UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-20852
ULTRALIFE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation of organization)
16-1387013
(I.R.S. Employer Identification No.)
2000 Technology Parkway Newark, New York 14513
(Address of principal executive offices) (Zip Code)
(315) 332-7100
(Registrant's telephone number, including area code:)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.10 par value per share
(Title of each class)
ULBI
(Trading Symbol)
NASDAQ
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☐
Accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On June 30, 2021, the aggregate market value of the common stock held by non-affiliates as defined in Rule 405 under the Securities Act of 1933) of the
registrant was approximately $82,646,501 (in whole dollars) based upon the closing price for such common stock as reported on the NASDAQ Global
Market on June 30, 2021.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of March 7, 2022, the registrant had 16,127,082 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders are specifically incorporated by reference in
Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K, except for the equity plan information required by Item 12 as set forth herein.
TABLE OF CONTENTS
ITEM
PART I
1
Business
1A Risk Factors
1B Unresolved Staff Comments
2
3
Properties
Legal Proceedings
4 Mine Safety Disclosures
PART II
5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
6
Selected Financial Data
7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A Quantitative and Qualitative Disclosures About Market Risk
8
9
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A Controls and Procedures
9B Other Information
PART III
10 Directors, Executive Officers and Corporate Governance
11 Executive Compensation
12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13 Certain Relationships and Related Transactions, and Director Independence
14 Principal Accountant Fees and Services
PART IV
15 Exhibits, Financial Statement Schedules
Signatures
i
PAGE
1
14
23
23
23
23
24
24
25
36
37
64
64
64
65
65
65
65
65
66
68
PART I
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 continued impact of COVID-19 and the related supply chain disruptions on our business, operating results
and financial condition; our reliance on certain key customers; reduced U.S. and foreign military spending including the uncertainty associated with
government budget approvals; our efforts to develop new commercial applications for our products; fluctuations in the price of oil and the resulting impact
on the demand for downhole drilling; the unique risks associated with our China operations; potential disruptions in our supply of raw materials and
components; our ability to retain top management and key personnel; possible breaches in information systems security and other disruptions in our
information technology systems; our resources being overwhelmed by our growth; possible future declines in demand for the products that use our batteries
or communications systems; potential costs attributable to the warranties we supply with our products and services; safety risks, including the risk of fire;
variability in our quarterly and annual results and the price of our common stock; our entrance into new end-markets which could lead to additional
financial exposure; 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; our exposure to foreign currency fluctuations; negative publicity concerning Lithium-ion batteries; possible
impairments of our goodwill and other intangible assets; our ability to utilize our net operating loss carryforwards; the risk that we are unable to protect our
proprietary and intellectual property; rules and procedures regarding contracting with the U.S. and foreign governments; exposure to possible violations of
the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; known and unknown environmental matters; possible audits of
our contracts by the U.S. and foreign governments and their respective defense agencies; our ability to comply with government regulations regarding the
use of “conflict minerals”; technological innovations in the non-rechargeable and rechargeable battery industries; and other risks and uncertainties, certain
of which are beyond our control.
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 developments in 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 document, 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. Any forward-looking statements
that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the
results of any revisions to any of those statements to reflect future events or developments. 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. When
used in this report, the words “anticipate”, “believe”, “estimate”, “plan”, “intend”, “foresee”, “may”, “could”, “will”, “likely” or “expect” or words of
similar import are intended to identify some, but not all, such forward-looking statements. For further discussion of certain of the matters described above
and other risks and uncertainties, see “Risk Factors” in Item 1A of this Form 10-K Annual Report.
As used in this Form 10-K Annual Report, unless otherwise indicated, the terms the “Company”, “we”, “our” and “us” refer to Ultralife Corporation
(“Ultralife”) and include our wholly-owned subsidiaries, ABLE New Energy Co., Limited and its wholly-owned subsidiary, ABLE New Energy Co., Ltd;
Ultralife UK LTD and its wholly-owned subsidiary, Accutronics Ltd; Ultralife Batteries (UK) Ltd.; Southwest Electronic Energy Corporation and its
wholly-owned subsidiary, CLB, INC.; Ultralife Excell Holding Corp. (“UEHC”); Ultralife Canada Holding Corp. (“UCHC,” wholly owned by UEHC);
Excell Battery Canada ULC (wholly owned by UCHC); 1336902 B.C. Unlimited Liability Company (“1336902 B.C.”, wholly owned by UCHC); Excell
Battery Corporation USA (wholly owned by 1336902 B.C.); and our majority-owned joint venture Ultralife Batteries India Private Limited.
Dollar amounts throughout this Form 10-K Annual Report are presented in thousands of dollars, except for per share amounts.
ITEM 1. BUSINESS
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 related to those product lines. We continually evaluate ways to grow, including the design, development
and sale of new products, expansion of our sales force to penetrate new markets and territories, as well as seeking opportunities to expand through
acquisitions.
1
We sell our products worldwide through a variety of trade channels, including original equipment manufacturers (“OEMs”), industrial and defense supply
distributors, and directly to U.S. and foreign defense departments. We enjoy strong name recognition in our markets under our Ultralife® Batteries,
Lithium Power®, McDowell Research®, AMTITM, ABLETM, ACCUTRONICS™, ACCUPRO™, ENTELLION™, SWE Southwest Electronic Energy
Group™, SWE DRILL-DATA™, SWE SEASAFE™, Excell Battery Group and Criterion Gauge brands. We have sales, operations and product
development facilities in North America, Europe and Asia.
We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment
includes: Lithium 9-volt, cylindrical, thin cell and other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies,
charging systems and accessories. The Communications Systems segment includes: RF amplifiers, power supplies, cable and connector assemblies,
amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and
communications and electronics systems design. We believe that reporting performance at the gross profit level is the best indicator of segment
performance. As such, we report segment performance at the gross profit level and operating expenses as Corporate charges. (See Note 10 in the notes to
consolidated financial statements.)
Our website address is www.ultralifecorporation.com. We make available free of charge via a hyperlink on our website (see Investor Relations link on the
website) our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those
reports and statements as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange
Commission (“SEC”). We will provide copies of these reports upon written request to the attention of Philip A. Fain, CFO, Treasurer and Secretary,
Ultralife Corporation, 2000 Technology Parkway, Newark, New York, 14513. Our filings with the SEC are also available through the SEC website at
www.sec.gov or at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling 1-800-SEC-0330.
Battery & Energy Products
We manufacture and/or market a family of Lithium Manganese Dioxide (Li-MnO2), Lithium Manganese Dioxide Carbon Monofluoride (Li-CFx/MnO2)
hybrid and Lithium Thionyl Chloride (Li-SOCl2) non-rechargeable batteries including 9-volt, HiRate® cylindrical, ThinCell®, and other form factors.
Applications for our 9-volt batteries include: smoke alarms, wireless security systems and intensive care monitors, among many other devices. Our
HiRate® and ThinCell® Lithium non-rechargeable batteries are sold primarily to the military and to OEMs in industrial markets for use in a variety of
applications including radios, emergency radio beacons, search and rescue transponders, pipeline inspection gauges, portable medical devices and other
specialty instruments and applications. Military applications for our non-rechargeable HiRate® batteries include: manpack and survival radios, night vision
devices, targeting devices, chemical agent monitors and thermal imaging equipment. Our Lithium Thionyl Chloride batteries, sold under our ABLE and
Ultralife brands as well as a private label brand, are used in a variety of applications including utility meters, wireless security devices, electronic meters,
automotive electronics and geothermal devices. We believe that the chemistry of Lithium batteries provides significant advantages over other currently
available non-rechargeable battery technologies. These advantages include: higher energy density, lighter weight, longer operating time, longer shelf life
and a wider operating temperature range. Our non-rechargeable batteries also have relatively flat voltage profiles, which provide stable power.
Conventional non-rechargeable batteries, such as alkaline batteries, have sloping voltage profiles that result in decreasing power output during discharge.
While the price of our Lithium batteries is generally higher than alkaline batteries, the increased energy per unit of weight and volume of our Lithium
batteries allow for longer operating times and less frequent battery replacements for our targeted applications.
We believe that our ability to design and produce lightweight, high-energy Lithium-ion and Nickel Metal Hydride (NiMH) rechargeable batteries and
charging systems in a variety of custom sizes, shapes, and thicknesses offers substantial benefits to our customers. We market Lithium-ion and Nickel
Metal Hydride rechargeable batteries comprising cells manufactured by qualified cell manufacturers. Our rechargeable products can be used in a wide
variety of applications including communications, medical and other portable electronic devices.
Within this segment, we also seek to fund the development of new products that we hope will advance our technologies through contracts with both
government agencies and private sector third parties.
2
We continue to be awarded development contracts with public and private customers resulting in intellectual property that we believe will enhance our
efforts to commercialize new products that we develop. Revenues in this segment that pertain to product development may vary widely each year,
depending upon the quantity and size of contracts awarded.
Revenues for this segment for the year ended December 31, 2021 were $87,083 and segment contribution (gross profit) was $21,063.
Communications Systems
Under our McDowell Research and AMTI brands, we design and manufacture a line of communications systems and accessories to support military
communications requirements and under Ultralife Corporation brand provide system integration products and services for commercial requirements.
The military systems include RF amplifiers, power supplies, power cables, connector assemblies, amplified speakers, equipment mounts, case equipment,
man-portable systems and integrated communication systems for fixed or vehicle applications such as vehicle amplifier-adaptors (“VAA”) for multiple
programs. These programs include Vehicle Installed Power Enhanced Rifleman Appliqué (“VIPER”) systems, U.S. Army Leader Radio Program, U.S.
Army’s Security Force Assistance Brigades (“SFABs”) and SATCOM systems. All systems are packaged to meet specific customer needs in rugged
enclosures to allow for their use in extreme environments. We market these products to all branches of the U.S. military and foreign defense organizations
that we are permitted to sell our products to, as well as U.S. and international prime defense contractors.
The commercial products to date are integration of Information Technology capability into rugged cases, supporting use in various industries. We market
these products to automotive, cellular carriers and manufacturing industries.
Revenues for this segment for the year ended December 31, 2021 were $11,184 and segment contribution (gross profit) was $3,579.
Corporate
We report revenues and cost of sales for the above operating segments. The balance of income and expense, including but not limited to research and
development expenses, and selling, general and administrative expenses, are reported as Corporate operating expenses.
Corporate had no revenues for the year ended December 31, 2021 and our Corporate operating expenses for the year ended December 31, 2021 were
$24,607.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations and the 2021 Consolidated Financial Statements and Notes
thereto contained in this Form 10-K Annual Report for additional information on the expenses referred to above. For information relating to total assets by
segment, revenues for the last two years by segment, and contribution by segment for the last two years, see Note 10 in the notes to consolidated financial
statements.
3
History
Ultralife was formed as a Delaware corporation in December 1990. In March 1991, we acquired certain technology and assets from Eastman Kodak
Company (“Kodak”) relating to its 9‑volt Lithium Manganese Dioxide non-rechargeable battery. In December 1992, we completed our initial public
offering and became listed on NASDAQ.
In May 2006, we acquired ABLE New Energy Co., Ltd. (“ABLE”), an established manufacturer of Lithium batteries located in Shenzhen, China, which
broadened our product offering, including a wide range of Lithium Thionyl Chloride and Lithium Manganese batteries, and provided additional exposure to
new consumer markets.
In July 2006, we finalized the acquisition of substantially all the assets of McDowell Research, Ltd. (“McDowell”), a manufacturer of military
communications accessories. This acquisition expanded our product distribution channels into the military communications area and strengthened our
presence in global defense markets. During the second half of 2007, the operations of the Waco, Texas facility of McDowell were relocated to our Newark,
New York facility. In January 2012, we relocated these operations to our Virginia Beach, Virginia facility in order to gain operational efficiencies.
In March 2008, we formed a joint venture, named Ultralife Batteries India Private Limited (“India JV”), with our distributor partner in India. The India JV
assembles Ultralife power solution products and manages local sales and marketing activities, serving commercial, government and defense customers
throughout India. We have invested cash into the India JV, as consideration for our 51% ownership stake in the India JV.
In March 2009, we acquired the tactical communications products business of Science Applications International Corporation. The tactical communications
products business designs, develops and manufactures tactical communications products including: amplifiers, man-portable systems, cables, power
solutions and ancillary communications equipment, which are sold by Ultralife under the brand name AMTI. The acquisition strengthened our
communications systems business and provided us with direct entry into the handheld radio/amplifier market, complementing Ultralife’s communications
systems offerings.
In January 2016, we acquired Accutronics Limited (“Accutronics”), a U.K. corporation based in Newcastle-under-Lyme, U.K., a leading independent
designer and manufacturer of smart batteries and charger systems for high-performance, feature-laden portable and handheld electronic devices. With a
portfolio encompassing custom battery design, development and manufacturing for OEM’s; standard smart batteries, chargers and accessories; and pre-
engineered batteries and power solutions for specific applications, Accutronics primarily serves the portable medical device market throughout Europe.
Medical applications include digital imaging, ventilators, anesthesia, endoscopy, patient monitoring, cardiopulmonary care, oxygen concentration and
aspiration. We acquired Accutronics to advance our strategy of commercial revenue diversification, to expand our geographical penetration, and to achieve
revenue growth from new product development. We are continuing to experience sales synergies between Accutronics and our existing commercial battery
business as we cross-sell our existing products and the acquired Accutronics’ products to our respective customer bases.
On May 1, 2019, we acquired Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), and a leading designer and manufacturer of high-
performance smart battery systems and battery packs to customer specifications using lithium cells. SWE serves a variety of industrial markets, including
oil and gas, remote monitoring, process control and marine, which demand uncompromised safety, service, reliability and quality. We acquired SWE as a
bolt-on acquisition to further support our strategy of commercial revenue diversification by providing entry to the oil and gas exploration and production,
and subsea electrification markets, which were previously unserved by Ultralife. Another key benefit of our acquisition of SWE includes obtaining a highly
valuable technical team of battery pack and charger system engineers and technicians to add to our new product development-based revenue growth
initiatives in our commercial end-markets particularly asset tracking, smart metering and other industrial applications.
On December 13, 2021, we acquired Excell Battery Canada Inc., a British Columbia corporation (“Excell Canada”), and 656700 B.C. Ltd., a British
Columbia corporation (“656700”) and its wholly owned subsidiary, Excell Battery Corporation USA, a Texas corporation (“Excell USA” collectively, with
Excell Canada and 656700, “Excell”), which operate under the name Excell Battery Group, based in Canada with U.S. operations, a leading independent
designer and manufacturer of high-performance smart battery systems, battery packs and monitoring systems to customer specifications. Excell serves a
variety of industrial markets including downhole drilling, OEM industrial and medical devices, automated meter reading, ruggedized computers, and
mining, marine and other mission critical applications which demand uncompromised safety, service, reliability and quality. We acquired Excell as an
important component of our strategy to diversify commercial revenue and expand the end markets we serve. Acquiring Excell offers us opportunities to
further scale our Battery & Energy Products business and drive the operating leverage of our business model, expand into OEM device verticals that we do
not presently serve, enhance our contributed value to both our customers and realize cost synergies. Furthermore, Excell possesses experienced technical
resources which we plan to utilize in progressing our global new product initiatives while adding a complementary line of highly engineered products that
are costly for our customers to substitute with products of a competitor.
