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, 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 - 11,173,466 shares outstanding
as of January 31, 2001.
ULTRALIFE BATTERIES, INC.
INDEX
- --------------------------------------------------------------------------------
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 2000 and June 30, 2000...............................3
Condensed Consolidated Statements of Operations -
Three and six months ended December 31, 2000 and 1999.............4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 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
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.................................................14
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................................14
Item 4. Submission of Matters to a Vote of Security Holders.................15
Item 6. Exhibits and Reports on Form 8-K....................................15
SIGNATURES ..................................................................16
2
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
- --------------------------------------------------------------------------------
December 31,
2000 June 30,
ASSETS (Unaudited) 2000
----------- ----
Current assets:
Cash and cash equivalents $ 1,370 $ 5,712
Available-for-sale securities 9,616 12,927
Trade accounts receivable (less allowance
for doubtful accounts of $262
at December 31, 2000 and $268 at
June 30, 2000) 3,378 3,456
Inventories 5,438 5,682
Prepaid expenses and other current assets 1,509 1,176
-------- --------
Total current assets 21,311 28,953
-------- --------
Property, plant and equipment 33,840 32,785
Other assets:
Investment in affiliates 749 2,339
Technology license agreements (net of
accumulated amortization of $1,119
at December 31, 2000 and $1,068
at June 30, 2000) 332 383
-------- --------
1,081 2,722
-------- --------
Total Assets $ 56,232 $ 64,460
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
and capital lease obligations $ 1,154 $ 1,087
Accounts payable 3,299 2,886
Other current liabilities 2,592 2,443
-------- --------
Total current liabilities 7,045 6,416
Long-term liabilities:
Long-term debt and capital lease
obligations 3,120 3,567
Shareholders' 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 40,000,000 shares as of
December 31, 2000 and 20,000,000
shares as of June 30, 2000; issued -
11,487,786 at December 31, 2000
and 11,410,286 at June 30, 2000) 1,149 1,141
Capital in excess of par value 99,388 98,790
Accumulated other comprehensive loss (864) (689)
Accumulated deficit (53,303) (44,462)
-------- --------
46,370 54,780
Less -- Treasury stock, at cost --
27,250 shares 303 303
-------- --------
Total shareholders' equity 46,067 54,477
-------- --------
Total Liabilities and Shareholders' Equity $ 56,232 $ 64,460
======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these 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,
2000 1999 2000 1999
-------- -------- -------- --------
Revenues $ 5,290 $ 6,677 $ 12,141 $ 12,902
Cost of products sold 6,989 6,375 14,292 12,181
-------- -------- -------- --------
Gross margin (1,699) 302 (2,151) 721
Operating expenses:
Research and development 948 1,066 1,508 2,158
Selling, general, and
administrative 2,060 2,269 3,856 3,760
-------- -------- -------- --------
Total operating expenses 3,008 3,335 5,364 5,918
Operating loss (4,707) (3,033) (7,515) (5,197)
Other income (expense):
Interest income, net 155 160 249 465
Equity loss in affiliate (1,258) (55) (1,590) (183)
Miscellaneous 73 (61) 15 --
-------- -------- -------- --------
Loss before income taxes (5,737) (2,989) (8,841) (4,915)
-------- -------- -------- --------
Income taxes -- -- -- --
-------- -------- -------- --------
Net loss $ (5,737) $ (2,989) $ (8,841) $ (4,915)
======== ======== ======== ========
Net loss per common share $ (0.51) $ (0.28) $ (0.80) $ (0.45)
======== ======== ======== ========
Weighted average shares
outstanding 11,151 10,861 11,113 10,808
======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
4
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
December 31,
2000 1999
-------- --------
OPERATING ACTIVITIES
Net loss $ (8,841) $ (4,915)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 1,912 1,036
Equity loss in affiliate 1,590 182
Changes in operating assets and liabilities:
Accounts receivable 78 478
Inventories 244 (1,735)
