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, 2000
---------------
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 - 11,046,376 shares outstanding as of April
30, 2000.
ULTRALIFE BATTERIES, INC.
INDEX
- --------------------------------------------------------------------------------
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2000 and June 30, 1999....................................3
Condensed Consolidated Statements of Operations -
Three and nine months ended March 31, 2000 and 1999.................4
Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 2000 and 1999...........................5
Notes to Condensed Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................10
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................................14
Item 6. Exhibits and Reports on Form 8-K.....................................15
SIGNATURES ..................................................................16
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------
March 31, June 30,
ASSETS 2000 1999
--------- --------
(unaudited)
Current assets:
Cash and cash equivalents $ 985 $ 776
Available-for-sale securities 17,791 22,780
Trade accounts receivable (less allowance for doubtful accounts
of $257 at March 31, 2000 and $429 at June 30, 1999) 2,845 3,554
Inventories 5,722 5,018
Prepaid expenses and other current assets 1,143 2,112
-------- --------
Total current assets 28,486 34,240
-------- --------
Property and equipment:
Machinery and equipment 34,756 32,662
Leasehold improvements 4,756 4,741
-------- --------
39,512 37,403
Less - Accumulated depreciation and amortization 7,109 5,626
-------- --------
32,403 31,777
-------- --------
Other assets and deferred charges:
Investment in affiliates 2,640 (80)
Technology licensee agreements (net of accumulated
amortization of $1,043 at March 31, 2000 and $968 at June 30, 1999,
respectively) 408 483
-------- --------
3,048 403
-------- --------
Total Assets $ 63,937 $ 66,420
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of LTD and capital lease obligations $ 221 $ 107
Accounts payable 2,441 3,847
Accrued compensation 211 653
Other current liabilities 1,684 1,198
-------- --------
Total current liabilities 4,557 5,805
-------- --------
Long - term liabilities:
LT debt and capital lease obligations 455 215
-------- --------
Total long - term liabilities 455 215
-------- --------
Commitments and contingencies (Note 5)
Stockholders' equity :
Common stock, par value $0.10 per share, authorized 20,000,000 shares;
issued - 11,395,286 at March 31, 2000 and 10,512,386 at June 30, 1999 1,139 1,051
Capital in excess of par value 98,692 93,605
Accumulated other comprehensive income (263) 267
Accumulated deficit (40,340) (34,220)
-------- --------
59,228 60,703
-------- --------
Less --Treasury stock, at cost -- 27,250 shares 303 303
-------- --------
Total stockholders' equity 58,925 60,400
-------- --------
Total Liabilities and Stockholders' Equity $ 63,937 $ 66,420
======== ========
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 Ended March 31, Nine Months Ended March 31,
2000 1999 2000 1999
-------- -------- -------- ---------
Revenues:
Battery sales $ 5,423 $ 5,425 $ 16,970 $ 13,907
Technology contracts 776 169 2,131 1,069
-------- -------- -------- ---------
Total revenues 6,199 5,594 19,101 14,976
Cost of products sold:
Battery costs 6,497 4,839 17,484 12,588
Technology contracts 707 129 1,901 817
-------- -------- -------- ---------
Total cost of products sold 7,204 4,968 19,385 13,405
-------- -------- -------- ---------
Gross profit (1,005) 626 (284) 1,571
Operating and other expenses:
Research and development 1,384 1,360 3,542 4,788
Selling, general, and administrative 1,871 1,665 5,631 4,313
Gain on fires -- -- -- (1,417)
-------- -------- -------- ---------
Total operating and other expenses 3,255 3,025 9,173 7,684
Other income (expense):
Interest income 194 342 659 1,152
Gain on investment and other income 2,861 4 2,678 (27)
-------- -------- -------- ---------
Loss before income taxes (1,205) (2,053) (6,120) (4,988)
-------- -------- -------- ---------
Income taxes -- -- -- --
-------- -------- -------- ---------
Net loss $ (1,205) $ (2,053) $ (6,120) $ (4,988)
======== ======== ======== ========
Comprehensive (loss) income (863) 490 (530) (608)
Net comprehensive loss $ (2,068) $ (1,563) $ (6,650) $ (5,596)
======== ======== ======== ========
Net loss per common share $ (0.11) $ (0.20) $ (0.56) $ (0.48)
======== ======== ======== ========
Weighted average shares outstanding 10,953 10,485 10,861 10,485
======== ======== ======== ========
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)
- --------------------------------------------------------------------------------
Nine Months Ended March 31,
2000 1999
---- ----
OPERATING ACTIVITIES
Net loss $ (6,120) $ (4,988)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 1,558 1,662
Gain on sale of securities (3,147) --
Equity in loss of Taiwan venture 518 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 709 (364)
