SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 1997
Commission file number 0-20852
ULTRALIFE BATTERIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 16-1387013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1350 Route 88 South, Newark, New York 14513
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 332-7100
Securities registered pursuant to Section 12(b) of the Act:
Name Of Each Exchange
Title Of Each Class On Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part Ill of this Form 10-K or any
amendment to this Form 10-K. [ ]
On September 19, 1997 the aggregate market value of the voting stock of
Ultralife Batteries, Inc., held by non-affiliates of the Registrant was
approximately $ 116,300,000 based upon the average of the high and low prices
for such Common Stock as reported on the NASDAQ National Market System on
September 19,1997.
As of September 19, 1997, the Registrant had 7,963,836 shares of Common
Stock outstanding.
Documents Incorporated by Reference.
Part II Ultralife Batteries, Inc. Proxy Statement. With the exception of
the items of the Proxy Statement specifically incorporated by
reference herein, the Proxy Statement is not deemed to be filed as
part of this Report on Form 10-K.
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PART I
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 as a result of the risk factors set forth
below and elsewhere in this report.
ITEM 1. BUSINESS
General
Ultralife Batteries, Inc. ("Ultralife" or the "Company") develops, manufactures
and markets lithium batteries for use in applications requiring high energy,
reliable and long-lasting power sources. The Company believes that its battery
technologies offer performance characteristics, such as high energy density and
stable discharge profile superior to competing batteries currently available.
The Company currently markets a family of lithium primary batteries for
consumer, industrial and military applications which it believes is one of the
most comprehensive lines of lithium primary batteries commercially available.
Ultralife is also developing advanced rechargeable batteries based on
lithium-ion solid-polymer technology which are being designed for consumer
electronic applications. The Company has obtained production orders for its
rechargeable batteries and is currently implementing scale-up of its
manufacturing operations. Internationally, the Company has broadened its
research and development, manufacturing and marketing base through its
acquisition of certain assets and the related business of Dowty Group PLC
("Dowty"), based in Abingdon, England, which has enabled the Company to become a
technological leader in high rate lithium-manganese dioxide primary batteries
and a producer of sea water batteries.
The Company's objective is to become a leading provider of lithium batteries for
use in applications requiring high energy, reliable and long-lasting power
sources. To achieve this objective, the Company is working with Original
Equipment Manufacturers (OEMs) to identify and develop new applications for the
Company's batteries using its proprietary technology and expertise. The Company
has established and will continue to seek strategic relationships with OEMs that
utilize the Company's technology, commit to cooperative research and
development, marketing programs and recommend the Company's batteries for
replacement use in their products. The Company also has introduced its primary
battery products to the broader consumer market by establishing relationships
with selected national and regional retailers. The Company continues to seek
strategic relationships and joint ventures with other battery manufacturers,
suppliers and customers to accelerate commercialization of its technology and
products.
The Company markets a family of lithium-manganese dioxide primary batteries in
9-volt, 3-volt, 2/3A, C, 1 1/4C and D configurations, custom Thin Cell(TM)
batteries, and silver-chloride sea water batteries. The Company's 9-volt battery
is marketed to the security and safety equipment, medical device and specialty
instrument markets. The Company's 9-volt battery is currently used in devices
such as smoke detectors, home security devices and medical infusion pumps. The
Company's high rate lithium batteries, based on technology acquired from Dowty,
are sold to OEMs primarily for the industrial and military markets, for use in
sea and air safety products such as emergency positioning indicating radio
beacons and search and rescue transponders. The Company manufactures sea water
batteries used for specialty marine applications. The Company has been awarded a
production contract from the U.S. Department of Defense for the production of a
cylindrical 6-volt lithium-manganese battery (the "BA-5372" battery) for use in
mobile communication equipment. Production under this contract started in the
second quarter of the Company's 1996 fiscal year and the U.S. Government has
exercised option quantities that have extended
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production through mid fiscal 1998. The Company also provides research and
development services to government agencies and other third parties pursuant to
technology contracts.
The Company is currently focusing its development activities related to advanced
rechargeable batteries on lithium-ion solid-polymer technology. The Company
believes that its lithium-ion solid-polymer technology provides substantial
benefits, including greater energy density and longer cycle life, over other
available rechargeable battery technologies. In addition, the Company believes
that its technology, which does not utilize lithium metal or a liquid
electrolyte, provides performance and safety characteristics superior to other
lithium-based rechargeable batteries currently available. The Company has
manufactured advanced rechargeable batteries on a pilot production line for
testing by certain OEMs and has developed and implemented a semi-automatic
flexible production line for initial production runs and low volume programs.
High volume manufacturing equipment is currently being installed. The Company is
developing configurations of its advanced rechargeable batteries in
collaboration with potential OEM purchasers for applications in portable
electronic devices such as cellular telephones and portable computers. The
Company has a development and supply contract with a major cellular telephone
manufacturer, which specifies that the Company supply a minimum of 5,000,000
rechargeable batteries after achieving an agreed upon performance specification.
The Company also has a development and supply contract with a major electronics
manufacturer for rechargeable batteries for a new ultra thin, lightweight laptop
computer. However, under these contracts, there can be no assurance that the
Company's rechargeable batteries will be able to achieve the required
performance levels or that the company will be able to manufacture commercially
acceptable products on a timely basis at a reasonable cost.
The Company was incorporated in Delaware on December 14, 1990, under the name
Ultralife Technologies, Inc. The Company changed its name to Ultralife
Batteries, Inc. on April 3, 1991. The Company's corporate offices are located at
1350 Route 88 South, Newark, New York 14513, and its telephone number is (315)
332-7100.
As used in this Report, unless otherwise indicated, the terms "Company" and
"Ultralife" include the Company's wholly-owned subsidiary, Ultralife UK Ltd. For
purposes of presentation in this Report, except for the consolidated financial
statements herein or data derived therefrom, contract terms or other amounts
expressed originally in British pounds sterling are set forth herein in U.S.
dollars at the rate of (pound)1.00 to $1.60.
Technology Background
A battery is an electrochemical apparatus used to store energy and release it in
the form of electricity. The main components of a conventional battery are the
anode, the cathode, the separator and an electrolyte, which can be either a
liquid or a solid. The separator acts as an electrical insulator, preventing
electrons from moving between the anode and cathode inside the battery. Upon
discharge of the battery, the anode supplies a flow of electrons, known as
current, to a load or device. After powering the load, the electron flow
reenters the battery at the cathode. As electrons flow from the anode to the
device being powered by the battery, ions are released from the cathode, cross
through the electrolyte and react at the anode.
There are two types of batteries, primary and rechargeable. A primary battery is
used until discharged and then discarded. The principal competing primary
battery technologies are carbon-zinc, alkaline and lithium. In contrast, after a
rechargeable battery is discharged, it can be recharged close to full capacity
and used again (subject to the memory effect, if any). Generally, discharge and
recharge cycles can be repeated a number of times in rechargeable batteries, but
the achievable number of cycles (cycle life) varies among technologies and is an
important competitive factor. All rechargeable batteries experience a small,
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but measurable, loss in energy with each cycle. The industry commonly reports
cycle life in number of cycles a battery can achieve until 80% of the battery's
initial energy capacity remains. In the rechargeable battery market, the
principal competing technologies are nickel-cadmium, nickel-metal hydride and
lithium-based batteries. Rechargeable batteries generally can be used in all
primary battery applications, as well as in additional applications, such as
portable computers, cellular telephones and other consumer products.
Two important parameters for describing a battery's performance characteristics
are energy density and voltage stability. Energy density refers to the total
electrical energy per volume stored in a battery. High energy density batteries
generally are longer-lasting power sources necessitating fewer battery changes.
Lithium batteries, by the nature of their electrochemical properties, are
capable of providing higher energy density than comparably-sized batteries that
utilize other chemistries. Lithium batteries are also characterized by a flat
discharge profile, indicating a stable release of energy during use as power
density decreases, while conventional primary batteries, such as carbon-zinc and
alkaline, exhibit a declining discharge profile. At a certain time, a battery
may have sufficient power but may be unable to deliver the energy to power a
device due to the battery's reduced voltage.
Benefits of Ultralife's Lithium Technology
The Company's primary battery products are based on lithium-manganese dioxide
technology and its advanced rechargeable battery products are based on
lithium-ion solid-polymer technology. The materials used in, and the chemical
reactions inherent to, lithium-based batteries provide significant advantages
over currently available primary and rechargeable battery technologies. The
Company believes that its primary battery products and the advanced rechargeable
batteries under development offer a number of significant advantages over
conventional primary and rechargeable batteries currently in use, including:
Longer Operating Time. Length of operating time is a critical performance
characteristic for most battery applications. The Company's primary batteries
can operate devices between two and four times longer than conventional
carbon-zinc and alkaline primary batteries, depending upon the application and
operating environment. The Company's advanced rechargeable battery is capable of
operating approximately two to three times longer on a single charge than
nickel-cadmium batteries, and approximately two times longer on a single charge
than nickel-metal hydride batteries, of comparable weight.
Lighter Weight. The Company's primary batteries weigh up to 25% less than
conventional primary batteries of comparable size. The Company's advanced
rechargeable battery can deliver two to three times as much energy as nickel
cadmium batteries of comparable weight.
Recharge Characteristics. Certain of the Company's advanced lithium-ion
solid-polymer rechargeable batteries are able to deliver more than 500 discharge
cycles without appreciable performance degradation and are not subject to the
memory effect. The Company's lithium-ion solid-polymer battery does not
incorporate lithium metal, which is subject to growth of dendritic structures
which can significantly limit the number of achievable cycles.
Cost Effective. The Company's primary batteries deliver significantly greater
energy per unit of weight and volume than other commercially available
batteries. It is anticipated that the Company's advanced rechargeable batteries
will also exhibit such advantages over existing products. While the price for
the Company's lithium batteries is generally higher than commercially available
batteries produced by others, the Company believes that the increased energy per
unit of weight and volume of its batteries will allow longer operating time and
less frequent battery replacements or rechargings for the Company's targeted
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applications. Therefore, the Company believes that its battery technology is
price competitive with other battery technologies on a cost per watt hour basis.
Longer Shelf Life and Charge Retention. The Company's primary batteries have a
shelf life of up to ten years, typically at least twice as long as batteries
based on competing technologies.
Flat Voltage Profile. The Company's batteries have relatively flat voltage
profiles, providing stable power. Conventional primary batteries, such as
alkaline batteries, have sloping voltage profiles, which result in decreasing
power outage during discharge.
Wide Operating Temperature Range. The Company's primary batteries operate in
temperatures ranging from -40(degree)F to 160(degree)F. This operating range is
greater than that achieved by most competing primary batteries.
Ultralife's Primary Batteries
9-Volt Lithium Battery
The Company's 9-volt lithium battery delivers a unique combination of high
energy density and a stable voltage which results in a longer operating life for
the battery and, accordingly, fewer battery replacements. While the Ultralife
9-volt battery's price is generally higher than conventional 9-volt carbon-zinc
and alkaline batteries, the Company believes the enhanced operating performance
and decreased costs associated with battery replacement make the Ultralife
9-volt battery more cost effective than conventional batteries on a cost per
watt-hour basis.
The Company currently markets its 9-volt lithium battery to OEM markets,
including manufacturers of safety and security systems such as smoke alarms,
medical devices, radar detectors, portable communication devices, and other
electronic instrumentation. The Company believes that approximately 10% of the
230 million 9-volt batteries sold in the U.S. in 1995 were sold to OEMs.
Applications for which the Company's 9-volt lithium battery are currently sold
include:
Safety and Security Equipment Medical Devices Specialty Instruments
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Smoke alarms Infusion pumps Radar detectors
Wireless alarm systems Telemetry equipment Garage door openers
Electronic locks External pacemakers Electronic meters
Tracking devices Portable blood analyzers Hand-held scanners
Transmitters/receivers TENS units Wireless electronics
The Company currently sells its 9-volt battery to Coleman Safety & Security
Products, Inc., Fyrnetics, Inc., and First Alert(R) for smoke alarms, Siemens
Medical and i-STAT for medical devices, Ademco and Interactive Technologies,
Inc. for security devices. Coleman Safety & Security Products, Inc. and
Fyrnetics, Inc. have recently introduced long life smoke detectors powered by
the Company's 9 volt lithium battery, offered with a limited 10 year warranty.
The Company also manufactures its 9-volt lithium battery under private label for
First Alert(R), and American Sensors, Inc., Sonnenschein in Germany and Uniline
in Sweden. Additionally, the Company has introduced its 9-volt battery to the
broader consumer market by establishing relationships with national and regional
retail chains such as Radio Shack, Target Stores, Servistar, Ace Hardware, True
Value Hardware and a number of catalogues.
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The Company believes that its 9-volt lithium battery production facility based
in Newark, New York, is one of the most automated and efficient lithium battery
production facilities of its kind in the world. The Company's production
facility currently has the capacity to produce five million 9-volt lithium
batteries per year with its existing equipment.
High Rate Lithium Batteries
Ultralife UK, the Company's subsidiary based in Abingdon, England, markets a
wide range of high rate primary lithium batteries in various sizes and voltage
configurations. The Company currently manufactures C, 1 1/4C and D size high
rate lithium batteries which are sold as separate units and packaged into
multi-cell battery packs. The Company believes that its high rate lithium C,
1 1/4C and D primary batteries, based on its proprietary lithium-manganese
dioxide technology, are the most advanced high rate lithium batteries currently
available. The Company also markets high rate lithium batteries under private
label in other sizes and voltage configurations in order to offer a more
comprehensive line of batteries to its customers.
The Company currently markets its line of high rate lithium batteries to the OEM
market for industrial applications and to military organizations for military
use. The main OEM applications are SAR (Search & Rescue), oil industry, down
hole and pipeline monitoring equipment, utility meters, oceanographic, remote
switching and portable equipment. The main military applications are manpack
radios, night vision equipment, chemical agent monitors and missile power
supplies.
The Company estimates the market for high rate lithium batteries was $75 million
in 1995. Although this market has been dominated by lithium thionyl chloride and
lithium sulfur dioxide batteries, there is an increasing market share taken by
the lithium manganese dioxide due to its improved performance and safety. The
Company increased its sales of the high rate lithium manganese dioxide batteries
from $2.3 million in 1995 to $3.1 million in 1996 and was on track for a similar
increase in 1997 prior to a fire in December 1996 that severely damaged its
manufacturing facility. The reinstatement of the facility is near completion and
production facilities, capable of producing more than 2,000 cells per shift are
expected to be completed December 1997. The Company believes that its high rate
lithium-manganese dioxide batteries offer a combination of performance, safety
and environmental benefits which will enable it to effectively penetrate this
market.
Sea Water Batteries
The Company produces a variety of sea water batteries based on magnesium
silver-chloride technology. Sea water batteries are custom designed and
manufactured to end user specifications. The batteries are activated when placed
in salt water, which acts as the electrolyte allowing current to flow. The
Company currently manufactures sea water batteries at the Abingdon, England,
facility and markets them to naval and other specialty OEMs.
BA-5372 Battery
The Company was awarded in 1995 a $1.5 million contract by the U.S. Department
of Defense to produce the BA-5372 lithium battery. The production contract has
options for two additional years, at the election of the U.S. Government. During
1996 the government exercised its option for the second year adding $1.3
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million of BA-5372 batteries to be delivered during the Company's fiscal 1997.
In November 1996, the Government exercised its second option for $1.26 million
throughout 1997 and into calendar 1998.
