View:
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 December 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 (I.R.S. employer Identification No.)
of 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 - 10,485,136 shares outstanding as of January 31,
1999.
ULTRALIFE BATTERIES, INC.
INDEX
- --------------------------------------------------------------------------------
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1998 and
June 30, 1998 ................................................... 3
Condensed Consolidated Statements of Operations -
Three and six months ended
December 31, 1998 and 1997 ...................................... 4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1998 and 1997 ..................... 5
Notes to Condensed Consolidated Financial Statements .............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 8
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ............... 12
Item 5. Other Information ................................................. 12
Item 6. Exhibits and Reports on Form 8-K .................................. 12
SIGNATURES ................................................................ 13
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
December 31,
1998 June 30,
ASSETS (Unaudited) 1998
----------- ----
Current assets:
Cash and cash equivalents $ 2,415 $ 872
Available-for-sale securities 26,432 34,816
Trade accounts receivable (less allowance
for doubtful accounts of $237 and $158 at
December 31, 1998 and June 30, 1998,
respectively) 3,061 3,046
Inventories 4,135 3,911
Prepaid expenses and other current assets 2,445 2,144
-------- --------
Total current assets 38,488 44,789
-------- --------
Property and equipment:
Machinery and equipment 35,261 33,113
Leasehold improvements 863 863
-------- --------
36,124 33,976
Less - Accumulated depreciation and
amortization 4,717 3,828
-------- --------
31,407 30,148
-------- --------
Other assets and deferred charges:
Technology licensee agreements (net
of accumulated amortization of $791
and $561, at December 31, 1998 and
June 30, 1998, respectively) 660 890
-------- --------
660 890
-------- --------
Total Assets $ 70,555 $ 75,827
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease $ 50 $ 50
Accounts payable 3,936 4,785
Accrued compensation 304 335
Customer advances 334 334
Other current liabilities 1,231 1,540
-------- --------
Total current liabilities 5,855 7,044
-------- --------
Long - term liabilities:
Capital lease obligation 147 197
-------- --------
Total long - term liabilities 147 197
-------- --------
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 20,000,000 shares;
outstanding- 10,485,136 1,051 1,051
Capital in excess of par value 93,605 93,605
Accumulated other comprehensive income 270 1,368
Accumulated deficit (30,070) (27,135)
-------- --------
64,856 68,889
Less --Treasury stock, at
cost -- 27,250 shares (303) (303)
-------- --------
Total Stockholders' Equity 64,553 68,586
-------- --------
Total Liabilities and Stockholders'
Equity $ 70,555 $ 75,827
======== ========
The accompanying notes are an integral part of the financial statements.
3
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Six Months
Ended December 31, Ended December 31,
1998 1997 1998 1997
------------ ----------- ------------ -----------
Revenues:
Battery sales $ 4,725 $ 3,879 $ 8,482 $ 7,573
Technology contracts 435 243 900 1,426
------------ ----------- ------------ -----------
Total revenues 5,160 4,122 9,382 8,999
Cost of products sold:
Battery costs 4,201 3,608 7,749 6,790
Technology contracts 302 215 688 1,261
------------ ----------- ------------ -----------
Total cost of products sold 4,503 3,823 8,437 8,051
------------ ----------- ------------ -----------
Gross profit 657 299 945 948
Operating and other expenses:
Research and development 1,600 1,857 3,428 2,763
Selling, general, and administrative 1,348 1,424 2,648 2,613
Loss (Gain) on fires (949) (1,195) (1,417) (1,195)
------------ ----------- ------------ -----------
Total operating and other expenses 1,999 2,086 4,659 4,181
Other income (expense):
Interest income 361 174 810 427
Miscellaneous (24) (9) (31) (22)
------------ ----------- ------------ -----------
Loss before income taxes (1,005) (1,622) (2,935) (2,828)
------------ ----------- ------------ -----------
Income taxes -- -- -- --
------------ ----------- ------------ -----------
Net loss $ (1,005) $ (1,622) $ (2,935) $ (2,828)
============ =========== ============ ===========
Net loss per common share $ (0.10) $ (0.20) $ (0.28) $ (0.36)
============ =========== ============ ===========
Weighted average shares outstanding 10,485,136 7,955,569 10,485,136 7,942,300
============ =========== ============ ===========
The accompanying notes are an integral part of the financial statements.
