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, 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)
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(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 - 7,979,136 shares outstanding as of February 6,
1998.
<PAGE>
ULTRALIFE BATTERIES, INC.
INDEX
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Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1997 and June 30, 1997.................................3
Condensed Consolidated Statements of Operations -
Three months and six months ended
December 31, 1997 and 1996 .......................................4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1997 and 1996.........................5
Notes to Condensed Consolidated Financial Statements .................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....................7-9
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .................10
SIGNATURES ...................................................................11
-2 -
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
(Unaudited)
Dec. 31, 1997 June 30, 1997
------------- -------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 2,773,768 $ 2,310,725
Available-for-sale securities 13,148,403 19,847,201
Accounts Receivable, net 5,131,632 2,715,728
Inventory 3,490,510 5,302,752
Prepaid Expenses 608,511 1,661,655
------------ ------------
Total Current Assets 25,152,824 31,838,061
Net Plant & Equipment 24,096,170 18,873,695
Purchase Technology 633,348 683,347
------------ ------------
Total Assets $ 49,882,342 $ 51,395,103
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 3,826,442 $ 2,659,547
Customer Advances 1,270,666 1,636,433
Other Liabilities 1,331,549 336,242
------------ ------------
Total Current Liabilities 6,428,657 4,632,222
Shareholders' Equity
Capital Stock - Par Value 800,255 795,360
Additional Paid In Capital 65,247,794 64,785,814
Unrealized Gain on Investments 634,056 1,311,343
Accumulated deficit (22,942,968) (20,115,175)
Foreign Currency Translation Adjustment 20,050 291,041
------------ ------------
Total Shareholders' Equity 43,759,187 47,068,383
Less: Treasury Stock, at Cost (305,502) (305,502)
------------ ------------
Total Liabilities and Shareholders' Equity $ 49,882,342 $ 51,395,103
============ ============
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<PAGE>
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Second Quarter, Fiscal 1998
(Unaudited)
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<TABLE>
<CAPTION>
Three Months Ended Dec. 31, Six Months Ended Dec. 31,
------------------------------ -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
Revenues:
<S> <C> <C> <C> <C>
$ 3,879,782 $ 3,824,343 Battery sales $ 7,572,849 $ 7,444,019
242,526 241,697 Technology contracts 1,425,976 593,747
- ------------ ------------ ------------ ------------
4,122,308 4,066,040 Total revenue 8,998,825 8,037,766
Cost of Products Sold:
3,608,442 3,824,715 Battery costs 6,790,072 7,125,878
153,033 297,777 Technology contracts 953,460 494,487
- ------------ ------------ ------------ ------------
3,761,475 4,122,492 Total cost of products sold 7,743,532 7,620,365
- ------------ ------------ ------------ ------------
360,833 (56,452) Gross Profit 1,255,293 417,401
1,918,966 969,173 Research & Development 3,070,875 1,787,248
1,424,071 1,516,437 Selling & Administrative 2,613,064 2,786,685
(1,195,427) 0 Gain on fires - Insurance (1,195,427) -
- ------------ ------------ ------------ ------------
2,147,610 2,485,610 Total Operating Expenses 4,488,512 4,573,933
- ------------ ------------ ------------ ------------
(1,786,777) (2,542,062) Operating Loss (3,233,219) (4,156,532)
174,040 497,883 Interest Income 427,202 800,878
(8,782) 0 Miscellaneous (21,776) -
- ------------ ------------ ------------ ------------
$ (1,621,519) $ (2,044,179) Net Loss $ (2,827,793) $ (3,355,654)
============ ============ ============ ============
$ (0.20) $ (0.26) Loss Per Share $ (0.36) $ (0.42)
============ ============ ============ ============
7,955,569 7,949,711 Weighted Average Shares Outstanding 7,942,300 7,933,086
============ ============ ============ ============
</TABLE>
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<PAGE>
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Second Quarter, Fiscal 1998
(Unaudited)
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Six Months Ended Dec. 31,
------------------------------
1997 1996
----------- -----------
OPERATING ACTIVITIES
Net loss $ (2,827,793) $ (3,355,654)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 532,235 608,863
Foreign currency loss -- (39,648)
Changes in operating assets and
liabilities:
Increase in accounts receivable (2,415,904) (1,317,509)
Decrease in inventories 1,812,242 964,468
Decrease in prepaid expenses
and other current assets 1,053,144 87,716
Increase in accounts payable
and other current liabilities 1,796,435 1,428,603
------------ ------------
Net cash used in operating activities (49,641) (1,623,161)