The Company's BA-5372 battery is a cylindrical 6-volt lithium-manganese dioxide
battery which is used for memory back-up in specialized mobile communication
equipment. The Company's BA-5372 battery offers a combination of performance
features suitable for military applications including high energy density, light
weight, long shelf life and ability to operate in a wide temperature range.
Thin Cell(TM) Battery
The Company has developed a line of lithium-manganese dioxide primary batteries
which the Company calls its Thin Cell(TM) batteries. The Thin Cell batteries are
flat, light weight, flexible and can be manufactured to conform to the shape of
the particular application. The Company is currently offering five
configurations of the Thin Cell battery which range in capacity from 30
milliampere-hours to 3,000 milliampere-hours.
The Company is currently marketing these batteries to OEMs for applications such
as security badges, smart cards, computer access cards and personal
communication devices. The Company believes that its Thin Cell batteries offer a
number of performance characteristics which makes them attractive to OEMs for
introduction in current and future applications including high energy density,
light weight and flexibility in the shape and size of the battery. The Company
believes that acceptance by OEMs is necessary to create a significant commercial
market for its Thin Cell batteries.
3-Volt Lithium Battery
The Company has developed and is producing a 3-volt lithium-manganese dioxide
battery based on the technology and physical configuration of the 9-volt lithium
battery. By configuring the three 3-volt cells in parallel, rather than in a
series as in the 9-volt battery, the Company is able to produce a 3-volt battery
which it believes offers the highest energy density for a commercially available
3-volt battery. The high energy density makes it suitable for applications
requiring high current pulses, such as radio transmitters and receivers, and
remote utility meter reading systems.
The Company currently sells its 3-volt lithium batteries to Dayton-Granger, Inc.
for emergency beacons for commercial aircraft, Schlumberger for residential gas
meters, and OrthoLogic for bone growth stimulators. The Company produces the
3-volt lithium battery on the same automated production equipment as its 9-volt
lithium battery.
Ultralife's Advanced Rechargeable Battery
The Company's advanced rechargeable battery is based on lithium-ion
solid-polymer technology. The battery is composed of thin components including a
lithiated manganese dioxide cathode, a carbon anode and a solid-polymer
electrolyte, all of which are flexible. The use of a flexible solid-polymer
electrolyte, rather than a liquid electrolyte, reduces the battery's overall
weight and volume, and allows for increased flexibility in conforming batteries
to the variety of shapes and sizes required by various OEMs. In addition to its
high energy density and long cycle life, the Company's lithium-ion, solid
polymer battery is not subject to the memory effect common in nickel-cadmium
batteries. Lead-acid, nickel-cadmium and nickel-metal hydride batteries are the
predominant commercially available rechargeable batteries. Lithium-ion liquid
electrolyte technology, such as lithium-cobalt oxide and lithium-nickel oxide,
are battery technologies that are achieving market acceptance.
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The Company is developing configurations of its advanced rechargeable batteries
in consultation with potential OEM purchasers for use in cellular telephones and
portable computers. The Company is producing its advanced rechargeable batteries
in limited quantities and is currently installing equipment for a
commercial-level production facility. There can be no assurance that the
Company's rechargeable batteries will achieve those levels of performance
required for commercial viability or that such technology will gain market
acceptance. See "Competition."
In November, 1994, the Company signed an exclusive development and supply
agreement with a major communications company for its advanced rechargeable
lithium-ion solid-polymer battery. Under the terms of this agreement, the
communications company provided a portion of the funds to finalize the
development of the battery to meet its particular specifications, and if an
acceptable prototype is not delivered, then one-half of the funds provided would
be returned by Ultralife. The communications company shall have exclusivity for
the battery in the wireless telecommunications market, but the agreement does
not preclude sales of these rechargeable batteries in other markets, such as for
use in laptop computers.
The agreement was amended on March 28, 1996. Under the amended agreement the
major communications company waived their rights to receive reimbursement of
half their development funding; agreed to provide $300,000 for development
funding and an extension of the period of exclusivity to the end of 1998
(previously it was the end of 1997), and agreed to advance $334,000 towards the
shipment of mass-produced batteries. Also, under the new agreement the firm
placed an order for a minimum of five (5) million batteries, meeting agreed-to
specifications, to be delivered during the period of exclusivity.
In April 1997, the Company entered into an $800,000 agreement to develop its
lithium-ion, solid polymer, rechargeable battery for a leading electronics
manufacturer for use in a new generation of laptop computers. Then, in June
1997, the Company received from this customer a follow-on commitment for
tooling, additional battery refinement and initial production orders.
There can be no assurance under these contracts with the communications company
and the electronics manufacturing company that the Company's rechargeable
batteries will be able to achieve the required performance levels or that the
Company will be able to manufacture commercially acceptable products on a timely
basis at a reasonable cost.
At present, the Company has, at its Newark, New York, facility, a manual
production line consisting of assembly and packaging equipment and fixtures for
the production of limited quantities of its advanced rechargeable batteries. The
Company is spending a significant amount of capital to begin commercial
production of its advanced rechargeable batteries. The automated production of
the Company's lithium-ion solid-polymer rechargeable battery has required the
design and manufacture of a number of items of production equipment by
third-party vendors. Much of this equipment has been custom designed and
manufactured for the Company and some items require a substantial lead-time for
delivery. There can be no assurances however that the equipment designed will
properly produce the rechargeable batteries in commercial volume. The company
has installed during fiscal 1997, a semi-automatic line for medium quantities
production to start delivery to its customers in fiscal 1998.
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Competition
Competition in the battery industry is, and is expected to remain, intense. The
competition ranges from development stage companies to major domestic and
international companies, many of which have financial, technical, marketing,
sales, manufacturing, distribution and other resources significantly greater
than those of the Company. The Company competes against companies producing
lithium-based batteries as well as other primary and rechargeable battery
technologies. The Company competes on the basis of price, performance and
reliability. There can be no assurance that the Company's technology and
products will not be rendered obsolete by developments in competing technologies
which are currently under development or which may be developed in the future or
that the Company's competitors will not market competing products which obtain
market acceptance more rapidly than those of the Company.
In the 9-volt battery market, the principal competitive technologies currently
encountered are alkaline and carbon-zinc. Duracell International, Inc., Eveready
Battery Company Inc. and Rayovac Corp., among others, currently manufacture
alkaline and carbon-zinc batteries.
In the high rate lithium battery market, the principal competitive technologies
are lithium sulfur dioxide and lithium-thionylchloride batteries. Saft-Soc des
ACC, Blue Star Systems Corporation and Power Conversion, Inc., among others,
currently manufacture high rate lithium sulfur dioxide batteries. The Company
believes that the lithium-manganese dioxide technology in its high rate
batteries offers greater reliability over longer periods without the negative
environmental effects of sulfur dioxide and thionylchloride. The Company also
manufactures sea water batteries and believes that its competitors for those
products are Saft-Soc des ACC and Eagle-Picher Industries.
The 2/3A lithium battery supplied to the company by other manufacturers will
compete with companies such as Duracell International, Inc., Sanyo Electric Co.
Ltd., Panasonic International and Maxell Corp. of America in the 2/3A battery
market.
The Thin Cell batteries are expected to compete on the basis of their
performance characteristics. The Company will compete with major battery
producers, such as Gould Electronics, which use competing technologies such as
low rate lithium thin cell batteries.
The 3-volt battery's primary competitors include Maxell Corp. of America,
Tadiran Limited, Saft-Soc des ACC and Power Conversion, Inc., all of which use
lithium-thionylchloride technology to produce 3-volt batteries.
In the rechargeable battery market, the principal competitive technologies
include lead-acid, nickel-cadmium, nickel-metal hydride and lithium-ion liquid
electrolyte technology. Major lead-acid manufacturers include Delco Products,
Johnson Controls Inc., Exide Corp., and Yuasa Battery Co. Ltd.. Eveready, Inc.,
Sanyo Electric Co. Ltd., and Gould Electronics, among others, currently
manufacture nickel-cadmium batteries. Manufacturers of nickel-metal hydride
batteries include Sony Corp., Toshiba Corp. and Matsushita Electric Industrial
Co. Ltd. Lithium-ion liquid electrolyte batteries, primarily based on
lithium-ion cobalt oxide and lithium-ion nickel oxide technologies, are
manufactured by Saft-Soc des ACC, Sony Corp., Toshiba Corp. and Sanyo Electric
Co. Ltd., among others.
Lithium-ion liquid electrolyte batteries offer significant advantages over
lead-acid, nickel-cadmium and nickel-metal hydride batteries currently in use
and the Company expects that technology to be the most significant competition
for its advanced rechargeable battery. Sony Corp. and other manufacturers
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currently offer lithium-ion liquid electrolyte batteries to consumers and to
OEMs in substantial volumes, and have publicly announced that they are
substantially increasing manufacturing capacity. As OEMs frequently require
substantial lead times to design new batteries for their products, the
availability of lithium-ion liquid electrolyte batteries could materially
adversely affect the demand for, and market acceptance of, the Company's
advanced rechargeable battery.
Lithium-ion liquid electrolyte batteries used in laptop computers and cellular
phones have been reported to have had incidences causing user safety concerns.
There is a significant difference between these liquid electrolyte cells and the
Company's Solid State System, which uses a unique solid polymer electrolyte and
is fundamentally safer than lithium-ion batteries containing a liquid
electrolyte. Liquid lithium-ion cells, such as those that reportedly caused the
flames in the laptops, use a flammable liquid electrolyte contained within a
cylindrical metal housing. Under abusive conditions, where external temperatures
are extremely high, these cells can build up significant internal pressure. If
the pressure reaches a high enough level, the cells can vent, causing the liquid
electrolyte to be dispersed into the high-temperature environment. If the
temperature is high enough, flames can result. The Company's advanced
rechargeable batteries utilize a solid polymer electrolyte that has almost no
liquid and thus cannot leak. Moreover, because the electrolyte is solid, the
Ultralife cells do not require a cylindrical metal housing. Rather, they are
packaged within a foil laminate. Under the same abusive conditions that could
cause flame from liquid lithium-ion cells, Ultralife believes that its cells
will perform safely.
In addition to the currently marketed technologies, a number of companies are
currently undertaking research and development of advanced rechargeable lithium
batteries, including lithium-metal solid-polymer batteries. Valence Technology,
Inc., Lithium Technology Corporation and Battery Engineering, Inc. have
developed prototype solid-polymer batteries and are constructing
commercial-scale manufacturing facilities. The Company believes that other
research and development activities on solid-polymer batteries are underway at
other companies in both the U.S. and Japan. No assurance can be given that such
companies will not develop batteries similar or superior to the Company's
lithium-ion solid-polymer rechargeable batteries.
Although other entities may attempt to take advantage of the growth of the
lithium battery market, the lithium battery industry has certain technological
and economic barriers to entry. The development of technology, equipment and
manufacturing techniques and the operation of a facility for the automated
production of lithium batteries require large capital expenditures, which may
deter new entrants from commencing production. Through its experience in battery
manufacturing, the Company has also developed expertise which it believes would
be difficult to reproduce without substantial time and expense.
Research and Development
The Company conducts its research and development in both Newark, New York, and
Abingdon, England. The Company is directing its research and development efforts
toward design optimization of Thin Cells, 3-volt batteries and advanced
rechargeable batteries. Each of those batteries has a broad range of potential
applications in consumer, industrial and military markets including cameras,
cellular telephones, and portable computers. No assurance can be given that such
efforts will be successful or that the products which result will be marketable.
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During the years ended June 30, 1997, 1996, and 1995, the Company expended
approximately $3,940,000, $3,689,000, and $2,685,000, respectively, on
Company-sponsored research and development. The Company currently expects that
research and development expenditures will continue at a high level as it
continues to advance its technology and develop new products. The Company will
seek to fund part of its research and development effort on a continuing basis
from both government and non-government sources.
The U.S. Government sponsors research and development programs designed to
improve the performance and safety of existing battery systems and to develop
new battery systems. The Company has successfully completed the initial stages
of a government-sponsored program to develop new configurations of the Company's
lithium-manganese dioxide battery and has received authorization to proceed with
additional stages of this contract. This contract is for the development of
"pouch cell" lithium primary batteries. The Company was also awarded an
additional cost sharing contract by CECOM under which the development of a
BA-5590 primary battery will be produced. The contract is for twenty-four months
and began June 30, 1997. This contract is an SBIR-Phase III. The Company has
also received production orders from Aberdeen Research Laboratories (U.S. Army)
as a follow on product for its Technology Contract, closed in fiscal 1997. This
order represents the first order of this type of battery to be actively
purchased by the government.
Sales and Marketing
The Company has initially targeted sales of its batteries to the OEM market in
the U.S., with a focus on manufacturers of security and safety equipment,
medical devices and specialty instruments. The Company's primary strategy for
entering the OEM market is to pursue marketing alliances with OEMs that utilize
its batteries in their products, commit to cooperative research and development
or marketing programs and recommend the Company's products for replacement use
in their products. The Company seeks to capture a significant market share for
its products within its initially targeted OEM markets, which the Company
believes, if successful, will result in increased product awareness at the
end-user or consumer level. Ultralife UK targets the military and industrial
markets through direct sales and the efforts of its distributors.
The Company sells its products directly to OEMs in the U.S. and abroad and has
contractual arrangements with 42 sales representatives who market the Company's
products on a commission basis in particular areas. The Company also distributes
its products through distributors in the U.S., Canada, Europe, Middle East,
Australia and Asia that purchase batteries from the Company for resale. The
Company employs a staff of marketing personnel in the U.S., Germany, and England
including a vice president of sales, a marketing manager, a national sales
manager, a European sales director, a technical sales manager, and a number of
regional sales managers, who are responsible for direct sales, supervising the
sales representatives and distributors, and other marketing and distribution
activities. The Company operates on a purchase order basis and has a number of
long-term sales contracts with customers, including the U.S. Government.
The Company plans to expand its marketing activities as part of its strategic
plan to increase sales of its batteries by emphasizing sales to those major OEM
customers that account for the largest portion of battery usage in their market
segment. The Company is addressing these markets through direct contact by its
sales and technical personnel, use of sales representatives and stocking
distributors, manufacturing under private label and promotional activities. The
Company is also selling the 9-volt battery to the consumer market through
limited retail distribution. The Company's warranty on its products is limited
to replacement of the product.
-11-
<PAGE>
In fiscal 1997, no one customer generated revenues in excess of 10%. In fiscal
1996, one customer accounted for $1.9 million in revenues, or 12.5% of total
revenues. This customer did not generate revenues in excess of 10% during 1995.
The Company has not been marketing its products for a sufficient period to
determine whether OEM or consumer sales are seasonal, although the Company has
experienced slightly slower sales to OEMs in the Company's third fiscal quarter
and slightly higher retail sales during the Company's fourth fiscal quarter.
The Company's sales are executed primarily through purchase orders with
scheduled deliveries on a weekly or monthly basis. Those customers with
immediate needs are usually satisfied within only a few business days. At the
end of this fiscal year, the backlog is not material.
Patents, Trade Secrets and Trademarks
The Company holds a number of patents in the U.S. and foreign countries,
including a number of patents acquired with the purchase of the Dowty Assets,
and has several patent applications pending. The Company also pursues foreign
patent protection in certain countries. Certain of the Company's patents make
automated production more cost-effective and protect important competitive
features of the Company's products. However, the Company does not consider its
business to be dependent on patent protection.