4
Products, Services and Technology
Battery & Energy Products
A non-rechargeable battery is used until discharged and then replaced. The principal competing non-rechargeable battery technologies are Carbon Zinc,
Alkaline and Lithium. We manufacture a range of non-rechargeable battery products based on Lithium Manganese Dioxide, Lithium Manganese Dioxide
Carbon Monofluoride hybrid, and Lithium Thionyl Chloride technologies.
Non-Rechargeable Batteries
We believe that the chemistry of Lithium batteries provides significant advantages over currently available non-rechargeable battery technologies, which
include: lighter weight, longer operating time, longer shelf life, and a wider operating temperature range. Our non-rechargeable batteries also have
relatively flat voltage profiles, which provide more stable power. Conventional non-rechargeable batteries, such as Alkaline batteries, have sloping voltage
profiles that result in decreasing power during discharge. While the prices for our Lithium batteries are generally higher than commercially available
Alkaline batteries produced by others, we believe that the increased energy per unit of weight and volume of our batteries will allow longer operating time
and less frequent battery replacements for our targeted applications. As a result, we believe that our non-rechargeable batteries are priced competitively
with other battery technologies on a price per unit of energy or volume basis.
Our non-rechargeable products include the following product configurations:
9‑Volt Lithium Battery. Our 9‑volt Lithium battery delivers a unique combination of the highest available energy density and stable voltage, which results in
a longer operating life for the battery and, accordingly, fewer battery replacements. While our 9‑volt battery price is generally higher than conventional
9‑volt Carbon Zinc and Alkaline batteries, we believe the enhanced operating performance and decreased costs associated with longer battery life make our
9‑volt battery more cost effective than conventional batteries on a cost per unit of energy or volume basis when used in a variety of applications.
We market our 9-volt Lithium batteries to OEM, distributor and retail markets including industrial electronics, safety and security, and medical. Typical
applications include: smoke alarms, wireless alarm systems, bone growth stimulators, telemetry devices, blood analyzers, ambulatory infusion pumps and
parking meters. A significant portion of the sales of our 9-volt battery is to major smoke alarm OEMs for use in their long-life smoke alarms. We also
manufacture our 9‑volt Lithium battery under private labels for a variety of companies. Additionally, we sell our 9‑volt battery to the broader consumer
market through national and regional retail chains and online retailers.
We believe our current 9-volt battery manufacturing capacity is adequate to meet forecasted customer demand over the next three years.
Cylindrical Batteries. Featuring high energy, wide temperature range, long shelf life and operating life, our cylindrical cells and batteries, based on Lithium
Manganese Dioxide, Lithium Manganese Dioxide Carbon Monofluoride hybrid and Lithium Thionyl Chloride technologies, represent some of the most
advanced Lithium power sources currently available. We market a wide range of cylindrical non-rechargeable Lithium cells and batteries in various sizes
under both the Ultralife HiRate and ABLE brands. These include: D, C, 5/4 C, 1/2 AA, 2/3 A, CR123A and other sizes, which are sold individually as well
as packaged into multi-cell battery packs, including our leading BA-5390 military battery, an alternative to the competing Li-SO2 BA-5590 battery, a
widely used battery type in the U.S. armed forces for portable applications. Our BA-5390 battery provides 50% to 100% more energy (mission time) than
the BA-5590, and it is used in approximately 60 military applications. With the introduction of our Lithium Carbon Monofluoride hybrid chemistry, we
now offer a D-cell that has 100% more energy than the competing Li-SO2 D-cell.
We market our line of Lithium cells and batteries to the OEM market for commercial, defense, medical, asset tracking and search and rescue applications,
among others. Significant commercial applications include oil and gas, pipeline inspection equipment, automatic re-closers and oceanographic and subsea
devices. Asset tracking applications include Radio Frequency Identification (“RFID”) systems. Among the defense uses are manpack radios, night vision
goggles, chemical agent monitors and thermal imaging equipment. Medical applications include: Automated External Defibrillators (“AEDs”), infusion
pumps and telemetry systems. Search and rescue applications include Emergency Locator Transmitters (“ELTs”) for aircraft and Emergency Position
Indicating Radio Beacons (“EPIRBs”) for ships. Oil and gas applications include battery packs for downhole drilling applications such as Measurement
While Drilling (“MWD”) and Logging While Drilling (“LWD”) and pipeline inspection.
5
Thin Cell Batteries. We manufacture a range of thin Lithium Manganese Dioxide batteries under the Thin Cell® brand. Thin Cell batteries are flat,
lightweight batteries providing a unique combination of high energy, long shelf life, wide operating temperature range and very low profile. We are
currently marketing these batteries to OEMs for applications such as displays, wearable medical devices, toll passes, theft detection systems, and RFID
devices.
Rechargeable Batteries
In contrast to non-rechargeable batteries, after a rechargeable battery is discharged, it can be recharged and reused many times. Generally, discharge and
recharge cycles can be repeated hundreds or thousands of times in rechargeable batteries depending on the technology of the battery. The achievable
number of cycles (cycle life) varies among technologies and is an important competitive factor. All rechargeable batteries experience a small, but
measurable, loss in energy capacity with each cycle. The industry commonly reports cycle life in the number of cycles a battery can achieve until 80% of
the battery’s initial energy capacity remains. In the rechargeable battery market, the principal competing technologies are Nickel Cadmium, Nickel Metal
Hydride and Lithium-ion (including Lithium polymer) batteries. Rechargeable batteries are used in many applications, such as military radios, laptop
computers, mobile telephones, portable medical devices, wearable devices and many other commercial, defense and consumer products.
Three important performance characteristics of a rechargeable battery are design flexibility, energy density and cycle life. Design flexibility refers to the
ability of rechargeable batteries to be designed to fit a variety of shapes and sizes of battery compartments. Thin profile batteries with prismatic geometry
provide the design flexibility to fit the battery compartments of today's electronic devices. Energy density refers to the total amount of electrical energy
stored in a battery divided by the battery’s weight and volume as measured in watt-hours per kilogram and watt-hours per liter, respectively. High energy
density batteries generally are longer lasting power sources providing longer operating time and necessitating fewer battery recharges. High energy density
and long achievable cycle life are important characteristics for comparing rechargeable battery technologies. Greater energy density will permit the use of
batteries of a given weight or volume for a longer time period. Accordingly, greater energy density will enable the use of smaller and lighter batteries with
energy comparable to those currently marketed. Lithium-ion batteries, by the nature of their electrochemical properties, are capable of providing higher
energy density than comparably sized batteries that utilize other chemistries and, therefore, tend to consume less volume and weight for a given energy
content. Long achievable cycle life, particularly in combination with high energy density, is suitable for applications requiring frequent battery recharges,
such as cellular telephones and laptop computers, and allows the user to charge and recharge many times before noticing a difference in performance. We
believe that our Lithium-ion batteries generally have high energy density and a long cycle life.
Lithium-ion Cells and Batteries. We market a variety of Lithium-ion cells and rechargeable batteries comprised of cells manufactured by qualified cell
manufacturers. These products are used in a wide variety of applications including communications, medical and other portable electronic devices.
Battery Charging Systems and Accessories. To provide our customers with complete power system solutions, we offer a wide range of rugged military and
commercial battery charging systems and accessories including smart chargers, multi-bay charging systems and a variety of cables.
Multi-Kilowatt Module. Our Multi-Kilowatt Module Lithium-ion battery system is a large format battery utilizable for energy storage, battery back-up, and
remote power applications. This product is a direct replacement of 1.25 kWh and larger capacity lead acid batteries in 24V or 48V applications. It can be
connected in multiples to obtain higher-voltages and is capable of over 3,000 cycles while maintaining 80% of its capacity.
Technology Contracts. Our technology contract activities involve the development of new products or the enhancement of existing products through
contracts with both government agencies and private sector third parties.
Communications Systems
Under our McDowell Research and AMTI brands, we design and manufacture a line of communications systems and accessories to support military
communications systems, including RF amplifiers, power supplies, power cables, connector assemblies, amplified speakers, equipment mounts, case
equipment, man-portable systems and integrated communication systems for fixed or vehicle applications such as vehicle amplifier-adaptors and SATCOM
systems. We package all systems to meet specific customer needs in rugged enclosures to allow their use in extreme environments and under our Ultralife
Corporation brand provide system integration products and services for commercial requirements.
6
We offer a wide range of military communications systems and accessories designed to enhance and extend the operation of communications equipment
such as vehicle-mounted, manpack and handheld transceivers. Our communications products include the following product configurations:
RF Amplifiers. Our RF amplifiers include: 20, 50 and 75-watt amplifiers and 20-watt accessories and kits. These amplifiers are used to extend the range of
manpack and handheld tactical transceivers and can be used on mobile or fixed site applications.
Integrated Systems. Our integrated systems include: vehicle mounted systems; SATCOM systems; rugged, deployable case systems; multiband transceiver
kits; enroute communications cases; and radio cases. These systems give communications operators everything that is needed to provide reliable links to
support Command, Control, Communications, Computers, Cyber and Intelligence, Surveillance and Reconnaissance (“C5ISR”).
Power Systems. Our power systems include: universal AC/DC power supplies with battery backup for tactical manpack and handheld transceivers;
ROVER™ power supplies; interoperable power adaptors and chargers; portable power systems and AC to DC power supplies, among many others. We can
provide power supplies for virtually all tactical communications devices.
The commercial products to date are integration of Information Technology capability into rugged cases, supporting use in various industries. We market
these products to automotive, cellular carriers and manufacturing industries.
Communications and Electronics. Our communications and electronics services include the design, integration, and fielding of portable, mobile and fixed-
site communications systems.
Sales and Marketing
We employ a staff of sales and marketing personnel in North America, Europe and Asia. We sell our products and services directly to commercial
customers, including OEMs, as well as government and defense agencies in the U.S. and abroad and have contractual arrangements with sales agents who
market our products on a commission basis in defined territories. Every effort is made to adjust future prices when and if possible, but the ability to adjust
prices is generally based on market conditions.
We also distribute some of our products through domestic and foreign distributors and retailers. These sales are generated primarily from customer
purchase orders. We have several long-term contracts with the U.S. government and other customers. These contracts do not commit the customers to
specific purchase volumes, nor to specific timing of purchase order releases, and they include fixed price agreements over various periods of time. In
general, we do not believe our sales are seasonal, although we may sometimes experience seasonality for some of our military products based on the timing
of government fiscal budget expenditures.
A significant portion of our business comes from sales of products and services to U.S. and foreign governments through various contracts. These contracts
are subject to procurement laws and regulations that specify policies and procedures for acquiring goods and services. The procurement laws and
regulations also contain guidelines for managing contracts after they are awarded, including conditions under which contracts may be terminated, in whole
or in part, at the government’s convenience or for default. Failure to comply with applicable procurement laws or regulations can result in civil, criminal or
administrative proceedings involving fines, penalties, suspension of payments, or suspension or debarment from government contracting or subcontracting
for a period of time. Even if a contract is awarded there is no guarantee that the government will order product under the contract.
We have one major customer, a large global defense primary contractor, which comprised 20% of our total revenues in 2021, and 17% of our total revenues
in 2020. There were no other customers that comprised greater than 10% of our total revenues during these years.
In 2021, sales to U.S. and foreign customers were approximately $48,819 and $49,448, respectively. In 2020, sales to U.S. and foreign customers were
approximately $62,255 and $45,457, respectively.
7
Battery & Energy Products
We target sales of our non-rechargeable products to manufacturers of security and safety equipment, medical devices, search and rescue equipment,
specialty instruments, oil and gas downhole drilling and pipe inspection equipment, point of sale equipment and metering applications, as well as users of
military equipment. Our strategy is to develop sales and marketing alliances with OEMs and governmental agencies that utilize our batteries in their
products, commit to cooperative research and development or marketing programs, and recommend our products for design-in or replacement use in their
products. We are addressing these markets through direct contact by our sales and technical personnel, use of sales agents and stocking distributors,
manufacturing under private label, and promotional activities.
We seek to capture a significant market share for our products within our targeted OEM markets, which we believe, if successful, will result in increased
product awareness and sales at the end‑user or consumer level. We are also selling our 9‑volt battery to the consumer market through retail distribution
channels. Most military procurements are done directly by the specific government organizations requiring products, based on a competitive bidding
process. Additionally, we are typically required to successfully meet contractual specifications and to pass various qualifications testing for the products
under contract by the military. Our inability to pass these tests for our new products in a timely fashion could have a material adverse effect on future
growth prospects. When a government contract is awarded, there is a government procedure that permits unsuccessful companies to formally protest the
award if they believe they were unjustly treated in the government’s bid evaluation process. A prolonged delay in the resolution of a protest, or a reversal of
an award resulting from such a protest, could have a material adverse effect on our business, financial condition and results of operations.
We market our products to defense organizations in the U.S. and other countries. In October 2017, we were awarded an indefinite-delivery/indefinite-
quantity contract by the Defense Logistics Agency for five years, with the potential to generate revenue of $49,800, to provide our hybrid lithium
manganese dioxide/carbon monofluoride (CFx) non-rechargeable BA-5790 and BA-5795 batteries. Manufacturing and production deliveries under this
award are expected to begin in 2022. In September 2019, we were awarded an indefinite-delivery/indefinite-quantity contract from the U.S. Government’s
Defense Logistics Agency for up to five years, with the potential to generate revenue of $14,422, to provide our BA-5368 batteries. In May 2021 we were
awarded an indefinite-delivery/indefinite-quantity contract form the U.S. Army for purchases of Conformal Wear Batteries not to exceed $168,000 during
the three-year base award period with the potential for up to an additional $350,000 should the six one-year options be exercised. We are scheduled to
complete First Article Testing under this contract in the second half of 2022. In December 2021, we were awarded an indefinite-delivery/indefinite-quantity
contract not to exceed $9,900 for the U.S. Government’s Defense Logistics Agency for our lithium manganese dioxide, non-rechargeable BA-5390
batteries. The award consists of a three-year base contract with two one-year option periods.
We target sales of our Lithium-ion rechargeable batteries and charging systems to OEM customers, as well as distributors and resellers focused on our
target markets. We respond to Requests for Proposals (“RFPs”) to design products for OEMs, and believe that our design capabilities, product
characteristics and solution integration will encourage OEMs to incorporate our batteries into their product offerings, resulting in revenue growth
opportunities for us.
We continue to expand our marketing activities as part of our strategic plan, a comprehensive forward-looking document which sets forth our strategic
growth plans, tactical actions and financial projections over a rolling three-year period, to increase sales of our battery and energy products for commercial,
standby, defense and communications applications, as well as hand-held devices, wearable devices and other electronic portable equipment. A key part of
this expansion includes increasing our design and assembly capabilities as well as building our international network of distributors and value-added
distributors.
At December 31, 2021 and 2020, our backlog related to Battery & Energy Products was approximately $55,300 and $34,600, respectively. The 60% year-
over-year increase in our Battery & Energy Products backlog at December 31, 2021 primarily resulted from the demand for our medical batteries, which in
some cases includes orders pushed into 2022 because of the supply chain disruptions experienced in 2021 and the backlog associated with our acquisition
of Excell on December 13, 2021.
The 2021 year-end backlog is related to orders that are expected to ship throughout 2022 and does not include future shipments under the indefinite-
delivery/indefinite-quantity Defense Logistics Agency awards for BA-5790/BA-5795 batteries ($49,800) and BA-5390 batteries ($9,900) and U.S. Army
awards for Conformal Wearable Batteries ($168,000).
8
Communications Systems
We target sales of our communications systems, which include power solutions and accessories to support communications systems such as RF amplifiers,
power supplies, power cables, connector assemblies, amplified speakers, equipment mounts, case equipment and integrated communication systems, to
military OEMs and U.S. and allied foreign militaries. We sell our products directly and through authorized distributors to OEMs and to defense contractors
and U.S. and foreign militaries. We market our products to defense organizations and OEMs in the U.S. and internationally.
