SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to
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Commission file number 0-20852
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ULTRALIFE BATTERIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 16-1387013
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2000 Technology Parkway, Newark, New York 14513
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(Address of principal executive offices)
(Zip Code)
(315) 332-7100
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes..X... No.....
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.10 par value - 10,864,476 shares outstanding as of
January 31, 2000.
ULTRALIFE BATTERIES, INC.
INDEX
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1999 and June 30, 1999................................3
Condensed Consolidated Statements of Operations -
Three and six months ended December 31, 1999 and 1998..............4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1999 and 1998........................5
Notes to Condensed Consolidated Financial Statements.................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................10
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................................14
Item 4. Submission of Matters to a Vote of Security Holders.................15
Item 6. Exhibits and Reports on Form 8-K....................................15
SIGNATURES....................................................................16
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
- -------------------------------------------------------------------------------------------------------------------------
December 31,
1999 June 30,
ASSETS (Unaudited) 1999
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Current assets:
Cash and cash equivalents $ 2,213 $ 776
Available-for-sale securities 15,650 22,780
Trade accounts receivable (less allowance for doubtful accounts
of $446 at December 31, 1999 and $429 at June 30, 1999) 3,076 3,554
Inventories 6,753 5,018
Prepaid expenses and other current assets 1,709 2,112
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Total current assets 29,401 34,240
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Property and equipment:
Machinery and equipment 34,332 32,662
Leasehold improvements 4,771 4,741
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39,103 37,403
Less - Accumulated depreciation and amortization 6,612 5,626
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32,491 31,777
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Other assets and deferred charges:
Investment in affiliates 2,974 --
Technology license agreements and other (net of accumulated
amortization of $1,018 at December 31, 1999 and $968 at June 30, 1999,
respectively) 433 403
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3,407 403
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Total Assets $ 65,299 $ 66,420
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 218 $ 107
Accounts payable 2,965 3,847
Accrued compensation 485 653
Other current liabilities 2,086 1,198
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Total current liabilities 5,754 5,805
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Long-term liabilities:
Long-term debt and capital lease obligations 489 215
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Total long-term liabilities 489 215
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Commitments and contingencies (Note 5)
Stockholders' equity :
Preferred stock, par value $0.10 per share, authorized 1,000,000 shares- none outstanding -- --
Common stock, par value $0.10 per share, authorized - 20,000,000 shares; issued - 11,212,386
at December 31, 1999 and 10,512,386 at June 30, 1999 1,121 1,051
Capital in excess of par value 96,773 93,605
Accumulated other comprehensive income 600 267
Accumulated deficit (39,135) (34,220)
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59,359 60,703
Less -- Treasury stock, at cost -- 27,250 shares (303) (303)
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Total stockholders' equity 59,056 60,400
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Total Liabilities and Stockholders' Equity $ 65,299 $ 66,420
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The accompanying notes are an integral part of the financial statements.
3
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
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Three Months Ended December 31, Six Months Ended December 31,
1999 1998 1999 1998
---- ---- ---- ----
Revenues $ 6,677 $ 5,160 $ 12,902 $ 9,382
Cost of products sold 6,375 4,503 12,181 8,437
-------- -------- -------- --------
Gross profit 302 657 721 945
Operating and other expenses:
Research and development 1,066 1,600 2,158 3,428
Selling, general, and administrative 2,269 1,348 3,760 2,648
Gain on fires -- (949) -- (1,417)
-------- -------- -------- --------
Total operating and other expenses 3,335 1,999 5,918 4,659
Other income (expense):
Interest income 160 361 465 810
Miscellaneous (116) (24) (183) (31)
-------- -------- -------- --------
Loss before income taxes (2,989) (1,005) (4,915) (2,935)
-------- -------- -------- --------
Income taxes -- -- -- --
-------- -------- -------- --------
Net loss (2,989) (1,005) (4,915) (2,935)
Comprehensive income (loss) 800 (608) 333 (1,098)
-------- -------- -------- --------
Net comprehensive loss $ (2,189) $ (1,613) $ (4,582) $ (4,033)
======== ======== ======== ========
Net loss per common share $ (0.28) $ (0.10) $ (0.45) $ (0.28)
======== ======== ======== ========
Weighted average shares outstanding 10,861 10,485 10,808 10,485
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
4
ULTRALIFE BATTERIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
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Six Months Ended December 31,