Prepaid expenses and other current assets (333) 403
Accounts payable and other current liabilities 562 (162)
-------- --------
Net cash used in operating activities (4,788) (4,713)
-------- --------
INVESTING ACTIVITIES
Purchase of property and equipment (2,916) (1,700)
Investment in affiliates -- (3,238)
Purchase of securities (21,048) (23,141)
Sales of securities 14,128 13,896
Maturities of securities 10,230 16,731
-------- --------
Net cash provided by investing activities 394 2,548
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 606 3,238
Proceeds from issuance of debt -- 423
Principal payments on long-term debt and
capital lease obligations (380) (38)
-------- --------
Net cash provided by financing activities 226 3,623
-------- --------
Effect of exchange rate changes on cash (174) (21)
-------- --------
(Decrease) Increase in cash and cash equivalents (4,342) 1,437
Cash and cash equivalents at beginning of period 5,712 776
======== ========
Cash and cash equivalents at end of period $ 1,370 $ 2,213
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Unrealized gain on securities $ 1 $ 354
======== ========
Interest paid $ 69 $ 16
======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
5
ULTRALIFE BATTERIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands - Except Per Share Amounts)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals and adjustments) considered necessary for a fair
presentation of the condensed consolidated financial statements have been
included. Results for interim periods should not be considered indicative
of results to be expected for a full year. Reference should be made to the
consolidated financial statements contained in the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 2000.
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 as their inclusion would be
antidilutive; as a result, basic earnings per share is the same as diluted
earnings per share.
3. COMPREHENSIVE INCOME (LOSS)
The components of the Company's total comprehensive loss were:
Three months ended Six months ended
December 31, December 31,
2000 1999 2000 1999
------- ------- ------- -------
Net loss $(5,737) $(2,989) $(8,841) $(4,915)
Unrealized (loss) gain
on securities (1) 828 1 354
Foreign currency
translation adjustments (221) (28) (176) (21)
------- ------- ------- -------
Total comprehensive loss $(5,959) $(2,189) $(9,016) $(4,582)
======= ======= ======= =======
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 was:
December 31, 2000 June 30, 2000
----------------- -------------
Raw materials $2,685 $3,032
Work in process 1,325 1,427
Finished goods 1,715 1,622
------ ------
5,725 6,081
Less: Reserve for obsolescence 287 399
------ ------
$5,438 $5,682
====== ======
6
5. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consisted of the
following:
December 31, June 30,
2000 2000
------- -------
Land ............................................. $ 123 $ 123
Buildings and Leasehold Improvements ............. 1,202 1,202
Machinery and Equipment .......................... 35,649 18,638
Furniture and Fixtures ........................... 196 196
Computer Hardware and Software ................... 1,083 1,041
Construction in Progress ......................... 5,014 19,149
------- -------
43,265 40,349
Less: Accumulated Depreciation .................. 9,425 7,564
------- -------
$33,840 $32,785
======= =======
6. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise
in the normal course of business. The Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
In May 1997, William Boyd, the principal of Aerospace Energy
Systems, Inc., and Leland J. Coleman commenced an action against the
Company and Loeb Partners Corporation ("Loeb"), an investment firm, in the
U.S. District Court for the Southern District Court of New York alleging
that they had entered into a contract with Loeb to arrange for the
acquisition of Dowty Group, PLC and that the Company tortiously interfered
with their contract and business opportunity. The Company maintained that
the claim against it, for $25 million, was without merit. After a jury
trial in December of 1999, the case was dismissed. Plaintiffs appealed,
and on October 19, 2000 the United States Court of Appeals for the Second
Circuit affirmed the dismissal. The time to appeal expired January 17,
2001. Accordingly, the judgment of dismissal is final and the Company will
incur no liability in this action.