We target sales of our communications systems, which include power solutions and accessories to support communications systems such as RF amplifiers,
power supplies, power cables, connector assemblies, amplified speakers, equipment mounts, case equipment and integrated communication systems, to
military OEMs and U.S. and allied foreign militaries. We sell our products directly and through authorized distributors to OEMs and to defense contractors
and U.S. and foreign militaries. We market our products to defense organizations and OEMs in the U.S. and internationally.
Sales targets for commercial products include integrated systems for information technology equipment to support fixed, mobile and deployable locations.
We sell our products directly to commercial businesses in the U.S.
At December 31, 2021 and 2020, our backlog related to Communications Systems orders was approximately $8,000 and $4,700, respectively. The 70%
increase in our Communications Systems backlog at December 31, 2021 is primarily a result of a purchase order valued at approximately $4,200 to supply
a global defense prime with our Vehicle Amplifier-Adaptors for the U.S. Army’s Leader Radio program. The 2021 year-end backlog is related to orders
that are expected to ship throughout 2022.
Patents, Trade Secrets and Trademarks
We use our patented and unpatented proprietary information, know‑how and trade secrets to maintain and develop our competitive position. Despite our
efforts to protect our proprietary information, there can be no assurance that others will neither develop the same or similar information independently nor
unlawfully obtain access to our proprietary information, know-how and trade secrets. In addition, there can be no assurance that we would prevail if we
asserted our intellectual property rights against third parties, or that third parties will not successfully assert infringement claims against us in the future. We
believe, however, that our success depends more on the knowledge, ability, experience and technological expertise of our employees, than on the legal
protection that our patents and other proprietary rights may or will afford.
We hold thirty-five patents issued in the U.S., six patents issued in the European Union member states, four patents issued in the European Union, four
patents issued in Japan, four patents issued in South Korea, three patents issued in Canada, three patents issued in the United Kingdom, three patents issued
in China, two patents issued in India, two patents issued in Norway, one patent issued in Australia, one patent issued in Hong Kong, one patent issued in
Iceland, one patent issued in Taiwan, and one patent issued by the World Intellectual Property Organization. We believe our patents protect technology that
makes automated production more cost-effective and protects important competitive features of our products. However, we do not consider our business to
be dependent on patent protection.
As part of our employment commencement process, our employees are required to enter into agreements providing for confidentiality of certain
information and the assignment of rights to inventions made by them while employed by us. These agreements also contain certain noncompetition and
nonsolicitation provisions which are effective during the employment term and for varying periods thereafter depending on position and location. There can
be no assurance that we will be able to enforce these agreements. All of our employees agree to abide by the terms of a Code of Ethics policy that provides
for the confidentiality of certain information received during the course of their employment. Nevertheless, the enforceability of such agreements is subject
to public policy limitations that vary from state to state and country by country so we cannot assure that they will be enforceable in accordance with their
terms, if at all.
Trademarks are an important aspect of our business. We sell our products under a number of trademarks, which we own. The following are registered
trademarks of ours: Ultralife®, Ultralife Thin Cell®, Ultralife HiRate®, Ultralife & design®, Ultra®, LithiumPower®, LithiumPower & Design®,
SmartCircuit®, Smart Circuit®, Smart Circuit & design®, We Are Power®, AMTI®, ABLE™, ACCUTRONICS®, ACCUPRO®, ENTELLION®,
Intelligent Power Vault®, McDowell Research®, RPS®, SWE Southwest Electronic Energy Group®, SWE DRILL-DATA®, and SWE SEASAFE®.
Manufacturing and Raw Materials
We manufacture our products from raw materials and component parts that we purchase. Our manufacturing facility in Newark, New York is ISO 9001 and
ISO 13485 certified. Our manufacturing facilities in Calgary and Mississauga, Canada are ISO 9001 certified and in Vancouver, Canada is ISO 9001 and
ISO 13485 certified. Our manufacturing facility in Shenzhen, China is ISO 9001, ISO 1401 and ISO 13485 certified. Our manufacturing facility in
Missouri City, Texas is ISO 9001 and ISO 13485 certified and in Houston, Texas is ISO 9001 certified. Our manufacturing facilities in the United Kingdom
are ISO 9001 and ISO 13485 certified. Our manufacturing facility in Virginia Beach, Virginia is ISO 9001 certified.
9
We expect our future raw material purchases to fluctuate based on global demand for our products, our knowledge regarding the timing of customer orders,
the related need to build inventory in anticipation of orders and actual shipment dates. The prices and availability of raw materials were impacted by
COVID/supply chain disruptions in 2021 and may continue to be affected in 2022.
Battery & Energy Products
Our Newark, New York and Shenzhen, China facilities have the capacity to produce cylindrical cells, 9-volt batteries, 3-volt battery and thin cells.
Capacity, however, is also affected by demand for particular products, and product mix changes can produce bottlenecks in an individual operation,
constraining overall capacity. We have acquired new machinery and equipment in areas where production bottlenecks have occurred in the past and we
believe that we have sufficient capacity in these areas. We continually evaluate our requirements for additional capital equipment, and we believe that
planned increases will be adequate to meet foreseeable customer demand.
Certain materials used in our products, other than rechargeable battery cells, are available only from a single source or a limited number of sources.
Additionally, we may elect to develop relationships with a single or limited number of sources for materials that are otherwise generally available.
Although we believe that alternative sources may in some cases be available to supply materials that could replace materials we use and that, if necessary,
we would be able to redesign our products to make use of an alternative material provided extensive customer testing and recertification are not required,
any interruption in our supply from any supplier that serves currently as our sole source could delay product shipments and adversely affect our financial
performance and relationships with our customers. Although we have experienced interruptions of product deliveries by sole source and other suppliers in
2021 resulting in the delay of shipments to future periods, we cannot assure that these interruptions and delays will not have an adverse effect on us in the
future.
Generally, the raw materials and components utilized for our rechargeable batteries are readily available from many sources. Although we believe that
alternative sources are available to supply materials and components that could replace materials or components we use, any interruption in our supply
from any supplier that serves currently as our sole source could delay product shipments and adversely affect our financial performance and relationships
with our customers.
Our Newark, New York facility has the capacity to produce significant volumes of batteries and energy products. This operation generally manufacturers
non-rechargeable battery cells, non-rechargeable and rechargeable battery packs, and chargers and is limited only by physical space and is not constrained
by manufacturing equipment capacity which can accommodate significant additional volumes of product. Similarly, our China and United Kingdom
facilities also have capacity to produce significant quantities of non-rechargeable batteries and rechargeable battery packs beyond current volumes and are
not constrained by manufacturing equipment capacity. Our Missouri City, Texas facility has the capacity to produce significant quantities of non-
rechargeable battery packs and is not constrained by manufacturing equipment capacity. We are in the process of assessing the capacity our Excell facilities
in Houston, Texas and in Calgary, Mississauga and Vancouver, Canada to determine constraints associated with human capital resources or manufacturing
equipment.
The total carrying value of our Battery & Energy Products inventory, including raw materials, work in process and finished goods, amounted to $25,677
and $20,714 as of December 31, 2021 and 2020, respectively. The year-over-year 24% increase primarily reflects an increase in materials, including
rechargeable cells, required to fulfill the backlog for our batteries used in medical devices and the inventory associated with our acquisition of Excell on
December 13, 2021. Management continuously monitors inventory levels in an effort to optimize such levels.
Communications Systems
In general, we believe that the raw materials and components utilized by us for our communications and commercial accessories and systems, including RF
amplifiers, power supplies, cables, repeaters and integration kits and systems, are available from many sources. Although we believe that alternative
sources are available to supply materials and components that could replace materials or components we use, any interruption in our supply from any
supplier that serves currently as our sole source or any significant increase in lead times to provide components could delay product shipments and
adversely affect our financial performance and relationships with our customers.
10
Our Virginia Beach, Virginia facility has the sufficient capacity to produce communications products and systems to meet current demand. This operation
generally assembles products and is limited only by physical space and is not constrained by manufacturing equipment capacity.
The total carrying value of our Communications Systems inventory, including raw materials, work in process and finished goods, amounted to $7,512 and
$7,479 as of December 31, 2021 and 2020, respectively. The year-over-year 0.4% increase is primarily related to the procurement of longer lead time
components to meet the commitment dates of our backlog orders. Management continuously monitors inventory levels in an effort to optimize such levels.
Research and Development
We devote significant resources to research and development activities to improve the technological capabilities of our products and to design new products
for customers’ applications. We conduct our research and development in Newark, New York; Virginia Beach, Virginia; Tallahassee, Florida; Missouri
City, Texas; Newcastle-under-Lyme, United Kingdom; and Shenzhen, China. During 2021 and 2020, we expended $8,042 and $7,316, respectively, on
research and development, including $1,216 and $1,369, respectively, on customer sponsored research and development activities, which are included in
cost of goods sold. The year-over-year decrease in customer sponsored research and development is due to the timing of key projects and helped to offset
our increased costs for the hiring of engineering resources to support new product development in our Battery & Energy Products business segment,
including $801 pertaining to our May 2021 Conformal Wearable Battery award from the U.S. Army.
We expect that research and development expenditures in the future could increase by 10% or more over 2021 levels, based on current initiatives. These
current initiatives include completing the development and testing of new battery and power solutions in our facilities in Newark, New York, Houston and
Missouri City, Texas and Newcastle-under-Lyme, UK; our Thionyl Chloride battery project in China and new product initiatives for our Communications
Systems business. Our expectation is that new product development is one of the factors that will drive our growth. As in the past, we will continue to
make funding decisions for our research and development efforts based upon demand for customer applications.
Battery & Energy Products
We continue to internally develop non-rechargeable cells and batteries with the goal of broadening our product offering to our customers.
We continue to internally develop our rechargeable product portfolio, including batteries, battery management systems, cables and charging systems, as our
customers’ needs for portable power continue to grow and new technologies become available.
The U.S. government sponsors research and development programs, which Ultralife participates in, designed to improve the performance and safety of
existing battery systems and to develop new battery systems.
Communications Systems
We continue to internally develop a variety of communications accessories and systems for the global defense and commercial markets to meet the ever-
changing demands of our customers.
Safety; Regulatory Matters; Environmental Considerations
Certain of the materials utilized in our batteries may pose safety problems if improperly used, stored, or handled. We have designed our batteries to
minimize safety hazards both in manufacturing and in use. Our batteries are subject to the regulations noted below, among others.
11
The transportation of non-rechargeable and rechargeable Lithium batteries is regulated in the U.S. by the Department of Transportation’s Pipeline and
Hazardous Materials Safety Administration (“PHMSA”), and internationally by the International Civil Aviation Organization (“ICAO”) and corresponding
International Air Transport Association (“IATA”), Dangerous Goods Regulations and the International Maritime Dangerous Goods Code (“IMDG”), and
other country specific regulations. These regulations are based on the United Nations Recommendations on the Transport of Dangerous Goods Model
Regulations and the United Nations Manual of Tests and Criteria. We currently ship our products pursuant to PHMSA, ICAO, IATA, IMDG and other
country specific hazardous goods regulations. The regulations require companies to meet certain testing, packaging, labeling, marking and shipping paper
specifications for safety reasons. We have not incurred, and do not expect to incur, any significant costs in order to comply with these regulations. We
believe we comply with all current U.S. and international regulations for the shipment of our products, and we intend and expect to comply with any new
regulations that are imposed. We have established our own testing facilities to ensure that we comply with these regulations. However, if we are unable to
comply with any such new regulations, or if regulations are introduced that limit our or our customers’ ability to transport our products in a cost-effective
manner, this could have a material adverse effect on our business, financial condition and results of operations.
The European Union’s Restriction of Hazardous Substances Directive (the “EU RoHS Directive”) places restrictions on the use of certain hazardous
substances in electrical and electronic equipment. All applicable products sold in the European Union market must pass RoHS compliance. While this
directive does not apply to batteries and does not currently affect our defense products, should any changes occur in the directive that would affect our
products, we intend and expect to comply with any new regulations that are imposed. However, we cannot assure that the cost of complying with such new
regulations would not have a material adverse effect on us. We believe our commercial chargers are substantially in compliance with the EU RoHS
Directive.
The European Union’s Battery Directive “on batteries and accumulators and waste batteries and accumulators” (the “EU Battery Directive”) is intended to
cover all types of batteries regardless of their shape, volume, weight, material composition or use. It is aimed at reducing mercury, cadmium, lead and other
metals in the environment by minimizing the use of these substances in batteries and by treating and re-using old batteries. The EU Battery Directive
applies to all types of batteries except those used to protect European member states’ security, for military purposes, or sent into space. To achieve these
objectives, the EU Battery Directive prohibits the marketing of some batteries containing hazardous substances. It establishes schemes aimed at high level
of collection and recycling of batteries with quantified collection and recycling targets. The EU Battery Directive sets out minimum rules for producer
responsibility and provisions with regard to labeling of batteries and their removability from equipment. The EU Battery Directive requires product
markings for batteries and accumulators to provide information on capacity and to facilitate reuse and safe disposal. We currently ship our products
pursuant to the requirements of the EU Battery Directive.
The EU Battery Directive requires producers or importers of particular classes of electrical goods to be financially responsible for specified collection,
recycling, treatment and disposal of past and future covered products. This directive assigns levels of responsibility to companies doing business in
European Union markets based on their relative market share. This directive calls on each European Union member state to enact enabling legislation to
implement the directive. As additional European Union member states pass enabling legislation our compliance system should be sufficient to meet such
requirements. Our current estimated costs associated with our compliance with these directives based on our current market share are not significant.
However, we continue to evaluate the impact of these directives as European Union member states implement guidance, and actual costs could differ from
our current estimates.
China’s “Management Methods for Restricted Use of Hazardous Substances in Electrical and Electronic Products” (“China RoHS 2”) provides a regulatory
framework including hazardous substance restrictions similar to those imposed by the EU RoHS Directive. China RoHS 2 applies to methods for the
control and reduction of pollution and other public hazards to the environment caused during the production, sale, and import of electrical and electronic
products (“EEP”) in China. The regulatory framework of China RoHS 2 also now references the updated marking and labeling requirements under
Standard SJ/T 11364-2014. The methods under China RoHS 2 only apply to EEP placed in the marketplace in China. We believe our compliance system is
sufficient to meet our requirements under China RoHS 2. Our current estimated costs associated with our compliance with this regulation based on our
current market share are not significant. However, we continue to evaluate the impact of this regulation, and actual costs could differ from our current
estimates.
National, state and local laws impose various environmental controls on the manufacture, transportation, storage, use and disposal of batteries and of
certain chemicals used in the manufacture of batteries. Although we believe that our operations are in material compliance with current environmental
regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject
us to future liabilities, costs and expenses. There can be no assurance that additional or modified regulations relating to the manufacture, transportation,
storage, use and disposal of materials used to manufacture our batteries or restricting disposal of batteries will not be imposed or that such regulations will
not have a material adverse effect on our business, financial condition and results of operations. In 2021 and 2020, we spent $208 and $260, respectively,
on environmental compliance, including costs to properly dispose of potentially hazardous waste.
12
Since non-rechargeable and rechargeable Lithium battery chemistries react adversely with water and water vapor, certain of our manufacturing processes
must be performed in a controlled environment with low relative humidity. Our Newark, New York and Shenzhen, China facilities contain dry rooms or
glove box equipment, as well as specialized air-drying equipment.