The Company relies on licenses of technology as well as its unpatented
proprietary information, know-how and trade secrets to maintain and develop its
commercial position. Although the Company seeks to protect its proprietary
information, there can be no assurance that others will not either develop
independently the same or similar information or obtain access to the Company's
proprietary information. In addition, there can be no assurance that the Company
would prevail if any challenges to intellectual property rights are asserted by
the Company against third parties or that third parties will not successfully
assert infringement claims against the Company in the future. The Company
believes, however, that its success is less dependent on the legal protection
that its patents and other proprietary rights may or will afford than on the
knowledge, ability, experience and technological expertise of its employees.
The Company's research and development in support of its advanced rechargeable
battery technology and products are currently based, in part, on non-exclusive,
technology transfer agreements. The Company made an initial payment for such
technology and is required to make royalty and other payments for products which
incorporate the licensed technology. The license continues for the respective
unexpired terms of the patent licenses, which range from 2003 to 2010, and
continues in perpetuity with respect to other licensed technical information.
The Company's employees in the U.S. and England are required to enter into
agreements providing for confidentiality and the assignment of rights to
inventions made by them while employed by the Company. These agreements also
contain certain noncompetition and nonsolicitation provisions effective during
the employment term and for a period of one year thereafter. There can be no
assurance that these agreements will be enforceable by the Company.
Ultralife(R) is a registered trademark of the Company.
-12-
<PAGE>
Manufacturing and Raw Materials
The Company manufactures its products from raw materials and component parts
that it purchases. The Company believes that its Newark manufacturing facility
is one of the most automated and efficient lithium battery production facilities
in the world. Based on the equipment currently at the Newark facility, the
Company believes that it has the capability of producing approximately five
million 9-volt batteries per year. The manufacturing facility in Abingdon,
England, is currently being reinstated following a fire in December 1996. When
completed, the plant will be capable of producing an average of 500,000 high
rate lithium batteries per year. The facility also has research and development
laboratories as well as areas for the manufacture of sea water batteries and the
packaging of multi-cell battery packs. The Company is currently producing
batteries at a rate below its maximum capacity in both facilities.
The Company utilizes lithium in foil form and other metals and chemicals in
manufacturing its batteries. Although the Company knows of only three suppliers
that extrude lithium into foil and provide such foil in the form required by the
Company, it does not anticipate any shortage of lithium foil or any difficulty
in obtaining the quantities it requires. Certain materials used in the Company's
products are available only from a single source or a limited number of sources.
Additionally, the Company may elect to develop relationships with a single or
limited number of sources for materials that are otherwise generally available.
Although the Company believes that alternative sources are available for each of
the materials it uses and that, if necessary, the Company would be able to
redesign its products to make use of an alternative, any interruption in its
supply from any supplier that serves currently as the Company's sole source
could delay product shipments and adversely affect the Company's financial
performance and relationships with its customers. All other raw materials
utilized by the Company are readily available from many sources.
Battery Safety; Regulatory Matters; Environmental Considerations
Certain of the materials utilized in the Company's batteries may pose safety
problems if improperly used. The Company has designed its batteries to minimize
safety hazards both in manufacturing and use. However, the Company's primary
battery products incorporate lithium metal, which reacts with water and may
cause fires if not handled properly. Fires occurred in August 1991, and August
1997, at the Company's Newark, New York, facility. In July 1994, September 1995,
and December 1996, fires also occurred at the Company's Abingdon, England,
facility. The December 1996 fire has been attributed to arson. Each of these
fires temporarily interrupted certain manufacturing operations in a specific
area of the facility. The Company believes that it has adequate fire insurance,
including business interruption insurance, to protect against fire hazards in
its facilities.
Since lithium metal reacts with water and water vapor, certain of the Company's
manufacturing processes must be performed in a controlled environment with low
relative humidity. Each of the Company's facilities contains dry rooms as well
as specialized air drying equipment.
The Company's 9-volt battery is designed to conform to the dimensional and
electrical standards of the American National Standards Institute and the 9-volt
battery and 3-volt battery are recognized under the Underwriters Laboratories,
Inc. Component Recognition Program.
The transportation of batteries containing lithium metal is regulated by the
International Air Transportation Association ("IATA") and, in the U.S., by the
U.S. Department of Transportation, as well as by certain foreign regulatory
agencies that consider lithium metal a hazardous material. The Company currently
ships
-13-
<PAGE>
its products pursuant to IATA regulations and ships the 9-volt battery in
accordance with U.S. Department of Transportation regulations.
National, state and local regulations impose various environmental controls on
the storage, use and disposal of lithium batteries and of certain chemicals used
in the manufacture of lithium batteries. Although the Company believes that its
operations are in substantial compliance with current environmental regulations,
there can be no assurance that changes in such laws and regulations will not
impose costly compliance requirements on the Company or otherwise subject it to
future liabilities. Moreover, state and local governments may enact additional
restrictions relating to the disposal of lithium batteries used by customers of
the Company which could adversely affect the demand for the Company's products.
There can be no assurance that additional or modified regulations relating to
the storage, use and disposal of chemicals used to manufacture batteries or
restricting disposal of batteries will not be imposed.
China Joint Venture Program
In July 1992, the Company, entered into several agreements related to the
establishment of a manufacturing facility in Changzhou, China, for the
production and distribution in and from China of 2/3A lithium primary batteries
based on the Company's technology.
Pursuant to the China Joint Venture Program, Changzhou Ultra Power Battery Co.,
Ltd., a company organized in China ("China Battery"), purchased from the Company
certain technology, equipment, training and consulting services relating to the
design and operation of the lithium battery manufacturing plant. China Battery
is required to pay approximately $6.0 million to the Company over the first two
years of the agreement, of which approximately $5.6 million had been paid as of
July 31, 1996. The Company is currently attempting to collect the balance due
under this contract. The Changzhou Ultra Power Battery Co., Ltd. has indicated
that these payments will not be made until certain contractual issues have been
resolved. Due to the Chinese partner's questionable willingness to pay,
management wrote down in fiscal 1997 the entire balance owed the Company as well
as the Company's investment. It is unlikely the Chinese partner will become a
viable source of supply for the Company.
Employees
As of June 30, 1997, Ultralife Batteries, Inc. employed 334 persons; 81 in
research and development, 217 in production and 36 in sales, administration and
management. Of the total, 279 are employed in the U.S. and 55 in England. None
of the Company's employees are represented by a labor union. The Company
considers its employee relations to be satisfactory.
ITEM 2. PROPERTIES
The Company leases approximately 110,000 square feet in a facility located in
Newark, New York. The Company leases approximately 30,000 square feet in a
facility based in Abingdon, England. At both locations, the Company maintains
administrative offices, manufacturing and production facilities, a research and
development laboratory, an engineering department and a machine shop. The
Company's corporate headquarters are located in the Newark facility. The Company
also maintains a sales office in Montvale, New Jersey. The Company believes that
its facilities are adequate and suitable for its current manufacturing needs.
The lease entered into in March 1991 with Kodak for the Newark facility expires
in 2003 and currently has an annual rent of $519,000, subject to base rate
increases of 4% annually during each year.
-14-
<PAGE>
In connection with the acquisition by the Company's subsidiary, Ultralife UK, of
certain assets and liabilities from Dowty Group, PLC in June 1994, it was
provided that Dowty would cause the lease for Dowty's UK facility, located in
Abingdon England, to be assigned to Ultralife UK. This lease ( the "UK Lease")
was originally entered into in May 1979 by Pension Funds Securities Limited (
the "Landlord") with a tenant which assigned the lease to an affiliate of Dowty.
Originally, this landlord refused to assign the lease to Ultralife UK and
release Dowty's affiliate from liability. The building has recently been sold to
a new landlord. The new landlord has agreed, subject to a surety from the
Company, that he will allow an assignment of the lease. The Company has agreed
to provide the surety, subject to resolving certain disputes with Dowty.
Discussions are continuing and the Company believes that this matter will be
resolved without material detriment to the Company. However, no assurances can
be given that this will be the case. The term of the UK Lease continues until
May 2004. It currently has an annual rent of $250,000 and is subject to review
every five years based on current real estate market conditions. A review was to
occur in May 1994 and has not yet been requested by the Landlord. Based on the
real estate market in the Abingdon area, the Company believes that if such
review occurs, it will not result in a substantial increase in rent.
ITEM 3. LEGAL PROCEEDINGS
(a) Material Litigation
In September 1997, the Company was sued by Eveready Battery Company, Inc.
in the Northern District Court of Ohio, Eastern Division, alleging
infringement of two patents, U.S. Patent No. 4,246,253 and U.S. Patent No.
4,312,930. The first of these patents has four months before it expires and
the second approximately one year. The Company cross-claimed against the
corporation that licensed the technology at issue to the Company. Damages,
if any, are believed to be de minimis and the possibility of an injunction,
in the opinion of counsel, is extremely remote given the substantial
question of patent validity, infringement and the short period the patents
are viable.
In July 1997, a former sales representative commenced action against the
Company and an investment firm alleging tortious interference of contract
in connection with the Company's Dowty acquisition. The Company believes
the claim, for $25 Million, is without merit.
In March 1997, shortly after the Company obtained a temporary restraining
order from the New York State Supreme Court against Valence Technologies
(Valence) and Richard Thompson (a former Company employee, now employed by
Valance), Valence served the Company with a complaint that it had filed in
January 1997, in the District Court of Clark County, Nevada. Valence's
complaint seeks a declaratory judgment that the Invention, Trade Secret and
Covenant Not to Compete Agreement executed by Thompson and the Company in
March 1994, is unenforceable. Valence's complaint also alleges causes of
action for misappropriation of trade secrets, unfair competition and
tortious interference with contractual relations arising out of the
Company's hiring more than two years before of a former employee of
Valence. The complaint seeks compensatory and punitive damages in
unspecified amounts, attorneys' fees, costs and a permanent injunction.
In April 1997, the Company moved to dismiss the complaint on the grounds of
lack of personal jurisdiction. The motion was fully briefed, and the
parties are awaiting an argument date before the Nevada court.
No discovery or any other activity has taken place in the case. The Company
intends to defend the case vigorously.
-15-
<PAGE>
(b) Terminated Legal Proceedings
No legal proceedings were terminated during the fiscal quarter ended June
30, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Report, no matters
were submitted to a vote of security holders through the solicitation of proxies
or otherwise.
-16-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Company's Common Stock is included for quotation on the National Market
System of the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the symbol "ULBI."
The following table sets forth the quarterly high and low sales prices of the
Company's Common Stock during the Company's last two fiscal years:
Sales Prices
High Low
---- ---
Fiscal Year 1996
Quarter ended September 30, 1995..................... $24.75 $14.75
Quarter ended December 31, 1995...................... 24.50 16.75
Quarter ended March 31, 1996......................... 24.00 10.50
Quarter ended June 30, 1996.......................... 16.25 12.38
Fiscal Year 1997
Quarter ended September 30, 1996..................... $15.25 $10.75
Quarter ended December 31, 1996...................... 13.75 7.50
Quarter ended March 31, 1997......................... 12.25 7.88
Quarter ended June 30, 1997.......................... 13.00 7.38
On September 19, 1997, the Company's common stock closing price was $ 19.25 per
share.
Holders
As of September 19, 1997, there were 177 holders of record of the Company's
Common Stock. Based upon conversations with brokers, management of the Company
believes that there are significantly more than 177 beneficial holders of the
Company's Common Stock.
Dividends
The Company has never declared or paid any cash dividend on its capital stock.
The Company intends to retain earnings, if any, to finance future operations and
expansion and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. Any future payment of dividends will depend upon the
financial condition, capital requirements and earnings of the Company, as well
as upon other factors that the Board of Directors may deem relevant.
-17-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Battery sales $ 14,765,364 $ 12,623,646 $ 11,212,643 $ 2,889,193 $ 1,816,696
Technology contracts 1,175,754 2,477,887 3,430,640 2,424,356 2,073,097
----------------------------------------------------------------------------
Total Revenue 15,941,118 15,101,533 14,643,283 5,313,549 3,889,793
Cost of products sold:
Battery costs 13,880,321 12,317,486 10,900,049 3,167,653 2,511,859
Technology contracts 710,937 936,053 1,873,892 1,781,043 593,518
----------------------------------------------------------------------------
Total cost of products sold 14,591,258 13,253,539 12,773,941 4,948,696 3,105,377
Gross profit 1,349,860 1,847,994 1,869,342 364,853 784,416
Selling, general and
administrative expenses 5,217,441 4,993,644 4,262,545 2,879,085 1,527,646
Research and development
expenses 3,939,786 3,688,687 2,685,313 1,481,211 658,139
Loss (gain) on fires (55,835) 351,902
Loss on China development program 805,296
----------------------------------------------------------------------------
Loss before interest income,
other and taxes (8,556,828) (7,186,239) (5,078,516) (3,995,443) (1,401,369)
Interest income 1,351,646 2,016,831 1,721,682 835,585 350,085
Gain on sale of securities 1,930,056
Other income(expense), net (41,172) (34,844) 22,498 237,648
----------------------------------------------------------------------------
Loss before income taxes (7,246,354) (3,239,352) (3,391,678) (3,137,360) (813,636)
Income taxes
----------------------------------------------------------------------------
Net loss $ (7,246,354) $ (3,239,352) $ (3,391,678) $ (3,137,360) $ (813,636)
============================================================================
Net loss per common share $ (0.91) $ (0.41) $ (0.50) $ (0.57) $ (0.20)
============================================================================
Weighted average number
of shares outstanding 7,923,022 7,814,302 6,747,374 5,498,749 4,032,040
============================================================================
</TABLE>
Balance Sheet Data:
June 30,
---------------------------------
1997 1996
---- ----
Cash and
available-for-sale securities $ 22,157,926 $ 35,069,028
Working capital 27,205,839 44,666,186
Total assets 51,395,103 60,632,929
Stockholders' equity $ 46,762,881 $ 56,434,766
-18-
<PAGE>
ITEM 7. 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 financial statements and notes
thereto appearing elsewhere in this report.
General
The Company was formed in December 1990. On March 12, 1991, the Company acquired
certain technology and assets from Kodak relating to the 9-volt
lithium-manganese dioxide battery. The Company is currently producing 9, 6 and
3-volt lithium batteries in commercial quantities at its Newark, New York
facility. The Company also produces and markets high rate lithium batteries and
seawater batteries at its U.K. subsidiary in Abingdon, England.
Since its inception, the Company has concentrated significant resources toward
research and development activities primarily related to its solid state
lithium-ion rechargeable battery in recent years. The Company has shipped
prototypes of its rechargeable batteries for testing to original equipment
manufacturers and others. In addition to the Company's preliminary manual
production line, the Company has developed and implemented a semi-automatic
flexible production line for initial production runs and medium volume programs.
High volume rechargeable battery manufacturing equipment is currently being
tested and installed in Newark, NY.
The Company believes that its results of operations in prior periods may not be
indicative of results in future periods. Future operating results may be
affected by a wide range of factors and may fluctuate significantly from period
to period.
The Company reports the results of two business segments, battery sales and
technology contracts. Technology contracts include technological and research
and development services to government agencies and other third parties. In
fiscal 1997, 1996 and 1995, revenue from technology contracts represented
approximately 7%, 16% and 23%, respectively, of the total revenues. The Company
expects revenues from technology contracts as a percentage of total revenues to
continue to decrease as battery sales increase. Certain of its technology
contracts, including those with the U.S. government absorb certain of the
Company's research and development costs. The Company, while segmenting revenues
for technology contracts, does not allocate its' general research and
development costs to specific technology contracts. Accordingly, operating
income related to the technology contracts does not reflect the allocation of
these expenses.