1999 1998
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OPERATING ACTIVITIES
Net loss $ (4,915) $ (2,935)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 1,036 1,119
Equity in loss of Taiwan venture 182 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 478 (15)
Increase in inventories (1,735) (224)
Decrease (increase) in prepaid expenses
and other current assets 403 (301)
Decrease in accounts payable
and other current liabilities (162) (1,189)
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Net cash used in operating activities (4,713) (3,545)
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INVESTING ACTIVITIES
Purchase of property and equipment (1,700) (2,148)
Investment in affiliates (3,238) --
Purchase of securities (23,141) (52,126)
Sales of securities 13,896 43,576
Maturities of securities 16,731 15,884
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Net cash provided by investing activities 2,548 5,186
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FINANCING ACTIVITIES
Proceeds from issuance of common stock 3,238 --
Proceeds from issuance of debt 423 --
Principal payments under capital lease obligations (38) --
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Net cash provided by financing activities 3,623 --
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Effect of exchange rate changes on cash (21) (98)
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Increase in cash and cash equivalents 1,437 1,543
Cash and cash equivalents at beginning of period 776 872
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Cash and cash equivalents at end of period $ 2,213 $ 2,415
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Unrealized (loss) gain on securities $ 354 $ (1,000)
======== ========
The accompanying notes are an integral part of the financial statements.
5
ULTRALIFE BATTERIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, which are of a normal
recurring nature, necessary to present fairly the financial position at December
31, 1999 and the results of operations and cash flows for the three and six
month periods ended December 31, 1999 and 1998. The results for the three and
six months ended December 31, 1999 are not necessarily indicative of the results
to be expected for the entire year. The financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the Company's financial statements for the year
ended June 30, 1999, filed on Form 10-K on September 28, 1999.
2. NET LOSS PER SHARE
Net loss per share is calculated by dividing net loss by the weighted
average number of common shares outstanding during the period. Common stock
options have not been included since their inclusion would be antidilutive.
3. INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
under the first-in, first-out (FIFO) method. The composition of inventories was:
(Dollars in thousands)
December 31, 1999 June 30, 1999
----------------------------------------
Raw materials $3,051 $2,984
Work in process 2,894 2,080
Finished products 1,173 249
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7,118 5,313
Less: Reserve for obsolescence 365 295
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$6,753 $5,018
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4. TAIWAN VENTURE
In December 1998, the Company announced the formation of a venture with
PGT Energy Corporation (PGT), together with a group of investors, to produce
Ultralife's rechargeable polymer batteries in Taiwan. In consideration of its
ownership interest in the venture, Ultralife contributed to Ultralife Taiwan,
Inc. (UTI), its proprietary technology and, in July 1999, issued 700,000 shares
of Ultralife common stock. Ultralife holds half the seats on UTI's board of
directors. PGT and the group of investors has funded UTI with $21,250,000 in
cash and hold the remaining seats on the UTI board.
5. COMMITMENTS AND CONTINGENCIES
In 1997, a company filed a claim against the Company seeking amounts
related to commissions and breach of good faith and fair dealings. Following a
Federal Court mediation in November 1999, this matter was settled.
6
In 1997, an individual filed suit claiming the Company interfered with his
opportunity to purchase Dowty Group, PLC (now the Company's U.K. subsidiary).
The claim amounted to $25,000,000. After a Federal Court jury trial in December
1999, the lawsuit was dismissed. Plaintiff subsequently filed an appeal. The
Company continues to maintain that this claim is without merit and will
vigorously defend the appeal. While the Company believes it will be successful
on appeal, an unfavorable outcome of this suit may have a material adverse
impact on the Company's financial position and results of operations.
In August 1998, certain shareholders commenced a putative class action
lawsuit against the Company, its Directors, certain of its officers, and certain
underwriters seeking unspecified damages arising out of alleged violations of
the federal securities laws in connection with the Company's May 1998 public
offering of 2.5 million shares of common stock. The complaint, which was amended
during 1998 before defendants were required to respond, alleged that the
Company's registration statement and prospectus issued in connection with the
offering contained false statements or omitted allegedly material information
and therefore were misleading. The plaintiffs claimed that they, and other
shareholders whom they seek to represent, purchased the Company's stock at
allegedly inflated prices and were injured thereby. In response to defendants'
motions to dismiss, on September 28, 1999 the Court dismissed, without
prejudice, plaintiffs' Amended Complaint for failure to state a claim and for
failing to plead fraud with particularity, and granted plaintiffs leave to
replead their complaint within a time specified by the Court.
