SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
________________ to ________________
Commission file number 0-20852
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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 - 12,318,956 shares outstanding
as of November 30, 2001.
1
Introductory Note:
This Amendment No. 2 to Form 10-Q/A for Ultralife Batteries, Inc. for the period
ended September 30, 2001, dated as of April 11, 2003, is being filed to restate
the financial statements and associated disclosures related to the manner in
which the Company had previously accounted for its equity investment in
Ultralife Taiwan, Inc. (UTI). The Items from the original Form 10-Q/A filing
that have been impacted are being filed in their entirety with this Amendment
and are summarized in the following Table of Contents. (Refer to Note 2 to the
consolidated financial statements included in Item 1 herein.)
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 -
September 30, 2001 and June 30, 2001................................3
Condensed Consolidated Statements of Operations -
Three months ended September 30, 2001 and 2000......................4
Condensed Consolidated Statements of Cash Flows -
Three months ended September 30, 2001 and 2000......................5
Notes to Consolidated Financial Statements............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................14
Signatures...........................................................15
CEO and CFO Certifications...........................................16
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRALIFE BATTERIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
(unaudited)
September 30, June 30,
ASSETS 2001 2001
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(As Restated;
See Note 2)
Current assets:
Cash and cash equivalents $ 1,196 $ 494
Available-for-sale securities 3,726 3,113
Trade accounts receivable (less allowance for doubtful accounts
of $269 at September 30, 2001 and $262 at June 30, 2001) 5,211 3,379
Inventories 4,878 5,289
Other receivables 995 736
Prepaid expenses and other current assets 1,404 912
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Total current assets 17,410 13,923
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Property, plant and equipment 32,737 32,997
Other assets:
Investment in UTI 5,848 --
Technology license agreements (net of accumulated
amortization of $1,193 at September 30, 2001 and $1,168 at June 30, 2001) 258 283
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6,106 283
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Total Assets $56,253 $47,203
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 983 $ 1,065
Accounts payable 4,298 3,755
Accrued compensation 262 427
Other current liabilities 2,102 1,855
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Total current liabilities 7,645 7,102
Long-term liabilities:
Long-term debt and capital lease obligations 2,460 2,648
Shareholders' 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 40,000,000 shares;
issued - 12,578,186 at September 30, 2001 and 11,488,186 at June 30, 2001) 1,258 1,149
Capital in excess of par value 110,852 99,389
Accumulated other comprehensive loss (929) (1,058)
Accumulated deficit (64,730) (61,724)
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46,451 37,756
Less -- Treasury stock, at cost -- 27,250 shares 303 303
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Total shareholders' equity 46,148 37,453
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Total Liabilities and Shareholders' Equity $56,253 $47,203
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The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
ULTRALIFE BATTERIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(unaudited)
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Three Months Ended September 30,
2001 2000
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(As Restated;
See Note 2)
Revenues $ 7,616 $ 6,851
Cost of products sold 8,064 7,303
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Gross margin (448) (452)
Operating expenses:
Research and development 1,182 560
Selling, general, and administrative 2,121 1,796
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Total operating expenses 3,303 2,356
Operating loss (3,751) (2,808)
Other income (expense):
Interest income 69 215
Interest expense (82) (121)
Equity gain (loss) in UTI 636 (332)
Miscellaneous income (expense) 122 (58)
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Loss before income taxes (3,006) (3,104)
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Income taxes -- --
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Net loss $(3,006) $(3,104)
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Net loss per share, basic and diluted $ (0.25) $ (0.28)
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Weighted average shares outstanding,
basic and diluted 12,005 11,076
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The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
4
ULTRALIFE BATTERIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
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Three Months Ended September 30,
2001 2000
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(As Restated;
See Note 2)
OPERATING ACTIVITIES
Net loss $(3,006) $(3,104)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 1,162 913
Equity (gain) / loss in UTI (636) 332
Changes in operating assets and liabilities:
Accounts receivable (1,832) (1,039)
Inventories 411 (546)
Prepaid expenses and other current assets (751) (372)
Accounts payable and other current liabilities 625 499
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Net cash used in operating activities (4,027) (3,317)
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INVESTING ACTIVITIES
Purchase of property and equipment (613) (1,520)
Purchase of securities (7,765) (13,972)
Sales of securities 7,153 8,583
Maturities of securities -- 5,359
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Net cash used in investing activities (1,225) (1,550)
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FINANCING ACTIVITIES
Proceeds from issuance of common stock 6,360 426
Principal payments on long-term debt
and capital lease obligations (270) (203)
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Net cash provided by financing activities 6,090 223
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Effect of exchange rate changes on cash (136) 45
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Increase (decrease) in cash and cash equivalents 702 (4,599)
Cash and cash equivalents at beginning of period 494 5,712
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Cash and cash equivalents at end of period $ 1,196 $ 1,113
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SUPPLEMENTAL CASH FLOW INFORMATION
Unrealized (loss) gain on securities $ (1) $ 2
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Interest paid $ 78 $ 81
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The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
ULTRALIFE BATTERIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands - Except Share and Per Share Amounts)
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1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals and adjustments) considered necessary for a fair
presentation of the condensed 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 contained in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2001.
