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, 2000
Commission file number 0-20852
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ULTRALIFE BATTERIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 16-1387013
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Technology Parkway, Newark, New York 14513
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(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: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, par value $0.10 per share
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 III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On August 31, 2000, the aggregate market value of the common stock of
Ultralife Batteries, Inc. held by non-affiliates of the Registrant was
approximately $112,196,376 based upon the closing price for such Common Stock as
reported on the NASDAQ National Market System on August 31, 2000.
As of September 15, 2000, the Registrant had 11,083,826 shares of Common Stock
outstanding.
Documents Incorporated by Reference.
Part III 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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TABLE OF CONTENTS
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ITEM PAGE
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PART I 1 Business....................................................................3
2 Properties..................................................................14
3 Legal Proceedings...........................................................14
4 Submission of Matters to a Vote of Securities Holders.......................15
PART II 5 Market for Registrant's Common Equity and Related Shareholder
Matters.....................................................................15
6 Selected Financial Data.....................................................17
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................18
7a Quantitative and Qualitative Disclosures About Market Risks.................22
8 Financial Statements and Supplementary Data.................................22
9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................22
PART III 10 Directors and Executive Officers of the Registrant..........................22
11 Executive Compensation......................................................22
12 Security Ownership of Certain Beneficial Owners and Management..............23
13 Certain Relationships and Related Transactions..............................23
PART IV 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.............23
Exhibit Index...............................................................24
Signatures..................................................................27
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PART I
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Annual Report on Form 10-K contains
certain forward-looking statements and information that are based on the beliefs
of management as well as assumptions made by and information currently available
to management. The statements contained in this Annual Report relating to
matters that are not historical facts are forward-looking statements that
involve risks and uncertainties, including, but not limited to, future demand
for the Company's products and services, the successful commercialization of the
Company's advanced rechargeable batteries, general economic conditions,
government and environmental regulation, competition and customer strategies,
technological innovations in the primary and rechargeable battery industries,
changes in the Company's business strategy or development plans, capital
deployment, business disruptions, including those caused by fires, raw materials
supplies, environmental regulations, and other risks and uncertainties, certain
of which are beyond the Company's control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may differ materially from those described herein as anticipated,
believed, estimated or expected.
ITEM 1. BUSINESS
General
Ultralife Batteries, Inc. (the "Company") develops, manufactures and
markets a wide range of standard and customized primary lithium and polymer
rechargeable batteries for use in a wide array of applications. The Company
believes that its proprietary technologies allow the Company to offer batteries
that are ultra-thin, lightweight and generally achieve longer operating time
than many competing batteries currently available. To date, the Company has
focused on manufacturing a family of lithium primary batteries for consumer,
industrial, and military applications which it believes is one of the most
comprehensive lines of lithium manganese dioxide primary batteries commercially
available. The Company has introduced its advanced polymer rechargeable
batteries which are based on its proprietary technology for use in portable
electronic applications such as cellular telephones and computing devices
manufactured and sold for commercial use.
The Company reports its results in four operating segments: Primary
Batteries, Rechargeable Batteries, Technology Contracts and Corporate. The
Primary Batteries segment includes 9-volt, cylindrical and various specialty
batteries. The Rechargeable Batteries segment consists of the Company's polymer
rechargeable batteries. The Technology Contracts segment includes revenues and
related costs associated with various government and military development
contracts. The Corporate segment consists of all other items that do not
specifically relate to the three other segments and are not considered in the
performance of the other segments.
Primary Batteries
The Company manufactures and markets a family of lithium-manganese dioxide
(Li/MnO2) primary batteries including 9-volt, 3-volt, C, 1 1/4 C and D
configurations, Ultralife Thin Cell(R) and custom Pouch batteries, and
silver-chloride seawater-activated 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 portable medical devices. The
Company's High Rate lithium batteries 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 Seawater-activated batteries used for
specialty marine applications.
Revenues for this segment in fiscal year 2000 were $21,840,000 and segment
contribution was a loss of $1,244,000. See Management's Discussion and Analysis
of Financial Condition and Results of Operations for additional information.
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Rechargeable Batteries
The Company believes that its polymer rechargeable technology provides
substantial benefits, including the ability to provide thin, lightweight cells
in custom sizes. In addition, the Company believes that its technology, which
does not utilize lithium metal or a free liquid electrolyte, provides safety
characteristics comparable to or better than other lithium-based rechargeable
batteries currently available. The Company has begun manufacturing its polymer
rechargeable batteries on its high-volume manufacturing equipment and supplying
such product to aftermarket customers.
The global small cell rechargeable batteries market was approximately $4.7
billion in 1998 and was expected to grow to $6.1 billion by 2001. The widespread
use of a variety of portable consumer electronic products such as notebook
computers and cellular telephones has resulted in large and growing markets for
rechargeable batteries. These electronic products are placing increasing demands
on existing battery technologies to deliver greater amounts of energy through
efficiently designed, smaller and lighter batteries. In some cases, current
battery capabilities are a major limitation in the development of next
generation electronic products. The Company believes that its proprietary
technology can provide substantial benefits over other available rechargeable
battery systems.
Revenues for this segment in fiscal year 2000 were $25,000 and segment
contribution was a loss of $5,306,000. See Management's Discussion and Analysis
of Financial Condition and Results of Operations for additional information.
Technology Contracts
On a continuing basis, the Company seeks to fund part of its efforts to
identify and develop new applications for its products and to advance its
technologies through contracts with both government agencies and third parties.
The 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 been successful in obtaining awards for such
programs for both rechargeable and primary battery technologies.
Revenues for this segment in fiscal year 2000 were $2,649,000 and segment
contribution was $246,000. See Management's Discussion and Analysis of Financial
Condition and Results of Operations for additional information.
Corporate
The Company reports revenues, cost of sales, research and development
expenses, gains on fires from insurance proceeds and its minority interest in
Ultralife Taiwan, Inc. by the above business segments. The balance of income and
expense, including selling, general and administration expenses, interest
income, gains on sale of securities and other expense, net are reported in the
Corporate segment.
There were no revenues for this segment in fiscal year 2000 and segment
contribution was a loss of $7,385,000. See Management's Discussion and Analysis
of Financial Condition and Results of Operations for additional information.
History
The Company was formed in December 1990. In March 1991, the Company
acquired certain technology and assets from Eastman Kodak Company ("Kodak")
relating to the 9-volt lithium-manganese dioxide primary battery that was
developed and manufactured by Kodak. During the initial 12 months of operation,
the Company directed its efforts towards reactivating the Kodak manufacturing
facility and performing extensive tests on the Kodak 9-volt battery. These tests
demonstrated a need for design modifications, which were incorporated into the
Company's 9-volt battery, resulting in a battery with improved performance and
shelf life. The Company then expanded its operations by the acquisition in
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June 1994 by its subsidiary, Ultralife Batteries (UK) Ltd., of certain assets of
Dowty Group PLC ("Dowty"). The Dowty acquisition provided the Company with a
presence in Europe, manufacturing facilities for high rate lithium and
seawater-activated batteries and highly skilled scientists with significant
expertise in lithium battery technology. The customer base of Ultralife UK was
further expanded by the acquisition of certain assets of Accumulatorenwerke
Hoppecke Carl Zoellner & Sohn GmbH & Co. ("Hoppecke") in July 1994. The Company
has developed a wide array of products based on combining technology developed
by its research and development personnel, assets acquired from Kodak, Dowty and
Hoppecke, as well as various technology licenses.
In December 1998, the Company announced a venture with PGT Energy
Corporation (PGT), together with a group of investors, to produce the Company's
polymer rechargeable batteries in Taiwan. During fiscal 2000, the Company
provided the venture, named Ultralife Taiwan, Inc. (UTI), with its proprietary
technology and 700,000 shares of the Company Common Stock. The Company is UTI's
largest shareholder with approximately 46% ownership, and holds half of the
seats on UTI's board of directors. PGT and the group of investors funded UTI
with $21.25 million in cash and hold the remaining seats on the board. See Item
5., Market for Registrant's Common Equity and Related Shareholder Matters.
Since its inception, the Company has concentrated significant resources on
research and development activities related to polymer rechargeable batteries.
The Company is currently engaged in volume production of advanced rechargeable
batteries using automated custom-designed equipment.
As used in this Report, unless otherwise indicated the terms "Company" and
"Ultralife" include the Company's wholly-owned subsidiary, Ultralife UK Ltd.
Products and Technology
A battery is an electrochemical apparatus used to store and release energy
in the form of electricity. The main components of a conventional battery are
the anode, cathode, separator and an electrolyte, which can be either a liquid
or a solid. The separator acts as an electrical insulator, preventing electrical
contact 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 outside of the battery. 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.
Primary Batteries
A primary battery is used until discharged and then discarded. The
principal competing primary battery technologies are carbon-zinc, alkaline and
lithium. The Company's primary battery products, exclusive of its
seawater-activated batteries, are based on lithium-manganese dioxide technology.
The following table sets forth the performance characteristics of battery
technologies that the Company believes represent its most significant current or
potential competition for its 9-volt and high-rate lithium batteries.
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Comparison of Primary Battery Technologies
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Technology Energy Density Operating
---------- -------------- Discharge Shelf Life Temperature
Wh/kg Wh/l Profile (years) Range ((Degree)F)
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9-Volt Configurations:
Carbon-zinc (1) 22 40 Sloping 1 to 2 23 to 113
Alkaline (1) 65 143 Sloping 4 to 5 -4 to 130
Ultralife lithium-manganese dioxide (2) 262 406 Flat up to 10 -40 to 160
High Rate Cylindrical: (3)
Alkaline (1) 59 160 Sloping 4 to 5 -4 to 130
Lithium-sulfur dioxide (1)(4) 260 430 Flat 10 -40 to 160
Lithium thionyl-chloride (2)(4) 250-300 650-700 Flat 10 -40 to 160
Ultralife lithium-manganese dioxide (2) 228 510 Flat 10 -40 to 160
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(1) Data compiled from industry sources and sales literature of other battery
manufacturers or derived therefrom by the Company.
(2) Results of tests conducted by the Company.
(3) Data for equivalent D-size cells.
(4) The Company believes that these batteries are limited in application due
to health, safety and environmental risks associated therewith.
Energy density refers to the total amount of electrical energy stored in a
battery divided by the battery's weight and volume, as measured in watt-hours
per kilogram and watt-hours per liter, respectively. Higher energy density
translates into longer operating times for a battery of a given weight or volume
and, therefore, fewer replacement batteries. Discharge profile refers to the
profile of the voltage of the battery during discharge. A flat discharge profile
results in a more stable voltage during discharge of the battery. High
temperatures generally reduce the storage life of batteries, and low
temperatures reduce the battery's ability to operate efficiently. The inherent
electrochemical properties of lithium batteries result in improved low
temperature performance and an ability to withstand relatively high temperature
storage.
The Company's primary battery products are based primarily on
lithium-manganese dioxide technology. The Company believes that materials used
in, and the chemical reactions inherent to, the lithium batteries provide
significant advantages over currently available primary battery technologies
which include lighter weight, longer operating time, longer shelf life, and a
wider operating temperature range. The Company's primary batteries also have
relatively flat voltage profiles, which provide stable power. Conventional
primary batteries, such as alkaline, have sloping voltage profiles, which result
in decreasing power outage during discharge. While the price for the Company's
lithium batteries is generally higher than commercially available alkaline
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 for the Company's targeted applications.
Therefore, the Company believes that its primary batteries are price competitive
with other battery technologies on a price per watt hour basis.
9-Volt Lithium Battery. The Company's 9-volt lithium battery delivers a
unique combination of high energy and stable voltage, which results in a longer
operating life for the battery and, accordingly, fewer battery replacements.
While the Company's 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.