In addition to the environmental regulations previously described, our products are subject to U.S. and international laws and regulations governing
international trade and exports including but not limited to the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations
(“EAR”) and trade sanctions against embargoed countries.
The ITAR is a set of U.S. government regulations that control the export and import of defense-related articles and services on the United States Munitions
List. These regulations implement the provisions of the Arms Export Control Act, and are described in the Code of Federal Regulations. The Department of
State Directorate of Defense Trade Controls interprets and enforces ITAR. Its goal is to safeguard U.S. national security and further U.S. foreign policy
objectives.
The related EAR are enforced and interpreted by the Bureau of Industry and Security in the Commerce Department. The Department of Defense is also
involved in the review and approval process. Inspections in support of import and export laws are performed at border crossings by Customs and Border
Protection, an agency of the Department of Homeland Security.
Products and services developed and manufactured in our foreign locations are subject to the export and import controls of the nation in which the foreign
location operates.
We believe we are in material compliance with these domestic and international export regulations. However, failure of compliance could have a material
adverse effect on our business through possible fines, denial of export privileges, or loss of customers. Further, while we are not aware of any proposed
changes to these regulations, any change in the scope or enforcement of export or import regulations or related legislation could have a material adverse
effect on our business through increased costs of compliance or reduction in the international growth prospects available to us.
Based upon our current sales volumes, our future estimated costs associated with our compliance with ITAR, EAR, and the foreign export and import
controls are not significant. However, we continue to evaluate the impact of these regulations, and actual costs could differ from our current estimates.
Battery & Energy Products
Our non-rechargeable battery products incorporate Lithium metal, which reacts with water and may cause fires if not handled properly. In the past, we have
experienced fires that have temporarily interrupted certain manufacturing operations. We believe that we have adequate fire suppression systems and
insurance, including business interruption insurance, to protect against the occurrence of fires and fire losses in our facilities.
Our 9‑volt battery, among other sizes, is designed to conform to the dimensional and electrical standards of the American National Standards Institute.
Authorized certification bodies such as Underwriters Laboratories, Intertek and SGS have certified several of our products.
Communications Systems
We are not currently aware of any regulatory requirements regarding the disposal of our communications products.
Corporate
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Section 1502 (the “Dodd-Frank Act”) requires public companies to disclose
whether tantalum, tin, gold and tungsten, commonly known as “conflict minerals,” are necessary to the functionality or production of a product
manufactured by a public company and if those elements originated from armed groups in the Democratic Republic of Congo or adjoining countries. To
comply with the Dodd-Frank Act, as implemented by SEC rules, we are required to perform due diligence inquiries of our suppliers to determine whether
or not our products contain such minerals and from which countries and source (smelter) the minerals were obtained. Our annual report on Form SD was
filed by the statutory due date of May 31, 2021 for the 2020 calendar year and we continue to utilize appropriate measures with our suppliers to better
ascertain the origin of the conflict minerals in our products.
13
Competition
Competition in both the battery and communications systems markets is, and is expected to remain, intense. The competition ranges from development
stage companies to major domestic and international companies, many of which have financial, technical, marketing, sales, manufacturing, distribution and
other resources significantly greater than ours. We compete against companies producing batteries as well as companies producing communications
systems. We compete on the basis of design flexibility, performance, price, reliability and customer support. There can be no assurance that our
technologies and products will not be rendered obsolete by developments in competing technologies or services that are currently under development or
that may be developed in the future or that our competitors will not market competing products and services that obtain market acceptance more rapidly
than ours.
While we cannot assure that other entities will not attempt to take advantage of the growth of the battery market, the Lithium battery cell industry has
certain technological and economic barriers to entry. The development of technology, equipment and manufacturing techniques and the operation of a
facility for the automated production of Lithium battery cells require large capital expenditures, which may deter new competitors from commencing
production. Through our experience in battery cell manufacturing, we have also developed significant production and design expertise in the non-
rechargeable battery market, which we believe would be difficult for new competitors to reproduce without substantial time and expense.
Employees
As of December 31, 2021, we employed a total of 560 permanent and temporary employees: 440 in production, 79 in sales and administration, and 41 in
research and development. None of our employees are represented by a labor union.
ITEM 1A.RISK FACTORS
Our business faces many risks. As such, prospective investors and shareholders should carefully consider and evaluate all of the risk factors described
below as well as other factors discussed in this Form 10-K Annual Report and in our other filings with the SEC. Any of these factors could adversely affect
our business, financial condition and results of operations. Additional risks and uncertainties that are not currently known to us or that are not currently
believed by us to be material may also harm our business operations and financial results. These risk factors may change from time to time and may be
amended, supplemented, or superseded by updates to the risk factors contained in periodic reports on Form 10-Q and Form 10-K that we file with the SEC
in the future.
Company Risk Factors
The COVID-19 pandemic may continue to create significant economic disruption and uncertainty around the world, may impact the health of our
employees, suppliers and customers causing delays in the manufacture and delivery of our mission critical products to end customers, and may disrupt
business with our collaborative business partners, which may continue to adversely impact our operating results.
The novel coronavirus disease of 2019 (COVID-19) has created significant economic disruption and uncertainty around the world. COVID-19 adversely
impacted our operating results during 2021 with an estimated negative impact to sales and operating profit of $11,000 and $4,500, respectively, primarily as
a result of overall disruptions in supply chains and operations impacting both commercial and government/defense markets. While we have maintained
normal business operations at all our facilities throughout the year, the supply chain disruptions including increased lead times on key components
experienced within our business and by our customers, impacted our work schedules and timing of shipments.
The lingering impact of these conditions on 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 its variants, resulting actions taken by governments, businesses and individuals, and the
flow-through impact on operations and supply chains. Potential effects of COVID-19 that may adversely impact our future 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 for our products or remain solvent, and reduced availability of our workforce. Prolonged adverse effects of COVID-19 on our business
could result in the impairment of long-lived assets including goodwill and other intangible assets. Further, we cannot predict all possible adverse effects the
COVID-19 pandemic may cause. Consequently, there may be adverse effects in addition to those described in this Risk Factor. While we continue to
closely monitor the developments surrounding COVID-19 and take actions when possible to mitigate the business risks involved, the potential effects of
COVID-19 on our business, alone or taken together, may pose a material risk to our future operating results and financial condition.
14
A significant portion of our revenues is derived from certain key customers.
We have one customer, L3Harris Technologies, a large global defense primary contractor, which comprised 20% of our total revenues in 2021 and 17% of
our total revenues in 2020. There were no other customers that comprised greater than 10% of our total revenues during these years. While we consider our
relationship with our major customer to be good, the reduction, delay or cancellation of orders from this customer or any delays in payments beyond their
payment terms, for any reason, would reduce our revenue and operating income and could materially and adversely affect our business, operating results
and financial condition in other ways.
Our efforts to develop new products or new commercial applications for our products could be prolonged or could fail.
Although we develop certain products for new commercial applications, we cannot assure that these new products will be accepted due to the highly
competitive nature of the industry. There are many new product and technology entrants into the markets into which we sell our products, and we must
continually reassess the markets in which our products can be successful and seek to engage customers in those markets that will adopt our products for use
in their products. In addition, these customers must be successful with their products in their markets for us to gain increased business. Increased
competition, failure to gain customer acceptance of products, the introduction of competitive technologies or failure of our customers in their markets could
have a further adverse effect on our business and reduce our revenue and operating income.
Reductions or delays in U.S. and foreign military spending could have a material adverse effect on our business, financial condition and results of
operations.
A significant portion of our revenues is derived from contracts with U.S. and foreign militaries or OEMs that supply U.S. and foreign militaries. In the
years ended December 31, 2021 and 2020, $34,188 or 35% and $45,382 or 42%, respectively, of our revenues were comprised of sales made directly or
indirectly to U.S. and foreign militaries.
While significant gains have been made in commercial markets with our business, we are still highly dependent on sales to U.S. Government customers.
The amounts and percentages of our net revenue that were derived from sales to U.S. Government customers, including the Department of Defense,
whether directly or through prime contractors, was approximately $26,359 or 27% in 2021 and $38,900 or 36% in 2020. Therefore, any significant
disruption or deterioration of our relationship with the U.S. Government or any prime defense contractor could significantly reduce our revenue. Our
competitors continuously engage in efforts to expand their business relationships with the U.S. Government and will continue these efforts in the future,
and the U.S. Government may choose to use other contractors or suppliers.
Budget and appropriations decisions made by the U.S. Government, including possible future sequestration periods or other similar formulaic reductions in
federal expenditures, are outside of our control and have long-term consequences for our business. A decline in U.S. military expenditures could result in a
reduction in the military’s demand for our products, which could have a material adverse effect on our business, financial condition and results of
operations.
Our operations in China are subject to unique risks and uncertainties, including political shifts, tariffs and trade restrictions.
Our operating facility in China presents unique risks including, but not limited to, changes in local regulatory requirements, changes in labor laws, local
wage laws, environmental regulations, taxes and operating licenses, compliance with U.S. regulatory requirements, including the Foreign Corrupt Practices
Act, uncertainties as to application and interpretation of local laws and enforcement of contract and intellectual property rights, currency restrictions,
currency exchange controls, fluctuations of currency, and currency revaluations, eminent domain claims, civil unrest, power outages, water shortages, labor
shortages, labor disputes, increase in labor costs, rapid changes in government, economic and political policies, political or civil unrest, acts of terrorism, or
the threat of boycotts, other civil disturbances, the impact of the imposition of tariffs by the U.S. Government on 9-volt batteries that we manufacture in
China as well as any retaliating trade policies or restrictions, and an outbreak of a contagious disease, related to COVID-19 or not, which may cause us or
our suppliers and/or customers to temporarily suspend operations in the affected city or region. Any such disruptions could depress our earnings and have
other material adverse effects on our business, financial condition and results of operations.
15
Notwithstanding the impact of COVID-19, our supply of raw materials and components could be disrupted or delayed due to business conditions, weather,
or other factors not under our control, or the cost of those raw materials and components may materially increase.
Certain materials and components used in our products are available only from a single or a limited number of suppliers. As such in the present situation,
some materials and components have been in short supply resulting in limited availability and/or increased costs. Additionally, we may elect to develop
relationships with a single or limited number of suppliers for materials and components that are otherwise generally available. Due to our supplying
defense products to the U.S. government, we could receive a government preference to continue to obtain critical supplies to meet military production
needs. However, if the government did not provide us with a government preference in such circumstances or if the selected suppliers are not able to meet
the necessary demand for the components, the difficulty in obtaining supplies could have a material adverse effect on our business, financial condition and
results of operations. We believe that alternative suppliers are available to supply materials and components that could replace materials and components
currently used and that, if necessary, we may be able to redesign our products to make use of such alternatives provided that the costs and timing of our
customers recertifying the alternate materials and components where necessary is not deemed prohibitive by our customers or us. Nevertheless, any
interruption in the supply from any supplier that serves as a sole source could delay product shipments and have a material adverse effect on our business,
financial condition and results of operations. We have experienced interruptions of product deliveries by sole source and other suppliers in the past, most
notably in 2021, and we cannot guarantee that we will not experience a continuation of material interruption of deliveries from sole source or other
suppliers in the future. The present supply chain disruptions and increased component lead times resulting from COVID-19, have been exacerbated by the
increased demand for Lithium-based cells from the electric vehicle manufacturers. While the latter has resulted in increased supply of such cells, meeting
such demand may result in delays or even the discontinuation of the cells required for our products. Accordingly, these circumstances require us to
regularly monitor all aspects of our supply chain and share the updates with our customers, to ensure that any potential supply interruptions are understood
with all efforts taken to minimize.
With the potential for a significant post-COVID-19 rebound, our lead times for certain critical components from our suppliers could be extended even
further, resulting in shipping delays causing us to miss contractual timelines. Our internal purchasing process is focused on the current economic
environment, and lead times in the current environment are considered when placing orders from our vendors, but we cannot control the ability of our
vendors or potential vendors to meet our delivery dates.
Additionally, we could continue to face increasing pricing pressure from our suppliers due to rising costs of these suppliers that could be passed on to us in
higher prices for our raw materials, which could increase our cost of business, lower our margins and have other materially adverse effects on our business,
financial condition and results of operations, should our pass though of these price increase not be accepted by our customers.
Notwithstanding the impact of COVID-19, fluctuations in the demand, supply and price of oil and gas and the resulting volatility in the level of downhole
drilling could have a material adverse effect on our business, financial condition and results of operations.
The demand, supply and pricing fluctuations typically encountered in the oil and gas industry, especially over the past few years, have placed financial
strain not only on the producers, but also the companies that provide oilfield services and equipment to them. The cyclicality in this industry, whether
driven by geopolitical developments; international tensions; supply and demand economics; the introduction of new global, national, and industry-specific
regulations; U.S. administration policies; and technology, is an ongoing reality. A significant downturn in the price of oil resulting in a decrease in
downhole drilling will very likely have an adverse impact on our financial results. In response, we would expect to mitigate a portion, but not all, of this
risk by seeking product/market diversification throughout our portfolio.
The loss of top management and key personnel could significantly harm our business, and our ability to put in place a succession plan and recruit
experienced, competent management is critical to the success of the business.
The continuity of our officers and executive team is vital to the successful implementation of our business model and growth strategy designed to deliver
sustainable, consistent profitability. A top management priority has been the development and implementation of a formal written succession plan to
mitigate the risks associated with the loss of senior executives. This formal succession plan is updated annually and presented to our Board of Directors.
There is no guarantee that we will be successful in our efforts to effectively implement our succession plan.
16
Because of the specialized, technical nature of our business, we are highly dependent on certain members of our management, sales, engineering and
technical staffs. The loss of these employees could have a material adverse effect on our business, financial condition and results of operations. Our ability
to effectively pursue our business strategy will depend upon, among other factors, the successful retention of our key personnel, recruitment of additional
highly skilled and experienced managerial, sales, engineering and technical personnel, and the integration of such personnel obtained through business
acquisitions. We cannot assure that we will be able to retain or recruit this type of personnel. An inability to hire sufficient numbers of people or to find
people with the desired skills could result in greater demands being placed on limited management resources which could delay or impede the execution of
our business plans and have other material adverse effects on our business, financial condition and results of operations.
Breaches in security, whether cyber or physical, and related disruptions and/or our inability to prevent or respond to such breaches, could diminish our
ability to generate revenues or contain costs, compromise our assets, and negatively impact our business in other ways.
We face certain security threats, including threats to our information technology infrastructure, attempts to gain access to our proprietary or classified
information, and threats to physical and cyber security. Our information technology networks and related systems are critical to the operation of our
business and essential to our ability to successfully perform day-to-day operations. The risks of a security breach, cyber-attack, cyber intrusion, or
disruption, particularly through actions taken by computer hackers, foreign governments and cyber terrorists, have increased as the number, intensity and
sophistication of attempted attacks and intrusions from around the world have increased. Although we have acquired and developed systems and processes
designed to protect our proprietary or classified information, they may not be sufficient and the failure to prevent these types of events could disrupt our
operations, require significant management attention and resources, and could negatively impact our reputation among our customers and the public, which
could have a negative impact on our financial condition, and weaken our results of operations and liquidity. In 2017, we formed a cyber security executive
management committee (the “Committee”) with oversight responsibility to minimize the risk of breaches. In 2018, this Committee with the assistance of
outside security consultants completed a comprehensive Systems Security Plan (“SSP”) and a Plan of Action & Milestones (“POAM”) in compliance with
the requirements of National Institute of Standards and Technology (“NIST”) Special Publication 800-171, Protecting Controlled Unclassified Information
in Nonfederal Information Systems and Organizations. In 2019, the Company made further progress in implementing many of the security measures in our
SSP and POAM, including increasing the security awareness across our employee base. In 2020 and 2021, we continued to make substantial progress
towards achieving full implementation of all NIST 800-171 security standards, as well as the requirements under the Cybersecurity Maturity Model
Certification (CMMC) framework released by the Department of Defense in 2020. The Committee continues to review all key aspects of cyber security
utilizing our outside security consultants to ensure a robust plan is in place and provides quarterly updates to our Board. Despite these measures, we cannot
eliminate the risk of such security breaches and the potential adverse impacts these breaches may have on our business and financial results.