4
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
December 31,
1998 1997
-------- --------
OPERATING ACTIVITIES
Net loss $ (2,935) $ (2,828)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 1,119 532
Changes in operating assets and liabilities:
(Increase) in accounts receivable (15) (2,416)
(Increase) decrease in inventories (224) 1,812
(Increase) decrease in prepaid expenses
and other current assets (301) 1,053
Increase (decrease) in accounts payable
and other current liabilities (1,189) 1,797
-------- --------
Net cash used in operating activities (3,545) (50)
-------- --------
INVESTING ACTIVITIES
Purchase of property and equipment (2,148) (5,705)
Purchase of securities (52,126) (40,589)
Sales of securities 43,576 39,209
Maturities of securities 15,884 7,402
-------- --------
Net cash provided by investing activities 5,186 317
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock -- 467
-------- --------
Net cash provided by financing activities -- 467
-------- --------
Effect of exchange rate changes on cash (98) (271)
-------- --------
Increase in cash and cash equivalents 1,543 463
Cash and cash equivalents at beginning of period 872 2,311
-------- --------
Cash and cash equivalents at end of period $ 2,415 $ 2,774
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Unrealized (loss) on securities $ (1,000) $ (677)
======== ========
The accompanying notes are an integral part of the financial statements.
5
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 December 31, 1998 and the results of operations and cash flows
for the three and six month periods ended December 31, 1998 and 1997. The
results for the three and six months ended December 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, 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 Standards (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. Other comprehensive income
(loss) for the three and six month periods ended December 31, 1998 was
($608,000) and ($1,098,000), respectively. Other comprehensive income
(loss) for the three and six month periods ended December 31, 1997 was
($960,000) and ($948,000), respectively. The other comprehensive losses
relate to unrealized gains/(losses) on investment securities and changes
in foreign currency translation.
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.
6
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:
(Dollars in thousands)
December 31, June 30,
1998 1998
------------------------
Raw materials $3,147 $2,613
Work in process 1,114 1,333
Finished products 127 192
------------------------
4,388 4,138
Less: Reserve for obsolescence 253 227
------------------------
$4,135 $3,911
------------------------
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
In August 1998, the Company, its Directors, and 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. The time to Answer
has not yet run. 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 operations.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
Results of Operations
Three months ended December 31, 1998 and 1997
Total revenues of the Company increased $1,038,000, or 25%, from
$4,122,000 for the three months ended December 31, 1997 to $5,160,000 for the
three months ended December 31, 1998. Battery sales increased $846,000, or 22%,
from $3,879,000 to $4,725,000. The increase in battery sales was primarily due
to an increase in 9-volt battery sales, partially 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 increased $192,000, or
79%, from $243,000 to $435,000 reflecting increased work on government sponsored
programs for both primary and rechargeable batteries.
Cost of products sold increased $680,000, or 18%, from $3,823,000 for the
three months ended December 31, 1997 to $4,503,000 for the three months ended
December 31, 1998. Cost of batteries sold increased $593,000, or 16%, from
$3,608,000 to $4,201,000. As a percentage of sales, cost of batteries sold
decreased from 93% to 89%. The decrease in cost of batteries sold as a
percentage of sales primarily reflects favorable product mix with favorable
profit margins. Cost of products sold includes insurance proceeds received by
Ultralife UK for business interruption amounting to $279,000 in the three-month
period last year and $705,000 in the current year period. These receipts offset
manufacturing variances in the UK resulting from low production volumes and the
start-up of high rate lithium battery production following the December 1996
fire. Technology contract cost of sales increased $87,000 from $215,000, or 88%
of sales, for the three months ended December 31, 1997 to $302,000, or 69% of
sales, for the same period this year. The decrease in technology contract cost
of sales as a percentage of sales reflects increased Ultralife UK programs,
which have more favorable profit margins.
Operating and other expenses decreased $87,000 from $2,086,000 for the
three months ended December 31, 1997 to $1,999,000 for the three months ended
December 31, 1998. Of the Company's operating and other expenses, research and
development expenses decreased $257,000 (14%) from $1,857,000 to $1,600,000. In
the prior year, research and development expenses included higher expenditures
to accelerate the development of a new notebook computer rechargeable battery.