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The Company currently markets its 9-volt lithium battery to consumer
retail and OEM markets, including manufacturers of safety and security systems
such as smoke alarms, medical devices and other electronic instrumentation. The
Company believes that approximately 10% of the 220 million 9-volt batteries sold
in the U.S. in 1999 were sold to OEMs. Applications for which the Company's
9-volt lithium battery are currently sold include:
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Safety and Security Equipment Medical Devices Specialty Instruments
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Smoke alarms Bone growth stimulators Garage door openers
Wireless alarm systems Telemetry equipment Electronic meters
Tracking devices Portable blood analyzers Hand-held scanners
Transmitters/receivers Ambulatory Infusion Pumps Wireless electronics
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The Company currently sells its 9-volt battery to Fyrnetics, Inc., Maple
Chase, and First Alert(R) for long life smoke alarms, to Agilent (previously
Hewlett Packard), Siemens Medical Systems, Inc., i-STAT Corp. and Orthofix for
medical devices, and to ADT and Interactive Technologies, Inc. for security
devices. Fyrnetics, Inc. and Maple Chase have introduced long life smoke alarms
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 Eveready, Sonnenschein Lithium GmbH and Telenot in Germany, as well as
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 Sears, Radio Shack, Fred Meyer, Inc., TruValue,
Chase Pitkin, Ace Hardware and a number of catalogs.
The Company believes that its 9-volt lithium battery market has expanded
as a result of a state law enacted in Oregon. The Oregon statute required that,
as of June 23, 1999, all battery-operated ionization-type smoke alarms sold in
that state must include a 10-year battery. Similar legislation was passed by the
New York State Senate that would also require all ionization-type smoke alarms
operated solely by a battery to include a battery that lasts 10 years. It is
anticipated that the New York bill will come up for vote in the Assembly during
the next legislative session. The Company believes that it manufactures the only
standard size 9-volt battery warranted to last 10 years when used in smoke
alarms. The Company believes that its current manufacturing capacity is adequate
to meet customer demand. However, with increased legislative activity, demand
could exceed current capacity; and therefore, additional capital equipment would
be required to meet these new needs.
High Rate Lithium Batteries. Ultralife UK, the Company's wholly owned
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 1/4 C, and D size high rate lithium cells which are
sold and packaged into multi-cell battery packs. The Company believes that its
high rate lithium C, 1 1/4 C and D primary cells, based on its proprietary
lithium-manganese dioxide technology, are the most advanced high rate lithium
power sources currently available. The Company also markets high rate lithium
batteries using cells from other manufacturers in other sizes and voltage
configurations in order to offer a more comprehensive line of batteries to its
customers.
The Company markets its line of high rate lithium cells and batteries to
the OEM market for industrial, military and search and rescue applications.
Significant industrial applications include pipeline inspection equipment,
autoreclosers and oceanographic devices. Among the military uses are manpack
radios, night vision goggles and thermal imaging equipment. Search and rescue
applications include ELT's (Emergency Location Transmitters) for aircraft and
EPIRB's (Emergency Position Indicating Radio Beacons) for ships.
The market for high rate lithium batteries has been dominated by lithium
thionyl chloride and lithium sulphur dioxide which possess liquid cathode
systems. However, there is an increasing market share being taken by lithium
manganese dioxide, a solid cathode system, because of its superior performance
and safety. Following a fire in December 1996, which resulted in the suspension
of manufacturing operations for 15 months, new production equipment was
installed and is fully
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operational. 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 gain an increasing share of this market.
Seawater-activated Batteries. The Company produces a variety of
seawater-activated batteries based on magnesium-silver chloride technology.
Seawater-activated 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 manufactures
seawater-activated batteries at the Abingdon, England facility and markets them
to naval and other specialty OEMs. This facility was also damaged in the fire
that occurred in December 1996 resulting in temporary cessation of its
seawater-activated operation. Manufacture has now been fully restored.
BA-5372 Batteries. 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. This battery offers a combination of
performance features suitable for military applications including high energy
density, lightweight, long shelf life and ability to operate in a wide
temperature range.
Pouch Cell Lithium Batteries. The Company is currently developing a pouch
cell lithium battery. The pouch cell is a 3-volt, wound, rectangular-shaped,
high-rate cell configured for packaging in a compact, lightweight laminated foil
pouch. Based on the Company's Li/MnO2 chemistry, the pouch cell, with solid
cathode construction, is a non-pressurized, non-toxic system that is considered
safer than liquid cathode systems. The pouch technology provides flexibility
with a lightweight thin battery having high energy density. The Company's
lithium technology provides these batteries with a long shelf life and
eliminates voltage delay even after prolonged storage.
Thin Cell Batteries. The Company has developed a line of lithium-manganese
dioxide primary batteries, which are called Thin Cell 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 two
configurations of the Thin Cell battery, which range in capacity from 160
milliampere-hours to 1,000 milliampere-hours. The Company is currently marketing
these batteries to OEMs for applications such as identification tags and theft
detection systems.
3-Volt Lithium Batteries. 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.
Rechargeable Batteries
In contrast to primary batteries, after a rechargeable battery is
discharged, it can be recharged and reused many times. Generally, discharge and
recharge cycles can be repeated hundreds 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, 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 many
primary battery applications, as well as in applications such as portable
computers, cellular telephones and other consumer products.
Three important parameters for describing the performance characteristics
of a rechargeable battery suited for today's portable electronic devices are
design flexibility, energy density and cycle life. Design flexibility refers to
the ability of rechargeable batteries to be designed to fit a variety of shapes
and sizes of battery compartments. Thin profile batteries with prismatic
geometry provide the design flexibility to fit the
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battery compartments of today's electronic devices. Energy density refers to the
total electrical energy per unit volume stored in a battery. High energy density
batteries generally are longer lasting power sources providing longer operating
time and necessitating fewer battery recharges. Lithium batteries, by the nature
of their electrochemical properties, are capable of providing higher energy
density than comparably sized batteries that utilize other chemistries and,
therefore, tend to consume less volume and weight for a given energy content.
Long cycle life is a preferred feature of a rechargeable battery because it
allows the user to charge and recharge power many times before noticing a
difference in performance.
The Company's advanced rechargeable battery is based on proprietary
polymer technology. The battery is composed of ultra-thin and flexible
components including a metallic oxide cathode, a carbon anode and a polymer
electrolyte. The Company believes that users of portable consumer electronic
products such as notebook computers and cellular telephones are seeking smaller
and lighter products that require less frequent recharges while providing the
same or additional energy. The Company believes that its technology is
attractive to OEMs of such products since the use of a flexible polymer
electrolyte, rather than a liquid electrolyte, reduces the battery's overall
weight and volume, and allows for increased design flexibility in conforming
batteries to the variety of shapes and sizes required for portable consumer
products.
Energy density refers to the total amount of electrical energy stored in a
battery divided by the battery's weight and volume as measured in watt-hours per
kilogram and watt-hours per liter, respectively. High energy density and long
achievable cycle life are important characteristics for comparing rechargeable
battery technologies. Greater energy density will permit the use of batteries of
a given weight or volume for a longer time period. Accordingly, greater energy
density will enable the use of smaller and lighter batteries with energy
comparable to those currently marketed. Long achievable cycle life, particularly
in combination with high energy density, is suitable for applications requiring
frequent battery rechargings, such as cellular telephones and portable
computers.
In addition to the performance advantages described above, there is a
significant difference between rechargeable batteries, which are based on the
lithium-ion liquid electrolyte technology, and the technology used in the
Company's advanced rechargeable batteries. Liquid lithium-ion cells use a
flammable liquid electrolyte that is contained within a cylindrical or prismatic
metal housing. Under abusive conditions, where internal battery temperatures may
become extremely high, significant pressure may build within these cells which
can cause these cells to vent and release liquid electrolyte into the
environment. For various reasons, flames may result. The Company's advanced
rechargeable batteries utilize a polymer electrolyte that is bound within the
pores of the cell materials and, thus, leakage is avoided. Moreover, because the
cell does not require pressure to maintain the contact between the electrodes,
the cells do not require a metal housing. Rather, they are packaged within a
thin foil laminate.
Sales and Marketing
The Company sells its current products directly to OEMs in the U.S. and
abroad and has contractual arrangements with sales representatives who market
the Company's products on a commission basis in particular areas. The Company
also distributes its products through domestic and international distributors
and retailers that purchase batteries from the Company for resale. The Company
employs a staff of sales and marketing personnel in the U.S., England and
Germany including a vice president of corporate marketing, a director of polymer
product marketing, a number of marketing managers, a European sales director, a
U.K. sales and marketing manager, an applications engineer, an industrial sales
manager for OEM customers, and managers who are responsible for particular
markets such as retail sales and audio/visual/security/medical sales. These
managers are responsible for direct sales, supervising the sales representatives
and distributors, and other sales, marketing and distribution activities. The
Company operates on a purchase order basis and has a number of long-term sales
contracts with customers.
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Primary Batteries
The Company has targeted sales of its primary batteries to manufacturers
of security and safety equipment, medical devices and specialty instruments. The
Company's primary strategy is to develop 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 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's warranty on its products is limited to
replacement of the product.
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 and sales at the end-user
or consumer level. The Company is also selling the 9-volt battery to the
consumer market through limited retail distribution.
In fiscal 2000, one customer (Fyrnetics, Inc.) accounted for approximately
$2.9 million of sales, which amounted to approximately 12% of total revenues of
the Company. The Company believes that the loss of this customer's business
would have a material adverse effect on the Company. Currently, the Company does
not experience significant seasonal trends in primary battery revenues.
The Company's sales are executed primarily through purchase orders with
scheduled deliveries on a weekly or monthly basis. At the end of fiscal 2000,
the Company's backlog was not significant.
Rechargeable Batteries
The Company has initially targeted sales of its advanced polymer
rechargeable aftermarket cellular phone batteries to distributors and resellers
of cellular phone accessories. UTI, the Company's Taiwan venture, will be
responsible for sales of polymer rechargeable batteries in Asia. The Company has
not marketed its advanced rechargeable batteries for a sufficient period to
determine whether these OEM or consumer sales are seasonal.
The Company plans to expand its marketing activities as part of its
strategic plan to increase sales of its rechargeable batteries to manufacturers
of cellular telephones, computing devices and new electronic portable devices.
Technology Contracts
Through the Company's engineering and sales and marketing departments, the
Company monitors and seeks relevant programs from various government or prime
contracting companies to pursue these opportunities and coordinate proposal
submissions.
Patents, Trade Secrets and Trademarks
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 holds patents covering 19 inventions in the U.S. and foreign
countries, three of which relate to rechargeable polymer batteries, and has
certain patent applications pending also relating to
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polymer batteries. The Company also pursues foreign patent protection in certain
countries. The Company's patents protect technology which makes 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's research and development in support of its advanced
rechargeable battery technology and products is 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, and continues in
perpetuity with respect to other licensed technical information.
All of the Company's employees in the U.S. and all the Company's employees
involved with the Company's technology in 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.
Manufacturing and Raw Materials
The Company manufactures its products from raw materials and component
parts that it purchases. The Company has obtained ISO 9001 certification for its
lithium battery manufacturing operations in both Newark, New York and Abingdon,
England.
Primary Batteries
The Company's Newark facility has the capacity to produce approximately
9,000,000 9-volt batteries per year. The Company believes that its current
manufacturing capacity is adequate to meet customer demand. However, with the
successful passage of certain legislation, demand could exceed current capacity,
which would require the Company to install additional capital equipment to meet
these new needs. The Company utilizes lithium foil as well as other metals and
chemicals to manufacture 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 to supply materials that could replace 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. Although the Company has experienced interruptions of product
deliveries by sole source suppliers, none of such interruptions has had a
material effect on the Company. All other raw materials utilized by the Company
are readily available from many sources.
The manufacturing facility in Abingdon, England was rebuilt following a
fire in December 1996. The facility is capable of producing up to 500,000
high-rate lithium cells per annum in a single shift. The facility also has
research and development laboratories as well as areas for the manufacture of
seawater-activated batteries and the fabrication of customized multi-cell
battery packs.
Rechargeable Batteries
The Company's production line for advanced polymer rechargeable batteries
consists of automated coating, assembly and packaging equipment capable of
high-volume manufacturing. Pursuant to the
11
<PAGE>
Company's agreement with the manufacturer of its assembly and packaging line,
the manufacturer is prohibited from manufacturing another production line that
replicates 20% or more of the components comprising the production line
delivered to the Company. The Company has plans to further expand its production
capacity by installing additional automated equipment at its Newark, New York
facility. An additional manufacturing capability for rechargeable batteries
based on the Company's technology has been established in Taiwan as Ultralife
Taiwan, Inc. under a venture established in December 1998. The new facility has
been completed, is occupied and equipment is being installed. Production is
anticipated to commence in the second half of fiscal 2001.