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 certain shareholders,
purportedly on behalf of a class of shareholders, 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 alleged 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. Upon a motion made on behalf of the
Company, the Court dismissed the shareholder action, without prejudice,
allowing the complaint to be refiled. The shareholder action was
subsequently refiled, asserting substantially the same claims as in the
prior pleading. Earlier this year, the Company again moved to dismiss the
complaint. By Opinion and Order dated September 28, 2000, the Court
dismissed the action, this time with prejudice, thereby barring plaintiffs
from any further amendments to their complaint and directing that the case
be closed. Plaintiffs have filed a Notice of Appeal to the Third Circuit
Court of Appeals, and the parties will be submitting their respective
pleadings. The Company believes that the litigation is without merit and
will continue to defend it vigorously. 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
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 polymer 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 December 31, 2000
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
----------------------------------------------------------------
Revenues $ 4,667 $ 44 $ 579 $ -- $ 5,290
Segment contribution 6 (2,680) 56 (2,089) (4,707)
Interest income, net 155 155
Equity loss in affiliate (1,258) (1,258)
Miscellaneous 73 73
Income taxes -- --
--------
Net loss $ (5,737)
Total assets $ 17,884 $ 22,504 $ 288 $ 15,556 $ 56,232
Three Months Ended December 31, 1999
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
----------------------------------------------------------------
Revenues $ 5,913 $ -- $ 764 $ -- $ 6,677
Segment contribution 191 (1,059) 104 (2,269) (3,033)
Interest income, net 160 160
Equity loss in affiliate (55) (55)
Miscellaneous (61) (61)
Income taxes -- --
--------
Net loss $ (2,989)
Total assets $ 17,238 $ 20,591 $ 572 $ 26,898 $ 65,299
Six Months Ended December 31, 2000
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
----------------------------------------------------------------
Revenues $ 10,909 $ 164 $ 1,068 $ -- $ 12,141
Segment contribution 17 (3,766) 90 (3,856) (7,515)
Interest income 249 249
Equity loss in affiliate (1,590) (1,590)
Miscellaneous 15 15
Income taxes -- --
--------
Net loss $ (8,841)
Total assets $ 17,884 $ 22,504 $ 288 $ 15,556 $ 56,232
8
Six Months Ended December 31, 1999
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
----------------------------------------------------------------
Revenues $ 11,545 $ 2 $ 1,355 $ -- $ 12,902
Segment contribution 479 (2,077) 161 (3,760) (5,197)
Interest income 465 465
Equity loss in affiliate (183) (183)
Miscellaneous -- --
Income taxes -- --
--------
Net loss $ (4,915)
Total assets $ 17,238 $ 20,591 $ 572 $ 26,898 $ 65,299
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 December 31, 2000,
the Company did not have any outstanding derivative financial instruments.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101") which summarizes certain of the staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. In June 2000, the SEC issued SAB 101B
which delays the implementation date of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999.
The Company implemented SAB 101; the effect of the implementation has not
had any impact on the financial position and results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation", which provides guidance for issues that
have arisen in applying Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees". This Interpretation, which
became effective July 1, 2000, applies prospectively to new awards,
exchanges or awards in a business combination, modifications to
outstanding awards, and changes in grantee status that occur on or after
July 1, 2000, except for the provisions related to repricings and the
definition of an employee which apply to awards issued after December 31,
1998. As of December 31, 2000, Interpretation No. 44 has not had any
impact on the Company's financial position and results of operations.
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, including those caused by fire, raw materials supplies,
environmental regulations, 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
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, 2000.
Results of Operations
Three months ended December 31, 2000 and 1999
Consolidated revenues were $5,290,000 for the second quarter of fiscal
2001, a decrease of $1,387,000, or 21%, over the comparable quarter in fiscal
2000. Primary battery sales decreased $1,246,000, or 21%, from $5,913,000 last
year to $4,667,000 this year. The decrease in primary battery sales was due to
an anticipated decrease in 9-volt and BA-5372 battery shipments. The decline in
9-volt shipments resulted from lower demand from 10-year smoke detector
customers who had overstocked their distribution channels. The decrease in
BA-5372 battery shipments was the result of lower production requirements under
a contract from the U.S. Army in contrast to higher order volume under this
contract for the same period last year. Additionally, sales for the U.K. battery
pack assembly operation declined approximately $350,000 due to a delay of the
re-award of a U.K. military contract. These decreases were offset in part by a
slight increase in high rate battery shipments and polymer rechargeable battery
sales. Technology contract revenues declined $185,000, or 24%, from $764,000 to
$579,000 due to the winding down of certain non-renewable government contracts
and the timing of expenditures.