On November 8, 1999, plaintiffs filed a Second Amended Class Action
Complaint, naming the same defendants and asserting similar claims as those set
forth in plaintiffs' prior Amended Complaint. The Company has moved to dismiss
the second Amended Complaint, and that motion presently is pending.
The Company continues to believe that the litigation is without merit and
intends to continue to vigorously defend this action. To date, no discovery has
been conducted, and the amount of alleged damages, if any, cannot be quantified,
nor can the outcome of this litigation be predicted. Accordingly, management
cannot determine whether the ultimate resolution of this litigation could have a
material adverse effect on the Company's financial position and results of
operations.
In conjunction with the Company's purchase/lease agreement of its Newark,
New York facility in 1998, the Company entered into a payment-in-lieu of tax
agreement which provides the Company with certain real estate tax concessions
upon certain conditions. In connection with this agreement, the Company received
an environmental assessment which revealed contaminated soil. The assessment
indicated potential actions that the Company may be required to undertake upon
notification by the environmental authorities. The assessment also proposed that
a second assessment be completed and provided an estimate of total potential
costs to remediate the soil of $230,000. However, there can be no assurance that
this will be the maximum cost. The Company entered into an agreement whereby a
third party has agreed to reimburse the Company for fifty percent of the costs
associated with this matter. The matter is in its preliminary stages and the
total costs of remediation cannot be estimated at this time. The ultimate
resolution of this matter may have a significant adverse impact on the results
of operations in the period in which it is resolved.
6. CAPITAL LEASE OBLIGATIONS
A capital lease obligation of $647,000 was incurred in fiscal 1998 when
the Company entered into a capital lease for land and buildings. An initial
payment of $400,000 was paid at the time of the lease inception, resulting in a
balance of $247,000 to be paid over 10 years. At December 31, 1999, the
outstanding principal balance on the lease was $180,000.
7
In November 1999, the Company entered into a $423,000 capital lease for
certain computer-related hardware and software. The lease is payable in equal
monthly installments over a three-year period. At December 31, 1999, the
outstanding principal balance on the lease was $413,000.
7. BUSINESS SEGMENT INFORMATION
The Company reports its results in four operating segments: Primary
Batteries, Rechargeable Batteries, Technology Contracts and Corporate. The
Primary Batteries segment includes 9-volt batteries, cylindrical batteries and
various specialty batteries. The Rechargeable Batteries segment consists of the
Company's efforts to produce rechargeable batteries. The Technology Contracts
segment includes revenues and related costs associated with various government
and military development contracts. The Corporate segment consists of all other
items that do not specifically relate to the three other segments and are not
considered in the performance of the other segments.
Three Months Ended December 31, 1999 (Dollars in Thousands)
- ------------------------------------
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
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Revenues $ 5,913 $ 0 $764 $ -- $ 6,677
Segment contribution 191 (1,114) 104 (2,269) (3,088)
Interest income -- -- -- 160 160
Miscellaneous -- -- -- (61) (61)
Income taxes -- -- -- -- --
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Net loss $(2,989)
Total assets $17,238 $20,591 $572 $26,898 $65,299
Three Months Ended December 31, 1998
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Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
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Revenues $ 4,692 $ 33 $ 435 $ -- $ 5,160
Segment contribution 1,471 (1,598) 133 (1,348) (1,342)
Interest income -- -- -- 361 361
Miscellaneous -- -- -- (24) (24)
Income taxes -- -- -- -- --
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Net loss $(1,005)
Total assets $13,621 $20,074 $1,005 $35,855 $70,555
Six Months Ended December 31, 1999 (Dollars in Thousands)
- ----------------------------------
Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
----------------------------------------------------------------------------
Revenues $11,545 $ 2 $1,355 $ -- $12,902
Segment contribution 479 (2,259) 161 (3,760) (5,379)
Interest income -- -- -- 465 465
Miscellaneous -- -- -- (1) (1)
Income taxes -- -- -- -- --
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Net loss $(4,915)
Total assets $17,238 $20,591 $ 572 $26,898 $65,299
8
Six Months Ended December 31, 1998
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Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
----------------------------------------------------------------------------
Revenues $ 8,449 $ 33 $ 900 $ -- $ 9,382
Segment contribution 2,148 (3,426) 212 (2,648) (3,714)
Interest income -- -- -- 810 810
Miscellaneous -- -- -- (31) (31)
Income taxes -- -- -- -- --
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Net loss $(2,935)
Total assets $13,621 $20,074 $1,005 $ 35,855 $70,555
8. NEW ACCOUNTING PRONOUNCEMENTS
As of July 1, 1999, the Company adopted Statement of Financial Accounting
Standards No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and
Hedging Activities", which established accounting and reporting requirements for
derivative instruments and hedging activities. The Company, on occasion, has
used derivative financial instruments for purposes other than trading and does
so to reduce its exposure to fluctuations in foreign currency exchange rates. As
of December 31, 1999, the Company did not have any outstanding derivative
financial instruments.
