ulbi20230630

ulbi20230630_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number:0-20852

ULTRALIFE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation of organization)

2000 Technology Parkway Newark, New York 14513

(Address of principal executive offices) (Zip Code)

16-1387013

(I.R.S. Employer Identification No.)

(315) 332-7100

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.10 par value per share	ULBI	NASDAQ
(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No☒

As of July 24, 2023, the registrant had 16,150,693 shares of common stock outstanding.

ULTRALIFE CORPORATION AND SUBSIDIARIES

INDEX

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):

	Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	1

	Consolidated Statements of Income and Comprehensive Income (Loss) for the Three and Six-Month Periods Ended June 30, 2023 and June 30, 2022	2

	Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2023 and June 30, 2022	3

	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six-Month Periods Ended June 30, 2023 and June 30, 2022	4

	Notes to Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION

Item 6.	Exhibits	26

	Signatures	27

PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands except share amounts)

(Unaudited)



	June 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash	$	8,283		$	5,713
Trade accounts receivable, net of allowance for expected credit losses of $288 and $303, respectively		28,630			27,779
Inventories, net		46,063			41,192
Prepaid expenses and other current assets		4,850			4,304
Total current assets		87,826			78,988
Property, plant and equipment, net		21,122			21,716
Goodwill		37,501			37,428
Other intangible assets, net		15,552			15,921
Deferred income taxes, net		11,084			12,069
Other noncurrent assets		2,307			2,308
Total assets	$	175,392		$	168,430

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,541		$	16,074
Current portion of long-term debt		2,000			2,000
Accrued compensation and related benefits		2,320			2,890
Accrued expenses and other current liabilities		6,342			7,949
Total current liabilities		29,203			28,913
Long-term debt		22,642			19,310
Deferred income taxes		1,876			1,917
Other noncurrent liabilities		1,996			1,887
Total liabilities		55,717			52,027

Commitments and contingencies (Note 8)

Shareholders’ equity:
Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued		-			-
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,586,045 shares at June 30, 2023 and 20,570,710 shares at December 31, 2022; outstanding – 16,150,693 shares at June 30, 2023 and 16,135,358shares at December 31, 2022		2,059			2,057
Capital in excess of par value		187,758			187,405
Accumulated deficit		(44,957	)		(47,951	)
Accumulated other comprehensive loss		(3,846	)		(3,750	)
Treasury stock - at cost; 4,435,352 shares at June 30, 2023 and 4,435,352 shares at December 31, 2022		(21,484	)		(21,484	)
Total Ultralife Corporation equity		119,530			116,277
Non-controlling interest		145			126
Total shareholders’ equity		119,675			116,403

Total liabilities and shareholders’ equity	$	175,392		$	168,430

The accompanying notes are an integral part of these consolidated financial statements.

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(In thousands except per share amounts)

(Unaudited)

	Three-month period ended						Six-month period ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022

Revenues	$	42,692		$	32,126		$	74,608		$	62,499
Cost of products sold		32,104			24,480			56,584			47,895
Gross profit		10,588			7,646			18,024			14,604

Operating expenses:
Research and development		1,778			1,672			3,810			3,529
Selling, general and administrative		5,145			5,181			10,523			10,577
Total operating expenses		6,923			6,853			14,333			14,106

Operating income		3,665			793			3,691			498

Other income (expense):
Interest and financing expense		(440	)		(177	)		(864	)		(311	)
Miscellaneous income		1,498			62			1,428			79
Total other income (expense)		1,058			(115	)		564			(232	)

Income before income taxes		4,723			678			4,255			266
Income tax provision (benefit)		1,375			170			1,242			(81	)

Net income		3,348			508			3,013			347

Net income (loss) attributable to non-controlling interest		8			(4	)		19			3

Net income attributable to Ultralife Corporation		3,340			512			2,994			344

Other comprehensive loss:
Foreign currency translation adjustments		(293	)		(1,262	)		(96	)		(1,498	)

Comprehensive income (loss) attributable to Ultralife Corporation	$	3,047		$	(750	)	$	2,898		$	(1,154	)

Net income per share attributable to Ultralife common stockholders – basic	$	.21		$	.03		$	.19		$	.02

Net income per share attributable to Ultralife common stockholders – diluted	$	.21		$	.03		$	.19		$	.02

Weighted average shares outstanding – basic		16,141			16,129			16,138			16,116
Potential common shares		3			20			3			25
Weighted average shares outstanding - diluted		16,144			16,149			16,141			16,141

The accompanying notes are an integral part of these consolidated financial statements.