Increase in inventories (704) (348)
Decrease (increase) in prepaid expenses
and other current assets 969 (273)
Decrease in accounts payable
and other current liabilities (1,362) (1,467)
-------- --------
Net cash used in operating activities (7,579) (5,778)
-------- --------
INVESTING ACTIVITIES
Purchase of property and equipment (2,109) (2,496)
Investment in affiliates (3,238) --
Purchase of securities (53,051) (85,886)
Sales of securities 32,714 68,722
Maturities of securities 28,095 26,077
-------- --------
Net cash provided by investing activities 2,411 6,417
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 5,175 --
Proceeds from issuance of debt 423 --
Principal payments under capital lease obligations (69) (40)
-------- --------
Net cash provided by (used in) financing activities 5,529 (40)
-------- --------
Effect of exchange rate changes on cash (152) (355)
-------- --------
Increase in cash and cash equivalents 209 244
Cash and cash equivalents at beginning of period 776 872
-------- --------
Cash and cash equivalents at end of period $ 985 $ 1,116
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Unrealized gain (loss) on securities $ 378 $ (252)
======== ========
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 March 31, 2000 and the results of operations and cash flows
for the three and nine month periods ended March 31, 2000 and 1999. The
results for the three and nine months ended March 31, 2000 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, 1999, filed on Form 10-K on September 28, 1999.
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. 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 was:
(Dollars in thousands)
March 31, 2000 June 30, 1999
--------------------------------
Raw materials $3,297 $2,984
Work in process 1,406 2,080
Finished products 1,474 249
--------------------------------
6,177 5,313
Less: Reserve for obsolescence 455 295
--------------------------------
$5,722 $5,018
--------------------------------
4. TAIWAN VENTURE
In December 1998, the Company announced the formation of a venture
with PGT Energy Corporation (PGT) and a group of investors to produce
Ultralife's rechargeable polymer batteries in Taiwan. In consideration of
its ownership interest in the venture, the Company contributed to
Ultralife Taiwan, Inc. (UTI) certain of its proprietary technology and, in
July 1999, 700,000 shares of Ultralife common stock. PGT and the group of
investors funded UTI with $21,250,000 in cash, for the remaining
ownership. This investment is recorded using the equity method of
accounting.
5. COMMITMENTS AND CONTINGENCIES
In 1997, a company filed a claim against the Company seeking amounts
related to commissions and breach of good faith and fair dealings.
Following a Federal Court mediation in November 1999, this matter was
settled.
In 1997, an individual filed suit claiming the Company interfered
with his opportunity to purchase Dowty Group, PLC (now the Company's U.K.
subsidiary). The claim amounted to
6
$25,000,000. After a Federal Court jury trial in December 1999, the
lawsuit was dismissed. Plaintiff subsequently filed an appeal. The Company
continues to maintain that this claim is without merit and will vigorously
defend the appeal. While the Company believes it will be successful on
appeal, an unfavorable outcome of this suit may have a material adverse
impact on the Company's financial position and results of operations.
In August 1998, certain shareholders commenced a putative class
action lawsuit against the Company, its Directors, certain of its
officers, and certain underwriters seeking unspecified damages arising out
of alleged violations of the federal securities laws in connection with
the Company's May 1998 public offering of 2.5 million shares of common
stock. The complaint, which was amended during 1998 before defendants were
required to respond, alleged that the Company's registration statement and
prospectus issued in connection with the offering contained false
statements or omitted allegedly material information and therefore were
misleading. The plaintiffs claimed that they, and other shareholders whom
they seek to represent, purchased the Company's stock at allegedly
inflated prices and were injured thereby. In response to defendants'
motions to dismiss, on September 28, 1999 the Court dismissed, without
prejudice, plaintiffs' Amended Complaint for failure to state a claim and
for failing to plead fraud with particularity, and granted plaintiffs
leave to replead their complaint within a time specified by the Court.
On November 8, 1999, plaintiffs filed a Second Amended Class Action
Complaint, naming the same defendants and asserting similar claims as
those set forth in plaintiffs' prior Amended Complaint. The Company has
moved to dismiss the second Amended Complaint, and that motion presently
is pending.
The Company continues to believe that the litigation is without
merit and intends to continue to vigorously defend this action. To date,
no discovery has been conducted, 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 operations.
