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 ~~March 31,~~September 30, 2023

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

For the transition period from ____________ to ____________

Commission file number:0-20852

ULTRALIFE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation of organization)

2000 Technology Parkway Newark, New York 14513

(Address of principal executive offices) (Zip Code)

16-1387013

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

(315) 332-7100

(Registrant’s telephone number, including area code)

None

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☒	Smaller reporting company ☒

	Emerging Growth Company ☐

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

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

As of ~~April 30,~~October 23, 2023, the registrant had ~~16,135,358~~16,340,113 shares of common stock outstanding.

ULTRALIFE CORPORATION AND SUBSIDIARIES

INDEX

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):	1

	Consolidated Balance Sheets as of ~~March 31,~~September 30, 2023 and December 31, 2022	1

	Consolidated Statements of ~~Loss~~Income (Loss) and Comprehensive Income (Loss) for the ~~Three-Month~~Three and Nine-Month Periods Ended ~~March 31,~~September 30, 2023 and ~~March 31,~~September 30, 2022	2

	Consolidated Statements of Cash Flows for the ~~Three-Month~~Nine-Month Periods Ended ~~March 31,~~September 30, 2023 and ~~March 31,~~September 30, 2022	3

	Consolidated Statements of Changes in Shareholders’ Equity for the ~~Three-Month~~Three and Nine-Month Periods Ended ~~March 31,~~September 30, 2023 and ~~March 31,~~September 30, 2022	4

	Notes to Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1517

Item 4.	Controls and Procedures	2226

PART II.	OTHER INFORMATION

Item 6.	Exhibits	2327

	Signatures	2428

		March 31, 2023			December 31, 2022			September 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash		$	5,605		$	5,713		$	9,301		$	5,713
Trade accounts receivable, net of allowance for expected credit losses of $308 and $303, respectively			24,463			27,779
Trade accounts receivable, net of allowance for expected credit losses of $287 and $303, respectively									27,189			27,779
Inventories, net			47,311			41,192			46,634			41,192
Prepaid expenses and other current assets			3,973			4,304			6,429			4,304
Total current assets			81,352			78,988			89,553			78,988
Property, plant and equipment, net			21,412			21,716			21,166			21,716
Goodwill			37,518			37,428			37,357			37,428
Other intangible assets, net			15,747			15,921			15,270			15,921
Deferred income taxes, net			12,965			12,069			10,728			12,069
Other noncurrent assets			2,160			2,308			2,035			2,308
Total assets		$	171,154		$	168,430		$	176,109		$	168,430

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	18,988		$	16,074		$	13,470		$	16,074
Current portion of long-term debt			2,000			2,000			2,000			2,000
Accrued compensation and related benefits			2,321			2,890			2,467			2,890
Accrued expenses and other current liabilities			5,890			7,949			8,449			7,949
Total current liabilities			29,199			28,913			26,386			28,913
Long-term debt			21,126			19,310
Long-term debt, net									24,108			19,310
Deferred income taxes			2,456			1,917			1,825			1,917
Other noncurrent liabilities			1,969			1,887			2,032			1,887
Total liabilities			54,750			52,027			54,351			52,027

Commitments and contingencies (Note 8)

Shareholders’ equity:
Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued			-			-			-			-
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,570,710shares at March 31, 2023 and 20,570,710 shares at December 31, 2022; outstanding – 16,135,358 shares at March 31, 2023 and 16,135,358shares at December 31, 2022			2,057			2,057
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,746,546 shares at September 30, 2023 and 20,570,710 shares at December 31, 2022; outstanding – 16,311,194 shares at September 30, 2023 and 16,135,358 shares at December 31, 2022									2,075			2,057
Capital in excess of par value			187,544			187,405			188,852			187,405
Accumulated deficit			(48,297	)		(47,951	)		(43,627	)		(47,951	)
Accumulated other comprehensive loss			(3,553	)		(3,750	)		(4,176	)		(3,750	)
Treasury stock - at cost; 4,435,352 shares at March 31, 2023 and 4,435,352 shares at December 31, 2022			(21,484	)		(21,484	)
Treasury stock - at cost; 4,435,352 shares at September 30, 2023 and 4,435,352 shares at December 31, 2022									(21,484	)		(21,484	)
Total Ultralife Corporation equity			116,267			116,277			121,640			116,277
Non-controlling interest			137			126			118			126
Total shareholders’ equity			116,404			116,403			121,758			116,403

Total liabilities and shareholders’ equity		$	171,154		$	168,430		$	176,109		$	168,430

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

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

	Three-month period ended						Three-month period ended						Nine-month period ended
	March 31, 2023			March 31, 2022			September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022

Revenues	$	31,916		$	30,373		$	39,488		$	33,234		$	114,096		$	95,733
Cost of products sold		24,480			23,415			29,714			26,519			86,298			74,414
Gross profit		7,436			6,958			9,774			6,715			27,798			21,319

Operating expenses:
Research and development		2,032			1,857			1,869			1,896			5,679			5,425
Selling, general and administrative		5,378			5,396			5,770			5,405			16,293			15,982
Total operating expenses		7,410			7,253			7,639			7,301			21,972			21,407

Operating income (loss)		26			(295	)		2,135			(586	)		5,826			(88	)

Other (expense) income:
Other income (expense):
Interest and financing expense		(424	)		(134	)		(586	)		(272	)		(1,450	)		(583	)
Miscellaneous (expense) income		(70	)		17
Total other expense		(494	)		(117	)
Miscellaneous income								200			526			1,628			605
Total other (expense) income								(386	)		254			178			22

Loss before income taxes		(468	)		(412	)
Income tax benefit		(133	)		(251	)
Income (loss) before income taxes								1,749			(332	)		6,004			(66	)
Income tax provision (benefit)								446			(90	)		1,688			(171	)

Net loss		(335	)		(161	)
Net income (loss)								1,303			(242	)		4,316			105

Net income attributable to non-controlling interest		(11	)		(7	)
Net loss attributable to non-controlling interest								(27	)		(3	)		(8	)		-

Net loss attributable to Ultralife Corporation		(346	)		(168	)
Net income (loss) attributable to Ultralife Corporation								1,330			(239	)		4,324			105

Other comprehensive income (loss):
Other comprehensive loss:
Foreign currency translation adjustments		197			(236	)		(330	)		(1,691	)		(426	)		(3,189	)

Comprehensive income (loss) attributable to Ultralife Corporation	$	149		$	(404	)	$	1,000		$	(1,930	)	$	3,898		$	(3,084	)

Net loss per share attributable to Ultralife common shareholders – basic	$	(.02	)	$	(.01	)
Net income (loss) per share attributable to Ultralife common stockholders – basic							$	.08		$	(.01	)	$	.27		$	.01

Net loss per share attributable to Ultralife common shareholders – diluted	$	(.02	)	$	(.01	)
Net income (loss) per share attributable to Ultralife common stockholders – diluted							$	.08		$	(.01	)	$	.27		$	.01

Weighted average shares outstanding – basic		16,135			16,104			16,238			16,133			16,172			16,122
Potential common shares		-			-			65			-			2			22
Weighted average shares outstanding - diluted		16,135			16,104			16,303			16,133			16,174			16,144

