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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 September 30, 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 (I.R.S. employer Identification No.)
incorporation or organization
2000 Technology Parkway, 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 - 10,484,886 shares outstanding as of September 30,
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 -June 30, 1998 and
September 30, 1998............................................... 3
Condensed Consolidated Statements of Operations -
Three months ended September 30, 1997 and 1998.................... 4
Condensed Consolidated Statements of Cash Flows Three months
ended September 30, 1997 and 1998................................. 5
Notes to Condensed Consolidated Financial Statements .............. 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 9-11
PART II OTHER INFORMATION
SIGNATURES ................................................................ 12
-2-
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
As of
June 30, September 30,
ASSETS 1998 1998
---- ----
Current assets:
Cash and cash equivalents $ 872 $ 46
Available-for-sale securities 34,816 30,300
Trade accounts receivable ( less
allowance for doubtful accounts
of $158, and $161 at June 30, 1998
and September 30, 1998, respectively) 3,046 3,007
Inventories 3,911 4,424
Prepaid expenses and other current assets 2,144 3,080
-------- --------
Total current assets 44,789 40,857
-------- --------
Property and equipment:
Machinery and equipment 33,113 34,345
Leasehold improvements 863 863
-------- --------
33,976 35,208
Less - Accumulated depreciation and amortization 3,828 4,272
-------- --------
30,148 30,936
-------- --------
Other assets and deferred charges:
Technology licensee agreements
(net of accumulated amortization of
$561 and $676, at June 30, 1998
and September 30,1998 respectively) 890 775
-------- --------
890 775
-------- --------
Total Assets $ 75,827 $ 72,568
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease $ 50 $ 50
Accounts payable 4,785 3,617
Accrued compensation 335 417
Customer advances 334 334
Other current liabilities 1,540 1,786
-------- --------
Total current liabilities 7,044 6,204
-------- --------
Long - term liabilities:
Capital lease obligation 197 197
-------- --------
Total long - term liabilities 197 197
-------- --------
Commitments and contingencies (Note 6)
Stockholders' equity :
Preferred stock, par value $0.10 per share,
authorized 1,000,000 shares-
none outstanding Common stock, par
value $0.10 per share, authorized
12,000,000 shares in 1997 and
20,000,000 in 1998; outstanding -
7,926,086 in 1997 and 10,485,136 in 1998 1,051 1,051
Capital in excess of par value 93,605 93,605
Accumuleted other comprehensive income 1,368 878
Accumulated deficit (27,135) (29,064)
-------- --------
68,889 66,470
Less --Treasury stock, at cost 27,250 shares (303) (303)
-------- --------
Total Stockholders' Equity 68,586 66,167
-------- --------
Total Liabilities and Stockholders' Equity $ 75,827 $ 72,568
======== ========
The accompanying notes are an integral part of the financial statements.
-3-
ULTRALIFE BATTERIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
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Three Months Ended September 30,
1997 1998
---- ----
Revenues:
Battery sales $ 3,693 $ 3,757
Technology contracts 1,183 465
------------ ------------
Total revenues 4,876 4,222
Cost of products sold:
Battery costs 3,182 3,548
Technology contracts 1,046 386
------------ ------------
Total cost of products sold 4,228 3,934
------------ ------------
Gross profit 648 288
Operating expenses:
Research and development 906 1,828
Selling, general, and administrative 1,189 1,300
Loss (Gain) on fires -- (468)
------------ ------------
Total Operating and other expenses 2,095 2,660
Other income (expense):
Interest income 253 449
Miscellaneous (13) (7)
------------ ------------
Loss before income taxes (1,207) (1,930)
------------ ------------
Income taxes -- --
------------ ------------
Net loss $ (1,207) $ (1,930)
============ ============
Net loss per common share $ (0.15) $ (0.18)
============ ============
Weighted average number of shares outstanding 7,949,727 10,484,886
============ ============
The accompanying notes are an integral part of the financial statements.
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ULTRALIFE BATTERIES, INC.AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended September 30,
1997 1998
---- ----
OPERATING ACTIVITIES
Net loss $ (1,207) $ (1,930)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 214 559
Provision for inventory obsolescence -- (6)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (949) 39
Decrease (increase) in inventories 665 (507)
Decrease (increase) in prepaid expenses
and other current assets 702 (936)
Increase (decrease) in accounts payable
and other current liabilities 299 (840)
-------- --------
Net cash used in operating activities (276) (3,621)
-------- --------
INVESTING ACTIVITIES
Purchase of property and equipment (1,564) (1,232)
Purchase of securities (15,946) (27,871)
Sales of securities 768 26,298
Maturities of securities 16,757 5,481
-------- --------
Net cash provided by investing activities 15 2,676
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 176 --
-------- --------
Net cash provided by financing activities 176 --
-------- --------
Effect of exchange rate changes on cash (197) 119
-------- --------
Decrease in cash and cash equivalents (282) (826)
Cash and cash equivalents at
beginning of period 2,311 872
-------- --------
Cash and cash equivalents at end of period $ 2,029 $ 46
======== ========
Supplemental disclosure of noncash investing
and financing activities
Unrealized gain on securities $ 209 $ 608
======== ========
The accompanying notes are an integral part of the financial statements.
