PART I.    FINANCIAL INFORMATION

 

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

 

ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands except share amounts) (Unaudited)

 

 

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

 

 

ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In Thousands except per share amounts) (Unaudited)

 

 

 

ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars In Thousands) (Unaudited)

 

 

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

 

 

ULTRALIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In Thousands except share amounts) (Unaudited)

 

 

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

 

 

ULTRALIFE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Forward-Looking Statements

 

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, the effects of the novel coronavirus disease of 2019 (COVID-19); our reliance on certain key customers; possible future declines in demand for the products that use our batteries or communications systems; the unique risks associated with our China operations; potential costs because of the warranties we supply with our products and services; potential disruptions in our supply of raw materials and components; our efforts to develop new commercial applications for our products; reduced U.S. and foreign military spending including the uncertainty associated with government budget approvals; possible breaches in security and other disruptions; variability in our quarterly and annual results and the price of our common stock; safety risks, including the risk of fire; our entrance into new end-markets which could lead to additional financial exposure; fluctuations in the price of oil and the resulting impact on the level of downhole drilling; our ability to retain top management and key personnel; our resources being overwhelmed by our growth prospects; our inability to comply with changes to the regulations for the shipment of our products; our customers’ demand falling short of volume expectations in our supply agreements; possible impairments of our goodwill and other intangible assets; negative publicity of Lithium-ion batteries; our exposure to foreign currency fluctuations; the risk that we are unable to protect our proprietary and intellectual property; rules and procedures regarding contracting with the U.S. and foreign governments; our ability to utilize our net operating loss carryforwards; exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; our ability to comply with government regulations regarding the use of “conflict minerals”; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; known and unknown environmental matters; technological innovations in the non-rechargeable and rechargeable battery industries; and other risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those forward-looking statements described herein. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “estimate,” “seek,” “project,” “intend,” “plan,” “may,” “will,” “should,” 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, 2019, and Item 1A, “Risk Factors” in Part II of this Form 10-Q.

 

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 contained in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, 2019 to reflect new information or risks, future events or other developments.

 

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto in Part I, Item 1 of this Form 10-Q, the Risk Factors in Part II, Item 1A of this Form 10-Q, and the Consolidated Financial Statements and Notes thereto and Risk Factors in our Form 10-K for the year ended December 31, 2019.

 

The financial information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in thousands of dollars, except for share and per share amounts.

 

 

General

 

We offer products and services ranging from power solutions to communications and electronics systems to customers across the globe in the government, defense and commercial sectors. With an emphasis on strong engineering and a collaborative approach to problem solving, we design and manufacture power and communications systems including: rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems and accessories, and custom engineered systems. 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 geographies, 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 international 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™, and SWE SEASAFE™ 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 12 in the Notes to Consolidated Financial Statements of this Form 10-Q.

 

Our website address is www.ultralifecorporation.com. We make available free of charge via a hyperlink on our website (see Investor Relations link on the website) our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports and statements as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). We will provide copies of these reports upon written request to the attention of Philip A. Fain, CFO, Treasurer and Secretary, Ultralife Corporation, 2000 Technology Parkway, Newark, New York, 14513. Our filings with the SEC are also available through the SEC website at www.sec.gov or at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling 1-800-SEC-0330.

 

COVID-19

 

The novel coronavirus disease of 2019 (COVID-19) has created significant economic disruption and uncertainty around the world.  The Company continues to closely monitor the developments surrounding COVID-19 and take actions to mitigate the business risks involved.  During this challenging time, we remain focused on ensuring the health and safety of our employees by implementing the protocols established by public health officials and meeting the demand of our customers.  As an essential supplier currently exempt from government-mandated shutdown directives, we are striving to ensure an uninterrupted flow of our mission critical products serving medical device, first responder, public safety, energy and national security customers. We have maintained normal operations at all our facilities with the exception of an approximately one-month closure of our China facility as was mandated by the Chinese government through early March 2020. 