A decline in demand for products using our batteries or communications systems could reduce demand for our products and/or our products could become
obsolete resulting in lower revenues and profitability.
A substantial portion of our business depends on the continued demand for products using our batteries and communications systems sold by our
customers, including OEMs. Our success depends significantly upon the success of those customers’ products in the marketplace. We are subject to many
risks beyond our control that influence the success or failure of a particular product or service offered by a customer, including:
● competition faced by the customer in its particular industry,
● market acceptance of the customer’s product or service,
● the engineering, sales, marketing and management capabilities of the customer,
● technical challenges unrelated to our technology or products faced by the customer in developing its products or services, and
● the financial and other resources of the customer.
The market for our products is characterized by changing technology and evolving industry standards, often resulting in product obsolescence or short
product lifecycles. Although we believe that our products utilize state-of-the-art technology, there can be no assurance that competitors will not develop
technologies or products that would render our technologies and products obsolete or less marketable. Many of the companies with which we compete have
substantially greater resources than we do, and some have the capacity and volume of business to be able to produce their products more efficiently than we
can. In addition, these companies are developing or have developed products using a variety of technologies that are expected to compete with our
technologies. Furthermore, we have noted an increase in foreign competition, especially in Asia, over the last several years which tend to compete on price
in the battery industry. If these companies successfully market their products in a manner that renders our technologies obsolete, this would reduce our
revenue and operating income and could have other material adverse effects on our business, financial condition and results of operations.
17
We are subject to certain safety risks, including the risk of fire, inherent in the manufacture, use and transportation of Lithium batteries.
Due to the high energy inherent in Lithium batteries, our Lithium batteries can pose certain safety risks, including the risk of fire. We incorporate
procedures in research, development, product design, manufacturing processes and the transportation of Lithium batteries that are intended to minimize
safety risks, but we cannot assure that accidents will not occur or that our products will not be subject to recall for safety concerns. Although we currently
carry insurance policies which cover loss of plant and machinery, leasehold improvements, inventory and business interruption, any accident, whether at
the manufacturing facilities or from the use of the products, may result in significant production delays or claims for damages resulting from injuries or
death. While we maintain what we believe to be sufficient casualty liability coverage to protect against such occurrences, these types of losses could reduce
our available cash and our operating and net income and have other material adverse effects on our reputation, business, financial condition and results of
operation.
Our growth and expansion strategy could strain or overwhelm our resources.
Rapid growth of our business could significantly strain management, operations and technical resources. If we are successful in obtaining rapid market
growth of our products, we will likely be required to deliver large volumes of quality products to customers on a timely basis at a reasonable cost. For
example, demand for our new or existing products combined with our ability to penetrate new markets and geographies or secure a major project award,
could strain the current capacity of our manufacturing facilities and require additional capital resources, equipment and time to meet the required demand.
We cannot assure, however, that our business will grow rapidly or that our efforts to expand manufacturing and quality control activities will be successful
or that we will be able to satisfy commercial scale production requirements on a timely and cost-effective basis. During 2020, the Company experienced a
64% year-over-year increase in shipments of our medical batteries primarily in response to the higher demand for ventilators, respirators and infusion
pumps caused by COVID-19. While we met all of our 2020 commitments to our medical customers and now exit 2021 with the highest backlog in
Company history, this does not mean that rapid growth and demand for our products in all cases will be met by our resources without delay. Our recent
acquisition of Excell in December 2021 provides an influx of highly experienced technical engineering talent along with facilities that have either been ISO
13485 certified for medical products or are in the process of such. This, combined with SWE’s ISO 13485 certification in 2021, provides further capacity
to help meet the continued high level of demand for our products from the medical and other commercial sectors.
We also may be required to continue to improve our operations, management and financial systems and controls in order to remain competitive. The failure
to manage growth and expansion effectively could have an adverse effect on our business, financial condition, and results of operations. We address these
risks in the annual update of our three-year Strategic Plan which is presented to our Board of Directors.
Our quarterly and annual results and the price of our common stock could fluctuate significantly.
Our future operating results may vary significantly from quarter-to-quarter and from year-to-year depending on factors such as the timing and shipment of
significant orders, new product introductions, the transition of new products to higher-volume production, major project wins, U.S. and foreign government
demand, delays in customer releases of purchase orders, delays in receiving raw materials from vendors, the mix of distribution channels through which we
sell our products and services and general economic conditions. Frequently, a substantial portion of our revenue in each quarter is generated from orders
booked and fulfilled during that quarter. As a result, revenue levels are difficult to predict for each quarter. If revenue results are below expectations,
operating results will be adversely affected as we have a sizeable base of fixed overhead costs that do not fluctuate much with changes in revenue. Due to
such variances in operating results, we have sometimes failed to meet, and in the future may not meet, market expectations regarding our future operating
results.
In addition to the uncertainties of quarterly and annual operating results, future announcements concerning us or our competitors, including technological
innovations or commercial products, litigation or public concerns as to the safety or commercial value of one or more of our products, or the impact of
economic or geopolitical factors on any of the markets segments we participate in may cause the market price of our common stock to fluctuate
substantially, all of which may be unrelated to our operating results.
18
Our customers may not meet the volume expectations in our supply agreements.
We sell most of our products and services through supply agreements and contracts. While supply agreements and contracts contain volume-based pricing
based on expected volumes, we cannot assure that adjustments to reflect volume shortfalls will be made under current industry practices because pricing is
rarely adjusted retroactively when contract volumes are not achieved. Every effort is made to adjust future prices accordingly, but our ability to adjust
prices is generally based on market conditions and we may not be able to adjust prices in various circumstances. This could have an adverse impact in the
form of lost revenue or decreasing margins.
We may incur significant costs or liabilities to satisfy obligations under the terms of the warranties we supply and the contractual terms under which we
sell our products and services.
With respect to our battery products, we typically offer warranties against any defects in manufacture or workmanship for a period up to one year from the
date of purchase. With respect to our communications systems products, we now offer up to a three-year warranty. We provide a reserve for these potential
warranty expenses, which is based on an analysis of historical warranty issues. There is no assurance that future warranty claims will be consistent with
past history, and in the event we experience a significant increase in warranty claims, there is no assurance that our reserves will be sufficient. Excessive
warranty claims could have a material adverse effect on our business, financial condition and results of operations.
Any inability to comply with changes to the regulations for the shipment of our products could limit our ability to transport our products to customers in a
cost-effective manner and reduce our operating income and margins.
The transportation of Lithium batteries is regulated by the International Civil Aviation Organization (“ICAO”) and corresponding International Air
Transport Association (“IATA”) Dangerous Goods Regulations and the International Maritime Dangerous Goods Code (“IMDG”) and in the U.S. by the
Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (“PHMSA”). These regulations are based on the United Nations
Recommendations on the Transport of Dangerous Goods Model Regulations and the United Nations Manual of Tests and Criteria. We currently ship our
products pursuant to ICAO, IATA and PHMSA hazardous goods regulations. These regulations require companies to meet certain testing, packaging,
labeling and shipping specifications for safety reasons. We have not incurred, and do not expect to incur, any significant costs in order to comply with these
regulations. We believe we comply with all current U.S. and international regulations for the shipment of our products, and we intend and expect to comply
with any new regulations that are imposed. We have established our own testing facilities to ensure that we comply with these regulations. If, however, we
are unable to comply with any such new regulations, or if regulations are introduced that limit our ability to transport our products to customers in a cost-
effective manner, this could reduce our operating income and margins, and have other material adverse effects on our business, financial condition and
results of operations.
Our ability to use our net operating loss and tax credit carryforwards in the future may be limited, which could increase our tax liabilities and reduce our
cash flow and net income.
At December 31, 2021, we had approximately $44,716 of U.S. net operating loss carryforwards and $2,239 of U.S. tax credit carryforward available to
offset future taxable income. We continually assess the carrying value of these assets based on the relevant accounting standards. Based on our latest
assessment at December 31, 2021, we believe it is more likely than not that our U.S. deferred tax assets will be fully realized. However, failure to achieve
our business targets could result in future charges to our income tax provision if any of the net operating loss or tax credit carryforwards are not utilized.
See discussion in Management’s Discussion & Analysis beginning on Page 25.
Our entrance into new markets could lead to additional exposure to financial risk or increased liability, and our failure to enter into those markets could
lead to negative customer perception or loss of business from existing customers.
Our new products supporting our commercial diversification strategy will likely result in the introduction of our products in new end markets that we have
not participate in before. These new market opportunities may carry certain risks that we may not have experienced in the past or that we may not be fully
aware. While we perform extensive due diligence in the launch of our products in new end markets and mitigate our risks with our contracts and insurance
coverage, we may not be fully aware of the risks that may exist until we gain more experience in these markets.
Negative publicity concerning Lithium-ion batteries may negatively impact the industries or markets we operate in.
We are unable to predict the impact, severity or duration of negative publicity related to fire/mishandling of Lithium-ion batteries or the environmental
impact of their disposal, and how it may impact the industries or markets we serve. Ongoing negative attention being given to Lithium-ion batteries that are
used in certain cellular phones or are integrated into the power systems of new commercial aircraft and electric motor vehicles may have an impact on the
Lithium-ion battery industry as a whole, regardless of the design or usage of those batteries. The residual effects of such events could have an adverse
effect on our business, financial condition, and results of operations.
19
Any impairment of goodwill and/or other indefinite-lived intangible assets could adversely impact our results of operations.
Our goodwill and other indefinite-lived intangible assets are subject to an impairment test on an annual basis. Additionally, goodwill and other indefinite-
lived intangible assets are assessed for impairment whenever events and circumstances indicate that impairment may exist. Any excess carrying value of
goodwill and/or other intangible assets resulting from an impairment assessment must be written off in the period of determination. In addition, from time
to time, we may acquire a business which will require us to record goodwill and/or other indefinite-lived intangible assets based on the allocation of the
total consideration transferred to consummate the acquisition to the identified tangible and intangible assets acquired and liabilities assumed based on their
respective estimated fair values. We may subsequently experience unforeseen circumstances related to past or future acquisitions which may adversely
impact the forecasted cash flows or other assumptions used to value these assets. Future determinations that the estimated fair value of our goodwill and/or
indefinite-lived intangible assets is less than their respective carrying values may result in significant (non-cash) impairment charges which could have a
material adverse impact on future results of operations.
We are subject to foreign currency fluctuations.
We maintain manufacturing operations in North America, Europe and China, and we export products to various countries. We purchase materials and sell
our products in foreign currencies, and therefore currency fluctuations may impact our pricing of products sold and materials purchased. Sales to non-U.S.
customers make up a significant percentage of our total revenues. For example, the percentage of our business with customers outside of the U.S.
considerably increased in 2021 to 50% compared to 42% in 2020. A future strengthening of the U.S. dollar relative to our customers’ currencies could
make our products relatively more expensive to them and, may adversely affect our sales levels and reduce profitability. In addition, our United Kingdom
and China subsidiaries maintain their books in local currency and the translation of the subsidiary financial statements into U.S. dollars for our consolidated
financial statements could have an adverse effect on our consolidated financial results due to changes in local currency value relative to the U.S. dollar.
With the rapid pace of geopolitical events, it is difficult at this time to assess any future impact of currency fluctuation on the Company’s financial results,
despite our proactive efforts to minimize the short-term risks of currency fluctuations. Accordingly, currency fluctuations could have a material adverse
effect on our business, financial condition and results of operations by increasing our expenses and reducing our income. Finally, we maintain certain
domestic U.S. cash balances denominated in foreign currencies, and the U.S. dollar equivalent of these balances fluctuates with changes in the foreign
exchange rates between these currencies and the U.S. dollar.
A finding that our proprietary and intellectual property rights are not enforceable or invalid could allow our competitors and others to produce competing
products based on our proprietary and intellectual property or limit our ability to continue to manufacture and market our products.
We believe our success depends more on the knowledge, ability, experience and technological expertise of our employees than on the legal protection of
patents and other proprietary rights. However, we claim proprietary rights in various unpatented technologies, know-how, trade secrets and trademarks
relating to our products and manufacturing processes. We cannot guarantee the degree of protection these various claims may or will afford, or that
competitors will not independently develop or patent technologies that are substantially equivalent or superior to our technology. We protect our proprietary
rights in our products and operations through contractual obligations, including nondisclosure agreements with certain employees, customers, consultants
and strategic partners. There can be no assurance as to the degree of protection these contractual measures may or will afford. We have had patents issued
and have patent applications pending in the U.S. and elsewhere. We cannot assure (1) that patents will be issued from any of these pending applications, or
that the claims allowed under any issued patents will be sufficiently broad to protect our technology, (2) that any patents issued to us will not be challenged,
invalidated or circumvented, or (3) as to the degree or adequacy of protection any patents or patent applications may or will afford. Further, if we are found
to be infringing upon third party patents, we cannot assure that we will not be subjected to significant damages or will be able to obtain licenses with
respect to such patents on acceptable terms, if at all. The failure to obtain necessary licenses could delay product shipments or the introduction of new
products, and costly attempts to design around such patents could foreclose the development, manufacture or sale of products, all of which could materially
adversely affect our business and the results of operations.
20
We are subject to the contract rules and procedures of the U.S. and foreign governments. These rules and procedures create significant risks and
uncertainties for us that are not usually present in contracts with private parties.
We continue to develop battery products and communications systems to meet the needs of the U.S. and foreign governments. We compete in solicitations
for awards of contracts. The receipt of an award, however, does not always result in the immediate release of an order and does not guarantee in any way
any given volume of orders. Any delay of solicitations or anticipated purchase orders by, or future failure of, the U.S. or foreign governments to purchase
products manufactured by us could have a material adverse effect on our business, financial condition and results of operations. In these scenarios we are
also typically required to successfully meet contractual specifications and to pass various qualification-testing for the products under contract. Our inability
to pass these tests in a timely fashion, as well as meet delivery schedules for orders released under contract, could have a material adverse effect on our
business, financial condition and results of operations.
Additionally, when a U.S. government contract is awarded, there is a government procedure that permits unsuccessful companies to formally protest such
award if they believe they were unjustly treated in the evaluation process. As a result of these protests, the government is precluded from proceeding under
these contracts until the protests are resolved. A prolonged delay in the resolution of a protest, or a reversal of an award resulting from such a protest could
have material adverse effects on our business, financial condition and results of operations.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act or other anti-corruption laws.
The FCPA, U.K. Bribery Act and other anti-corruption laws generally prohibit companies and their intermediaries from making improper payments (to
foreign officials and otherwise) and require companies to keep accurate books and records and maintain appropriate internal controls. Our training program
and policies mandate compliance with such laws. We operate in some parts of the world that have experienced governmental corruption to some degree,
and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. If we are found to be liable for
violations of anti-corruption laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others, including employees of our
third-party partners or agents), we could suffer from civil and criminal penalties or other sanctions, incur significant internal investigation costs and suffer
reputational harm.