Research and Development
The Company conducts its research and development in both Newark, New
York, and Abingdon, England.
Rechargeable Batteries
The Company is primarily directing its research and development efforts
toward design optimization of rechargeable batteries. These batteries have a
broad range of potential applications in consumer, industrial and military
markets including cellular telephones, computing devices and other portable
electronic devices.
During the years ended June 30, 2000, 1999, and 1998, the Company expended
approximately $5,306,000, $5,925,000, and $6,651,000, respectively, on research
and development substantially for rechargeable batteries. The Company currently
expects that research and development expenditures will moderate as it seeks to
fund part of its research and development effort on a continuing basis from both
government and non-government sources.
Pouch Cell Lithium Batteries
The Company has been conducting research and development of pouch cell
lithium batteries, which have a broad range of potential applications in
military and industrial markets including radio communications, telematics and
medical devices. Included in the activities are design programs specific cells
and batteries to define volume manufacturing methodology. The designs will
incorporate a lean manufacturing approach to optimize their construction. No
assurance can be given that such efforts will be successful or that the products
that result will be marketable.
Technology Contracts
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 and
second phase of a government-sponsored program to develop new configurations of
the Company's BA 7590 pouch cell primary battery, which lasts up to twice as
long and could replace the current BA 5590 battery. The BA 5590 is the most
widely used battery power source for the U.S. Army and NATO communications
equipment. The Company was also awarded an additional cost sharing SBIR Phase
III contract for the development of the BA 7590 pouch cell primary battery that
was substantially completed in fiscal 2000. The Company was also awarded the
lead share of a three-year $15.3 million cost-sharing project sponsored by the
U.S. Department of Commerce's Advanced Technology Program (ATP). The objective
of this project is to develop and produce ultra-high energy polymer rechargeable
batteries that will significantly outperform existing batteries in a broad range
of portable electronic and aerospace applications. As lead contractor, the
Company will receive approximately $4.6 million. In fiscal 2000, the Company
received $1.8 million, and $2.5 million will be received over the remaining two
years of the program.
12
<PAGE>
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.
Primary Batteries
The Company's primary battery products incorporate lithium metal, which
reacts with water and may cause fires if not handled properly. Over the past
nine years, the Company has experienced fires that have temporarily interrupted
certain manufacturing operations in a specific area of one of its facilities.
However, in December 1996, a fire at the Abingdon, England facility caused an
interruption in all manufacturing operations for a period of 15 months. During
the period from December 1996 through January 1999, the Company received
insurance proceeds compensating the Company for loss of its plant and machinery,
leasehold improvements, inventory and business interruption. 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 and 3-volt batteries 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 Department of Transportation, as well as by certain foreign regulatory
agencies that consider lithium metal a hazardous material. The Company currently
ships its products pursuant to IATA and 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.
Corporate
In connection with the Company's purchase/lease of its Newark, New York
facility, a consulting firm performed a Phase I and II Environmental Site
Assessment which revealed the existence of contaminated soil around one of the
Company's buildings. The Company has retained an engineering firm which
estimated that the cost of remediation should be in the range of $230,000;
however, there can be no assurance that this will be the case. In February 1998,
the Company entered into an agreement with a third party which provides that the
Company and the third party will retain an environmental consulting firm to
verify the existence of the contaminants and further delineate the nature of the
environmental concern. A voluntary investigation workplan of the site is
scheduled for the end of calendar year 2000 to fully characterize the nature and
extent of the contamination that was found during a Phase II investigation. The
third party agreed to reimburse the Company for fifty percent of the cost
associated with remediating the environmental concern. There can be no assurance
that the Company will not face claims resulting in substantial liability which
would have a material adverse effect on the Company's business, financial
condition and results of operations in the period in which such claims are
resolved.
13
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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 batteries as well as other primary and rechargeable battery
technologies. The Company competes on the basis of design flexibility,
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.
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.
Employees
As of August 31, 2000, the Company employed 431 persons: 43 in research
and development, 331 in production and 57 in sales, administration and
management. Of the total, 362 are employed in the U.S. and 69 in England. In
addition, U.S. operations uses a temporary agency primarily for entry level
production workers, on a regular basis. As of August 31, 2000, the Company was
under contract for 25 production workers. None of the Company's employees is
represented by a labor union. The Company considers its employee relations to be
satisfactory.
ITEM 2. PROPERTIES
The Company occupies under a lease/purchase agreement approximately
250,000 square feet in two facilities 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 Nutley, New Jersey. The Company believes that its facilities are
adequate and suitable for its current manufacturing needs. The Company entered
into a lease/purchase agreement with the local county authority in February 1998
with respect to its 110,000 square foot factory in Newark, New York which
provides more favorable terms and reduces the expense for the lease of the
facility. The lease also includes an adjacent building to the Company's current
facility estimated to encompass approximately 140,000 square feet and
approximately 65 acres of property. Pursuant to the lease, the Company has
delivered a down payment in the amount of $400,000 and is obligated to pay the
local governmental authority annual installments in the amount of $50,000 until
December 2001 decreasing to approximately $28,000 for the period commencing
December 2001 and ending December 2007. Upon expiration of the lease in 2007,
the Company is required to purchase its facility for the purchase price of $1.
The Company leases a facility in Abingdon, England. The term of the lease
was recently extended and continues until March 24, 2013. It currently has an
annual rent of $240,000 and is subject to review every five years based on
current real estate market conditions. The next review is March 2004.
ITEM 3. LEGAL PROCEEDINGS
In December 1996, Aerospace Energy System, Inc. ("Aerospace") commenced an
action in the United States District Court for the District Court of Utah
against the Company alleging that it is owed
14
<PAGE>
commissions in excess of $50,000 for sales made on behalf of the Company and
$100,000 for the Company's alleged breach of its duty of good faith and fair
dealings. This matter was settled in January 2000. Consequently, the Company
will incur no further liability in this matter.
In May 1997, William Boyd, the principal of Aerospace, and Leland J.
Coleman commenced an action against the Company and Loeb Partners Corporation
("Loeb"), an investment firm, in the U.S. District Court for the Southern
District Court of New York alleging that they had entered into a contract with
Loeb to arrange for the acquisition of Dowty and that the Company tortiously
interfered with their contract and business opportunity. The Company maintained
that the claim against it, for $25 million, was without merit. After a jury
trial in December of 1999, the case was dismissed. Plaintiffs have filed an
appeal, which is pending.
In August 1998, the Company, its Directors, and certain underwriters were
named as defendants in a complaint filed in the United States District Court for
the District of New Jersey by certain shareholders, purportedly on behalf of a
class of shareholders, alleging that the defendants, during the period April 30,
1998 through June 12, 1998, violated various provisions of the federal
securities laws in connection with an offering of 2,500,000 shares of the
Company's Common Stock. The complaint alleged that the Company's offering
documents were materially incomplete, and as a result misleading, and that the
purported class members purchased the Company's Common Stock at artificially
inflated prices and were damaged thereby. Upon a motion made on behalf of the
Company, the Court dismissed the shareholder action, without prejudice, allowing
the complaint to be re-filed. The shareholder action was subsequently refiled,
asserting substantially the same claims as the in the prior pleading. Earlier
this year, the Company again moved to dismiss the complaint. The motion is still
pending before the Court. The Company believes that the litigation is without
merit and will continue to defend it vigorously. The amount of alleged damages,
if any, cannot be quantified, nor can the outcome of this litigation be
predicted. Accordingly, management cannot determine whether the ultimate
resolution of this litigation could have a material adverse effect on the
Company's financial position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER 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."
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<PAGE>
The following table sets forth the quarterly high and low closing sales
prices of the Company's Common Stock during the Company's last two fiscal years:
Sales Prices
High Low
---- ---
Fiscal Year 1999:
Quarter ended September 30, 1998 $ 8.63 $5.06
Quarter ended December 31, 1998 7.56 5.13
Quarter ended March 31, 1999 6.94 4.44
Quarter ended June 30, 1999 5.63 4.00
Fiscal Year 2000:
Quarter ended September 30, 1999 $ 6.13 $4.00
Quarter ended December 31, 1999 8.00 3.63
Quarter ended March 31, 2000 15.50 7.00
Quarter ended June 30, 2000 12.88 7.38
During the period from July 1, 2000 through September 22, 2000, the high
and low closing sales prices of the Company's Common Stock were $13.38 and
$9.88, respectively.
Holders
As of August 31, 2000, there were 146 registered holders of record of the
Company's Common Stock. Based upon information from the Company's stock transfer
agent, management of the Company believes that there are more than 4,500
beneficial holders of the Company's Common Stock.
In July 1999, the Company issued 700,000 shares of its Common Stock to
Ultralife Taiwan, Inc. (UTI) in exchange for $8,750,000 in cash. Subsequently,
in September 1999, the Company contributed $8,750,000 in cash to the UTI
venture. This cash contribution coupled with the contribution of the Company's
technology resulted in approximately a 46% ownership interest in UTI. The
transaction was done in conjunction with the UTI agreement that was announced by
the Company in December 1998. See also History in Item 1 of this Annual Report.
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.
Additionally, pursuant to the credit facility between the Company and Congress
Financial Corporation (New England), the Company shall not declare or pay any
dividends under the covenants specified in the loan agreement.
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<PAGE>
ITEM 6.
SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Amounts)
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 24,514 $21,064 $16,391 $15,941 $15,101
Cost of products sold 25,512 19,016 14,522 15,118 14,271
--------------------------------------------------------
Gross margin (998) 2,048 1,869 823 830
--------------------------------------------------------
Research and development expenses 5,306 5,925 6,651 3,413 2,671
Selling, general and administrative expenses 7,385 6,195 5,790 5,218 4,993
Loss on China development program -- -- -- 805 --
(Gain) Loss on fires -- (1,288) (2,697) (56) 352
--------------------------------------------------------
Total operating and other expenses 12,691 10,832 9,744 9,380 8,016
Interest income, net 909 1,456 888 1,352 2,017
Equity loss in affiliate (818) (80) -- -- --
Gain on sale of securities 3,147 348 -- -- 1,930
Other income (expense), net 209 (25) (33) (41) --
--------------------------------------------------------
Loss before income taxes (10,242) (7,085) (7,020) (7,246) (3,239)
Income taxes -- -- -- -- --
--------------------------------------------------------
Net loss $(10,242) $(7,085) $(7,020) $(7,246) $(3,239)
========================================================
Net loss per common share $ (0.94) $ (0.68) $ (0.84) $ (0.91) $ (0.41)
========================================================
Weighted average number
of shares outstanding 10,904 10,485 8,338 7,923 7,814
========================================================
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and available-for-sale securities $18,639 $23,556 $35,688 $22,158 $35,069
Working capital $22,537 $28,435 $37,745 $27,205 $44,666
Total assets $64,460 $66,420 $75,827 $51,395 $60,633
Total long-term debt and capital lease obligations $ 3,567 $ 215 $ 197 $ -- $ --
Stockholders' equity $54,477 $60,400 $68,586 $46,763 $56,435
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Annual Report contains certain
forward-looking statements and information that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. The statements contained in this Annual Report relating to matters
that are not historical facts are forward-looking statements that involve risks
and uncertainties, including, but not limited to, future demand for the
Company's products and services, the successful commercialization of the
Company's advanced rechargeable batteries, general economic conditions,
government and environmental regulation, competition and customer strategies,
technological innovations in the primary and rechargeable battery industries,
changes in the Company's business strategy or development plans, capital
deployment, business disruptions, including those caused by fires, raw materials
supplies, environmental regulations, and other risks and uncertainties, certain
of which are beyond the Company's control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may differ materially from those described herein as anticipated,
believed, estimated or expected.
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this report.