 

For the quarter ended March 31, 2020, our operating results were adversely affected by COVID-19, particularly as a result of the temporary shutdown of our China operation and supply chain disruptions.  We estimate the effects of COVID-19 adversely impacted net income by approximately $500.

 

Refer to Item 1A “Risk Factors” in Part II of this Form 10-Q for risks and uncertainties related to COVID-19.

 

 

Overview

 

Consolidated revenues of $25,814 for the three-month period ended March 31, 2020, increased by $6,932 or 36.7%, over $18,882 during the three-month period ended March 31, 2019, reflecting the revenues of SWE, which was acquired by the Company on May 1, 2019, and higher Communications Systems sales primarily due to shipments of vehicle amplifier-adaptor systems to support the U.S. Army’s Network Modernization initiatives under the delivery orders announced in October 2018. 

 

Gross profit was $7,334, or 28.4% of revenue, compared to $5,084, or 26.9% of revenue, for the same quarter a year ago.  The 150-basis point improvement resulted from efficiencies in the transition of vehicle amplifier-adaptor systems for the U.S. Army to higher volume production partially offset by the impact of an approximately one-month shutdown of our China operation as mandated by the Chinese government in response to COVID-19.  

 

Operating expenses increased to $5,849 during the three-month period ended March 31, 2020, compared to $4,536 during the three-month period ended March 31, 2019.  The increase of $1,313 or 28.9% was attributable to $1,180 of operating expenses incurred by SWE during the 2020 period, and a $122 or 11.8% increase in core engineering and technology expenses for new product development and testing.  Operating expenses as a percentage of sales decreased 130 basis points from 24.0% for the first quarter of 2019 to 22.7% for the current quarter. 

 

Operating income for the three-month period ended March 31, 2020 was $1,485 or 5.7% of revenues compared to $548 or 2.9% of revenues for the year-earlier period. The 170.5% increase in operating income primarily resulted from higher sales in our Communications Systems business and profitability for SWE.

 

Net income attributable to Ultralife was $1,059, or $0.07 per share – basic and diluted, for the three-month period ended March 31, 2020, compared to $425, or $0.03 per share – basic and diluted, for the three-month period ended March 31, 2019.  Adjusted EPS was $0.08 on a diluted basis for the first quarter of 2020, representing a 212.4% increase over Adjusted EPS on a diluted basis of $0.03 for the 2019 period.  Adjusted EPS excludes the provision for deferred income taxes which primarily represents non-cash charges (benefits) of $242 and ($5) for the 2020 and 2019 periods, respectively, for income taxes which will be fully offset by deferred tax assets including past U.S. net operating losses and tax credit carryforwards.  See the section “Adjusted EPS” on Page 23 for a reconciliation of Adjusted EPS to EPS.

 

Adjusted EBITDA, defined as net income attributable to Ultralife before net interest expense, provision 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 $2,522 or 9.8% of revenues in the first quarter of 2020 compared to $1,204 or 6.4% of revenues for the first quarter of 2019. See the section “Adjusted EBITDA” on Page 22 for a reconciliation of Adjusted EBITDA to net income attributable to Ultralife.

 

With a backlog increasing approximately 20% over year-end 2019 to over $50 million, ample liquidity, end-market diversity and tight control over discretionary spending, we are well positioned to both sustain operations and continue investing in growth initiatives.

 

 

Three-Month Periods Ended March 31, 2020 and March 31, 2019

 

Revenues. Consolidated revenues for the three-month period ended March 31, 2020 amounted to $25,814, an increase of $6,932 or 36.7%, over $18,882 for the three-month period ended March 31, 2019. Overall, commercial sales increased 47.9% while government/defense sales increased 24.1% from the 2019 period. Revenues for the 2020 period include revenues of SWE which was acquired by the Company on May 1, 2019.

 

Battery & Energy Products revenues increased $4,763, or 29.8%, from $15,998 for the three-month period ended March 31, 2019 to $20,761 for the three-month period ended March 31, 2020.  The increase was attributable to the $5,437 revenue of SWE partially offset by a $674 or 4.2% reduction in core sales due primarily to an approximately one-month shutdown of our China operation and supply chain disruptions resulting from COVID-19. 

