SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
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, 7,949,336 shares outstanding as of May 9, 1997
<PAGE>
ULTRALIFE BATTERIES, INC.
INDEX
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Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
March 31, 1997 and June 30, 1996................................. 3
Condensed Statements of Operations -
Three months and nine months ended
March 31, 1997 and 1996....................................... 4
Condensed Statements of Cash Flows -
Nine months ended March 31, 1997 and 1996........................ 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.............................................. 12
SIGNATURES............................................................. 13
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<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Unaudited)
March 31, 1997 June 30, 1996
-------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 1,872,992 $ 1,212,743
Available-for-sale securities 15,597,635 21,839,692
Accounts receivable 3,892,735 4,907,279
Inventories 6,142,160 8,437,791
Other current assets 317,865 450,251
------------ ------------
Total current assets 27,823,387 36,847,756
Net property and equipment 16,896,734 10,688,538
Due from insurance companies 946,662 0
Available-for-sale securities held
to purchase equipment 5,787,839 12,016,593
Investment in China development program 0 283,500
Technology license agreements, net 707,545 796,542
------------ ------------
Total assets $ 52,162,167 $ 60,632,929
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 4,432,764 $ 3,434,473
Other accrued liabilities 434,646 763,690
------------ ------------
Total current liabilities 4,867,410 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 965,663 3,842,878
Foreign currency translation adjustments 17,433 37,749
Accumulated deficit (18,924,917) (12,868,821)
------------ ------------
Total shareholders' equity 47,294,757 56,434,766
------------ ------------
Total liabilities and shareholders' equity $ 52,162,167 $ 60,632,929
============ ============
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<PAGE>
Ultralife Batteries, Inc.
Consolidated Statements of Operations
Three Months and Nine Months Ended March 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
- ----------------------------------- --------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<C> <C> <S> <C> <C>
Revenues:
$ 4,140,855 $ 3,471,047 Battery sales $11,584,874 $10,032,201
240,330 706,194 Technology contracts 834,077 2,201,042
- ----------------------------------- --------------------------------
4,381,185 4,177,241 Total revenue 12,418,951 12,233,243
Cost of products sold:
4,033,791 2,845,373 Battery costs 11,159,669 8,445,441
211,016 136,155 Technology contracts 705,503 548,308
- ----------------------------------- --------------------------------
4,244,807 2,981,528 Total cost of products sold 11,865,172 8,993,749
136,378 1,195,713 Gross Profit 553,779 3,239,494
945,977 710,654 Research & Development 2,733,225 2,050,615
1,432,180 1,423,359 Selling & Administrative 4,218,865 3,730,882
- ----------------------------------- --------------------------------
2,378,157 2,134,013 Total Operating Expenses 6,952,090 5,781,497
(2,241,779) (938,300) Operating (Loss) (6,398,311) (2,542,003)
284,334 504,939 Interest Income 1,085,212 1,630,690
0 312,298 Gain on Sale of Securities 0 1,930,056
(605,296) 0 Loss on China Development Program (605,296) 0
(137,700) 0 Provision for Loss on Fire (137,700) (229,977)
- ----------------------------------- --------------------------------
$ (2,700,441) $ (121,063) Net (Loss) $ (6,056,095) $ 788,766
=================================== ================================
$ (0.34) $ (0.01) Earnings (Loss) Per Share $ (0.76) $ 0.10
=================================== ================================
7,922,211 7,922,780 Number of Primary Shares 7,923,276 8,196,466
=================================== ================================
</TABLE>
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<PAGE>
ULTRALIFE BATTERIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For The Nine Months Ended March 31, 1997 and 1996
(Unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended March 31,
---------------------------
1997 1996
---------- ----------
OPERATING ACTIVITIES
Net (loss) income $ (6,056,095) $ 788,766
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, amortization and other provisions 1,545,447 (70,809)
Foreign currency (loss)/gain (20,316) (63,252)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 583,731 (2,797,841)
Decrease in contract revenue receivable 0 (121,412)
Decrease (Increase) in inventories 2,292,614 (856,851)
Decrease in prepaid expenses
and other current assets 132,386 43,881
Increase (decrease) in accounts payable and
accrued liabilities 669,246 (927,493)
------------ ------------
Net cash used in operating activities (852,987) (4,005,011)
------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment (6,947,314) (6,082,479)
Purchase of securities (34,830,729) (41,107,272)
Sales of securities 13,140,094 14,953,249
Maturities of securities 30,337,567 34,173,342
------------ ------------
Net cash (used in) provided by
investing activities 1,699,618 1,936,840
------------ ------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 119,126 1,361,224
Purchase Treasury Stock (305,508) 0
Effect of exchange rate changes on cash 0 2,249
------------ ------------
Net cash provided by financing activities (186,382) 1,363,473
------------ ------------
Decrease) Increase in Cash and Cash
Equivalents 660,249 (704,698)
Cash and Cash Equivalents at Beginning
of Period 1,212,743 1,734,146
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,872,992 $ 1,029,448
============ ============
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<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 March 31, 1997 and the
results of operations for the three and nine month periods ended March 31, 1997
and 1996 and cash flows for the nine month periods ended March 31, 1997 and
1996. The results of operations and cash flows for the three months and nine
months ended March 31, 1997 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.
