SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1996
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to
Commission file number 0-20852
ULTRALIFE BATTERIES, INC.
Exact name of registrant as specified in its charter)
Delaware 16-1387013
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
1350 Route 88 South, Newark, New York 14513
(Address of principal executive offices)
(Zip Code)
(315) 332-7100
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.10 par value, 7,949,711 shares outstanding
as of February 11, 1997
<PAGE>
ULTRALIFE BATTERIES, INC.
INDEX
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Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
December 31, 1996 and June 30, 1996.................................3
Condensed Statements of Operations -
Three months and six months ended
December 31, 1996 and 1995.........................................4
Condensed Statements of Cash Flows -
Six months ended December 31, 1996 and 1995.........................5
Notes to Condensed Financial Statements .........................6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................8 - 11
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................12
Item 6. Exhibits and Reports on Form 8-K....................................12
SIGNATURES...................................................................13
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<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
December 31, 1996 June 30, 1996
----------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 183,193 $ 1,212,743
Available-for-sale securities 18,163,774 21,839,692
Accounts receivable 6,104,922 4,907,279
Inventories 7,277,041 8,437,791
Other current assets 362,536 450,251
------------ ------------
Total current assets 32,091,466 36,847,756
Net property and equipment 14,478,410 10,688,538
Due from insurance companies 1,003,097 0
Available-for-sale securities
held to purchase equipment 7,502,926 12,016,593
Investment in joint venture 283,500 283,500
Technology license agreements, net 732,544 796,542
============ ============
Total assets $ 56,091,943 $ 60,632,929
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 4,677,403 $ 3,434,473
Other accrued liabilities 511,107 763,690
------------ ------------
Total current liabilities 5,188,510 4,198,163
Shareholders' equity
Common stock - par value 792,185 792,322
Capital in excess of par value 64,444,393 64,630,638
Unrealized gain on securities 1,893,230 3,842,878
Foreign currency translation adjustments (1,900) 37,749
Accumulated deficit (16,224,475) (12,868,821)
------------ ------------
Total shareholders' equity 50,903,433 56,434,766
------------ ------------
Total liabilities and shareholders' equity $ 56,091,943 $ 60,632,929
============ ============
</TABLE>
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<PAGE>
ULTRALIFE BATTERIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Six Months Ended December 31, 1996
(Unaudited)
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<TABLE>
<CAPTION>
Three Months Ended Dec. 31, Six Months Ended Dec. 31,
- ----------------------------- ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<C> <C> <S> <C> <C>
Revenues:
$ 3,824,343 $ 2,841,191 Battery sales $ 7,444,019 $ 6,561,154
241,697 1,099,651 Technology contracts 593,747 1,494,848
- ----------------------------- ------------------------------
4,066,040 3,940,842 Total revenue 8,037,766 8,056,002
Cost of Products Sold:
3,824,715 2,490,227 Battery costs 7,125,878 5,600,068
297,777 217,042 Technology contracts 494,487 412,152
- ----------------------------- ------------------------------
4,122,492 2,707,269 Total cost of products sold 7,620,365 6,012,220
(56,452) 1,233,573 Gross Profit 417,401 2,043,782
969,173 704,200 Research and Development 1,787,248 1,339,961
1,516,437 1,325,861 Marketing and Administration 2,786,685 2,307,523
- ----------------------------- ------------------------------
2,485,610 2,030,061 Total Operating Expenses 4,573,933 3,647,484
(2,542,062) (796,488) Operating (Loss) (4,156,532) (1,603,702)
497,883 573,664 Interest Income 800,878 1,125,751
0 1,617,758 Gain On Sale of Securities 0 1,617,758
0 (229,976) Fire Loss Reserve 0 (229,976)
- ----------------------------- ------------------------------
$ (2,044,179) $ 1,164,958 Net Earnings (Loss) $ (3,355,654) $ 909,831
============================= ==============================
$ (0.26) $ 0.15 Earnings (Loss) Per Share $ (0.42) $ 0.12
============================= ==============================
7,949,711 7,766,373 Number of Primary Shares 7,933,086 7,665,634
============================= ==============================
</TABLE>
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<PAGE>
ULTRALIFE BATTERIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For The Six Months Ended December 31, 1996 and 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (3,355,654) $ 909,829
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, amortization and other provisions 608,863 38,951
Foreign currency (loss)/gain (39,648) (46,197)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,317,509) (1,284,315)
Decrease (increase) in contract revenue receivable 0 (116,554)
Decrease (Increase) in inventories 964,468 (19,569)
Decrease in prepaid expenses
and other current assets 87,716 285,997
Increase (decrease) in accounts payable and
accrued liabilities 1,428,603 (1,728,436)
------------ ------------
Net cash used in operating activities (1,623,161) (1,960,294)
------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment (5,021,686) (3,894,750)
Purchase of securities (22,927,038) (28,370,623)
Sales of securities 9,239,983 9,977,297
Maturities of securities 19,488,735 26,889,150