9
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, future demand for the Company's
products and services, the successful commercialization of the Company's
advanced rechargeable batteries, general economic conditions, government and
environmental regulation, competition and customer strategies, technological
innovations in the primary and rechargeable battery industries, changes in the
Company's business strategy or development plans, capital deployment, business
disruptions, raw materials supplies, and other risks and uncertainties, certain
of which are beyond the Company's control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may differ materially from those described herein as anticipated,
believed, estimated or expected.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto contained herein
and the Company's consolidated financial statements and notes thereto contained
in the Company's Annual Report on Form 10-K as of and for the year ended June
30, 1999.
Results of Operations
Three months ended December 31, 1999 and 1998
Consolidated revenues reached a new all-time quarterly record of
$6,677,000 for the second quarter of fiscal 2000, an increase of $1,517,000, or
29%, over the comparable quarter in fiscal 1999. Primary battery sales increased
$1,221,000, or 26%, from $4,692,000 last year to $5,913,000 this year. The
increase in primary battery sales was primarily due to shipments of BA-5372
batteries under the Company's contract with the U.S. Army and, to a lesser
extent, rising sales of 9-volt and high rate batteries. Technology contract
revenues rose $329,000, or 76%, from $435,000 to $764,000 reflecting the
Company's work on the Advanced Technology Program (ATP) with the U.S. Department
of Commerce which commenced in April 1999.
Cost of products sold amounted to $6,375,000 for the three months ended
December 31, 1999, an increase of $1,872,000, or 42% over the same three month
period a year ago. The gross margin on total revenues for the quarter was 5%, a
decline from the reported 13% gross margin in the same quarter last year.
However, last year's cost of products sold included $705,000 of proceeds from
business interruption insurance which offset unabsorbed overhead expenses at the
Company's U.K. facility that resulted from a fire in December 1996. This fire
suspended production of high rate batteries in the U.K. for a period of 15
months. Excluding the impact of these insurance proceeds, the gross margin in
the second quarter of fiscal 1999 was a negative 1%. Normalizing for the impact
of the fire insurance proceeds, the gross margins in primary batteries improved
from a negative 4% in the second quarter of fiscal 1999 to a positive 3% in the
second quarter of fiscal 2000, largely attributable to the BA-5372 battery
program and higher production volumes in 9-volt and high rate batteries. While
sales and production rates of high rate batteries produced in the U.K. are
increasing, they are not yet at a level to fully absorb all current overhead
expenses. The Company anticipates that sales orders and production volumes will
increase sufficiently in fiscal 2000 to be able to fully absorb factory
overheads in the U.K.; however, there can be no assurance that such volumes will
be
10
achieved. Gross profit on technology contracts decreased $29,000 in fiscal
2000 when compared to fiscal 1999, reflecting a decline in gross margins from
31% in the second quarter 1999 to 14% in the second quarter 2000. This decline
in technology contract gross margins is due to lower margins reflected in
contracts in the U.K.
Operating and other expenses were $3,335,000 for the three months ended
December 31, 1999, an increase of $1,336,000 from $1,999,000 in the prior year.