Discussions with the insurance company indicate that the Company is fully
insured for the replacement cost of 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 $947,000 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. Costs related to expense
deductibles and payment of some consulting fees are not included in the
insurance coverage. The Company has reflected a provision for these expenses in
the third fiscal quarter of 1997. 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.
5. CONTINGENCY - CHINA DEVELOPMENT PROGRAM
In July, 1992, the Company entered into several agreements related to the
establishment of a manufacturing facility in Changzhou, China. In accordance
with the terms of those agreements, the China Development Program purchased from
Ultralife Batteries, Inc. certain technology, equipment, training and consulting
services for approximately $6.0 million. Through March 31, 1997, approximately
$5.6 of the total amount due has been received. The unpaid portion is primarily
the "holdback provision" contained in the several agreements. Despite continuous
discussions, the China Development Program has not yet made this final payment
and management deems it prudent to make a provision for possible non-payment of
this amount owing. Also, considering the current status of negotiations, a
provision against the company's investment in the China Development Plan was
recorded during the third fiscal quarter. The purpose of the company's
participation in the China Development Program was to make available the popular
2/3 A size lithium battery at a competitive cost. Other sources for this battery
have since been identified and are supplying the Company's requirements.
-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 March 31, 1997 and 1996
Total revenues were $4,381,000 for the three months ended March 31,
1997("third quarter 1997"). This represents an increase of $204,000 or 5% over
the $4,177,000 reported for the three months ended March 31, 1996 ("third
quarter 1996"). Sales of batteries increased by 19% during the third 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. Although total
revenues generated by the UK subsidiary improved substantially, the improvement
is the net result of increased sales to the Ministry of Defense partially
reduced by decreased revenues from the high rate lithium and seawater batteries.
The reduced sales levels of these batteries is primarily caused by limitations
of the manufacturing facility in the UK due to the fire there in December, 1996
and is expected to continue through the calendar year 1997. Revenues from
technology contracts were $240,000 during the third quarter 1997; a decrease of
$466,000 or 66% compared to the third quarter 1996. This 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.
Consolidated gross margin was 3% of revenue for the third fiscal quarter of
1997 compared to 29% 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 reduced
production levels of the 9 volt battery during the quarter ended March 31, 1997.
This decision resulted in increased unabsorbed factory overhead but decreased
inventory levels by $2,300,000 or 27% from the balance at June 30, 1996. Further
reductions are expected.
-8-
<PAGE>
Total operating expenses of $2,378,000 for the third quarter 1997 reflect
an increase of $244,000 or 11% compared to $2,134,000 for the same period of the
prior year. Virtually the entire increase in 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 development
expenditures is anticipated as the Company moves toward mass production and
continued improvement of rechargeable batteries.
One benefit of this level of research and development investment is the
recent award of a contract from a leading electronics manufacturer to develop
the Ultralife solid state system rechargeable battery for a new generation of
portable computers. The initial phase of this contract involves an $800,000
payment to Ultralife for customized battery development. Substantially greater
revenues may be generated, estimated by management to be in excess of
$10,000,000, if the customer's product is successful. The impact of this
contract on the results of operations for the third quarter of fiscal 1997,
however, is not significant.