------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment (5,704,712) (5,021,686)
Purchase of securities (40,589,636) (22,927,038)
Sales of securities 39,208,989 9,239,983
Maturities of securities 7,402,159 19,488,735
------------ ------------
Net cash provided by (used in)
investing activities 316,800 779,994
------------ ------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 466,875 119,125
Purchase treasury stock -- (305,508)
------------ ------------
Net cash provided by (used in)
financing activities 466,875 (186,383)
------------ ------------
Effect of exchange rate changes on cash (270,991) --
------------ ------------
Increase (Decrease) in cash and
cash equivalents 463,043 (1,029,550)
Cash and cash equivalents at beginniing
of period 2,310,725 1,212,743
============ ============
Cash and cash equivalents at end of period $ 2,773,768 $ 183,193
============ ============
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<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments,which are of a normal
recurring nature, necessary to present fairly the financial position at December
31, 1997 and the results of operations for the three month and six month periods
ended December 31, 1997 and 1996 and cash flows for the six month periods ended
December 31, 1997 and 1996. The results of operations and cash flows for the
three months and six months ended December 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, 1997, filed on Form 10-K on October 14,
1997.
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. NEW ACCOUNTING PRONOUNCEMENTS
The Company accounts for net loss per common share in accordance with the
provisions of Statement of Financial Accounting Standards No. 128 (SFAS No.
128), "Earnings Per Share". 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. 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 six months ended December 31, 1997 and December 31, 1996
were $(0.36), and $(0.42), respectively, the same as reported EPS.
4. INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
under the first-in, first-out (FIFO) method. The composition of inventories
were:
June 30, 1997 December 31, 1997
--------------------------------------
Raw materials $ 2,993,858 $ 2,081,026
Work in process 547,468 1,528,183
Finished products 2,647,345 721,713
--------------------------------------
6,188,671 4,330,922
Less: Reserve for obsolescence 885,919 840,411
--------------------------------------
$ 5,302,752 $ 3,490,511
======================================
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<PAGE>
5. 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.
6. CONTINGENCY
In July 1992, the Company entered into several agreements related to the
establishment of a manufacturing facility in China, for the production and
distribution of batteries. Changzhou Ultra Power Battery Co., Ltd., a company
organized in China ("China Battery"), purchased from the Company certain
technology, equipment training and consultant services relating to the design
and operation of a lithium battery manufacturing plant. China Battery was
required to pay approximately $6.0 million to the Company over the first two
years of the agreement, of which approximately $5.6 million has been paid. The
Company has been attempting to collect the balance due under this contract.
China Battery 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, the Company wrote down the entire balance owed to the
Company as well as the Company's investment in fiscal 1997. In December 1997,
China Battery sent to the Company a letter demanding reimbursement of losses.
Although China Battery has not taken any additional steps, there can be no
assurance that China Battery will not pursue such a claim which, if successful,
would have an adverse effect on the Company's business, financial condition and
results of operations. The Company believes that such a claim would be without
merit.
The discussion and analysis below, and throughout this report, contains
forward-looking statements within the meaning of Section 27A of the Securities
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 condensed 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, 1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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<PAGE>
Results of Operations
Three months ended December 31, 1997 and 1996
Revenues. Total revenues were $4,122,300 for the three months ended December 31,
1997 ("second quarter 1998") compared to $4,066,000 for the three months ended
December 31,1996 ("second quarter 1997"). Increased sales of 9 volt batteries,
primarily from greater shipments to smoke detector manufacturers, were partially
offset by lower sales of high rate batteries manufactured at the Company's
subsidiary in the United Kingdom. Ultralife Batteries (UK) Ltd. experienced a
fire early in December, 1996 that caused extensive damage to the manufacturing
area of the facility and suspended production of high rate and seawater
batteries.