In conjunction with the Company's purchase/lease agreement of its
Newark, New York facility in 1998, the Company entered into a
payment-in-lieu of tax agreement which provides the Company with certain
real estate tax concessions upon certain conditions. In connection with
this agreement, the Company received an environmental assessment which
revealed contaminated soil. The assessment indicated potential actions
that the Company may be required to undertake upon notification by the
environmental authorities. The assessment also proposed that a second
assessment be completed and provided an estimate of total potential costs
to remediate the soil of $230,000. However, there can be no assurance that
this will be the maximum cost. The Company entered into an agreement
whereby a third party has agreed to reimburse the Company for fifty
percent of the costs associated with this matter. The matter is in its
preliminary stages and the total costs of remediation cannot be estimated
at this time. The ultimate resolution of this matter may have a
significant adverse impact on the results of operations in the period in
which it is resolved.
6. CAPITAL LEASE OBLIGATIONS
A capital lease obligation of $647,000 was incurred in fiscal 1998
when the Company entered into a capital lease for land and buildings. An
initial payment of $400,000 was paid at the time of the lease inception,
resulting in a balance of $247,000 to be paid over 10 years. As of March
31, 2000 and June 30, 1999, the outstanding principal balances on the
lease were approximately $180,000 and $207,000, respectively.
In November 1999, the Company entered into a $423,000 capital lease
for certain computer-related hardware and software. The lease is payable
in equal monthly installments over a three-year
7
period. At March 31, 2000, the outstanding principal balance on the lease
was approximately $381,000.
7. BUSINESS SEGMENT INFORMATION
The Company reports its results in four operating segments: Primary
Batteries, Rechargeable Batteries, Technology Contracts and Corporate. The
Primary Batteries segment includes 9-volt batteries, cylindrical batteries
and various specialty batteries. The Rechargeable Batteries segment
consists of the Company's efforts to produce rechargeable batteries. The
Technology Contracts segment includes revenues and related costs
associated with various government and military development contracts. The
Corporate segment consists of all other items that do not specifically
relate to the three other segments and are not considered in the
performance of the other segments.
Three Months Ended March 31, 2000
- --------------------------------- (Dollars in Thousands)
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------
Revenues $ 5,400 $ 23 $ 776 $ -- $ 6,199
Segment contribution (993) (1,656) 70 (2,015) (4,594)
Interest income -- -- -- 194 194
Miscellaneous -- -- -- 3,195 3,195
Income taxes -- -- -- -- --
Net loss $ (1,205)
Total assets $ 14,626 $ 21,236 $ 774 $ 27,301 $ 63,937
Three Months Ended March 31, 1999
- --------------------------------- Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------
Revenues $ 5,425 $ -- $ 169 $ -- $ 5,594
Segment contribution 251 (1,095) 42 (1,597) (2,399)
Interest income -- -- -- 342 342
Miscellaneous -- -- -- 4 4
Income taxes -- -- -- -- --
Net loss $ (2,053)
Total assets $ 16,494 $ 20,618 $ 756 $ 30,857 $ 68,725
Nine Months Ended March 31, 2000
- -------------------------------- Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------
Revenues $ 16,945 $ 25 $ 2,131 $ -- $ 19,101
Segment contribution (514) (3,916) 231 (5,775) (9,974)
Interest income -- -- -- 657 659
Miscellaneous -- -- -- 3,195 3,195
Income taxes -- -- -- -- --
Net loss $ (6,120)
Total assets $ 14,626 $ 21,236 $ 774 $ 27,301 $ 63,937
8
Nine Months Ended March 31, 1999
- -------------------------------- Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------
Revenues $ 13,874 $ 33 $ 1,069 $ -- $ 14,976
Segment contribution 2,399 (4,521) 254 (4,245) (6,113)
Interest income -- -- -- 1,152 1,152
Miscellaneous -- -- -- (27) (27)
Income taxes -- -- -- -- --
--------
Net loss $ (4,988)
Total assets $ 16,494 $ 20,618 $ 756 $ 30,857 $ 68,725
8. NEW ACCOUNTING PRONOUNCEMENTS
As of July 1, 1999, the Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative
Instruments and Hedging Activities", which established accounting and
reporting requirements for derivative instruments and hedging activities.