2. RESTATEMENT OF PRIOR PERIOD FINANCIAL RESULTS
In assessing the partial unwind of the Company's investment in
Ultralife Taiwan, Inc. (UTI) on October 23, 2002, the Company determined
that it had incorrectly accounted for certain activities with regard to
its equity investment in UTI. Specifically, the Company should have
adjusted its proportionate share of the UTI net losses to reflect the
Company's carrying value of its UTI investment, and the Company should
have recorded certain increases to its investment in UTI arising from
change in interest transactions at the UTI level occurring in November
2000, August 2001, and July 2002. The impact of not accounting for the
negative basis difference was that the Company's reported equity losses
were overstated for the Company's fiscal years ended June 30, 2002, 2001
and 2000. The primary impact of the Company not recognizing the UTI change
in interest transactions was that the Company's UTI investment and
additional paid-in capital captions were understated, primarily in fiscal
year 2002. Further, the Company's equity losses for fiscal year 2002, even
with the beneficial amortization effect noted above, were understated, as
the additional basis created by the change in interest accounting that
should have taken place would have created additional basis sufficient to
absorb additional equity losses which had not been recognized previously
(as the Company's equity investment had been reduced to zero).
The Company has determined that the impacts relating to fiscal years
2001 and 2000 were not material and therefore these previously issued
financial statements have not been restated. The financial statements for
the three months ended September 30, 2001, have been restated as follows:
As Previously
Financial Statement Caption Reported As Restated
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Equity gain in UTI $ -- $ 636
Net loss $(3,642) $(3,006)
Investment in UTI $ -- $ 5,848
Total assets $50,405 $56,253
Total shareholders' equity $40,300 $46,148
Net loss per share $ (0.30) $ (0.25)
6
3. 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 and warrants have not been included as their
inclusion would be anti-dilutive; as a result, basic earnings per share is
the same as diluted earnings per share.
4. COMPREHENSIVE INCOME (LOSS)
The components of the Company's total comprehensive loss were:
Three months ended
(As Restated; See Note 2) September 30,
2001 2000
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Net loss $(3,006) $(3,104)
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Unrealized (loss) gain on securities (1) 2
Foreign currency translation adjustments 130 45
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129 47
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Total comprehensive loss $(2,877) $(3,057)
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5. 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:
September 30, 2001 June 30, 2001
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Raw materials $ 2,167 $ 2,595
Work in process 1,660 1,233
Finished goods 1,453 1,872
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5,280 5,700
Less: Reserve for obsolescence 402 411
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$ 4,878 $ 5,289
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6. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consisted of the following:
September 30, 2001 June 30, 2001
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Land $ 123 $ 123
Buildings and Leasehold Improvements 1,608 1,608
Machinery and Equipment 38,141 37,891
Furniture and Fixtures 293 291
Computer Hardware and Software 1,392 1,375
Construction in Progress 3,592 2,984
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45,149 44,272
Less: Accumulated Depreciation 12,412 11,275
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$32,737 $32,997
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7
7. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise
in the normal course of business. The Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
In August 1998, the Company, its Directors, and certain underwriters
were named as defendants in a complaint filed in the United States
District Court for the District of New Jersey by certain shareholders,
purportedly on behalf of a class of shareholders, alleging that the
defendants, during the period April 30, 1998 through June 12, 1998,
violated various provisions of the federal securities laws in connection
with an offering of 2,500,000 shares of the Company's Common Stock. The
complaint alleged that the Company's offering documents were materially
incomplete, and as a result misleading, and that the purported class
members purchased the Company's Common Stock at artificially inflated
prices and were damaged thereby. Upon a motion made on behalf of the
Company, the Court dismissed the shareholder action, without prejudice,
allowing the complaint to be refiled. The shareholder action was
subsequently refiled, asserting substantially the same claims as in the
prior pleading. The Company again moved to dismiss the complaint. By