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

CONSOLIDATED STATEMENTS OF CHANGES IN ~~SHAREHOLDERS’~~SHAREHOLDERS’ EQUITY

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

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

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

Balance – June 30, 2022																						20,567,460	$	2,057	$	186,999		$	(3,151	)	$	(47,488	)	$	(21,480	)	$	130		$	117,067
Net loss											(168	)					7		(161	)												(239	)					(3	)		(242	)
Stock option exercises		38,369		4		109								(7	)				106			750		-		3									-						3
Stock-based compensation – stock options						181													181							176															176
Stock-based compensation – restricted stock						8													8
Foreign currency translation adjustments adjustments								(236	)										(236	)
Balance – March 31, 2022		20,560,796	$	2,056	$	186,816	$	(1,889	)	$	(48,000	)	$	(21,476	)	$	134	$	117,641
Stock-based compensation - restricted stock																										3															3
Foreign currency translation adjustments																													(1,691	)											(1,691	)
Balance – September 30, 2022																						20,568,210	$	2,057	$	187,181		$	(4,842	)	$	(47,727	)	$	(21,480	)	$	127		$	115,316


Balance – December 31, 2022		20,570,710	$	2,057	$	187,405	$	(3,750	)	$	(47,951	)	$	(21,484	)	$	126	$	116,403
Net loss											(346	)					11		(335	)
Balance – June 30, 2023																						20,586,045	$	2,059	$	187,758		$	(3,846	)	$	(44,957	)	$	(21,484	)	$	145		$	119,675
Net income																																1,330						(27	)		1,303
Stock option exercises		-		-		-								-					-			160,501		16		963									-						979
Stock-based compensation – stock options						138													138							130															130
Stock-based compensation – restricted stock						1													1
Foreign currency translation adjustments adjustments								197											197
Balance – March 31, 2023		20,570,710	$	2,057	$	187,544	$	(3,553	)	$	(48,297	)	$	(21,484	)	$	137	$	116,404
Stock-based compensation - restricted stock																										1															1
Foreign currency translation adjustments																													(330	)											(330	)
Balance – September 30, 2023																						20,746,546	$	2,075	$	188,852		$	(4,176	)	$	(43,627	)	$	(21,484	)	$	118		$	121,758

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

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

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

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

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

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 iswas effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The adoption of this new accounting standard did not have a material impact on our consolidated financial statements.

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

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

As of ~~March 31,~~September 30, 2023, the Company had ~~$7,667~~$6,667 outstanding principal on the Term Loan Facility, $2,000 of which is included in current portion of long-term debt on the balance sheet, and ~~$15,630~~$19,580 outstanding on the Revolving Credit Facility. As of ~~March 31,~~September 30, 2023, total unamortized debt issuance costs of ~~$171,~~$139, including placement, renewal and legal fees associated with the Amended Credit Agreement, are classified as a reduction of long-term debt on the balance sheet. Debt issuance costs are amortized to interest expense over the term of the Amended Credit Facilities.

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

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

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

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

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

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

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

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

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

For the three-month period ended ~~March 31,~~September 30, 2023, there were 677,029 outstanding stock options and 2,500 unvested restricted stock awards included in the calculation of diluted weighted average shares outstanding, as such securities were dilutive, resulting in 65,275 potential common shares included in the calculation of diluted EPS. There were 411,583 outstanding stock options for the three-month period ended September 30, 2023 not included in EPS as the effect would be anti-dilutive

For the comparable three-month period ended September 30, 2022, there no were nooutstanding stock awards included in the calculation of diluted weighted average shares outstanding and no potential common shares included in the calculation of diluted EPS, as no securities were dilutive. There were ~~1,420,611~~1,202,076 outstanding stock options and 5,000 unvested restricted stock awards for the three-month period ended September 30, 2022 not included in EPS as the effect would be anti-dilutive.

For the nine-month period ended September 30, 2023, there were 22,165 outstanding stock options and 2,500 unvested restricted stock awards included in the calculation of diluted weighted average shares outstanding, as such securities were dilutive, resulting in 2,441 potential common shares included in the calculation of diluted EPS. There were 1,066,447 outstanding stock options for the nine-month periods ended September 30, 2023 not included in EPS as the effect would be anti-dilutive.

For the comparable nine-month period ended September 30, 2022, there were 128,665 outstanding stock options and 5,000 unvested restricted stock awards included in the calculation of diluted EPS, for the three-month period ended March 31, 2023, as the effect would be antidilutive. For the comparable three-month period ended March 31, 2022, there were 1,204,490 outstanding stock options and 11,664 unvested restricted stock awards notresulting in 22,203 potential common shares included in the calculation of diluted EPS. There were 1,073,411 outstanding stock options for the nine-month period ended September 30, 2022 not included in EPS as the effect would be ~~antidilutive.~~anti-dilutive.

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

As of ~~March 31,~~September 30, 2023 and December 31, 2022, restricted cash included ~~$81~~$78 and $79, respectively, of euro-denominated deposits withheld by the Dutch tax authorities and third-party VAT representatives in connection with a previously utilized logistics arrangement in the Netherlands. Restricted cash is included as a component of the cash balance for purposes of the consolidated statements of cash flows.

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

Depreciation expense for property, plant and equipment was ~~$762 and $816 for the three-month periods ended March 31, 2023 and March 31, 2022, respectively.~~as follows:

The following table summarizes the goodwill activity by segment for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023.

The change in the cost of total intangible assets from December 31, 2022 to ~~March 31,~~September 30, 2023 is the effect of foreign currency translations.

Amortization expense for other intangible assets was $209 and $328 for the three-month periods ended March 31, 2023 and March 31, 2022, respectively. Amortization included in selling, general and administrative expenses was $185 and $302 for the three-month periods ended March 31, 2023 and March 31, 2022, respectively. Amortization included in research and development expenses was $24 and $26 for the three-month periods ended March 31, 2023 and March 31, 2022, respectively.as follows:

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 ~~March 31,~~September 30, 2023, there was ~~$553~~$314 of total unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted average period of ~~1.2~~0.9 years.

The following table summarizes stock option activity for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023:

Cash received from stock option exercises under our stock-based compensation plans for the three-month periods ended ~~March 31,~~September 30, 2023 and ~~March 31,~~September 30, 2022 was $0$979 and ~~$113,~~$3, respectively. Cash received from stock option exercises under our stock-based compensation plans for the nine-month periods ended September 30, 2023 and September 30, 2022 was $1,041 and $116, respectively.

Outstanding restricted shares vest in equal annual installments over three (3) years. Unrecognized compensation cost related to outstanding restricted shares at ~~March 31,~~September 30, 2023 was ~~$2.~~$0.

Our effective tax rate for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2023 and ~~March 31,~~September 30, 2022 was ~~28.4%~~28.1% and ~~60.9%~~259.1%, respectively. The period-over-period change was primarily attributable to the geographic mix of our operating results and the larger impact of discrete adjustments in the prior year.

As of December 31, 2022, we have domestic net operating loss (“NOL”) carryforwards of $40,952, which expire 2025 through 2035, and domestic tax credits of $2,600, which expire 2028 through 2042, available to reduce future taxable income. As of ~~March 31,~~September 30, 2023, management has concluded it is more likely than not that these domestic NOL and credit carryforwards will be fully utilized.

As of ~~March 31,~~September 30, 2023, for certain past operations in the U.K., we continue to report a valuation allowance for NOL carryforwards of approximately $10,000, nearly all of which can be carried forward indefinitely. Utilization of the net operating losses 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.

As of ~~March 31,~~September 30, 2023, we have not recognized a valuation allowance against our other foreign deferred tax assets, as realization is considered to be more likely than not.

As of ~~March 31,~~September 30, 2023, the Company maintains its assertion that all foreign earnings will be indefinitely reinvested in those operations, other than earnings generated in the U.K.