 

Communications Systems revenues increased $2,169, or 75.2%, from $2,884 during the three-month period ended March 31, 2019 to $5,053 for the three-month period ended March 31, 2020. This increase is primarily attributable to higher shipments of vehicle amplifier-adaptor systems to support the U.S. Army’s Network Modernization initiatives under the delivery orders announced in October 2018.

 

Cost of Products Sold / Gross Profit.  Cost of products sold totaled $18,480 for the quarter ended March 31, 2020, an increase of $4,682, or 33.9%, from the $13,798 reported for the same three-month period a year ago. Consolidated cost of products sold as a percentage of total revenue decreased from 73.1% for the three-month period ended March 31, 2019 to 71.6% for the three-month period ended March 31, 2020. Correspondingly, consolidated gross margin increased from 26.9% for the three-month period ended March 31, 2019, to 28.4% for the three-month period ended March 31, 2020, primarily reflecting efficiencies in the transition of vehicle amplifier-adaptor systems for the U.S. Army to higher volume production and favorable sales mix for our Communications Systems business.  This increase was partially offset by the impact of an approximately one-month shutdown of our China operation as mandated by the Chinese government in response to COVID-19. 

 

For our Battery & Energy Products segment, gross profit for the first quarter of 2020 was $5,316, an increase of $906 or 20.5% from gross profit of $4,410 for the first quarter of 2019. Battery & Energy Products’ gross margin of 25.6% decreased by 200 basis points from the 27.6% gross margin for the year-earlier period, reflecting the temporary shutdown of our China operation in response to COVID-19, as well as the transitioning of new products to higher volume production. 

 

For our Communications Systems segment, gross profit for the first quarter of 2020 was $2,018 or 39.9% of revenues, an increase of $1,344 or 199.4%, from gross profit of $674, or 23.4% of revenues, for the first quarter of 2019. The 1,650-basis point increase in gross margin during 2020 is driven by the transition of vehicle amplifier-adaptor systems for the U.S. Army to higher volume production and favorable sales mix.

 

Operating Expenses. Operating expenses for the three-month period ended March 31, 2020 were $5,849, an increase of $1,313 or 28.9% over the $4,536 for the three-month period ended March 31, 2019. The increase is attributable to $1,180 of operating expense incurred by SWE during the 2020 period, and a $122 or 11.8% increase in core engineering and technology expenses for new product development and testing.  Operating expenses as a percentage of sales decreased 130 basis points from 24.0% for the first quarter of 2019 to 22.7% for the 2020 first quarter. 

 

Overall, operating expenses as a percentage of revenues were 22.7% for the quarter ended March 31, 2020 compared to 24.0% for the quarter ended March 31, 2019. Amortization expense associated with intangible assets related to our acquisitions was $149 for the first quarter of 2020 ($117 in selling, general and administrative expenses and $32 in research and development costs), including $61 for SWE ($61 in selling, general and administrative expenses), compared with $92 for the first quarter of 2019 ($59 in selling, general, and administrative expenses and $33 in research and development costs). Research and development costs were $1,548 for the three-month period ended March 31, 2020, an increase of $512 or 49.4%, from $1,036 for the three-months ended March 31, 2019. The increase is attributable to $390 of research and development costs incurred by SWE and a $122 increase in core business investments for new product development and testing. Selling, general, and administrative expenses increased $801 or 22.9%, to $4,301 for the first quarter of 2020 from $3,500 for the first quarter of 2019. The increase is primarily attributable to the acquisition of SWE which contributed $790 of direct costs, including intangible asset amortization of $61, for the first quarter of 2020.

