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,, 2020 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission file number: 0-20852
ULTRALIFE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 16-1387013 |
(State or other jurisdiction of incorporation of organization) | (I.R.S. Employer Identification No.) |
| 2000 Technology Parkway Newark, New York 14513 | (315) 332-7100 |
| (Address of principal executive offices) (Zip Code) |
(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 ☒No☒
As of October 26, 2020, the 26, 2021, the registrant had 16,080,74915,928,055shares of common stock outstanding.outstanding.
ULTRALIFE CORPORATION AND SUBSIDIARIES
INDEX
Page | ||
PART I. | FINANCIAL INFORMATION | |
Item 1. | Consolidated Financial Statements (unaudited): | |
Consolidated Balance Sheets as of September 30, |
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Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the Three and Nine-Month Periods Ended September 30, |
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Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, |
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Consolidated Statements of Changes in |
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Notes to Consolidated Financial Statements |
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Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4. | Controls and Procedures |
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PART II. | OTHER INFORMATION | |
Item |
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| Exhibits |
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Signatures |
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PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ( (Unaudited) | ||||||
September 30, | December 31, | September 30, | December 31, | ||||||||||||||
2020 | 2019 | 2021 | 2020 | ||||||||||||||
| ASSETS | ASSETS | ASSETS | |||||||||||||||
Current assets: | Current assets: | ||||||||||||||||
Cash | Cash | $ | 13,777 | $ | 7,405 | $ | 15,853 | $ | 10,653 | ||||||||
Trade accounts receivable, net of allowance for doubtful accounts of $303 and $324, respectively | 15,012 | 30,106 | |||||||||||||||
Trade accounts receivable, net of allowance for doubtful accounts of $334 and $317, respectively | 16,235 | 21,054 | |||||||||||||||
Inventories, net | Inventories, net | 29,746 | 29,759 | 28,179 | 28,193 | ||||||||||||
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 3,661 | 3,103 | 4,271 | 4,596 | ||||||||||||
Total current assets | Total current assets | 62,196 | 70,373 | 64,538 | 64,496 | ||||||||||||
Property, plant and equipment, net | Property, plant and equipment, net | 22,605 | 22,525 | 23,035 | 22,850 | ||||||||||||
Goodwill | Goodwill | 26,705 | 26,753 | 26,998 | 27,018 | ||||||||||||
Other intangible assets, net | Other intangible assets, net | 9,212 | 9,721 | 8,725 | 9,209 | ||||||||||||
Deferred income taxes, net | Deferred income taxes, net | 12,425 | 13,222 | 11,700 | 11,836 | ||||||||||||
Other noncurrent assets | Other noncurrent assets | 2,411 | 1,963 | 1,816 | 2,292 | ||||||||||||
Total Assets | Total Assets | $ | 135,554 | $ | 144,557 | $ | 136,812 | $ | 137,701 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current Liabilities: | Current Liabilities: | ||||||||||||||||
Accounts payable | Accounts payable | $ | 8,875 | $ | 9,388 | $ | 9,206 | $ | 10,839 | ||||||||
Current portion of long-term debt | Current portion of long-term debt | 1,537 | 1,372 | 253 | 1,361 | ||||||||||||
Accrued compensation and related benefits | Accrued compensation and related benefits | 1,258 | 1,655 | 1,153 | 1,748 | ||||||||||||
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 5,702 | 4,775 | 6,076 | 4,758 | ||||||||||||
Total current liabilities | Total current liabilities | 17,372 | 17,190 | 16,688 | 18,706 | ||||||||||||
Long-term debt | 2,190 | 15,780 | |||||||||||||||
Deferred income taxes | Deferred income taxes | 480 | 559 | 475 | 515 | ||||||||||||
Other noncurrent liabilities | Other noncurrent liabilities | 1,675 | 1,278 | 1,103 | 1,557 | ||||||||||||
Total liabilities | Total liabilities | 21,717 | 34,807 | 18,266 | 20,778 | ||||||||||||
Commitments and contingencies (Note 9) | |||||||||||||||||
Commitments and contingencies (Note 8) | |||||||||||||||||
Shareholders' equity: | |||||||||||||||||
Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued | 0 | 0 | |||||||||||||||
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,331,348 shares at September 30, 2020 and 20,268,050 shares at December 31, 2019; outstanding – 15,928,055 shares at September 30, 2020 and 15,866,868 shares at December 31, 2019 | 2,033 | 2,026 | |||||||||||||||
Stockholders' equity: | |||||||||||||||||
Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued | 0 | 0 | |||||||||||||||
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,513,344 shares at September 30, 2021 and 20,373,519 shares at December 31, 2020; outstanding – 16,080,749 shares at September 30, 2021 and 15,959,984 shares at December 31, 2020 | 2,051 | 2,037 | |||||||||||||||
Capital in excess of par value | Capital in excess of par value | 185,261 | 184,292 | 186,360 | 185,464 | ||||||||||||
Accumulated deficit | Accumulated deficit | (49,706 | ) | (52,830 | ) | (46,701 | ) | (47,598 | ) | ||||||||
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (2,619 | ) | (2,531 | ) | (1,819 | ) | (1,782 | ) | ||||||||
Treasury stock - at cost; 4,403,293 shares at September 30, 2020 and 4,401,182 shares at December 31, 2019 | (21,246 | ) | (21,231 | ) | |||||||||||||
Treasury stock - at cost; 4,432,595 shares at September 30, 2021 and 4,413,535 shares at December 31, 2020 | (21,469 | ) | (21,321 | ) | |||||||||||||
Total Ultralife Corporation equity | Total Ultralife Corporation equity | 113,723 | 109,726 | 118,422 | 116,800 | ||||||||||||
Non-controlling interest | Non-controlling interest | 114 | 24 | 124 | 123 | ||||||||||||
Total shareholders’ equity | 113,837 | 109,750 | |||||||||||||||
Total stockholders’ equity | 118,546 | 116,923 | |||||||||||||||
Total liabilities and shareholders' equity | $ | 135,554 | $ | 144,557 | |||||||||||||
Total liabilities and stockholders' equity | $ | 136,812 | $ | 137,701 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
ULTRALIFE CORPORATION AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME | |||||||
(In thousands except per share amounts) | |||||||
(Unaudited) |
Three-month period ended | Nine-month period ended | |||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
Revenues | $ | 21,761 | $ | 24,362 | $ | 74,504 | $ | 78,736 | ||||||||
Cost of products sold | 16,653 | 17,851 | 55,151 | 56,928 | ||||||||||||
Gross profit | 5,108 | 6,511 | 19,353 | 21,808 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 1,723 | 1,606 | 5,223 | 4,429 | ||||||||||||
Selling, general and administrative | 4,164 | 4,198 | 12,866 | 12,893 | ||||||||||||
Total operating expenses | 5,887 | 5,804 | 18,089 | 17,322 | ||||||||||||
Operating (loss) income | (779 | ) | 707 | 1,264 | 4,486 | |||||||||||
Other (income) expense: | ||||||||||||||||
Interest and financing expense | 53 | 92 | 164 | 372 | ||||||||||||
Miscellaneous | (54 | ) | (39 | ) | (88 | ) | (110 | ) | ||||||||
Total other (income) expense | (1 | ) | 53 | 76 | 262 | |||||||||||
(Loss) income before income tax (benefit) provision | (778 | ) | 654 | 1,188 | 4,224 | |||||||||||
Income tax (benefit) provision | (175 | ) | 192 | 290 | 1,010 | |||||||||||
Net (loss) income | (603 | ) | 462 | 898 | 3,214 | |||||||||||
Net (loss) income attributable to non-controlling interest | (18 | ) | 55 | 1 | 90 | |||||||||||
Net (loss) income attributable to Ultralife Corporation | (585 | ) | 407 | 897 | 3,124 | |||||||||||
Other comprehensive (loss) income: | ||||||||||||||||
Foreign currency translation adjustments | (233 | ) | 677 | (37 | ) | (88 | ) | |||||||||
Comprehensive (loss) income attributable to Ultralife Corporation | $ | (818 | ) | $ | 1,084 | $ | 860 | $ | 3,036 | |||||||
Net (loss) income per share attributable to Ultralife common stockholders – basic | $ | (.04 | ) | $ | .03 | $ | .06 | $ | .20 | |||||||
Net (loss) income per share attributable to Ultralife common stockholders – diluted | $ | (.04 | ) | $ | .03 | $ | .06 | $ | .19 | |||||||
Weighted average shares outstanding – basic | 16,065 | 15,908 | 16,020 | 15,889 | ||||||||||||
Potential common shares | 0 | 181 | 180 | 214 | ||||||||||||
Weighted average shares outstanding - diluted | 16,065 | 16,089 | 16,200 | 16,103 | ||||||||||||
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, 2021 | September 30, 2020 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net income | $ | 898 | $ | 3,214 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 2,160 | 1,743 | ||||||
Amortization of intangible assets | 458 | 444 | ||||||
Amortization of financing fees | 78 | 36 | ||||||
Stock-based compensation | 512 | 756 | ||||||
Deferred income taxes | 127 | 821 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 4,814 | 15,094 | ||||||
Inventories | 17 | 13 | ||||||
Prepaid expenses and other assets | 775 | (84 | ) | |||||
Accounts payable and other liabilities | (1,377 | ) | (546 | ) | ||||
Net cash provided by operating activities | 8,462 | 21,491 | ||||||
INVESTING ACTIVITIES: | ||||||||
Purchases of property, plant and equipment | (2,324 | ) | (1,902 | ) | ||||
Proceeds from sale of equipment | - | 120 | ||||||
Net cash used in investing activities | (2,324 | ) | (1,782 | ) | ||||
FINANCING ACTIVITIES: | ||||||||
Payment of credit facilities | (1,186 | ) | (13,461 | ) | ||||
Proceeds from exercise of stock options | 398 | 218 | ||||||
Tax withholdings on stock-based awards | (148 | ) | (15 | ) | ||||
Net cash used in financing activities | (936 | ) | (13,258 | ) | ||||
Effect of exchange rate changes on cash | (2 | ) | (79 | ) | ||||
INCREASE IN CASH | 5,200 | 6,372 | ||||||
Cash, Beginning of period | 10,653 | 7,405 | ||||||
Cash, End of period | $ | 15,853 | $ | 13,777 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
ULTRALIFE CORPORATION AND SUBSIDIARIES | |||||||||||||||
CONSOLIDATED STATEMENTS OF | |||||||||||||||
(In | |||||||||||||||
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Three-month period ended | Nine-month period ended | |||||||||||||||
September 30, 2020 | September 29, 2019 | September 30, 2020 | September 29, 2019 | |||||||||||||
Revenues | $ | 24,362 | $ | 27,493 | $ | 78,736 | $ | 75,772 | ||||||||
Cost of products sold | 17,851 | 19,632 | 56,928 | 53,962 | ||||||||||||
Gross profit | 6,511 | 7,861 | 21,808 | 21,810 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 1,606 | 2,029 | 4,429 | 4,652 | ||||||||||||
Selling, general and administrative | 4,198 | 4,526 | 12,893 | 12,262 | ||||||||||||
Total operating expenses | 5,804 | 6,555 | 17,322 | 16,914 | ||||||||||||
Operating income | 707 | 1,306 | 4,486 | 4,896 | ||||||||||||
Other expense (income): | ||||||||||||||||
Interest and financing expense | 92 | 220 | 372 | 339 | ||||||||||||
Miscellaneous income | (39 | ) | (60 | ) | (110 | ) | (38 | ) | ||||||||
Total other expense | 53 | 160 | 262 | 301 | ||||||||||||
Income before income tax provision | 654 | 1,146 | 4,224 | 4,595 | ||||||||||||
Income tax provision | 192 | 225 | 1,010 | 942 | ||||||||||||
Net income | 462 | 921 | 3,214 | 3,653 | ||||||||||||
Net income attributable to non-controlling interest | 55 | 23 | 90 | 74 | ||||||||||||
Net income attributable to Ultralife Corporation | 407 | 898 | 3,124 | 3,579 | ||||||||||||
Other comprehensive gain (loss): | ||||||||||||||||
Foreign currency translation adjustments | 677 | (668 | ) | (88 | ) | (685 | ) | |||||||||
Comprehensive income attributable to Ultralife Corporation | $ | 1,084 | $ | 230 | $ | 3,036 | $ | 2,894 | ||||||||
Net income per share attributable to Ultralife common shareholders – basic | $ | .03 | $ | .06 | $ | .20 | $ | .23 | ||||||||
Net income per share attributable to Ultralife common shareholders – diluted | $ | .03 | $ | .06 | $ | .19 | $ | .22 | ||||||||
Weighted average shares outstanding – basic | 15,908 | 15,785 | 15,889 | 15,756 | ||||||||||||
Potential common shares | 181 | 377 | 214 | 382 | ||||||||||||
Weighted average shares outstanding - diluted | 16,089 | 16,162 | 16,103 | 16,138 | ||||||||||||
|
(Unaudited) |
Nine-month period ended | ||||||||
September 30, 2020 | September 29, 2019 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net income | $ | 3,214 | $ | 3,653 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 1,743 | 1,548 | ||||||
Amortization of intangible assets | 444 | 372 | ||||||
Amortization of financing fees | 36 | 32 | ||||||
Stock-based compensation | 756 | 519 | ||||||