General
Ultralife Batteries, Inc. (the "Company") develops, manufactures and
markets a wide range of standard and customized primary lithium batteries and
polymer rechargeable batteries for use in a wide array of applications. The
Company believes that its proprietary technologies allow the Company to offer
batteries that are ultra-thin, lightweight and generally achieve longer
operating time than many competing batteries currently available. To date, the
Company has focused on manufacturing a family of lithium primary batteries for
consumer, industrial, and military applications which it believes is one of the
most comprehensive lines of lithium manganese dioxide primary batteries
commercially available. The Company has introduced its advanced polymer
rechargeable batteries which are based on its proprietary technology for use in
portable electronic applications such as cellular telephones and computing
devices manufactured and sold for commercial use.
The Company has incurred net operating losses primarily as a result of
funding research and development activities and, to a lesser extent,
manufacturing and general and administrative costs. To date, the Company has
devoted a substantial portion of its resources to the research and development
of its products and technology, particularly its proprietary polymer
rechargeable technology. The Company expects its operating expenses to increase
as it expands production activities. The Company's results of operations may
vary significantly from quarter to quarter depending upon the number of orders
received, technology contracts entered into and the pace of the Company's
research and development activities. Currently, the Company does not experience
significant seasonal trends in primary battery revenues.
The Company reports its results in four operating segments: Primary
Batteries, Rechargeable Batteries, Technology Contracts and Corporate. The
Primary Batteries segment includes 9-volt batteries, cylindrical batteries and
various specialty batteries. The Rechargeable Batteries segment consists of the
Company's polymer rechargeable batteries. The Technology Contracts segment
includes revenues and related costs associated with various government and
military development contracts. The Corporate segment consists of all other
items that do not specifically relate to the three other segments and are not
considered in the performance of the other segments.
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<PAGE>
Results of Operations
Fiscal Year Ended June 30, 2000 Compared With the Fiscal Year Ended June 30,
1999
Revenues. Total revenues of the Company increased $3,450,000 from
$21,064,000 for the year ended June 30, 1999 to $24,514,000 for the year ended
June 30, 2000. Primary battery sales increased $2,281,000 or approximately 12%
from $19,559,000 for the year ended June 30, 1999 to $21,840,000 for the year
ended June 30, 2000. The increase in primary battery sales was primarily due to
an increase in BA-5372 battery shipments. Greater sales of high rate and 9-volt
batteries also contributed to the increased revenue. Rechargeable battery sales
amounted to $25,000 for the year ended June 30, 2000, mainly as a result of
shipments of small quantities of samples. Rechargeable battery revenues were
$24,000 less than in the prior year due to fewer samples shipped in fiscal 2000
as compared to fiscal 1999. Technology contract revenues increased $1,193,000,
or 82%, from $1,456,000 to $2,649,000 reflecting a full year of the Company's
involvement with one key development program. In April 1999, the Company
commenced work on a $15,300,000 cost-sharing project sponsored by the U.S.
Department of Commerce's Advanced Technology Program (ATP). As lead contractor,
the Company will receive approximately $4,600,000 during the three-year program.
In fiscal 2000, the Company recorded revenues of $2,235,000 for the ATP program,
compared with $267,000 in fiscal 1999.
Cost of Products Sold. Cost of products sold increased $6,496,000 from
$19,016,000 for the year ended June 30, 1999 to $25,512,000 for the year ended
June 30, 2000. Cost of products sold as a percentage of revenue increased from
approximately 90% to 104% for the year ended June 30, 2000. Cost of primary
batteries sold increased $5,273,000 from $17,811,000, or 91% of revenues, for
the year ended June 30, 1999 to $23,084,000, or 106% of revenues, for the year
ended June 30, 2000. The increase in cost of primary batteries sold as a
percentage of revenues was principally the result of costs related to the
implementation of lean manufacturing practices and higher material costs in
fiscal 2000. Also, receipt of insurance proceeds of $1,547,000 reduced the cost
of products sold in fiscal 1999. To date, lean manufacturing practices have
resulted in the reduction of excess inventory, quicker manufacturing throughput
times and improvements in operating efficiencies throughout the Company.
Technology contracts cost of sales increased $1,245,000, or approximately 108%,
from $1,158,000 for the year ended June 30, 1999 to $2,403,000 for the year
ended June 30, 2000. Technology contracts cost of sales as a percentage of
revenue increased from 80% to 91% for the year ended June 30, 2000, reflecting a
change in the mix of contracts.
Operating and Other Expenses. Operating and other expenses increased
$1,859,000 from $10,832,000 for the year ended June 30, 1999 to $12,691,000 for
the year ended June 30, 2000. Operating and other expenses as a percentage of
revenue increased slightly from approximately 51% to 52% for the year ended June
30, 2000. Of the Company's operating and other expenses, research and
development expenses decreased $619,000, or 10% from $5,925,000 for the year
ended June 30, 1999 to $5,306,000 for the year ended June 30, 2000. Research and
development expenses decreased as a result of a shift in resources to the U.S.
Department of Commerce's ATP Program and a narrower focus on key rechargeable
development programs. Selling, general and administration expenses increased
$1,190,000, approximately 19%, from $6,195,000 for the year ended June 30, 1999
to $7,385,000 for the year ended June 30, 2000. Selling and administrative
expenses increased as a result of certain one-time costs relating mostly to
legal fees and settlement costs associated with the conclusion of several legal
matters, as well as additional expenditures required to build an infrastructure
necessary to support the volume production of polymer rechargeable batteries.
Lastly, the gain on fires of $1,288,000 for the year ended June 30, 1999
resulted from the receipt of insurance proceeds to replace assets previously
written off due to fires at Ultralife UK.
Other Income (Expense). Net interest income decreased $547,000 from
$1,456,000 for the year ended June 30, 1999 to $909,000 for the year ended June
30, 2000. The decrease in interest income is the result of lower average
balances on cash and investment securities which were used for operations. The
equity loss of $818,000 in fiscal 2000 and $80,000 in fiscal 1999 resulted from
the Company's ownership interest in its venture in Taiwan. The gain on sale of
securities of $3,147,000 and $348,000 in fiscal 2000 and 1999, respectively,
resulted from the sale of the Company's investment in Intermagnetics General
Corporation common shares.
19
<PAGE>
Net Losses. Net losses increased $3,157,000, or approximately 45%, from
$7,085,000, or $0.68 per share, for the year ended June 30, 1999 to $10,242,000,
or $0.94 per share, for the year ended June 30, 2000, primarily as a result of
the reasons described above.
Fiscal Year Ended June 30, 1999 Compared With the Fiscal Year Ended June 30,
1998
Revenues. Total revenues of the Company increased $4,673,000 from
$16,391,000 for the year ended June 30, 1998 to $21,064,000 for the year ended
June 30, 1999. Primary battery sales increased $6,262,000 or approximately 47%
from $13,297,000 for the year ended June 30, 1998 to $19,559,000 for the year
ended June 30, 1999. The increase in primary battery sales was primarily due to
an increase in 9-volt lithium battery shipments. Greater sales of high rate
batteries also contributed to the increased revenue. Rechargeable battery sales
declined $717,000, or approximately 94%, from $766,000 for the year ended June
30, 1998 to $49,000 for the year ended June 30, 1999. The decrease was primarily
due to the decline in purchase orders for the Company's rechargeable batteries
due to delays in bringing the high-volume production equipment on line.
Technology contract revenues decreased $872,000, or 37%, from $2,328,000 to
$1,456,000 reflecting the completion of certain development programs.
Cost of Products Sold. Cost of products sold increased $4,494,000 from
$14,522,000 for the year ended June 30, 1998 to $19,016,000 for the year ended
June 30, 1999. Cost of products sold as a percentage of revenue increased from
approximately 89% to 90% for the year ended June 30, 1999. Cost of primary
batteries sold increased $6,019,000 from $11,792,000, or 89% of revenues, for
the year ended June 30, 1998 to $17,811,000, or 91% of revenues, for the year
ended June 30, 1999. The increase in cost of primary batteries sold as a
percentage of revenues was principally the result of higher manufacturing cost
in the Company's United Kingdom subsidiary where sales and production volumes of
high-rate batteries have not yet fully recovered to the levels achieved prior to
the December 1996 fire. This fire suspended production of high-rate batteries
for a period of 15 months. Cost of products sold for the year ended June 30,
1998 included $2,011,000 of insurance proceeds received by Ultralife UK that
fully offset unabsorbed overhead expenses resulting from lower production
volumes associated with suspended manufacturing operations following the
December 1996 fire. During the year ended June 30, 1999, insurance proceeds
amounting to $1,547,000 were received to partially offset unabsorbed overhead
expenses. While sales and production volumes of high-rate batteries are
increasing, they are not yet at a level to fully absorb all current overhead
expenses. Cost of rechargeable battery sales decreased $719,000, or
approximately 94%, from $766,000, or 100%, of revenues for the year ended June
30, 1998 to $47,000, or 96% of revenues for the year ended June 30, 1999.
Technology contracts cost of sales decreased $806,000, or approximately 41%,
from $1,964,000 for the year ended June 30, 1998 to $1,158,000 for the year
ended June 30, 1999. Technology contracts cost of sales as a percentage of
revenue decreased from 84% to 80% for the year ended June 30, 1999. The decrease
in technology contract cost of sales as a percentage of revenue reflects a
favorable mix of contracts performed during fiscal 1999.
Operating and Other Expenses. Operating and other expenses increased
$1,088,000 from $9,744,000 for the year ended June 30, 1998 to $10,832,000 for
the year ended June 30, 1999. Of the Company's operating and other expenses,
research and development expenses decreased $726,000, or 11% from $6,651,000 for
the year ended June 30, 1998 to $5,925,000 for the year ended June 30, 1999.
Research and development expenses decreased as a result of the Company focusing
its resources on a limited number of key rechargeable battery programs. Selling,
general and administration expenses increased $405,000, approximately 7%, from
$5,790,000 for the year ended June 30, 1998 to $6,195,000 for the year ended
June 30, 1999. Selling and administrative expenses in the year ended June 30,
1998 included insurance proceeds of $663,000 offsetting incremental costs of
operations corresponding to replacement facility rental, transportation costs
and other such costs relating to the December 1996 fire at Ultralife UK. Gains
as a result of the receipt of insurance proceeds to replace assets previously
written off due to fires at Ultralife UK decreased by $1,409,000, or
approximately 52%, from $2,697,000 in the year ended June 30, 1998 to $1,288,000
in the year ended June 30, 1999. The insurance claims have been settled and
there will be no further gains from these claims recorded in future periods.
20
<PAGE>
Other Income (Expense). Interest income, net increased $568,000 from
$888,000 for the year ended June 30, 1998 to $1,456,000 for the year ended June
30, 1999. The increase in interest income is the result of higher average
balances invested following the public securities offering completed April 30,
1998. Other income includes a gain of $348,000 on the sale of Intermagnetics
General Corporation common shares in the fourth quarter of the year ended June
30, 1999.
Net Losses. Net losses increased $65,000, or approximately 1%, from
$7,020,000, or $0.84 per share, for the year ended June 30, 1998 to $7,085,000,
or $0.68 per share, for the year ended June 30, 1999, primarily as a result of
the reasons described above.
Liquidity and Capital Resources
As of June 30, 2000, cash equivalents and available for sale securities
totaled $18,639,000. During the year ended June 30, 2000, the Company used
$10,532,000 of cash in operating activities as compared to $8,027,000 for the
year ended June 30, 1999. The increase in cash used in operations is the net
result of the net loss for the year, the gain on sale of securities and
increased inventories offset by depreciation and amortization expenses, equity
losses, increased provisions for inventory obsolescence and lower prepaid and
other current expenses. The increase in inventories at June 30, 2000 is the
result of increased production volumes. Months cost of sales in inventory at
June 30, 2000 was 2.8 months as compared to 2.9 months at June 30, 1999. In the
year ended June 30, 2000, the Company used $2,946,000 to purchase plant,
property and equipment. Of this amount, $449,000 relates to the acquisition of
machinery and equipment for the Company's primary battery operations, $1,697,000
relates to rechargeable battery machinery and equipment and the balance is
substantially for facilities upgrades.