Opinion and Order dated September 28, 2000, the Court dismissed the
action, this time with prejudice, thereby barring plaintiffs from any
further amendments to their complaint and directing that the case be
closed. Plaintiffs filed a Notice of Appeal to the Third Circuit Court of
Appeals and the parties submitted their briefs. Subsequently, the parties
notified the Court of Appeals that they had reached an agreement in
principle to resolve the outstanding appeal and settle the case upon terms
and conditions which require submission to the District Court for
approval. Upon application of the parties and in order to facilitate the
parties' pursuit of settlement, the Court of Appeals issued an Order dated
May 18, 2001 adjourning oral argument on the appeal for a period of at
least 120 days, and remanded the case to the District Court for further
proceedings in connection with the proposed settlement. In the event
settlement is not reached, the Company will continue to defend the case
vigorously. 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 of its Newark, New
York facility in 1998, the Company entered into a payment-in-lieu of tax
agreement which provides the Company with real estate tax concessions upon
meeting 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. 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. Test sampling occurred in the fourth quarter of fiscal
2001 and the engineering report has been forwarded to the New York State
Department of Environmental Conservation for review. 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.
8. 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 polymer rechargeable batteries. The Technology
Contracts segment includes revenues and related costs associated with
various government and military development contracts. The
8
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 September 30, 2001
-------------------------------------
Primary Rechargeable Technology
(As Restated; See Note 2) Batteries Batteries Contracts Corporate Total
-----------------------------------------------------------------------
Revenues $ 7,274 $ 135 $207 $ -- $ 7,616
Segment contribution 727 (2,378) 21 (2,121) (3,751)
Interest, net (13) (13)
Equity gain in UTI 636 636
Miscellaneous income 122 122
Income taxes --
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Net loss $(3,006)
Total assets $21,049 $20,604 $312 $14,288 $56,253
Three Months Ended September 30, 2000
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Primary Rechargeable Technology
Batteries Batteries Contracts Corporate Total
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Revenues $ 6,242 $ 120 $489 $ -- $ 6,851
Segment contribution 11 (1,057) 34 (1,796) (2,808)
Interest, net 94 94
Equity loss in UTI (332) (332)
Miscellaneous expense (58) (58)
Income taxes --
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Net loss $(3,104)
Total assets $14,916 $23,044 $494 $23,671 $62,125
9. OTHER MATTERS
On July 20, 2001, the Company completed a $6,800 private placement
of 1,090,000 shares of its common stock at $6.25 per share. In conjunction
with the offering, warrants to acquire up to 109,000 shares of common
stock were granted. The exercise price of the warrants is $6.25 per share
and the warrants have a five-year term.
10. SUBSEQUENT EVENT
In October 2001, the Company was informed by its primary lending
institution that its borrowing availability under the $20 million credit
facility has been effectively reduced to zero as a result of a recent
appraisal of its fixed assets. Accordingly, the Company's liquidity
depends on the Company's ability to successfully generate positive cash
flow from operations and achieve adequate operational savings. The Company
is also exploring opportunities for new or additional equity or debt
financing. Notwithstanding the foregoing, there can be no assurance that
the Company will have sufficient cash flows to meet its working capital
and capital expenditure requirements.
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, world events,
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, including those caused by fire, raw materials
supplies, environmental regulations, 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
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, 2001.
General
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Ultralife Batteries, Inc. develops, manufactures and markets a wide range
of standard and customized primary lithium and polymer rechargeable batteries
for use in a wide array of applications. The Company believes that its
proprietary technologies allow the Company to offer batteries that are
ultra-thin, lightweight and generally achieve longer operating time than many
competing batteries currently available. To date, the Company has focused on
manufacturing a family of lithium primary batteries for consumer, industrial,
and military applications which it believes is one of the most comprehensive
lines of lithium manganese dioxide primary batteries commercially available. The
Company has introduced its advanced polymer rechargeable batteries which are
based on its proprietary technology for use in portable electronic applications.