Deferred income taxes | 821 | 801 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 15,094 | (7,022 | ) | |||||
Inventories | 13 | (5,021 | ) | |||||
Prepaid expenses and other assets | (84 | ) | (1,547 | ) | ||||
Accounts payable and other liabilities | (546 | ) | 1,818 | |||||
Net cash provided by (used in) operating activities | 21,491 | (4,847 | ) | |||||
INVESTING ACTIVITIES: | ||||||||
Purchases of property, plant and equipment | (1,902 | ) | (4,846 | ) | ||||
Proceeds from sale of equipment | 120 | 0 | ||||||
Purchase of SWE, net of cash acquired | 0 | (25,248 | ) | |||||
Net cash used in investing activities | (1,782 | ) | (30,094 | ) | ||||
FINANCING ACTIVITIES: | ||||||||
Proceeds from Paycheck Protection Program loan | 3,459 | 0 | ||||||
Repayment of Paycheck Protection Program loan | (3,459 | ) | 0 | |||||
Payment of revolving credit facility | (10,182 | ) | ||||||
Payment of term loan facility | (3,279 | ) | (423 | ) | ||||
Proceeds from exercise of stock options | 218 | 866 | ||||||
Tax withholdings on stock-based awards | (15 | ) | (8 | ) | ||||
Proceeds from revolving credit facility | --- | 10,182 | ||||||
Proceeds from term loan facility | 0 | 8,000 | ||||||
Repurchase of common stock | 0 | (1,957 | ) | |||||
Payment of debt issuance costs | 0 | (157 | ) | |||||
Net cash (used in) provided by financing activities | (13,258 | ) | 16,503 | |||||
Effect of exchange rate changes on cash | (79 | ) | (407 | ) | ||||
INCREASE (DECREASE) IN CASH | 6,372 | (18,845 | ) | |||||
Cash, Beginning of period | 7,405 | 25,934 | ||||||
Cash, End of period | $ | 13,777 | $ | 7,089 | ||||
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, 2019 | 20,268,050 | $ | 2,026 | $ | 184,292 | $ | (2,531 | ) | $ | (52,830 | ) | $ | (21,231 | ) | $ | 24 | $ | 109,750 | ||||||||||||||
Net income | 3,124 | 90 | 3,214 | |||||||||||||||||||||||||||||
Stock option exercises | 50,797 | 5 | 213 | 218 | ||||||||||||||||||||||||||||
Stock-based compensation – stock options | 674 | 674 | ||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 82 | 82 | ||||||||||||||||||||||||||||||
Vesting of restricted stock | 12,501 | 2 | (15 | ) | (13 | ) | ||||||||||||||||||||||||||
Foreign currency translation adjustments | (88 | ) | (88 | ) | ||||||||||||||||||||||||||||
Balance – September 30, 2020 | 20,331,348 | $ | 2,033 | $ | 185,261 | $ | (2,619 | ) | $ | (49,706 | ) | $ | (21,246 | ) | $ | 114 | $ | 113,837 | ||||||||||||||
Balance – December 31, 2020 | 20,373,519 | $ | 2,037 | $ | 185,464 | $ | (1,782 | ) | $ | (47,598 | ) | $ | (21,321 | ) | $ | 123 | $ | 116,923 | ||||||||||||||
Net income | 897 | 1 | 898 | |||||||||||||||||||||||||||||
Stock option exercises | 127,324 | 13 | 385 | (133 | ) | 265 | ||||||||||||||||||||||||||
Stock-based compensation – stock options | 468 | 468 | ||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 44 | 44 | ||||||||||||||||||||||||||||||
Vesting of restricted stock | 12,501 | 1 | (1 | ) | (15 | ) | (15 | ) | ||||||||||||||||||||||||
Foreign currency translation adjustments | (37 | ) | (37 | ) | ||||||||||||||||||||||||||||
Balance – September 30, 2021 | 20,513,344 | $ | 2,051 | $ | 186,360 | $ | (1,819 | ) | $ | (46,701 | ) | $ | (21,469 | ) | $ | 124 | $ | 118,546 | ||||||||||||||
Balance – June 30, 2020 | 20,297,182 | $ | 2,030 | $ | 184,900 | $ | (3,296 | ) | $ | (50,113 | ) | $ | (21,246 | ) | $ | 59 | $ | 112,334 | ||||||||||||||
Net income | 407 | 55 | 462 | |||||||||||||||||||||||||||||
Stock option exercises | 34,166 | 3 | 139 | 142 | ||||||||||||||||||||||||||||
Stock-based compensation – stock options | 204 | 204 | ||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 18 | 18 | ||||||||||||||||||||||||||||||
Vesting of restricted stock | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | 677 | 677 | ||||||||||||||||||||||||||||||
Balance – September 30, 2020 | 20,331,348 | $ | 2,033 | $ | 185,261 | $ | (2,619 | ) | $ | (49,706 | ) | $ | (21,246 | ) | $ | 114 | $ | 113,837 | ||||||||||||||
Balance – June 30, 2021 | 20,474,676 | $ | 2,047 | $ | 186,138 | $ | (1,586 | ) | $ | (46,116 | ) | $ | (21,388 | ) | $ | 142 | $ | 119,237 | ||||||||||||||
Net loss | (585 | ) | (18 | ) | (603 | ) | ||||||||||||||||||||||||||
Stock option exercises | 38,668 | 4 | 80 | (81 | ) | 3 | ||||||||||||||||||||||||||
Stock-based compensation – stock options | 131 | 131 | ||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 11 | 11 | ||||||||||||||||||||||||||||||
Vesting of restricted stock | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (233 | ) | (233 | ) | ||||||||||||||||||||||||||||
Balance – September 30, 2021 | 20,513,344 | $ | 2,051 | $ | 186,360 | $ | (1,819 | ) | $ | (46,701 | ) | $ | (21,469 | ) | $ | 124 | $ | 118,546 | ||||||||||||||
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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, 2018 | 20,053,335 | $ | 2,005 | $ | 182,630 | $ | (2,786 | ) | $ | (58,035 | ) | $ | (19,266 | ) | $ | (85 | ) | $ | 104,463 | |||||||||||||
Net income | 3,579 | 74 | 3,653 | |||||||||||||||||||||||||||||
Share repurchases | (1,957 | ) | (1,957 | ) | ||||||||||||||||||||||||||||
Stock option exercises | 194,720 | 20 | 846 | 866 | ||||||||||||||||||||||||||||
Stock-based compensation – stock options | 433 | 433 | ||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 86 | 86 | ||||||||||||||||||||||||||||||
Vesting of restricted stock | 5,834 | (8 | ) | (8 | ) | |||||||||||||||||||||||||||
Foreign currency translation adjustments | (685 | ) | (685 | ) | ||||||||||||||||||||||||||||
Balance – September 29, 2019 | 20,253,889 | $ | 2,025 | $ | 183,995 | $ | (3,471 | ) | $ | (54,456 | ) | $ | (21,231 | ) | $ | (11 | ) | $ | 106,851 | |||||||||||||
Balance – December 31, 2019 | 20,268,050 | $ | 2,026 | $ | 184,292 | $ | (2,531 | ) | $ | (52,830 | ) | $ | (21,231 | ) | $ | 24 | $ | 109,750 | ||||||||||||||
Net income | 3,124 | 90 | 3,214 | |||||||||||||||||||||||||||||
Stock option exercises | 50,797 | 5 | 213 | 218 | ||||||||||||||||||||||||||||
Stock-based compensation – stock options | 674 | 674 | ||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 82 | 82 | ||||||||||||||||||||||||||||||
Vesting of restricted stock | 12,501 | 2 | (15 | ) | (13 | ) | ||||||||||||||||||||||||||
Foreign currency translation adjustments | (88 | ) | (88 | ) | ||||||||||||||||||||||||||||
Balance – September 30, 2020 | 20,331,348 | $ | 2,033 | $ | 185,261 | $ | (2,619 | ) | $ | (49,706 | ) | $ | (21,246 | ) | $ | 114 | $ | 113,837 | ||||||||||||||
Balance – June 30, 2019 | 20,163,756 | $ | 2,016 | $ | 183,457 | $ | (2,803 | ) | $ | (55,354 | ) | $ | (21,231 | ) | $ | (34 | ) | $ | 106,051 | |||||||||||||
Net income | 898 | 23 | 921 | |||||||||||||||||||||||||||||
Stock option exercises | 90,133 | 9 | 379 | 388 | ||||||||||||||||||||||||||||
Stock-based compensation -stock options | 117 | 117 | ||||||||||||||||||||||||||||||
Stock-based compensation -restricted stock | 42 | 42 | ||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (668 | ) | (668 | ) | ||||||||||||||||||||||||||||
Balance – September 29, 2019 | 20,253,889 | $ | 2,025 | $ | 183,995 | $ | (3,471 | ) | $ | (54,456 | ) | $ | (21,231 | ) | $ | (11 | ) | $ | 106,851 | |||||||||||||
Balance – June 30, 2020 | 20,297,182 | $ | 2,030 | $ | 184,900 | $ | (3,296 | ) | $ | (50,113 | ) | $ | (21,246 | ) | $ | 59 | $ | 112,334 | ||||||||||||||
Net income | 407 | 55 | 462 | |||||||||||||||||||||||||||||
Stock option exercises | 34,166 | 3 | 139 | 142 | ||||||||||||||||||||||||||||
Stock-based compensation – stock options | 204 | 204 | ||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 18 | 18 | ||||||||||||||||||||||||||||||
Foreign currency translation adjustments | 677 | 677 | ||||||||||||||||||||||||||||||
Balance – September 30, 2020 | 20,331,348 | $ | 2,033 | $ | 185,261 | $ | (2,619 | ) | $ | (49,706 | ) | $ | (21,246 | ) | $ | 114 | $ | 113,837 | ||||||||||||||
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”, “Ultralife”, “we” or “Ultralife”“our”) 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 footnotes 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 any subsequent interim periodsperiod or athe 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, 2019.2020.
The December 31, 20192020 consolidated balance sheet information referenced herein was derived from audited financial statementsConsolidated 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.
Effective January 1, 2020, the Company’s interim fiscal periods are reported on a calendar month-basis to better align with fiscal period changes of our customer base. Prior to 2020, the Company’s monthly closing schedule was a 4/4/5 week-based cycle for each fiscal quarter. We do not believe this change materially impacts quarterly comparisons.
Recently Adopted Accounting Guidance
Effective January 1, 2020,2021, the Company adopted Accounting Standards Update (“ASU”) 20172019-04,12, “Intangibles – Goodwill and Other“Simplifying the Accounting for Income Taxes (Topic 350740) – Simplifying”. ASU 2019-12 removes certain exceptions to the Test for Goodwill Impairment”. The new standard eliminates thegeneral principles in Topic two740-step process that required the identification of potential impairment and a separate measure of the actual impairment.clarifies and amends existing guidance to improve consistent application. Adoption of the new standard willdid not materially impact the Company’s consolidated financial statements.Consolidated Financial Statements.
Recent Accounting Guidance Not Yet Adopted
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 Company is currently assessing the impact that adopting this new accounting standard will have on our consolidated financial statements.Consolidated Financial Statements.
2. | DEBT |
On May 1, 2019, the Company completed the acquisition of 100% of the issued and outstanding shares ofUltralife, Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), for an aggregate purchase price of $26,190 inclusive of $942 cash acquired and post-closing adjustments.
SWE is a leading independent designer and manufacturer of high-performance smart battery systems and battery packs to customer specifications using lithium cells. SWE serves a variety of industrial markets, including oil & gas, remote monitoring, process control and marine, which demand uncompromised safety, service, reliability and quality. The Company acquired SWE as a bolt-on acquisition to further support our strategy of commercial revenue diversification by providing entry to the oil & gas exploration and production, and subsea electrification markets, which were previously unserved by Ultralife. Another key benefit of the acquisition includes obtaining a highly valuable technical team of battery pack and charger system engineers and technicians to add to our new product development-based revenue growth initiatives in our commercial end-markets particularly asset tracking, smart metering and other industrial applications.
The acquisition of SWE was completed pursuant to a Stock Purchase Agreement dated May 1, 2019 (the “Stock Purchase Agreement”) by and among Ultralife, SWE, Southwest Electronic Energy Medical Research Institute, a Texas non-profit (the “Seller”), and Claude Leonard Benckenstein, an individual (the “Shareholder”). The Stock Purchase Agreement contains customary terms and conditions including representations, warranties and indemnification provisions.
The aggregate purchase price for the acquisition was funded by the Company through a combination of cash on hand and borrowings under the Credit Facilities (see Note 3).
The purchase price allocation was determined in accordance with the accounting treatment of a business combination pursuant to FASB ASC Topic 805, Business Combinations ("ASC 805"). Accordingly, the fair value of the consideration was determined, and the assets acquired and liabilities assumed have been recorded at their fair values at the date of the acquisition. The excess of the purchase price over the estimated fair values has been recorded as goodwill.
The allocation of the purchase price to the assets acquired and liabilities assumed at the date of the acquisition is presented in the table below. Management is responsible for determining the fair value of the tangible and intangible assets acquired and liabilities assumed as of the date of acquisition. Management considered several factors, including reference to an analysis performed under ASC 805 solely for the purpose of allocating the purchase price to the assets acquired and liabilities assumed. The Company’s estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions, which would not reflect unanticipated events and circumstances that may occur.