 

 

Other Expense. Other expense totaled $92 for the three-month period ended March 31, 2020 compared to $58 for the three-month period ended March 31, 2019. Interest and financing expense, net of interest income, increased $169, from $5 for the first quarter of 2019 to $174 for the comparable period in 2020. The increase is due primarily to the financing for the SWE acquisition. Miscellaneous income amounted to $82 for the first quarter of 2020 compared with miscellaneous expense of $53 for the first quarter of 2019, primarily representing foreign currency gains and losses, respectively, realized on the translation of U.S.-denominated transactions and balances of Accutronics (U.K.). The gains realized in the first quarter of 2020 were attributable to the strengthening of the U.S dollar to the Pound Sterling by 6.2% (from the beginning to the end of the quarter), versus losses realized in the year-earlier period due to a 2.4% weakening of the U.S dollar to the Pound Sterling.

 

Income Taxes. The tax provision for the 2020 first quarter was $319 compared to $41 for the first quarter of 2019. Our effective tax rate increased to 22.9% for the first quarter of 2020 as compared to 8.4% for the first quarter of 2019, primarily due to discrete tax benefits realized on disqualifying dispositions of incentive stock options exercised by employees during the three-month period ended March 31, 2019. The income tax provision for the first quarter of 2020 is comprised of a $77 current provision for taxes expected to be paid on income from our foreign operations, representing a cash-based effective tax rate of 5.5%, and a non-cash $242 deferred provision for taxes to be fully offset by deferred tax assets including past U.S. net operating losses and tax credit carryforwards which we expect to carryforward to offset U.S. income taxes for the foreseeable future. See Note 8 in the Notes to Consolidated Financial Statements of this Form 10-Q for additional information regarding our income taxes.

 

Net Income Attributable to Ultralife. Net income attributable to Ultralife was $1,059, or $0.07 per share – basic and diluted, for the three-month period ended March 31, 2020, compared to $425, or $0.03 per share – basic and diluted, for the three-month period ended March 31, 2019. Adjusted EPS was $0.08 on a diluted basis for the first quarter of 2020, representing a 212.4% increase over Adjusted EPS on a diluted basis of $0.03 for the 2019 period. Adjusted EPS excludes the provision for deferred income taxes which represents non-cash charges (benefits) of $242 and ($5) for the 2020 and 2019 periods, respectively, for income taxes which will be fully offset by deferred tax assets including past U.S. net operating losses and tax credit carryforwards. See the section “Adjusted EPS” on Page 23 for a reconciliation of Adjusted EPS to EPS. Average weighted common shares outstanding used to compute diluted earnings per share decreased from 16,224,790 in the first quarter of 2019 to 16,086,744 in the first quarter of 2020. The decrease in 2020 is attributable to stock option exercises since the first quarter of 2019 and a decrease in the weighted average stock price used to compute diluted shares from $9.40 for the first quarter of 2019 to $6.71 for the first quarter of 2020.

 

Adjusted EBITDA

 

In evaluating our business, we consider and use Adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure of our operating performance. We define Adjusted EBITDA as net income attributable to Ultralife before interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense. We also use Adjusted EBITDA as a supplemental measure to review and assess our operating performance and to enhance comparability between periods. We also believe the use of Adjusted EBITDA facilitates investors’ understanding of operating performance from period to period by backing out potential differences caused by variations in such items as capital structures (affecting relative interest expense and stock-based compensation expense), the amortization of intangible assets acquired through our business acquisitions (affecting relative amortization expense and provision (benefit) for income taxes), the age and book value of facilities and equipment (affecting relative depreciation expense) and one-time charges/benefits relating to income taxes. We also present Adjusted EBITDA from operations because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. We reconcile Adjusted EBITDA to net income attributable to Ultralife, the most comparable financial measure under GAAP.

 

 

We use Adjusted EBITDA in our decision-making processes relating to the operation of our business together with GAAP financial measures such as operating income. We believe that Adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of depreciation and amortization, which may vary from period to period without any correlation to underlying operating performance, and of stock-based compensation, which is a non-cash expense that varies widely among companies. We believe that by presenting Adjusted EBITDA, we assist investors in gaining a better understanding of our business on a going forward basis. We provide information relating to our Adjusted EBITDA so that securities analysts, investors and other interested parties have the same data that we employ in assessing our overall operations. We believe that trends in our Adjusted EBITDA are a valuable indicator of our operating performance on a consolidated basis and of our ability to produce operating cash flows to fund working capital needs, to service debt obligations and to fund capital expenditures.