The Company has incurred net operating losses primarily as a result of
funding research and development activities and, to a lesser extent,
manufacturing and general and administrative costs. To date, the Company has
devoted a substantial portion of its resources to the research and development
of its products and technology, particularly its proprietary polymer
rechargeable technology. The Company expects its operating expenses to increase
as it continues to expand production activities. The Company's results of
operations may vary significantly from quarter to quarter depending upon the
number of orders received and the pace of the Company's research and development
activities. Currently, the Company does not experience significant seasonal
trends in primary battery revenues and does not have enough sales history on the
rechargeable batteries to determine if there is seasonality.
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 polymer 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.
10
Results of Operations
Three months ended September 30, 2001 and 2000
Consolidated revenues reached a new quarterly record of $7,616,000 for the
first three months of fiscal 2002, an increase of $765,000, or 11%, over the
comparable quarter in fiscal 2001. Primary battery sales increased $1,032,000,
or 17%, from $6,242,000 last year to $7,274,000 this year. In fiscal 2001, the
Company began production and shipments of the BA-5368 battery used by the
military in survival radios for pilots, and this new small cylindrical battery
resulted in approximately $1,200,000 in sales in the first quarter of fiscal
2002. As a result, the increase in Primary battery sales was primarily due to
sales of small cylindrical batteries and additional increases in 9 Volt and High
Rate battery shipments. These increases were offset in part by a decline in
technology contract revenues. Rechargeable revenues increased modestly over the
prior year comparable quarter. As expected, Technology Contract revenues
declined $282,000, from $489,000 to $207,000 due to the scheduled reduction of
certain non-renewable government contracts.
Cost of products sold amounted to $8,064,000 for the three-month period
ended September 30, 2001, an increase of $761,000, or 10% over the same three
month period a year ago. The gross margin on total revenues for the quarter was
a loss of 6%, compared to a loss of 7% in the prior year. The improvement in
gross margins was affected by two offsetting factors. First, Primary gross
margins increased $933,000 over the prior year from a 0% gross margin in fiscal
2001 to a 14% gross margin in fiscal 2002. This improvement in margins is
principally the result of enhancements in the manufacturing process due to the
implementation of lean manufacturing practices and increased sales. To date,
lean manufacturing practices in the Primary battery segment have resulted in
quicker manufacturing throughput times, greater operating efficiencies and a
reduction of inventory. The improvements in gross margins in the Primary segment
were offset by declines in the Rechargeable segment. Cost of products sold in
the Rechargeable segment increased $931,000 over the prior year period due to
the lack of production volume in the current year and the production of cell
phone batteries, which were included in inventory, in the prior year but not in
fiscal 2002. In the second quarter of fiscal 2001, the Company shifted its focus
to design and manufacture lightweight custom sized batteries for OEMs rather
than focus on the broad retail cell phone market due to the heavy competition.
The manufacture of cell phone batteries was an important milestone for the
Company as it demonstrated the Company's ability to mass produce polymer
rechargeable batteries. The Company continues to actively design and develop
rechargeable batteries and is vigorously supplying samples to OEMs in order to
achieve the desired sales growth in this segment.
Operating and other expenses were $3,303,000 for the three months ended
September 30, 2001 from $2,356,000 in the prior year, an increase of $947,000,
or 40%. Of the Company's operating and other expenses, research and development
expenses increased $622,000, or 111%, to $1,182,000 for the first quarter of
fiscal 2002. The increase in research and development expenses was primarily due
to continued development of samples and new product designs of polymer
rechargeable batteries. In the prior year's comparable quarter, the Company was
focused on bringing the recently launched polymer rechargeable cell phone
battery to market. As previously mentioned, the Company has shifted its focus to
custom sized rechargeable batteries for OEMs. This shift in focus has resulted
in additional spending on the development of different size batteries and
capacities. Selling, general and administrative costs increased $325,000 or 18%
over the prior year period. This increase was mainly due to higher selling,
marketing, and advertising costs, both in the U.S. and abroad as the Company
enhanced its market coverage at the end of fiscal 2001.