Interest income decreased to $284,000 for the third quarter of fiscal 1997
from $505,000 for the three months ended March 31, 1996. 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.
Net losses in the amount of $2,700,000 or $ 0.34 per share were reported
for the third quarter 1997 compared to a net loss of $121,000 or $ 0.01 per
share. This was caused by the decreased gross margin plus additional operating
expenses. The prior years' results include a gain on the sale of securities in
the amount of $312,000 or $ 0.04 per share. For the third fiscal quarter of
1997, the provisions for the China Development Program and the unreimburseable
costs related to the UK fire totaled $743,000 or $ 0.09 loss per share.
Nine months ended March 31, 1997 and 1996
Total revenues for the nine months ended March 31, 1997 ("year to date
1997") were $12,419,000; this is an increase of $186,000 from the $12,233,000
recorded for the nine months ended March 31, 1996 ("year to date 1996"). Battery
sales increased by $1,553,000 or 15% to $11,585,000 for year to date 1997 from
$10,032,000 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. Technology contracts were $834,000 during year to date
1997 compared to $2,201,000 for the first nine months of fiscal 1996, a decrease
of $1,367,000 or 62%. This the result of completion of certain contracts and
delays in receipt of new programs.
Consolidated gross margin was 4% of revenue for the year to date 1997
compared to 26% for the same period of the previous year. This reduction in
-9-
<PAGE>
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 $6,952,000 for the year to date 1997. This is
an increase of $1,171,000 or 20% over the $5,781,000 reported for the same
period of the prior year. $682,000 of this increase is due to a 33% increase of
research and development expenses to $2,733,000 for year to date 1997 from
$2,051,000 for year to date 1996. 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 13% or $488,000 to $4,219,000 for year to date 1997
from $3,731,000 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 $1,085,000 for the year to date 1997 from
$1,631,000 for the same period of the prior year. This is the result of a lower
average balance invested as the Company has used cash and investments to fund
the operations and capital equipment improvements.
Net losses in the amount of $ 6,056,000 or $ 0.76 per share were reported
for the nine months ended March 31, 1997 compared to net income of $789,000 or $
0.10 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
$1,930,000 or $ 0.24 per share. During the current fiscal year, the results of
operations include provisions for the China Development Program and the
unreimburseable costs related to the UK fire which totaled $743,000 or $ 0.09
loss per share.
Liquidity and Capital Resources
As of March 31, 1997, cash, cash equivalents and available-for-sale
investments totaled more than $23,250,000. The Company used $853,000 of cash
from operations during the first nine months of fiscal 1997. This is the net
result of increased net losses, reduced by the non-cash expenses for the period
as well as decreases in accounts receivable and inventories in addition to
increases in accounts payable.
-10-
<PAGE>
Additionally, the Company expended approximately $6,947,000 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.
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. The Company has received an offer letter from the Empire State
Development Corporation to provide a low cost loan for a total amount of
$1,000,000 plus a grant in the amount of $250,000 and 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.
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<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None filed during the quarter ended March 31, 1997.
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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: May 14, 1997 By: /s/ Bruce Jagid
------------------------------
Bruce Jagid
Chief Executive Officer
Date: May 14, 1997 By: /s/ Robert Cook
------------------------------
Robert Cook
Chief Financial Officer
and Controller
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,872,992
<SECURITIES> 15,597,635
<RECEIVABLES> 3,992,282
<ALLOWANCES> 99,547
<INVENTORY> 6,142,160
<CURRENT-ASSETS> 27,823,387
<PP&E> 19,517,958
<DEPRECIATION> 2,621,225
<TOTAL-ASSETS> 52,162,167
<CURRENT-LIABILITIES> 4,867,410
<BONDS> 0
0
0
<COMMON> 792,185
<OTHER-SE> 46,502,572
<TOTAL-LIABILITY-AND-EQUITY> 52,162,167
<SALES> 12,418,951
<TOTAL-REVENUES> 12,418,951
<CGS> 11,865,172
<TOTAL-COSTS> 6,952,090
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (742,996)
<INTEREST-EXPENSE> 1,085,212
<INCOME-PRETAX> (6,056,095)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,056,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,056,095)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