The Company, on occasion, has used derivative financial instruments for
purposes other than trading and does so to reduce its exposure to
fluctuations in foreign currency exchange rates. As of March 31, 2000, the
Company did not have any outstanding derivative financial instruments.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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,
future demand for the Company's products and services, the successful
commercialization of the Company's advanced rechargeable batteries,
general economic conditions, government and environmental regulation,
competition and customer strategies, technological innovations in the
primary and rechargeable battery industries, changes in the Company's
business strategy or development plans, capital deployment, business
disruptions, raw materials supplies, and other risks and uncertainties,
certain of which are beyond the Company's control. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may differ materially from those described
herein as anticipated, believed, estimated or expected.
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, 1999.
Results of Operations
---------------------
Three months ended March 31, 2000 and 1999
Consolidated revenues rose to $6,199,000 for the third quarter of
fiscal 2000, an increase of $605,000, or 11%, over the comparable quarter
in fiscal 1999. Technology contract sales increased $607,000, from
$169,000 last year to $776,000 this year. The increase was primarily due
to the Company's work on the Advanced Technology Program (ATP) with the
U.S. Department of Commerce which commenced in April 1999. Primary battery
sales for the quarter were constant year over year. Higher shipments of
BA-5372 batteries under a contract with the U.S. Army were offset by a
decline in 9-volt sales that related to inventory volume corrections at
key customers.
Cost of products sold amounted to $7,204,000 for the three months
ended March 31, 2000, an increase of $2,236,000, or 45%, over the same
three month period a year ago. The gross margin on total revenues for the
quarter was negative 16%, a decline from the reported 11% gross margin in
the same quarter last year. However, last year's cost of products sold
included $280,000 of proceeds from business interruption insurance which
offset unabsorbed overhead expenses at the Company's U.K. facility that
resulted from a fire in December 1996. This fire suspended production of
high rate batteries in the U.K. for a period of 15 months. Additionally,
the current year's fiscal third quarter included approximately $1,000,000
of write-offs for excess and obsolete inventory as a result of the
implementation of lean manufacturing processes and other process
improvements. Excluding the impact of these non-recurring items, the gross
margins were 0% and 6% in the third fiscal quarters of 2000 and 1999,
respectively. This margin decline was the result of higher material costs
from a change in product mix and lower overhead absorption due to lower
production volumes.
Operating and other expenses were $3,255,000 for the three months
ended March 31, 2000, an increase of $230,000, or 8%, from the prior year.
The Company's selling, general and administration expenses increased
$206,000, or 12%, to $1,871,000 for the third quarter of fiscal 2000
compared to
10
the same quarter last year. This increase in SG&A expenses was mainly due
to higher legal fees and consulting expenses.
Interest income decreased $148,000, or 43%, from $342,000 in the
third quarter of fiscal 1999 to $194,000 in the third quarter of fiscal
2000. The reduction in interest income is principally the result of lower
average cash balances. Included in other income of the current period is
approximately $3.1 million in realized gains from the sale of investment
securities. There was no similar sale of securities in the third quarter
of the previous year.
Net losses were $1,205,000, or $0.11 per share, for the third
quarter of fiscal 2000 compared to $2,053,000, or $0.20 per share, for the
same quarter last year. Excluding the impact from the non-recurring items
in fiscal 2000 (inventory write downs and the gain on the sale of
investment securities) and in fiscal 1999 (insurance proceeds), net losses
were $3,352,000, or $0.31 per share, in 2000 and $2,333,000, or $0.22 per
share in 1999.
Nine months ended March 31, 2000 and 1999
Consolidated revenues were $19,101,000 for the first nine months of
fiscal 2000, an increase of $4,125,000, or 28%, over the comparable nine
months in fiscal 1999. Primary battery sales increased $3,063,000, or 22%,
from $13,907,000 last year to $16,970,000 this year. The increase in
primary battery sales was primarily due to increased shipments of 9-volt
lithium batteries, shipments of BA-5372 batteries under the Company's
contract with the U.S. Army and, to a lesser extent, greater sales of high
rate batteries. Technology contract revenues rose $1,062,000 or 99%, from
$1,069,000 to $2,131,000 reflecting the Company's work on the U.S.
Department of Commerce's ATP program, which commenced in April 1999.