Interest income decreased $146,000, or 68%, from $215,000 in the first
quarter of fiscal 2001 to $69,000 in the first quarter of fiscal 2002. The
reduction in interest income is principally the result of lower average cash
balances and the reduction of rates of return on investments. Interest expense
declined $39,000 due to lower average balances outstanding on the credit
facility and lower borrowing rates. Equity gain in UTI (as restated, refer to
Note 2 to the consolidated financial statements in Item 1
11
herein) increased $968,000 for its unconsolidated subsidiary, Ultralife Taiwan,
Inc. (UTI) from a loss of $332,000 in the first quarter of fiscal 2001 to a gain
of $636,000 in the first quarter of fiscal 2002. The Fiscal 2002 results
included a $1,096,000 favorable adjustment recorded in July 2001 to correct
cumulative net gains pertaining to the manner in which the Company accounted for
this equity investment in Fiscal 2001 and Fiscal 2000. The Company determined
that this cumulative adjustment was not significant enough to warrant a
restatement for those periods. Additionally, the Company's ownership in UTI was
reduced to 33% as a result of additional capital raised by UTI in November 2000
and August 2001 for its ongoing expansion. As a result of these "change in
interest" transactions, the Company's share of UTI's underlying net assets
actually increased, creating gains on the transactions that were recorded as
adjustments in additional paid in capital on the balance sheet. These increases
in additional paid in capital amounted to $5,212,000 in the three months ended
September 30, 2001. (The Company was precluded from recognizing gains from these
"change in interest" transactions in its consolidated statement of income
because UTI was a development stage company.) Miscellaneous income (expense)
relates primarily to foreign currency transaction gains and losses for the
period reported.
Net losses were $3,006,000, or $0.25 per share, for the first three months
of fiscal 2002 compared to $3,104,000, or $0.28 per share, for the same quarter
last year primarily as a result of the reasons described above.
Liquidity and Capital Resources
-------------------------------
At September 30, 2001, cash and cash equivalents and available for sale
securities totaled $4,922,000. The Company used $4,027,000 of cash in operating
activities during the first three months of fiscal 2002. This usage of cash
related primarily to the net loss reported for the period and an increase in
accounts receivable and other current assets, offset in part by depreciation,
decreases in inventories, and an increase in current liabilities. More
specifically, receivables increased $1,832,000 from June 30, 2001 to September
30, 2001. This increase resulted from a significant increase in revenues in the
first quarter of fiscal 2002 as compared with the fourth quarter of fiscal 2001.
A significant portion of the sales in the first fiscal quarter were generated in
the last month of the quarter. This resulted in a large increase in receivables
for the first quarter of fiscal 2002. We do not anticipate any recoverability
issues with these outstanding receivables. Additionally, the Company spent
$613,000 for capital expenditures for production equipment and facilities
improvements during the first quarter 2002.
At September 30, 2001, the Company had long-term debt outstanding
including capital lease obligations of $2,460,000 primarily relating to the
financing arrangement entered into by the Company at the end of fiscal 2000,
described below.
In June 2000, the Company entered into a $20,000,000 secured credit
facility with a lending institution. The financing agreement consists of an
initial $12,000,000 term loan component based on the valuation of the Company's
fixed assets (of which $3,300,000 was outstanding on the term loan at September
30, 2001) and a revolving credit facility component for an initial $8,000,000,
based on eligible net accounts receivable (as defined) and eligible net
inventory (as defined). There was no balance outstanding on the revolving credit
facility component as of September 30, 2001. While the amount available under
the term loan component amortizes over time, the amount of the revolving credit
facility component increases by an equal and offsetting amount. Principal and
interest are paid monthly on outstanding amounts borrowed. The loans bear
interest at the prime rate or other LIBOR-based rate options at the discretion
of the Company. The Company also pays a facility fee on the unused portion of
the commitment. The loan is secured by substantially all of the Company's assets
and the Company is precluded from paying dividends under the terms of the
agreement. The total amount available under the term loan component is reduced
by outstanding letters of credit. The Company had $1,900,000 outstanding on a
letter of credit as of September 30, 2001.