Cash | $ | 942 | ||
Accounts receivable | 3,621 | |||
Inventories | 4,685 | |||
Other current assets | 431 | |||
Property, plant and equipment | 9,177 | |||
Goodwill | 6,534 | |||
Customer relationships | 2,522 | |||
Trade name | 1,127 | |||
Accounts payable | (1,060 | ) | ||
Other current liabilities | (778 | ) | ||
Deferred tax liability, net | (1,011 | ) | ||
Net assets acquired | $ | 26,190 |
The goodwill included in the Company’s purchase price allocation presented above represents the value of SWE’s assembled and trained workforce, the incremental value that SWE engineering and technology will bring to the Company and the revenue growth which is expected to occur over time which is attributable to increased market penetration from future new products and customers. The goodwill acquired in connection with the acquisition is not deductible for income tax purposes.
The operating results and cash flows of SWE are reflected in the Company’s consolidated financial statements from the date of acquisition. SWE is included in the Battery & Energy Products segment.
For the nine months ended September 30, 2020, SWE contributed revenue of $13,382 and net income of $858, inclusive of interest expense of $273 directly related to the financing of the SWE acquisition and amortization expense of $182 on identifiable intangible assets acquired from SWE.
For the nine months ended September 29, 2019, from the May 1, 2019 acquisition date, SWE contributed revenue of $11,993 and net income of $740, inclusive of a $264 increase in cost of products sold for the fair value step-up of acquired inventory sold during the period, non-recurring expenses of $165 directly related to the acquisition, interest expense of $289 directly related to the financing of the SWE acquisition, amortization expense of $101 on acquired identifiable intangible assets, a $55 reduction of depreciation expense as a result of fair value adjustments and useful life changes, and stock-based compensation charges of $49 for stock options and restricted stock awarded to certain SWE employees.
The following supplemental pro forma information presents the combined results of operations, inclusive of the purchase accounting adjustments and one-time acquisition-related expenses described above, as if the acquisition of SWE had been completed on January 1,2018, the beginning of the comparable prior period.
The supplemental pro forma results are presented for informational purposes only and should not be considered indicative of the financial position or results of operations had the acquisition been completed as of the dates indicated and does not purport to indicate the future combined financial position or results of operation.
Set forth below are the unaudited supplemental pro forma results of the Company and SWE for the nine-month periods ended September 30, 2020 and September 29, 2019 as if the acquisition had occurred as of January 1,2018.
Nine months ended | ||||||||||
September 30, 2020 | September 29, 2019 | |||||||||
Revenue | $ | 78,736 | $ | 84,567 | ||||||
Operating income | $ | 4,486 | 5,536 | |||||||
Net income attributable to Ultralife Corporation | $ | 3,124 | 3,900 | |||||||
Net income per share attributable to Ultralife Corporation: | ||||||||||
Basic | $ | .20 | $ | .25 | ||||||
Diluted | $ | .19 | $ | .24 | ||||||
3.DEBT
Credit Facilities
On May 1, 2019, Ultralife, SWE, and CLB, INC., a Texas corporation and wholly owned subsidiary of SWE (“CLB”), as borrowers, entered into the First Amendment Agreement (the “First Amendment Agreement”) with KeyBank National Association (“KeyBank” or the “Bank”), as lender and administrative agent, to amend the Credit and Security Agreement by and among Ultralife and KeyBank dated May 31, 2017 (the “Credit Agreement”, and together with the First Amendment Agreement, the “Amended Credit Agreement”).
The Amended Credit Agreement, among other things, provides for a five-year, $8,000 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 “Credit Facilities”) through May 31, 2022. Up to six months prior to May 31, 2022, the Revolving Credit Facility may be increased to $50,000 with the Bank’s concurrence.
Upon closing of the SWE acquisition on May 1, 2019, the Company drew down the full amount of the Term Loan Facility and $6,782 under the Revolving Credit Facility. As of September 30, 2020,2021, the Company had $3,855$288 outstanding principal on the Term Loan Facility, all of which $1,537 is included in current portion of long-term debt on the balance sheet,Consolidated Balance Sheet, and no amounts outstanding on the Revolving Credit Facility. As of September 30, 2020,2021, total unamortized debt issuance costs of $128$35 associated with the Amended Credit Agreement, including placement, renewal and legal fees, are classified as a reduction of the current portion of long-term debt on the balance sheet.Consolidated Balance Sheet. Debt issuance costs are amortized to interest expense over the remaining term of the Credit Facilities.
The Company is required to repay the borrowings under the Term Loan Facility in sixty (60) equal consecutive monthly payments commencingwhich commenced on May 31, 2019, 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 April 30, 2024. All unpaid principal and accrued and unpaid interest with respect to the Revolving Credit Facility is due and payable in full on May 31, 2022. The Company may voluntarily prepay principal amounts outstanding at any time subject to certain restrictions. The Company made voluntary prepayments of $4,200 during the year ended December 31, 2020. NaN voluntary prepayments were made during the nine months ended September 30, 2021.
In addition to the customary affirmative and negative covenants, the Company must maintain a consolidated fixed charge coverage ratio of equal to or greater than 1.15 to 1.0, and a consolidated senior leverage ratio of equal to or less than 2.5 to 1.0, each as defined in the Amended Credit Agreement. The Company was in full compliance with its covenants under the Amended Credit Agreement as of September 30, 2020.2021.
Borrowings under the Credit Facilities are secured by substantially all the assets of the Company. Availability under the Revolving Credit Facility is subject to certain borrowing base limits based on receivables and inventories.
Interest will accrue on outstanding indebtedness under the Credit Facilities at the Base Rate or the Overnight LIBOR Rate, as selected by the Company, plus the applicable margin. The Base Rate is the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 50 basis points, and (c) the Overnight LIBOR Rate plus one hundred100 basis points. The applicable margin ranges from zero (0) to negative 50 basis points for the Base Rate and from 185 to 215 basis points for the Overnight LIBOR Rate and are determined based on the Company’s senior leverage ratio.
The Company must pay a quarterly fee of 0.1% to 0.2% 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 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 per share (“EPS”) is computed by dividing For the three-month period ended September 30, 2021, there were no outstanding stock awards included in the calculation of diluted weighted average shares outstanding and 0 potential common shares included in the calculation of diluted EPS, as no securities were dilutive. There were 1,064,656 outstanding stock options and 14,164 unvested restricted stock awards not included in the calculation of diluted EPS for the three-month period ended September 30, 2021, as the effect would be antidilutive. For the comparable three-month period ended September 30, 2020, 831,244 outstanding stock options and 19,165 outstanding restricted stock awards were included in the calculation of diluted weighted average shares outstanding, resulting in 181,270 potential common shares included in the calculation of diluted EPS. There were 898,167 outstanding stock options not included in the calculation of diluted EPS for the three-month period ended September 30, 2020, For the nine-month period ended September 30, 2021, there were 598,489 outstanding stock options and EPS. There were 4. SUPPLEMENTAL BALANCE SHEET INFORMATION Fair Value Measurements and Disclosures The fair value of financial instruments approximated their carrying values at September 30, Cash The composition of the Company’s cash was as follows: September 30, December 31, September 30, December 31, 2020 2019 2021 2020 Cash Restricted cash Total As of September 30, Inventories Inventories are stated at the lower of cost or September 30, December 31, 2020 2019 Raw materials Work in process Finished goods Total September 30, December 31, 2021 2020 Raw materials Work in process Finished goods Total Property, Plant and Equipment, Net Major classes of property, plant and equipment consisted of the following: September 30, December 31, September 30, December 31, 2020 2019 2021 2020 Land Buildings and leasehold improvements Machinery and equipment Furniture and fixtures Computer hardware and software Construction in process Less: Accumulated depreciation Property, plant and equipment, net Depreciation expense for property, plant and equipment was as follows: Three-month period ended Nine-month period ended September 30, September 30, September 30, September 30, 2021 2020 2021 2020 Depreciation expense Three-month period ended Nine-month period ended September 30, September 29, September 30, September 29, 2020 2019 2020 2019 Depreciation expense Goodwill The following table summarizes the goodwill activity by segment for the nine-month period ended September 30, Battery & Energy Communications Products Systems Total Balance – December 31, 2019 Effect of foreign currency translation Balance – September 30, 2020 Battery & Energy Communications Products Systems Total Balance – December 31, 2020 Effect of foreign currency translation Balance – September 30, 2021 Other Intangible Assets, Net The composition of other intangible assets was: September 30, 2020 Accumulated Cost Amortization Net Trademarks Customer relationships Patents and technology Distributor relationships Trade name Total December 31, 2019 September 30, 2021 Accumulated Accumulated Cost Amortization Net Cost Amortization Net Trademarks Customer relationships Patents and technology Distributor relationships Trade name Total December 31, 2020 Accumulated Cost Amortization Net Trademarks Customer relationships Patents and technology Distributor relationships Trade name Total The change in the cost of total intangible assets from December 31, Amortization expense for other intangible assets was as follows: Three-month period ended Nine-month period ended Three-month period ended Nine-month period ended September 30, September 29, September 30, September 29, September 30, September 30, September 30, September 30, 2020 2019 2020 2019 2021 2020 2021 2020 Amortization included in: Research and development Selling, general and administrative Total amortization expense 5. STOCK-BASED COMPENSATION We recorded non-cash stock compensation expense in each period as follows: Three-month period ended Nine-month period ended Three-month period ended Nine-month period ended September 30, September 29, September 30, September 29, September 30, September 30, September 30, September 30, 2020 2019 2020 2019 2021 2020 2021 2020 Stock options Restricted stock grants Total We have stock options outstanding from various stock-based employee compensation plans for which we record compensation cost relating to share-based payment transactions in our financial statements. As of September 30, The following table summarizes stock option activity for the nine-month period ended September 30, Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding at January 1, 2020 Granted Exercised Forfeited or expired Outstanding at September 30, 2020 Vested and expected to vest at September 30, 2020 Exercisable at September 30, 2020 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding at January 1, 2021 Granted Exercised Forfeited or expired Outstanding at September 30, 2021 Vested and expected to vest at September 30, 2021 Exercisable at September 30, 2021 Cash received from stock option exercises under our stock-based compensation plans for the three-month periods ended September 30, In October 2020, 5,000 shares of restricted stock were awarded to an employee at a weighted-average grant date fair value of $6.08 per share. In April 2019, 20,000 shares of restricted stock were awarded to certain of our employees at a weighted-average grant date fair value of $11.12 per share. In January 2018, 17,500 shares of restricted stock were awarded to certain of our employees at a weighted-average grant date fair value of $7.16 per share. All outstanding restricted shares vest in equal annual installments over three (3) years. Unrecognized compensation cost related to these restricted shares was 6. INCOME TAXES Our effective income tax rate for the nine-month periods ended September 30, As of December 31, As of September 30, As of September 30, As of September 30, There were As a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions. We are routinely subject to examination by taxing authorities in these various jurisdictions. In August 2020, the Internal Revenue Service (“IRS”) completed its examination of the Company’s federal tax returns for 2016-2018 with no material adjustments identified. Our U.S. tax matters for 2019 and 2020remain subject to IRS examination. Our U.S. tax matters for 2001, 2002, 2005-2007 and 2011-2015 also remain subject to IRS examination due to the remaining availability of 7. OPERATING LEASES The Company has operating leases predominantly for operating facilities. As of September 30, The components of lease expense for the current and prior-year comparative periods were as follows: Three months ended Nine months ended Three months ended Nine months ended September 30, 2020 September 29, 2019 September 30, 2020 September 29, 2019 September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Operating lease cost Variable lease cost Total lease cost Supplemental cash flow information related to leases was as follows: Nine months ended Nine months ended September 30, 2020 September 29, 2019 September 30, 2021 September 30, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases Right-of-use assets obtained in exchange for lease liabilities: Supplemental balance sheet information related to leases was as follows: Balance sheet classification September 30, 2020 December 31, 2019 Balance Sheet Classification September 30, 2021 December 31, 2020 Assets: Operating lease right-of-use asset Other noncurrent assets Other noncurrent assets Liabilities: Current operating lease liability Accrued expenses and other current liabilities Accrued expenses and other current liabilities Operating lease liability, net of current portion Other noncurrent liabilities Other noncurrent liabilities Total operating lease liability Total operating lease liability Total operating lease liability Weighted-average remaining lease term (years) Weighted-average remaining lease term (years) Weighted-average remaining lease term (years) Weighted-average discount rate Weighted-average discount rate Weighted-average discount rate Future minimum lease payments as of September 30, Maturity of Operating Lease Liabilities 2020 2021 2022 2023 2024 Total lease payments Less: Imputed interest Present value of remaining lease payments 8. COMMITMENTS AND CONTINGENCIES a. Purchase Commitments As of September 30, b. Product Warranties We estimate future warranty costs to be incurred for product failure rates, material usage and service costs in the development of our