Cost of products sold amounted to $19,385,000 for the nine month
period ended March 31, 2000, an increase of $5,980,000, or 45%, over the
same nine month period a year ago. The gross margin on total revenues for
the nine months ended March 31, 2000, was negative 1%, down from the 10%
gross margin reported for the first nine months in the prior year. Last
year's cost of products sold for primary batteries, however, included
$1,491,000 of proceeds from business interruption insurance which offset
unabsorbed overhead expenses at the Company's U.K. facility that resulted
from a fire in December 1996. Additionally, the current year's fiscal
third quarter included approximately $1,000,000 of write-offs for excess
and obsolete inventory as a result of the implementation of lean
manufacturing processes and other process improvements. Excluding the
impact of these non-recurring items, the gross margins were 4% and 1% in
the nine-month period of fiscal 2000 and 1999, respectively. Gross profit
on technology contracts decreased $22,000 in fiscal 2000 when compared to
fiscal 1999, reflecting a decline in gross margins from 24% in the first
nine months of fiscal 1999 to 11% in the first nine months of fiscal 2000.
The decline in technology contract gross margins is due to lower margins
reflected in contracts in the U.K.
Operating and other expenses were $9,173,000 for the nine months
ended March 31, 2000, an increase of $72,000, or 1%, from $9,101,000 in
the same nine months in the prior year excluding a gain of $1,417,000
which related to business interruption insurance proceeds for the
Company's fire in the U.K. Of the Company's operating and other expenses,
research and development expenses decreased $1,246,000, or 26%, to
$3,542,000 for the first nine months of fiscal 2000. The decline in
research and development expenses was primarily due to a shift in
resources to the U.S. Department of Commerce's ATP program and a narrower
focus on key rechargeable development programs. That decrease was
partially offset by an increase of $1,318,000, or 31%, in selling,
general, and administrative expenses, to $5,631,000 in the first nine
months of fiscal 2000. This increase in SG&A expenses was mainly due to
certain one-time costs relating mostly to legal fees and settlement costs
associated with the satisfactory conclusion of several legal matters, as
well as higher
11
information technology expenses, higher consulting fees, and an increased
allocation of support departments in the U.K. operating facility.
Interest income decreased $493,000, or 43%, from $1,152,000 in the
first nine months of fiscal 1999 to $659,000 in the first nine months of
fiscal 2000. The reduction in interest income is principally the result of
lower average cash balances. Included in other income of the current
period is approximately $3.1 million in realized gains from the sale of
investment securities. There was no similar sale of securities in the
comparable period of the previous year.
Losses associated with the Company's equity ownership interest in
its Taiwan venture amounted to $517,000 for the first nine months of
fiscal 2000.
Net losses were $6,120,000, or $0.56 per share, for the first nine
months of fiscal 2000 compared to $4,988,000, or $0.48 per share, for the
same period last year. Excluding the impact from the non-recurring items
in fiscal 2000 (inventory write downs and the gain on the sale of
investment securities) and in fiscal 1999 (insurance proceeds), net losses
were $8,267,000, or $0.76 per share, in 2000 and $7,896,000, or $0.75 per
share, in 1999.
Liquidity and Capital Resources
-------------------------------
At March 31, 2000, cash and cash equivalents and available for sale
securities totaled $18,776,000. The Company used $7,579,000 of cash in
operating activities during the first nine months of fiscal 2000. This
usage of cash related primarily to the net loss reported for the period
and a net increase in working capital (mainly due to increased inventory
levels), offset in part by depreciation and amortization expense and
decreases in current liabilities. The Company spent $2,109,000 for capital
additions for production equipment and facilities improvements during the
nine-month period ended March 31, 2000. In addition, in conjunction with
the Taiwan venture agreement, the Company issued 700,000 shares of its
common stock related to the Company's Taiwan venture, reflecting an
investment of $3,238,000.
At March 31, 2000, the Company had long-term debt outstanding of
$455,000 primarily relating to the capital lease obligations for the
Company's Newark, New York offices and manufacturing facilities and
various computer hardware and software. In November 1999, the Company
entered into a capital lease for $423,000 related to computer hardware and
software, whereby payments will be made monthly over a 3-year term.
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 working to put in place a credit facility for approximately
$15,000,000 to $20,000,000. The Company expects to complete this financing
during its fiscal year ending June 30, 2000.
The Company's capital resource commitments as of March 31, 2000
consisted principally of capital equipment commitments of approximately
$1,900,000. The Company believes its current financial position and cash
flows from operations will be adequate to support its financial
requirements throughout the next 12 months.
Year 2000 Disclosure
--------------------
The year 2000 issue was the result of computer hardware and software
systems and other equipment with embedded chips or processors that used
only two digits rather than four to represent the year. Time-sensitive
software could have recognized a date using "00" as the year 1900 rather
than 2000. These systems could have failed to operate or could have been
unable to process data accurately as a result of this flaw. The year 2000
issue could have arisen at any point in the supply
12
chain, manufacturing process, distribution channels or information systems
of the Company and its subsidiary and third parties with which it does
business.