In June 2000, the Company entered into a $20 million secured credit
facility with a lending institution. The financing agreement consists of an
initial $12 million term loan component (of which $4 million was outstanding at
June 30, 2000) and a revolving credit facility component for an initial $8
million, based on eligible net accounts receivable (as defined) and eligible net
inventory (as defined). There was no balance outstanding on the revolving credit
facility component as of June 30, 2000. The amount available under the term loan
component amortizes over time. Principal and interest are paid monthly on
outstanding amounts borrowed. The loans bear interest at the prime rate or other
LIBOR-based rate options at the discretion of the Company. The Company also pays
a facility fee on the unused portion of the commitment.
At June 30, 2000, the Company had a capital lease obligation outstanding
of $180,000 for the Company's Newark, New York offices and manufacturing
facilities. In addition, the Company had a capital lease on computer equipment,
which had an outstanding balance of $348,000 at June 30, 2000.
The Company believes that its present cash position and cash flows from
operations will be sufficient to satisfy the Company's estimated cash
requirements for at least 12 months.
Other
U.S. Army Contract - BA-X372/U. On April 23, 1999, the Company announced
that it had been awarded a $1.7 million sole-source contract to provide primary
(disposable) batteries to the U.S. Army. The contract was awarded by the U.S.
Army Communications and Electronics Command (CECOM) in Ft. Monmouth, New Jersey.
The battery ordered by CECOM is designated BA-X372/U, a 6-volt cylindrical
battery consisting of two lithium-manganese dioxide cells connected in series.
The batteries are primarily used to provide the necessary memory back-up power
for the most widely used military "Singars" radio. On April 13, 2000, the
Company further announced that it has been awarded a new three-year contract to
provide its BA-X372/U primary (disposable) lithium-manganese dioxide batteries
to the U.S. Army. The initial contract order is valued at $572,000 and has the
potential to reach approximately $2.5 million per year should the Army exercise
its option to purchase additional batteries.
U.S. Army Contract - Pouch. In June 2000, the Company announced that it
entered into an agreement with CECOM to complete the development of its primary
(disposable) lithium-manganese
21
<PAGE>
dioxide (Li/MnO2) pouch batteries for the Army for manufacture in high volume on
a flexible manufacturing line. The activities required under this agreement have
begun and are expected to last 24 months. The Government will fund approximately
$3.1 million for engineering efforts. The principal goals of this program are to
develop the manufacturing technology required for high-volume production of
Li/MnO2 pouch batteries in a cost effective manner, manufacturing of
pre-production prototype batteries for testing, and providing technical input
for the development and updating of military battery performance specifications.
Research and development efforts, previously undertaken by the Company and
CECOM, have demonstrated that the Li/MnO2 pouch technology is capable of meeting
all of the Army's battery performance requirements.
Advanced Technology Program. In April 1999, the Company began work on a
three-year, $15.3 million cost-sharing project sponsored by the U.S. Department
of Commerce. The objective of the project is to develop and produce
ultra-high-energy solid polymer rechargeable batteries that will significantly
outperform existing batteries in a broad range of portable electronic
applications. The Company is leading a team comprised of Eagle-Picher
Technologies, the world's largest supplier of satellite batteries, and
Lockheed-Martin Missiles and Space, a leading supplier of satellites and space
vehicles. Major subcontractors, such as Sandia National Laboratories will also
play key roles in the project.
Year 2000. The Company has not experienced any significant problems
related to the Year 2000-date rollover. In general, however, all problems
related to the Year 2000-date rollover may not yet have become apparent. The
Company will continue to monitor all related Year 2000 issues. Total costs
associated with the Year 2000 effort were approximately $450,000, the majority
of which were capitalized in fiscal 1999. The Company's Year 2000 costs were
funded out of cash flows from operations.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to various market risks in the normal course of
business, primarily interest rate risk and changes in market value of its
investments and believes its exposure to these risks is minimal. The Company's
investments are made in accordance with the Company's investment policy and
primarily consist of commercial paper and U.S. corporate bonds. The Company does
not participate in the investment of derivative financial instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14(a)(1) and (2) are
included in this Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
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.
22
<PAGE>
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
The section entitled "Certain Transactions" in the Proxy Statement is
incorporated herein by reference.
PART IV
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 Public Accountants,
Arthur Andersen LLP F-1
Consolidated Financial Statements
Consolidated Balance Sheets as of June 30,
2000 and 1999 F-2
Consolidated Statements of Operations for the
years ended June 30, 2000, 1999 and 1998 F-3
Consolidated Statements of Changes in
Shareholders' Equity and Accumulated Other
Comprehensive Loss for the years ended
June 30, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the
years ended June 30, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
2. Financial Statement Schedules
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.
23
<PAGE>
(c) Exhibits. The following Exhibits are filed as a part of this Report:
<TABLE>
<CAPTION>
Exhibit
Index Description of Document Incorporated By Reference to:
<S> <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
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. Statement
and 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 Exhibit 10.3 of the 1992 Registration
Changzhou Battery Factory, the Company Statement
and H&A 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 Exhibit 10.8 of the 1992 Registration
for purchase of Common Stock Statement
10.9 Stock Option Agreement under the Exhibit 10.9 on the Form 10-Q for the
Company's Stock Option Plan 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
for incentive stock options
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
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
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
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, Exhibit 10.17 of the 1993 10-Q
1993 through January 18, 1993 to the
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 Report on Form 8-K dated June 10, 1994,
(UK) File No. 0-20852
10.19 Technology Transfer Agreement relating Exhibit 10.19 of the Company's Registration
to Lithium Batteries (Confidential Statement on Form S-1 filed on October 7,
treatment has been granted as to 1994, File No. 33-84888 (the "1994
certain portions of this agreement) Registration Statement")
10.20 Technology Transfer Agreement relating Exhibit 10.20 of the 1994 Registration
to 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 Exhibit 10.23 of the Company's Form 10-K
Agreement between the Registrant for the fiscal year ended June 30,1996 (the
and Bruce Jagid "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)
10.25 Ultralife Batteries, Inc. Chief Exhibit 10.25 of the 1996 10-K
Executive Officer's Stock Option Plan
10.26 Agreement with Mitsubishi Electronics Exhibit 10.26 to the Company's Report on
America, Inc. relating to sample Form 10-K for the year ended June 30, 1998
batteries for lap-top computer use (the "1998 10-K")
10.27 Purchase orders from Mitsubishi Exhibit 10.27 of the 1998 10-K
Electronics America, Inc.
10.28 Lease agreement between Wayne County Exhibit 10.1 of Registration Statement,
Industrial Development Agency and the File No. 333-47087
Company, dated as of February 1, 1998
10.29 Joint Venture Agreement for Ultralife Exhibit 10.29 to the Company's Report on
Taiwan, Inc. dated October 10, 1998 Form 10-K for the year ended June 30, 1999
(the "1999 10-K")
10.30 Amendments to the Joint Venture Exhibit 10.30 of the 1999 10-K
Agreement dated October 10, 1998
between Ultralife Batteries, Inc.
(UBI) and PGT Energy Corporation (PGT)
10.31 Technology Transfer Agreement dated Exhibit 10.31 of the 1999 10-K
December 4, 1998 between UBI and PGT
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
10.32 Sales Agreement dated Exhibit 10.32 of the 1999 10-K
December 4, 1998 between UBI and PGT
10.33 Loan and Security Agreement dated June Filed herewith
15, 2000 between Congress Financial
Corporation (New England) and
Ultralife Batteries, Inc.
10.34 Term Promissory Note dated June 15, Filed herewith
2000 between Congress Financial
Corporation (New England) and
Ultralife Batteries, Inc.
10.35 Term Promissory Note dated June 15, Filed herewith
2000 between Congress Financial
Corporation (New England) and
Ultralife Batteries (UK), Ltd.
10.36 Employment Agreement between Filed herewith
the Registrant and John D.
Kavazanjian
23.1 Consent of Arthur Andersen LLP Filed herewith
27. Financial Data Schedule Filed herewith
</TABLE>
(d) Financial Statement Schedules.
The following financial statement schedules of the Registrant are filed
herewith:
None
26
<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.
Date: September 27, 2000 By: /s/ John D. Kavazanjian
------------------------------
John D. Kavazanjian
President and
Chief Executive Officer
(Principal Executive Officer)
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: September 27, 2000 /s/ John D. Kavazanjian
----------------------------------
John D. Kavazanjian
President, Chief Executive Officer
and Director
Date: September 27, 2000 /s/ Robert W. Fishback
----------------------------------
Robert W. Fishback
Vice President Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: September 27, 2000 /s/ Joseph C. Abeles
----------------------------------
Joseph C. Abeles (Director)
Date: September 27, 2000 /s/ Joseph N. Barrella
----------------------------------
Joseph N. Barrella (Director)
Date: September 27, 2000 /s/ Richard W. Hansen
----------------------------------
Richard W. Hansen (Director)
Date: September 27, 2000 /s/ Arthur M. Lieberman
----------------------------------
Arthur M. Lieberman (Director)
Date: September 27, 2000 /s/ Carl H. Rosner
----------------------------------
Carl H. Rosner (Director)
Date: September 27, 2000 /s/ Ranjit Singh
----------------------------------
Ranjit Singh (Director)
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Ultralife Batteries, Inc.:
We have audited the accompanying consolidated balance sheets of Ultralife
Batteries, Inc. (a Delaware corporation) and subsidiary as of June 30, 2000 and
1999, and the related consolidated statements of operations, changes in
comprehensive loss and shareholders' equity and cash flows for each of the three
years in the period ended June 30, 2000. 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2000,
in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Rochester, New York
August 10, 2000
F-1
<PAGE>
ULTRALIFE BATTERIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30,
ASSETS 2000 1999
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,712 $ 776
Available-for-sale securities 12,927 22,780
Trade accounts receivable (less allowance for doubtful accounts
of $268 and $429 at June 30, 2000 and 1999, respectively) 3,456 3,554
Inventories 5,682 5,018
Prepaid expenses and other current assets 1,176 2,112
-------- --------
Total current assets 28,953 34,240
Property, plant and equipment 32,785 31,777
Other assets:
Investment in affiliates 2,339 --
Technology license agreements (net of accumulated
amortization of $1,068 and $968 at June 30, 2000 and 1999,
respectively) 383 403
-------- --------
2,722 403
-------- --------
Total Assets $ 64,460 $ 66,420
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 1,087 $ 107
Accounts payable 2,886 3,216
Accrued compensation 338 653
Other current liabilities 2,105 1,829
-------- --------
Total current liabilities 6,416 5,805
Long-term liabilities:
Long-term debt and capital lease obligations 3,567 215
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock, par value $0.10 per share, authorized 1,000,000 shares;
none outstanding -- --
Common stock, par value $0.10 per share, authorized 20,000,000 shares;
issued - 11,410,286 and 10,512,386 at June 30, 2000 and 1999, respectively 1,141 1,051
Capital in excess of par value 98,790 93,605
Accumulated other comprehensive (loss) income (689) 267
Accumulated deficit (44,462) (34,220)
-------- --------
54,780 60,703
Less--Treasury stock, at cost -- 27,250 shares 303 303
-------- --------
Total shareholders' equity 54,477 60,400
-------- --------
Total Liabilities and Shareholders' equity $ 64,460 $ 66,420
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
F-2
<PAGE>
ULTRALIFE BATTERIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenues $ 24,514 $ 21,064 $ 16,391
Cost of products sold 25,512 19,016 14,522
-------- -------- --------
Gross margin (998) 2,048 1,869
Operating and other expenses (income):
Research and development 5,306 5,925 6,651
Selling, general, and administrative 7,385 6,195 5,790
Gain on fires -- (1,288) (2,697)
-------- -------- --------
Total operating and other expenses, net 12,691 10,832 9,744
Other income (expense):
Interest income, net 909 1,456 888
Equity loss in affiliate (818) (80) --
Gain on sale of securities 3,147 348 --
Other income (expense), net 209 (25) (33)
-------- -------- --------
Loss before income taxes (10,242) (7,085) (7,020)
Income taxes -- -- --
-------- -------- --------
Net loss $(10,242) $ (7,085) $ (7,020)
======== ======== ========
Net loss per common share $ (0.94) $ (0.68) $ (0.84)
======== ======== ========
Weighted average number of shares outstanding 10,904 10,485 8,338
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ULTRALIFE BATTERIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated Other Comprehensive Income (Loss)
---------------------------------------------
(Dollars in Thousands) Foreign
Common Stock Capital in Currency
----------------------------- excess of Translation
Number of Shares Amount Par Value Adjustment
<S> <C> <C> <C> <C>
Balance as of June 30, 1997 7,953,336 $ 796 $64,786 $ 291
Comprehensive loss:
Net loss