The Company believes that the relatively moderate rate of inflation in recent
years has not had a significant impact on the Company's revenues or
profitability.
-19-
<PAGE>
Net Sales by 1997 1996 1995
Business Segment ---- ---- ----
- ----------------
Battery sales $ 14,765,000 $ 12,624,000 $ 11,213,000
Technology contracts 1,176,000 2,478,000 3,430,000
------------ ------------ ------------
Total revenue $ 15,941,000 $ 15,102,000 $ 14,643,000
Income (Loss) by
Business Segment
- ----------------
Batteries $ (5,261,000) $ (5,010,000) $ (3,347,000)
Technology contracts (62,000) 524,000 413,000
All Other (1,923,000) 1,247,000 (458,000)
------------ ------------ ------------
Net loss $ (7,246,000) $ (3,239,000) $ (3,392,000)
Results of Operations
Fiscal Years Ended June 30, 1997 and 1996
Total revenues increased by $839,000 or 6% during the year ended June 30, 1997
(fiscal 1997) to $15,941,000 from $15,102,000 for the year ended June 30, 1996
(fiscal 1996). This was principally due to an increase of battery sales in the
amount of $2,141,000 or 17% to $14,765,000 during fiscal 1997 from $12,624,000
for fiscal 1996. This increase in battery revenues was generated by both the
U.S. and the U.K. operations. In the U.S., revenues from the Company's BA-5372
battery increased as contract extensions were received from the U.S. Army which
supported increasing production rates throughout the year. This was partially
offset by reduced levels of 9-volt battery sales to the smoke detector market.
In the U.K., additional sales to the Ministry of Defense were partially offset
by decreased revenues from the high rate lithium and seawater batteries. These
reduced revenues in the U.K. were primarily caused by limitations of the
manufacturing facility due to a fire in December 1996. Revenues generated from
technology contracts decreased from $2,478,000 in 1996 to $1,176,000 in 1997.
This is the result of completion of certain contracts and delays in receipt of
new programs as the Company concentrates its' efforts on implementation of the
rechargeable battery manufacturing line.
The cost of products sold increased to $14,591,000 for fiscal 1997 from
$13,254,000 for fiscal 1996. As a ratio to revenues, the cost of products sold
was 92% for fiscal 1997 and 88% for fiscal 1996. Cost of products sold related
to battery sales increased to $13,880,000 or 94% of revenues for fiscal 1997
compared to $12,317,000 or 98% of revenues for fiscal 1996.
Net cost of products sold in the U.S. increased slightly. Higher operating
efficiencies were realized in manufacturing the BA-5372 battery. However, during
fiscal 1997, the Company reduced manufacturing levels of the 9-volt batteries to
align inventory with sales volume which resulted in increased unabsorbed
overhead expenses. The lower production volume during fiscal 1997 reduced net
inventory by more than $3,135,000 or 37% compared to 1996.
During fiscal 1997, the Company received funds from the insurance carriers which
were reimbursement for excess costs generated as a result of the fire in
December, 1996. The funds received were applied primarily to the cost of
products sold in the U.K. Technology contracts cost of products sold experienced
a decrease of $225,000 or 24% during 1997 compared to 1996.
-20-
<PAGE>
Operating expenses increased to $9,907,000 for fiscal 1997 compared to
$9,034,000 for fiscal 1996. Selling, general and administration expenses
increased to $5,217,000 for fiscal 1997 from $4,994,000 for fiscal 1996; an
increase of $223,000 or 4%. The Company anticipates that selling expenses will
continue to increase in order to support new products planned to be introduced
during fiscal 1998 and afterwards. Research and development expenses increased
by $251,000 or 7% to $3,940,000 for fiscal 1997 compared to $3,689,000 for
fiscal 1996. This increase is due primarily to increasing expenditures incurred
to support the rechargeable battery program.
Also included in total operating expenses was $56,000 of payments received in
excess of the loss provision related to the fires which occurred in the U.K.
During 1996, the Company provided a reserve of $352,000 for losses related to
fires. Generally, the Company records expenses related to the fires as they are
incurred and records the offsetting insurance proceeds only when received.
Additionally, the Company wrote-off its investment in the China development
project and related receivables due under provisions of various agreements
during the third quarter of fiscal 1997. The total cost of these write-offs was
$805,000. The original purpose of the Company's participation in the China
development program was to make available the 2/3A size lithium battery at a
competitive cost. Other sources for this battery have since been identified and
are supplying the Company's requirements.
Interest income declined by $665,000 or 33% to $1,352,000 for fiscal 1997 from
$2,017,000 for fiscal 1996, due to a lower average balance invested as the
Company has used cash and investments to fund the capital equipment improvements
and operations during 1997.
Net loss per common share increased to $0.91 in fiscal 1997, based on 7,923,022
weighted average number of shares outstanding, from a loss of $0.41 per share
for fiscal 1996 with 7,814,302 weighted average number of shares outstanding.
Net revenue increased 6% in 1997 compared to 1996. However, an unfavorable mix
with less revenue generated from technology contracts decreased the gross profit
by $498,000. Selling, general and administrative expenses combined with research
and development increased by 5% in order to continue support for the Company's
new solid polymer lithium-ion rechargeable battery. Also, during fiscal 1996,
the Company recorded a gain from the sale of securities in the amount of
$1,931,000.
Fiscal Year Ended June 30, 1996 and 1995
Total revenues increased by $459,000 or 3% to $15,102,000 during the year ended
June 30, 1996 (fiscal 1996) from $14,643,000 for fiscal 1995. Sales of batteries
increased to $12,624,000 during fiscal 1996 from $11,213,000 during fiscal 1995,
an increase of 13% or $1,411,000. Revenues from technology contracts decreased
by $953,000 or 28% to $2,478,000 for fiscal 1996 from $3,431,000 for fiscal
1995. The increased battery revenues were generated by the U.S. operations where
sales of primary batteries rose 69% reflecting a substantial increase in the
number of batteries sold to both existing and new customers. In the U.K.
operations, battery sales declined 36% primarily as a result of a fire that
occurred during the year. Technology contract revenues declined as the Company's
contract relating to the establishment of a battery manufacturing facility in
The Peoples Republic of China was in its final stage.
-21-
<PAGE>
The cost of products sold increased to $13,254,000 for fiscal 1996 from
$12,774,000, an increase of $480,000 or 4%. As a ratio to revenues, the cost of
products sold was 88% for fiscal 1996 and 87% for fiscal 1995. Cost of products
sold related to battery sales increased to $12,317,000 or 98% of revenues for
fiscal 1996 compared to $10,900,000 or 97% for fiscal 1995. Manufacturing
operations in the U.S. improved slightly in fiscal 1996 compared to the prior
year. This net improvement occurred despite a production slowdown in the fourth
fiscal quarter caused by reduced levels of battery sales. In the U.K., the cost
of batteries sold increased substantially during fiscal 1996 when compared to
1995 primarily due to a fire during the year. Technology contract cost of
products sold decreased to $936,000 or 38% of revenues during fiscal 1996 from
$1,873,892 or 55% of revenues for the same period of the prior year. The
increased gross margin during fiscal 1996 reflects payments received for
development funding and extension of the period of exclusivity until the end of
calendar 1998 from one of the world's leading cellular telephone manufacturers.
These payments had no associated cost of products sold.
Total operating expenses increased to $9,034,000 for fiscal 1996 from $6,948,000
for the same period of the prior year, an increase of $2,086,000 or 30%. Of this
total, selling, general and administrative expenses increased $731,000 or 17%
due to additional costs to promote battery sales. Research and development
increased to $3,689,000 during fiscal 1996 from $2,685,000 for fiscal 1995, an
increase of $1,004,000 or 37%. This increased cost is associated with continuing
support of the Company's rechargeable battery program. The Company has expended
funds to continue development of the lithium-ion solid-state rechargeable
battery in anticipation of market introduction during fiscal 1997.
Net interest income increased to $2,017,000 during fiscal 1996 from $1,722,000
for fiscal 1995 due to increasing interest rates during the twelve-month period.
The Company realized a gain on the sale of 123,000 shares of Intermagnetics
General Corporation (IMG) common stock it sold during the year. As of September
30, 1996, the Company owns 339,016 shares of common stock of IMG. This includes
a 2% stock dividend declared to IMG shareholders of record as of August 1, 1996.
During fiscal 1996, the Company provided a reserve against possible uninsured
expenses related to the fire that occurred at the U.K. operations during fiscal
1996.
Net loss per common share decreased during fiscal 1996 to $0.41 based on
7,814,301 weighted average number of shares outstanding from $0.50 per share
based on 6,747,374 weighted average number of shares outstanding during fiscal
1995. The modest increase in revenues, 3%, was offset by additional cost of
products sold so that gross profit for fiscal 1996 was unchanged from 1995.
Additional operating expenses, primarily research and development to support the
Company's developmental lithium-ion solid-state rechargeable battery resulted in
an increased loss from operations during fiscal 1996 when compared to 1995. This
increased loss from operations was more than offset by the realized gain from
the sale of securities and additional interest income. As a result, net loss for
fiscal 1996 was $3,239,000 compared to $3,392,000 for fiscal 1995.
-22-
<PAGE>
Liquidity and Capital Resources
During fiscal 1997, the Company used $1,572,000 of cash in operating activities
as compared to $6,723,000 in fiscal 1996. The substantial decrease in the cash
used in operations was primarily the result of decreases in inventories,
accounts receivable and earned contracts receivable offset by increased net loss
for fiscal 1996 and decreased accounts payable and accrued liabilities. In
fiscal 1997, the Company used $8,913,000 to purchase equipment, primarily for
the Company's rechargeable battery production line.
A continuation of substantial capital expenditures as well as research and
development expenses is anticipated as the Company moves toward mass production
and continued improvement of rechargeable batteries.
As of June 30, 1997, the Company has in excess of $22 million of cash, cash
equivalents and available-for-sale securities. The Company's current financial
position is adequate to maintain its operations through fiscal 1998.
-23-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as part of this Report are the financial statements
and supplementary data listed on Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On and effective as of April 16,1996, Ultralife Batteries, Inc. (the "Company")
informed Ernst & Young LLP ("Ernst & Young"), independent certified public
accountants, that the Board of Directors of the Company (including the Audit
Committee thereof) had decided not to continue the engagement of Ernst & Young,
and had approved the engagement of Arthur Andersen LLP ("Arthur Andersen") as
the Company's new independent certified public accountants to audit the
Company's financial statements (beginning with the fiscal year ending June 30,
1996) and to assist the Company in the preparation of its annual and other
reports under the Securities Exchange Act of 1934, as amended.
Ernst & Young's reports on the financial statements for the fiscal year of the
Company ended June 30, 1995 ("Applicable Fiscal Year"), did not contain an
adverse opinion or disclaimer of opinion, and was not qualified or modified as
to uncertainty, audit scope or accounting principles. During the Applicable
Fiscal Year and during the interim period from June 30, 1995 through April 16,
1996 (the "Interim Period"), there were no disagreements between the Company and
Ernst & Young on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures, which, if not resolved
to the satisfaction of Ernst & Young, would have caused Ernst & Young to make
reference to the matter in their report. There were no reportable events, as
that term is described in Item 304(a)(1)(iv) of Regulation S-K. In connection
with the filing by the Company of a Report on Form 8-K, dated April 16, 1996,
Ernst & Young submitted a letter addressed to the Securities and Exchange
Commission in which it agreed with the Company's foregoing statements.
As stated above, the Company has engaged, effective as of April 16, 1996, Arthur
Andersen as its new principal independent certified public accountant to audit
the Company's financial statements (beginning with the fiscal year ending June
30, 1996) and to assist in the preparation of annual, quarterly and other
reports. Prior to such engagement, the Company (including any of its
representatives or agents) did not consult with representatives of Arthur
Andersen regarding the application of accounting principles to a specified
transaction (either completed or proposed); or the type of audit opinion that
might be rendered on the Company's financial statements.
-24-
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Directors and Executive Officers of the Registrant" in the
Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-25-
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements
Attached hereto and filed as part of this report are the financial
statements and schedules listed below:
Ultralife Batteries, Inc. and Subsidiary Page
- ---------------------------------------- ----
Report of Independent Auditors, Arthur Andersen LLP....................... F-1
Report of Independent Auditors, Ernst & Young LLP......................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of June 30,
1997 and 1996.......................................................... F-3
Consolidated Statements of Operations for the
years ended June 30, 1997, 1996 and 1995............................... F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended June 30, 1997, 1996
and 1995............................................................... F-6
Consolidated Statements of Cash Flows for the
years ended June 30, 1997, 1996 and 1995............................... F-7
Notes to Consolidated Financial Statements................................ F-8
2. Financial Statement Schedules
Schedule II, Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted as they are
either not required, are not applicable, or the information called for is shown
in the financial statements or notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits. The following Exhibits are filed as a part of this Report:
<TABLE>
<CAPTION>
Exhibit Filed
Index Description of Document Herewith Incorporated By Reference to:
----- ----------------------- -------- -----------------------------
<S> <C> <C> <C>
3.1 Restated Certificate of Incorporation Exhibit 3.1 of Registration Statement,
File No. 33-54470 ("the 1992
Registration Statement")
3.2 By-laws Exhibit 3.2 of the 1992 Registration
Statement
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
Exhibit Filed
Index Description of Document Herewith Incorporated By Reference to:
----- ----------------------- -------- -----------------------------
<S> <C> <C> <C>
4.1 Specimen Copy of Stock Certificate Exhibit 4.1 of the 1992 Registration
Statement
4.2 Share Purchase Agreement between the Exhibit 4.2 of the 1992 Registration
Registrant and Intermagnetics General Statement
Corporation
10.1 Asset Purchase Agreement between the Exhibit 10.1 of the 1992 Registration
Registrant, Eastman Technology, Inc. and Statement
Eastman Kodak Company
10.2 Lease Agreement, as amended, between Exhibit 10.2 of the 1992 Registration
Kodak and the Registrant Statement
10.3 Joint Venture Agreement between Changzhou Exhibit 10.3 of the 1992 Registration
Battery Factory, the Company and H&A Statement
Company and related agreements
10.4 Employment Agreement between the Exhibit 10.4 of the 1992 Registration
Registrant and Joseph N. Barrella Statement
10.5 Employment Agreement between the Exhibit 10.5 of the 1992 Registration
Registrant, Bruce Jagid and Martin G. Statement
Rosansky
10.6 1991 Stock Option Plan Exhibit 10.6 of the 1992 Registration
Statement
10.7 1992 Stock Option Plan, as amended Exhibit 10.7 of the 1992 Registration
Statement
10.8 Representative's Warrant exercisable for Exhibit 10.8 of the 1992 Registration
purchase of Common Stock Statement
10.9 Stock Option Agreement under the Exhibit 10.9 on the Company's
Company's 1991 Stock Option Plan Report on Form 10-Q for the fiscal
quarter ended December 31, 1993,
File No. 0-20852 ("the 1993 10-Q").