------------ ------------
Net cash (used in) provided by investing activities 779,994 4,601,074
------------ ------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 119,125 1,038,500
Purchase Treasury Stock (305,508) 0
Effect of exchange rate changes on cash 0 4,796
------------ ------------
Net cash provided by financing activities (186,383) 1,043,296
------------ ------------
(Decrease) Increase in Cash and Cash Equivalents (1,029,550) 3,684,076
Cash and Cash Equivalents at Beginning of Period 1,212,743 1,734,146
------------ ------------
Cash and Cash Equivalents at End of Period $ 183,193 $ 5,418,222
============ ============
</TABLE>
-5-
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments, which are of a normal recurring nature,
necessary to present fairly the financial position at December 31, 1996 and the
results of operations for the three and six month periods ended December 31,
1996 and 1995 and cash flows for the six month periods ended December 31, 1996
and 1995. The results of operations and cash flows for the three months and six
months ended December 31, 1996 are not necessarily indicative of the results to
be expected for the entire year. The Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the Company's financial statements for the year
ended June 30, 1996, filed on Form 10-K on September 30, 1996.
2. NET LOSS PER SHARE
Net loss per share is calculated by dividing net loss by the weighted
average number of common shares outstanding during the period; common stock
options have not been included since their inclusion would be antidilutive.
3. RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed of,"
which requires that impairment losses be recognized when the carrying value of
an asset exceeds its fair value. Although the Company is required to adopt the
standard in fiscal 1997, the Company regularly assesses all of its long-lived
assets for impairment; and therefore does not believe the adoption of the
standard will have a material effect on its financial position or results of
operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes market value accounting and reporting standards
for stock-based employee compensation plans. Companies may elect to continue to
account for stock-based compensation using the "intrinsic value approach" under
Accounting Principles Board (APB) Opinion No. 25. Although the Company is
required to adopt the standard in fiscal 1997, it anticipates continuing to
follow APB No. 25, with pro forma disclosures required under SFAS No. 123.
Therefore, adoption will have no impact on its financial position or results of
operations.
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<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO FINANCIAL STATEMENTS
(continued from page 6)
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4. CONTINGENCY - UK SUBSIDIARY
The Company's wholly owned subsidiary located in the United Kingdom,
Ultralife Batteries Ltd (UK), experienced a fire early in December, 1996. A
great deal of the production capacity was damaged or destroyed. In order to
compensate for this loss of manufacturing capacity, alternate sources of
components have been identified and assembly of batteries is being relocated.
Preliminary discussions with the insurance company indicate that the
Company is fully insured for the replacement cost of all assets lost as well as
business interruption losses. The damaged and destroyed equipment and machinery
is initially estimated to have a net book value of $1,003,000 at current
exchange rates. These damaged or destroyed assets have been removed from the
accounts and a receivable due from the insurance company has been recorded. An
estimate of the business interruption impact has not yet been calculated. The
initial analysis prepared by the Company indicates that no economic loss will be
incurred by the Company and so no loss provision has been recorded in the
financial statements. It should be noted however that although the Company
expects to be substantially compensated for its losses from insurance proceeds,
there may be a short-term adverse impact on revenues and earnings. This
situation is being actively monitored and evaluated by management.
-7-
<PAGE>
The discussion and analysis below, and throughout this report, contains
forward-looking statements within the meaning of Section 27A of the Securities
and Exchange Act of 1933 and Section 21E of the Securities and Exchange Act of
1934. Actual results could differ materially from those projected or suggested
in the forward-looking statements.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying condensed
consolidated financial statements and notes thereto contained herein and the
Company's consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K as of and for the year ended June 30, 1996.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three months ended December 31, 1996 and 1995
Total revenues were $4,066,000 for the three months ended December 31, 1996
("second quarter 1997"). This represents an increase of $125,000 or 3% over the
$3,941,000 reported for the three months ended December 31, 1995 ("second
quarter 1996"). Sales of batteries increased by 35% during the second quarter
1997 compared to the same period of the prior year. This is the result of
increasing number of batteries sold in both the US and UK. In the US, these
results were generated though sales to major smoke detector manufacturers have
not met management expectations to date. Revenues from technology contracts were
$242,000 during the second quarter 1997; a decrease of $858,000 or 78% compared
to the second quarter 1996. This the result of completion of certain contracts
and delays in receipt of new programs.