Cost of Products Sold. Cost of products sold decreased $361,000 from $4,122,500
in the second quarter 1997 to $3,761,500 in the second quarter 1998. Cost of
products sold as a percentage of revenue decreased from approximately 101% to
approximately 91% in the second quarter 1998. This improvement primarily
resulted from higher sales and production levels of 9 volt batteries and their
impact on reducing overhead expense per battery. In addition, continuing
manufacturing efficiencies in producing BA-5372 batteries contributed to
improved second quarter margins. Shipments of BA-5372 batteries in December,
1997 completed the company's contract with the US Army.
Operating Expenses. Operating expenses decreased $338,000 from $2,485,600 in the
second quarter 1997 to $2,147,600 in the second quarter 1998. Of the Company's
operating expenses, research and development expenses increased $949,800 from
$969,200 to $1,919,000. Research and development expenses increased as
expenditures to commercialize the Company's advanced rechargeable batteries were
accelerated to meet customer commitments. Selling, general and administrative
expenses decreased $92,300 from $1,516,400 to $1,424,100 in the second quarter
1998. The decrease in selling, general and administration expenses are
attributable to the impact of expense control efforts. Operating expenses were
also reduced by $1,195,400 in the second quarter 1998 as a result of insurance
proceeds received for the replacement of leasehold improvements written off in
the third quarter 1997 due to the December, 1996 fire in the UK.
Interest Income. Interest income decreased $323,900 from $497,900 in the second
quarter 1997 to $174,000 in the second quarter 1998. The decrease of interest
income is primarily the result of lower average balances invested since the
Company used cash and investments to fund operations and capital equipment
additions for high volume production of rechargeable batteries.
Net Losses. Net losses decreased $422,700 from a loss of $2,044,200, $0.26 per
share for the second quarter 1997 to $1,621,500, or $0.20 per share, for the
second quarter 1998, primarily as a result of the reasons described above.
-8-
<PAGE>
Six Months Ended December 31, 1997 and 1996
Revenues: Total revenues increased $961,000 from $8,037,800 in the six months
ended December 31, 1996 ("year to date 1997") to $8,998,800 for the six months
ended December 31, 1997 ("year to date 1998"). This increase reflects an
increase in sales of batteries and technology contracts. Sales of 9-volt and
BA-5372 primary batteries increased approximately $973,400, or 21% from
$4,531,600 to $5,505,000 during year to date 1998. This increase was
particularly offset by lower sales of high rate batteries by Ultralife UK as a
result of suspended operations of the company's Abingdon, England facility due
to the December, 1996 fire. Technology controls revenues increased $832,200, or
approximately 140% from $593,800 year to date 1997 to $1,426,000 year to date
1998. The increase in technology contract revenues is attributed to the
Company's agreement with Mitsubishi.
Cost of Products Sold. Cost of products sold increased $123,100 from $7,620,400
year to date 1997 to $7,743,500 year to date 1998. Cost of products sold as a
percentage of revenue decreased from 95% to approximately 86% year to date 1998.
The decrease in cost of products sold as a percentage of revenues was
principally the result of increased production volumes of 9-volt and BA-5372
primary batteries and the Company's implementation of cost reduction programs
related to improvement of manufacturing efficiencies.
Operating Expenses. Operating expenses decreased $85,400 from $4,573,900 year to
date 1997 to $4,488,500 year to date 1998. Of the Company's operating expenses
research and development expenses increased $1,283,700 from $1,787,200 year to
date 1997 to $3,070,900 year to date 1998. Research and development expenses
increased as a result of the Company's efforts to improve production processes
and performance of its advanced rechargeable batteries and accelerate its
commercialization. Selling, general and administration expenses decreased
$173,600 from $2,786,700 year to date 1997 to $2,613,100 year to date 1998. The
decrease in selling, general and administration expenses are attributable to the
impact of expense control programs. Operating expenses were also reduced by
$1,195,400 year to date 1998 as a result of insurance proceeds received for the
replacement of assets previously written off due to the December, 1996 fire in
the Company's UK subsidiary.