There were no unrecognized tax benefits related to uncertain tax positions at ~~March 31,~~September 30, 2023 and December 31, 2022.

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. Our U.S. tax matters for 2019-2022 remain subject to IRS examination. Our U.S. tax matters for 2005-2007 and 2011-2015 also remain subject to IRS examination due to the remaining availability of net operating loss carryforwards generated in those years. Our U.S. tax matters for 2005-2007 and 2011-2022 remain subject to examination by various state and local tax jurisdictions. Our tax matters for the years 2013 through 2022 remain subject to examination by the respective foreign tax jurisdiction authorities.

The Company has operating leases predominantly for operating facilities. As of ~~March 31,~~September 30, 2023, the remaining lease terms on our operating leases range from approximately one (1)(1) year to ~~nine (9)~~eight (8) years. Lease terms include renewal options reasonably certain of exercise. 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.

The components of lease expense for the current and prior-year comparative periods were as follows:

Supplemental consolidated balance sheet information related to leases was as follows:

Future minimum lease payments as of ~~March 31,~~September 30, 2023 are as follows:

As of ~~March 31,~~September 30, 2023, we have made commitments to purchase approximately ~~$873~~$925 of production machinery and equipment.

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 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 ~~three~~nine months of 2023 and 2022 were as follows:

We are subject to legal proceedings and claims that arise from time to time in the normal course of business. We believe that the final disposition of any such matters 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 these 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 at this time.

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.

Separately priced extended warranty contracts are offered on certain Communications Systems products for a duration of up to eight (8) years. Extended warranties are treated as separate performance obligations and recognized to revenue evenly over the term of the respective contract. Revenue not yet recognized on extended warranty contracts is recorded as deferred revenue on the consolidated balance sheet.

As of ~~March 31,~~September 30, 2023, there was deferred revenue on extended warranty contracts of ~~$985,~~$1,121, comprised of ~~$164~~$193 expected to be recognized as revenue within one (1) year and classified as accrued expenses and other current liabilities on our consolidated balance sheet, and ~~$821~~$928 expected to be recognized as revenue over the remaining duration of the respective contracts and classified as other noncurrent liabilities on our consolidated balance sheet.

As of December 31, 2022, there was deferred revenue on extended warranty contracts of $682, comprised of $119 expected to be recognized as revenue within one (1) year and classified as accrued expenses and other current liabilities on our consolidated balance sheet, and $563 expected to be recognized as revenue over the remaining duration of the respective contracts and classified as other noncurrent liabilities on our consolidated balance sheet.

As of ~~March 31,~~September 30, 2023 and December 31, 2022, the Company had no other unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to 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.

We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes 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 includes 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.

The following tables disaggregate our business segment revenues by major source and geography.

¹Sales classified to U.S. include shipments to U.S.-based prime contractors which in some cases may serve non-U.S. projects.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This 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, changes in economic conditions including inflation and supply chain disruptions affecting our business, revenues and earnings adversely; the continued impact of COVID-19 causing delays in the manufacture and delivery of our mission critical products to end customers; our reliance on certain key customers; 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; the unique risks associated with our China operations; breaches in information systems security and other disruptions in our information technology systems; potential disruptions in our supply of raw materials and components; fluctuations in the price of oil and the resulting impact on the demand for downhole drilling; our ability to retain top management and key personnel; our resources being overwhelmed by our growth; possible future declines in demand for the products that use our batteries or communications systems; safety risks, including the risk of fire; variability in our quarterly and annual results and the price of our common stock; rising interest rates increasing the cost of our variable borrowings; purchases by our customers of product quantities not meeting the volume expectations in our supply agreements; potential costs attributable to the warranties we supply with our products and services; our inability to comply with changes to the regulations for the shipment of our products; our ability to utilize our net operating loss carryforwards; our entrance into new end-markets which could lead to additional financial exposure; negative publicity concerning Lithium-ion batteries; possible impairments of our goodwill and other intangible assets; 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; exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; known and unknown environmental matters; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; our ability to comply with government regulations regarding the use of “conflict minerals”; 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,” “may,” “will,” “should,” “would,” “could,” or words of similar import 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, 2022.

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 be placed on our forward-looking statements.~~ 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 in this report to reflect new information or risks, future events or other developments.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements and notes thereto in Part I, Item 1 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, 2022.

The financial information in this MD&A is presented in thousands of dollars, except for share and per share amounts, unless otherwise specified.

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 including: rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems and accessories, and custom engineered systems related to those product lines. We continually evaluate ways to grow, including the design, development and sale of new products, expansion of our sales force to penetrate new markets and territories, as well as seeking opportunities to expand through acquisitions.

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 foreign defense departments. We enjoy strong name recognition in our markets under our Ultralife® Batteries, Lithium Power®, McDowell Research®, AMTI^TM, ABLE^TM, ACCUTRONICS™, ACCUPRO™, ENTELLION™, SWE Southwest Electronic Energy Group™, SWE DRILL-DATA™, SWE SEASAFE™, Excell Battery ~~Group~~Group™ and Criterion ~~Gauge~~Gauge™ brands. We have sales, operations and product development facilities in North America, Europe and Asia.

We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes 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 includes 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 10 in the notes to consolidated financial statements.)

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.

The COVID-19 pandemic and other illnesses has caused and may continue to create significant economic and social disruption and uncertainty around the world, may impact the health of our employees, and that of our suppliers and customers causing delays in the manufacture and delivery of our mission critical products to end customers, and may disrupt business with our collaborative business partners and service providers, which may continue to adversely impact our operating results.As we enter the third year of the pandemic, our workforce, customers and vendors still face the risk of the emergence of new strains, availability of effective treatment, and potential regulatory and macroeconomic effects stemming from such impacts. Except for certain situations in China, lockdowns, shelter-in-place restrictions, and vaccine mandates, prevalent during the initial stages of the pandemic, have now been lifted for most companies. While we have maintained normal business operations at all our facilities with the exception of the well-publicized shutdowns in China which impacted our Shenzhen facility in the first quarter of 2022, the related supply chain disruptions including increased lead times on key components experienced within our business and by our customers and vendors, continue to impact our work schedules and timing of shipments. The lingering impact of these conditions on our business and financial results, potentially exacerbated by the emergence of new strains, is uncertain and will depend on many evolving factors which we continue to monitor but cannot predict. These factors include the resistance to treatments and current vaccinations, the duration and scope of any new pandemic variants, the resulting actions taken by governments, businesses and individuals, and the flow-through impact on operations and supply chains.

Consolidated revenues of ~~$31,916~~$39,488 for the three-month period ended ~~March 31,~~September 30, 2023, increased by ~~$1,543~~$6,254 or ~~5.1%~~18.8%, over ~~$30,373~~$33,234 for the three-month period ended ~~March 31,~~September 30, 2022, reflecting ~~an increase~~increases in government/defense sales of ~~24.7% partially offset by a 1.7% decline in~~48.1% and commercial ~~sales. During~~sales of 5.6%. Sales for our Battery & Energy Products segment increased 11.7% from $28,583 for the ~~first~~third quarter of 2022 to $31,919 for the third quarter of 2023, ~~the Company experienced a cybersecurity ransomware attack which impacted our ability to process orders, ship products, provide services to our customers~~ and ~~effectively manage our~~ sales ~~and operating planning process over a several-week period~~ for our Newark, NY location and an even longer period for our Virginia Beach, VA location. While production and shipping have been resumed in both locations, considerable time during the first quarter was devotedCommunications Systems segment increased 62.7% from $4,651 to data restoration, systems recovery, systems security augmentation, and regulatory reporting of the attack. Management continues to work on its cybersecurity insurance claim covering the cost of engaging external cybersecurity experts and the business interruption impact. The Company’s deductible for its cyber-insurance policy of $100 is included in first quarter results. No ransom was paid.$7,569.