Cost of products sold amounted to $6,989,000 for the three-month period
ended December 31, 2000, an increase of $614,000, or 10% over the same three
month period a year ago. The gross margin on total revenues for the quarter was
a loss of $1,699,000, or 32%, compared to $302,000, or a 5% gross profit in the
prior year. The decline in gross margins is largely related to the launch of
production of polymer rechargeable batteries in June 2000, which resulted in
initial expenditures necessary to start production of the polymer cells,
including approximately $400,000 in depreciation for the quarter. Prior to
commencing production of polymer cells, certain of these costs, including
engineering, were charged to research and development. Additionally, during the
second quarter of fiscal 2001, the Company adjusted the sales price of its
polymer rechargeable battery designed for the Nokia cellular phone aftermarket
to better reflect market conditions. As a result, a charge of approximately
$400,000 was recorded to reduce the market value of the inventory. Also
impacting margins for the quarter were fewer shipments of primary batteries.
However, gross margins on 9-volt batteries improved from a loss of 1% in the
first
10
quarter of fiscal 2001 to a 4% gross profit in the second quarter of fiscal
2001. This improvement is directly related to the implementation of lean
manufacturing principles, improvements made in process manufacturing, and an
increased focus on quality. Gross margin on technology contracts for this period
decreased from 10% to 8% in fiscal 2001 when compared to fiscal 2000 due to the
winding down of certain non-renewable government contracts and the timing of
expenditures.
Operating expenses were $3,008,000 for the three months ended December 31,
2000, a decrease of $327,000, or 10%, from $3,335,000 in the prior year. Of the
Company's operating expenses, research and development expenses decreased
$118,000, or 11%, to $948,000 for the second quarter of fiscal 2001. The decline
in research and development expenses was primarily due to the launch of polymer
rechargeable batteries at the end of fiscal 2000. Certain costs previously
charged to research and development are now included in cost of products sold as
polymer rechargeable batteries are in production. Additionally, selling,
general, and administrative expenses declined $209,000 or 9%. This decrease was
mainly due to reduced spending on travel and consulting expenses.
Equity loss in affiliate was $1,258,000 for the second quarter of fiscal
2001 compared to $55,000 for the comparable period in fiscal 2000. The
$1,203,000 increase in the loss was mainly due to a stock distribution to
Ultralife Taiwan, Inc. (UTI) employees in November 2000. Accordingly, UTI
recorded compensation expense of nearly $2.5 million, and the Company recognized
approximately $900,000 equity loss for the transaction. In addition, employees,
directors and supervisors of UTI were given the opportunity to purchase UTI
shares at a specified price. As a result of the stock issuances, the Company's
interest in UTI declined to 41%. The change in net interest income during this
period was not significant.
Net losses were $5,737,000, or $0.51 per share, for the second three
months of fiscal 2001 compared to $2,989,000, or $0.28 per share, for the same
quarter last year primarily as a result of the reasons described above.
Six months ended December 31, 2000 and 1999
Consolidated revenues were $12,141,000 for the first six months of fiscal
2001, a decrease of $761,000, or 6%, over the comparable six months in fiscal
2000. Primary battery sales decreased $636,000, or 6%, from $11,545,000 last
year to $10,909,000 this year. The decrease in primary battery sales was
primarily due to lower shipments of 9-volt and BA-5372 batteries. The decline in
9-volt shipments resulted from lower demand from 10-year smoke detector
customers who had overstocked their distribution channels. The decrease in
BA-5372 battery shipments was the result of lower production requirements under
a contract from the U.S. Army in contrast to higher order volume under this
contract for the same period last year. Polymer rechargeable revenues for the
six month period were $164,000, a $162,000 increase over the prior year's
comparable period due to the commercial launch of the product in June 2000.