We may incur significant costs because of known and unknown environmental matters.
National, state and local laws impose various environmental controls on the manufacture, transportation, storage, use and disposal of batteries and of
certain chemicals used in the manufacture of batteries. We use and generate a variety of chemicals and other hazardous by-products in our manufacturing
operations. These environmental laws govern, among other things, air emissions, wastewater discharges and the handling, storage and release of wastes and
hazardous substances. Such laws and regulations can be complex and are subject to change. Although we believe that our operations are in substantial
compliance with current environmental regulations and that, except as noted below, there are no environmental conditions that will require material
expenditures for clean up at our present or former facilities or at facilities to which we have sent waste for disposal, there can be no assurance that changes
in such laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. There can be no assurance
that additional or modified regulations relating to the manufacture, transportation, storage, use and disposal of materials used to manufacture our batteries
or restricting disposal of batteries will not be imposed, or as to how these regulations will affect us or our customers. Such changes in regulations could
reduce our operating income and margins and have other material adverse effects on our business, financial condition and results of operations. We could
incur substantial costs as a result of violations of environmental laws, including clean-up costs, fines and sanctions and third-party property damage or
personal injury claims. Failure to comply with environmental requirements could also result in enforcement actions that materially limit or otherwise affect
the operations of the facilities involved. Under certain environmental laws, a current or previous owner or operator of an environmentally contaminated site
may be held liable for the entire cost of investigation, removal or remediation of hazardous materials at such property. This liability could result whether or
not the owner or operator knew of, or was responsible for, the presence of any hazardous materials.
The EU RoHS Directive places restrictions on the use of certain hazardous substances in electrical and electronic equipment. All applicable products sold
in the European Union market after July 1, 2006 must comply with EU RoHS Directive. While this directive does not apply to batteries and does not
currently affect our defense products, should any changes occur in the directive that would affect our products, we intend and expect to comply with any
new regulations that are imposed. Our commercial chargers are in compliance with this directive. Additional European Union directives, entitled the
Waste Electrical and Electronic Equipment (“WEEE”) Directive and the Directive "on batteries and accumulators and waste batteries and accumulators",
impose regulations affecting our non-defense products. These directives require producers or importers of particular classes of electrical goods to be
financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. These directives assign levels of
responsibility to companies doing business in European Union markets based on their relative market share. These directives call on each European Union
member state to enact enabling legislation to implement the directive. As additional European Union member states pass enabling legislation our
compliance system should be sufficient to meet such requirements. Our current estimated costs associated with our compliance with these directives based
on our current market share are not significant. However, we continue to evaluate the impact of these directives as European Union member states
implement guidance, and actual costs could differ from our current estimates.
21
The EU Battery Directive is intended to cover all types of batteries regardless of their shape, volume, weight, material composition or use. It is aimed at
reducing mercury, cadmium, lead and other metals in the environment by minimizing the use of these substances in batteries and by treating and re-using
old batteries. This directive applies to all types of batteries except those used to protect European member states’ security, for military purposes, or sent into
space. To achieve these objectives, the EU Battery Directive prohibits the marketing of some batteries containing hazardous substances. It establishes
processes aimed at high levels of collection and recycling of batteries with quantified collection and recycling targets. The directive sets out minimum
rules for producer responsibility and provisions with regard to labeling of batteries and their removability from equipment. Product markings are required
for batteries and accumulators to provide information on capacity and to facilitate reuse and safe disposal. We currently ship our products pursuant to the
requirements of the directive. Our current estimated costs associated with our compliance with these directives based on our current market share are not
significant. However, we continue to evaluate the impact of these directives as European Union member states implement guidance, and actual costs could
differ from our current estimates.
The China RoHS 2 directive provides a regulatory framework, including similar hazardous substance restrictions as are imposed by the EU RoHS
Directive, and applies to methods for the control and reduction of pollution and other public hazards to the environment caused during the production, sale,
and import of EEP in China affecting a broad range of electronic products and parts. The regulatory framework of China RoHS 2 also now references the
updated marking and labeling requirements under Standard SJ/T 11364-2014. The methods under China RoHS 2 only apply to EEP placed in the
marketplace in China. We believe our compliance system is sufficient to meet our requirements under China RoHS 2. Our current estimated costs
associated with our compliance with this regulation based on our current market share are not significant. However, we continue to evaluate the impact of
this regulation, and actual costs could differ from our current estimates.
A number of domestic and international communities are prohibiting the landfill disposal of batteries and requiring companies to make provisions for
product recycling. Of particular note are the EU Batteries Directive and the New York State Rechargeable Battery Recycling Law. We are committed to
responsible product stewardship and ongoing compliance with these and future statutes and regulations. The compliance costs associated with current
recycling statutes and regulations are not expected to be significant at this time. However, we continue to evaluate the impact of these regulations, and
actual costs could differ from our current estimates and additional laws could be enacted by these and other states which entail greater costs of compliance.
The U.S. and foreign governments can audit our contracts with their respective defense and government agencies and, under certain circumstances, can
adjust the economic terms, delivery schedule or other terms of those contracts.
A portion of our business comes from sales of products and services to the U.S. and foreign governments through various contracts. These contracts are
subject to procurement laws and regulations that lay out policies and procedures for acquiring goods and services. The procurement laws and regulations
also contain guidelines for managing contracts after they are awarded, including conditions under which contracts may be terminated, in whole or in part, at
the government’s convenience or for default. Failure to comply with the procurement laws or regulations can result in civil, criminal or administrative
proceedings involving fines, penalties, suspension of payments, or suspension or disbarment from government contracting or subcontracting for a period of
time, which could have a material adverse effect on the Company.
Compliance with government regulations regarding the use of "conflict minerals" may result in increased costs and risks to the Company.
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Act"), the SEC has promulgated disclosure requirements
regarding the use of certain minerals, which are mined from the Democratic Republic of Congo and adjoining countries, known as conflict minerals. We
are required to perform due diligence inquiries of our supply chain and publicly disclose whether we manufacture (as defined in the Act) any products that
contain conflict minerals and could incur significant costs related to implementing a process that will meet the mandates of the Act. Additionally, customers
typically rely on us to provide critical data regarding the parts they purchase, including conflict mineral information. Our material sourcing is broad-based
and multi-tiered, and we may not be able to easily verify the origins for conflict minerals used in the products we sell. We have many suppliers, and each
provides conflict mineral information in a different manner, if at all. Accordingly, because our supply chain is complex, we may face reputational
challenges if we are unable to sufficiently verify the origins of conflict minerals used in our products. Additionally, customers may demand that the
products they purchase be free of conflict minerals. This may limit the number of suppliers that can provide products in sufficient quantities to meet
customer demand or at competitive prices.
22
ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2021, we own two buildings in Newark, New York comprising approximately 250,000 square feet, which serve operations primarily in
the Battery & Energy Products operating segment. Our corporate headquarters are located in our Newark, New York facility. We own one building in
Missouri City, Texas comprising 69,000 square feet, which houses our SWE business. We also lease approximately 97,000 square feet in two buildings on
one campus in Shenzhen, China, approximately 25,000 square feet in six buildings in a contiguous area in Newcastle-under-Lyme, United Kingdom, and
approximately 30,000 square feet in four facilities for our Excell business located in Houston, Texas and Calgary, Mississauga and Vancouver, Canada
which serve operations in the Battery & Energy Products operating segment. The Shenzhen, China campus location includes a dormitory facility. We lease
approximately 32,500 square feet in a facility in Virginia Beach, Virginia, which serves operations in the Communications Systems operating segment. We
also lease sales and administrative offices, as well as manufacturing and production facilities, in India, which serve operations in the Battery & Energy
Products operating segment. Our research and development efforts for our Battery & Energy Products are conducted at our Newark, New York, Missouri
City, Texas, Newcastle-under-Lyme, United Kingdom and Shenzhen, China facilities, while our research and development efforts for our Communications
Systems products are conducted in our leased facilities in Tallahassee, Florida and in Virginia Beach, Virginia. We believe that our facilities are adequate
and suitable for our current needs.
ITEM 3. LEGAL PROCEEDINGS
On December 14, 2020, Ultralife was awarded a final settlement of $1,593 (net of fees) upon court approval and order authorizing distribution of settlement
funds in a class action lawsuit (In Re: Lithium-ion Batteries Antitrust Litigation, 13-MD-02420-YGR, United States District Court, Northern District of
California). At the time of the court order, the settlement funds were held in an escrow account controlled by the court for administrative purposes, and
there remained no potential for appeal or reversal of the court order. Based on all conditions present upon the court order, it was concluded that the net
settlement amount was fully realizable. Accordingly, a gain of $1,593 was recognized and was separately reported as gain on litigation settlement on the
consolidated statement of income and comprehensive income for the year ended December 31, 2020. The corresponding amount due was collected in full
in January 2021.
We are subject to legal proceedings and claims that arise from time to time in the normal course of business. We believe that the final disposition of any
such matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, recognizing that
legal matters are subject to inherent uncertainties, there exists the possibility that ultimate resolution of these matters could have a material adverse impact
on the Company’s financial position, results of operations or cash flows. We are not aware of any such situations at this time.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
23
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
PART II
Market Information
Ultralife’s common stock is listed on the NASDAQ Global Market under the symbol “ULBI.”
Holders
As of February 1, 2022, there were approximately 6,400 registered holders of record of our common stock.
Purchases of Equity Securities by the Issuer
There were no purchases of our common stock by the Company during the years ended December 31, 2021 and December 31, 2020.
Dividends
We have never declared or paid any cash dividends on our capital stock. Pursuant to our current credit facility, we are precluded from paying any dividends.
We intend to retain earnings, if any, to finance future operations and expansion and, therefore, do not anticipate paying any cash dividends in the
foreseeable future. Any future payment of dividends will depend upon our financial condition, capital requirements and earnings, as well as upon other
factors that our Board of Directors may deem relevant.
ITEM 6.
[RESERVED]
24
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto appearing
in Item 8 of this Form 10-K.
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. All figures presented below represent results from continuing operations, unless otherwise specified.
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, manufacture, install
and maintain power and communications systems including rechargeable and non-rechargeable batteries, communications and electronics systems and
accessories and custom engineered systems. We sell our products internationally 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 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 various other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power
supplies, charging systems and accessories, such as cables. The Communications Systems segment includes RF amplifiers, power supplies, cable and
connector assemblies, amplified speakers, equipment mounts, case equipment, 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.
We continually evaluate ways to grow, including opportunities to expand through mergers, acquisitions and joint ventures, which we believe can broaden
the scope of our products and services, expand operating and market opportunities and provide the ability to enter new lines of business synergistic with
our portfolio of product offerings.
In January 2016, we acquired Accutronics Limited (“Accutronics”), a U.K. corporation based in Newcastle-under-Lyme, U.K., a leading independent
designer and manufacturer of smart batteries and charger systems for high-performance, feature-laden portable and handheld electronic devices. We
acquired Accutronics to advance our strategy of commercial revenue diversification, to expand our geographic penetration, and to achieve revenue growth
from new product development.
On May 1, 2019, we acquired Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), and a leading designer and manufacturer of high-
performance smart battery systems and battery packs to customer specifications using lithium cells. SWE serves a variety of industrial markets, including
oil and gas, remote monitoring, process control and marine, which demand uncompromised safety, service, reliability and quality. We acquired SWE as a
bolt-on acquisition to further support our strategy of commercial revenue diversification by providing entry to the oil and gas exploration and production,
and subsea electrification markets, which were previously unserved by us. Another key benefit includes obtaining a highly valuable technical team of
battery pack and charger system engineers and technicians to add to our new product development-based revenue growth initiatives in our commercial end-
markets particularly asset tracking, smart metering and other industrial applications.
On December 13, 2021, we acquired Excell Battery Canada Inc., a British Columbia corporation (“Excell Canada”) and 656700 B.C. Ltd., a British
Columbia corporation (“656700”) and its wholly owned subsidiary, Excell Battery Corporation USA, a Texas corporation (“Excell USA” collectively, with
Excell Canada and 656700, “Excell”), which operate under the name Excell Battery Group, based in Canada with U.S. operations, Excell is a leading
independent designer and manufacturer of high-performance smart battery systems, battery packs and monitoring systems to customer specifications.
Excell serves a variety of industrial markets including downhole drilling, OEM industrial and medical devices, automated meter reading, and mining,
marine and other mission critical applications which demand uncompromised safety, service, reliability and quality. We acquired Excell as an important
component of our strategy to diversify commercial revenue and expand the end markets we serve. Acquiring Excell offers us opportunities to further scale
our Battery & Energy Products business and drive the operating leverage of our business model, expand into OEM device verticals that we do not presently
serve, enhance our contributed value to our customers and realize cost synergies. Furthermore, Excell possesses experienced engineering and technical
resources which we plan to utilize in progressing our global new product initiatives while adding a complementary line of highly engineered products that
are costly to switch out.
25
Currently, we do not experience significant seasonal sales trends in either of our operating segments, although sales to the U.S. Department of Defense and
other international defense organizations can be sporadic based on the needs of those particular customers and allocated funding levels.
The COVID-19 pandemic has created significant economic disruption and uncertainty around the world. The Company continues to closely monitor the
developments surrounding COVID-19 and take actions to mitigate the business risks involved. During this challenging time, we remain focused on
ensuring the health and safety of our employees by implementing the protocols established by public health officials in addition to meeting the demand of
our customers. As an essential supplier currently exempt from government-mandated shutdown directives, we are striving to ensure an uninterrupted flow
of our mission critical products serving medical device, first responder, public safety, energy and national security customers. For 2021, we have
maintained normal operations at all our facilities.
For 2021, we estimate that the net impact of COVID-19 was a reduction to sales of approximately $11,000, a reduction to operating income of
approximately $4,500 and a reduction to net income of approximately $3,400 or approximately $0.21 per diluted share. Increased lead times on
components from suppliers and other COVID-19 related logistics matters significantly impacted both our internal and our customers manufacturing
schedules, resulting in delays in our shipments to future periods. While demand for medical batteries, especially those used in ventilators, respirators and
infusion pumps, remained at a high rate in 2021, our ability to service certain large orders was impacted by overall disruptions in supply chains and
operations. These disruptions also impacted our shipments in industrial and government/defense markets. We exited 2021 with a backlog of $53,166,
excluding Excell, representing an increase of $13,874 million or 35.3% from year-end 2020, largely attributable to the supply chain disruptions pushing
shipments into 2022.
Consolidated revenues decreased by $9,445 or 8.8% to $98,267 for the year ended December 31, 2021 compared to $107,712 for the year ended December
31, 2020. During 2021, we experienced revenue declines of 5.2% for our Battery & Energy Products business and 29.2% for our Communications Systems
business. This 2021 performance reflected a $1,749 or 2.8% increase in sales to our commercial customers and a $11,194 or 24.7% decrease in sales to
government and defense customers. The increase in our commercial business was due primarily to a $3,878 or 26.2% increase in sales to industrial
customers including those serviced by our China facility, a $3,513 or 26.9% rebound in sales to the oil and gas market and the initial sales contribution of
$1,131 from Excell, partially offset by a $6,784 or a 19.7% decrease in sales to medical customers reflecting the 2020 surge in sales driven by the initial
demand for our batteries used in ventilators, respirators, infusion pumps and other medical devices attributable to COVID-19 without the supply chain
disruptions experienced in 2021.