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ULTRALIFE BATTERIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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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 September 30, 1998 and the results of operations and cash
flows for the three month periods ended September 30,1997 and 1998. The
results for the three months September 30, 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, 1998, filed on
Form 10-K on September 29, 1998.
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
Statement of Financial Accounting Standard (SFAS) No. 130 "Reporting
Comprehensive Income" establishes standards for reporting and display of
comprehensive income and its components. The standard is applicable for
fiscal years beginning after December 15, 1997. The Company has adopted
the provision of SFAS No. 130. In the three months September 30, 1997 and
1998 other comprehensive income totaled $12,000 and $490,000. The other
comprehensive income relates to changes in foreign currency translation
and unrealized gains on securities.
SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information" establishes standards for reporting information about
operating segments in the financial statements. The standard is required
to be adopted for fiscal years beginning after December 15, 1997. The
Company will adopt this standard in its 1999 financial statements. The
Company has not yet determined the impact of this standard on its
financial statements.
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" established accounting and reporting for derivative
instruments and hedging activities. The statement is effective for all
fiscal years beginning after June 15, 1999. The company has not yet
determined the impact of this standard on its financial statements.
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:
$(000)
June 30, 1998 September 30,1998
-------------------------------------
Raw materials $2,613 $3,121
Work in process 1,333 1,266
Finished products 192 258
-------------------------------------
4,138 4,645
Less: Reserve for obsolescence 227 221
-------------------------------------
$3,911 $4,424
-------------------------------------
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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.
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.
-7-
In August 1998, the Company, its Directors, certain underwriters
were named as defendants in a complaint filed in the United States
District Court for the District of New Jersey by a stockholder,
purportedly on behalf of a class of stockholders, alleging that the
defendants, during the period April 30, 1998 through June 12, 1998,
violated various provisions of the federal securities laws in connection
with an offering of 2,500,000 shares of the Company's common stock. The
complaint alleges that the Company's offering documents were materially
incomplete, and as a result misleading, and that the purported class
members purchased the Company's common stock at artificially inflated
prices and were damaged thereby. The Company believes that the litigation
is without merit and intends to defend it vigorously. This litigation has
just been commenced and the amount of alleged damages, if any, cannot be
quantified, nor can the outcome of this litigation be predicted.
Accordingly, management cannot determine whether the ultimate resolution
of this litigation could have a material adverse effect on the Company's
financial position and results of operation.
-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, 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three months ended September 30, 1998 and 1997
Total revenues of the Company decreased $654,000 from $4,876,000 for
the three months ended September 30, 1997 to $4,222,000 for the three
months ended September 30, 1998. Battery sales increased $64,000, or
approximately 2%, from $3,693,000 for the three months ended September 30,
1997 to $3,757,000 for the three months period ended September 30, 1998.
The increase in battery sales was primarily due to a 38% increase in
9-volt battery sales and the resumption of high rate lithium battery sales
at the Company's U.K. subsidiary. These gains were substantially offset by
lower sales of military batteries (BA-5372) following the completion of a
U. S. Army production contract in fiscal 1998. Technology contract
revenues decreased $718,000, or approximately 61%, from $1,183,000 in the
three months ended September 30, 1997 to $465,000 for the same period this
year. This decrease reflects both the completion of certain contracts
during fiscal 1998 and the timing of new contract awards.
Cost of products sold decreased $294,000 from $4,228,000 for the
three months ended September 30, 1997 to $3,934,000 for the three months
ended September 30, 1998. Cost of batteries sold increased $366,000 from
$3,182,000 for the three months ended Septembers 30, 1997 to $3,548,000
for the comparable period this year. As a percentage of sales, cost of
batteries sold increased from 86% to 94% for the three months ended
September 30, 1998. The increase in cost of batteries sold as a percentage
of sales primarily reflects a shift in product mix. The cost of the U. S.
Army military batteries (BA-5372) in the first quarter last year as a
percentage of sales was relatively lower than that achieved for the
Company's other batteries. There were no (BA-5372) battery sales in the
current quarter. Cost of products sold includes insurance proceeds
received by Ultralife UK for business interruption amounting to $355,000
in the three month period last year and $506,000 in the current year
period. These receipts offset unabsorbed overhead expenses resulting from
lower production volumes associated with suspended manufacturing
operations following the December 1996 fire. Technology contracts cost of
sales decreased $660,000 from $1,046,000, or 88% of revenue, for the three
months ended September 30, 1997 to $386,000, or 83% of revenue, for the
same period this year. The decrease in technology contract cost of sales
as a percentage of revenue reflects improved performance on contracts,
principally at the Company's UK subsidiary.