Technology contract revenues declined $287,000 or 21%, from $1,355,000 to
$1,068,000 reflecting the change in the contract mix and the timing of
expenditures.
Cost of products sold amounted to $14,292,000 for the six month period
ended December 31, 2000, an increase of $2,111,000, or 17% over the same six
month period a year ago. The gross margin on total revenues for the six months
ended December 31, 2000, was a loss of $2,151,000, or 18%, down from the
$721,000, or 6% gross profit reported for the first six months in the prior
year. The decline in gross margins is largely due to the launch of production of
polymer rechargeable batteries in June 2000, which resulted in initial
expenditures necessary to start production of the polymer cells, including
approximately $800,000 in depreciation for the six month period. Prior to
commencing production of polymer cells, certain of these costs, including
engineering, were charged to research and development. Additionally, during the
second quarter of fiscal 2001, the Company adjusted the sales price of its
polymer rechargeable battery designed for the Nokia cellular phone aftermarket
to better reflect market conditions. As a result,
11
a charge of approximately $400,000 was recorded to reduce the market value of
the inventory. Gross margin on primary batteries for the six month period ended
December 31 declined from 5% in the prior year to less than 1% in the current
fiscal year. This decline is largely due to higher material costs and the
decrease in sales for its 9-volt battery. Gross profit on technology contracts
decreased $110,000 in fiscal 2001 when compared to fiscal 2000, reflecting a
decline in gross margins from 14% in the first half of fiscal 2000 to 8% in the
first half of fiscal 2001. The decline in technology contract gross margins is
due the winding down of certain non-renewable government contracts and the
timing of expenditures.
Operating expenses were $5,364,000 for the six months ended December 31,
2000, a decrease of $554,000, or 9%, from $5,918,000 in the same six months in
the prior year. Of the Company's operating expenses, research and development
expenses decreased $650,000, or 30%, to $1,508,000 for the first six months of
fiscal 2001. The decline in research and development expenses was primarily due
to the commercial launch of polymer rechargeable batteries at the end of fiscal
2000. The costs previously in research and development are included in cost of
products sold as polymer rechargeable batteries are in production. That decrease
was partially offset by an increase of $96,000, or 3%, in selling, general, and
administrative expenses, to $3,856,000 in the first six months of fiscal 2001.
This increase in SG&A expenses was mainly due to increased spending on
advertising for the polymer rechargeable batteries.
Net interest income decreased $216,000, or 46%, from $465,000 in the first
six months of fiscal 2000 to $249,000 in the first six months of fiscal 2001.
The reduction in interest income is principally the result of lower average cash
balances and higher interest expense related to outstanding debt.
Losses associated with the Company's equity ownership interest in its
Taiwan venture (UTI) amounted to $1,590,000 for the first six months of fiscal
2001. The $1,407,000 increase in the loss was mainly due to a stock distribution
to Ultralife Taiwan, Inc. (UTI) employees in November 2000. Accordingly, UTI
recorded compensation expense of nearly $2.5 million, and the Company recognized
approximately $900,000 equity loss for the transaction. In addition, employees,
directors and supervisors were given the opportunity to purchase UTI shares at a
specified price. As a result of the stock issuances, the Company's interest in
UTI declined to 41%.
Net losses were $8,841,000, or $0.80 per share, for the first six months
of fiscal 2001 compared to $4,915,000, or $0.45 per share, for the same period
last year.
Liquidity and Capital Resources
At December 31, 2000, cash and cash equivalents and available for sale
securities totaled $10,986,000. The Company used $4,788,000 of cash in operating
activities during the first six months of fiscal 2001. This usage of cash
related primarily to the net loss reported for the period net of depreciation
and equity losses in affiliates, offset in part by an increase in accounts
payable. Additionally, the Company spent $2,916,000 for capital additions for
production equipment and facilities improvements during the first six months of
fiscal 2001.
At December 31, 2000, the Company had long-term debt outstanding including
capital lease obligations of $3,120,000 primarily relating to the financing
arrangement entered into by the Company at the end of fiscal 2000 described
below.