warranty obligations. Estimated future warranty costs are based on actual past experience and are generally estimated as a percentage of sales over the warranty period. Changes in our product warranty liability during the first nine months of Nine-month period ended September 30, 2020 September 29, 2019 Accrued warranty obligations – beginning Assumed warranty obligations – SWE Accruals for warranties issued Settlements made Accrued warranty obligations – ending Nine-month period ended September 30, 2021 2020 Accrued warranty obligations – beginning Accruals for warranties issued Settlements made Accrued warranty obligations – ending c. Contingencies and Legal Matters We are subject to legal proceedings and claims that arise from time to time in the 9. REVENUE RECOGNITION Revenues are generated from the sale of products. Performance obligations are met and revenue is recognized upon transfer of control to the customer, which is generally upon shipment. When contract terms require transfer of control upon delivery at a customer’s location, revenue is recognized on the date of delivery. For products shipped under vendor-managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has transferred and there are no further obligations by the Company. Revenue is measured as the amount of consideration we expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return. Revenues recognized from prior period performance obligations for the nine-month periods ended September 30, Deferred revenue, unbilled revenue and deferred contract costs recorded on our 10. BUSINESS SEGMENT INFORMATION We report our results in The components of segment performance were as follows: Battery & Communications Systems Corporate Total Battery & Energy Products Communications Systems Corporate Total Revenues Segment contribution Other expense Tax provision Other income Income tax benefit Non-controlling interest Net income attributable to Ultralife Net loss attributable to Ultralife Three-month period ended Battery & Communications Systems Corporate Total Revenues Segment contribution Other expense Tax provision Non-controlling interest Net income attributable to Ultralife Battery & Communications Systems Corporate Total Battery & Energy Products Communications Systems Corporate Total Revenues Segment contribution Other expense Tax provision Non-controlling interest Net income attributable to Ultralife Battery & Communications Systems Corporate Total Battery & Energy Products Communications Systems Corporate Total Revenues Segment contribution Other expense Tax provision Income tax provision Non-controlling interest Net income attributable to Ultralife Nine-month period ended September 30, 2020: Battery & Energy Products Communications Systems Corporate Total Revenues Segment contribution Other expense Tax provision Non-controlling interest Net income attributable to Ultralife The following tables disaggregate our business segment revenues by major source and geography. Commercial and Government/Defense Revenue Information: Three-month period ended September 30, Total Revenue Commercial Government/ Defense Battery & Energy Products Communications Systems Total Total Revenue Commercial Government/ Defense Battery & Energy Products Communications Systems Total Three-month period ended September Total Revenue Commercial Government/ Defense Battery & Energy Products Communications Systems Total Total Revenue Commercial Government/ Defense Battery & Energy Products Communications Systems Total Total Revenue Commercial Government/ Defense Battery & Energy Products Communications Systems Total Nine-month period ended September 30,2020: Total Revenue Commercial Government/ Defense Battery & Energy Products Communications Systems Total Total Revenue Commercial Government/ Defense Battery & Energy Products Communications Systems Total U.S. and Non-U.S. Revenue Information1: Three-month period ended September30, Total Revenue United States Non-United States Battery & Energy Products Communications Systems Total Total Revenue United States Non-United States Battery & Energy Products Communications Systems Total Three-month period ended September Total Revenue United States Non-United States Battery & Energy Products Communications Systems Total Total Revenue United States Non-United States Battery & Energy Products Communications Systems Total Total Revenue United States Non-United States Battery & Energy Products Communications Systems Total Nine-month period ended September 30,2020: Total Revenue United States Non-United States Battery & Energy Products Communications Systems Total Total Revenue United States Non-United States Battery & Energy Products Communications Systems Total 1 Sales classified to U.S. include shipments to U.S.-based prime contractors which in some cases may serve non-U.S. projects. Item 2. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this quarterly report, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data. Undue reliance should not Except as required by law, we disclaim any obligation to update any risk factors or to publicly announce the results of any revisions to any of the forward-looking statements contained in this The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto in Part I, Item 1 of this Form 10-Q, The financial information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in thousands of dollars, except for share and per share General We offer products and services ranging from power solutions to communications and electronics systems to customers across the globe in the government, defense and commercial sectors. With an emphasis on strong engineering and a collaborative approach to problem solving, we design and manufacture power and communications systems We sell our products worldwide through a variety of trade channels, including original equipment manufacturers (“OEMs”), industrial and defense supply distributors, and directly to U.S. and international defense departments. We enjoy strong name recognition in our markets under our We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment Our website address is www.ultralifecorporation.com. We make available free of charge via a hyperlink on our website (see Investor Relations link on the website) our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports and statements as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). We will provide copies of these reports upon written request to the attention of Philip A. Fain, CFO, Treasurer and Secretary, Ultralife Corporation, 2000 Technology Parkway, Newark, New York, 14513. Our filings with the SEC are also available through the SEC website at www.sec.gov or at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling 1-800-SEC-0330. COVID-19 The COVID-19 pandemic has created significant economic disruption and uncertainty around the world. The Company continues to closely monitor the developments surrounding COVID-19 and take actions to mitigate the business risks involved. During this challenging time, we remain focused on ensuring the health and safety of our employees by implementing the protocols established by public health officials For the quarter ended Overview Consolidated revenues of $21,761 for the three-month period ended September 30, 2021, decreased by $2,601 or 10.7%, from $24,362 for the three-month period ended September 30, 2020, Gross profit was Operating expenses Operating Net Adjusted EBITDA, defined as net income (loss) attributable to Ultralife before Results of Operations Three-Month Periods Ended September 30, Revenues. Consolidated revenues for the three-month period ended September 30, Battery & Energy Products revenues decreased Communications Systems revenues decreased Cost of Products Sold / Gross Profit. Cost of products sold totaled For our Battery & Energy Products segment, gross profit for the third quarter of For our Communications Systems segment, gross profit for the third quarter of Operating Expenses. Operating expenses for the three-month period ended September 30, Overall, operating expenses as a percentage of revenues were Other (Income) Expense. Other income totaled ($1) for the three-month period ended September 30, 2021 compared to other expense Income Taxes. The income tax Net (Loss) Income Attributable to Ultralife. Net Nine-Month Periods Ended September 30, Revenues.Consolidated revenues for the nine-month period ended September 30, Battery & Energy Products revenues Communications Systems revenues decreased $2,610, or 21.5%, from $12,120 during the nine-month period ended September 30, 2020 to $9,510 for the nine-month period ended September 30, 2021. This decrease is Cost of Products Sold / Gross Profit. Cost of products sold totaled For our Battery & Energy Products segment, the cost of products sold For our Communications Systems segment, the cost of products sold decreased by Operating Expenses. Total operating expenses for the nine-month period ended September 30, Overall, operating expenses as a percentage of revenues were Other (Income) Expense. Other expense totaled $76 for the nine-month period ended September 30, 2021 compared to $262 for the nine-month period ended September 30, Income Taxes. We recognized Net Income Attributable to Ultralife. Net income attributable to Ultralife and net income attributable to Ultralife common Adjusted EBITDA In evaluating our business, we consider and use Adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure of our operating performance. We define Adjusted EBITDA as net income (loss) attributable to Ultralife before We use Adjusted EBITDA in our decision-making processes relating to the operation of our business together with GAAP financial measures such as operating income. We believe that Adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of depreciation and amortization, which may vary from period to period without any correlation to underlying operating performance, and of stock-based compensation, which is a non-cash expense that varies widely among companies. We believe that by presenting Adjusted EBITDA, we assist investors in gaining a better understanding of our business on a going forward basis. We provide information relating to our Adjusted EBITDA so that securities analysts, investors and other interested parties have the same data that we employ in assessing our overall operations. We believe that trends in our Adjusted EBITDA are a valuable indicator of our operating performance on a consolidated basis and of our ability to produce operating cash flows to fund working capital needs, to service debt obligations and to fund capital expenditures. The term Adjusted EBITDA is not defined under GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP. Our Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss) attributable to Ultralife or other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include, but are not limited to, the following: ● Adjusted EBITDA does not reflect (1) our cash expenditures or future requirements for capital expenditures or contractual commitments; (2) changes in, or cash requirements for, our working capital needs; (3) the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; (4) income taxes or the cash requirements for any tax payments; and (5) all of the costs associated with operating our business; ● Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA from continuing operations does not reflect any cash requirements for such replacements; ● While stock-based compensation is a component of cost of products sold and operating expenses, the impact on our ● Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only on a supplemental basis. Adjusted EBITDA is calculated as follows for the periods presented: Three-Month Period Ended Nine-Month Period Ended September 30, September 29, September 30, September 29, 2020 2019 2020 2019 Net income attributable to Ultralife Add: Interest and financing expense, net Income tax provision Depreciation expense Amortization of intangible assets and financing fees Stock-based compensation expense Non-cash purchase accounting adjustments Adjusted EBITDA Three-Month Period Ended Nine-Month Period Ended September 30, September 30, September 30, September 30, 2021 2020 2021 2020 Net (loss) income attributable to Ultralife Corporation Adjustments: Interest expense Income tax (benefit) provision Depreciation expense Amortization expense Stock-based compensation expense Adjusted EBITDA Adjusted In evaluating our business, we consider and use Adjusted EPS, a non-GAAP financial measure, as a supplemental measure of our business Adjusted EPS is calculated as follows for the periods presented: Three-Month Period Ended September 30, 2020 September 29, 2019 Amount Per Basic Share Per Diluted Share Amount Per Basic Share Per Diluted Share Net income attributable to Ultralife Corporation Deferred tax provision Adjusted net income attributable to Ultralife Corporation Weighted average shares outstanding Nine-Month Period Ended September 30, 2020 September 29, 2019 Amount Per Basic Share Per Diluted Share Amount Per Basic Share Per Diluted Share Net income attributable to Ultralife Corporate Deferred tax provision Adjusted net income attributable to Ultralife Corporation Weighted average shares outstanding Three-Month Period Ended September 30, 2021 September 30, 2020 Amount Per Basic Share Per Diluted Share Amount Per Basic Share Per Diluted Share Net (loss) income attributable to Ultralife Corporation Deferred income tax (benefit) provision Adjusted net (loss) income attributable to Ultralife Corporation Weighted average shares outstanding Nine-Month Period Ended September 30, 2021 September 30, 2020 Amount Per Basic Share Per Diluted Share Amount Per Basic Share Per Diluted Share Net income attributable to Ultralife Corporation Deferred income tax provision Adjusted net income attributable to Ultralife Corporation Weighted average shares outstanding Liquidity and Capital Resources As of September 30, During the nine-month period ended September 30, Cash used in investing activities for the nine months ended September 30, Net cash used in financing activities for the nine months ended September 30, To provide flexibility in accessing the capital market, the Company filed a shelf registration statement on Form S-3 on March 30, 2021, which was declared effective by the SEC on April 2, 2021. Under this registration statement, upon the filing of an appropriate supplemental prospectus, we may offer and sell certain of our securities from time to time in one or more offerings, at our discretion, of up to an aggregate offering price of $100 million. We intend to use the net proceeds resulting from any sales of our securities for general corporate purposes which may include, but are not limited to, potential acquisitions of complementary businesses or technologies, strategic capital expenditures to expand and protect our competitive position, and investments in the development of transformational, competitively-differentiated products for attractive growth markets. As of September 30, 2021, we had made commitments to purchase approximately $1,100 of production machinery and equipment. Critical Accounting Policies Management exercises judgment in making important decisions pertaining to choosing and applying accounting policies and methodologies in many areas. Not only are these decisions necessary to comply with During the first nine months of Item 4. Evaluation of Disclosure Controls and Procedures Our President and Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer and Treasurer (Principal Financial Officer) have evaluated our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e)) as of the end of the period covered by this quarterly report. Based on this evaluation, our President and Chief Executive Officer and Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures were effective as of such date. Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting (as defined in Securities Exchange Act Rule 13a-15(f)) that occurred during the fiscal quarter covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II.OTHER INFORMATION Item 6.Exhibits Exhibit Index Exhibit Description Incorporated by Reference from 31.1 Filed herewith 31.2 Filed herewith 32 Furnished herewith 101.INS Inline XBRL Instance Document Filed herewith 101.SCH Inline XBRL Taxonomy Extension Schema Document Filed herewith 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed herewith 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed herewith 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Filed herewith Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ULTRALIFE CORPORATION (Registrant) Date: October Michael D. Popielec President and Chief Executive Officer (Principal Executive Officer) Date: October Philip A. Fain Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) 4.earningsnet income attributable to the Company’s common shareholdersUltralife 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.831,244as the effect would be antidilutive.19,16514,164 outstanding restricted stock awards were included in the calculation of diluted EPS as such securities are dilutive. Inclusion of these securities resultedweighted average shares outstanding, resulting in 181,270 additional179,951 potential common shares in the calculation of fully diluted earnings per share. For the comparable three-month period ended September 29, 2019, 914,535 stock options and 31,666 restricted stock awards were included in the calculation of diluted EPS resulting in 377,200 additional shares in the calculation of fully diluted earnings per share.EPS. For the nine-month periodsperiod ended September 30, 2020, and September 29, 2019, there were 831,244 and 914,535outstanding stock options and 19,165 and 31,666outstanding restricted stock awards respectively, were included in the calculation of diluted EPS as such securities are dilutive. Inclusion of these securities resultedweighted average shares outstanding, resulting in 213,574 and 382,711 additionalpotential common shares respectively,included in the calculation of fully diluted earnings per share. 898,167466,167 and 703,250898,167 outstanding stock options for the three-month periods ended September 30, 2020 and September 29, 2019, respectively, which were not included in EPS as the effect would be anti-dilutive. There were 898,167 and 703,250 outstanding stock optionscalculation of diluted EPS for the nine-month periods ended September 30, 20202021 and September 29, 2019,30, 2020, respectively, which were not included in EPS as the effect would be anti-dilutive.antidilutive.5.SUPPLEMENTAL BALANCE SHEET INFORMATION20202021 and December 31, 2019.2020. The fair value of cash, trade accounts receivable, trade accounts payable, accrued liabilities, and the current portion of long-term debt approximates carrying value due to the short-term nature of these instruments. The carrying value of long-term debt approximates fair value, as the variable interest rates approximate current market rates. $ 13,690 $ 7,135 $ 15,766 $ 10,562 87 270 87 91 $ 13,777 $ 7,405 $ 15,853 $ 10,653 20202021 and December 31, 2019,2020, restricted cash included $87 and $82,$91, respectively, of euro-denominated deposits withheld by the Dutch tax authorities and third-party VATvalue-added tax (VAT) representatives in connection with a previously utilized logistics arrangement in the Netherlands. As of December 31, 2019, restricted cash included $188 for a government grant awarded in the People’s Republic of China to fund specified technological research and development initiatives. The grant proceeds are realized as a direct offset to qualifying expenditures as incurred. For the nine-month period ended September 30, 2020, grant proceeds of $188 were used to fund qualifying capital expenditures and material and labor costs incurred. Restricted cash is included as a component of the cash balance for purposes of the consolidated statementsConsolidated Statements of cash flows.Cash Flows.10market,net realizable value, net of obsolescence reserves, with cost determined under the first-in, first-out (FIFO) method. The composition of inventories, net was: $ 17,600 $ 18,485 3,861 2,548 8,285 8,726 $ 29,746 $ 29,759 $ 16,955 $ 17,277 3,485 3,411 7,739 7,505 $ 28,179 $ 28,193 $ 1,273 $ 1,273 $ 1,273 $ 1,273 15,365 15,386 15,425 15,393 55,869 55,058 62,449 61,048 2,219 2,194 2,503 2,235 6,812 6,712 7,316 6,894 5,622 4,730 1,456 1,227 87,160 85,353 90,422 88,070 (64,555 ) (62,828 ) (67,387 ) (65,220 ) $ 22,605 $ 22,525 $ 23,035 $ 22,850 $ 700 $ 582 $ 2,160 $ 1,743 $ 582 $ 586 $ 1,743 $ 1,548 2020.2021. 15,260 11,493 26,753 (48 ) 0 (48 ) $ 15,212 $ 11,493 $ 26,705 $ 15,525 $ 11,493 $ 27,018 (20 ) 0 (20 ) $ 15,505 $ 11,493 $ 26,998 11 $ 3,406 $ 0 $ 3,406 9,020 4,975 4,045 5,496 4,952 544 377 377 0 1,501 284 1,217 $ 19,800 $ 10,588 $ 9,212 $ 3,403 $ 0 $ 3,403 $ 3,412 $ 0 $ 3,412 9,080 4,721 4,359 9,133 5,377 3,756 5,521 4,869 652 5,542 5,097 445 377 377 0 377 377 0 1,511 204 1,307 1,519 407 1,112 $ 19,892 $ 10,171 $ 9,721 $ 19,983 $ 11,258 $ 8,725 $ 3,410 $ 0 $ 3,410 9,171 5,115 4,056 5,557 5,014 543 377 377 0 1,524 324 1,200 $ 20,039 $ 10,830 $ 9,209 20192020 to September 30, 20202021 is a result of the effect of foreign currency translations. $ 31 $ 32 $ 92 $ 98 $ 27 $ 31 $ 93 $ 92 118 116 352 274 121 118 365 352 $ 149 $ 148 $ 444 $ 372 $ 148 $ 149 $ 458 $ 444 126.STOCK-BASED COMPENSATION $ 204 $ 117 $ 674 $ 433 $ 131 $ 204 $ 468 $ 674 18 42 82 86 11 18 44 82 $ 222 $ 159 $ 756 $ 519 $ 142 $ 222 $ 512 $ 756 2020,2021, there was $720$367 of total unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted average period of 1.41.1 years.2020:2021: 1,541,792 $ 6.88 256,000 6.51 (50,797 ) 4.29 (17,584 ) 7.72 1,729,411 $ 6.89 3.06 $ 745 1,626,494 $ 6.84 2.88 $ 745 1,244,119 $ 6.63 1.92 $ 745 The following assumptions were used to value stock options granted during the nine months ended September 30, 2020:Risk-Free Interest Rate0.4%Volatility Factor49%Weighted Average Expected Life (Years)5.3Dividends0.0%The weighted average grant date fair value of options granted during the nine months ended September 30, 2020 was $2.78. 1,217,163 $ 6.50 56,500 8.50 (184,429 ) 4.46 (24,578 ) 7.35 1,064,656 $ 6.94 3.83 $ 978 995,875 $ 6.91 3.71 $ 958 769,123 $ 6.77 3.14 $ 889 20202021 and September 29, 201930, 2020 was $142$84 and $388,$142, respectively. Cash received from stock option exercises under our stock-based compensation plans for the nine-month periods ended September 30, 20202021 and September 29, 201930, 2020 was $218$398 and $866,$218, respectively.$63$26 at September 30, 2020,2021, which is expected to be recognized over a weighted average period of 1.51.3 years.1397.20202021 and September 29, 201930, 2020 was 23.9%24.4% and 20.5%23.9% respectively. The period-over-period change was primarily attributable to the geographic mix of earnings and lower discrete tax benefits realized on disqualifying dispositions of incentive stock options exercised by employees as compared to the prior period.options.2019,2020, we have domestic net operating loss (“NOL”) carryforwards of $58,400,$47,755, which expire 20202021 thruthrough 2035, and domestic tax credits of $1,907,$2,070, which expire 2028 thruthrough 2039, available to reduce future taxable income. As of September 30, 2020,2021, management has concluded it is more likely than not that these domestic NOL and credit carryforwards will be fully utilized.2020,2021, for certain past operations in the U.K., we continue to report a valuation allowance for NOL carryforwards of approximately $10,000,$11,000, nearly all of which can be carried forward indefinitely. Utilization of the net operating lossesNOLs may be limited due to the change in the past U.K. operation and cannot currently be used to reduce taxable income at our other U.K. subsidiary, Accutronics Ltd. There are no other deferred tax assets related to the past U.K. operations.2020,2021, we have not recognized a valuation allowance against our other foreign deferred tax assets, as realization is considered to be more likely than not.2020,2021, the Company maintains its assertion that all foreign earnings will be indefinitely reinvested in those operations.operations, other than earnings generated in the U.K.no0 unrecognized tax benefits related to uncertain tax positions at September 30, 20202021 and December 31, 2019.2020.net operating lossNOL carryforwards generated in those years. Our U.S. tax matters for 2001, 2002, 2005-2007 and 2011-20192020 remain subject to examination by various state and local tax jurisdictions. Our tax matters for the years 2010 through 20192020 remain subject to examination by the respective foreign tax jurisdiction authorities.8.OPERATING LEASES2020,2021, the remaining lease terms on our operating leases range from approximately 1less than one (1) year to 4three (3) years. Renewal optionsnot yet exercised and termination options are not reasonably certain of exercise by the Company. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants. $ 172 $ 168 $ 508 $ 459 $ 188 $ 172 $ 564 $ 508 18 21 54 63 25 18 57 54 $ 190 $ 189 $ 562 $ 522 $ 213 $ 190 $ 621 $ 562 1410 $ 506 $ 447 $ 550 $ 506 $ 875 $ 1,586 $ 0 $ 875 $ 2,303 $ 1,866 $ 1,711 $ 2,189 $ 669 $ 620 $ 657 $ 680 1,643 1,247 1,086 1,524 $ 2,312 $ 1,867 $ 1,743 $ 2,204 3.6 3.7 2.6 3.3 4.5 % 4.5 % 4.5 % 4.5 % 20202021 are as follows: 177 709 179 680 700 700 720 269 279 2,535 1,878 (223 ) (135 ) $ 2,312 $ 1,743 In August 2020, the Company entered into an agreement to extend the operating lease term of its Virginia Beach facility through April 2024. Aggregate future minimum lease payments of $959 are required to be made over the three-year extension period. 159.2020,2021, we have made commitments to purchase approximately $783$1,100 of production machinery and equipment.20202021 and 20192020 were as follows: $ 195 $ 95 0 145 75 152 (103 ) (167 ) $ 167 $ 225 $ 149 $ 195 123 75 (143 ) (103 ) $ 129 $ 167 normalordinary course of business. We believe that the final disposition of any such matters of which we are currently aware will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, recognizing that legal matters are subject to inherent uncertainties, there exists the possibility that ultimate resolution of thesecurrent or future legal matters could have a material adverse impact on the Company’s financial position, results of operations or cash flows. We are not aware of any such situations that are reasonably possible at this time.10.REVENUE RECOGNITION For products shipped under vendor managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has transferred and there are no further obligations by the Company.20202021 and September 29, 2019 2020were not material.consolidated balance sheetsConsolidated Balance Sheets as of September 30, 20202021 and December 31, 20192020 were not material. As of September 30, 20202021 and December 31, 2019,2020, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to ASC Topic 606, we have applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations.1611.two2 operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includesincludes: Lithium 9-volt, cylindrical and various other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies, charging systems and accessories. The Communications Systems segment includesincludes: RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and communications and electronics systems design. We believe that reporting performance at the gross profit level is the best indicator of segment performance. Three-month period ended Three-month period ended September 30, 2021:30, 2020:
Energy Products $ 21,819 $ 2,543 $ 0 $ 24,362 $ 20,008 $ 1,753 $ 0 $ 21,761 5,677 834 (5,804 ) 707 4,792 316 (5,887 ) (779 ) (53 ) (53 ) (192 ) (192 ) 0 1 1 175 175 (55 ) (55 ) 18 18 $ 407 $ (585 ) September29, 2019:
Energy Products $ 22,578 $ 4,915 $ 0 $ 27,493 6,117 1,744 (6,555 ) 1,306 (160 ) (160 ) (225 ) (225 ) (23 ) (23 ) $ 898 Nine-month period ended September 30,2020:
Energy Products $ 66,616 $ 12,120 $ 0 $ 78,736 $ 21,819 $ 2,543 $ 0 $ 24,362 17,019 4,789 (17,322 ) 4,486 5,677 834 (5,804 ) 707 (262 ) (262 ) (53 ) (53 ) (1,010 ) (1,010 ) (192 ) (192 ) (90 ) (90 ) (55 ) (55 ) $ 3,124 $ 407 17Nine-month period ended Nine-month period ended September29, 2019: 30, 2021:
Energy Products $ 58,876 $ 16,896 $ 0 $ 75,772 $ 64,994 $ 9,510 $ 0 $ 74,504 16,182 5,628 (16,914 ) 4,896 16,244 3,109 (18,089 ) 1,264 (301 ) (301 ) (76 ) (76 ) (942 ) (942 ) (290 ) (290 ) (74 ) (74 ) (1 ) (1 ) $ 3,579 $ 897 $ 66,616 $ 12,120 $ 0 $ 78,736 17,019 4,789 (17,322 ) 4,486 (262 ) (262 ) (1,010 ) (1,010 ) (90 ) (90 ) $ 3,124 2020: 2021: $ 21,819 $ 15,772 $ 6,047 2,543 0 2,543 $ 24,362 $ 15,772 $ 8,590 65 % 35 % $ 20,008 $ 16,579 $ 3,429 1,753 0 1,753 $ 21,761 $ 16,579 $ 5,182 76 % 24 % 29, 2019:30, 2020: $ 22,578 $ 17,677 $ 4,901 4,915 0 4,915 $ 27,493 $ 17,677 $ 9,816 64 % 36 % $ 21,819 $ 15,772 $ 6,047 2,543 0 2,543 $ 24,362 $ 15,772 $ 8,590 65 % 35 % Nine-monthNine-month period ended September 30, 2021: $ 64,994 $ 46,935 $ 18,059 9,510 0 9,510 $ 74,504 $ 46,935 $ 27,569 63 % 37 % $ 66,616 $ 46,746 $ 19,870 12,120 0 12,120 $ 78,736 $ 46,746 $ 31,990 59 % 41 % Nine-month period ended September 29, 2019: $ 58,876 $ 42,736 $ 16,140 16,896 0 16,896 $ 75,772 $ 42,736 $ 33,036 56 % 44 % 18142020: 2021: $ 21,819 $ 10,820 $ 10,999 2,543 2,263 280 $ 24,362 $ 13,083 $ 11,279 54 % 46 % $ 20,008 $ 7,941 $ 12,067 1,753 1,249 504 $ 21,761 $ 9,190 $ 12,571 42 % 58 % 29, 2019: 30, 2020: $ 22,578 $ 11,459 $ 11,119 4,915 4,397 518 $ 27,493 $ 15,856 $ 11,637 58 % 42 % $ 21,819 $ 10,820 $ 10,999 2,543 2,263 280 $ 24,362 $ 13,083 $ 11,279 54 % 46 % Nine-monthNine-month period ended September 30, 2021: $ 64,994 $ 32,344 $ 32,650 9,510 4,670 4,840 $ 74,504 $ 37,014 $ 37,490 50 % 50 % $ 66,616 $ 36,299 $ 30,317 12,120 10,840 1,280 $ 78,736 $ 47,139 $ 31,597 60 % 40 % Nine-month period ended September 29, 2019: $ 58,876 $ 29,869 $ 29,007 16,896 15,748 1,148 $ 75,772 $ 45,617 $ 30,155 60 % 40 % 1915MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"safe harbor"“safe harbor” for forward-looking statements. This 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 report relating to matters that are not historical facts are forward-looking statements that involve risks and uncertainties, including, but not limited to:to, the effects of the novel coronavirus disease of 2019 (“COVID-19”) or other infectious disease pandemics which may arise in the future;; our reliance on certain key customers; possible future declines in demand for the products that use our batteries or communications systems; the unique risks associated with our China operations including changes in U.S. tariffs and trade disputes with China;operations; potential costs because of the warranties we supply with our products and services; potential disruptions in our supply of raw materials and components; our efforts to develop new commercial applications for our products; reduced U.S. and foreign military spending including the uncertainty associated with government budget approvals; possible breaches in security and other disruptions; variability in our quarterly and annual results and the price of our common stock; safety risks, including the risk of fire; our entrance into new end-markets which could lead to additional financial exposure; fluctuations in the price of oil and the resulting impact on the level of downhole drilling by our oil & gas customers;drilling; our ability to retain top management and key personnel; our resources being overwhelmed by our growth prospects; our inability to comply with changes to the regulations for the shipment of our products; our customers’ demand falling short of volume expectations in our supply agreements; possible impairments of our goodwill and other intangible assets; negative publicity ofconcerning Lithium-ion batteries; our exposure to foreign currency fluctuations; the risk that we are unable to protect our proprietary and intellectual property; rules and procedures regarding contracting with the U.S. and foreign governments; our ability to utilize our net operating loss carryforwards; exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; our ability to comply with government regulations regarding the use of “conflict minerals”; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; known and unknown environmental matters; technological innovations in the non-rechargeable and rechargeable battery industries; and other risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those forward-looking statements described herein. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “seek,” “project,” “intend,” “plan,��plan,” “may,” “will,” “should,” or words of similar import, and in each case, their negatives, are intended to identify forward-looking statements. For further discussion of certain of the matters described above and other risks and uncertainties, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, and Item 1A, “Risk Factors” in Part II of this Form 10-Q.2020. Given these risks and uncertainties, you are cautionedto place undue reliancebe placed on theseour forward-looking statements. Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, 20192020 to reflect new information or risks, future events or other developments.the Risk Factors in Part II, Item 1A of this Form 10-Q, and the Consolidated Financial Statements and Notes thereto and Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.amounts.amounts, unless otherwise specified.2016includingincluding: rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems and accessories, and custom engineered systems. We continually evaluate ways to grow,and implement growth opportunities, including the design, development and sale of new products, expansion of our sales force to penetrate new markets and geographies, as well as seeking opportunities to expand through acquisitions.Ultralife®Ultralife® Batteries, Lithium Power®Power®, McDowell Research®Research®, AMTITMAMTI™, ABLETMABLE™, ACCUTRONICS™, ACCUPRO™, ENTELLION™, SWE Southwest Electronic Energy Group™, SWE DRILL-DATA™, and SWE SEASAFE™ brands. We have sales, operations and product development facilities in North America, Europe and Asia.includesincludes: Lithium 9-volt, cylindrical, thin cell and other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies, charging systems and accessories. The Communications Systems segment includesincludes: RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and communications and electronics systems design. We believe that reporting performance at the gross profit level is the best indicator of segment performance. As such, we report segment performance at the gross profit level and operating expenses as Corporate charges. See Note 1110 in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q.in addition toand meeting the demand of our customers. As an essential supplier currently exempt from government-mandated shutdown directives, we are striving to ensure an uninterrupted flow of our mission critical products serving medical device, first responder, public safety, energy, and national security customers. For the 2020 year-to-date period, weWe have maintained normal operations at all our facilities with the exception of an approximately one-month closure of our China facility as was mandated by the Chinese government through early March 2020.March 31, 2020, our operating results were adversely affected bySeptember 30, 2021, increased lead times on components from suppliers and other COVID-19 particularly as a result of the temporary shutdown of our China operation and supply chain disruptions. We estimated the effects of COVID-19 adversely impacted net income by approximately $500 for our first quarter. For the quarter ended June 30, 2020, we estimated that the net impact of COVID-19 to net income was immaterial. Demand for our medical batteries, especially those usedrelated logistics matters resulted in ventilators, respirators and infusion pumps, substantially increased during the second quarter; however, this increase was offset by delays in medical battery orders for devices used for elective surgeries and the overall disruptions in supply chains impacting both commercial and government/defense markets.our shipments to future periods. For the quarter ended September 30, 2020,2021, we estimate that the net impact of COVID-19 to netsuch delayed shipments adversely impacted revenues by approximately $4,100, operating income was a loss ofby approximately $1,000. Demand for medical batteries, especially those used in ventilators, respirators$1,300 and infusion pumps, substantially increased during the third quarter; however, this increase was more than offsetadjusted EPS by the revenue declines in oil & gas and international industrial markets. Logistics disruptions also delayed certain shipments.approximately $0.08.2117Refer to Item 1A “Risk Factors” in Part II of this Form 10-Q for risks and uncertainties related to COVID-19.decreased by $3,131 or 11.4%, from $27,493 for the three-month period ended September 29, 2019, as a significant5.1% increase in batterycommercial sales to our medical and government/defense customers was offset by lower39.7% decline in government/defense sales. The increase in commercial sales primarily resulted from an 89.5% increase in oil & gas marketbattery sales and a 115.8% increase in our new ER and thin cell battery sales, partially offset by a 28.3% decrease in medical battery sales. The decrease in government/defense sales primarily resulted from the completion of an order for BA-5390 batteries to the U.S. Department of Defense in the third quarter of 2020 under a spot purchase announced in December 2019, and lower shipments for our Communications Systems sales.business segment. During the third quarter of 2021, increased lead times on components from suppliers and other COVID-19 related logistics matters resulted in delays in our shipments to future periods. We have estimatedestimate that COVID-19the delayed shipments adversely impacted ourrevenue for the 2021 third quarter 2020 sales by approximately $2,900.$4,100, with $1,700 and $2,400 impacting our commercial and government/defense businesses, respectively.$6,511,$5,108, or 26.7%23.5% of revenue, compared to $7,861,$6,511, or 28.6%26.7% of revenue, for the same quarter a year ago. The 190-basis320-basis point decrease primarily resulted from costs associated withunfavorable sales product mix and lower factory volumes resulting from the transition of new products to higher volume production as well as the mix of products sold in our Communications Systems business.revenue decline.decreasedslightly increased to $5,887 during the three-month period ended September 30, 2021, from $5,804 during the three-month period ended September 30, 2020, from $6,555 during the three-month period ended September 29, 2019.2020. The decreaseincrease of $751$83 or 11.5%1.4% was consistent with the overall percentage reductionattributable to our continued investment in revenues, and included certain headcount reductions, lower travel expenses and strict control over all discretionary spending.engineering resources for new product development, including resources dedicated to our Conformal Wear Battery IDIQ contract announced on May 17, 2021. Operating expenses as a percentage of revenues wassales increased 330 basis points from 23.8% for both the third quarter of 2020 and 2019 periods. to 27.1% for the current quarter.incomeloss for the three-month period ended September 30, 20202021 was $707($779) or 2.9%(3.6%) of revenues compared to $1,306operating income of $707 or 4.8%2.9% of revenues for the year-earlier period. The 45.9% decrease in operating income primarily resulted from revenue declineslower sales, a reduction in oil & gasgross margin and international industrial markets and the overall disruptions in customer/third party logistics impacting both commercial and government/defense markets resulting from COVID-19.higher new product development costs to support our organic growth initiatives.incomeloss attributable to Ultralife was ($585), or ($0.04) per share – basic and diluted, for the three-month period ended September 30, 2021, compared to net income of $407, or $0.03 per share – basic and diluted, for the three-month period ended September 30, 2020, compared to $1,124, or $0.06 per share – basic and diluted, for the three-month period ended September 29, 2019.2020. Adjusted EPS was $0.04($0.05) on a diluted basis for the third quarter of 2020, representing a 43.8% decrease from Adjusted EPS on a diluted basis of $0.072021, compared to $0.04 for the 20192020 period. Adjusted EPS excludes the (benefit) provision for deferred income taxes of $188($218) and $165$188 for the 20202021 and 20192020 periods, respectively, which primarily represents non-cash (benefits) charges for U.S. income taxes which we expect will be fully offset by net operating lossNOL carryforwards and other tax credits for the foreseeable future. See the section “Adjusted EPS” beginning on Page 2723 for a reconciliation of Adjusted EPS to Adjusted EPS. The net adverse impact of COVID-19 on Adjusted EPS for the 2020 third quarter was approximately $0.06.net interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expenses/income that we do not consider reflective of our ongoing operations, amounted to $1,656$283 or 6.8%1.3% of revenues in the third quarter of 20202021, compared to $2,307$1,656 or 8.4%6.8% of revenues for the third quarter of 2019.2020. See the section “Adjusted EBITDA” beginning on Page 2622 for a reconciliation of Adjusted EBITDA to net income attributable to Ultralife.Supported by a solidAs we look ahead, our strong balance sheet and resilient business model, weliquidity position, new product initiatives, and durable customer relationships anchor our view that our long-term growth drivers and strategy are committed to completing our strategic growth projectssound and are well positioned to withstand current economic headwinds.achievable.20202021 and September 29, 201930, 202020202021 amounted to $24,362,$21,761, a decrease of $3,131$2,601 or 11.4%10.7%, from $27,493$24,362 for the three-month period ended September 29, 2019.30, 2020. Overall, commercial sales decreased 10.8%increased $807 or 5.1% while government/defense sales decreased 12.5%$3,408 or 39.7% from the 20192020 period. For the quarter ended September 30, 2020, we estimate that the net adverse impact of COVID-19 on revenues was approximately $2,900. Demand for medical batteries, especially those used in ventilators, respirators and infusion pumps, substantially increased during the third quarter; however, this increase was more than offset by the revenue declines in oil & gas and international industrial markets, and the overall disruptions in customer and third-party logistics which delayed certain shipments.$759,$1,811, or 3.4%8.3%, from $22,578 for the three-month period ended September 29, 2019 to $21,819 for the three-month period ended September 30, 2020. Excluding oil & gas sales, revenues increased 27.5% over2020 to $20,008 for the prior year reflectingthree-month period ended September 30, 2021. The decrease primarily resulted from a 102.1% increase$2,950 or 28.3% decrease in medical battery sales resulting from an increaseprimarily due to the high volume of orders in demand2020 for our batteries used inrespirators, ventilators respirators,and infusion pumps and other medical devices associated withto meet the sector’s initial response to COVID-19, and a 23.4% increase$2,618 or 43.3% decrease in government/defense sales primarily due primarily to higher demand from a large global defense contractor and the shipment of our legacy 5390BA-5390 batteries to the U.S. Department of Defense under a firm fixed price delivery order receivedspot purchase announced in December 2019. This increase was more than2019 and completed in 2020, partially offset by a 68.7% decrease$2,031 or 89.5% increase in oil & gas market sales reflecting the recent rebound in the energy sector and a $1,135 or 115.8% increase in our new ER and thin cell battery sales representativecells. For the third quarter of current market conditions for2021, we estimate that sector. shipments delayed to future periods due to increased lead times on components from suppliers and other COVID-19 related logistics matters adversely impacted Battery & Energy Products revenue by $2,500.2218$2,372,$790, or 48.3%30.9%, from $4,915$2,543 during the three-month period ended September 29, 201930, 2020 to $2,543$1,753 for the three-month period ended September 30, 2020. This decrease is primarily attributable2021. For the third quarter of 2021, we estimate that shipments delayed to higher 2019 shipments of mounted power amplifiersfuture periods due to support the U.S. Army’s Network Modernizationincreased lead times on components from suppliers and other initiatives under the delivery orders announced in October 2018. The October 2018 delivery orders to the U.S. Army were completed in the second quarter of 2020. COVID-19 related logistics matters adversely impacted Communications Systems revenue by $1,600.