Selling, general and administrative expenses decreased $76,000 (5%) from
$1,424,000 to $1,348,000 primarily due to decreased advertising expenses. Gains
from insurance proceeds relating to the December 1996 fire at the Company's
United Kingdom facility decreased $246,000 from $1,195,000 to $949,000 as the UK
facility has recommenced operations and substantially all insurance proceeds
have been collected.
8
Interest income increased $187,000 from $174,000 in the three months ended
December 31, 1997 to $361,000 for the three months ended December 31, 1998. The
increased interest income is principally the result of higher average balances
invested following the public securities offering completed April 30, 1998.
Net loss decreased $617,000, or 38%, from $1,622,000, or $0.20 per share,
for the three months ended December 31, 1997 to $1,005,000, or $0.10 per share,
for the three months ended December 31, 1998, primarily as a result of the
reasons described above.
Six months ended December 31, 1998 and 1997
Total revenues of the Company increased $383,000, or 4%, from $8,999,000
in the six months ended December 31, 1997 to $9,382,000 in the six months ended
December 31, 1998. Battery sales increased $909,000, or 12%, from $7,573,000 to
$8,482,000. The increase in battery sales was primarily due to increased 9-volt
lithium battery sales and the resumption of high rate lithium battery sales at
the Company's U.K. subsidiary. These gains were partially 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
$526,000, or 37%, from $1,426,000 in the six months ended December 31, 1997 to
$900,000 for the six months ended December 31, 1998. This decrease primarily
reflects the completion of certain contracts during fiscal 1998 and delays in
starting work on new contract awards this year.
Cost of products sold increased $386,000 from $8,051,000 for the six
months ended December 31, 1997 to $8,437,000 for the six months ended December
31, 1998. Cost of batteries sold increased $959,000 from $6,790,000 to
$7,749,000. As a percentage of sales, cost of batteries sold increased from 90%
to 91% for the six months ended December 31, 1998 compared to the same period in
1997. The increase in cost of batteries sold as a percentage of sales reflects a
shift in product mix. The cost of military batteries (BA-5372) sold in the six
months ended December 31, 1997, as a percentage of sales, was relatively lower
than that incurred for the Company's other batteries. Cost of products sold
includes insurance proceeds received by Ultralife U.K. for business interruption
amounting to $637,000 in the six months ending December 31, 1997 and $1,211,000
in the current year period. These receipts offset manufacturing variances in the
U.K. resulting from low production volumes and the start up of high rate lithium
battery production following the December 1996 fire. Technology contract cost of
sales decreased $573,000 from $1,261,000, or 88% of sales, for the six months
ended December 31, 1997 to $688,000, or 76% of sales, for the six months ended
December 31,1998. The decrease in technology contract cost of sales as a
percentage of sales reflects improved performance on contracts, principally at
the Company's U.K. subsidiary.
Operating and other expenses increased $478,000 (11%) from $4,181,000 for
the six months ended December 31, 1997 to $4,659,000 for the six months ended
December 31, 1998. Of the Company's operating and other expenses, research and
development expenses increased $665,000 (24%) from $2,763,000 to $3,428,000.
Research and development expenses increased as a result of the Company's efforts
to improve its production processes and performance of its lithium-ion polymer
rechargeable battery coupled with a lower level of technology contracts which
absorb a portion of the Company's development expenses. Selling, general and
administrative expenses were relatively flat year over year. Operating and other
expenses include gains of $1,195,000 for the six months ended December 31, 1997
and $1,417,000 for the six months ended December 31, 1998. These gains reflected
the receipt of insurance proceeds to reinstate the Company's U. K. subsidiary
following the December 1996 fire.
9
Interest income increased $383,000 from $427,000 in the six months ended
December 31, 1997 to $810,000 for the six months ended December 31, 1998. The
higher interest income in the current year is principally the result of higher
average balances invested following the public securities offering completed
April 30, 1998.
Net losses were $2,828,000, or $0.36 per share, in the six months ended
December 31, 1997, compared to $2,935,000, or $0.28 per share, for the six
months ended December 31, 1998, primarily as a result of the reasons described
above.