Gross profit was ~~$7,436,~~$9,774, or ~~23.3%~~24.8% of revenue, for the three-month period ended ~~March 31,~~September 30, 2023, compared to ~~$6,958,~~$6,715, or ~~22.9%~~20.2% of revenue, for the same quarter a year ago. The ~~40-basis~~460-basis point improvement primarily resulted from higher factory volume ~~for our Communications Systems business~~leading to greater cost absorption, efficiencies associated with improved level-loading of production and price ~~realization, tempered by the inefficiencies associated with the cybersecurity attack, lingering supply chain disruptions and higher material costs across both business segments.~~realization.

Operating expenses increased to ~~$7,410~~$7,639 for the three-month period ended ~~March 31,~~September 30, 2023, compared to ~~$7,253~~$7,301 for the three-month period ended ~~March 31,~~September 30, 2022. The increase of ~~$157~~$338 or ~~2.2%~~4.6% was primarily attributable to higher variable compensation, including Officer and Executive Team bonuses and salesforce commissions, and insurance costs in the ~~recording of the $100 deductible on our cyber insurance policy for expenses incurred during the quarter and continued investment in new product development.~~2023 period. Operating expenses ~~were 23.2%~~represented 19.3% of ~~revenue~~revenues compared to ~~23.9%~~22.0% of ~~revenue~~revenues for the year-earlier period.

Operating income for the three-month period ended ~~March 31,~~September 30, 2023 was ~~$26,~~$2,135, or ~~0.01%~~5.4% of revenues, compared to ~~operating~~a loss of ~~$295, or (1.0%) of revenues,~~$586 for the year-earlier period. The increase in operating income ~~primarily~~ resulted from the ~~181.8% revenue~~18.8% increase ~~for our Communications Systems segment.~~in revenues leveraged by the 460-basis point improvement in gross margin and the 270-basis point improvement in operating expenses to revenues ratio.

Net ~~loss~~income attributable to Ultralife Corporation was ~~($346),~~$1,330 or ~~($0.02)~~$0.08 per share – basic and diluted on a GAAP basis, compared to a net loss of $239 or $0.01 per share – basic and diluted for the ~~three-month period ended March 31, 2023, compared to ($168) or ($0.01) per share –~~third quarter of 2022. Adjusted EPS was $0.10 - basic and diluted for the ~~three-month period ended March 31, 2022.~~third quarter of 2023, compared to a loss $0.03 - basic and diluted for the 2022 period. Adjusted EPS excludes the provision for deferred taxes of $357 which primarily represents non-cash charges for U.S. taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. See the section “Adjusted EPS” on Page 24 for a reconciliation of adjusted EPS to EPS.

Adjusted EBITDA, defined as net income (loss) attributable to Ultralife Corporation before 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 ~~$1,155,~~$3,480, or ~~3.6%~~8.8% of revenues, for the ~~first~~third quarter of 2023, compared to ~~$1,103,~~$1,255 or ~~3.6%~~3.8% of revenues, for the ~~first~~third quarter of 2022. See the section “Adjusted EBITDA” ~~beginning~~ on Page 1923 for a reconciliation of adjusted EBITDA to net income attributable to ~~Ultralife.~~Ultralife Corporation.

WeAs we close out 2023 with a strong backlog, we are ~~focused on fulfilling orders that were held back in the first quarter due~~well positioned to the cybersecurity attack and meeting increased demand from our medical and government/defense customers while satisfying ongoing demand from other commercial end markets, particularly oil and gas. Our goal for 2023 remains to deliver high-quality,continue profitable growth ~~through execution of operational improvements,~~ and to generate incremental ~~cash flow~~cashflow to ~~pay down~~reduce our acquisition ~~debt.~~ debt and further invest in our businesses, including new product development, strategic capital expenditures and accretive acquisitions.

Three-Month Periods Ended ~~March 31,~~September 30, 2023 and ~~March 31,~~September 30, 2022

Revenues. Consolidated revenues for the three-month period ended ~~March 31,~~September 30, 2023 were ~~$31,916,~~$39,488, an increase of ~~$1,543,~~$6,254, or ~~5.1%~~18.8%, over ~~$30,373~~$33,234 for the three-month period ended ~~March 31,~~September 30, 2022. Overall, government/defense sales increased ~~24.7%~~48.1% and commercial sales increased 5.6%.

Battery & Energy Products revenues increased $3,336, or 11.7%, from $28,583 for the three-month period ended September 30, 2022 to $31,919 for the three-month period ended September 30, 2023, reflecting increases of $1,272 or 5.6% in commercial sales and $2,064 or 36.2% in government/defense sales. The increase in commercial sales was driven by a $2,488 or 37.9% increase in medical sales reflecting an increased demand for our batteries used in ventilators, respirators, infusion pumps and other medical devices, partially offset by ~~1.7% decline~~a $1,216 or 7.5% decrease in industrial and other commercial ~~sales. During~~sales primarily attributable to 9-Volt and our new Thionyl Chloride and thin cell battery cells for which sales are expected to rebound in future periods based on the ~~first~~timing of purchase orders placed by our customers.

Communications Systems sales increased $2,918, or 62.7%, from $4,651 for the three-month period ended September 30, 2022 to $7,569 for the three-month period ended September 30, 2023. The increase was primarily attributable to shipments of vehicle-amplifier adaptor orders to a global defense contractor for the U.S. Army and of integrated systems of amplifiers and radio vehicle mounts to a major international defense contractor for an ongoing allied country government/defense modernization program.

Our total backlog at September 30, 2023 was $101,087 with approximately $35,100 due to ship over the remaining three months of 2023. Total backlog decreased $5,066 or 4.8% compared to the backlog of $106,153 for the same period in 2022 primarily due to the timing of certain expected orders.

Cost of Products Sold / Gross Profit. Cost of products sold totaled $29,714 for the quarter ended September 30, 2023, an increase of $3,195, or 12.0%, from the $26,519 reported for the same three-month period a year ago. Consolidated cost of products sold as a percentage of total revenue decreased from 79.8% for the three-month period ended September 30, 2022 to 75.2% for the three-month period ended September 30, 2023. Correspondingly, consolidated gross margin increased from 20.2% for the three-month period ended September 30, 2022, to 24.8% for the three-month period ended September 30, 2023, primarily reflecting higher factory volume leading to greater cost absorption, efficiencies associated with improved level-loading of production and price realization.

For our Battery & Energy Products segment, gross profit for the third quarter of 2023 was $7,728, an increase of $2,383 or 44.6% from gross profit of $5,345 for the third quarter of 2022. Battery & Energy Products’ gross margin of 24.2% increased by 550-basis points from the 18.7% gross margin for the year-earlier period, primarily reflecting higher factory volume, efficiencies resulting from improved level-lading of production across the quarter and improved price realization.

For our Communications Systems segment, gross profit for the third quarter of 2023 was $2,046 or 27.0% of revenues, compared to gross profit of $1,370 or 29.5% of revenues for the third quarter of 2022. The 250-basis point decrease in gross margin was primarily due to inefficiencies caused by component delivery delays from certain vendors and sales product mix, partially offset by the higher factory volume.