Other comprehensive loss, net of tax:
Foreign currency translation adjustments 67
Unrealized net loss on securities
Other comprehensive loss
Comprehensive loss
Shares issued under public
offering, less offering costs of
approximately $2,699 2,500,000 250 28,301
Shares issued under stock option
plan and other stock options 58,800 5 518
Issuance of common stock from
treasury 250
-------------------------------------------------------
Balance as of June 30, 1998 10,512,386 1,051 93,605 358
-------------------------------------------------------
Comprehensive loss:
Net loss
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (459)
Unrealized net loss on securities
Other comprehensive loss
Comprehensive loss
-------------------------------------------------------
Balance as of June 30, 1999 10,512,386 1,051 93,605 (101)
-------------------------------------------------------
Comprehensive loss:
Net loss
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (590)
Unrealized net loss on securities
Other comprehensive income loss
Comprehensive loss
Shares issued to affiliate 700,000 70 3,168
Shares issued under stock option plan and
other stock options 197,900 20 2,017
-------------------------------------------------------
Balance as of June 30, 2000 11,410,286 $ 1,141 $98,790 $ (691)
-------------------------------------------------------
<CAPTION>
Accumulated Other Comprehensive Income (Loss)
---------------------------------------------
(Dollars in Thousands) Unrealized
Net Gain on Accumulated Treasury
Securities Deficit Stock Total
<S> <C> <C> <C> <C>
Balance as of June 30, 1997 $ 1,311 $ (20,115) $ (306) $46,763
Comprehensive loss:
Net loss (7,020) (7,020)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments 67
Unrealized net loss on securities (301) (301)
---------
Other comprehensive loss (234)
---------
Comprehensive loss (7,254)
---------
Shares issued under public
offering, less offering costs of
approximately $2,699 28,551
Shares issued under stock option
plan and other stock options 523
Issuance of common stock from
treasury 3 3
-----------------------------------------------
Balance as of June 30, 1998 1,010 (27,135) (303) 68,586
-----------------------------------------------
Comprehensive loss:
Net loss (7,085) (7,085)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (459)
Unrealized net loss on securities (642) (642)
---------
Other comprehensive loss (1,101)
---------
Comprehensive loss (8,186)
---------
-----------------------------------------------
Balance as of June 30, 1999 368 (34,220) (303) 60,400
-----------------------------------------------
Comprehensive loss:
Net loss (10,242) (10,242)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (590)
Unrealized net loss on securities (366) (366)
---------
Other comprehensive income loss (956)
---------
Comprehensive loss (11,198)
---------
Shares issued to affiliate 3,238
Shares issued under stock option plan and
other stock options 2,037
-----------------------------------------------
Balance as of June 30, 2000 $ 2 $(44,462) $(303) $ 54,477
-----------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-4
<PAGE>
ULTRALIFE BATTERIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
2000 1999 1998
------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(10,242) $ (7,085) $ (7,020)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 2,038 2,205 1,364
Gain on sale of securities (3,147) (348) --
Equity in loss of Taiwan venture 818 80 --
Provision for loss on accounts receivable 42 271 (120)
Provision for inventory obsolescence 410 68 (659)
Changes in operating assets and liabilities:
Accounts receivable 56 (779) (210)
Inventories (1,074) (1,175) 2,051
Prepaid expenses and other current assets 936 32 (483)
Accounts payable and other current liabilities (369) (1,296) 2,362
-------- -------- ---------
Net cash used in operating activities (10,532) (8,027) (2,715)
-------- -------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (2,946) (3,427) (12,245)
Investment in affiliates (3,237) -- (350)
Purchase of securities (70,934) (94,417) (164,438)
Sales of securities 46,064 75,130 137,104
Maturities of securities 37,504 31,029 12,064
-------- -------- ---------
Net cash provided by (used in) investing activities 6,451 8,315 (27,865)
-------- -------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 5,275 -- 29,074
Proceeds from issuance of debt 4,423 115 --
Principal payments under capital lease obligations (91) (40) --
-------- -------- ---------
Net cash provided by financing activities 9,607 75 29,074
-------- -------- ---------
Effect of exchange rate changes on cash (590) (459) 67
-------- -------- ---------
Change in cash and cash equivalents 4,936 (96) (1,439)
-------- -------- ---------
Cash and cash equivalents at beginning of period 776 872 2,311
-------- -------- ---------
Cash and cash equivalents at end of period $ 5,712 $ 776 $ 872
======== ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 42 $ 40 $ 3
Cash paid for taxes $ -- $ -- $ --
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-5
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 1-Summary of Operations and Significant Accounting Policies
a. Description of Business
Ultralife Batteries, Inc. (the "Company") develops, manufactures, and
markets a wide range of standard and customized lithium primary and polymer
rechargeable batteries. The Company's primary manufacturing and research and
development (R&D) facility is in Newark, New York. The Company also maintains a
production and R&D facility in Abingdon, England.
b. Principles of Consolidation
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States and include the
accounts of the Company and its wholly owned subsidiary, Ultralife Batteries UK,
Ltd. ("Ultralife UK"). Intercompany accounts and transactions have been
eliminated in consolidation. Investments in entities in which the Company does
not have a controlling interest are accounted for using the equity method.
c. Management's Use of Judgment and Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
For example, estimates are used in determining valuation allowances for
uncollectible trade receivables, obsolete inventory and deferred income taxes.
Actual results could differ from those estimates.
d. Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all demand deposits with financial institutions and financial
instruments with original maturities of three months or less to be cash
equivalents.
e. Available-for-Sale Securities
Management determines the appropriate classification of securities at the
time of purchase and re-evaluates 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, included as a component of accumulated
other comprehensive income.
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. 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.
Realized gains and losses, and declines in value judged to be
other-than-temporary on available-for-sale securities, if any, are included in
the determination of net income (loss) as gains (losses) on sale of securities.
f. Inventories
Inventories are stated at the lower of cost or market with cost determined
under the first-in, first-out (FIFO) method.
F-6
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 1-Summary of Operations and Significant Accounting Policies (cont'd)
g. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of 3 to 20 years. Betterments, renewals and extraordinary repairs
that extend the life of the assets are capitalized. Other repairs and
maintenance costs are expensed when incurred. 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 other income
(expense).
h. Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that the carrying
amount of a long-lived asset may be impaired, an evaluation of recoverability
would be performed. If an impairment is determined to exist, a loss is
recognized to the extent the carrying value of the asset is in excess of the sum
of the discounted cash flows expected to result from the use of the asset and
its eventual disposition. The Company did not record any impairments of
long-lived assets in 2000, 1999 or 1998.
i. Technology License Agreements
Technology license agreements consist of the rights to patented technology
and related technical information. The Company acquired two technology license
agreements for an initial payment of $1,000 and $100 respectively. Royalties are
payable at a rate of 8% and an initial rate of 4%, respectively, of the fair
market value of each battery using the technology if the battery is sold or
otherwise put into use by the Company for a 10-year period. The royalties can be
reduced under certain circumstances based on the terms of these agreements. The
agreements are amortized using the straight-line method over 3 to 10 years.
Amortization expense was $100, $407, and $144 in 2000, 1999, and 1998,
respectively.
During 1998, in connection with the settlement of a lawsuit (see Note
6(e)), the Company acquired an additional technology license agreement for $350,
which expired in May 1999.
j. Translation of Foreign Currency
The financial statements of the Company's foreign affiliates are
translated into U.S. dollar equivalents in accordance with Statement of
Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation".
Exchange gains or losses included in net loss for the years ended June 30, 2000,
1999 and 1998 were not significant.
k. Income Taxes
The liability method, prescribed by SFAS No. 109, "Accounting for Income
Taxes", 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.
l. Research and Development
Research and development expenditures are charged to operations as
incurred.
F-7
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 1-Summary of Operations and Significant Accounting Policies (cont'd)
m. Revenue Recognition
Battery Sales
Revenues from sale of batteries are recognized when products are shipped.
A provision is made at that time for warranty costs expected to be incurred.
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. Elements of cost include direct material, labor and
overhead. When a loss on a contract is estimated, the full amount of the loss is
recognized immediately. The Company allocates costs to all technology contracts
based upon actual costs incurred including an allocation of certain research and
development costs incurred. Under certain research and development arrangements
with the U.S. Government, the Company may be required to transfer technology
developed to the U.S. Government. The Company has accounted for the contracts in
accordance with SFAS No. 68, "Research and Development Arrangements". The
Company, where appropriate, has recognized a liability for amounts that may be
repaid to third parties, or for revenue deferred until expenditures have been
incurred.
n. Concentration of Credit Risk
The Company generally does not distribute its products 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. The Company had battery sales to a
single customer amounting to $2,937, or 12% of total revenues in 2000; $4,192,
or 20% of total revenues in 1999; and $1,993, or 12% of total revenues in 1998.
The Company does not normally obtain collateral on trade accounts receivable.
o. Derivative Financial Instruments and Fair Value of Financial Instruments
SFAS 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 did not have any
derivative financial instruments at June 30, 2000, 1999 and 1998.
SFAS 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, 2000, 1999 and 1998. Fair values
have been determined through information obtained from market sources.
p. Earnings per Share
The Company accounts for net loss per common share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires the
reporting of basic and diluted earnings per share (EPS). Basic EPS is computed
by dividing reported earnings available to common shareholders by weighted
average shares outstanding for the period. Diluted EPS includes the dilutive
effect of securities calculated using the treasury stock method, if any. No
dilution for common share equivalents is included in fiscal 2000, 1999 and 1998
as the effects would be antidilutive. For all years reported, diluted earnings
per share were the equivalent of basic earnings per share due to the net loss.
F-8
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 1-Summary of Operations and Significant Accounting Policies (cont'd)
q. New Accounting Pronouncements
In 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income (loss) and its components. Comprehensive income (loss) includes net
income (loss) and other comprehensive income consisting of unrealized gains and
losses that bypass the traditional income statement and are recorded in a
separate section of shareholders' equity on the Consolidated Balance Sheet. The
components of other comprehensive income for the Company consist of unrealized
net gains and losses, net of tax, on investment securities and foreign currency
translation adjustments.
In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which establishes standards for
reporting information about operating segments in the financial statements. The
Standard requires businesses to present information on business segments in a
manner consistent with the way in which a company's chief operating decision
maker views the business to make resource-related decisions.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
was subsequently amended in June, 1999 by SFAS No. 137, which requires the
Company to adopt SFAS No. 133 no later than the first quarter of fiscal 2001.
SFAS No. 133 will require the Company to record all derivatives on the balance
sheet at fair value. Changes in derivative fair values will either be recognized
in earnings as offsets to the changes in fair value of related hedged assets,
liabilities and firm commitments or for forecasted transactions, deferred and
recorded as a component of accumulated other comprehensive income until the
hedged transactions occur and are recognized in earnings. The ineffective
portion of a hedging derivative's change in fair value will be immediately
recognized in earnings. As of July 1, 1999, the Company adopted SFAS No. 133.
The Company, on occasion, has used derivative financial instruments for purposes
other than trading and does so to reduce its exposure to fluctuations in foreign
currency exchange rates. As of June 30, 2000, the Company did not have any
outstanding derivative financial instruments.
r. 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
may have a material adverse effect on the Company's financial condition or
results of operations. See Note 6 - Commitments and Contingencies.
s. Reclassifications
In order to conform to the 2000 presentation, certain amounts in the 1999
and 1998 financial statements have been reclassified.