In June 2000, the Company entered into a $20 million secured credit
facility with a lending institution. The financing agreement consists of an
initial $12 million term loan component (of which $3,733,000 was outstanding at
December 31, 2000) and a revolving credit facility component for an initial $8
million, based on eligible net accounts receivable (as defined) and eligible net
inventory (as defined). There was no balance outstanding on the revolving credit
facility component as of December 31, 2000. While the amount available under the
term loan component amortizes over time, the amount of
12
the revolving credit facility component increases by an equal and offsetting
amount. Principal and interest are paid monthly on outstanding amounts borrowed.
The loans bear interest at the prime rate or other LIBOR-based rate options at
the discretion of the Company. The Company also pays a facility fee on the
unused portion of the commitment. The loan is secured by substantially all of
the Company's assets.
Additionally, the Company is precluded from paying dividends under the
terms of the agreement. On December 22, 2000, the Company and its commercial
lender agreed to revise downward the adjusted net worth covenant under the
Company's credit facility to better reflect the Company's equity position. The
revised covenant requires the Company to maintain adjusted net worth (as
defined) of at least $40,000,000. As of December 31, 2000, the Company was in
compliance with all covenants.
The Company's capital resource commitments as of December 31, 2000
consisted principally of capital equipment commitments of approximately
$1,539,000. 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.
Outlook
At the present time, the Company expects that consolidated revenues for
the third fiscal quarter will be relatively consistent with the second quarter.
In the fourth quarter, some revenue growth is anticipated as new business,
mainly in military, is realized. Sales of 9-volt batteries in the third quarter
are expected to be consistent with this quarter. Long-term growth for this
product line has some dependence related to the passage of fire safety
legislation, which the Company vigorously supports, in key states. There is some
indication that this could start to happen in this calendar year. Gross margins
in the third quarter for the 9-volt product line are expected to continue to
improve by approximately $200,000 to $300,000 over the second quarter due to
continued improvements in the manufacturing process. The recently announced
contract to manufacture BA-5368 batteries for the US Armed Forces is expected to
generate approximately $300,000 of additional revenues in the third fiscal
quarter as production begins. These revenues are expected to continue to
increase further in the fourth quarter. Revenues from the high rate and battery
pack operations in the UK are expected to be constant in the third quarter
compared with the second quarter. However, the Company expects to finalize a few
key contracts within the next few months that are likely to boost these sales in
the fourth quarter. Finally, the near-term outlook for rechargeable sales is
fairly conservative. The Company is continuing to market the cellular phone
aftermarket product by adjusting prices and expanding into new channels. The
majority of the selling efforts at this time, however, are centered on OEM
business opportunities. The Company is not projecting significant revenues in
this area in the next couple of quarters because of the inherent product
introduction cycles for this business.
13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to various market risks in the normal course of
business, primarily interest rate risk and changes in market value of its
investments and believes its exposure to these risks is minimal. The Company's
investments are made in accordance with the Company's investment policy and
primarily consist of commercial paper and U.S. corporate bonds. The Company does
not currently participate in the investment of derivative financial instruments.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the
normal course of business. The Company believes that the final disposition of
such matters will not have a material adverse effect on the financial position
or results of operations of the Company.
In May 1997, William Boyd, the principal of Aerospace Energy Systems,
Inc., and Leland J. Coleman commenced an action against the Company and Loeb
Partners Corporation ("Loeb"), an investment firm, in the U.S. District Court
for the Southern District Court of New York alleging that they had entered into
a contract with Loeb to arrange for the acquisition of Dowty Group, PLC and that
the Company tortiously interfered with their contract and business opportunity.
The Company maintained that the claim against it, for $25 million, was without
merit. After a jury trial in December of 1999, the case was dismissed.
Plaintiffs appealed, and on October 19, 2000 the United States Court of Appeals
for the Second Circuit affirmed the dismissal. The time to appeal expired
January 17, 2001. Accordingly, the judgment of dismissal is final and the
Company will incur no liability in this action.