-9-
Operating and other expenses increased $565,000 from $2,095,000 for
the three months ended September 30, 1997 to $2,660,000 for the three
months ended September 30, 1998. Of the Company's operating and other
expenses, research and development expenses increased $922,000 from
$906,000 in the three month period last year to $1,828,000 for the
comparable period this year. Research and development expenses increased
as a result of the Company's efforts to improve its production processes
and performance of its advanced rechargeable battery coupled with the
lower level of technology contracts which absorbed a much higher level of
development expenses in the year ago period. Selling, general and
administration expenses increased $111,000 from $1,189,000 for the three
month period last year to $1,300,000 for the same period this year. This
increase is primarily attributable to increased personnel to support he
company's expansion plans. Operating and other expenses also decreased by
$468,000 reflecting gains from insurance proceeds to replace assets
previously written off due to the fire in December 1996 at Ultralife UK.
Interest income increased $196,000 from $253,000 in the three months
ended September 30, 1997 to $449,000 for the three months ended September
30, 1998. The increase of interest income is principally the result of
higher average balances invested following the public offering completed
April 30, 1998.
Net losses increased $723,000 from $1,207,000, or $0.15 per share,
for the three months ended September 30, 1997 to $1,930,000, or $0.18 per
share, for the three months ended September 30, 1998, primarily as a
result of the reasons described above.
Liquidity and Capital Resources
The Company used $3,621,000 cash in operating activities during the
first three months of fiscal 1998. This is the net result of net losses
for the period, increased inventories to support increasing production
rates of the Company's 9-volt batteries, increased prepaid and other
current assets including earned but unbilled government contract revenues
and lower accounts payable partially offset by depreciation and
amortization expense. Additionally, the Company spent $1,232,000 of cash
for capital additions for production equipment and facilities
improvements.
The Company has long-term debt of $197,000 relating to the capital
lease obligation for the Company's Newark, New York offices and
manufacturing facilities. A line of credit in the amount of $330,000 is
maintained by Ultralife UK for short term working capital requirements.
With planned sales growth, the Company is exploring obtaining working
capital lines of credit of approximately $15,000,000.
The Company's capital resource commitments as of September 30, 1998
consist principally of capital equipment commitments of approximately
$1,286,000. The Company believes its current financial position and cash
flows from operations will be adequate to support its financial
requirements through fiscal 1998
Year 2000 Disclosure
The "year 2000 Issue" is the result of computer programs being
written using only two digits as opposed to four to represent the
applicable year. Computer programs that have time sensitive software may
recognize "00" as the year 1900 rather than the year 2000. This could
potentially result in a system failure or an error in calculation. This
year 2000 issue is believed to affect all companies and organizations,
including the Company.
The Company is taking a number of steps in an effort to assess its
readiness for year 2000 issues, including reviewing all business systems,
testing equipment, surveying key material suppliers, and completing the
remediation plan.
-10-
The Company's review and assessment to date has determined that the
present accounting systems are not year 2000 compliant. The Company has an
ongoing project to select and install an enterprise-wide software system
to improve the flow of management information and control of operations.
The Company has specified that the software system must be year 2000
compliant. This project began last year and is expected to be completed
during 1999. The cost of the software together with additional hardware is
estimated to be between $400,000 and $600,000. Most of these costs will be
capitalized.
In addition to internal Year 2000 activities, the Company is in
contact with its key suppliers and vendors to assess state of readiness
and compliance. The company has issued documentation to key vendors and
suppliers and is in the process of receiving assurances from these
companies that all new equipment purchased is year 2000 compliant, and
that the supply of materials necessary to the continued smooth operation
of the company will not be materially effected by any year 2000 issues. It
is difficult to predict the year 2000 problems at our vendors and
suppliers, however, results to date have not indicated any significant
problems.
While at present, the Company believes that the cost of completing
the assessment and remediations plan will not be material, and that the
risks to the Company with respect to year 2000 issues are not significant,
the Company cannot, at this time, fully assess the potential impact.
Management will continue to examine the year 2000 issues as it potentially
impacts the Company and will develop contingency plans as necessary.
-11-
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: November 13, 1998 By: /s/ Bruce Jagid
---------------------------------------
Bruce Jagid
Chief Executive Officer
Date: November 13,1998 By: /s/ Frederick F. Drulard
---------------------------------------
Frederick F. Drulard
Vice President, Chief Financial Officer
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