Included in operating and other expenses last year was a gain on fires of
$949,000, which related to fire insurance proceeds from the Company's fire in
the U.K. The claim was settled during fiscal 1999 and no gains were recognized
in fiscal 2000. Excluding the impact of this non-recurring item, operating and
other expenses increased $387,000, or 13%. Of the Company's operating and other
expenses, selling, general and administration expenses increased $921,000, or
68%, to $2,269,000 for the second quarter of fiscal 2000 compared to the same
quarter last year. This increase in SG&A expenses was mainly due to certain
one-time costs relating mostly to legal fees and settlement costs associated
with the satisfactory conclusion of several legal matters, as well as higher
consulting and information technology expenses and an increased allocation of
support departments in the U.K. operating facility. The SG&A increase was
partially offset by a decrease of $534,000, or 33%, in research and development
expenses, to $1,066,000 in the second three months of fiscal 2000. The decline
in research and development expenses was primarily due to a shift in resources
to the U.S. Department of Commerce ATP program and a narrower focus on key
rechargeable development programs.
Interest income decreased $201,000, or 56%, from $361,000 in the second
quarter of fiscal 1999 to $160,000 in the second quarter of fiscal 2000. The
reduction in interest income is principally the result of lower average cash
balances.
Net losses were $2,989,000, or $0.28 per share, for the second three
months of fiscal 2000 compared to $1,005,000, or $0.10 per share, for the same
quarter last year. Excluding the impact from the $1,654,000 of insurance
proceeds in the second quarter of fiscal 1999, net losses were $2,659,000, or
$0.25 per share.
Six months ended December 31, 1999 and 1998
Consolidated revenues were $12,902,000 for the first six months of fiscal
2000, an increase of $3,520,000, or 38%, over the comparable six months in
fiscal 1999. Primary battery sales increased $3,096,000, or 37%, from $8,449,000
last year to $11,545,000 this year. The increase in primary battery sales was
primarily due to increased shipments of 9-volt lithium batteries, shipments of
BA-5372 batteries under the Company's contract with the U.S. Army and, to a
lesser extent, greater sales of high rate batteries. Technology contract
revenues rose $455,000 or 51%, from $900,000 to $1,355,000 reflecting the
Company's work on the U.S. Department of Commerce's ATP program, which commenced
in April 1999.
Cost of products sold amounted to $12,181,000 for the six month period
ended December 31, 1999, an increase of $3,744,000, or 44% over the same six
month period a year ago. The gross margin on total revenues for the six months
ended December 31, 1999, was 6%, down from the 10% gross margin reported for the
first six months in the prior year. Last year's cost of products sold for
primary batteries, however, included $1,211,000 of proceeds from business
interruption insurance which offset unabsorbed overhead expenses at the
Company's U.K. facility that resulted from a fire in December 1996. Normalizing
for the impact of the fire insurance proceeds, consolidated gross margins
improved from a negative 3% in the first six months of fiscal 1999 to a positive
6% in the first six months of fiscal 2000, primarily as a result of higher
production volumes of 9-volt batteries, BA-5372 battery production not in last
year, and increased sales of high rate batteries. Gross profit on technology
contracts decreased $51,000 in fiscal 2000 when compared to fiscal 1999,
reflecting a decline in gross margins from 24% in the first half of fiscal 1999
to 12% in the first half of fiscal
11
2000. The decline in technology contract gross margins is due to lower margins
reflected in contracts in the U.K.
Operating and other expenses were $5,918,000 for the six months ended
December 31, 1999, a decrease of $158,000, or 3%, from $6,076,000 in the same
six months in the prior year excluding a gain on fires of $1,417,000 which
related to fire insurance proceeds for the Company's fire in the U.K. Of the
Company's operating and other expenses, research and development expenses
decreased $1,270,000, or 37%, to $2,158,000 for the first six months of fiscal
2000. The decline in research and development expenses was primarily due to a
shift in resources to the U.S. Department of Commerce's ATP program and a
narrower focus on key rechargeable development programs. That decrease was
partially offset by an increase of $1,112,000, or 42%, in selling, general, and
administrative expenses, to $3,760,000 in the first six months of fiscal 2000.
This increase in SG&A expenses was mainly due to certain one-time costs relating
mostly to legal fees and settlement costs associated with the satisfactory
conclusion of several legal matters, as well as higher information technology
expenses and an increased allocation of support departments in the U.K.
operating facility.