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Six-month period ended
	June 30, 2023			June 30, 2022
OPERATING ACTIVITIES:
Net income	$	3,013		$	347
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		1,522			1,635
Amortization of intangible assets		436			651
Amortization of financing fees		32			17
Stock-based compensation		293			373
Deferred income taxes		888			(375	)
Changes in operating assets and liabilities:
Accounts receivable		(803	)		(2,385	)
Inventories		(4,882	)		(6,606	)
Prepaid expenses and other assets		(526	)		104
Accounts payable and other liabilities		413			2,839
Net cash provided by (used in) operating activities		386			(3,400	)

INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(1,013	)		(585	)
Net cash used in investing activities		(1,013	)		(585	)

FINANCING ACTIVITIES:
Borrowings on revolving credit facility		4,300			1,550
Payments on term loan facility		(1,000	)		(833	)
Proceeds from exercise of stock options		62			113
Payment of debt issuance costs		-			(25	)
Tax withholdings on stock-based awards		-			(11	)
Net cash provided by financing activities		3,362			794

Effect of exchange rate changes on cash		(165	)		(108	)

INCREASE (DECREASE) IN CASH		2,570			(3,299	)

Cash, Beginning of period		5,713			8,413
Cash, End of period	$	8,283		$	5,114

The accompanying notes are an integral part of these consolidated financial statements.

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands except share amounts)

(Unaudited)

					Capital			Accumulated
	Common Stock				in Excess			Other									Non-
	Number of				of Par			Comprehensive			Accumulated			Treasury			Controlling
	Shares		Amount		Value			Income (Loss)			Deficit			Stock			Interest			Total

Balance – December 31, 2021		20,522,427	$	2,052	$	186,518		$	(1,653	)	$	(47,832	)	$	(21,469	)	$	127		$	117,743
Net income												344						3			347
Stock option exercises		38,369		4		109									(7	)					106
Stock-based compensation – stock options						362															362
Stock-based compensation - restricted stock						11															11
Vesting of restricted stock		6,664		1		(1	)								(4	)					(4	)
Foreign currency translation adjustments									(1,498	)											(1,498	)
Balance – June 30, 2022		20,567,460	$	2,057	$	186,999		$	(3,151	)	$	(47,488	)	$	(21,480	)	$	130		$	117,067

Balance – December 31, 2022		20,570,710	$	2,057	$	187,405		$	(3,750	)	$	(47,951	)	$	(21,484	)	$	126		$	116,403
Net income												2,994						19			3,013
Stock option exercises		15,335		2		60									-						62
Stock-based compensation – stock options						291															291
Stock-based compensation -restricted stock						2															2
Foreign currency translation adjustments									(96	)											(96	)
Balance – June 30, 2023		20,586,045	$	2,059	$	187,758		$	(3,846	)	$	(44,957	)	$	(21,484	)	$	145		$	119,675

Balance – March 31, 2022		20,560,796	$	2,056	$	186,816		$	(1,889	)	$	(48,000	)	$	(21,476	)	$	134		$	117,641
Net income												512						(4	)		508
Stock option exercises		-		-		-									-						-
Stock-based compensation – stock options						181															181
Stock-based compensation -restricted stock						3															3
Vesting of restricted stock		6,664		1		(1	)								(4	)					(4	)
Foreign currency translation adjustments									(1,262	)											(1,262	)
Balance – June 30, 2022		20,567,460	$	2,057	$	186,999		$	(3,151	)	$	(47,488	)	$	(21,480	)	$	130		$	117,067

Balance – March 31, 2023		20,570,710	$	2,057	$	187,544		$	(3,553	)	$	(48,297	)	$	(21,484	)	$	137		$	116,404
Net income												3,340						8			3,348
Stock option exercises		15,335		2		60									-						62
Stock-based compensation – stock options						153															153
Stock-based compensation - restricted stock						1															1
Foreign currency translation adjustments									(293	)											(293	)
Balance – June 30, 2023		20,586,045	$	2,059	$	187,758		$	(3,846	)	$	(44,957	)	$	(21,484	)	$	145		$	119,675

The accompanying notes are an integral part of these consolidated financial statements.