Operating Expense. Overall, operating expenses were 19.3% of revenue for the quarter ended September 30, 2023, compared to 22.0% of revenue for the quarter ended September 30, 2022. Amortization expense associated with intangible assets related to our acquisitions was $227 for the third quarter of 2023 ($203 in selling, general and administrative expenses and $24 in research and development costs), compared with $318 for the third quarter of 2022 ($295 in selling, general, and administrative expenses and $23 in research and development costs). Research and development costs were $1,869 for the three-month period ended September 30, 2023, a decrease of $27 or 1.4%, from $1,896 for the three-months ended September 30, 2022. Selling, general, and administrative expenses were $5,770 for the three-month period ended September 30, 2023, an increase of $365 or 6.8% over the $5,405 for the three-month period ended September 30, 2022, primarily reflecting higher variable compensation, including Officer and Executive Team bonuses and salesforce commissions, and insurance costs.

Other (Expense) Income. Other expense totaled $386 for the three-month period ended September 30, 2023, compared to income totaling $254 for the three-month period ended September 30, 2022. Interest and financing expense increased $314, or 115.4%, from $272 for the third quarter of 2022 to $586 for the comparable period in 2023. The increase is primarily due to the financing of our acquisition of Excell in December 2021, working capital funding resulting from the January 2023 cyberattack and rising interest rates. Miscellaneous income amounted to $200 for the third quarter of 2023 compared to $526 for the third quarter of 2022, primarily attributable to foreign exchange gains due to fluctuations in foreign currency exchange rates.

Income Taxes. The income tax provision for the 2023 third quarter was $446, compared to an income tax benefit of $90 for the third quarter of 2022. Our effective tax rate decreased to 25.5% for the third quarter of 2023 as compared to 27.1% for the third quarter of 2022, primarily attributable to the geographic mix of our operating results. The income tax provision for the third quarter of 2023 is comprised of an $89 current provision for taxes expected to be paid on income primarily in foreign jurisdictions, representing a cash-based effective tax rate of 5.1%, and a $357 deferred tax provision which primarily represents non-cash charges for U.S. taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. For the comparable 2022 period, the income tax benefit was comprised of a $218 current tax provision and a $308 deferred tax benefit. The period over period change in the cash-based current tax provisions is primarily attributable to the geographic mix of our operating results. See Note 6 to the consolidated financial statements in Item 1 of Part I of this Form 10-Q for additional information regarding our income taxes.

Net Income (Loss) Attributable to Ultralife. Net income attributable to Ultralife was $1,330, or $0.08 per share – basic and diluted on a GAAP basis for the three-month period ended September 30, 2023, compared to a net loss of $239, or $0.01 per share – basic and diluted, for the three-month period ended September 30, 2022. Adjusted EPS was $0.10 on a diluted basis for the third quarter of 2023, compared to ($0.03) for the third quarter of 2022. Adjusted EPS excludes the provision (benefit) for deferred taxes of $357 and ($308) for the 2023 and 2022 periods, respectively, which primarily represent non-cash charges (benefits) for U.S. taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. See the section “Adjusted EPS” on Page 24 for a reconciliation of adjusted EPS to EPS.

Weighted average shares outstanding used to compute diluted earnings per share increased from 16,133,069 for the third quarter of 2022 to 16,303,139 for the third quarter of 2023. The increase is attributable to stock option exercises since the third quarter of 2022 and a greater average stock price in the current quarter. Accordingly, dilutive shares of 65,275 were added to basic weighted average shares for the 2023 period compared to none for the 2022 period due to the net loss for that period.

Revenues. Consolidated revenues for the nine-month period ended September 30, 2023 were $114,096, an increase of $18,363, or 19.2%, over $95,733 for the nine-month period ended September 30, 2022. Overall, government/defense sales increased $15,198 or 59.4% and commercial sales increased $3,165 or 4.5%. On January 25, 2023, the Company experienced a ~~cybersecurity~~ ransomware ~~attack~~cyberattack which impacted our ability to process orders, ship products, provide services to our customers and effectively manage our sales and operating planning process over a several week period for our Newark, NY location and an even longer period for our Virginia Beach, VA location. A large portion of our time during the quarter was devoted to data restoration, systems security augmentation, and regulatory reporting of the ~~attack,~~cyberattack, all of which were successfully accomplished with no ransom paid. Management continues to work on its cybersecurity insurance claim covering the cost of engaging external cybersecurity experts and the business interruption impact.

Battery & Energy Products revenues ~~decreased $680,~~increased $6,377, or ~~2.3%~~7.3%, from ~~$29,150~~$87,873 for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2022 to ~~$28,470~~$94,250 for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023. The ~~decrease~~increase was ~~primarily~~ attributable to a $3,165 or 4.5% increase in commercial sales and a $3,212 or 18.1% increase in government/defense sales. The increase in commercial sales was driven by a $3,428 or 12.4% increase in oil & gas sales reflecting the ~~impact of~~rebound in the ~~cybersecurity attack, which was reflected in~~energy sector and a ~~decline~~$3,085 or 14.2% increase in medical battery sales ~~and government sales of 18.5% and 4.7%, respectively, compared~~due to the ~~year earlier period.~~high demand for our batteries used in ventilators, respirators, infusion pumps and other medical devices. These ~~declines~~increases in commercial sales were partially offset by a ~~21.3% increase~~$3,348 or 16.2% decrease in ~~oil & gas~~industrial and other commercial market ~~sales.~~ sales primarily due to timing of demand for 9-Volt and our new Thionyl Chloride and thin cell battery cells which are expected to rebound in future periods.

Communications Systems ~~sales~~revenues increased ~~$2,223,~~$11,986, or ~~181.8%~~152.5%, from ~~$1,223~~$7,860 for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2022 to ~~$3,446~~$19,846 for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023. ~~The cybersecurity event negatively impacted 2023 first quarter sales of Communication Systems by approximately $2,000.~~

~~Communications Systems sales increased $2,223, or 181.8%, from $1,223 for the three-month period ended March 31, 2022 to $3,446 for the three-month period ended March 31, 2023. The~~This increase was primarily ~~related~~attributable to shipments ~~under a~~of vehicle-amplifier adaptor ~~order with~~orders to a global defense contractor ~~received in July 2022, partially offset by the impact of the cybersecurity attack.~~

~~Our total backlog at March 31, 2023 was $108.1 million, with $96.1 million due to ship over the remaining nine months of 2023 representing a 30.2% increase over the comparable $73.8 million~~ for the ~~same period last year. Total backlog decreased $2.9 million or 2.6% compared~~U.S. Army and of integrated systems of amplifiers and radio vehicle mounts to ~~the backlog of $111.0 million at December 31, 2022, which was the highest in the Company’s history.~~ a major international defense contractor for an ongoing allied country government/defense modernization program.

Cost of Products Sold / Gross Profit. Cost of products sold totaled ~~$24,480~~$86,298 for the ~~quarter~~nine-month period ended ~~March 31,~~September 30, 2023, an increase of ~~$1,065,~~$11,884, or ~~4.5%~~16.0%, from the ~~$23,415~~$74,414 reported for the same ~~three-month~~nine-month period a year ago. Consolidated cost of products sold as a percentage of total revenue decreased from ~~77.1%~~77.7% for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2022 to ~~76.7%~~75.6% for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023. Correspondingly, consolidated gross margin increased from ~~22.9%~~22.3% for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2022, to ~~23.3%~~24.4% for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023, primarily reflecting higher factory volume and favorable product mix for our Communications Systems ~~business,~~segment, tempered by the inefficiencies ~~associated with~~experienced at our Newark, NY and Virginia Beach, VA facilities resulting from the cybersecurity event, lingering supply chain disruptions and higher material costs in advance of price realization from customers across both business segments and the transition of new products to higher volume production for our Battery & Energy Products segment.January 2023 cyberattack.