Liquidity and Capital Resources
The Company used $3,545,000 of cash in operating activities during the
first six months of fiscal 1998. This usage of cash related to the net loss
reported for the period, higher inventories to support increasing production
rates of the Company's 9-volt lithium 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. In addition, the Company spent $2,148,000 of cash for capital additions
for production equipment and facilities improvements.
The Company had long-term debt of $147,000 relating to the capital lease
obligation for the Company's Newark, New York offices and manufacturing
facilities. Ultralife UK maintains a line of credit in the amount of $330,000
for short-term working capital requirements. With planned sales growth, the
Company is continuing to explore obtaining working capital lines of credit of
approximately $15,000,000. No commitments for this financing have been obtained
to date.
The Company's capital resource commitments as of December 31, 1998
consisted principally of capital equipment commitments of approximately
$1,400,000. 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.
The Company's review and assessment to date has determined that the
present U.S. 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 total
costs of this project, including hardware, software, consulting and
implementation costs, are estimated to be between $400,000 and $600,000. Most of
these costs will be capitalized.
10
In addition to internal Year 2000 activities, the Company is in contact
with its key suppliers and vendors to assess their state of readiness and
compliance. The Company has issued documentation to key vendors and suppliers
and is 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 of our surveys and contacts to date have
not indicated any significant problems.
While the Company believes that the cost of completing the assessment and
remediation plan will not be material and that the risks to the Company with
respect to Year 2000 issues are manageable, the Company cannot, at this time,
fully assess the potential impact. Management is continuing to examine the Year
2000 issues as they potentially impact the Company and is developing contingency
plans as necessary.
11
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) On December 8, 1998, an Annual Meeting of Shareholders of the
Company was held.
(b) At the Annual Meeting, the Shareholders of the Company elected to
the Board of Directors all seven nominees for Director with the
following vote:
DIRECTOR FOR AGAINST ABSTAIN
-------- --- ------- -------
Joseph C. Abeles 9,733,924 93,414 0
Joseph N. Barrella 9,735,084 92,314 0
Richard Hansen 9,699,984 127,414 0
Bruce Jagid 9,735,084 92,314 0
Arthur Lieberman 9,699,984 127,414 0
Martin Rosansky 9,735,084 92,314 0
Carl H. Rosner 9,735,084 92,314 0
Item 5. Other Information
On December 8, 1998, the Company announced that it had entered into a
venture with the PGT Energy Corp. (PGT), together with a group of
investors, to produce Ultralife's advanced solid polymer rechargeable
batteries in Taiwan. Ultralife will provide UTI with its proprietary solid
polymer battery technology and $8.75 million in cash, which will be
generated by selling 700,000 shares of Ultralife common stock to UTI at
$12.50 per share. Ultralife will be UTI's largest shareholder, with 47%
ownership, and hold half of the seats on UTI's board of directors.
Ultralife will also receive the first $2.5 million of profit
distributions. PGT and the group of investors will fund UTI with $21.25
million in cash and hold the remaining seats on the board. Formal
incorporation and initial capitalization of the venture is expected to be
completed before the end of March 1999. The target launch date for
manufacturing operations is mid-calendar year 2000.
On January 27, 1999, the Company announced the resignation of Mr. Bruce
Jagid as Chief Executive Officer and Chairman of the Board. The Board of
Directors has retained a prominent executive search firm to assist in
recruiting a new CEO. The Board has asked Mr. Joseph C. Abeles, an outside
Director and co-founder of the Company, to lead an Executive Management
Committee comprised of key members of management. Mr. Abeles has assumed
the duties of the Chief Executive Officer until the search is completed.
The Board of Directors also elected Mr. Arthur Lieberman, a co-founder and
Director of the Company, to be the new Chairman of the Board. Mr. Jagid
will remain on the Board as an active member.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None filed during the quarter ended December 31, 1998.
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: February 12, 1999 By: /s/ Joseph C. Abeles
-------------------------
Joseph C. Abeles
Chief Executive Officer
Date: February 12, 1999 By: /s/ Frederick F. Drulard
-------------------------
Frederick F. Drulard
Vice President, Chief Financial Officer
13