10.10 Stock Option Agreement under the Exhibit 10.10 of the 1993 10-Q
Company's 1992 Stock Option Plan
10.11 Stock Option Agreement under the Exhibit 10.11 of the 1993 10-Q
Company's 1992 Stock Option Plan for
non-qualified options
10.12 Stock Option Agreement between the Exhibit 10.12 of the 1993 10-Q
Company and Stanley Lewin
10.13 Stock Option Agreement between the Exhibit 10.13 of the 1993 10-Q
Company and Joseph Abeles
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
Exhibit Filed
Index Description of Document Herewith Incorporated By Reference to:
----- ----------------------- -------- -----------------------------
<S> <C> <C> <C>
10.14 Stock Option Agreement between the Exhibit 10.14 of the 1993 10-Q
Company and Stuart Shikiar
10.15 Stock Option Agreement between the Exhibit 10.15 of the 1993 10-Q
Company and Stuart Shikiar
10.16 Stock Option Agreement between the Exhibit 10.16 of the 1993 10-Q
Company and Bruce Jagid
10.17 Various amendments, dated January 4, 1993 Exhibit 10.17 of the 1993 10-Q
through January 18, 1993 to the joint
venture agreement with the Changzhou
Battery Company
10.18 Sale of Business Agreement, by and Exhibit 10.18 on the Company's Current
between Dowty Group PLC and Ultralife (UK) Report on Form 8-K dated June 10, 1994,
File No. 0-20852
10.19 Technology Transfer Agreement relating to Exhibit 10.19 of the Company's
Lithium Batteries (Confidential treatment Registration Statement of Form S-1 filed
has been granted as to certain portions on October 7, 1994, File No. 33-84888 (
of this agreement) "the 1994 Registration Statement")
10.20 Technology Transfer Agreement relating to Exhibit 10.20 of the 1994 Registration
Lithium Batteries (Confidential Statement
treatment has been granted as to certain
portions of this agreement)
10.21 Employment Agreement between the Exhibit 10.21 of the Company's form 10-K
Registrant and Bruce Jagid. for the fiscal year ended June 30, 1995
("the 1995 10-K")
10.22 Amendment to the Employment Agreement Exhibit 10.22 of the 1995 10-K
between the Registrant and Bruce Jagid
10.23 Amendment to the Employment Agreement Exhibit 10.23 of the Company's form 10-K
between the Registrant and Bruce Jagid for the fiscal year ended June 30, 1996
("the 1996 10-K")
10.24 Amendment to the Agreement relating to Exhibit 10.24 of the 1996 10-K
rechargeable batteries. (Confidential
treatment has been granted as to certain
portions of this agreement.)
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
Exhibit Filed
Index Description of Document Herewith Incorporated By Reference to:
----- ----------------------- -------- -----------------------------
<S> <C> <C> <C>
10.25 Ultralife Batteries, Inc. Chief Executive Exhibit 10.25 of the 1996 10-K
Officer's Stock Option Plan.
10.26 Agreement with Mitsubishi Electronics X
America, Inc. relating to sample
batteries for lap-top computer use.
(Confidential treatment has been
requested as to certain portions of
this exhibit)
10.27 Purchase orders from Mitsubishi X
Electronics America, Inc. (Confidential
treatment has been requested as to
certain portions of this exhibit)
23.1 Consent of Arthur Andersen LLP X
23.2 Consent of Ernst & Young LLP X
</TABLE>
(d) Financial Statement Schedules.
The following financial statement schedules of the registrant are filed
herewith:
Schedule Page
- -------- ----
II Valuation and Qualifying Accounts S-1
-29-
<PAGE>
Ultralife Batteries, Inc.
EXHIBIT INDEX
Exhibit
Index Description of Document
----- -----------------------
10.26 Agreement with Mitsubishi Electronics America, Inc. relating to
sample batteries for lap-top computer use.
10.27 Purchase orders from Mitsubishi Electronics America, Inc.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Ultralife Batteries, Inc.:
We have audited the accompanying consolidated balance sheets of Ultralife
Batteries, Inc. (a Delaware corporation) and subsidiary as of June 30, 1997 and
1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ultralife Batteries, Inc. and
subsidiary as of June 30, 1997 and 1996, and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements as of June 30, 1997 and 1996, and for the years then ended is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subject to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Rochester, New York
September 5, 1997
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Ultralife Batteries, Inc. and Subsidiary
We have audited the consolidated statements of operations, stockholders' equity
and cash flows of Ultralife Batteries, Inc. and Subsidiary for the year ended
June 30, 1995. Our audit also included the financial statement schedule listed
in the Index at Item 14(a) as it pertains to fiscal 1995. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements of Ultralife Batteries,
Inc. and Subsidiary referred to above present fairly, in all material respects,
the consolidated results of their operations and their cash flows for the year
ended June 30, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Syracuse, New York
August 31, 1995
F-2
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Consolidated Balance Sheets
June 30,
--------------------------
1997 1996
---- ----
Assets
Current Assets:
Cash and cash equivalents $ 2,310,725 $ 1,212,743
Available-for-sale securities 19,847,201 33,856,285
Trade accounts receivable (less
allowance for doubtful
accounts of $278,000 in 1997
and $190,000 in 1996) 2,715,728 3,485,044
Earned contract revenues receivable -- 521,696
Inventories, net 5,302,752 8,437,791
Prepaid expenses and other current assets 1,661,655 1,350,790
-------------------------
Total current assets 31,838,061 48,864,349
-------------------------
Property and equipment:
Machinery and equipment 21,267,756 12,419,928
Leasehold improvements 216,111 150,716
-------------------------
21,483,867 12,570,644
Less accumulated depreciation 2,610,172 1,882,106
-------------------------
18,873,695 10,688,538
-------------------------
Other assets and deferred charges:
Technology license agreements (net of
accumulated amortization of
$416,653 and $303,458
in 1997 and 1996, respectively) 683,347 796,542
China development program -- 283,500
-------------------------
683,347 1,080,042
=========================
Total assets $51,395,103 $60,632,929
=========================
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Consolidated Balance Sheets
June 30,
----------------------------
Liabilities and stockholders' equity 1997 1996
---- ----
Current liabilities:
Accounts payable $ 2,659,547 $ 3,434,473
Accrued compensation 234,501 276,668
Other accrued liabilities 101,741 153,022
Customer advances 1,636,433 334,000
----------------------------
Total current liabilities 4,632,222 4,198,163
----------------------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.10 per share,
authorized 12,000,000 shares;
outstanding - 7,926,086 shares
in 1997 and 7,923,211 in 1996 795,360 792,322
Preferred stock, authorized 1,000,000 shares,
$0.10 par value - none outstanding -- --
Capital in excess of par value 64,785,814 64,630,638
Unrealized net gain on securities 1,311,343 3,842,878
Accumulated deficit (20,115,175) (12,868,821)
Foreign currency translation adjustment 291,041 37,749
----------------------------
47,068,383 56,434,766
Less: Treasury stock, at cost (27,500 shares
in 1997) (305,502) --
----------------------------
Total stockholders' equity 46,762,881 56,434,766
----------------------------
Total liabilities and stockholders' equity $ 51,395,103 $ 60,632,929
============================
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-4
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Battery sales $ 14,765,364 $ 12,623,646 $ 11,212,643
Technology contracts 1,175,754 2,477,887 3,430,640
--------------------------------------------
Total revenue 15,941,118 15,101,533 14,643,283
Cost of products sold:
Battery costs 13,880,321 12,317,486 10,900,049
Technology contracts 710,937 936,053 1,873,892
--------------------------------------------
Total cost of products sold 14,591,258 13,253,539 12,773,941
--------------------------------------------
Gross profit 1,349,860 1,847,994 1,869,342
Other operating expenses:
Selling, general and administrative 5,217,441 4,993,644 4,262,545
Research and development 3,939,786 3,688,687 2,685,313
Loss(gain) on fires (55,835) 351,902 --
Loss on China development program 805,296 -- --
--------------------------------------------
Total other operating expenses 9,906,688 9,034,233 6,947,858
--------------------------------------------
Loss from operations (8,556,828) (7,186,239) (5,078,516)
Other income (expense):
Interest income 1,351,646 2,016,831 1,721,682
Gain on sale of securities -- 1,930,056 --
Miscellaneous expense (41,172) -- (34,844)
--------------------------------------------
Loss before income taxes (7,246,354) (3,239,352) (3,391,678)
Income taxes -- -- --
--------------------------------------------
Net loss $ (7,246,354) $ (3,239,352) $ (3,391,678)
============================================
Net loss per common share $ (0.91) $ (0.41) $ (0.50)
============================================
Weighted average number of shares
outstanding 7,923,022 7,814,302 6,747,374
============================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
---------------------- Foreign
Capital in Unrealized Currency
Number Excess of Net Gain Accumulated Translation Treasury
of Shares Amount Par Value on Securities Deficit Adjustment Stock Total
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1994 5,543,586 $ 554,359 $30,259,237 $ 2,958,751 $ (6,237,791) $ 19,857 $ -- $ 27,554,413
Shares issued under
public offering 2,000,000 200,000 35,300,000 35,500,000
Public offering
expenses (2,902,927) (2,902,927)
Shares issued under
stock option plans
and other stock
options 112,525 11,253 565,721 576,974
Foreign currency
translation
adjustment 62,634 62,634
Change in unrealized
net gain on
securities 557,618 557,618
Net loss (3,391,678) (3,391,678)
----------------------------------------------------------------------------------------------------------
Balance at
June 30, 1995 7,656,111 765,612 63,222,031 3,516,369 (9,629,469) 82,491 -- 57,957,034
Shares issued
under stock option
plans and other
stock options 267,100 26,710 1,408,607 1,435,317
Foreign currency
translation
adjustment (44,742) (44,742)
Change in unrealized
net gain on
securities 326,509 326,509
Net loss (3,239,352) (3,239,352)
----------------------------------------------------------------------------------------------------------
Balance at
June 30, 1996 7,923,211 792,322 64,630,638 3,842,878 (12,868,821) 37,749 -- 56,434,766
Shares issued
under stock
option plans
and other
stock options 30,125 3,013 152,112 155,125
Purchase of treasury
stock (27,500) (305,502) (305,502)
Other 250 25 3,064 3,089
Foreign currency
translation
adjustment 253,292 253,292
Change in unrealized
net gain on
securities (2,531,535) (2,531,535)
Net loss (7,246,354) (7,246,354)
----------------------------------------------------------------------------------------------------------
Balance at
June 30, 1997 7,926,086 $ 795,360 $64,785,814 $ 1,311,343 $(20,115,175) $ 291,041 $ (305,502) $ 46,762,881
==========================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net loss $ (7,246,354) $ (3,239,352) $ (3,391,678)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 841,261 806,664 613,246
Loss on China development program 283,500 -- --
Provision for loss on accounts receivable 88,000 102,153 64,311
Provision for inventory obsolescence 93,178 (403,789) 474,050
Foreign currency loss -- -- (24,274)
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable 681,316 (727,615) (1,575,053)
Decrease (increase) in earned contract revenues
receivable 521,696 790,246 (1,195,142)
Decrease (increase) in inventories 3,041,861 (2,797,373) (3,979,424)
Decrease in prepaid expenses and other
current assets (310,865) (815,742) (59,844)
Increase (decrease) in accounts payable
and accrued liabilities (868,374) (319,951) 1,987,001
Increase (decrease) in customer advances 1,302,433 (118,000) 100,493
---------------------------------------------
Net cash used in operating activities (1,572,348) (6,722,759) (6,986,314)
Investing activities
Purchase of property and equipment (8,913,223) (6,661,725) (1,839,558)
China development program payments -- -- (121,500)
Purchases of availableforsale securities (139,484,737) (71,151,177) (122,875,062)
Sales of availableforsale securities 64,969,005 19,260,164 24,969,843
Maturities of availableforsale securities 85,993,281 63,363,519 74,398,379
---------------------------------------------
Net cash provided by (used in) investing activities 2,564,326 4,810,781 (25,467,898)
Financing activities
Proceeds from issuance of common stock 158,214 1,435,317 33,174,047
Purchase of treasury stock (305,502) -- --
---------------------------------------------
Net cash provided by (used in) financing activities (147,288) 1,435,317 33,174,047
Effect of exchange rate changes on cash 253,292 (44,742) 24,179
(Decrease) increase in cash and cash equivalents 1,097,982 (521,403) 744,014
Cash and cash equivalents at beginning of year 1,212,743 1,734,146 990,132
---------------------------------------------
Cash and cash equivalents at end of year $ 2,310,725 $ 1,212,743 $ 1,734,146
=============================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1997
1. Summary of Significant Accounting Policies
Description of Business
Ultralife Batteries, Inc. (the "Company") develops, manufactures, and markets
primary lithium batteries and is developing advanced rechargeable lithium-ion
solid-polymer batteries for use in applications requiring high energy, reliable
and long-lasting power sources. The Company generally does not distribute its
product to a concentrated geographical area nor is there a significant
concentration of credit risks arising from individual or groups of customers
engaged in similar activities, or who have similar economic characteristics. In
1996, sales to one customer totaled approximately $ 1,920,000. By the end of the
year, this customer had paid their trade account in full. There were no
concentrations of credit risks in 1997 or 1995. The Company does not normally
obtain collateral on trade accounts receivable.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Ultralife Batteries UK, Ltd.("Ultralife UK"). All
material intercompany accounts and transactions have been eliminated in
consolidation.
Management's Use of Judgment and Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenues from sales of batteries are recognized when products are shipped.
Revenue on Technology Contracts
For a majority of its technology contracts, the Company recognizes revenue using
the percentage of completion method based on the relationship of costs incurred
to date to the total estimated cost to complete the contract. When a loss on a
contract is estimated, the full amount of the loss is recognized immediately.
Costs related to performance under various technology contracts are classified
as research and development expenses if expenditures are consistent with the
ongoing research and development efforts of the Company. Under certain research
and development arrangements with the U.S.
F-8
<PAGE>
Government, the Company may be required to transfer any technology developed to
the U.S. Government.
Available-for-Sale Securities
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Marketable equity securities and debt securities are classified as
available-for-sale. These securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity.
The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to maturity or
in the case of mortgage-backed securities, over the estimated life of the
security. Such amortization is included in interest income. Realized gains and
losses, and declines in value judged to be other-than-temporary on
available-for-sale securities are included in available-for-sale securities
gains (losses). The cost of securities sold is based on the specific
identification method. Interest on securities classified as available-for-sale
is included in interest income.
Inventories
Inventories are stated at the lower of cost or market with cost determined under
the first-in, first-out (FIFO) method.
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.
During 1996, the Company adopted Statement of Financial Accounting Standards No.
121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If such events or
changes in circumstances are present, a loss is recognized to the extent the
carrying value of the asset is in excess of the sum of the undiscounted cash
flows expected to result from the use of the asset and its eventual disposition.
Stock-Based Compensation
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which
permits either recording the estimated value of stock-based compensation over
the applicable vesting period or disclosing the unrecorded cost and the related
effect on earnings per share in the notes to the financial statements. In the
current year, the Company has elected to comply with the disclosure provisions
of the statement. The effect of SFAS 123 in the pro forma disclosures are not
indicative of future amounts. The statement does not apply to awards prior to
1995, and additional awards are anticipated.
F-9
<PAGE>
Technology License Agreements
Technology license agreements consist of the rights to patented technology and
related technical information. The agreements are amortized using the
straight-line method over three to ten years. Additionally, the Company will be
required to make royalty payments at stated rates based on the terms of each
agreement. No royalty expense has been recognized to date.
Translation of Foreign Currency
The financial statements of the Company's foreign subsidiary are translated into
U.S. dollar equivalent in accordance with Statement of Financial Accounting
Standards No. 52. There was no exchange gain or loss included in net income for
the years ended June 30, 1997, 1996 and 1995.
Income Taxes
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that may be in effect when the differences
are expected to reverse.