For our Battery & Energy Products segment, gross profit for the first ~~quarter~~nine months of 2023 was ~~$6,512, a decrease~~$21,783 an increase of ~~$209~~$2,566 or ~~3.1% from~~13.4% over gross profit of ~~$6,721~~$19,217 for the ~~first quarter of 2022.~~comparable 2022 period. Battery & Energy Products’ gross margin of ~~22.9% decreased~~23.1% increased by ~~20-basis~~120 basis points from the ~~23.1%~~21.9% gross margin for the year-earlier period, primarily reflecting higher factory volume, more level-loaded production driving utilization and price realization, partially offset by lingering supply chain disruptions, inefficiencies resulting from the ~~cybersecurity attack as well as lingering supply chain disruptions, higher material and logistics costs,~~January 2023 cyberattack, disposition of certain non-conforming materials and continued investments in the transition of new products to high volume ~~production, partially offset by improved price realization.~~production.

For our Communications Systems segment, gross profit for the first ~~quarter~~nine months of 2023 was ~~$924~~$6,015 or ~~26.8%~~30.3% of revenues, compared to gross profit of ~~$237~~$2,102 or ~~19.4%~~26.7% of revenues, for the ~~first quarter of 2022.~~comparable 2022 period. The ~~740-basis point~~ increase ~~in gross margin~~ was primarily due to higher factory volume ~~partially offset by inefficiencies resulting from the cybersecurity attack.~~and favorable product mix compared to last year’s nine-month period.

Operating Expenses. Operating expenses for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023 were ~~$7,410,~~$21,972, an increase of ~~$157~~$565 or ~~2.2%~~2.6% from the ~~$7,253~~$21,407 for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2022. The increase is primarily attributable to increased new product development investments, the recording of the $100 deductible on our ~~cyber~~cybersecurity insurance policy for expenses incurred ~~during~~associated with the ~~quarter~~January 2023 cyberattack and ~~continued investment in new product development.~~higher variable compensation, including Officer and Executive Team bonuses and salesforce commissions, and insurance costs. Both periods reflected continued tight control over discretionary spending.

Overall, operating expenses as a percentage of revenues were ~~23.2% of revenue~~19.3% for the ~~quarter~~nine-month period ended ~~March 31,~~September 30, 2023, compared to ~~23.9% of revenue~~22.4% for the ~~quarter~~nine-month period ended ~~March 31,~~September 30, 2022. Amortization expense associated with intangible assets related to our acquisitions was ~~$209~~$663 for the first ~~quarter~~nine months of 2023 ($~~185~~591 in selling, general and administrative expenses and ~~$24~~$72 in research and development costs), compared with ~~$328~~$969 for the first ~~quarter~~nine months of 2022 ($~~302~~895 in selling, general, and administrative expenses and ~~$26~~$74 in research and development costs). Research and development costs were ~~$2,032~~$5,679 for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023, an increase of ~~$175~~$254 or ~~9.4%~~4.7%, from ~~$1,857~~$5,425 for the ~~three-months~~nine-months ended ~~March 31,~~September 30, 2022. The increase is largely attributable to an increase in new product development in our Communications Systems business to ~~aggressively~~ pursue both government/defense major programs and commercial opportunities. Selling, general, and administrative expenses were ~~essentially flat year over year, decreasing from $5,378~~$16,293 for the ~~first quarter~~2023 nine-month period, an increase of ~~2023 from $5,396~~$311 or 1.9% over the $15,982 for the ~~first quarter of 2022. The 2023 first quarter amount includes recognition of the $100 deductible associated with our cyber~~year-earlier period, primarily reflecting higher variable compensation, including Officer and Executive Team bonuses and salesforce commissions, and insurance ~~policy.~~costs.

Other ~~Expense.~~Income (Expense). Other ~~expense~~income totaled ~~$494~~$178 for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023, compared to ~~$117~~other income of $22 for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2022. Other income for the 2023 period includes an Employee Retention Credit for $1,544 under Section 2301 of the Coronavirus Aid, Relief and Economic Security Act which was filed with the Internal Revenue Service during the second quarter of 2023. Interest and financing expense increased ~~$290,~~$867, or ~~216.4%~~148.7%, from ~~$134~~$583 for the first ~~quarter~~nine months of 2022 to ~~$424~~$1,450 for the comparable period in 2023. The increase is primarily due to the financing of our acquisition of Excell in December 2021, working capital funding resulting from our January 2023 cyberattack and rising interest rates. ~~Miscellaneous~~Excluding the ERC gain in the 2023 period, miscellaneous income ~~(expense)~~ amounted to ~~($70)~~$84 for the ~~first quarter of~~ 2023 period compared to ~~$17~~$605 for the ~~first quarter of~~ 2022 period, primarily attributable to foreign exchange gains and loss due to fluctuations in foreign currency exchange rates.

Income Taxes. ~~For~~The income tax provision for the ~~three-month~~2023 nine-month period ~~ended March 31, 2023, Ultralife recognized~~was $1,688, compared to an income tax benefit of ~~$133, comprised of a current provision of $257 and deferred benefit of $390, compared to a benefit of $251 comprised of a current provision of $151 and deferred benefit of $402~~$171 for the ~~three-month period ended March 31, 2022.~~2022 nine-month period. Our effective tax rate ~~was 28.4%~~decreased to 28.1% for the 2023 period as compared to 259.1% for the 2022 period, primarily attributable to the magnitude of our income reported in the first nine-months of 2023, including the Employee Retention Credit, and the geographic mix of our operating results. The income tax provision for the first ~~quarter~~nine months of 2023 ~~as compared~~is comprised of a $443 current provision for taxes expected to ~~60.9%~~be paid on income primarily in foreign jurisdictions, representing a cash-based effective tax rate of 7.4%, and an $1,245 deferred tax provision which primarily represents non-cash charges for U.S. taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the ~~first quarter~~foreseeable future. For the comparable 2022 period, the income tax benefit was comprised of ~~2022,~~a $512 current tax provision and a $683 deferred tax benefit. The period over period change in the cash-based taxes is primarily attributable to the geographic mix of our operating ~~results and the larger impact of discrete adjustments in the prior year.~~results. See Note 6 to the consolidated financial statements in Item 1 of Part I of this Form 10-Q for additional information regarding our income taxes.

~~Loss~~Net Income Attributable to Ultralife. Net ~~loss~~income attributable to Ultralife was ~~($346),~~$4,324, or ~~($0.02)~~$0.27 per share – basic and diluted on a GAAP basis for the nine-month period ended September 30, 2023, compared to $105, or $0.01 per share – basic and diluted, for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2022. Adjusted EPS was $0.34 on a diluted basis for the 2023 period, compared to ($~~168), or ($0.01) per share – basic and diluted,~~0.04) for the ~~three-month period ended March 31, 2022.~~ 2022 period. Adjusted EPS excludes the provision (benefit) for deferred taxes of $1,245 and ($683) for the 2023 and 2022 periods, respectively, which primarily represents non-cash charges (benefits) for U.S. taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. See the section “Adjusted EPS” on Page 24 for a reconciliation of adjusted EPS to EPS.

