ulbi20230930

ulbi20230930_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 September 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 October 23, 2023, the registrant had 16,340,113 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 September 30, 2023 and December 31, 2022	1

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

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

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

	Notes to Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION

Item 6.	Exhibits	27

	Signatures	28

PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands except share amounts)

(Unaudited)

	September 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash	$	9,301		$	5,713
Trade accounts receivable, net of allowance for expected credit losses of $287 and $303, respectively		27,189			27,779
Inventories, net		46,634			41,192
Prepaid expenses and other current assets		6,429			4,304
Total current assets		89,553			78,988
Property, plant and equipment, net		21,166			21,716
Goodwill		37,357			37,428
Other intangible assets, net		15,270			15,921
Deferred income taxes, net		10,728			12,069
Other noncurrent assets		2,035			2,308
Total assets	$	176,109		$	168,430

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,470		$	16,074
Current portion of long-term debt		2,000			2,000
Accrued compensation and related benefits		2,467			2,890
Accrued expenses and other current liabilities		8,449			7,949
Total current liabilities		26,386			28,913
Long-term debt, net		24,108			19,310
Deferred income taxes		1,825			1,917
Other noncurrent liabilities		2,032			1,887
Total liabilities		54,351			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 – 20,746,546 shares at September 30, 2023 and 20,570,710 shares at December 31, 2022; outstanding – 16,311,194 shares at September 30, 2023 and 16,135,358 shares at December 31, 2022		2,075			2,057
Capital in excess of par value		188,852			187,405
Accumulated deficit		(43,627	)		(47,951	)
Accumulated other comprehensive loss		(4,176	)		(3,750	)
Treasury stock - at cost; 4,435,352 shares at September 30, 2023 and 4,435,352 shares at December 31, 2022		(21,484	)		(21,484	)
Total Ultralife Corporation equity		121,640			116,277
Non-controlling interest		118			126
Total shareholders’ equity		121,758			116,403

Total liabilities and shareholders’ equity	$	176,109		$	168,430

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

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(In thousands except per share amounts)

(Unaudited)

	Three-month period ended						Nine-month period ended
	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022

Revenues	$	39,488		$	33,234		$	114,096		$	95,733
Cost of products sold		29,714			26,519			86,298			74,414
Gross profit		9,774			6,715			27,798			21,319

Operating expenses:
Research and development		1,869			1,896			5,679			5,425
Selling, general and administrative		5,770			5,405			16,293			15,982
Total operating expenses		7,639			7,301			21,972			21,407

Operating income (loss)		2,135			(586	)		5,826			(88	)

Other income (expense):
Interest and financing expense		(586	)		(272	)		(1,450	)		(583	)
Miscellaneous income		200			526			1,628			605
Total other (expense) income		(386	)		254			178			22

Income (loss) before income taxes		1,749			(332	)		6,004			(66	)
Income tax provision (benefit)		446			(90	)		1,688			(171	)

Net income (loss)		1,303			(242	)		4,316			105

Net loss attributable to non-controlling interest		(27	)		(3	)		(8	)		-

Net income (loss) attributable to Ultralife Corporation		1,330			(239	)		4,324			105

Other comprehensive loss:
Foreign currency translation adjustments		(330	)		(1,691	)		(426	)		(3,189	)

Comprehensive income (loss) attributable to Ultralife Corporation	$	1,000		$	(1,930	)	$	3,898		$	(3,084	)

Net income (loss) per share attributable to Ultralife common stockholders – basic	$	.08		$	(.01	)	$	.27		$	.01

Net income (loss) per share attributable to Ultralife common stockholders – diluted	$	.08		$	(.01	)	$	.27		$	.01

Weighted average shares outstanding – basic		16,238			16,133			16,172			16,122
Potential common shares		65			-			2			22
Weighted average shares outstanding - diluted		16,303			16,133			16,174			16,144

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)

	Nine-month period ended
	September 30, 2023			September 30, 2022
OPERATING ACTIVITIES:
Net income	$	4,316		$	105
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		2,282			2,450
Amortization of intangible assets		663			969
Amortization of financing fees		48			25
Stock-based compensation		424			552
Deferred income taxes		1,245			(683	)
Changes in operating assets and liabilities:
Accounts receivable		565			(7,433	)
Inventories		(5,626	)		(8,714	)
Prepaid expenses and other assets		(1,972	)		(1,004	)
Accounts payable and other liabilities		(2,448	)		9,906
Net cash used in operating activities		(503	)		(3,827	)

INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(1,547	)		(1,396	)
Net cash used in investing activities		(1,547	)		(1,396	)

FINANCING ACTIVITIES:
Borrowings on revolving credit facility		6,250			3,350
Payments on term loan facility		(1,500	)		(1,333	)
Proceeds from exercise of stock options		1,041			116
Payment of debt issuance costs		-			(25	)
Tax withholdings on stock-based awards		-			(11	)
Net cash provided by financing activities		5,791			2,097

Effect of exchange rate changes on cash		(153	)		(236	)

INCREASE (DECREASE) IN CASH		3,588			(3,362	)

Cash, Beginning of period		5,713			8,413
Cash, End of period	$	9,301		$	5,051

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

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands except share amounts)

(Unaudited)

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

Balance – December 31, 2021		20,522,427	$	2,052	$	186,518		$	(1,653	)	$	(47,832	)	$	(21,469	)	$	127		$	117,743
Net income												105						-			105
Stock option exercises		39,119		4		112									(7	)					109
Stock-based compensation – stock options						538															538
Stock-based compensation - restricted stock						14															14
Vesting of restricted stock		6,664		1		(1	)								(4	)					(4	)
Foreign currency translation adjustments									(3,189	)											(3,189	)
Balance – September 30, 2022		20,568,210	$	2,057	$	187,181		$	(4,842	)	$	(47,727	)	$	(21,480	)	$	127		$	115,316

Balance – December 31, 2022		20,570,710	$	2,057	$	187,405		$	(3,750	)	$	(47,951	)	$	(21,484	)	$	126		$	116,403
Net income												4,324						(8	)		4,316
Stock option exercises		175,836		18		1,023									-						1,041
Stock-based compensation – stock options						421															421
Stock-based compensation - restricted stock						3															3
Foreign currency translation adjustments									(426	)											(426	)
Balance – September 30, 2023		20,746,546	$	2,075	$	188,852		$	(4,176	)	$	(43,627	)	$	(21,484	)	$	118		$	121,758

Balance – June 30, 2022		20,567,460	$	2,057	$	186,999		$	(3,151	)	$	(47,488	)	$	(21,480	)	$	130		$	117,067
Net loss												(239	)					(3	)		(242	)
Stock option exercises		750		-		3									-						3
Stock-based compensation – stock options						176															176
Stock-based compensation - restricted stock						3															3
Foreign currency translation adjustments									(1,691	)											(1,691	)
Balance – September 30, 2022		20,568,210	$	2,057	$	187,181		$	(4,842	)	$	(47,727	)	$	(21,480	)	$	127		$	115,316

Balance – June 30, 2023		20,586,045	$	2,059	$	187,758		$	(3,846	)	$	(44,957	)	$	(21,484	)	$	145		$	119,675
Net income												1,330						(27	)		1,303
Stock option exercises		160,501		16		963									-						979
Stock-based compensation – stock options						130															130
Stock-based compensation - restricted stock						1															1
Foreign currency translation adjustments									(330	)											(330	)
Balance – September 30, 2023		20,746,546	$	2,075	$	188,852		$	(4,176	)	$	(43,627	)	$	(21,484	)	$	118		$	121,758

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 September 30, 2023, and the benefit is recognized as other income on our consolidated statement of income for the nine-month period ended September 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 was 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 September 30, 2023, the Company had $6,667 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 $19,580 outstanding on the Revolving Credit Facility. As of September 30, 2023, total unamortized debt issuance costs of $139, 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 September 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.

Future minimum principal repayment obligations on our Amended Credit Facilities as of September 30, 2023 are as follows:

2023	$	500
2024		2,000
2025		21,580
2026		2,000
2027		167
Thereafter		0
Total	$	26,247

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 September 30, 2023, there were 677,029 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 65,275 potential common shares included in the calculation of diluted EPS. There were 411,583 outstanding stock options for the three-month period ended September 30, 2023 not included in EPS as the effect would be anti-dilutive

For the comparable three-month period ended September 30, 20

SEC Form 10-Q filed by Ultralife Corporation