ULTRALIFE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share amounts)

(Unaudited)

1.	*BASIS OF PRESENTATION*

The accompanying unaudited consolidated financial statements of Ultralife Corporation and its subsidiaries (the “Company” or “Ultralife”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and notes for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the consolidated financial statements have been included. Results for interim periods should not be considered indicative of results to be expected for a full year. Reference should be made to the consolidated financial statements and related notes thereto contained in our Form 10-K for the year ended December 31, 2022.

The December 31, 2022 consolidated balance sheet information referenced herein was derived from audited financial statements but does not include all disclosures required by GAAP.

Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.

Significant Accounting Policies

During the quarter ended June 30, 2023, in consultation with third party experts, the Company completed an analysis to determine and verify its eligibility for the Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes under Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”) and the American Rescue Plan of 2021, and filed the necessary amended payroll tax forms with the Internal Revenue Service to claim a refund for the credit. The ERC refund receivable of $1,544 is included in prepaid expenses and other current assets on our consolidated balance sheet as of June 30, 2023, and the benefit is recognized as other income (expense) on our consolidated statement of income for the three and six-month periods ended June 30, 2023.

Recently Adopted Accounting Guidance

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments”, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The adoption of this new accounting standard did not have a material impact on our consolidated financial statements.

2.	*DEBT*

On December 13, 2021, Ultralife, Southwest Electronic Energy Corporation, a Texas corporation and wholly owned subsidiary of Ultralife (“SWE”), CLB, INC., a Texas corporation and wholly owned subsidiary of SWE (“CLB”), Ultralife Excell Holding Corp., a Delaware corporation and wholly owned subsidiary of Ultralife (“UEHC”), Ultralife Canada Holding Corp., a Delaware corporation and wholly owned subsidiary of UEHC (“UCHC”), and Excell Battery Corporation USA, a Texas corporation and wholly owned subsidiary of UEHC (“Excell USA”), as borrowers, entered into the Second Amendment Agreement with KeyBank National Association (“KeyBank” or the “Bank”), as lender and administrative agent, to amend the Credit and Security Agreement dated May 31, 2017 as amended by the First Amendment Agreement by and among Ultralife, SWE, CLB and KeyBank dated May 1, 2019 (the “Credit Agreement”). On November 28, 2022, Ultralife, SWE, CLB, UEHC, UCHC, Excell USA, and Excell Battery Canada ULC, a British Columbia unlimited liability corporation and wholly owned subsidiary of UCHC (“Excell Canada”), entered into that certain Third Amendment Agreement with KeyBank, to further amend the Credit Agreement to, among other things, facilitate the joinder of Excell Canada as a guarantor under the Credit Agreement and to replace the LIBOR benchmark thereunder with SOFR (the “Third Amendment Agreement”, and together with the Second Amendment Agreement and the Credit Agreement, the “Amended Credit Agreement”).

The Amended Credit Agreement, among other things, provides for a 5-year, $10,000 senior secured term loan (the “Term Loan Facility”) and extends the term of the $30,000 senior secured revolving credit facility (the “Revolving Credit Facility”, and together with the Term Loan Facility, the “Amended Credit Facilities”) through May 30, 2025. Up to six months prior to May 30, 2025, the Revolving Credit Facility may be increased to $50,000 with the Bank’s concurrence.

As of June 30, 2023, the Company had $7,167 outstanding principal on the Term Loan Facility, $2,000 of which is included in current portion of long-term debt on the balance sheet, and $17,630 outstanding on the Revolving Credit Facility. As of June 30, 2023, total unamortized debt issuance costs of $155, including placement, renewal and legal fees associated with the Amended Credit Agreement, are classified as a reduction of long-term debt on the balance sheet. Debt issuance costs are amortized to interest expense over the term of the Amended Credit Facilities.

The remaining availability under the Revolving Credit Facility is subject to certain borrowing base limits based on trade receivables and inventories.

The Company is required to repay the borrowings under the Term Loan Facility in equal consecutive monthly payments commencing on February 1, 2022, in arrears, together with applicable interest. All unpaid principal and accrued and unpaid interest with respect to the Term Loan Facility is due and payable in full on January 1, 2027. All unpaid principal and accrued and unpaid interest with respect to the Revolving Credit Facility is due and payable in full on May 30, 2025. The Company may voluntarily prepay principal amounts outstanding at any time subject to certain restrictions.