Research and Development
Research and development expenditures are charged to operations as incurred.
Cash and Cash Equivalents
The Company considers all demand deposits with financial institutions and
financial instruments with original maturities of three months or less to be
cash equivalents.
Derivative Financial Instruments and
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments,"
requires disclosure of any significant derivative or other financial
instruments. The Company does not have any derivative financial instruments at
June 30, 1997 and 1996.
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments" requires disclosure of an estimate of the fair
value of certain financial instruments. The fair value of financial instruments
pursuant to SFAS No. 107 approximated their carrying values at June 30, 1997 and
1996. Fair values have been determined through information obtained from market
sources.
Net Loss Per Common Share
Net loss per common share is computed on the basis of the weighted average of
common and common equivalent shares outstanding during the period.
F-10
<PAGE>
New Accounting Pronouncements
The Company accounts for net income per common and common equivalent share in
accordance with the provisions of Accounting Principles Board Opinion No. 15
(APB No. 15). In February 1997, Statement of Financial Accounting Standards No.
128 (SFAS No. 128), "Earnings Per Share" was issued. SFAS No. 128 replaces
primary Earnings Per Share (EPS) with basic EPS. Basic EPS is computed by
dividing reported earnings available to common stockholders by weighted average
shares outstanding. No dilution for common share equivalents is included. Fully
diluted EPS, now called diluted EPS, is still required. The Company is required
to adopt SFAS No. 128 retroactively for periods ending after December 15, 1997.
On a pro forma basis, basic EPS and diluted EPS for the years ended June 30,
1997, 1996 and 1995 were $(0.91), $(0.41) and $(0.50), respectively, the same as
reported EPS.
Legal Matters
The Company is subject to litigation from time to time in the ordinary course of
business. Although the amount of any liability with respect to such litigation
cannot be determined, in the opinion of management, such liability will not have
a material adverse effect on the Company's financial condition or results of
operations.
Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
2. Leases
The Company leases its principal facility under the terms of an operating lease
with an initial term of seven years. In 1995, the Company entered into an
agreement to amend the initial lease to reflect rental of an additional 40,333
square feet. The amendment extended the term of the lease to March 12, 2003. The
base rent is subject to a 4% annual increase. Under the terms of the lease the
Company has the right to lease additional space and also has the right to first
refusal of any offer made to the lessor to purchase the facility. Additionally,
the Company is liable for any environmental contamination that it creates during
the term of the lease.
In addition, Ultralife UK leases its principal facility under the terms of an
operating lease with an initial lease term of twenty-five years.
Rental expenses for all operating leases were $745.332, $773,000, and $760,091
for the years ended June 30, 1997, 1996, and 1995, respectively. Future minimum
lease payments under noncancelable operating leases as of June 30, 1997 are as
follows: 1998--$874,825; 1999--$846,901; 2000--$807,803; 2001--$808,657;
2002--$828,152; and thereafter--$1,720,399. The above amounts do not include
contingent or additional rent.
F-11
<PAGE>
3. Investments
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
Unrealized
---------- Estimated
Cost Gains Losses Fair Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1997
U.S. Treasury securities and
obligations of U.S. Government
agencies $2,352,880 $1,293 $4,186 $2,349,987
Mortgage backed securities 2,829,058 11,288 261 2,840,085
U.S. corporate securities 11,200,004 32,077 127,146 11,104,935
-----------------------------------------------------------------------
Total debt securities 16,381,942 44,658 131,593 16,295,007
Intermagnetics General Corporation
(equity securities) 2,153,916 1,398,278 -- 3,552,194
-----------------------------------------------------------------------
$18,535,858 $1,442,936 $131,593 $19,847,201
=======================================================================
<CAPTION>
Unrealized
---------- Estimated
Cost Gains Losses Fair Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1996
U.S. Treasury securities and
obligations of U.S. Government
agencies $8,508,124 $24,445 $14,671 $8,517,898
Mortgage backed securities 1,008,153 2,007 -- 1,010,160
U.S. corporate securities 18,343,214 14,585 12,214 18,345,585
-----------------------------------------------------------------------
Total debt securities 27,859,491 41,037 26,885 27,873,643
Intermagnetics General Corporation
(equity securities) 2,153,916 3,828,726 -- 5,982,642
-----------------------------------------------------------------------
$30,013,407 $3,869,763 $26,885 $33,856,285
=======================================================================
</TABLE>
The Company has instructed its investment fund managers to invest in
conservative, investment grade securities with average maturities of less than
three years. The gross realized gains on sales of available-for-sale securities
totaled $-0-, $1,930,056, and $-0- and the gross realized losses totaled $-0-,
$-0- and $77,699 for the years ended June 30, 1997, 1996, and 1995,
respectively.
The amortized cost and estimated fair value of debt and marketable equity
securities at June 30, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment penalties
or the Company may sell the securities to meet their ongoing and potential
future cash needs.
F-12
<PAGE>
Estimated
Available-for-Sale Cost Fair Value
- ---------------------------------- ---------------------------
Due in one year or less $16,031,651 $15,945,638
Due after one year through three years 350,291 349,369
---------------------------
16,381,942 16,295,007
Equity securities 2,153,916 3,552,194
---------------------------
$18,535,858 $19,847,201
===========================
4. Income Taxes
Foreign and domestic loss carryforwards totaling approximately $22,020,000 are
available to reduce future taxable income. Foreign loss carryforwards of
$2,834,000 can be carried forward indefinitely. The domestic net operating loss
carryforward of $19,186,000 expires in 2006 through 2012. Due to a change in
ownership defined under Internal Revenue Code Section 382, $2,738,000 of the net
operating loss carryforward will be subject to an annual limitation of
$1,507,000.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The Company increased its
valuation allowance by approximately $3,273,000, $1,843,000 and $496,000 for the
years ended June 30, 1997, 1996 and 1995, respectively, to offset the deferred
tax assets due to uncertainty of realizations.
Significant components of the Company's deferred tax liabilities and assets as
of June 30, are as follows:
1997 1996
---- ----
Deferred tax liabilities:
Unrealized gain on securities $ 514,737 $ 1,306,579
Tax over book depreciation 666,016 497,797
----------------------------
Total deferred tax liabilities 1,180,753 1,804,376
----------------------------
Deferred tax assets:
Net operating loss carryforward 7,486,716 4,925,559
Other 464,827 377,030
----------------------------
Total deferred tax assets 7,951,543 5,302,589
Valuation allowance for deferred assets (6,770,790) (3,498,213)
----------------------------
Net deferred tax assets 1,180,753 1,804,376
----------------------------
Net deferred income taxes $ -- $ --
============================
There were no income taxes paid for the years ended June 30, 1997, 1996 and
1995. For financial reporting purposes, loss from continuing operations before
income taxes included the following:
F-13
<PAGE>
June 30,
-----------------------------------------
1997 1996 1995
---- ---- ----
United States $(6,916,312) $(1,605,015) $(2,743,611)
Foreign (330,042) (1,634,337) (648,067)
-----------------------------------------
Total $(7,246,354) $(3,239,352) $(3,391,678)
=========================================
There are no undistributed earnings of Ultralife UK, the Company's foreign
subsidiary, at June 30, 1997.
5. Commitments
In July 1992, the Company entered into a series of agreements with the Changzhou
Battery Factory ("agreements") in the Peoples Republic of China ("PRC"). These
agreements provide for the establishment of a lithium battery plant in the PRC
and purchase by the Company of approximately 80% of the joint venture's annual
production. The Company is required to pay $675,000 to the program of which
$472,500 has been paid to date. The Company has not provided for the remaining
$202,500 as it has no intention of paying the Changzhou Battery Factory.
Despite continuous discussions, The Changzhou Battery Factory has not paid the
remaining amounts due to the Company in accordance with the terms of the
agreements. During the third quarter of fiscal 1997, the Company wrote-off its
investment in the China development program and the related receivables due
under the provisions of the agreements.
During 1996, the Company opened an irrevocable letter of credit up to a maximum
of $334,000 with an interest rate of 3.75% a year and an expiration date of
December 31, 1998. It is collateralized by $334,000 of the Company's
investments. If the Company fails to fulfill its obligations under an agreement,
the customer may draw the amount due. As of June 30, 1997, there has been no
draw on the irrevocable letter of credit.
The Company entered into an Indemnity Agreement with each member of its Board of
Directors and corporate officers in June 1993. The agreement provides that the
Company will reimburse directors or officers for all expenses, to the fullest
extent permitted by law and the Company by-laws, arising out of their
performance as agents or trustees of the Company.
As of June 30, 1997 the Company is committed to purchase approximately
$3,242,000 of production machinery and equipment.
6. Stock Options and Warrants
The Company sponsors several stock-based compensation plans, all of which are
accounted for under the provisions of APB Opinion No. 25. Accordingly, no
compensation cost has been recognized for the Company's plans. Had compensation
expense for all of the Company's stock-based compensation been determined
consistent with SFAS No. 123, the Company's net loss would have been $8,294,904
and $4,249,214 in 1997 and 1996, respectively, compared with the reported losses
of $7,246,354 and $3,239,352. Loss per share would have been $1.05 and $0.54 in
1997 and 1996, as compared to reported loss per share of $0.91 and $0.41.
F-14
<PAGE>
For purposes of this disclosure, the fair value of each fixed option grant was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grant in 1997 and 1996,
respectively: expected option terms of three years for both periods; expected
stock volatility of approximately 46.6% for both periods; expected dividend
yields of 0% for both periods and risk free interest rates of 5.8% and 5.7%. The
weighted average fair value of options granted was $4.18 in 1997 and $7.22 in
1996.
The stockholders of the Company have approved three stock option plans that
permit the grant of options. In addition, the stockholders of the Company have
approved the grant of options outside of any of these plans. Under the 1991
stock option plan, 100,000 shares of common stock are reserved for grant to key
employees and consultants of the Company through September 13, 2001. The
exercise price per share shall be determined by the Board of Directors as
follows: (i) Incentive Stock Options (ISOs) shall not be less than 100% of the
fair market value at the date of grant; (ii) ISOs granted to holders of more
than 10% shall not be less than 110% of the fair market value at the date of
grant; and (iii) non-qualified stock options ("NQSOs") shall not be less than
85% of the fair market value of a share at the date of grant. The exercise
period is to be determined at the time of grant but cannot exceed ten years
(five years from the time of grant if issued to a holder of more than 10%). All
options granted under the 1991 plan are NQSOs.
The stockholders of the Company have also approved a 1992 stock option plan that
is substantially the same as the 1991 stock option plan. The shareholders have
approved reservation of 1,150,000 shares of common stock for grant under the
plan. During 1997, the Board of Directors approved an amendment to the plan
increasing the number of common shares reserved by 500,000 to 1,650,000. The
Company will seek shareholder ratification of this amendment at the December,
1997 annual shareholders' meeting. Options granted under the 1992 plan are
either ISO's or NQSO's; key employees are eligible to receive ISO's and NQSO's;
directors and consultants are eligible to receive only NQSO's.
Effective March 1, 1995, the Company granted the Chief Executive Officer ("CEO")
options to purchase 100,000 shares at $14.25 per share. The options are
exercisable in annual increments of 20,000 shares over a five-year period
commencing March 1, 1996 until March 1, 2001. In addition, on March 1, 1994, the
Company granted options to the CEO under the terms of an employment agreement.
Options to purchase 150,000 shares at $11.00 per share have been granted. These
options are exercisable in annual increments of 30,000 shares over a five-year
period commencing March 1, 1995 until March 1, 2000.
The options to purchase 150,000 shares of common stock granted to the CEO
pursuant to the 1994 Agreement were ratified by the Company's shareholders at
the December 5, 1996 annual meeting of the shareholders.
F-15
<PAGE>
This table summarizes data for the stock options issued by the Company:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Price Number Exercise Price Number Exercise Price
of Shares Per Share of Shares Per Share of Shares Per Share
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares under option at
beginning of year 1,194,425 $12.67 1,259,975 $10.67 1,130,000 $ 8.76
Options granted 503,150 $10.12 190,000 $19.33 314,500 $15.08
Options exercised (30,125) $ 5.15 (218,800) $ 6.56 (112,525) $ 5.13
Options canceled (330,150) $14.30 (36,750) $14.98 (72,000) $ 8.49
------------------------------------------------------------------------------------------
Shares under option at
end of year 1,337,300 $11.51 1,194,425 $12.67 1,259,975 $10.67
------------------------------------------------------------------------------------------
Options exercisable at
end of year 826,300 $11.43 570,125 $13.88 531,100 $12.26
</TABLE>
The following table represents additional information about stock option
outstanding at June 30. 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted- Weighted-
Number Average Weighted- Number Average
Range of Outstanding Remaining Average Exercisable At Exercise Price
Exercise Prices At June 30, 1997 Contractual Life Exercise Price June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8.00 - 12.00 942,900 4.4 Years $9.75 617,400 $ 9.81
12.13 - 17.50 314,400 3.7 Years 14.33 163,950 14.68
18.25 - 24.50 80,000 3.8 Years 21.11 44,950 21.84
- ---------------------------------------------------------------------------------------------------------------------
$8.00 - 24.50 1,337,300 4.2 Years $11.51 826,300 $11.43
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company had issued warrants to purchase 100,625 shares of its common stock.
Those warrants were exercised on September 21, 1995. The Company has reserved
2,159,125, 2,159,125, and 1,409,125 shares of common stock under the various
stock option plans and warrants as of June 30, 1997, 1996, and 1995,
respectively.
7. 401(K) Plan
On April 23, 1992, the Company established a defined contribution 401(k) plan
covering substantially all employees. Employees can contribute a portion of
their salary or wages as prescribed under Section 401(k) of the Internal Revenue
Code and, subject to certain limitations, the Company may, at the Board of
Directors discretion, authorize an employer contribution based on a portion of
the employees' contribution. Effective January 1, 1997, the Board of Directors
approved Company matching of employee contributions up to a maximum of 3% of the
employee's income. For the year ended June 30, 1997, the Company contributed
$74,760. There were no employer contributions for the fiscal years ended June
30, 1996 or 1995.
F-16
<PAGE>
8. Inventories
The year-end composition of inventories were:
1997 1996
------------------------------
Raw materials $2,993,858 $3,311,440
Work in process 547,468 4,329,111
Finished products 2,647,345 1,589,981
------------------------------
6,188,671 9,230,532
Less: Reserve for obsolescence 885,919 792,741
------------------------------
$5,302,752 $8,437,791
==============================
9. Stockholders' Equity and Related Party Transactions
During fiscal 1996, the shareholders of the Company ratified an amendment to the
Company's Certificate of Incorporation to change the authorized but unissued
preferred stock from no par to $0.10 par value per share. The Board of Directors
has the authority to fix by resolution the voting power, if any, designations,
preferences, privileges or other special rights of any series of preferred
stock. No shares of preferred stock have been issued.
The Company holds approximately 339,016 shares (market value of $3,552,194) and
332,369 shares (market value of $5,982,642) of Intermagnetics General
Corporation ("IMG") at June 30, 1997 and 1996, respectively. IMG is considered
to be a related party since certain directors of the Company also serve as
officers or directors of IMG.
10. Business Segment Information
The Company's operations are classified into two business segments: batteries
and technology contracts. Operations within the battery segment include the
manufacture and sale of lithium batteries. The technology contract segment
includes revenue associated with the series of agreements with Changzhou as well
as various research and development contracts with the U.S. Government and other
companies. There are no inter-segment sales. U.S. sales to foreign customers
during 1997, 1996, and 1995 were $2,124,709, $1,381,352, and $608,427,
respectively.