$17,851$16,653 for the quarter ended September 30, 2020,2021, a decrease of $1,781,$1,198, or 9.1%6.7%, from the $19,632$17,851 reported for the same three-month periodquarter a year ago. Consolidated cost of products sold as a percentage of total revenue increased from 71.4% for the three-month period ended September 29, 2019 to 73.3% for the three-month period ended September 30, 2020.2020 to 76.5% for the three-month period ended September 30, 2021. Correspondingly, consolidated gross margin decreased from 28.6% for the three-month period ended September 29, 2019, to 26.7% for the three-month period ended September 30, 2020, to 23.5% for the three-month period ended September 30, 2021, primarily reflecting unfavorable sales product mix and costs associated with the transition of new products to higherlower factory volume production.for both business segments.20202021 was $5,677,$4,792, a decrease of $440$885 or 7.2%15.6% from gross profit of $6,117$5,677 for the third quarter of 2019.2020. Battery & Energy Products’ gross margin of 26.0%24.0% decreased by 110200 basis points from the 27.1%26.0% gross margin for the year-earlier period, primarily reflecting unfavorable sales product mix and incremental costs associated with the transition of new products to higher volume production.lower factory volume.20202021 was $834$316 or 32.8%18.0% of revenues, a decrease of $910$518 or 52.2%62.1%, from gross profit of 1,744$834, or 35.5%32.8% of revenues, for the third quarter of 2019.2020. The 270-basis point decrease in gross margin during the third quarter of 2020 was driven by sales mix andprimarily reflects lower factory throughput as compared tovolume in the 2021 third quarter of 2019.quarter.20202021 were $5,804, a decrease$5,887, an increase of $751$83 or 11.5%1.4% from the $6,555$5,804 for the three-month period ended September 29, 2019.30, 2020. The 11.5% decreaseincrease in operating expenses which is relatively consistent withreflects our continued investment in engineering resources for new product development, including resources dedicated to the 11.4% decline in revenues, is attributable to certain headcount reductions, lower travel and strictConformal Wear Battery IDIQ contract announced on May 17, 2021. Both periods reflected our continued tight control over all discretionary spending.23.8%27.1% for both the quarter ended September 30, 20202021 and 23.8% for the quarter ended September 29, 2019.30, 2020. Amortization expense associated with intangible assets related to our acquisitions was $148 for the third quarter of 2021 ($121 in selling, general and administrative expenses and $27 in research and development costs), compared with $149 for the third quarter of 2020 ($118 in selling, general, and administrative expenses and $31 in research and development costs), including $61 for SWE ($61 in selling, general and administrative expenses), compared with $148 for the third quarter of 2019 ($116 in selling, general, and administrative expenses and $32 in research and development costs), including $60 for SWE ($60 in selling, general and administrative expenses). Research and development costs were $1,606$1,723 for the three-month period ended September 30, 2020, a decrease2021, an increase of $423$117 or 20.8%7.3%, from $2,029$1,606 for the three-months ended September 29, 2019.30, 2020. The decreaseincrease is largely attributable to the timinghiring of new product testing in our Communications Systems business and a realignment of some of the SWE engineering and technical resources to support manufacturing including the short cycle turnaround for a medical battery pack supporting a respirator application to serve the COVID-19 response.new product development in our Battery & Energy Products business segment. Selling, general and administrative expenses decreased $328$34 or 7.2%0.8%, to $4,164 for the third quarter of 2021 from $4,198 for the third quarter of 20202020. The slight decrease resulted from $4,526 for the third quarter of 2019. The decrease is primarily attributable to close monitoring ofour continued tight control over all discretionary spending, headcount reductions and lower travel expenses in response to COVID-19.spending.totaledof $53 for the three-month period ended September 30, 2020 compared to $160 for the three-month period ended September 29, 2019.2020. Interest and financing expense, net of interest income, decreased $128,$39, or 58.2%42.3%, from $220$92 for the third quarter of 20192020 to $92$53 for the comparable period in 2020.2021. The decrease is primarily due to the continued reduction of debt incurred in connection with the financing of the SWE acquisition. Miscellaneous income amountedof $54 for the third quarter of 2021 compared to miscellaneous income of $39 for the third quarter of 2020 compared with $60 for the third quarter of 2019, primarily due to transactions impacted byrepresents foreign currency fluctuations in the U.S. dollar relative to the Pound Sterlingexchange gains and other currencies, and the translation of U.S.-denominatedlosses particularly for certain transactions and balances of Accutronics (U.K.). denominated in U.S. dollars. The decrease in foreign currency gains inU.S. dollar strengthened against the Pound Sterling by approximately 3% during the third quarter of 2020 was attributable to the weakening of2021 and the U.S. dollar toweakened against the Pound Sterling by approximately 4% fromduring the beginning to the to the end of the 2020 third quarter compared to the strengthening of the U.S. dollar to the Pound Sterling by approximately 3% for the respective 2019 period.2020.23provisionbenefit for the 20202021 third quarter was $192($175) compared to $225a provision of $192 for the third quarter of 2019.2020. Our effective income tax rate increasedwas (22.4%) for the third quarter of 2021 as compared to 29.4% for the third quarter of 2020, as compared to 19.6% for the third quarter of 2019, primarily due to the geographic mix of earnings and discrete tax benefits realized on disqualifying dispositions of incentive stock options exercised by employees during the three-month periods.earnings. The income tax provisionbenefit for the third quarter of 20202021 is comprised of a $4$43 current provision for taxes expected to be paid on income from our foreign operations, representing a cash-based effective income tax rate of 0.6%(5.5%), and a $188($218) deferred income tax provision which primarily represents non-cash charges for U.S. taxes which will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future.benefit. For the 20192020 period, the income tax provision was comprised of a $60$4 current tax provision, representing a cash-based effective tax rate of 5.2%0.6%, and a $165$188 deferred income tax provision. See Note 76 in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for additional information regarding our income taxes.Adjusted EPS excludes the provision for deferred taxes of $188 and $165 for the 2020 and 2019 periods, respectively, which primarily represents non-cash charges for U.S. taxes which will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. See the section “Adjusted EPS” beginning on Page 27 for a reconciliation of EPS to Adjusted EPS.income(loss) attributable to Ultralife was ($585), or ($0.04) per share – basic and diluted, for the three-month period ended September 30, 2021, compared to net income of $407, or $0.03 per share – basic and diluted, for the three-month period ended September 30, 2020, compared to $898, or $0.06 per share – basic and diluted, for the three-month period ended September 29, 2019.2020. Adjusted EPS was ($0.05) on a diluted basis for the third quarter of 2021, compared to $0.04 on a diluted basis for the third quarter of 2020, representing a 45.5% decrease from Adjusted EPS on a diluted basis of $0.07 for the 2019 period.2020. Adjusted EPS excludes the (benefit) provision for deferred income taxes of ($218) and $188 for the 2021 and 2020 periods, respectively, which primarily represents non-cash (benefits) charges (benefits) of $188 and $165 for the 2020 and 2019 periods, respectively, forU.S. income taxes which will be fully offset by deferred tax assets including past U.S. net operating losses and tax credit carryforwards. The net adverse impact of COVID-19 on Adjusted EPS for the 2020 third quarter was approximately $0.06.taxes. See the section “Adjusted EPS” beginning on Page 2723 for a reconciliation of Adjusted EPS to EPS. Average weightedWeighted average common shares outstanding used to compute diluted earnings per share decreased from 16,162,055 in16,089,170 for the third quarter of 20192020 to 16,089,170 in16,065,412 for the third quarter of 2020.2021. The period over period decrease in 2020 is attributable to the antidilutive effect of all outstanding stock awards for the current period partially offset by stock option exercises and vesting of restricted stock awards since the third quarter of 2019 and a decrease in the weighted average stock price used to compute diluted shares from $8.73 for the third quarter of 2019 to $6.56 for the second quarter of 2020.20202021 and September 29, 201930, 202020202021 amounted to $78,736, an increase$74,504, a decrease of $2,964$4,232 or 3.9%5.4%, from the $75,772$78,736 reported for the nine-month period ended September 29, 2019.30, 2020. Overall, commercial sales increased 9.4%$189 or 0.4% and government/defense sales decreased 3.2%$4,421 or 13.8% from the nine-month 20192020 period.increased $7,740decreased $1,622, or 13.1%2.4%, from $58,876 for the nine-month period ended September 29, 2019 to $66,616 for the nine-month period ended September 30, 2020. The growth was attributable2020 to a $4,010 or 9.4% increase in commercial sales and a $3,730 or 23.1% increase in government/defense sales. The commercial growth reflects a $8,730 or 54.1% increase in battery sales to medical customers largely driven by an increase in demand for our batteries used in ventilators, respirators, infusion pumps and other medical devices attributable to COVID-19, partially offset by a $1,136 decrease in sales to oil and gas customers of our SWE operation due primarily to declining demand attributable to the effects of COVID-19 on the oil and gas market and a $3,583 sales decrease for 9-Volt and other commercial industrial products primarily due to COVID-19. The increase in government/defense sales is due primarily to higher demand from a large global defense contractor and the shipment of our legacy 5390 batteries under a firm fixed price delivery order received in December 2019.Communications Systems revenues decreased $4,776, or 28.3%, from $16,896 during the nine-month period ended September 29, 2019 to $12,120$64,994 for the nine-month period ended September 30, 2021. The decline was attributable to a $1,811 or 9.1% decrease in government/defense sales partially offset by a $189 or 0.4% increase in commercial sales. The decrease in government/defense sales primarily reflects $2,800 of shipments of 5390 batteries to the U.S. Department of Defense under a spot purchase announced in December 2019 and completed in 2020. The increase in commercial sales primarily resulted from a $1,933 or 17.8% increase in oil & gas market sales and a $1,932 or 74.2% increase in our new ER and thin cell battery sales, partially offset primarily by a $3,898 or 15.7% decrease in medical sales. During the first nine months of 2021, we estimate that the negative net impact caused by supply chain disruptions and other COVID-19 related logistics matters on Battery & Energy Products revenues was $4,600. primarily attributable to higher 20192020 shipments of mounted power amplifiers and vehicle amplifier-adaptor systems in the amount of $5,680 to support the U.S. Army’s Network Modernization and other initiatives undercompleting the delivery orders announced in October 2018,2018. During the first nine months of 2021, we estimate that the negative net impact from supply chain disruptions and shipments of Universal Vehicle Adaptors under an indefinite-delivery/indefinite-quantity contract with the Naval Air Warfare Center Aircraft Division announced in June 2019.other COVID-19 related logistics matters on Communications Systems revenues was $3,000. 24$56,928$55,151 for the nine-month period ended September 30, 2020, an increase2021, a decrease of $2,966$1,777 or 5.5%3.1%, from the $53,962$56,928 reported for the same nine-month period a year ago. Consolidated cost of products sold as a percentage of total revenue increased from 71.2% for the nine-month period ended September 29, 2019 to 72.3% for the nine-month period ended September 30, 2020.2020 to 74.0% for the nine-month period ended September 30, 2021. Correspondingly, consolidated gross margin was 26.0% for the nine-month period ended September 30, 2021, compared with 27.7% for the nine-month period ended September 30, 2020, compared with 28.8% for the nine-month period ended September 29, 2019, due primarily to unfavorable sales product mix. The decrease in gross margin for the 2020 period was unfavorably impacted due to incremental costs associated with COVID-19 including an approximately one-month shutdown of our China operation as mandated by the Chinese governmentmix and supply chain and logistics disruptions, partially offset by improved efficiencies and productivity in the production of vehicle amplifier-adaptor systems to fulfill U.S. Army orders for our Communications Systems business.lower factory volume.increased $6,903decreased $847 or 16.2%1.7%, from $42,694 during the nine-month period ended September 29, 2019 to $49,597 during the nine-month period ended September 30, 2020.2020 to $48,750 during the nine-month period ended September 30, 2021. Battery & Energy Products’ gross profit for the 20202021 nine-month period was $16,244 or 25.0% of revenues, a decrease of $775 or 4.6% from gross profit of $17,019, or 25.5% of revenues, an increase of $837 or 5.2% from gross profit of $16,182, or 27.5% of revenues, for the 20192020 nine-month period. Battery & Energy Products’ gross margin decreased for the nine-month period ended September 30, 20202021 by 20050 basis points, primarily due to incremental costs associated with COVID-19 including an approximately one-month shutdown of our China operation as mandated by the Chinese governmentunfavorable sales product mix and supply chain disruptions.lower factory volume.$3,937$930 or 34.9%12.7% from $11,268 during the nine-month period ended September 29, 2019 to $7,331 during the nine-month period ended September 30, 2020.2020 to $6,401 during the nine-month period ended September 30, 2021. Communications Systems’ gross profit for the first nine months of 20202021 was $4,789$3,109 or 39.5%32.7% of revenues, a decrease of $839$1,680 or 14.9%35.1% from gross profit of $5,628$4,789 or 33.3%39.5% of revenues, for the nine-month period ended September 29, 2019.30, 2020. The increasedecrease in gross margin was primarily due to improved efficiencies and productivityreflects the favorable sales mix in 2020 of the production of vehicle amplifier-adaptor systems to fulfillfor the U.S. Army orders.and lower factory volume in 2021.20202021 totaled $17,322,$18,089, an increase of $408$767 or 2.4%4.4% from the $16,914$17,322 for the nine-month period ended September 29, 2019.30, 2020. The increase is primarily attributablein operating expenses reflects our continued investment in engineering resources for new product development, including resources dedicated to the inclusion of the expenses of SWE for the full nine months of 2020 as compared to five months of the comparable period in 2019 (SWE acquiredConformal Wear Battery IDIQ contract announced on May 1, 2019). 