 

The term Adjusted EBITDA is not defined under GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP. Our Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, Adjusted EBITDA should not be considered in isolation or as a substitute for net income attributable to Ultralife or other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include, but are not limited to, the following:

 

●

Adjusted EBITDA does not reflect (1) our cash expenditures or future requirements for capital expenditures or contractual commitments; (2) changes in, or cash requirements for, our working capital needs; (3) the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; (4) income taxes or the cash requirements for any tax payments; and (5) all of the costs associated with operating our business;

 

●

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA from continuing operations does not reflect any cash requirements for such replacements;

 

●

While stock-based compensation is a component of cost of products sold and operating expenses, the impact on our consolidated financial statements compared to other companies can vary significantly due to such factors as assumed life of the stock-based awards and assumed volatility of our common stock; and

 

●

Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

 

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 income attributable to Ultralife.

 

Adjusted EBITDA is calculated as follows for the periods presented:

 

		Three-month period ended
		March 31,				March 31,
		2020				2019
Net income attributable to Ultralife		$	1,059			$	425
Add:
Interest expense			174				5
Income tax provision			319				41
Depreciation expense			579				447
Amortization of intangible assets and financing fees			161				101
Stock-based compensation expense			230				185
Adjusted EBITDA		$	2,522			$	1,204

 

Adjusted EPS

 

In evaluating our business, we consider and use Adjusted EPS, a non-GAAP financial measure, as a supplemental measure of our business performance in addition to GAAP financial measures. We define Adjusted EPS as net income attributable to Ultralife Corporation excluding the provision for deferred 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 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.

 

 

Adjusted EPS is calculated as follows for the periods presented:

 

		Three-month period ended
		March 31, 2020												March 31, 2019
		Amount				Per Basic Share				Per Diluted Share				Amount				Per Basic Share				Per Diluted Share
Net income attributable to Ultralife Corporation		$	1,059			$	.07			$	.07			$	425			$	.03			$	.03
Deferred tax provision			242				.01				.01				(5	)			-				-
Adjusted net income attributable to Ultralife Corporation		$	1,301			$	.08			$	.08			$	420			$	.03			$	.03
Weighted average shares outstanding							15,875				16,087								15,740				16,225

 

Liquidity and Capital Resources

 

As of March 31, 2020, cash totaled $6,109, a decrease of $1,296 as compared to $7,405 of cash held at December 31, 2019, primarily driven by an increase in accounts receivable due to the timing of shipments and collections, and strategic capital investments for our Battery & Energy Products business.

 

During the three-month period ended March 31, 2020, net cash of $365 was used in operations, driven by a $5,764 increase in accounts receivable primarily relating to the timing of collections attributable to the large government and defense program awards announced in October 2018 for our Communications Systems business.  Cash used in operations was largely offset by net income of $1,074, non-cash expenses (depreciation, amortization, stock-based compensation and deferred taxes) totaling $1,212, and a decrease in other working capital of $3,113 primarily driven by an increase in accounts payable. 

 

Cash used in investing activities for the three months ended March 31, 2020 was $445, which included $565 for capital expenditures primarily for investment in automation equipment for our Battery & Energy Products business, including 3-Volt cell and thionyl chloride cell production.

 

Net cash used by financing activities for the three-months ended March 31, 2020 was $322, consisting of $343 of principle payments against our term loan used to fund the acquisition of SWE partially offset primarily by stock option exercise proceeds of $29.

 

As of March 31, 2020, the Company has significant U.S. net operating loss carryforwards available to utilize as an offset to future taxable income. See Note 8 in the Notes to Consolidated Financial Statements of this Form 10-Q for additional information.

 

As of March 31, 2020, we had made commitments to purchase approximately $1,253 of production machinery and equipment globally. We are also investing approximately $1 million in the second quarter 2020 for additional test equipment to meet the increased demand for our power supplies for ventilators, respirators and infusion pumps. 