In addition to the customary affirmative and negative covenants, the Company must maintain a Consolidated Senior Leverage Ratio, as defined in the Amended Credit Agreement, of equal to or less than 3.5 to 1.0 for the fiscal quarters ending December 31, 2022 and March 31, 2023, and equal to or less than 3.0 to 1.0 for the fiscal quarters ending June 30, 2023 and thereafter. The Company was in full compliance with its covenants under the Amended Credit Agreement as of June 30, 2023.

Borrowings under the Amended Credit Facilities are secured by substantially all the assets of the Company and its subsidiaries.

Upon the effectiveness of the Third Amendment Agreement, interest accrues on outstanding indebtedness under the Amended Credit Facilities at the Daily Simple SOFR Rate, plus an index spread adjustment of 0.10%, plus the applicable margin. The applicable margin ranges from 185 to 215 basis points and is determined based on the Company’s senior leverage ratio.

The Company must pay a fee of 0.15% to 0.25% based on the average daily unused availability under the Revolving Credit Facility.

Payments must be made by the Company to the extent borrowings exceed the maximum amount then permitted to be drawn on the Amended Credit Facilities and from the proceeds of certain transactions. Upon the occurrence of an event of default, the outstanding obligations may be accelerated, and the Bank will have other customary remedies including resort to the security interest the Company provided to the Bank.

3.	*EARNINGS PER SHARE*

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) attributable to Ultralife by the weighted average shares outstanding during the period. Diluted EPS includes the dilutive effect of securities, if any, and is calculated using the treasury stock method.

For the three-month period ended June 30, 2023, there were 4,166 outstanding stock options and 2,500 unvested restricted stock awards included in the calculation of diluted weighted average shares outstanding, as such securities were dilutive, resulting in 2,334 potential common shares included in the calculation of diluted EPS. For the comparable three-month period ended June 30, 2022, 135,163 outstanding stock options and unvested 5,000 restricted stock awards were included in the calculation of diluted EPS, resulting in 20,352 potential common shares included in the calculation of diluted EPS. There were 1,289,862 and 1,073,077 outstanding stock options for the three-month periods ended June 30, 2023 and 2022, respectively, not included in EPS as the effect would be anti-dilutive.

For the six-month period ended June 30, 2023, there were no outstanding stock options and 2,500 unvested restricted stock awards included in the calculation of diluted weighted average shares outstanding, resulting in 2,157 potential common shares included in the calculation of diluted EPS. For the comparable six-month period ended June 30, 2022, 135,163 outstanding stock options and 5,000 unvested restricted stock awards were included in the calculation of diluted EPS, resulting in 24,751 potential common shares included in the calculation of diluted EPS. There were 1,294,028 and 1,073,077 outstanding stock options for the six-month periods ended June 30, 2023 and 2022, respectively, not included in EPS as the effect would be anti-dilutive.

4.	*SUPPLEMENTAL BALANCE SHEET INFORMATION*

Fair Value Measurements and Disclosures

The fair value of financial instruments approximated their carrying values at June 30, 2023 and December 31, 2022. The fair value of cash, accounts receivable, accounts payable, accrued liabilities, and the current portion of long-term debt approximates carrying value due to the short-term nature of these instruments.

Cash

The composition of the Company’s cash was as follows:

	June 30,		December 31,
	2023		2022
Cash	$	8,202	$	5,634
Restricted cash		81		79
Total	$	8,283	$	5,713

As of June 30, 2023 and December 31, 2022, restricted cash included $81 and $79, respectively, of euro-denominated deposits withheld by the Dutch tax authorities and third-party VAT representatives in connection with a previously utilized logistics arrangement in the Netherlands. Restricted cash is included as a component of the cash balance for purposes of the consolidated statements of cash flows.

Inventories, Net

Inventories are stated at the lower of cost or net realizable value, net of obsolescence reserves, with cost determined under the first-in, first-out (FIFO) method. The composition of inventories, net was:

	June 30,		December 31,
	2023		2022
Raw materials	$	32,496	$	29,200
Work in process		4,125		2,757
Finished goods		9,442		9,235

SEC Form 10-Q filed by Ultralife Corporation