Interest Income. Interest income decreased $373,700 from $800,900 year to date
1997 to $427,200 year to date 1998. The decrease of interest income is the
result of lower average balance invested since the Company used cash and
investments to fund operations and capital equipment additions for high volume
production of rechargeable batteries.
Net Losses. Net losses decreased $527,900 from a loss of $3,355,700, or $0.42
per share year to date 1997 to a net loss of $2,827,800, or $0.36 per share year
to date 1998, primarily as a result of the reasons described above.
-9-
<PAGE>
Liquidity and Capital Resources
As of December 31, 1997 cash, cash equivalents and available for sale
investments totaled $15,922,200. The Company used $56,600 of cash from
operations during the six months ended December 31, 1997. This is the net result
of net losses and increased accounts receivable for the period offset by
depreciation expense and reductions in inventories, prepaid expenses and
increased accounts payable. Additionally, the Company spent $5,704,700 of cash
year to date 1998 to purchase machinery and equipment, primarily for the
expansion of facilities to produce rechargeable batteries. The balance of the
equipment to complete a fully automated production line for rechargeable
batteries is expected to be installed during the third quarter of fiscal 1998
requiring approximately $2.9 Million in additional cash.
The Company does not currently have any long-term debt. A limited line of credit
in the amount of $370,000 is maintained by Ultralife UK for short-term working
capital requirements. However, with continued sales growth and expansion, the
company will explore normal working capital lines of credit. The company's
current financial position is adequate to support its financial requirements for
the near future.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) On December 9, 1997, 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 seven nominees for Director with the
following vote:
DIRECTOR FOR AGAINST ABSTAIN
-------- --- ------- -------
Bruce Jagid 7,697,700 60,850 0
Martin Rosansky 7,703,000 55,550 0
Joseph N. Barrella 7,703,000 55,550 0
Joseph C. Abeles 7,702,800 55,750 0
Arthur Lieberman 7,702,800 55,750 0
Carl H. Rosner 7,703,000 55,550 0
Richard Hansen 7,703,000 55,550 0
(c) Proposal Number 2 was a request for the Shareholders to approve and
ratify an increase of 500,000 shares in the number of shares of
Common Stock of the Company available under the Company's 1992 Stock
Option Plan. This proposal was approved by the Shareholders with a
total of 3,865,433 shares voted FOR and 1,052,805 shares voted
AGAINST and 107,175 shares ABSTAINED.
-10-
<PAGE>
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, 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: February 14, 1998 By:/s/ Bruce Jagid
------------------------
Bruce Jagid
Chief Executive Officer
Date: February 14, 1998 By:/s/ Frederick F. Drulard
------------------------
Frederick F. Drulard
Vice President, Finance
& Administration
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 2,773,768
<SECURITIES> 13,148,403
<RECEIVABLES> 5,421,268
<ALLOWANCES> 289,636
<INVENTORY> 3,490,510
<CURRENT-ASSETS> 25,152,824
<PP&E> 24,096,170
<DEPRECIATION> 3,092,409
<TOTAL-ASSETS> 49,882,342
<CURRENT-LIABILITIES> 6,428,657
<BONDS> 0
0
0
<COMMON> 800,255
<OTHER-SE> 42,347,928
<TOTAL-LIABILITY-AND-EQUITY> 49,882,342
<SALES> 8,998,825
<TOTAL-REVENUES> 8,998,825
<CGS> 7,743,532
<TOTAL-COSTS> 1,255,293
<OTHER-EXPENSES> 4,488,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 427,202
<INCOME-PRETAX> (2,827,793)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,827,793)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