Weighted average shares outstanding used to compute ~~basic and~~ diluted earnings per share ~~increased~~decreased from ~~16,103,599~~16,144,165 for the first ~~quarter~~nine-months of 2022 to ~~16,135,358~~16,174,341 for the first ~~quarter~~nine-months of 2023. The increase is attributable to ~~the exercise of~~ stock ~~options and the vesting of restricted stock~~option exercises since the ~~first~~third quarter of 2022. ~~There was no dilutive effect~~Accordingly diluted shares of ~~outstanding stock awards~~2,441 were added to basic weighted average shares in 2023 compared to 22,203 for the ~~first quarters of~~ 2022 ~~and 2023 due to the net loss recognized for these periods.~~period.

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 Corporation before interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expense/income that we do not consider reflective of our ongoing continuing operations. We also use adjusted EBITDA as a supplemental measure to review and assess our operating performance and to enhance comparability between periods. We 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 (loss) attributable to Ultralife Corporation, the most comparable financial measure under GAAP.

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 (loss). We believe that adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while eliminating 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 (loss), 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 Corporation or other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include, but are not limited to, the following:

We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA only on a supplemental basis. 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 loss attributable to ~~Ultralife.~~Ultralife Corporation.

In evaluating our business, we consider and use adjusted EPS, a non-GAAP financial measure, as a supplemental measure of our business performance. 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 tax provision that will be predominantly offset by our U.S. net operating loss 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 attributable to Ultralife Corporation.

As of ~~March 31,~~September 30, 2023, cash totaled ~~$5,605~~$9,301 (including restricted cash of ~~$81)~~$78), ~~a decrease~~an increase of ~~$108~~$3,588 as compared to $5,713 of cash held at December 31, 2022, primarily attributable to ~~the cybersecurity attack experienced~~draws on our credit facility and net income generated during the ~~quarter and the procurement of inventory amidst challenging supply chain conditions.~~period.

During the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023, cash used in our operations was ~~$1,365~~$503, as compared to ~~$3,222~~$3,827 used in operations for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2022. For the 2023 period, cash ~~used~~provided by our operations was comprised of ~~a $335~~ net ~~loss and a $1,766 increase in net working capital, partially offset by~~income of $4,316 plus non-cash items totaling ~~$736~~$4,662 for depreciation, amortization, stock-based compensation, and deferred ~~taxes.~~taxes, largely offset by a $9,481 increase in net working capital. The increase in working capital was driven by ~~a $6,026 increase in inventory attributable to~~ the ~~cybersecurity attack as well as~~ procurement of inventory to proactively manage our supply chain, reduce lead times and the impact of potential cost increases on components and raw materials, and enhance our position to service customer orders, ~~partially offset by~~as well as the ~~timing~~effects of ~~cash collections and disbursements.~~the January 2023 cyberattack.

Cash used in investing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 was ~~$497~~$1,547 for capital expenditures, primarily reflecting investments in equipment for new products transitioning to high-volume manufacturing.

Cash provided by financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 was ~~$1,800,~~$5,791, largely attributable to draws on our credit facility primarily ~~caused by the sales impact of the cybersecurity attack as well as the~~attributable to advance ~~purchase~~purchases of certain critical raw materials, partially offset by ~~$500 of~~ principle payments on our term loan during the ~~quarter.~~period, plus cash proceeds of $1,041 on stock option exercises under our stock-based compensation plans.

We continue to have significant U.S. net operating loss carryforwards available to utilize as an offset to future taxable income. See Note 6 to the consolidated financial statements of this Form 10-Q for additional information.

Going forward, we expect positive operating cash flow and the availability under our Revolving Credit Facility will be sufficient to meet our general funding requirements for the foreseeable future.

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 ~~March 31,~~September 30, 2023, the Company had ~~$15,630~~$19,580 outstanding borrowings on the Revolving Credit Facility and ~~$7,667~~$6,667 on the Term Loan Facility. The Company was in full compliance with all covenants under the Credit Facilities as of ~~March 31,~~September 30, 2023.

As of ~~March 31,~~September 30, 2023, we had made commitments to purchase approximately ~~$873~~$925 of production machinery and equipment.

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 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 to the consolidated financial statements in our 2022 Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q should be reviewed for a greater understanding of how our financial performance is recorded and reported.

During the first ~~quarter~~nine months of 2023, 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.~~developed, other than as described in Note 1 to the consolidated financial statements in Item 1 of Part I of this Form 10-Q.

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.

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.

Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of ~~March 31,~~September 30, 2023 and December 31, 2022, (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three and nine months ended ~~March 31,~~September 30, 2023 and 2022, (iii) Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 and 2022, (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended ~~March 31,~~September 30, 2023 and 2022, and (v) Notes to Consolidated Financial Statements.

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.

	Three-month period ended						Nine-month period ended
	March 31, 2023			March 31, 2022			September 30, 2023			September 30, 2022
OPERATING ACTIVITIES:
Net loss	$	(335	)	$	(161	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Net income							$	4,316		$	105
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		762			816			2,282			2,450
Amortization of intangible assets		209			328			663			969
Amortization of financing fees		16			7			48			25
Stock-based compensation		139			189			424			552
Deferred income taxes		(390	)		(402	)		1,245			(683	)
Changes in operating assets and liabilities:
Accounts receivable		3,365			(2,724	)		565			(7,433	)
Inventories		(6,026	)		(3,274	)		(5,626	)		(8,714	)
Prepaid expenses and other assets		639			977			(1,972	)		(1,004	)
Accounts payable and other liabilities		256			1,022			(2,448	)		9,906
Net cash used in operating activities		(1,365	)		(3,222	)		(503	)		(3,827	)

INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(497	)		(371	)		(1,547	)		(1,396	)
Net cash used in investing activities		(497	)		(371	)		(1,547	)		(1,396	)

FINANCING ACTIVITIES:
Borrowings on revolving credit facility		2,300			1,450			6,250			3,350
Payments on term loan facility		(500	)		(333	)		(1,500	)		(1,333	)
Proceeds from exercise of stock options		-			113			1,041			116
Payment of debt issuance costs								-			(25	)
Tax withholdings on stock-based awards		-			(7	)		-			(11	)
Net cash provided by financing activities		1,800			1,223			5,791			2,097

Effect of exchange rate changes on cash		(46	)		7			(153	)		(236	)

DECREASE IN CASH		(108	)		(2,363	)
INCREASE (DECREASE) IN CASH								3,588			(3,362	)

Cash, Beginning of period		5,713			8,413			5,713			8,413
Cash, End of period	$	5,605		$	6,050		$	9,301		$	5,051

	March 31,		December 31,
	2023		2022		September 30, 2023		December 31, 2022
Raw materials	$	32,960	$	29,200	$	31,516	$	29,200
Work in process		4,594		2,757		4,342		2,757
Finished goods		9,757		9,235		10,776		9,235
Total	$	47,311	$	41,192	$	46,634	$	41,192

	March 31,			December 31,
	2023			2022
Land	$	1,273		$	1,273
Buildings and leasehold improvements		15,605			15,572
Machinery and equipment		64,132			63,981
Furniture and fixtures		2,825			2,845
Computer hardware and software		7,687			7,744
Construction in process		1,642			1,245
		93,164			92,660
Less: Accumulated depreciation		(71,752	)		(70,944	)
Property, plant and equipment, net	$	21,412		$	21,716

	September 30, 2023			December 31, 2022
Land	$	1,273		$	1,273
Buildings and leasehold improvements		15,934			15,572
Machinery and equipment		57,164			63,981
Furniture and fixtures		2,822			2,845
Computer hardware and software		7,807			7,744
Construction in process		1,709			1,245
		86,709			92,660
Less: Accumulated depreciation		(65,543	)		(70,944	)
Property, plant and equipment, net	$	21,166		$	21,716