F-9
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 2-Investments
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
June 30, 2000 Unrealized Estimated
------------- Cost Gains/(Losses) Fair Value
---- -------------- ----------
<S> <C> <C> <C>
Commercial Paper and other ......................... $ 9,427 $-- $ 9,427
U.S. corporate bonds ............................... 3,496 -- 3,496
-----------------------------------
Total debt securities .............................. 12,923 -- 12,923
Intermagnetics General Corporation Equity Securities 2 2 4
-----------------------------------
$12,925 $ 2 $12,927
======= === =======
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999 Unrealized Estimated
Cost Gains/(Losses) Fair Value
---- -------------- ----------
<S> <C> <C> <C>
Commercial Paper and other ......................... $ 6,986 $ -- $ 6,986
U.S. corporate bonds ............................... 13,708 (93) 13,615
-----------------------------------
Total debt securities .............................. 20,694 (93) 20,601
Intermagnetics General Corporation Equity Securities 1,718 461 2,179
-----------------------------------
$22,412 $368 $22,780
======= ==== =======
</TABLE>
The Company has instructed its investment fund managers to invest in
conservative, investment grade securities with average maturities of less than
three years. In fiscal 2000 and 1999, the Company realized a gain on sale of
securities of $3,147 and $348, respectively, relating to the sale of a portion
of the Company's investment in Intermagnetics General Corporation.
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.
June 30,
--------
At Cost: 2000 1999
------- -------
Less than one year $10,429 $22,412
More than one year 2,496 --
--------------------
Total $12,925 $22,412
======= =======
Note 3-Supplemental Balance Sheet Information
The composition of inventories was:
June 30,
----------
2000 1999
------ ------
Raw materials..................................... $3,032 $2,984
Work in process................................... 1,427 2,080
Finished products................................. 1,622 249
-------------------
6,081 5,313
Less: Reserve for obsolescence.................... 399 295
-------------------
$5,682 $ 5,018
====== =======
F-10
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 3-Supplemental Balance Sheet Information (cont'd)
The composition of property, plant and equipment was:
Land..................................................$ 123 $ 123
Buildings and Leasehold Improvements.................. 1,202 1,115
Machinery and Equipment............................... 18,638 18,524
Furniture and Fixtures................................ 196 194
Computer Hardware and Software........................ 1,041 624
Construction in Progress.............................. 19,149 16,823
--------------------
40,349 37,403
Less: Accumulated Depreciation....................... 7,564 5,626
--------------------
$32,785 $31,777
======= =======
In July 2000, $16,500 of amounts in Construction in Progress have been completed
and are in production. As a result, these assets have been transferred to their
respective property and equipment component.
Note 4-Operating Leases
The Company leases various buildings, land, automobiles and office
equipment. Rental expenses for all operating leases were approximately $333,
$379 and $713 for the years ended June 30, 2000, 1999 and 1998, respectively.
Future minimum lease payments under noncancelable operating leases as of June
30, 2000 are as follows: 2001 - $319, 2002 - $271, 2003 - $224, 2004 - $220, and
thereafter - $1,935. The above amounts do not include contingent or additional
rent.
Note 5-Long-term Debt and Capital Leases
Credit Facility
In June 2000, the Company entered into a $20,000 secured credit facility
with a lending institution. The financing agreement consists of an initial
$12,000 term loan component (of which $4,000 was outstanding at June 30, 2000)
and a revolving credit facility component for an initial $8,000, based on
eligible net accounts receivable (as defined) and eligible net inventory (as
defined). There was no balance outstanding on the revolving credit facility
component as of June 30, 2000. The amount available under the term loan
component amortizes over time. Principal and interest are paid monthly on
outstanding amounts borrowed. The loans bear interest at the prime rate or other
LIBOR-based rate options at the discretion of the Company. The Company also pays
a facility fee on the unused portion of the commitment.
The Company is required to maintain specified tangible net worth levels
throughout the agreement. At June 30, 2000, the Company is in compliance with
this restriction. The loan is collaterized by substantially all of the tangible
assets of the Company.
F-11
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 5-Long-term Debt and Capital Leases (cont'd)
Debt issue costs amounting to $198 were incurred in connection with the
initiation of the term of the agreement and will be amortized over the life of
the agreement.
New York Power Authority
In May 1999, the Company borrowed approximately $150 from New York Power
Authority (NYPA) that was used toward the construction of a solvent recovery
system. The annual interest rate on the loan is 6%. The loan is to be repaid in
24 equal monthly payments.
Capital leases
The Company has two capital leases. The first is a capital lease
commitment for the Newark, New York facility which provides for payments of $50
per year through December 2001 and $28 per year from December 2001 through 2007.
At the end of this lease term, the Company is required to purchase the facility
for one dollar. The second capital lease is for computer equipment. The lease
expires in 2003 and requires monthly payments of $13.
Payment Schedule
Principal payments under the current amount outstanding of the long term debt
and capital leases is as follows:
<TABLE>
<CAPTION>
CREDIT
FACILITY NYPA CAPITAL LEASES TOTAL
--------------------
Building Equipment
<S> <C> <C> <C> <C> <C>
Fiscal 2001 $800 $121 $30 $136 $1,087
2002 800 33 150 983
2003 800 15 67 882
2004 800 16 816
2005 800 86 886
Thereafter -- -- -- -- --
------ ---- ---- ---- ------
$4,000 $121 $180 $353 $4,654
Less: Current portion $ 800 $121 $ 30 $136 $1,087
------ ---- ---- ---- ------
Long Term $3,200 $ -- $150 $217 $3,567
====== ==== ==== ==== ======
</TABLE>
Letters of Credit
In conjunction with the purchase/lease agreement to acquire the Company's
Newark, New York facilities, the Company established a letter of credit in the
amount of $200, which expires in 2001. As of June 30, 2000, $180 remains
outstanding. All letters of credit are collateralized by the Company's
investments.
F-12
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 6-Commitments and Contingencies
a. China Program
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. The Company made an investment of $284 of a total
anticipated investment of $405 which would represent a 15% interest in the China
Program and accounted for this investment using the cost method. 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 a lithium battery
manufacturing plant. China Battery was required to pay approximately $6,000 to
the Company over the first two years of the agreement, of which approximately
$5,600 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 off in fiscal 1997
the entire balance owed to the Company as well as the Company's investment. In
December 1997, China Battery sent to the Company a letter demanding
reimbursement of losses they have incurred plus a refund for certain equipment
that the Company sold to China Battery. Although China Battery has not taken any
additional steps, there can be no assurance that China Battery will not further
pursue such a claim, which, if successful, would have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company believes that such a claim is without merit.
b. Indemnity Agreement
The Company has an Indemnity Agreement with each member of its Board of
Directors and corporate officers. 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.
c. Purchase Commitments
As of June 30, 2000, the Company has made commitments to purchase
approximately $2,084 of production machinery and equipment.
d. Royalty Agreement
Technology underlying certain products of the Company are based in part as
non-exclusive transfer agreements. The Company made an original payment for such
technology and is required to make royalty and other payments in the future
which incorporate the licensed technology. The license expires in 2007.
e. Legal Matters
In December 1996, Aerospace Energy System, Inc. ("Aerospace") commenced an
action in the United States District Court for the District Court of Utah
against the Company alleging that it is owed commissions in excess of $50 for
sales made on behalf of the Company and $100 for the Company's alleged breach of
its duty of good faith and fair dealings. This matter was settled in January.
Consequently, the Company will incur no further liability in this matter.
In May 1997, William Boyd, the principal of Aerospace, and Leland J.
Coleman commenced an action against the Company and Loeb Partners Corporation
("Loeb"), an investment firm, in the U.S. District
F-13
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 6-Commitments and Contingencies (cont'd)
Court for the Southern District Court of New York alleging that they had entered
into a contract with Loeb to arrange for the acquisition of Dowty and that the
Company tortiously interfered with their contract and business opportunity. The
Company maintained that the claim against it, for $25,000, was without merit.
After a jury trial in December of 1999, the case was dismissed. Plaintiffs have
filed an appeal, which is pending.
In August 1998, the Company, its Directors, and certain underwriters were
named as defendants in a complaint filed in the United States District Court for
the District of New Jersey by certain shareholders, purportedly on behalf of a
class of shareholders, alleging that the defendants, during the period April 30,
1998 through June 12, 1998, violated various provisions of the federal
securities laws in connection with an offering of 2,500,000 shares of the
Company's Common Stock. The complaint alleged that the Company's offering
documents were materially incomplete, and as a result misleading, and that the
purported class members purchased the Company's Common Stock at artificially
inflated prices and were damaged thereby. Upon a motion made on behalf of the
Company, the Court dismissed the shareholder action, without prejudice, allowing
the complaint to be re-filed. The shareholder action was subsequently refiled,
asserting substantially the same claims as the in the prior pleading. Earlier
this year, the Company again moved to dismiss the complaint. The motion is still
pending before the Court. The Company believes that the litigation is without
merit and will continue to defend it vigorously. The amount of alleged damages,
if any, cannot be quantified, nor can the outcome of this litigation be
predicted. Accordingly, management cannot determine whether the ultimate
resolution of this litigation could have a material adverse effect on the
Company's financial position and results of operations.
In conjunction with the Company's purchase/lease agreement of its Newark,
New York facility in 1998, the Company entered into a payment-in-lieu of tax
agreement which provides the Company with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, the Company
received an environmental assessment, which revealed contaminated soil. The
assessment indicated potential actions that the Company may be required to
undertake upon notification by the environmental authorities. The assessment
also proposed that a second assessment be completed and provided an estimate of
total potential costs to remediate the soil of $230. However, there can be no
assurance that this will be the maximum cost. The Company entered into an
agreement whereby a third party has agreed to reimburse the Company for fifty
percent of the costs associated with this matter. The next phase of the project
is expected to begin in late calendar year 2000. The ultimate resolution of this
matter may have a significant adverse impact on the results of operations in the
period in which it is resolved.
Note 7-Shareholders' Equity
a. Preferred Stock
The Company has authorized 1,000,000 shares of preferred stock, with a par
value of $0.10 per share. At June 30, 2000, no preferred shares were issued or
outstanding.
b. Common Stock
In May of 1998, the Company sold 2,500,000 shares of Common Stock at
$12.50 per share, resulting in gross proceeds of $31,250 and net proceeds of
$28,551 to the Company.
In June of 1998, the shareholders approved an increase in the number of
authorized shares of Common Stock from 12,000,000 to 20,000,000.
F-14
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 7-Shareholders' Equity (cont'd)
c. Stock Options
The Company sponsors several stock-based compensation plans, all of which
are accounted for under the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". Accordingly, no compensation
expense for its stock-based compensation plans has been recognized in the
Company's Consolidated Statements of Operations. In accordance with the
disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company elected not to recognize compensation cost related to
stock options. If the Company had elected to recognize compensation expense for
all of the Company's stock-based compensation based on the fair value of the
options at grant date as prescribed by SFAS No.123, the Company's net loss would
have been $12,333, $8,043 and $8,851 for the years ended June 30, 2000, 1999 and
1998, compared with the reported losses of $10,242, $7,085 and $7,020. Loss per
share would have been $1.13, $0.77 and $1.06 in the years ended June 30, 2000,
1999 and 1998, respectively, as compared to reported loss per share of $0.94,
$0.68 and $0.84, respectively. The effect of SFAS No. 123 in the pro forma
disclosures may not be indicative of future amounts.
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 grants in fiscal 2000,
1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.4% 5.3% 5.8%
Volatility factor 74.1% 68.2% 67.1%
Weighted average expected life (years) 6 5 5
Weighted average fair value of options granted $5.48 $5.48 $5.48
</TABLE>
The shareholders of the Company have approved three stock option plans
that permit the grant of options. In addition, the shareholders of the Company
have approved the grant of options outside 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. There are
currently 11,250 shares remaining to be granted under the 1991 plan. 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% of the Company's Common Stock 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% of the Company's Common Stock). All options granted under the
1991 plan are NQSOs.
The shareholders 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 shares of Common Stock reserved by 500,000
to 1,650,000. Options granted under the 1992 plan are either ISO's or NQSO's.