Consolidated gross margin was a loss of 1% of revenue for the second fiscal
quarter of 1997 compared to income of 31% for the same period of the previous
year. Primarily, the margin erosion is attributable to reduced revenues from
technology contracts with their greater historical gross margins. Additionally,
the Company further reduced production levels of the 9 volt battery during the
quarter ended December 31, 1996. This decision resulted in increased unabsorbed
factory overhead.
Total operating expenses of $2,486,000 for the second quarter 1997 reflect
an increase of $456,000 or 22% compared to $2,030,000 for the same period of the
prior year. $265,000 of this total increase of operating expenses is
attributable to research and development expenses. This is the result of
continued commercialization of the Company's rechargeable lithium-ion
solid-polymer batteries. A continuation of the substantial research and
-8-
<PAGE>
development expenditures is anticipated as the Company moves toward mass
production and continued improvement of rechargeable batteries. Marketing and
administration expenses increased by $190,000 or 14% during the second quarter
1997 to $1,516,000 from $1,326,000 for the second quarter 1996. This increase
was planned by the Company in order to support the introduction of the
rechargeable battery.
Interest income decreased to $498,000 for the second quarter of fiscal 1997
from $574,000 for the three months ended December 31, 1995. This is the result
of a lower average balance invested as the Company has used its cash and
investments to fund the operations and capital equipment improvements during the
year. During the three months ended December 31, 1995, the Company sold 100,000
common shares of Intermagnetics General Corporation. As a result, it realized a
gain on the sale in the amount of $1,617,758. As of December 31, 1996, the
Company still owns 339,016 common shares of Intermagnetics General Corporation.
Also during the second quarter 1996, the Company provided for possibly
unreimburseable costs associated with the fire at its UK subsidiary, Ultralife
Batteries Ltd (UK), in September, 1995.
Net losses in the amount of $2,044,000 or $ 0.26 per share were reported
for the second quarter 1997 compared to net income of $1,165,000 or $ 0.15 per
share. This was caused by the decreased gross margin plus additional operating
expenses. Also, the prior years' results include a gain on the sale of
securities in the amount of $1,618,000 or $ 0.21 per share.
Six months ended December 31, 1996 and 1995
Total revenues for the six months ended December 31, 1996 ("year to date
1997") were $8,038,000; this is a decrease of $18,000 from the $8,056,000
recorded for the six months ended December 31, 1995 ("year to date 1996").
Battery sales increased by $883,000 or 13% to $7,444,000 for year to date 1997
from $6,561,000 for the same period of the previous year. This is the result of
a modest increase in the sales of batteries in the US combined with a strong
performance in the UK. In the US, battery sales were comparable during the first
six months of fiscal 1997 to those of the same period during the prior year. The
UK continued to report strong growth in battery sales during year to date 1997
compared to the same period of the previous year. Technology contracts were
$594,000 during year to date 1997 compared to $1,495,000 for the first six
months of fiscal 1996, a decrease of $901,000 or 60%. This the result of
completion of certain contracts and delays in receipt of new programs.
-9-
<PAGE>
Consolidated gross margin was 5% of revenue for the year to date 1997
compared to 25% for the same period of the previous year. This reduction in
gross margin was the result of decreasing revenues generated from technology
contracts with their historically greater profit levels. Additionally, the
Company continued to reduce production levels of the 9 volt battery. This
decision resulted in increased unabsorbed factory overhead.
Total operating expenses were $4,574,000 for the year to date 1997. This is
an increase of $927,000 or 25% over the $3,647,000 reported for the same period
of the prior year. $447,000 of this increase is due to a 33% increase of
research and development expenses to $1,787,000 for year to date 1997 from
$1,340,000 for year to date 1996. This is the result of commercialization of the
Company's lithium-ion solid-polymer rechargeable battery. A continuation of
substantial research and development expenditures is anticipated as the company
moves toward mass production and continued improvement of rechargeable
batteries. Marketing and administration increased by 21% or $479,000 to
$2,787,000 for year to date 1997 from $2,308,000 for the same period of the
prior year. This increase was planned by the Company in order to support the
introduction of the rechargeable battery.