F-17
<PAGE>
Year ended June 30,
1997 1996 1995
------------------------------------------
Business Segment Results
Net Sales:
Batteries $14,765,364 $12,623,646 $11,212,643
Technology contracts 1,175,754 2,477,887 3,430,640
------------------------------------------
$15,941,118 $15,101,533 $14,643,283
==========================================
Income (loss) before income taxes:
Batteries $(5,261,013) $(5,010,631) $(3,346,856)
Technology contracts (62,295) 524,180 413,523
Corporate administration (1,923,046) 1,247,099 (458,345)
------------------------------------------
$(7,246,354) $(3,239,352) $(3,391,678)
==========================================
Depreciation and amortization:
Batteries $ 841,261 $ 806,664 $ 613,246
Technology contracts -- -- --
Corporate administration -- -- --
------------------------------------------
$ 841,261 $ 806,664 $ 613,246
==========================================
Identifiable assets:
Batteries $25,833,503 $21,808,067 $12,796,090
Technology contracts 1,742,019 2,121,544 2,525,582
Corporate administration 23,819,581 36,703,318 47,271,476
------------------------------------------
$51,395,103 $60,632,929 $62,593,148
==========================================
Capital expenditures:
Batteries $ 8,913,223 $ 6,661,725 $ 1,839,558
Technology contracts -- -- --
Corporate administration -- -- --
------------------------------------------
$ 8,913,223 $ 6,661,725 $ 1,839,558
==========================================
Information concerning geographic area is as follows:
Year ended June 30,
1997 1996 1995
------------------------------------------
Revenue:
North America $ 10,611,602 $ 10,967,546 $ 8,202,047
Europe 5,329,516 4,133,987 6,441,236
------------------------------------------
$ 15,941,118 $ 15,101,533 $14,643,283
==========================================
Loss before income taxes:
North America $ (6,916,312) $(1,605,015) $(2,743,611)
Europe (330,042) (1,634,337) (648,067)
------------------------------------------
$ (7,246,354) $(3,239,352) $(3,391,678)
==========================================
Identifiable assets:
North America $ 46,327,939 $ 56,367,177 $57,602,334
Europe 5,067,164 4,265,752 4,990,814
------------------------------------------
$ 51,395,103 $ 60,632,929 $62,593,148
==========================================
F-18
<PAGE>
Ultralife Batteries, Inc. and Subsidiary
Schedule II Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
Additions
------------------------------
Balance at Charged to Balance at
Beginning Costs and Charged to End of
Classification of Period Expenses Other Accounts Deductions Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997
Deducted from asset accounts:
Allowance for doubtful accounts $190,430 $238,964 $151,212 (D) $278,182
Product warranty reserve $139,504 $ 88,810 (B) $ 50,694
Year ended June 30, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $ 88,277 $103,568 $ 1,415 (D) $190,430
Product warranty reserve $ 63,786 $ 89,504 (C) $ 13,786 (B) $139,504
Year ended June 30, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 53,631 $ 64,311 $ 29,665 (A) $ 88,277
Product warranty reserve $111,491 $ 47,705 (B) $ 63,786
</TABLE>
(A) Recovery of accounts receivable balances previously reserved for.
(B) Reduction in reserve based on Company's experience
(C) Reduction to battery revenues.
(D) Writeoff of accounts receivable balance.
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:/s/ BRUCE JAGID
-------------------------------
Bruce Jagid
Chairman and
Chief Executive Officer
Dated: October 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: October 14, 1997 /s/URI SOUDAK
-------------------------------
Uri Soudak
Chief Operating Officer
(Principal Executive Officer)
Date: October 14, 1997 /s/ ROBERT COOK
-------------------------------
Robert Cook
Chief Financial Officer
and Controller
(Principal Financial and
Accounting Officer)
Date: October 14, 1997 /s/ JOSEPH C. ABELES
-------------------------------
Joseph C. Abeles (Director)
Date: October 14, 1997 /s/ JOSEPH N. BARRELLA
-------------------------------
Joseph N. Barrella (Director)
Date: October 14, 1997 /s/ RICHARD HANSEN
-------------------------------
Richard Hansen (Director)
Date: October 14, 1997 /s/ BRUCE JAGID
-------------------------------
Bruce Jagid (Director)
Date: October 14, 1997 /s/ ARTHUR LIEBERMAN
-------------------------------
Arthur Lieberman (Director)
Date: October 14, 1997 /s/ MARTIN ROSANSKY
-------------------------------
Martin Rosansky (Director)
Date: October 14, 1997 /s/ CARL ROSNER
-------------------------------
Carl Rosner (Director)
Date: October 14, 1997 /s/ STUART SHIKIAR
-------------------------------
Stuart Shikiar (Director)
AGREEMENT TO PURCHASE SAMPLE BATTERIES
THIS AGREEMENT TO PURCHASE SAMPLE BATTERIES is made and entered into as of
the 9th day of April, 1997, by and between the Purchasing Department of
MITSUBISHI ELECTRONICS AMERICA, INC., a Delaware corporation located at One Penn
Plaza, 250 West 34th Street, Suite 4303, New York, NY 10119 and ULTRALIFE
BATTERIES, INC., a New York corporation located at 1350 Route 88 South, Newark,
NY 14513 ("Ultralife").
WITNESSETH:
WHEREAS, Ultralife is in the process of developing for manufacture and sale
solid polymer lithium ion rechargeable batteries; and
WHEREAS, MELA wishes to acquire from Ultralife advanced technology
rechargeable batteries for slim notebook application No UBB114 (each, a
"Battery"), consisting of three cells No. UBC114 (each, a "Cell"), which comply
with specifications provided to Ultralife by parent (the "Specifications"); and
WHEREAS, Ultralife wishes to produce for MELA and MELA wishes to obtain
from Ultralife, the Batteries and the Samples (as defined) upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereby agree as follows:
1. SALE AND PURCHASE OF CELLS
(a) Ultralife shall manufacture and deliver to MELA 1800 evaluation units
of the Cells for testing and evaluation (the "Samples"). Ultralife shall deliver
150 Samples on or before April 15, 1997 (collectively, "Batch I"), 150 Samples
on or before May 30, 1997 (collectively, "Batch II") and 1500 Samples on or
before July 30, 1997 (collectively, "Batch III") to 1-1, Tsukaguchi-Honmachi
8-Chome, Amagasaki City Hyogo 661, Japan ("Delivery Point"). Notwithstanding the
foregoing, Ultralife acknowledges and agrees that Batch III will be installed
into slim notebooks and sold to end-users. For purposes of this section,
delivery shall be deemed to occur upon delivery of the Samples to the common
carrier at the shipment point.
(b) The terms and conditions of this Agreement shall apply to all Samples
delivered under this Agreement. No other terms or conditions shall apply, even
if Ultralife submits any document containing different terms and conditions. Any
such terms and conditions proposed or stated by Ultralife are hereby expressly
rejected by MELA.
2. SHIPMENT; DELIVERY
(a) All shipments pursuant to this Agreement shall be F.O.B. shipment point.
Ultralife shall comply with all shipping restrictions specified on an Order or
otherwise specified by MELA.
1
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
<PAGE>
Ultralife shall use its best efforts to provide the Samples in accordance with
the delivery date(s) specified in this Agreement.
(b) Title and risk of loss to the Samples shall pass to MELA upon delivery
of the Samples by Ultralife to the common carrier. In the event of any loss of
Samples following delivery to the carrier, Ultralife shall, upon request,
cooperate with MELA in connection with the proof of loss claims presented by
MELA to the carrier and/or insurer. Notwithstanding the foregoing, Ultralife
shall be responsible for all damage to goods due to failure to pack or, when
performed by Ultralife, to load properly and securely.
(c) No additional charge shall be made to MELA for containers, packing or
drayage unless expressly agreed to by MELA Goods shipped by freight or express
classifications shall be packed, marked and described as specified by MELA and,
consistent with such specifications, the agreed upon quantity of goods to be
shipped and delivery date(s), shall be shipped in such a manner as to obtain the
lowest possible rate under the freight or express classification.
3. PRICES AND PAYMENT
(a) Batch I and Batch II are being provided to MELA for evaluation purposes
only. There shall be no charge for Batch I or Batch II. Upon completion of its
evaluation and testing, MELA shall return all of the Samples included in Batch I
and Batch II to Ultralife at MELA's expense, within six months after MELA's
receipt thereof unless otherwise agreed by the parties.
(b) The aggregate price for the Samples included in Batch III shall be US
$800,000. The price shall be paid in two equal installments, payable on April
16, 1997 and June 30, 1997. Separate invoices shall be issued by Ultralife for
each payment. The first invoice shall not be issued prior to April 2, 1997 and
the second invoice shall not be issued prior to June 30, 1997.
(c) Terms of payment are net 30 days from the date of invoice. Payment will
not be due prior to receipt of a correct invoice. MELA obligation to make any
payments under this Agreement to Ultralife shall be subject to deduction for any
setoff or counterclaim arising from this Agreement of any amount due to MELA or
any affiliate of MELA.
4. WARRANTIES
(a) Ultralife warrants that:
(1) The Samples furnished pursuant to this Agreement shall be free
from defects in material, workmanship and/or packaging and shall comply
with these terms and conditions contained in this Agreement.
(2) Batch I and Batch II shall reasonably comply with the
Specifications and the performance criteria set forth the Exhibit A.
(3) Batch III shall strictly conform with the performance criteria set
forth in Exhibit B.
2
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
<PAGE>
(4) The Samples shall be free from defects in design.
These warranties shall remain in effect for Ultralife's normal warranty
period or for 12 months following receipt of the Samples, whichever is longer,
and shall extend to MELA's affiliates, successors and assigns and to the
customers of each thereof.
(b) In the event of any breach of the foregoing warranties with respect to
Batch I and Batch II, MELA shall have the right to return the non-conforming
Samples at Ultralife's risk and expense and require Ultralife, at MELA's option,
to replace such defective Samples within 15 days after notice of breach by MELA
unless otherwise agreed by a duly authorized representative of MELA.
(c) In the event that Batch III does not meet the performance criteria set
forth at Exhibit B, MELA shall notify Ultralife of such non-conformity within
one week of delivery of Batch III to the Delivery Point and MELA shall, at its
sole option, either accept Batch III with such non-conformity or return Batch
III to Ultralife at Ultralife's sole risk and expense and require Ultralife to
replace Batch III in its entirety within 30 days from the date of notice of such
non-conformity. If Ultralife is not able to remedy such non-conformity within
such period, Ultralife shall promptly refund to MELA US$100,000.
(d) Ultralife further represents and warrants that it has complied with and
shall comply with all federal, state and local laws and ordinances and all
lawful orders, rules and regulations applicable to Ultralife's performance of
its obligations pursuant to this Agreement.
5. TERMINATION
(a) MELA may terminate this Agreement, in whole or in part, without any
liability whatsoever, except for its obligation to pay for goods previously
delivered and accepted, by notice to Ultralife if:
(1) Ultralife shall become insolvent or be unable to pay its debts as
they mature.
(2) A petition in bankruptcy is filed by or against Ultralife, an
assignment for the benefit of creditors is made by Ultralife or a receiver
of Ultralife's assets is appointed.
(3) Ultralife fails to perform any of its material obligations
pursuant to this Agreement, including failure to deliver the Samples by the
required delivery date as provided in this Agreement.
(4) Ultralife fails to make material progress with respect to its
obligations so as to endanger performance of this Agreement in accordance
with its terms.
(5) Ultralife furnishes any goods which fail to comply with all
warranties contained in this Agreement.
3
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
<PAGE>
(b) MELA may terminate this Agreement for convenience as to all goods not
yet delivered and not scheduled for delivery within 90 days (or such longer
period as is agreed in writing by a duly authorized representative of MELA)
from the date of cancellation without obligation whatsoever to Ultralife for
such termination.
(6) FORCE MAJEURE. MELA reserves the right at its option and without liability
either to direct suspension of shipment or to terminate this Agreement, in whole
or in part, at any time that MELA's compliance with this Agreement or the
utilization by MELA or an affiliate of MELA of the goods covered by this
Agreement is prevented or delayed by any cause beyond its reasonable control,
including, without limitation, fire, flood, strike or other labor difficulty,
war, insurrection, act of God, act of governmental authority, act of the other
party, riot, embargo, fuel or energy shortage, delay in obtaining or inability
to obtain necessary labor or materials from usual sources or any other cause
beyond its reasonable control.
7. CONFIDENTIALITY.
(a) Ultralife and MELA agree that neither party shall provide to the other
information or materials which it deems to be "confidential" or "proprietary"
and neither party shall be obligated to treat confidentially any information or
materials provided by the other party.
(b) Unless the other party's prior consent is obtained, the parties shall
not advertise, publish or cause to be published in any manner any statement
mentioning the other party or any of its affiliates, referring to the existence
or subject matter of this Agreement or quote the opinion of any employee of the
other party or any of its affiliates.
(c) Each party further agrees that neither it nor its affiliates shall
reverse engineer or disassemble the Samples or any products provided by MELA or
its affiliates to determine or analyze the functional composition or structure
of the Samples or such products.
(d) Notwithstanding the foregoing, MELA agrees that all reports containing
test data regarding the Samples shall not be disclosed to the joint venture
between MELA's indirect parent, Mitsubishi Electric Corporation and Japan
Storage Battery, unless such disclosure is required to be made by law. In the
event disclosure is required by law, prior notification of such disclosure shall
be provided to Ultralife.
8. ARBITRATION.
(a) Except as hereinafter provided, all disputes arising out of or in any
manner relating to this Agreement which the parties do not resolve in good faith
within ten days after either party notifies the other of its desire to arbitrate
such dispute or controversy shall be settled by arbitration by a single
arbitrator in accordance with the then standard prevailing commercial rules, as
modified or supplemented by this section, of the American Arbitration
Association ("AAA"). The arbitration shall be held in New York, New York. The
arbitration award shall be in writing and shall specify the factual and legal
bases of such award. The arbitration award shall be final and binding, and a
judgment consistent therewith may be entered by any court of competent ju-
4
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
<PAGE>
risdiction. The parties agree that the arbitration award shall be treated
confidentially, and the parties shall not, except as otherwise required by law
or court order, disclose the arbitration award to any third party, excluding
personnel in their affiliated companies and their attorneys and accountants with
a need to know, provided that such recipients agree to be bound by the same
restrictions as are contained in this Agreement. The arbitrator shall not have
the power to render an award of punitive damages. To the extent of any conflict,
this section shall supersede and control AAA rules.
(b) Nothing in this section shall be construed to preclude or in any way
prohibit either party from seeking any provisional remedy, such as injunction or
a temporary restraining order, to enforce Section 7 of this Agreement.
(c) Except as provided in this section, neither MELA nor Ultralife shall
have the right to take depositions or obtain discovery of documents or other
information which is relevant to the subject matter of any arbitration which is
required under Section 8(a) of this Agreement. After the appointment of the
arbitrator, MELA and Ultralife shall agree on (1) a reasonable number of and
schedule for depositions which the parties may take and (2) a reasonable scope
or schedule for production of documents or other information which is relevant
to the subject matter of the arbitration. If MELA and Ultralife cannot reach
agreement on the number of depositions, the scope of production of documents or
other information and the schedule therefor, the arbitrator shall make such
determination(s). All discovery shall be completed no later than 30 days prior
to the arbitration hearing. The arbitrator shall have the power to enforce any
discovery agreed upon by the parties or otherwise required to be taken pursuant
to this section by imposing the same terms, conditions, sanctions and penalties
as can be or may be imposed in like circumstances in a civil action before the
New York Supreme Court, except the power to order the arrest or imprisonment of
a person.