Interest income decreased $345,000, or 43%, from $810,000 in the first six
months of fiscal 1999 to $465,000 in the first six months of fiscal 2000. The
reduction in interest income is principally the result of lower average cash
balances.
Losses associated with the Company's equity ownership interest in its
Taiwan venture amounted to $182,000 for the first six months of fiscal 2000.
Net losses were $4,915,000, or $0.45 per share, for the first six months
of fiscal 2000 compared to $2,935,000, or $0.28 per share, for the same period
last year. Excluding the impact from the $2,628,000 of insurance proceeds in the
first six months of fiscal 1999, net losses were $5,563,000, or $0.53 per share.
Liquidity and Capital Resources
At December 31, 1999, cash and cash equivalents and available for sale
securities totaled $17,863,000. The Company used $4,713,000 of cash in operating
activities during the first six months of fiscal 2000. This usage of cash
related primarily to the net loss reported for the period and a net increase in
working capital (mainly due to increased inventory levels), offset in part by
depreciation and amortization expense. The Company spent $1,700,000 for capital
additions for production equipment and facilities improvements during the
six-month period ended December 31, 1999. In addition, in conjunction with the
Taiwan venture agreement, the Company issued 700,000 shares of its common stock
related to the Company's Taiwan venture, reflecting an investment of $3,238,000.
At December 31, 1999, the Company had long-term debt outstanding of
$489,000 primarily relating to the capital lease obligations for the Company's
Newark, New York offices and manufacturing facilities and various computer
hardware and software. In November 1999, the Company entered into a capital
lease for $423,000 related to computer hardware and software, whereby payments
will be made monthly over a 3-year term. Ultralife UK maintains a line of credit
in the amount of $330,000 for short-term working capital requirements. With
planned sales growth, the Company is working to put in place a working capital
line of credit of approximately $15,000,000 to $20,000,000. The Company expects
to complete this financing during its third fiscal quarter ending March 31,
2000.
12
The Company's capital resource commitments as of December 31, 1999
consisted principally of capital equipment commitments of approximately
$658,000. The Company believes its current financial position and cash flows
from operations will be adequate to support its financial requirements
throughout the next 12 months.
Year 2000 Disclosure
Prior to January 1, 2000, the Company took a number of steps in an effort
to assess its readiness for Year 2000 issues, including reviewing all business
systems, testing equipment, surveying key material suppliers, and completing the
remediation plan. The "Year 2000" issue is the result of computer programs being
written using only two digits as opposed to four to represent the applicable
year. Computer programs that have time sensitive software may have recognized
"00" as the year 1900 rather than the year 2000. This could have potentially
resulted in a system failure or an error in calculation. This Year 2000 issue is
believed to have affected all companies and organizations, including the
Company.
During the early part of fiscal 1999, the Company's review and assessment
determined that its U.S. accounting system was not Year 2000 compliant. As part
of its ongoing project to improve the flow of management information and control
of operations, the Company implemented and began using an enterprise-wide
software system as of July 1, 1999. The total costs of this project, including
hardware, software, consulting and implementation costs, amounted to
approximately $450,000. Most of these costs were capitalized.
In addition to internal Year 2000 activities, the Company was in contact
with its key suppliers and vendors to assess their state of readiness and
compliance. The Company issued documentation to key vendors and suppliers and
received assurances from these companies that all new equipment purchased was
Year 2000 compliant, and that the supply of materials necessary to the continued
smooth operation of the Company would not be materially affected by any Year
2000 issues.
Management is continuing to examine the Year 2000 issues as they
potentially impact the Company. Since January 1, 2000, the Company has not
experienced any interruptions in its business or operations. However, because
all Year 2000 issues may not reveal themselves until later in 2000, no
assurances can be given that the Company will not experience any interruptions
in its business or operations due to Year 2000 issues.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
In 1997, a company filed a claim against the Company seeking amounts
related to commissions and breach of good faith and fair dealings. Following a
Federal Court mediation in November 1999, this matter was settled.
In 1997, an individual filed suit claiming the Company interfered with his
opportunity to purchase Dowty Group, PLC (now the Company's U.K. subsidiary).