Interest income decreased to $801,000 for the year to date 1997 from
$1,126,000 for the same period of the prior year. This is the result of a lower
average balance invested as the Company has used its cash and investments to
fund the operations and capital equipment improvements during the year.
Net losses in the amount of $3,356,000 or $ 0.42 per share were reported
for the six months ended December 31, 1996 compared to net income of $910,000 or
$ 0.12 per share for the same period of the previous year. This was caused by
the decreased gross margin plus additional operating expenses. Also, the prior
years' results include a gain on the sale of securities in the amount of
$1,618,000.
Liquidity and Capital Resources
As of December 31, 1996, cash, cash equivalents and available-for-sale
investments totaled more than $25,00,000. The Company used $1,623,000 of cash
from operations during the first six months of fiscal 1997. This is the net
result of increased net losses for the period and an increase in accounts
receivable partially offset by substantial decreases in inventories and
increases in accounts payable.
-10-
<PAGE>
Additionally, the Company expended approximately $5,022,000 of cash to
purchase machinery and equipment as it continues preparation of the
commercialization of the rechargeable lithium-ion solid-polymer battery and
upgrades of both the US and UK manufacturing facilities. The Company expects to
have the manufacturing machinery installed and qualified for production of the
rechargeable battery during the second calendar quarter of 1997. This delay of
one quarter from the previous projection is caused by delivery delays of
production machinery by various manufacturers.
The Company does not currently have any long-term debt. Also, it does not
have any current financing arrangements or loan facilities in place or available
to it. In November, 1996, the Company received a offer letter from the Empire
State Development Corporation to provide low cost loans for a total amount of
$2,000,000 plus employment incentive credits and sales tax exemptions. The final
terms of this agreement are being negotiated. The Company's current financial
position is adequate to support its financial requirements for the near future.
-11-
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) On December 5, 1996, an Annual Meeting of Shareholders of the
Company was held.
(b) At the Annual Meeting, the Shareholders of the Company elected to the
Board of Directors all eight nominees for director with the following
vote:
DIRECTOR FOR AGAINST ABSTAIN
-------- --- ------- -------
Bruce Jagid 6,992,387 127,907 0
Martin Rosansky 6,992,387 127,907 0
Joseph N. Barrella 6,992,387 127,907 0
Joseph C. Abeles 6,991,887 128,407 0
Arthur Lieberman 6,991,987 128,307 0
Carl H. Rosner 6,986,637 133,657 0
Stuart Shikiar 6,986,137 134,157 0
Richard Hansen 6,985,106 135,188 0
(c) Proposal number 2 was a request for the Shareholders to approve and
ratify an option granted to the Company's Chief Executive Officer
pursuant to his Employment Agreement dated March 29, 1994. This
proposal was approved by the Shareholders with a total of 7,087,818
shares voted FOR and 366,419 shares voted AGAINST and 70,500 shares
ABSTAINED.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None filed during the quarter ended December 31, 1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRALIFE BATTERIES, INC.
-------------------------
(Registrant)
Date: February 14, 1997 By:/s/ Bruce Jagid
------------------ ----------------------
Bruce Jagid
Chief Executive Officer
Date: February 14, 1997 By:/s/ Robert Cook
------------------ ----------------------
Robert Cook
Chief Financial Officer
and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 183,193
<SECURITIES> 18,163,774
<RECEIVABLES> 6,315,217
<ALLOWANCES> 210,295
<INVENTORY> 7,277,041
<CURRENT-ASSETS> 32,091,466
<PP&E> 16,878,218
<DEPRECIATION> 2,399,808
<TOTAL-ASSETS> 56,091,943
<CURRENT-LIABILITIES> 5,188,510
<BONDS> 0
0
0
<COMMON> 792,185
<OTHER-SE> 50,111,248
<TOTAL-LIABILITY-AND-EQUITY> 56,091,943
<SALES> 8,037,766
<TOTAL-REVENUES> 8,037,766
<CGS> 7,620,365
<TOTAL-COSTS> 4,573,933
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 800,878
<INCOME-PRETAX> (3,355,654)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,355,654)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,355,654)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