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 certain shareholders, purportedly on behalf of a
class of shareholders, 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 alleged 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. Upon a motion made on behalf of the
Company, the Court dismissed the shareholder action, without prejudice, allowing
the complaint to be refiled. The shareholder action was subsequently refiled,
asserting substantially the same claims as in the prior pleading. Earlier this
year, the Company again moved to dismiss the complaint. By Opinion and Order
dated September 28, 2000, the Court dismissed the action, this time with
prejudice, thereby barring plaintiffs from any further amendments to their
complaint and directing that the case be closed. Plaintiffs have filed a Notice
of Appeal to the Third Circuit Court of Appeals, and the parties will be
submitting their respective pleadings. The Company believes that the litigation
is without merit and will continue to defend it vigorously. 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.
14
Item 4. Submission of Matters to a Vote of Security Holders
(a) On December 5, 2000, 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 eight nominees for Director with the
following votes:
DIRECTOR FOR AGAINST ABSTAIN
-------- --- ------- -------
Joseph C. Abeles 9,752,706 697,599 0
Joseph N. Barrella 9,754,006 696,299 0
Patricia C. Barron 9,753,906 696,399 0
Richard A. Hansen 8,307,406 2,142,899 0
John D. Kavazanjian 9,754,606 695,699 0
Arthur M. Lieberman 9,754,606 695,699 0
Carl H. Rosner 9,571,081 879,224 0
Ranjit Singh 9,754,606 695,699 0
(c) At the Annual Meeting, the Shareholders of the Company voted on an
Amendment to the Company's Certificate of Incorporation to increase
the amount of common shares from 20,000,000 to 40,000,000. The
amendment was adopted with the following votes:
IN FAVOR AGAINST ABSTAIN
-------- ------- -------
10,208,637 181,098 60,620
(d) Also at the Annual Meeting, the Shareholders of the Company voted in
favor of the adoption of the Company's 2000 Stock Option Plan with
the following votes:
IN FAVOR AGAINST ABSTAIN
-------- ------- -------
8,214,523 2,193,394 42,388
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amendment of Certificate of Incorporation of Ultralife
Batteries, Inc.
10.1 Second Amendment to Financing Agreements
(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: February 13, 2001 By: /s/ John D. Kavazanjian
-------------------------------------
John D. Kavazanjian
President and Chief Executive Officer
Date: February 13, 2001 By: /s/ Robert W. Fishback
-------------------------------------
Robert W. Fishback
Vice President - Finance and
Chief Financial Officer
16
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ULTRALIFE BATTERIES, INC.
The undersigned, Peter F. Comerford, being the Assistant Secretary of
ULTRALIFE BATTERIES, INC., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is ULTRALIFE BATTERIES, INC. (the
"Corporation"), The Corporation was originally incorporated under
the name Ultralife Technologies, Inc., and the original Certificate
of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on December 14, 1990 and amended on
April 3, 1991, May 1, 1991, January 23, 1992, January 2, 1996 and
July 21, 1999.
2. The Corporation's Certificate of Incorporation is hereby amended by
striking out the first sentence of ARTICLE FOURTH and replacing it
with the following new first sentence of ARTICLE FOURTH:
Capitalization. The total number of shares of stock that the
Corporation shall have authority to issue is 40 million shares of
Common Stock, par value $.10 per share (the "Common Stock") and 1
million shares of Preferred Stock, par value $.10 per share (the
"Preferred Stock").
3. This Amendment of the Certificate of Incorporation was duly adopted
by the Board of Directors of this Corporation at a meeting held on
September 15, 2000, at which the Board directed that this proposed
amendment be submitted to the Common Stockholders of this
Corporation for their approval and adoption at the Annual Meeting of
Stockholders to be held on December 5, 2000.
3. At the Annual Meeting of the Corporation's Stockholders duly called
and held on December 5, 2000, this proposed amendment was duly
approved and adopted by a majority vote of all outstanding shares of
this Corporation's Common Stock entitled to vote thereon.