	Battery &
	Energy		Communications
	Products		Systems		Total		Battery & Energy Products			Communications Systems		Total
Balance – December 31, 2022	$	25,935	$	11,493	$	37,428	$	25,935		$	11,493	$	37,428
Effect of foreign currency translation		90		-		90		(71	)		-		(71	)
Balance – March 31, 2023	$	26,025	$	11,493	$	37,518
Balance – September 30, 2023							$	25,864		$	11,493	$	37,357

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

	at March 31, 2023
			Accumulated				at September 30, 2023
	Cost		Amortization		Net		Cost		Accumulated Amortization		Net
Customer relationships	$	13,021	$	6,166	$	6,855	$	12,989	$	6,451	$	6,538
Patents and technology		5,577		5,214		363		5,564		5,260		304
Trade names		4,637		555		4,082		4,632		607		4,025
Trademarks		3,405		-		3,405		3,399		-		3,399
Other		1,500		458		1,042		1,500		496		1,004
Total other intangible assets	$	28,140	$	12,393	$	15,747	$	28,084	$	12,814	$	15,270

	at December 31, 2022
			Accumulated
	Cost		Amortization		Net
Customer relationships	$	12,970	$	5,992	$	6,978
Patents and technology		5,557		5,171		386
Trade names		4,629		522		4,107
Trademarks		3,404		-		3,404
Other		1,500		454		1,046
Total other intangible assets	$	28,060	$	12,139	$	15,921

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value		Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2023		1,425,693		$	6.72						1,425,693		$	6.72
Granted		12,500			4.07						12,500		$	4.07
Exercised		-			-						(204,891	)	$	5.71
Forfeited or expired		(17,582	)	$	7.57						(144,690	)	$	5.01
Outstanding at March 31, 2023		1,420,611		$	6.69		3.58	$	0
Vested and expected to vest at March 31, 2023		1,295,019		$	6.75		3.40	$	0
Exercisable at March 31, 2023		911,553		$	7.09		2.29	$	0
Outstanding at September 30, 2023											1,088,612		$	7.11		3.54	$	2,898
Vested and expected to vest at September 30, 2023											1,009,489		$	7.20		3.37	$	2,598
Exercisable at September 30, 2023											703,529		$	7.79		2.36	$	1,402

	Three-month period ended March 31,
	2023		2022
Operating lease cost	$	241	$	233
Variable lease cost		28		24
Total lease cost	$	269	$	257

	Three months ended				Nine months ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Operating lease cost	$	252	$	216	$	732	$	674
Variable lease cost		28		22		85		69
Total lease cost	$	280		238	$	817	$	743

	Three-month period ended March 31,				Nine-month period ended September 30,
	2023		2022		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	226	$	227
Operating cash flows used in operating leases					$	762	$	676
Right-of-use assets obtained in exchange for lease liabilities:	$	-	$	-	$	310	$	-

	Balance sheet classification	March 31, 2023			December 31, 2022			Balance sheet classification	September 30, 2023			December 31, 2022
Assets:
Operating lease right-of-use asset	Other noncurrent assets	$	2,039		$	2,187		Other noncurrent assets	$	1,914		$	2,187

Liabilities:
Current operating lease liability	Accrued expenses and other current liabilities	$	906		$	895		Accrued expenses and other current liabilities	$	793		$	895
Operating lease liability, net of current portion	Other noncurrent liabilities		1,130			1,307		Other noncurrent liabilities		1,087			1,307
Total operating lease liability	Total operating lease liability	$	2,036		$	2,202		Total operating lease liability	$	1,880		$	2,202

Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)		4.7			4.7		Weighted-average remaining lease term (years)		4.5			4.7

Weighted-average discount rate	Weighted-average discount rate		4.5	%		4.5	%	Weighted-average discount rate		4.5	%		4.5	%

Maturity of operating lease liabilities
2023		697		$	258
2024		519			642
2025		215			306
2026		217			241
2027		217			217
Thereafter		426			426
Total lease payments		2,291			2,090
Less: Imputed interest		(255	)		(210	)
Present value of remaining lease payments	$	2,036		$	1,880

	Battery & Energy Products		Communications Systems		Corporate			Total			Battery & Energy Products		Communications Systems		Corporate			Total
Revenues	$	28,470	$	3,446	$	-		$	31,916		$	31,919	$	7,569	$	-		$	39,488
Segment contribution		6,512		924		(7,410	)		26			7,728		2,046		(7,639	)		2,135
Other expense						(494	)		(494	)						(386	)		(386	)
Tax benefit						133			133
Income tax provision																(446	)		(446	)
Non-controlling interest						(11	)		(11	)						27			27
Net loss attributable to Ultralife								$	(346	)
Net income attributable to Ultralife																		$	1,330

	Total Revenue		Commercial			Government/ Defense			Total Revenue		Commercial			Government/ Defense
Battery & Energy Products	$	28,470	$	22,219		$	6,251		$	31,919	$	24,150		$	7,769
Communications Systems		3,446		-			3,446			7,569		-			7,569
Total	$	31,916	$	22,219		$	9,697		$	39,488	$	24,150		$	15,338
				70	%		30	%				61	%		39	%

	Total Revenue		United States			Non-United States			Total Revenue		United States			Non-United States
Battery & Energy Products	$	28,470	$	13,768		$	14,702		$	31,919	$	15,926		$	15,993
Communications Systems		3,446		2,877			569			7,569		4,348			3,221
Total	$	31,916	$	16,645		$	15,271		$	39,488	$	20,274		$	19,214
				52	%		48	%				51	%		49	%

	Three-month period ended						Three-Month Period Ended					Nine-Month Period Ended
	March 31,			March 31,			September 30, 2023		September 30, 2022			September 30, 2023		September 30, 2022
	2023			2022

Net loss attributable to Ultralife	$	(346	)	$	(168	)
Add:
Net income (loss) attributable to Ultralife Corporation							$	1,330	$	(239	)	$	4,324	$	105
Adjustments:
Interest expense		424			134			586		272			1,450		583
Income tax benefit provision		(133	)		(251	)
Income tax provision (benefit)								446		(90	)		1,688		(171	)
Depreciation expense		762			816			760		815			2,282		2,450
Amortization of intangible assets		209			328
Amortization expense								227		318			663		969
Stock-based compensation expense		139			189			131		179			424		552
Cyber insurance deductible		100			-
Cybersecurity insurance policy deductible								-		-			100		-
Non-cash purchase accounting adjustments		-			55			-		-			-		55
Adjusted EBITDA	$	1,155		$	1,103		$	3,480	$	1,255		$	10,931	$	4,543

Exhibit Index	Exhibit Description	Incorporated by Reference from
31.1	Rule 13a-14(a) / 15d-14(a) CEO Certifications	Filed herewith
31.2	Rule 13a-14(a) / 15d-14(a) CFO Certifications	Filed herewith
32	Section 1350 Certifications	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

				ULTRALIFE CORPORATION
			(Registrant)

Date: ~~May 4,~~October 26, 2023	By:	/s/	Michael E. Manna
				Michael E. Manna
				President and Chief Executive Officer
				(Principal Executive Officer)


Date: ~~May 4,~~October 26, 2023	By:	/s/	Philip A. Fain
				Philip A. Fain
				Chief Financial Officer and Treasurer
				(Principal Financial Officer and
				Principal Accounting Officer)