The decrease in government and defense sales primarily resulted from the fulfillment of two large orders in 2020 – shipments of our legacy BA-5390
batteries in the amount of $4,875 to the U.S. Department of Defense under a spot purchase announced in December 2019 and shipments of vehicle
amplifier-adaptor systems in the amount of $5,680 to support the U.S. Army’s Network Modernization initiatives completing the delivery orders announced
in October 2018. During 2021, the U.S. Department of Defense did not place an order for additional shipments of 5390 batteries, although in December
2021 we received a firm-fixed price, indefinite delivery/indefinite quantity contact not to exceed $9,900 over a three-year base period with two one-year
option periods. In October 2021 we were awarded a purchase order valued at approximately $4,200 to supply a global defense prime with our Vehicle
Amplifier-Adaptors for the U.S. Army’s Leader radio program. However, due to supply chain lead times, shipments will commence in 2022.
Gross margin decreased to 25.1% for the year ended December 31, 2021 from 27.1% for the year ended December 31, 2020. The 200-basis point decrease
was due primarily to costs incurred for the transition of new products to high volume production in 2021, incremental costs associated with lower factory
throughput due to the supply chain disruptions associated with COVID-19 and unfavorable sales product mix.
Operating expenses increased by $1,149 or 4.9% to $24,607 during the year ended December 31, 2021, compared to $23,458 during the year ended
December 31, 2020. The increase in operating expenses reflects our continued investment in engineering resources for new product development, including
$801 for resources dedicated to the May 2021 indefinite-delivery/indefinite-quantity contract form the U.S. Army for purchases of Conformal Wear
Batteries not to exceed $168,000 during the three-year base award period with the potential for up to an additional $350,000 should the six one-year
options be exercised. In addition, the 2021 period includes $564 fully attributable to Excell, including $354 of one-time direct acquisition costs reflecting
customary legal, audit and due diligence fees. Both periods reflected our continued tight control over discretionary spending.
26
Other expense totaled $186 for the year-ended December 31, 2021 compared to income of $1,322 for the year ended December 31, 2020. On December 14,
2020, Ultralife was awarded a final settlement of $1,593 (net of fees) upon court approval and order authorizing distribution of settlement funds in a class
action lawsuit (In Re: Lithium-Ion Batteries Antitrust Litigation, 13-MD-02420-YGR, United States District Court, Northern District of California).
Accordingly, a gain of $1,593 was recognized and was separately reported as gain on litigation settlement on the consolidated statement of income and
comprehensive income for the year ended December 31, 2020. Excluding this gain in 2020, other expense totaled $271. The reduction in 2021 is a result of
lower interest expense with the continued reduction of debt incurred with the financing for the SWE acquisition. This debt was paid in full in 2021.
Income tax provision was $79 for the year ended December 31, 2021 compared to $1,692 for the year-ended December 31, 2020. Our effective tax rate
was (52.3%) for 2021, as compared to 24.1% for 2020, primarily due to the geographic mix of earnings. The income tax provision for the 2021 period is
comprised of a $226 current provision for taxes expected to be paid on income primarily from our foreign operations, representing a cash-based effective
tax rate of (150%) on a consolidated basis, and a $147 deferred tax benefit which represents a non-cash benefit primarily for U.S. net operating losses
which are expected to fully offset future U.S. taxable income. The income tax provision for the 2020 period is comprised of a $306 current provision for
taxes on income primarily from our foreign operations, representing a cash-based effective tax rate of 4.4%, and a $1,386 deferred tax provision which
primarily represents non-cash charges for U.S. taxes which are expected to be fully offset by net operating loss carryforwards and other tax credits for the
foreseeable future.
Net loss attributable to Ultralife was $234 for 2021 as compared to net income of $5,232 for 2020. Net loss attributable to Ultralife common shareholders
per diluted share was $0.01 for 2021 compared to net income of $0.33 per diluted share for 2020. Reflecting the use of net operating losses and tax credits
on U.S. generated income, adjusted earnings per diluted share was a loss of $0.02 for 2021 compared to income of $0.41 for 2020. See the section
“Adjusted EPS” on page 32 for a reconciliation of adjusted EPS to EPS.
Adjusted EBITDA, defined as net income (loss) attributable to Ultralife before net interest expense, provision (benefit) for income taxes, depreciation and
amortization, plus/minus income/expense that we do not consider reflective of our continuing operations, amounted to $4,418 for the year ended December
31, 2021 compared to $11,289 for the prior year. See the section “Adjusted EBITDA” beginning on page 31 for a reconciliation of adjusted EBITDA to net
income attributable to Ultralife.
The Company’s liquidity remains solid, with cash on hand of $8,413, working capital of $47,600 and a current ratio of 3.5. As of December 31, 2020, the
Company had cash on hand of $10,653, working capital of $45,790 and a current ratio of 3.4.
As we look ahead, we believe our backlog, durable customer relationships and new product initiatives anchor our view that our long-term profitable growth
drivers and strategy are sound and achievable.
27
Results of Operations
Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020:
Revenues:
Battery & Energy Products
Communications Systems
Total
Cost of Products Sold:
Battery & Energy Products
Communications Systems
Total
Gross Profit:
Battery & Energy Products
Communications Systems
Total
Operating Expenses
Operating Income
Other Expense (Income), Net
Income Before Taxes
Income Tax Provision
Net (Loss) Income
Net Income Attributable to Non-Controlling Interest
Net (Loss) Income Attributable to Ultralife
Net (Loss) Income Attributable to Ultralife Common Shares – Basic
Net (Loss) Income Attributable to Ultralife Common Shares – Diluted
Year Ended December 31,
2020
2021
Increase/
(Decrease)
$
$
$
$
87,083 $
11,184
98,267
66,021
7,604
73,625
21,063
3,579
24,642
24,607
35
186
(151)
79
(230)
4
(234) $
(0.01) $
(0.01) $
91,907 $
15,805
107,712
68,507
10,046
78,553
23,400
5,759
29,159
23,458
5,701
(1,322)
7,023
1,692
5,331
99
5,232 $
0.33 $
0.33 $
(4,824)
(4,621)
(9,445)
(2,486)
(2,442)
(4,928)
(2,337)
(2,180)
(4,517)
1,149
(5,666)
1,508
(7,174)
(1,613)
(5,561)
(95)
(5,466)
(0.34)
(0.34)
Weighted Average Shares Outstanding –Basic
Weighted Average Shares Outstanding – Diluted
16,036,676
16,036,676
15,902,108
16,095,676
134,568
(59,000)
Revenues. Total revenues for the year ended December 31, 2021 amounted to $98,267, a decrease of $9,445, or 8.8% from the $107,712 reported for the
year ended December 31, 2020.
Battery & Energy Products revenues decreased $4,824, or 5.2%, for the year ended December 31, 2021 as compared to the prior year. Commercial
revenues of this business increased 1,749 or 2.8% from 2020 and now comprise 73.6% of total segment sales versus 67.8% last year. The year-over-year
increase primarily resulted from a $3,878 or 26.2% increase in sales to industrial customers including those serviced by our China facility (i.e.,
Lithium/Thin Cell battery sales increased 104.0% and 9-volt batteries increased 15.0%), a $3,513 or 26.9% rebound in sales to the oil and gas market (i.e.,
downhole drilling battery sales increased 26.8%, pipeline inspection batteries increase 24.1% and marine and oceanography batteries increased 35.0%) and
the initial sales contribution of $1,131 from Excell, partially offset by a $6,784 or 19.7% decrease in sales to medical customers reflecting the 2020 surge in
sales driven by the initial demand for our batteries used in ventilators, respirators, infusion pumps and other medical devices attributable to COVID-19
without the supply chain disruptions experienced in 2021. Government and defense sales of this business decreased $6,573 or 22.2% from 2020 and now
comprise 26.4% of total segment sales versus 32.2% last year. The decrease primarily reflects the non-recurrence in 2021 of an order received in
December 2019 from the U.S. Department of Defense for our legacy 5390 batteries which was completed in 2020 with the shipment of $4,875. In
addition, we experienced delayed shipments to a large global defense prime contractor attributable to supply chain disruptions which comprised a large
portion of the remaining variance.
Communications Systems revenues decreased $4,621 or 29.2% for the year ended December 31, 2021 as compared to the prior year. This decrease is
primarily attributable to 2020 shipments of vehicle amplifier-adaptor systems in the amount of $5,680 to support the U.S. Army’s Network Modernization
initiatives completing the delivery of orders announced in October 2018. In October 2021 we were awarded a purchase order valued at approximately
$4,200 to supply a global defense prime with our Vehicle Amplifier-Adaptors for the U.S. Army’s Leader radio program. However, due to supply chain
lead times, shipments will commence in 2022.
28
Our order backlog at December 31, 2021 was $63,324, an increase of $24,032 or 61.2% from the backlog at December 31, 2020 which was $39,292.
Excluding Excell which was purchased on December 13, 2021, the backlog exiting 2021 was $53,166 which represents an increase of $13,874 or 35.3%
compared to 2020. For our Battery & Energy Products business, the backlog increased $20,744 or 60.0% to $55,346 from $34,602 when including Excell
and increased $10,586 or 30.6% to $45,188 when excluding Excell. The year-over-year increase when excluding Excell is primarily driven by the demand
for our medical batteries, which in some cases includes orders pushed into 2022 because of the supply chain disruptions experienced in 2021. The 2021
year-end backlog is related to orders expected to ship in the next year and does not include future shipments under the indefinite delivery/indefinite
quantity U.S. Department of Defense award for our BA-5390 batteries ($9,900), BA-5790/BA-5795 batteries ($49,800) and Conformal Wearable Batteries
($168,000/$350,000). For our Communications Systems business, the backlog increased $3,288 or 70.1% to $7,978 from $4,690. The year-over-year
increase is primarily a result of a purchase order valued at approximately $4,200 to supply a global defense prime with our Vehicle Amplifier-Adaptors for
the U.S. Army’s Leader radio program. The 2021 year-end backlog is related to orders that are expected to ship throughout 2022.
Cost of Products Sold and Gross Profit. Cost of products sold for the year ended December 31, 2021 decreased $4,928 or 6.3% from the year ended
December 31, 2020. Consolidated cost of products sold as a percentage of total revenue increased from 72.9% for the year ended December 31, 2020 to
74.9% for the year ended December 31, 2021. Correspondingly, consolidated gross margin was 25.1% for the year ended December 31, 2021, compared
with 27.1% for the year ended December 31, 2020. The 200-basis point decline in gross margin is due primarily to costs incurred for the transition of new
products to high volume production in 2021, incremental costs associated with lower factory throughput due to the supply chain disruptions associated with
COVID-19 and unfavorable sales product mix.
For our Battery & Energy Products segment, the cost of products sold decreased $2,486 or 3.6%, from the year ended December 31, 2020. Battery &
Energy Products’ gross profit for 2021 was $21,062 or 24.2% of revenues, a decrease of $2,338 or 10.0% from gross profit of $23,400, or 25.5% of
revenues, for 2020. Battery & Energy Products’ gross margin decreased for the year ended December 31, 2021 by 130 basis points from the prior year to
24.2%, reflecting lower factory volume and incremental costs due to supply chain disruptions associated with COVID-19, costs associated with the
transition of new products to higher volume production and unfavorable sales product mix.
For our Communications Systems segment, the cost of products sold decreased by $2,442 or 24.3% from the year ended December 31, 2020.
Communications Systems’ gross profit for the year ended December 31, 2021 was $3,580 or 32.0% of revenues, a decrease of $2,179 or 37.8% from gross
profit of $5,759 or 36.4% of revenues, for the year ended December 31, 2020. The 440 basis points decrease in gross margin during 2021 to 32.0% is
primarily due to lower factory throughput in 2021 and sales mix between years, predominantly higher sales of Vehicle Amplifier-Adaptor systems to fulfill
U.S. Army orders in 2020.
Operating Expenses. Total operating expenses for the year ended December 31, 2021 increased $1,149 or 4.9% from the year ended December 31, 2020.
The increase in operating expenses reflects our continued investment in engineering resources for new product development, including $801 for resources
dedicated to the May 2021 indefinite-delivery/indefinite-quantity contract form the U.S. Army for purchases of Conformal Wear Batteries not to exceed
$168,000 during the three-year base award period with the potential for up to an additional $350,000 should the six one-year options be exercised. In
addition, the 2021 period includes $564 fully attributable to Excell, including $354 of one-time direct acquisition costs reflecting customary legal, audit and
due diligence fees. Both periods reflected our continued tight control over discretionary spending.
Overall, operating expenses as a percentage of revenues was 25.0% for the year ended December 31, 2021 compared to 21.8% for the comparable 2020
period. Amortization expense associated with intangible assets related to our acquisitions increased to $633 for the year-ended December 31, 2021 ($515
in selling, general and administrative expenses and $118 in research and development costs) from $595 for the year ended December 31, 2020 ($471 in
selling, general and administrative expenses and $124 in research and development costs). This increase was due to our acquisition of Excell in December
2021. Research and development costs were $6,826 in 2021, an increase of $879 or 14.8%, from $5,947 reported in 2020. This increase is largely
attributable to the hiring of engineering resources to support new product development in our Battery & Energy Products business segment, including $801
pertaining to our May 2021 Conformal Wearable Battery award from the U.S. Army. Selling, general, and administrative expenses increased $270 or 1.5%,
to $17,781 for the year ended December 31, 2021 from $17,511 for the year ended December 31, 2020. The 2021 expenses include $564 attributable to
Excell, including $354 of one-time direct acquisition costs reflecting customary legal, audit and due diligence fees. We continued tight control over
discretionary spending across the Company.
29
Other (Income) Expense. Other expense totaled $186 for the year ended December 31, 2021 compared to income of $1,322 for the year ended December
31, 2020. Other income for 2020 includes a $1,593 litigation gain (net of fees) recognized upon resolution of Ultralife’s claim in a class action lawsuit in
December 2020. Interest and financing expense, net of interest income, decreased $193 or 44.4% to $242 for 2021 from $436 for 2020 due to the 2021
continued reduction and pay-off of the debt relating to the May 1, 2019 acquisition of SWE. Miscellaneous income amounted to $56 for 2021 compared to
$165 for 2020, primarily due to transactions impacted by foreign currency fluctuation between the U.S. dollar, pound sterling and euro.
Income Taxes. The income tax provision was $79 for the year ended December 31, 2021 compared to $1,692 for the year-ended December 31, 2020. Our
effective tax rate was (52.3%) for 2021, as compared to 24.1% for 2020, primarily due to the geographic mix of earnings. The income tax provision for the
2021 period is comprised of a $226 current provision for taxes expected to be paid on income primarily from our foreign operations, representing a cash-
based effective tax rate of (150%) on a consolidated basis, and a $147 deferred tax benefit which represents a non-cash benefit primarily for U.S. net
operating losses which are expected to fully offset future U.S. taxable income. The income tax provision for the 2020 period is comprised of a $306
current provision for taxes on income primarily from our foreign operations, representing a cash-based effective tax rate of 4.4%, and a $1,386 deferred tax
provision which primarily represents non-cash charges for U.S. taxes which are expected to be fully offset by net operating loss and tax credit
carryforwards for the foreseeable future.