 

While the COVID-19 pandemic poses a high level of uncertainty, Management expects that cash flow generated from future operations, the collection of accounts receivable for the large government and defense award shipments relating to our Communications Systems business and the remaining availability under our Revolving Credit Facility will be sufficient to meet our general funding requirements and capital investments for the foreseeable future.

 

 

Debt Commitments

 

On May 1, 2019, in connection with financing the SWE acquisition (see Note 4 to the Notes to Consolidated Financial Statements of this Form 10-Q), the Company drew down $8,000 on its Term Loan Facility and $6,782 under its Revolving Credit Facility. As of March 31, 2020, the Company had $6,791 outstanding principal on the Term Loan Facility, of which $1,467 is included in current portion of long-term debt on the balance sheet, and $10,182 outstanding principal on the Revolving Credit Facility. As of March 31, 2020, the Company is in full compliance with all covenants under the Credit Facilities.

 

Critical Accounting Policies

 

Management exercises judgment in making important decisions pertaining to choosing and applying accounting policies and methodologies in many areas. Not only are these decisions necessary to comply with U.S. GAAP, but they also reflect management’s view of the most appropriate manner in which to record and report our overall financial performance. All accounting policies are important, and all policies described in Note 1 (“Summary of Operations and Significant Accounting Policies”) to our Consolidated Financial Statements in our 2019 Annual Report on Form 10-K should be reviewed for a greater understanding of how our financial performance is recorded and reported.

 

During the first quarter of 2020, 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.

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our President and Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer and Treasurer (Principal Financial Officer) have evaluated our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e)) as of the end of the period covered by this quarterly report. Based on this evaluation, our President and Chief Executive Officer and Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures were effective as of such date.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in our internal control over financial reporting (as defined in Securities Exchange Act Rule 13a-15(f)) that occurred during the fiscal quarter covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II.     OTHER INFORMATION

 

Item 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Investors should carefully consider the risk factor set forth below in addition to the risk factors described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, which could adversely affect our business, financial condition and results of operations. Additional risks and uncertainties not currently known to us or that are not currently believed by us to be material may also harm our business, financial condition and operating results.

 

Our business, operating results and financial condition may be adversely impacted by COVID-19.

 

The novel coronavirus disease of 2019 (COVID-19) has created significant economic disruption and uncertainty around the world.  COVID-19 adversely impacted our operating results in the first quarter of 2020 primarily as a result of an approximately one-month closure of our China facility as mandated by the China government and supply chain disruptions.  While the Chinese government has lifted the suspension of business operations in China and we have maintained normal business operations at all our other facilities, the extent to which COVID-19 may impact our business is uncertain and will depend on many evolving factors which we continue to monitor but cannot predict, including the duration and scope of the pandemic and actions taken by governments, businesses and individuals in response to the pandemic.  Potential effects of COVID-19 which may adversely impact our business include limited availability and/or increased cost of raw materials and components used in our products, reduced demand and/or pricing for our products, inability of our customers to pay or remain solvent, reduced availability of our workforce, and increased cyber threats to our information technology infrastructure. Prolonged adverse effects of COVID-19 on our business could result in the impairment of long-lived assets including goodwill and other intangible assets.  While we continue to closely monitor the developments surrounding COVID-19 and take actions to mitigate the business risks involved, the potential effects of COVID-19 on our business, alone or taken together, pose material risk to our future operating results and financial condition.

 

 

 

Item 6.     Exhibits

 

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		Filed herewith
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Calculation Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document
101.DEF		XBRL Taxonomy Definition Document

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		ULTRALIFE CORPORATION
		(Registrant)
	Date: April 30, 2020	By: /s/ Michael D. Popielec
		Michael D. Popielec
		President and Chief Executive Officer
		(Principal Executive Officer)
	Date: April 30, 2020	By: /s/ Philip A. Fain
		Philip A. Fain
		Chief Financial Officer and Treasurer
		(Principal Financial Officer and
		Principal Accounting Officer)

 

 

 

Index to Exhibits

 

31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.LAB

XBRL Taxonomy Label Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

101.DEF

XBRL Taxonomy Definition Document