12
On July 20, 2001, the Company completed a $6,800,000 private placement of
1,090,000 shares of its common stock at $6.25 per share. In conjunction with the
offering, warrants to acquire up to 109,000 shares of common stock were granted.
The exercise price of the warrants is $6.25 per share and the warrants have a
five-year term.
In October 2001, the Company entered into a $2,000,000 lease line of
credit with a financing institution that will be used to acquire equipment in
the Primary business. In conjunction with this lease, the Company has obtained
and is required to maintain an additional letter of credit for $1,900,000.
Also in October 2001, the Company was informed by its primary lending
institution that its borrowing availability under the $20,000,000 credit
facility has been effectively reduced to zero as the result of a recent
appraisal of its fixed assets. The appraisal resulted in a significant decrease
in the valuation of the Company's machinery and equipment which was based on an
"orderly liquidation valuation" methodology used by the appraiser.
The Company's capital resource commitments as of September 30, 2001
consisted principally of capital equipment commitments of approximately
$692,000. As previously noted, the Company's primary lending institution
significantly reduced the total amount of the credit facility available.
Accordingly, the Company's liquidity depends on the Company's ability to
successfully generate positive cash flow from operations and achieve adequate
operational savings. The Company is also exploring opportunities for new or
additional equity or debt financing. Notwithstanding the foregoing, there can be
no assurance that the Company will have sufficient cash flows to meet its
working capital and capital expenditure requirements.
Outlook
-------
The Company expects to achieve a modest increase in consolidated revenues
in the second quarter of fiscal 2002 as compared to the first quarter of fiscal
2002. During the second fiscal quarter, the Company is projecting the growth to
come largely from standard cylindrical and high rate batteries for growth in
military markets. Sales of 9-Volt batteries are expected to decline from the
first quarter due to current softness in orders from smoke detector and medical
customers. The Company expects to take advantage of its flexibility to tailor
and develop its existing and new products that will continue to enhance revenue
growth throughout the year. Additionally, the Company has seen a noticeably
higher level of interest from the military since the tragic events of September
11, 2001. The Company believes that it is well positioned with its current
portfolio of products, and its new products in development, to meet the current
demands communicated to the Company by the military, both in the US and UK.
Management continues to believe revenues will increase year over year by at
least 40%.
Management of the Company previously set two key financial goals - to
reach operating cash breakeven by December 2001 and to attain positive net
income by June 2002. Due to the recent slowdown in the economy which has largely
impacted the Rechargeable segment, the Company has extended its goal for cash
breakeven to occur in the March 2002 quarter, but remains steadfast on its goal
to achieve profitability by June 2002.
In October and November 2001, the Company realigned its resources to
address the changing market conditions and to better meet customer demand in
areas of the business that are growing. The realignment did not significantly
change any of the Company's existing operations nor were any product lines
discontinued. A majority of employees affected by this realignment were
re-deployed from the Rechargeable segment and support functions into open direct
labor positions in the Primary segment, due to the significantly growing demand
for primary batteries from the military. Less than 7% of the Company's total
employees were terminated. The realignment did not result in any significant
severance costs. The Company expects to realize cost savings from the measures
being taken of approximately $1.5
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million per quarter. These quarterly savings are comprised of approximately $1.1
million of reduced labor costs, approximately $0.2 million of reduced material
usage, and approximately $0.2 million of lower administrative expenses.
Approximately one-third of these savings, due to the timing of implementation of
the actions taken, will be realized in the second fiscal quarter, with the full
amount to be realized in the third fiscal quarter.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99 CEO & CFO Certifications
14
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: April 11, 2003 By: /s/John D. Kavazanjian
-------------- ----------------------
John D. Kavazanjian
President and Chief
Executive Officer
Date: April 11, 2003 By: /s/Robert W. Fishback
-------------- ---------------------
Robert W. Fishback
Vice President of Finance and
Chief Financial Officer
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I, John D. Kavazanjian, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Ultralife Batteries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: April 11, 2003 /s/ John D. Kavazanjian
-----------------------
John D. Kavazanjian
President and Chief Executive Officer
I, Robert W. Fishback, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Ultralife Batteries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: April 11, 2003 /s/ Robert W. Fishback
----------------------
Robert W. Fishback
Vice President of Finance and
Chief Financial Officer
16