Key employees are eligible to receive ISO's and NQSO's; however, directors and
consultants are eligible to receive only NQSO's.
Effective March 1, 1995, the Company established the 1995 stock option
plan and granted the former Chief Executive Officer ("CEO") options to purchase
100,000 shares at $14.25 per share under this plan. Of these shares, 60,000
vested prior to his termination and remain exercisable until March 1, 2001.
There were
F-15
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 7-Shareholders' Equity (cont'd)
no other grants under the 1995 stock option plan. In October 1992, the Company
granted, to the former CEO, options to purchase 225,000 shares of Common Stock
at $9.75 per share outside of any of the stock option plans. The options vested
through June 1997 and expire on October 2002. In addition, on March 1, 1994, the
Company granted options to the former CEO to purchase 150,000 shares of Common
Stock at $11.00 per share under the terms of an employment agreement and outside
of any of the stock option plans. As of June 30, 2000, all of these shares have
been exercised.
Effective July 12, 1999, the Company granted the current CEO options to
purchase 500,000 shares of Common Stock at $5.188 per share outside of any of
the stock options plans. Of these, 50,000 options were exercisable on the grant
date, and the remaining options are exercisable in annual increments of 90,000
over a five-year period commencing July 12, 2000 through July 12, 2004, and
expire on July 12, 2005. The following table summarizes data for the stock
options issued by the Company:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number 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 ............................. 1,721,460 $10.16 1,661,900 $10.96 1,301,300 $11.34
Options granted ..................... 1,033,500 $ 6.59 338,000 $ 6.44 562,700 $10.32
Options exercised ................... (202,000) $10.22 -- $ -- (54,700) $ 9.27
Options canceled .................... (363,080) $ 8.94 (278,440) $10.31 (147,400) $12.95
--------- ------ --------- ------ --------- ------
Shares under option at end of year... 2,189,880 $ 8.68 1,721,460 $10.16 1,661,900 $10.96
--------- ------ --------- ------ --------- ------
Options exercisable at end of year... 633,320 $10.49 1,073,240 $10.98 899,800 $11.19
</TABLE>
The following table represents additional information about stock options
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------------------------------------
Weighted-
Average
Range of Number Remaining Weighted- Number Weighted-
Exercise Outstanding Contractual Average Exercisable Average
Prices at June 30, 2000 Life Exercise Price at June 30, 2000 Exercise Price
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.56 - $5.19 595,600 4.97 $ 5.11 79,700 $ 5.04
$5.38 - $8.25 628,500 4.97 $ 7.42 131,200 $ 7.68
$8.38 - $11.00 596,080 2.53 $ 9.80 231,820 $ 9.64
$11.13 - $24.50 369,700 2.53 $14.74 190,600 $15.74
---------------------------------------------------------------------------------------------------------------
$3.56 - $24.50 2,189,880 3.89 $ 8.68 633,320 $10.49
</TABLE>
d. Warrants
In March 1998, the Company issued warrants to purchase 12,500 shares of
its Common Stock to the Empire State Development Corporation in connection with
a $500 grant. Proceeds of the grant were used
F-16
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 7-Shareholders' Equity (cont'd)
to fund certain equipment purchases and are contingent upon the Company
achieving and maintaining minimum employment levels. The remaining unamortized
balance of $250 relating to the grant is included in other current liabilities
in the accompanying Consolidated Balance Sheet as of June 30, 2000. The warrants
may be exercised through December 31, 2002 at an exercise price equal to 60% of
the average closing price for the 10 trading days preceding the exercise date,
but not less than the average closing price of the Company's Common Stock during
the 20 trading days prior to the grant.
e. Reserved Shares
The Company has reserved 2,226,225 shares of Common Stock under the
various stock option plans and warrants as of June 30, 2000, and 1,953,000 as of
1999 and 1998.
Note 8-Income Taxes
Foreign and domestic loss carryforwards totaling approximately $49,700 are
available to reduce future taxable income. Foreign loss carryforwards of $4,100
can be carried forward indefinitely. The domestic net operating loss
carryforward of $45,600 expires through 2020. If it is determined that a change
in ownership as defined under Internal Revenue Code Section 382 has occurred,
the net operating loss carryforward will be subject to an annual limitation.
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 $2,445, $2,901 and $2,843 for the years
ended June 30, 2000, 1999 and 1998, respectively, to offset the deferred tax
assets based on the Company's estimates of its future earnings and the expected
timing of temporary difference reversals.
Significant components of the Company's deferred tax liabilities and assets as
of June 30 are as follows:
2000 1999
---- ----
Deferred tax liabilities:
Unrealized gain on securities..................... $ 1 $ 125
Tax over book depreciation........................ 1,031 892
--------- ---------
Total deferred tax liabilities....................... 1,032 1,017
Deferred tax assets:
Net operating loss carryforward................... 15,509 13,159
Other............................................. 482 372
--------- ---------
Total deferred tax assets............................ 15,991 13,531
Valuation allowance for deferred assets.............. (14,959) (12,514)
Net deferred tax assets.............................. 1,032 1,017
--------- ---------
Net deferred income taxes............................ $ -- $ --
F-17
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 8-Income Taxes (cont'd)
There were no income taxes paid for the years ended June 30, 2000, 1999
and 1998. For financial reporting purposes, income (loss) from continuing
operations before income taxes included the following:
<TABLE>
<CAPTION>
June 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
United States........................................$ (7,658) $(7,830) $(9,053)
Foreign.............................................. (2,584) 745 2,033
-------- ------- -------
Total................................................$(10,242) $(7,085) $(7,020)
</TABLE>
There are no undistributed earnings of Ultralife UK, the Company's foreign
subsidiary, at June 30, 2000.
Note 9-401(K) Plan
The Company maintains 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' contributions. 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 years ended June 30, 2000, 1999 and 1998, the Company
contributed $150, $177 and $124, respectively.
Note 10-Related Party Transactions
During 2000 and 1999, the Company sold the majority of its investment in
Intermagnetics General Corporation (IGC) Common Stock and realized a gain on
sale of securities of $3,147 and $348, respectively. IGC is considered a related
party since certain directors of the Company serve as officers or directors of
IGC.
Note 11-Business Segment Information
Effective June 30, 1999, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information". This
statement establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas and major customers. Adoption of this statement had no impact
on the Company's consolidated financial position, results of operations or cash
flows. Comparative information for prior years has been restated.
The Company reports its results in four operating segments: Primary
Batteries, Rechargeable Batteries, Technology Contracts and Corporate. The
Primary Batteries segment includes 9-volt batteries, cylindrical batteries and
various specialty batteries. The Rechargeable Batteries segment consists of the
Company's polymer rechargeable batteries. The Technology Contracts segment
includes revenues and related costs associated with various government and
military development contracts. The Corporate segment consists of all other
items that do not specifically relate to the three other segments and are not
considered in the performance of the other segments.
F-18
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 11-Business Segment Information (cont'd)
2000
----
<TABLE>
<CAPTION>
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $21,840 $ 25 $2,649 $ -- $ 24,514
Segment contribution $(1,244) $(5,306) $ 246 $(7,385) $(13,689)
Interest income, net $ 909 $ 909
Other income (expense), net $ 2,538 $ 2,538
Income taxes $ -- $ --
--------
Net loss $(10,242)
Long-lived assets $10,892 $19,985 $ 281 $ 4,349 $ 35,507
Total assets $19,171 $20,632 $ 493 $24,164 $ 64,460
Capital expenditures $ 1,377 $ 1,012 $ -- $ 557 $ 2,946
Depreciation and amortization expense $ 1,128 $ 591 $ 1 $ 318 $ 2,038
</TABLE>
1999
----
<TABLE>
<CAPTION>
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $19,559 $ 49 $1,456 $ -- $21,064
Segment contribution $ 2,651 $(5,537) $ 297 $(6,195) $(8,784)
Interest income, net $ 1,456 $ 1,456
Other income (expense), net $ 243 $ 243
Income taxes $ -- $ --
-------
Net loss $(7,085)
Long-lived assets $ 7,776 $19,525 $ 264 $ 4,615 $32,180
Total assets $16,494 $19,554 $ 735 $29,637 $66,420
Capital expenditures $ 1,798 $ 1,036 $ 20 $ 573 $ 3,427
Depreciation and amortization expense $ 952 $ 898 $ 66 $ 289 $ 2,205
</TABLE>
1998
----
<TABLE>
<CAPTION>
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $13,297 $ 766 $2,328 $ -- $16,391
Segment contribution $ 3,661 $(6,108) $ 361 $(5,789) $(7,875)
Interest income, net $ 888 $ 888
Other expense, net $ (33) $ (33)
Income taxes $ -- $ --
-------
Net loss $(7,020)
Long-lived assets $ 7,085 $19,337 $ 295 $ 4,321 $31,038
Total assets $12,444 $20,119 $1,317 $41,947 $75,827
Capital expenditures $ 505 $10,978 $ 14 $ 748 $12,245
Depreciation and amortization expense $ 708 $ 496 $ 38 $ 122 $ 1,364
</TABLE>
F-19
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 11-Business Segment Information (cont'd)
Geographical Information
------------------------
<TABLE>
<CAPTION>
Revenues Long-lived Assets
2000 1999 1998 2000 1999 1998
--------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $13,587 $10,504 $ 8,081 $30,685 $26,532 $25,554
United Kingdom 2,874 3,423 1,716 4,822 5,648 5,484
Hong Kong 3,211 4,423 1,986 -- -- --
Europe, excluding UK 2,812 1,671 3,384 -- -- --
Other 2,030 1,043 1,224 -- -- --
--------------------------------- -------------------------------
Total $24,514 $21,064 $16,391 $35,507 $32,180 $31,038
======= ======= ======= ======= ======= =======
</TABLE>
Note 12-Taiwan Venture
In December 1998, the Company announced the formation of a venture with
PGT Energy Corporation (PGT), together with a group of investors, to produce
Ultralife's polymer rechargeable batteries in Taiwan. During fiscal 2000,
Ultralife provided the venture, named Ultralife Taiwan, Inc. (UTI), with its
proprietary technology and 700,000 shares of Ultralife Common Stock, in exchange
for approximately a 46% ownership interest. Ultralife holds half the seats on
UTI's board of directors. PGT and the group of investors funded UTI with $21,250
in cash and hold the remaining seats on the board. This agreement is accounted
for using the equity method of accounting.
Summarized financial statement information for the unconsolidated venture
is as follows:
(unaudited)
Condensed Statements of Operations Year Ended June 30,
2000 1999 1998
-------------------------------
Net revenue $ -- $ -- $--
Operating loss 1,897 205 --
Net loss 1,778 174 --
Condensed Balance Sheets June 30,
2000 1999
-------------------
Current assets $17,125 $15,213
Non-current assets 23,005 5,444
------- -------
$40,130 $20,657
======= =======
Current liabilities $4,446 $ 123
Non-current liabilities -- --
Shareholders' equity 35,684 20,534
------- -------
$40,130 $20,657
======= =======
F-20
<PAGE>
ULTRALIFE BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 13 - Selected Quarterly Information (unaudited)
The following table presents reported net revenues, gross margin (net
sales less cost of products sold), net loss and net loss per share for each
quarter during the past two years:
<TABLE>
<CAPTION>
Quarter ended
---------------------------------------------------
Fiscal 2000 Sept. 30, Dec. 31, March 31, June 30, Full
1999 1999 2000 2000 Year
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $6,225 $6,677 $6,199 $5,413 $24,514
Gross margin 419 302 (1,005) (714) (998)
Net loss 1,926 2,989 1,205 4,122 10,242
Net loss per common share 0.18 0.28 0.11 0.37 0.94
</TABLE>
<TABLE>
<CAPTION>
Quarter ended
---------------------------------------------------
Fiscal 1999 Sept. 30, Dec. 31, March 31, June 30, Full
1998 1998 1999 1999 Year
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $4,222 $5,160 $5,594 $6,088 $21,064
Gross margin 288 657 626 477 2,048
Net loss 1,930 1,005 2,053 2,097 7,085
Net loss per common share 0.18 0.10 0.20 0.20 0.68
</TABLE>
F-21