17, 2021. Both periods reflected our continued tight control over discretionary spending.22.0%24.3% for the nine-month period ended September 30, 20202021 compared to 22.3%22.0% for the comparable 20192020 period. Amortization expense associated with intangible assets related to our acquisitions was $444, including $182$458 for SWE,the first nine months of 2021 ($365 in selling, general and administrative expenses and $93 in research and development costs), compared with $444 for the first nine months of 2020 ($352 in selling, general and administrative expenses and $92 in research and development costs), compared with $372, including $101 for SWE, for the first nine months of 2019 ($274 in selling, general, and administrative expenses and $98 in research and development costs). Research and development costs were $4,429$5,223 for the nine-month period ended September 30, 2020, a decrease2021 an increase of $223$794 or 4.8% from $4,65217.9% over $4,429 for the nine-monthsnine months ended September 29, 2019.30, 2020. The decrease reflectsincrease is largely attributable to the timinghiring of testing of new products and a realignment of some of the SWE engineering and technical resources to support manufacturing including the short cycle turnaround for a medical battery pack supporting a respirator application to serve the COVID-19 response.new product development in our Battery & Energy Products business segment. Selling, general and administrative expenses increased $631decreased $27 or 5.1%,0.2% from $12,262 during the first nine months of 2019 to $12,893 during the first nine months of 2020. The2020 to $12,866 during the first nine months of 2021, primarily reflecting a 3.6% increase is fully attributablein selling expenses for sales resources to the inclusion of SWE results for the full 2020 nine-month period as compared to five months for the comparable 2019 period.support our new product market launches virtually, offset by a 1.5% decrease in general and administrative expenses.2020 compared to $301 for the nine-month period ended September 29, 2019.2020. Interest and financing expense, net of interest income, increased $33decreased $208, or 55.9%, to $372$164 for the 20202021 period from $339$372 for the comparable period in 2019,2020, as a result of the continued reduction of debt incurred with the financing for the SWE acquisition. Miscellaneous income amounted to $110($88) for the first nine months of 20202021 compared with $38miscellaneous income of ($110) for the first nine months of 2019,2020, primarily due to fluctuations in the U.S. dollar relative to the Pound Sterling.aan income tax provision of $290 for the first three quarters of 2021 compared with an income tax provision of $1,010 for the first three quarters of 2020 compared with a2020. Our effective income tax provision of $942rate increased to 24.4% for the first three quartersnine months of 2019. Our effective tax rate increased2021 as compared to 23.9% for the first nine months of 2020, as compared to 20.5% for the first nine months of 2019, primarily due to the geographic mix of earnings and discrete tax benefits realized on disqualifying dispositions of incentive stock options exercised by employees during the nine-month periods.earnings. The income tax provision for the 20202021 period is comprised of a $189$163 current provision for taxes expected to be paid on income from our foreign operations, representing a cash-based effective income tax rate of 4.5%13.7%, and a $821$127 deferred income tax provision which primarily represents non-cash charges for U.S. income taxes which we expect will be fully offset by net operating lossNOL carryforwards and other tax credits for the foreseeable future. For the 20192020 period, the income tax provision was comprised of an $141a $189 current income tax provision, representing a cash-based effective income tax rate of 3.1%4.5%, and a non-cash $801$821 deferred provision for income taxes. See Note 76 in the Notes to Consolidated Financial Statements of this Form 10-Q for additional information regarding our income taxes.25shareholdersstockholders per diluted share was $3,124$897 and $0.19,$‐‐‐0.06, respectively, for the nine months ended September 30, 2020,2021, compared to $3,653$3,124 and $0.22$0.19 for the nine months ended September 29, 2019. Adjusted EPS was $0.24 on a diluted basis for the first nine months of 2020, representing an 9.7% decrease from Adjusted EPS on a diluted basis of $0.27 for the comparable 2019 period. Adjusted EPS excludes the provision for deferred income taxes which represents non-cash charges (benefits) of $821 and $801 for the 2020 and 2019 periods, respectively, for income taxes which will be fully offset by deferred tax assets including past U.S. net operating losses and tax credit carryforwards. The net adverse impact of COVID-19 on Adjusted EPS for the 2020 year-to-date period was approximately $0.10. See the section “Adjusted EPS” beginning on Page 27 for a reconciliation of Adjusted EPS to EPS. Average30, 2020. Weighted average common shares outstanding used to compute diluted earnings per share decreasedincreased from 16,138,335 for the 2019 period to 16,102,879 for the 2020 period mainly due to a decrease16,199,693 for the 2021 period, primarily attributable to stock option exercises since the third quarter of 2020 and an increase in the weighted average stock price used to compute diluted shares from $9.18 for the first nine months of 2019 to $6.89 for the first nine months of 2020.2020 to $7.94 for the first nine months of 2021.net interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expenses/income that we do not consider reflective of our ongoing operations. We also use Adjusted EBITDA as a supplemental measure to review and assess our operating performance and to enhance comparability between periods. We also believe the use of Adjusted EBITDA facilitates investors’ understanding of operating performance from period to period by backing out potential differences caused by variations in such items as capital structures (affecting relative interest expense and stock-based compensation expense), the amortization of intangible assets acquired through our business acquisitions (affecting relative amortization expense and provision (benefit) for income taxes), the age and book value of facilities and equipment (affecting relative depreciation expense) and one-time charges/benefits relating to income taxes. We also present Adjusted EBITDA from operations because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. We reconcile Adjusted EBITDA to net income attributable to Ultralife, the most comparable financial measure under GAAP. consolidated financial statementsConsolidated Financial Statements compared to other companies can vary significantly due to such factors as assumed life of the stock-based awards and assumed volatility of our common stock; and ●measuremeasure.26 We reconcile Adjusted EBITDA to net income attributable to Ultralife Corporation, the most comparable financial measure under GAAP. Neither current nor potential investors in our securities should rely on Adjusted EBITDA as a substitute for any GAAP measures and we encourage investors to review the following reconciliation of Adjusted EBITDA to net income (loss) attributable to Ultralife. $ 407 $ 898 $ 3,124 $ 3,579 92 220 372 339 192 225 1,010 942 582 586 1,743 1,548 161 160 480 404 222 159 756 519 - 59 - 264 $ 1,656 $ 2,307 $ 7,485 $ 7,595 $ (585 ) $ 407 $ 897 $ 3,124 53 92 164 372 (175 ) 192 290 1,010 700 582 2,160 1,743 148 161 458 480 142 222 512 756 $ 283 $ 1,656 $ 4,481 $ 7,485 Earnings Per ShareEPSperformance.performance in addition to GAAP financial measures. We define Adjusted EPS as net income (loss) attributable to Ultralife Corporation, excluding the provision (benefit) for deferred income taxes, divided by our weighted average shares outstanding on both a basic and diluted basis. We believe that this information is useful in providing period-to-period comparisons of our results by reflecting the portion of our income tax provision (benefit) that we expect will be offset by our U.S. net operating lossNOL carryforwards and other tax credits for the foreseeable future. We reconcile Adjusted EPS to EPS, the most comparable financial measure under GAAP. Neither current nor potential investors in our securities should rely on Adjusted EPS as a substitute for any GAAP measures and we encourage investors to review the following reconciliation of Adjusted EPS to EPS and net income (loss) attributable to Ultralife.27 $ 407 $ .03 $ .03 $ 898 $ .06 $ .06 188 .01 .01 165 .01 .01 $ 595 $ .04 $ .04 $ 1,063 $ .07 $ .07 15,908 16,089 15,785 16,162 $ 3,124 $ .20 $ .19 $ 3,579 $ .23 $ .22 821 .05 .05 801 .05 .05 $ 3,945 $ .25 $ .24 $ 4,380 $ .28 $ .27 15,889 16,103 15,756 16,138 $ (585 ) $ (.04 ) $ (.04 ) $ 407 $ .03 $ .03 (218 ) (.01 ) (.01 ) 188 .01 .01 $ (803 ) $ (.05 ) $ (.05 ) $ 595 $ .04 $ .04 16,065 16,065 15,908 16,089 2823 $ 897 $ .06 $ .06 $ 3,124 $ .20 $ .19 127 - - 821 .05 .05 $ 1,024 $ .06 $ .06 $ 3,945 $ .25 $ .24 16,020 16,200 15,889 16,103 2020,2021, cash totaled $13,777,$15,853 (including restricted cash of $87), an increase of $6,372, or 86.0%,$5,200 as compared to $7,405$10,653 of cash held as ofat December 31, 2019.2020. The increase was attributable to cash generated from operations, including the collection of accounts receivable, partially offset by the paydown of our debtcash used in investing and strategic capital investments primarily for our Battery & Energy Products business.financing activities.2020,2021, operating activities provided cash of $21,491,$8,462, consisting of net income of $3,214,$898, deferred income taxes of $127, non-cash expenses of depreciation, amortization, and stock-based compensation totaling $3,208, and a $4,229 reduction in net working capital primarily attributable to a decrease in accounts receivable of $15,094 due primarily to a high level of collections, and non-cash expenses (depreciation, amortization and stock-based compensation) and deferred taxes totaling $3,800, partially offset by a net decrease in accounts payable and other working capital of $617 primarily due to the timing of payments for procured inventory and capital projects.receivable.20202021 was $1,782, which was largely$2,324, primarily attributable to strategic capital expenditures of $1,902 primarily reflecting strategic investments for our Battery & Energy Products business.business segment.20202021 was $13,258, primarily$936, consisting of $1,186 of principal payments totaling $10,182 against our Revolving Credit Facilityremaining term loan balance and $3,279$148 of principle payments on our Term Loan Facility, including an advance payment of $2,200,tax withholdings for stock awards, partially offset primarily by stock option exercise proceeds of $218.$398.As of September 30, 2020, the Company hasWe continue to have significant U.S. net operating lossNOL carryforwards available to utilize as an offset to future taxable income. See Note 7 in6 to the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for additional information.As of September 30, 2020, we had made commitments to purchase approximately $783 of production machinery and equipment, whichGoing forward, we expect to fund throughthat positive operating cash flows or debt borrowings.While the COVID-19 pandemic poses a high level of uncertainty, management expects that cash flow generated from future operations and the remaining availability under our Revolving Credit Facility will be sufficient under current economic conditions to meet our general funding requirements and capital investments for the foreseeable future. Over the long-term, we expect that some of our future investments, including strategic business opportunities such as acquisitions, may be made through a number of sources, including internally available cash, availability of borrowing under our Credit Facilities, new debt financing, the issuance of equity securities or any combination of these sources.Debt CommitmentsOn May 1, 2019, in connection with financing the SWE acquisition (see Note 3 to the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q), the Company drew down $8,000 on its Term Loan Facility and $6,782 under its Revolving Credit Facility. As of September 30, 2020,2021, the Company had $3,855$288 outstanding principal on the Term Loan Facility, all of which $1,537 is included in current portion of long-term debt on the balance sheet,Consolidated Balance Sheet, net of $35 unamortized debt issuance costs, and no amounts outstanding on the Revolving Credit Facility. As of September 30, 2020, theThe Company iswas in full compliance with all covenants under the Credit Facilities.Facilities as of September 30, 2021. U.S. GAAP, but they also reflect management’s view of the most appropriate manner in which to record and report our overall financial performance. All accounting policies are important, and all policies described in Note 1 (“Summary of Operations and Significant Accounting Policies”) to our Consolidated Financial Statements in our 20192020 Annual Report on Form 10-K should be reviewed for a greater understanding of how our financial performance is recorded and reported.2020,2021, there were no significant changes in the manner in which our significant accounting policies were applied or in which related assumptions and estimates were developed.2925Controls and ProceduresCONTROLS AND PROCEDURES3026Item 1A. Risk FactorsAs a smaller reporting company, we are not required to provide the information required by this Item.Investors should carefully consider the risk factor set forth below in addition to the risk factors described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, which could adversely affect our business, financial condition and results of operations. Additional risks and uncertainties not currently known to us or that are not currently believed by us to be material may also harm our business, financial condition and operating results.Our business, operating results and financial condition may be adversely impacted by COVID-19.The novel coronavirus disease of 2019 (COVID-19) has created significant economic disruption and uncertainty around the world. COVID-19 adversely impacted our operating results during the first nine months of 2020 with an estimated unfavorable impact to net income of approximately $1,500 primarily as a result of overall disruptions in supply chains impacting both commercial and government/defense markets, revenue declines in oil & gas and international industrial markets, and an approximately one-month closure of our China facility during the first quarter as mandated by the China government, partially offset by increased demand for our medical batteries, especially those used in ventilators, respirators and infusion pumps. While the Chinese government has lifted the suspension of business operations in China and we have maintained normal business operations at all our other facilities throughout the pandemic, the extent to which COVID-19 may impact our business is uncertain and will depend on many evolving factors which we continue to monitor but cannot predict, including the duration and scope of the pandemic and actions taken by governments, businesses and individuals in response to the pandemic. Potential effects of COVID-19 which may adversely impact our business include limited availability and/or increased cost of raw materials and components used in our products, reduced demand and/or pricing for our products, inability of our customers to pay or remain solvent, reduced availability of our workforce, and increased cyber threats to our information technology infrastructure. Prolonged adverse effects of COVID-19 on our business could result in the impairment of long-lived assets including goodwill and other intangible assets. Further, we cannot predict all possible adverse effects the COVID-19 pandemic may cause as a result of which there may be adverse effects in addition to those described in this Risk Factor. While we continue to closely monitor the developments surrounding COVID-19 and take actions when possible to mitigate the business risks involved, the potential effects of COVID-19 on our business, alone or taken together, pose a material risk to our future operating results and financial condition.31 20202021 and December 31, 2019,2020, (ii) Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 20202021 and September 29, 2019,2020, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 20202021 and September 29, 2019,2020, (iv) Consolidated Statements of Changes in Shareholders’Stockholders’ Equity for the three and nine months ended September 30, 20202021 and September 29, 2019,2020, and (v) Notes to Consolidated Financial Statements.Statements3227 29, 202028, 2021By: By: /s/ Michael D. Popielec 29, 202028, 2021By: By: /s/ Philip A. Fain 33Index to Exhibits31.1Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INSInline XBRL Instance Document101.SCHInline XBRL Taxonomy Extension Schema Document101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document101.LABInline XBRL Taxonomy Extension Label Linkbase Document101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2020 and September 29, 2019, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and September 29, 2019, (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2020 and September 29, 2019, and (v) Notes to Consolidated Financial Statements.34