The Company assembled a task force and developed a formal plan to
ensure that all of its significant date-sensitive computer software and
hardware systems and other equipment utilized in its various
manufacturing, distribution and administration activities would be Year
2000 compliant and operational on a timely basis. The plan also included
an assessment process to determine that the Company's significant
customers and suppliers would also be Year 2000 compliant.
The Company utilized both internal and external resources to achieve
Year 2000 preparedness. The total cost to the Company and its subsidiary
for Year 2000 preparedness was approximately $450,000. The Company and its
subsidiary encountered no difficulties associated with the Year 2000 issue
and did not have to activate any of their Year 2000 contingency plans. The
Company does not anticipate any substantive problems related to this issue
going forward.
13
PART II OTHER INFORMATION
-------------------------
Item 1. Legal Proceedings
In 1997, a company filed a claim against the Company seeking amounts
related to commissions and breach of good faith and fair dealings.
Following a Federal Court mediation in November 1999, this matter was
settled.
In 1997, an individual filed suit claiming the Company interfered
with his opportunity to purchase Dowty Group, PLC (now the Company's U.K.
subsidiary). The claim amounted to $25,000,000. After a Federal Court jury
trial in December 1999, the lawsuit was dismissed. Plaintiff subsequently
filed an appeal. The Company continues to maintain that this claim is
without merit and will vigorously defend the appeal. While the Company
believes it will be successful on appeal, an unfavorable outcome of this
suit may have a material adverse impact on the Company's financial
position and results of operations.
In August 1998, certain shareholders commenced a putative class
action lawsuit against the Company, its Directors, certain of its
officers, and certain underwriters seeking unspecified damages arising out
of alleged violations of the federal securities laws in connection with
the Company's May 1998 public offering of 2.5 million shares of common
stock. The complaint, which was amended during 1998 before defendants were
required to respond, alleged that the Company's registration statement and
prospectus issued in connection with the offering contained false
statements or omitted allegedly material information and therefore were
misleading. The plaintiffs claimed that they, and other shareholders whom
they seek to represent, purchased the Company's stock at allegedly
inflated prices and were injured thereby. In response to defendants'
motions to dismiss, on September 28, 1999 the Court dismissed, without
prejudice, plaintiffs' Amended Complaint for failure to state a claim and
for failing to plead fraud with particularity, and granted plaintiffs
leave to replead their complaint within a time specified by the Court.
On November 8, 1999, plaintiffs filed a Second Amended Class Action
Complaint, naming the same defendants and asserting similar claims as
those set forth in plaintiffs' prior Amended Complaint. The Company has
moved to dismiss the second Amended Complaint, and that motion presently
is pending.
The Company continues to believe that the litigation is without
merit and intends to continue to vigorously defend this action. To date,
no discovery has been conducted, 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 operations.
In conjunction with the Company's purchase/lease agreement of its
Newark, New York facility in 1998, the Company entered into a
payment-in-lieu of tax agreement which provides the Company with certain
real estate tax concessions upon certain conditions. In connection with
this agreement, the Company received an environmental assessment which
revealed contaminated soil. The assessment indicated potential actions
that the Company may be required to undertake upon notification by the
environmental authorities. The assessment also proposed that a second
assessment be completed and provided an estimate of total potential costs
to remediate the soil of $230,000. However, there can be no assurance that
this will be the maximum cost. The Company entered into an agreement
whereby a third party has agreed to reimburse the Company for fifty
percent of the costs associated with this matter. The matter is in its
preliminary stages and the total costs of remediation cannot be estimated
at this time. The ultimate resolution of this matter may have a
significant adverse impact on the results of operations in the period in
which it is resolved.
14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
15
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: May 12, 2000 By: /s/ John D. Kavazanjian
------------ ------------------------
John D. Kavazanjian
President and Chief Executive Officer
Date: May 12, 2000 By: /s/ Robert W. Fishback
------------ -----------------------
Robert W. Fishback
Vice President - Finance and Chief Financial
Officer
16
5
9-Mos
JUN-30-2000
JUL-01-1999
MAR-31-2000
985
17,791
3,102
257
5,722
28,486
39,512
7,109
63,937
4,557
0
0
0
1,139
98,692
63,937
19,101
19,101
19,385
19,385
9,173
(172)
33
(6,120)
0
(6,120)
0
0
0
(6,120)
(0.56)
(0.56)