4. This Certificate of Amendment of Certificate of Incorporation was
duly adopted in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Corporation has caused this Amendment of
Certificate of Incorporation to be duly executed on this 21st day of December,
2000.
ULTRALIFE BATTERIES, INC.
BY: /s/ PETER F. COMERFORD
---------------------------------------
PETER F. COMERFORD, ASSISTANT SECRETARY
Exhibit 10.1
December 15,2000
Ultralife Batteries, Inc.
2000 Technology Parkway
Newark, NY 14513
Ultralife Batteries (UK) Ltd.
18 Nuffield Way
Abingdon, Oxfordshire, OX 14
1TG England
Re: Second Amendment to Financing Agreements ("Amendment")
Gentlemen:
Reference is made to the Loan and Security Agreement dated June 15, 2000,
between you and the undersigned (the "Loan Agreement"). All capitalized terms
not otherwise defined herein shall have the meanings given such terms in the
Loan Agreement.
Borrowers have requested that Lender agree to certain modifications to the
Loan Agreement. Subject to the terms and conditions hereof, the Lender agrees
with the Borrowers as follows:
(1) Section 9.15 of the Loan Agreement is deleted and replaced with the
following:
"9.15 Adjusted Net Worth. Borrowers shall, at all times, maintain an
Adjusted Net Worth of not less than $40,000,000.00."
(2) In connection with the execution and delivery of this Amendment,
Borrowers shall pay to Lender a fee of $7,500.00, which fee shall be fully
earned and non-refundable on the date hereof.
(3) In connection with the execution and delivery of this Amendment, the
Borrowers shall furnish to the Lender certified copies of all requisite
corporate action and proceedings of the Borrowers in connection with this
Amendment.
(4) Each Borrower confirms and agrees that (a) all representations and
warranties contained in the Loan Agreement and in the other Financing Agreements
are on the date hereof true and correct in all material respects (except for
changes that have occurred as permitted by the covenants in Section 9 of the
Loan Agreement), and (b) it is unconditionally liable for the punctual and full
payment of all Obligations, including, without limitation, all charges, fees,
expenses and costs (including attorneys' fees and expenses) under the Financing
Agreements, and that Borrowers
Ultralife Batteries, Inc.
Ultralife Batteries (UK) Ltd.
December 15, 2000
Page 2
have no defenses, counterclaims or setoffs with respect to full, complete and
timely payment of all Obligations.
(5) Borrowers hereby agree to pay to Lender all reasonable attorney's fees
and costs which have been incurred or may in the future be incurred by Lender in
connection with the negotiation and preparation of this Amendment and any other
documents and agreements prepared in connection with this Amendment. The
undersigned confirm that the Financing Agreements remain in full force and
effect without amendment or modification of any kind, except for the amendments
explicitly set forth herein. The undersigned further confirm that after giving
effect to this Amendment, no Event of Default or events which with notice or the
passage of time or both would constitute an Event of Default have occurred and
are continuing. Except as explicitly provided herein, the execution and delivery
of this Amendment by Lender shall not be construed as a waiver by Lender of any
Event of Default under the Financing Agreements. This Amendment shall be deemed
to be a Financing Agreement and, together with the other Financing Agreements,
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior dealings, correspondence, conversations
or communications between the parties with respect to the subject matter hereof.
[Remainder of Page Left Intentionally Blank]
Ultralife Batteries, Inc.
Ultralife Batteries (UK) Ltd.
December 15, 2000
Page 3
If you accept and agree to the foregoing please sign and return the
enclosed copy of this letter. Thank you.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
(NEW ENGLAND)
By: /s/ Brian Essex
--------------------------------
Name: Brian Essex
Title: Assistant Vice President
AGREED:
ULTRALIFE BATTERIES, INC.
By: /s/ Robert W. Fishback
--------------------------------
Name: Robert W. Fishback
Title: VP-Finance & CFO
ULTRALIFE BATTERIES (UK) Ltd.
By: /s/ J. Barrella
--------------------------------
Name: J. Barrella
Title: Director