The claim amounted to $25,000,000. After a Federal Court jury trial in December
1999, the lawsuit was dismissed. Plaintiff subsequently filed an appeal. The
Company continues to maintain that this claim is without merit and will
vigorously defend the appeal. While the Company believes it will be successful
on appeal, an unfavorable outcome of this suit may have a material adverse
impact on the Company's financial position and results of operations.
In August 1998, certain shareholders commenced a putative class action
lawsuit against the Company, its Directors, certain of its officers, and certain
underwriters seeking unspecified damages arising out of alleged violations of
the federal securities laws in connection with the Company's May 1998 public
offering of 2.5 million shares of common stock. The complaint, which was amended
during 1998 before defendants were required to respond, alleged that the
Company's registration statement and prospectus issued in connection with the
offering contained false statements or omitted allegedly material information
and therefore were misleading. The plaintiffs claimed that they, and other
shareholders whom they seek to represent, purchased the Company's stock at
allegedly inflated prices and were injured thereby. In response to defendants'
motions to dismiss, on September 28, 1999 the Court dismissed, without
prejudice, plaintiffs' Amended Complaint for failure to state a claim and for
failing to plead fraud with particularity, and granted plaintiffs leave to
replead their complaint within a time specified by the Court.
On November 8, 1999, plaintiffs filed a Second Amended Class Action
Complaint, naming the same defendants and asserting similar claims as those set
forth in plaintiffs' prior Amended Complaint. The Company has moved to dismiss
the second Amended Complaint, and that motion presently is pending.
The Company continues to believe that the litigation is without merit and
intends to continue to vigorously defend this action. To date, no discovery has
been conducted, and the amount of alleged damages, if any, cannot be quantified,
nor can the outcome of this litigation be predicted. Accordingly, management
cannot determine whether the ultimate resolution of this litigation could have a
material adverse effect on the Company's financial position and results of
operations.
In conjunction with the Company's purchase/lease agreement of its Newark,
New York facility in 1998, the Company entered into a payment-in-lieu of tax
agreement which provides the Company with certain real estate tax concessions
upon certain conditions. In connection with this agreement, the Company received
an environmental assessment which revealed contaminated soil. The assessment
indicated potential actions that the Company may be required to undertake upon
notification by the environmental authorities. The assessment also proposed that
a second assessment be completed and provided an estimate of total potential
costs to remediate the soil of $230,000. However, there can be no assurance that
this will be the maximum cost. The Company entered into an agreement whereby a
third party has agreed to reimburse the Company for fifty percent of the costs
associated with this matter. The matter is in its preliminary stages and the
total costs of remediation cannot be estimated at this time. The ultimate
resolution of this matter may have a significant adverse impact on the results
of operations in the period in which it is resolved.
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Item 4. Submission of Matters to a Vote of Security Holders
(a) On December 7, 1999, an Annual Meeting of Shareholders of the
Company was held.
(b) At the Annual Meeting, the Shareholders of the Company elected to
the Board of Directors all seven nominees for Director with the
following votes:
DIRECTOR FOR AGAINST ABSTAIN
-------- --- ------- -------
Joseph C. Abeles 10,668,573 204,875 0
Joseph N. Barrella 10,669,198 204,250 0
Richard Hansen 10,669,198 204,250 0
Bruce Jagid 10,624,095 249,353 0
Arthur Lieberman 10,669,173 204,275 0
John Kavazanjian 10,669,198 204,250 0
Carl H. Rosner 10,660,195 213,253 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On October 18, 1999, the Company filed a Form 8-K with the
Securities and Exchange Commission indicating that on September 28,
1999, the United States District Court for the District of New
Jersey dismissed a putative class action filed in August 1998
against the Company, certain of its officers and directors, and the
underwriters of the Company's June 1998 public offering of
securities. In its Order dated September 28, 1999, the Court granted
the Company's motion to dismiss and dismissed plaintiffs' Amended
Complaint without prejudice, and granted plaintiffs leave to amend
their Amended Complaint within thirty days of the date of the Order.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRALIFE BATTERIES, INC.
(Registrant)
Date: February 11, 2000 By: /s/ John D. Kavazanjian
----------------- ------------------------
John D. Kavazanjian
President and Chief Executive Officer
Date: February 11, 2000 By: /s/ Robert W. Fishback
----------------- -----------------------
Robert W. Fishback
Vice President - Finance and Chief
Financial Officer
16