third quarter 1998.
The increase in technology contracts sales reflects increased progress on
programs that advance both primary and rechargeable battery technology.
Cost of Products Sold. Cost of products sold decreased from $4,245,000 in
the third quarter 1997 to $2,633,000 in the third quarter 1998. Cost of products
sold as a percentage of sales decreased from approximately 97% of sales in the
third quarter 1997 to 76% in the third quarter 1998. Cost of batteries sold
decreased from $4,034,000, or 97% of sales, for the third quarter 1997 to
$2,326,000, or 76% of sales, for the third quarter 1998. The decrease in cost of
batteries sold as a percentage of revenue was principally the result of higher
sales of 9-volt batteries combined with improved operating efficiencies and
higher production levels of this product. Cost of products sold includes
$703,000 of insurance proceeds received by Ultralife UK offsetting current
overhead expenses resulting from lower production associated with suspended
manufacturing operations due to the December 1996 fire. Technology contracts
cost of sales increased from $211,000 in the third quarter 1997 to $306,000 in
the third quarter 1998. As a percentage of sales, technology contracts cost of
sales decreased from approximately 88% to
-9-
approximately 78% in the third quarter 1998. The decrease in technology contract
cost of sales as a percentage of revenue reflects a greater number of contracts
to absorb overhead expenses.
Operating Expenses. Operating expenses increased $3,121,000 in the third quarter
1997 to $3,180,000 in the third quarter 1998. Of the Company's operating
expenses, research and development expenses increased $1,234,000 from $946,000
in the third quarter 1997 to $2,180,000 in the third quarter 1998. Research and
development expenses increased as a result of the Company's efforts to improve
its production process and performance of its advanced rechargeable batteries.
Selling, general and administration expenses remained relatively unchanged,
decreasing $15,000 from $1,432,000 in the third quarter 1997 to $1,417,000 in
the third quarter 1998. Selling, general and administration expenses include
$144,000 of insurance proceeds offsetting incremental costs of operations
relating to the December 1996 fire of Ultralife UK. Total operating expenses
also decreased by $417,000 as a result of the receipt of insurance proceeds to
replace assets previously written off, also due to the December 1996 fire in the
UK.
Interest Income. Interest income decreased from $284,000 in the third quarter
1997 to $106,000 in the third quarter 1998. The decrease of interest income is
the result of lower average balance invested since the Company used cash and
investments to fund operations and capital equipment additions for high volume
production of rechargeable batteries.
Net Losses. Net losses decreased $450,000 from $2,700,000 in the third quarter
1997 to $2,250,000 in the third quarter 1998, primarily as a result of the
reasons described above.
Nine Months Ended March 31, 1998 and 1997
Revenues. Total revenues were $12,419,000for the nine months ended March 31,
1997 ("year to date 1997") to $12,458,000 for the nine months ended March 31,
1998 ("year to date 1998"). Battery sales decreased from $11,585,000 year to
date 1997 to $10,638,000 year to date 1998. The decline in battery sales was
primarily due to lower sales in the Company's U.K. subsidiary due to the
suspension of high rate and seawater battery manufacturing operations following
the December 1996 fire and lower shipments of battery packages assembled for the
British Ministry of Defense. Sales of 9-volt batteries increased approximately
32% from year to date 1997 to year to date 1998 and partially offset the
shortfall from U.K. manufactured batteries. Technology contract sales increased
from $834,000 year to date 1997 to $1,821,000 year to date 1998. The increase in
technology contract sales is primarily attributable to the Company's agreement
with Mitsubishi Electric America to develop advanced rechargeable batteries for
a new notebook computer.
Cost of Products Sold. Cost of products sold decreased from $11,865,000 year to
date 1997 to $10,683,000 year to date 1998. Cost of products sold as a
percentage of sales decreased from approximately 96% of sales year to date 1997
to 86% of sales year to date 1998. Cost of batteries sold decreased from
$11,160,000, or 96% of sales, year to date 1997 to $9,117,000, or 86% of sales,
year to date 1998. The decrease in cost of batteries sold as a
-10-
percentage of sales was primarily the result of increased sales of 9 volt
batteries combined with higher production volumes and improved operating
efficiencies. Cost of products sold includes $1,628,000 of insurance proceeds
received by Ultralife U.K. offsetting overhead expenses resulting from lower
production associated with suspended manufacturing operations due to the
December 1996 fire. Technology contracts cost of sales increased from $706,000,
or 85% of sales, year to date 1997 to $1,567,000, or 86% of sales, year to date
1998. The increased technology contracts cost of sales primarily reflects an
increase in the volume of work being performed year to date 1998.
Operating Expenses. Operating expenses decreased from $7,695,000 year to date
1997 to $7,362,000 year to date 1998. Of the Company's operating expenses,
research and development expenses increased $2,210,000 from $2,733,000 year to
date 1997 to $4,943,000 year to date 1998. Research and development expenses
increased as a result of the Company's efforts to improve its production process
and performance of its advanced rechargeable batteries. Selling, general and
administration expenses declined $189,000 from $4,219,000 year to date 1997 to
$4,030,000 year to date 1998. This decrease was primarily due to incremental
costs of operations year to date 1997 in the U.K. following the December 1996
fire for which insurance proceeds had not yet been received. Insurance proceeds
have been received in the current year to offset similar incremental costs that
have amounted to $600,000 year to date 1998. Total operating expenses also
decreased by $1,612,000 as a result of the receipt of insurance proceeds to
replace assets previously written off due to the December 1996 fire in the U.K.
Interest Income. Interest income decreased from $1,085,000 year to date 1997 to
$533,000 year to date 1998. The decrease in interest income is the result of
lower average balances invested since the Company used cash and investments to
fund operations and capital equipment additions primarily for high volume
production of rechargeable batteries.
Net Losses. Net losses decreased $978,000 from $6,056,000, or $0.76 per share
year to date 1997 to $5,078,000, or $0.64 per share year to date 1998 primarily
as a result of the reasons described above.
Liquidity and Capital Resources
As of March 31, 1998 cash, cash equivalents and available for sale investments
totaled $12,262,000. The Company used $565,000 of cash from operations during
the nine months ended March 31, 1998. This is the net result of net losses and
increased prepaid and other current assets year to date 1998 offset by
depreciation expense, reductions in inventories and accounts receivable, and
increased accounts payable and other current liabilities. Additionally, the
Company spent $10,002,000 of cash year to date 1998 to purchase machinery and
equipment, primarily for the expansion of facilities to produce rechargeable
batteries and to reinstate the Company's UK subsidiary following the December
1996 fire.
-11-
Subsequent to March 31, 1998 the Company completed a public offering for
2,500,000 share of common stock at a price of $12.50. Net proceeds were
approximately $28,900,000 after deducting underwriting discounts and commissions
and estimated offering expenses.
The Company has a nominal amount of long-term debt associated with the
lease/purchase agreement of the Company's Newark facility. A limited line of
credit in the amount of $370,000 is maintained by Ultralife UK for short-term
working capital requirements. However, with sales growth and expansion, the
Company will explore normal working capital lines of credit. The Company's
current financial position is adequate to support its financial requirements for
the near future.
-12-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRALIFE BATTERIES, INC.
(Registrant)
Date: March 14, 1998 By:/s/ Bruce Jagid
----------------
Bruce Jagid
Chief Executive Officer
Date: March 14, 1998 By:/s/ Frederick F. Drulard
------------------------
Frederick F. Drulard
Vice President, Finance & Administration
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