(d) No later than 30 days prior to the arbitration hearing, each party
shall produce to the other party and the arbitrator lists of the witnesses,
documents and other information which such party intends to use at the
arbitration hearing.
9. GOVERNING LAW AND JURISDICTION.
(a) This Agreement and the rights and obligations of the parties to and
under this Agreement shall be construed and interpreted in all respects in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law; provided that the questions regarding the
arbitrability of any claims and defenses shall be determined in accordance with
the Federal Arbitration Act and that any questions regarding copyright,
trademark, patent or intellectual property matters shall be determined in
accordance with federal law.
(b) Except as otherwise provided in Section 8 of this Agreement, any legal
action or proceeding arising out of or relating to this Agreement shall be
maintained in any courts in New York, New York or in any Untied States Federal
Court seated in New York, New York. By execution and delivery of this Agreement,
Ultralife irrevocably submits to the jurisdiction of each such federal or state
court in any such action or proceeding.
5
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
<PAGE>
10. NO ASSIGNMENT. Neither Ultralife nor MELA shall delegate any duties or
assign any rights or duties under this Agreement without the other party's prior
consent, and any such attempted delegation or assignment shall be void.
Notwithstanding the foregoing, MELA may delegate it duties or assign its rights
or duties under this Agreement to its direct or indirect parent, an affiliate or
subsidiary. Ultralife shall not subcontract for the procurement of the goods
covered by this Agreement without MELA prior approval. Subject to the provisions
of this section, this Agreement shall be binding upon and inure to the benefit
of the successors in interest and assigns of the parties.
11. NOTICES. Whenever under the terms of or in connection with this Agreement
any notice, consent, approval, authorization or other information is proper or
required to be given by either party, such notice, consent, approval,
authorization or other information shall be in writing and shall be given or
made by facsimile, by reputable overnight courier with documentation of receipt
to the intended recipient thereof or by registered or certified mail, return
receipt requested, and with all postage prepaid, addressed a s follows:
If to MELA to:
Mitsubishi Electronics America, Inc.
One Penn Plaza, 250 West 34th Street
Suite 4303
New York, NY 10119
Attention: Scott Lancey
Purchasing Manager
Facsimile: (212) 629-3811
with a copy to:
Mitsubishi Electric America, Inc.
800 Cottontail Lane
Somerset, NJ 08873
Attention: Assistant General Counsel
Facsimile (908) 302-2781
If to Ultralife, to: Ultralife Batteries, Inc.
1350 Route 88 South
Newark, NY 14513
Attention: Bruce Jagid
Chairman & CEO
Facsimile: 201-930-1144
6
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
<PAGE>
with a copy to:
Paul Share, Esq.
317 Madison Avenue, Suite 1421
New York, NY 10017
Facsimile: (212) 378-1299
or to such other address for either party as may be supplied by notice given in
accordance herewith. Notice shall be deemed received on the date of receipt or
the date on which receipt is refused. In the event notice is given by facsimile,
a copy of such facsimile shall be sent to the recipient thereof in accordance
with the provisions hereof (other than by facsimile) within two days after such
facsimile was transmitted.
12. REMEDIES. In addition to any rights or remedies stated herein, the parties
may exercise all rights and remedies available to them at law, in equity or
under the Uniform Commercial Code of New York. Such rights and remedies shall be
cumulative. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES UNDER ANY CIRCUMSTANCES WHOSOEVER.
13. ENTIRE AGREEMENT. This Agreement and the exhibits to this Agreement contains
all of the covenants, agreements and understanding between the parties with
respect to the subject matter of this Agreement and may not be changed,
modified, altered or terminated, except by a written agreement duly executed by
the parties. This Agreement and the exhibits to this Agreement supersedes any
and all other agreements and understandings, whether written or oral, between
the parties with respect to the subject matter of this Agreement, including any
prior course of dealing or usage of trade, all prior or contemporaneous oral
agreements between the parties and all prior written agreements between the
parties with respect to the subject matter of this Agreement.
14. RELATIONSHIP OF PARTIES. The relationship between MELA and Ultralife is
that of independent contractors. This Agreement does not establish a joint
venture, agency or partnership between the parties, nor does it create an
employer-employee relationship. Unless specifically provided in this Agreement
or authorized in writing by an officer or other authorized employee of MELA.
Ultralife shall have no authority or power to bind MELA to create a liability
against MELA to incur any obligations on behalf of MELA or to represent that
MELA is in any way responsible for Ultralife and Ultralife shall not held itself
out as having any such authority.
15. NO WAIVER. No waiver of, or the failure of either party to require strict
compliance with, any provision of this Agreement in any respect shall be deemed
to be a waiver of such party's right to insist upon strict compliance with such
provision or with all other provisions of this Agreement. No waiver by either
party of any breach or default of this Agreement shall constitute a waiver of
any other or subsequent breach or default. No waiver shall be binding unless
executed in writing by the party against whom the waiver is sought to be
enforced.
16. SEVERABLILITY. If any provision or part of any provision of this Agreement
shall be determined to be illegal, invalid or unenforceable in any respect, such
determination of illegality,
7
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
<PAGE>
invalidity or unenforceability shall not affect any other provision of this
Agreement. If part of a provision is deemed illegal, invalid or unenforceable,
the balance of that provision shall not be so affected. All surviving provisions
shall remain in full force and effect as if this Agreement had been executed
without such illegal, invalid or unenforceable provision or part thereof.
17. HEADINGS. All headings are included for convenience only and shall not be
considered in any question of interpretation or construction of this Agreement.
18. AUTHORIZATION. Each party represents that the individual executing this
Agreement on its behalf is duly authorized to bind such party to this Agreement
according to its terms.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the day and year first above written.
MITSUBISHI ELECTRONICS ULTRALIFE BATTERIES, INC.
AMERICA, INC.
By: /s/Scott J. Lancey By: /s/Bruce Jagid
---------------------------- -----------------------------
Name: Scott J. Lancey Name: Bruce Jagid
-------------------------- ---------------------------
Title: Purchasing Manager Title: CEO and Chairman
------------------------- --------------------------
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
8
<PAGE>
Exhibit List
Exhibit A - Batch I and II Performance Criteria
Exhibit B - Batch III Performance Criteria
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
9
<PAGE>
Exhibit A
Batch I and II Performance Criteria of each cell
BATCH I BATCH II
Dimensions: (TOLERANCE: +0/-0.5mm)
Length * *
Width * *
Height * *
Capacity per cell (at 1C rate) * *
Energy per cell (average voltage: 3.7V) * *
Minimum Cycle Life (at C/3 rate) * *
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
<PAGE>
Exhibit B
Batch III Performance Criteria of each cell
BATCH IIII
Dimensions: (TOLERANCE: +0/-0.5mm)
Length *
Width *
Height *
Capacity per cell (at 1C rate) *
Energy per cell (average voltage: 3.7V) *
Minimum Cycle Life (at C/3 rate) *
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
<PAGE>
[DRAWING OMITTED]
SIDE SEAL AREA BENDED
SEAL AREA at EACH CORNER SHALL BE HOLDED WITHIN EACH DIMENSIONS
UBC114-01
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
Mitsubishi Electronics America, Inc.
One Penn Plaza
250 W34th Street
SUITE 4303
NEW YORK, NY 10119
PHONE: (212) 629-3732
FAX: (212) 629-3811
June 17, 1997
Ultralife Batteries, Inc.
1350 Route 88 South
Newark, NY 14513
Attention of: Mr. Julius Cirin, Director of Marketing
Re: Purchase Orders/HY-97-120/HY-97-130
Dear Mr. Cirin,
I am pleased to send enclosed purchase orders for our current business.
These P/O are based upon the results of our previous meeting at Ultralife dated
June 10, 1997, Ultralife's fax dated June 11, 1997 and MELCO's fax dated June
13, 1997.
The payment schedule for HY-97-120 will be advised after MELA will receive an
authorization from MELCO.
If you have any comments, please feel free to contact me.
Sincerely,
/s/Jun Sugaya
Jun Sugaya, Assistant Purchasing Manager
CC. Tomita, Manager of Purchasing Dept./Computer Works.
(*Confidential information has been deleted from this exhibit and filed
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
<PAGE>
<TABLE>
<CAPTION>
Mitsubishi Electronics America, Inc. |_| Cypress Office |_|
One Penn Plaza 5665 Plaza Drive, Cypress, CA 90630-0007 --------------------------------------
250 West 34th Street (714) 220-2500 P.O. NUMBER REQUESTED SHIP DATE PAGE
SUITE: 4303 FAX (714) 236-6229 --------------------------------------
NEW YORK, NY 10119 HY-97-130 SEE BELOW 1/1
- ----------------------------------------------------------------------------------------------------------------------------
ORDER DATE ORDERED BY PAYMENT TERMS SHIPPING TERMS SHIP VIA
- ----------------------------------------------------------------------------------------------------------------------------
06/17/97 Jun Sugaya Net 30 Days FOB Newark, NY UPS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
V Ultralife Batteries, Inc. S Kintetsu World Express (USA), Inc.
E 1350 Route 88 South, Newark NY 14513 H 45 Rason Road, Inwood NY 11696
N ATTN.:Mr. JULIUS CIRIN, DIRECTOR OF MARKETING I ATTN: MR. MIKAZAKI, TERMINAL MANAGER
D P
O
R T
O
* ("BUYER") HEREBY CONFIRMS ITS PURCHASE FROM YOU ("SELLER") OF THE FOLLOWING GOODS SUBJECT TO SELLER'S ACCEPTENCE OF THE TERMS AND
CONDITIONS SET FORTH BELOW AND ON THE REVERSE SIDE OF THIS FORM, WHICH ARE EXPRESSLY AGREED TO, UNDERSTOOD AND MADE PART OF THIS
ORDER. ANY DIFFERENT TERMS AND CONDITIONS WHICH MAY BE CONTAINED IN ANY WRITING FROM SELLER ARE HEREBY REJECTED BY BUYER AND SHALL
NOT BE BINDING UPON THE PARTIES.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
LINE OUANITY
NUMBER ITEM DESCRIPTION PRICE PER UNIT UNITS ORDERED AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01 1.6 AH PACK Batteries (NO UL ):07/15 * PCS $ *
02 1.6 AH PACK Batteries (NO UL ):08/01 * PCS $ *
03 1.6 AH PACK Batteries (NO UL ):08/22 * PCS $ *
04 1.7 AH PACK Batteries (NO UL ):09/09 * PCS $ *
05 1.7 AH PACK Batteries (NO UL ):09/16 * PCS $ *
06 1.7 AH PACK Batteries (UL TBD):09/23 * PCS $ *
07 1.7 AH PACK Batteries (UL TBD):09/30 * PCS $ *
Terms and Conditions for HY-97-130 will be discussed later based upon the previous agreed contract.
[CONFORMATION ORDER
DO NOT DUPLICATE]
- ----------------------------------------------------------------------------------------------------------------------------
NOTE: TOTAL
AMOUNT $462,900.00
ACCEPTED: (SELLER) ----------------------------
MITSUBISHI ELECTRONICS AMERICA, INC. (BUYER)
(*Confidential information has been deleted from this exhibit and filed /s/Scott J. Lancey
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mitsubishi Electronics America, Inc. |_| Cypress Office |_|
One Penn Plaza 5665 Plaza Drive, Cypress, CA 90630-0007 --------------------------------------
250 West 34th Street (714) 220-2500 P.O. NUMBER REQUESTED SHIP DATE PAGE
SUITE: 4303 FAX (714) 236-6229 --------------------------------------
NEW YORK, NY 10119 HY-97-120 SEE BELOW 1/1
- ----------------------------------------------------------------------------------------------------------------------------
ORDER DATE ORDERED BY PAYMENT TERMS SHIPPING TERMS SHIP VIA
- ----------------------------------------------------------------------------------------------------------------------------
06/17/97 Jun Sugaya T.B.D.
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
V Ultralife Batteries, Inc. S Kintetsu World Express (USA), Inc.
E 1350 Route 88 South, Newark NY 14513 H 45 Rason Road, Inwood NY 11696
N ATTN.:Mr. JULIUS CIRIN, DIRECTOR OF MARKETING I ATTN: MR. MIKAZAKI, TERMINAL MANAGER
D P
O
R T
O
* ("BUYER") HEREBY CONFIRMS ITS PURCHASE FROM YOU ("SELLER") OF THE FOLLOWING GOODS SUBJECT TO SELLER'S ACCEPTENCE OF THE TERMS AND
CONDITIONS SET FORTH BELOW AND ON THE REVERSE SIDE OF THIS FORM, WHICH ARE EXPRESSLY AGREED TO, UNDERSTOOD AND MADE PART OF THIS
ORDER. ANY DIFFERENT TERMS AND CONDITIONS WHICH MAY BE CONTAINED IN ANY WRITING FROM SELLER ARE HEREBY REJECTED BY BUYER AND SHALL
NOT BE BINDING UPON THE PARTIES.
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
LINE OUANITY
NUMBER ITEM DESCRIPTION PRICE PER UNIT UNITS ORDERED AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01 TOOLING MASS PRODUCTION * LOT *
02 BATTERY MANAGEMENT_ * LOT *
SYSTEM DEVELOPMENT
Payment schedule will be advised later.
Terms and condition for this HY-97-120 will be discussed later based upon previous agreed contract.
[CONFORMATION ORDER
DO NOT DUPLICATE]
- ----------------------------------------------------------------------------------------------------------------------------
NOTE: TOTAL
AMOUNT $335,000.00
ACCEPTED: (SELLER) ----------------------------
MITSUBISHI ELECTRONICS AMERICA, INC. (BUYER)
(*Confidential information has been deleted from this exhibit and filed /s/Scott J. Lancey
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.)
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 file numbers 33-61866, 33-71966, and
333-01200.
ARTHUR ANDERSEN LLP
Rochester, New York,
October 10, 1997
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-61866, No. 33-71966, and No. 333-01200) pertaining to the 1992 and
1991 Stock Option Plans of Ultralife Batteries, Inc. and Subsidiary of our
report dated August 31, 1995, with respect to the 1995 consolidated financial
statements and schedule of Ultralife Batteries, Inc. and Subsidiary included in
the Annual Report (Form 10-K) for the year ended June 30, 1997.
/s/ ERNST & YOUNG LLP
October 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,310,725
<SECURITIES> 19,847,201
<RECEIVABLES> 2,993,728
<ALLOWANCES> 278,000
<INVENTORY> 5,302,752
<CURRENT-ASSETS> 31,838,061
<PP&E> 21,483,867
<DEPRECIATION> 2,610,172
<TOTAL-ASSETS> 51,395,103
<CURRENT-LIABILITIES> 4,632,222
<BONDS> 0
0
0
<COMMON> 795,360
<OTHER-SE> 45,967,521
<TOTAL-LIABILITY-AND-EQUITY> 51,395,103
<SALES> 15,941,118
<TOTAL-REVENUES> 15,941,118
<CGS> 14,591,258
<TOTAL-COSTS> 14,591,258
<OTHER-EXPENSES> 9,101,392
<LOSS-PROVISION> 805,296
<INTEREST-EXPENSE> 1,351,646
<INCOME-PRETAX> (7,246,354)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,246,354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,246,354)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