Net (Loss) Income Attributable to Ultralife. Net loss attributable to Ultralife was $234 for 2021 as compared to net income of $5,232 for 2020. Net loss
attributable to Ultralife common shareholders per diluted share was $0.01 for 2021 compared to net income of $0.33 per diluted share for 2020. Adjusted
loss per diluted share was $0.02 for 2021, reflecting the exclusion of the $147 non-cash deferred tax benefit for 2021, compared to adjusted earnings per
diluted share of $0.41 for 2020, excluding the $1,386 deferred tax provision which primarily represents non-cash charges for U.S. tax which are expected to
be fully offset by net operating losses and tax credit carryforwards for the foreseeable future. See the section “Adjusted EPS” on page 32 for a
reconciliation of adjusted EPS to EPS. The net adverse impact of COVID-19 on EPS for 2021 was approximately $0.21. Weighted average common
shares outstanding used to compute diluted earnings per share decreased from 16,095,676 for the 2020 period to 16,036,676 for the 2021 period, mainly
due to the 2021 net loss which resulted in the use of basic weighted average common shares to compute diluted earnings per share.
30
Adjusted EBITDA
In evaluating our business, we consider and use Adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure of our operating
performance. We define Adjusted EBITDA as net income (loss) attributable to Ultralife before net interest expense, provision (benefit) for income taxes,
depreciation and amortization, and stock-based compensation expense, plus/minus expense/income that we do not consider reflective of our ongoing
continuing operations. We also use Adjusted EBITDA as a supplemental measure to review and assess our operating performance and to enhance
comparability between periods. We 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 (loss) 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:
a. 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;
b. 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;
c. 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
d. Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
31
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.
Net (loss) income attributable to Ultralife
Add:
Interest and financing expense, net
Income tax provision
Depreciation expense
Amortization of intangible assets
Stock-based compensation expense
Non-cash purchase accounting adjustments
Adjusted EBIDTA
Year ended December 31,
2021
2020
$
(234) $
5,232
242
79
2,906
633
671
121
4,418 $
436
1,692
2,340
646
943
-
11,289
$
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 (loss) 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 we expect 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:
2021
Per
Basic
Share
Year Ended December 31,
Per
Diluted
Share
Amount
2020
Per
Basic
Share
Per
Diluted
Share
Amount
Net (loss) income attributable to Ultralife
Corporate
Deferred tax (benefit) provision
Adjusted net (loss) income attributable to
Ultralife Corporation
$
$
(234) $
(147)
(0.01) $
(0.01)
(0.01) $
(0.01)
5,232 $
1,386
0.33 $
0.09
(381) $
(0.02) $
(0.02) $
6,618 $
0.42 $
0.33
0.08
0.41
Weighted average shares outstanding
16,037
16,037
15,902
16,096
32
Liquidity and Capital Resources
Cash Flows and General Business Matters
As of December 31, 2021, cash totaled $8,413 (including restricted cash of $84), a decrease of $2,240 from the $10,653 as of December 31, 2020,
primarily attributable to $23,519 cash paid (net of $736 cash acquired) for the Excell acquisition on December 13, 2021, funded in large part by borrowings
of $20,980 from the Company’s credit facilities, and cash in advance payments of approximately $3,000 made to certain vendors to secure raw material
components to help service our backlog in an efficient and timely manner, partially offset by cash generated from our operations.
For the year ended December 31, 2021, we generated $4,325 cash from our operations, as compared to $21,720 cash generated from operations for the year
ended December 31, 2020. In 2021, cash generated from operating activities consisted of net loss of $230 and a deferred tax benefit of $147, offset by non-
cash expenses of depreciation, amortization, and stock-based compensation totaling $4,314 and a $388 increase attributable to reduced net working capital.
For the year ended December 31, 2020, cash generated from operating activities of $21,720 was attributable to net income of $5,331, a deferred tax
provision of $1,386, non-cash expenses of depreciation, amortization, and stock-based compensation totaling $3,929, and a $12,667 reduction in net
working capital, partially offset by a gain of $1,593 recognized upon resolution of Ultralife’s claim in a class action lawsuit.
Cash used in investing activities was $26,333 for the year ended December 31, 2021 attributable to our acquisition of Excell for an aggregate net purchase
price of 23,519, and capital expenditures of $2,814. For the year ended December 31, 2020, cash used in investing activities was $2,981, primarily
attributable to capital expenditures.
Cash provided by financing activities for the year ended December 31, 2021 was $19,642, largely representing draws on our credit facilities totaling
$20,980, to finance the Excell acquisition. For the year ended December 31, 2020, cash used in financing activities was $15,694, primarily representing the
paydown of borrowings to finance the May 2019 acquisition of SWE, for which the $1,474 balance was fully paid during 2021.
We continue to have significant U.S. net operating loss carryforwards available to utilize as an offset to taxable income. As of December 31, 2021, none of
our U.S. net operating loss carryforwards have expired. See Note 7 to the consolidated financial statements for additional information.
Going forward, we expect positive operating cash flow and the availability under our Revolving Credit Facility will be sufficient to meet our obligations for
both financing and investing.
Commitments
On December 13, 2021, in connection with financing the Excell acquisition (see Note 2 to the consolidated financial statements), the Company drew down
$10,000 on its Term Loan Facility and $10,980 under its Revolving Credit Facility. As of December 31, 2021, the Company had $10,000 outstanding
principal on the Term Loan Facility, of which $2,000 was due to be paid over the next twelve months, and $10,980 outstanding principal on the Revolving
Credit Facility. The Company is in full compliance with its debt covenants under the Credit Facilities.
As of December 31, 2021, we had made commitments to purchase approximately $630 of production machinery and equipment.
With respect to our battery products, we typically offer warranties against any defects due to product manufacture or workmanship for up to one year from
the date of purchase. With respect to our communications accessory products, we typically offer a three-year warranty. We provide for a reserve for these
potential warranty expenses, which is based on an analysis of historical warranty issues. There is no assurance that future warranty claims will be consistent
with past history, and in the event we experience a significant increase in warranty claims, there is no assurance that our reserves would be sufficient. This
could have a material adverse effect on our business, financial condition and results of operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The above discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have
been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires the application of accounting policies and the
use of estimates. The accounting policies most important to the preparation of the consolidated financial statements and estimates that require
management’s most difficult, subjective or complex judgments are described below.
33
Revenue Recognition:
Revenues are generated from the sale of products. Performance obligations are met and revenue is recognized upon transfer of control to the customer,
which is generally upon shipment. When contract terms require transfer of control upon delivery at a customer’s location, revenue is recognized on the date
of delivery. Revenue is measured as the amount of consideration we expect to receive in exchange for shipped product. Sales, value-added and other taxes
billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return. For products
shipped under vendor managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point
control has transferred and there are no further obligations by the Company.
Our contracts with customers generally have an original expected duration of less than one year. Pursuant to Topic 606, we have applied the practical
expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining
performance obligations.
Valuation of Inventory:
Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out (“FIFO”) method. Our inventory includes
raw materials, work in process and finished goods. We recognize provisions for excess, obsolete or slow-moving inventory. Inherent in our estimates of net
realizable value in determining inventory valuation are assumptions related to expectations of future demand for our products, product lifecycles, product
support, technical obsolescence, regulatory requirements, and economic and market conditions. Estimates related to the valuation of inventory are
susceptible to changes as the underlying assumptions are continuously evaluated. If our assumptions are adversely different from those estimated by
management, inventory adjustments to reduce inventory values would result in an increase in inventory write-offs and a decrease in gross margins.
Goodwill and Other Indefinite Lived Intangible Assets:
Under the acquisition method of accounting, the total consideration transferred to consummate the acquisition is allocated to the identified tangible and
intangible assets acquired and liabilities assumed based on their respective estimated fair values as of the acquisition date with the residual amount recorded
to goodwill. We do not amortize goodwill and other intangible assets with indefinite lives, but instead evaluate these assets for impairment at least annually
and whenever events or circumstances indicate that impairment may exist.
The annual impairment test for goodwill consists of a comparison of the estimated fair value for each reporting unit to which goodwill is assigned to the
carrying value of the respective reporting unit. The annual impairment test for the other intangible assets with an indefinite life consists of a comparison of
the estimated fair value of each asset to the carrying value of the respective asset. If the estimated fair value of a reporting unit or other indefinite-lived
intangible asset exceeds its respective carrying value, the goodwill or indefinite-lived intangible asset is considered not impaired. If carrying value of a
reporting unit or indefinite-lived intangible asset exceeds its estimated fair value, the excess carrying value of the respective goodwill or indefinite-lived
intangible asset is recognized as an impairment loss.
34
We conducted our annual impairment test for goodwill and other indefinite-lived intangible assets as of October 1, 2021. We identified five goodwill
reporting units and four indefinite-lived intangible assets. We performed a quantitative impairment assessment of each goodwill reporting unit and
indefinite-lived intangible asset. The estimated fair value of each reporting unit was determined using a discounted cash flow model. The estimated fair
value of each indefinite-lived intangible asset was determined using other income-based valuation models. Significant estimates and assumptions were used
to estimate fair value, including our internal operating and cash flow forecasts, excess working capital requirements, and inputs to the weighted-average
cost of capital used to discount future cash flows. Other key assumptions used to value the trademarks and customer relationships included royalty rates
and attrition rates, respectively. The significant estimates and assumptions used in these valuations are subject to judgment based on sources utilized and
the assessment of risks related to our internal forecasts. Based on the results of our impairment test, and consideration of qualitative factors, no impairments
were identified. Estimated fair value exceeded carrying value for all reporting units and other indefinite-lived intangible assets by more than 10%. There is
a possibility that our goodwill and other intangible assets could be impaired in the future should there be a significant change in the significant estimates
and assumptions used in our impairment assessment.
Impairment of Long-Lived Assets:
We assess our long-lived assets for impairment whenever events or circumstances indicate their carrying amounts may not be recoverable. This is
accomplished by comparing the expected undiscounted future cash flows of the assets with the respective carrying amount as of the date of assessment.
Should aggregate undiscounted future cash flows be less than the carrying value, a write-down would be required, measured as the difference between the
carrying value and the fair value of the asset. Fair value is estimated either through the assistance of an independent valuation or as the present value of
expected discounted future cash flows. The discount rate used by us in our evaluation is an industry-based weighted average cost of capital. If the expected
undiscounted future cash flows exceed the respective carrying amount as of the date of assessment, no impairment charge is recognized.
Income Taxes:
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. Pursuant to ASC 740, a valuation allowance is recognized when the realizability of deferred tax assets is not
more likely than not, on the basis of all available evidence, both positive and negative, weighted based on objective verifiability.
As of December 31, 2021, we concluded that it is more likely than not that our U.S. deferred tax assets will be fully realized on the basis of management’s
assessment. In evaluating the realizability of our U.S. deferred tax assets, management considered all available evidence and concluded that positive
factors, including our sustained profitability and continued improvement in our ability to achieve internal earnings forecasts, outweighed all negative
factors, including our history of operating losses (prior to 2015) and historical operating volatility. Our assessment also considered our ability to fully
utilize before expiration our domestic net operating loss carryforwards, which expire 2022 thru 2035, and our general business tax credit carryforwards,
which expire 2028 thru 2039. As of December 31, 2021, our domestic net operating loss carryforwards and general business tax credits were $44,716 and
$2,239, respectively.
As of December 31, 2021, for certain past operations in the U.K., we continue to report a valuation allowance for net operating loss carryforwards of
approximately $11,000, nearly all of which can be carried forward indefinitely. Management has concluded that utilization of the U.K. net operating losses
may be limited due to the change in the past U.K. operation, and that they cannot currently be used to reduce taxable income of our other U.K. subsidiary,
Accutronics Ltd. As of December 31, 2021, we have not recognized a valuation allowance against our other foreign deferred tax assets, as we believe that it
is more likely than not that they will be realized. We will continue to evaluate the realizability of our deferred tax assets in future periods.
35
Stock-Based Compensation:
We recognize compensation cost relating to share-based payment transactions in our financial statements. The cost is measured at the grant date, based on
the estimated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the
equity award). We calculate implied volatility for stock options based on an average of historical volatility over the expected life of the awards. The
computation of expected term is determined based on historical experience of similar awards, giving consideration to the contractual terms of the awards
and the vesting period. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant.
Our awards are generally valued using the Black-Scholes method. If required, our market-based awards are valued using a Monte Carlo simulation.
Business Combinations:
We account for businesses acquired using the acquisition method of accounting. Under this method, all acquisition-related costs are expensed as incurred,
and the total consideration transferred to consummate the acquisition is allocated to the identified tangible and intangible assets acquired and liabilities
assumed based on their respective estimated fair values as of the acquisition date with the residual amount recorded to goodwill. As part of this process, we
identify and attribute values and estimated lives to property and equipment and intangible assets acquired. These determinations involve significant
estimates and assumptions, including those with respect to future cash flows, discount rates and asset lives, and therefore require considerable judgment.
These determinations affect the amount of depreciation and amortization expense recognized in future periods. The results of operations of acquired
businesses are included in the consolidated statements of income and comprehensive income beginning on the respective acquisition date.
Warranties:
We generally offer standard warranties against product defects. We do not offer separate service-type warranties. We estimate future warranty costs to be
incurred for product failure rates, material usage and service costs in the development of our warranty obligations. Estimated future costs and related
reserves are based on actual past experience and are generally estimated as a percentage of sales over the warranty period.
Environmental Issues:
Environmental expenditures, if any, that relate to current operations, are generally expensed. Remediation costs that relate to an existing condition caused
by past operations are accrued when it is probable that these costs will be incurred and can be reasonably estimated.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 15(a)(1) are included in this Report beginning on page 40.
Report of Independent Registered Public Accounting Firm (PCAOB ID 317)
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2021 and 2020
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
37
Page
38
40
41
42
43
44
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Ultralife Corporation
Opinions on the Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Ultralife Corporation and subsidiaries (the Company) as of December 31, 2021 and
2020, and the related consolidated statements of (loss) income and comprehensive (loss) income, changes in shareholders' equity and cash flows for the
years then ended and the related notes to the consolidated financial statements (collectively, the financial statements). We also have audited the Company’s
internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission in 2013.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Excell Battery Group (Excell) from its
assessment of internal control over financial reporting as of December 31, 2021, because it was acquired by the Company in a purchase business
combination in the fourth quarter of 2021. We have also excluded Excell from our audit of internal control over financial reporting. Excell is a wholly
owned subsidiary whose total assets (excluding acquired goodwill and other intangible assets which were included in management’s evaluation) and
revenue represent approximately 6% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December
31, 2021.
Basis for Opinions
The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company's financial statements and an opinion on the Company's internal control
over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control
over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
38
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical
audit matters or on the accounts or disclosures to which they relate.
Estimate for excess, obsolete, and slow-moving inventory reserve
As discussed in Notes 1 and 4 to the financial statements, inventories are stated at the lower of cost or net realizable value with cost determined under the
first-in, first-out method. The Company records provisions for excess, obsolete, and slow-moving inventory based on changes in customer demand,
technology developments or other economic factors. The excess, obsolete, and slow-moving inventory reserve serves to reduce the Company’s inventory
balance through a charge to cost of products sold.
The Company’s reserve for excess, obsolete, and slow-moving inventory is based upon assumptions related to expectations of future demand, product
lifecycles, product support, technical obsolescence, regulatory requirements, and economic and market conditions. If the actual realization of excess,
obsolete, and slow-moving inventory does not meet the Company’s assumptions future inventory adjustments would result in a decrease in gross margin.
Due to the magnitude of the inventory and the subjectivity involved in estimating the reserve, we identified the evaluation of the reserve as a critical audit
matter, which required a high degree of auditor judgment.
Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the
financial statements. The primary procedures we performed include: obtaining an understanding of the process and assumptions used by management to
develop the reserve for excess, obsolete, and slow-moving inventory; testing the effectiveness of controls over management’s estimate of reserves for
excess, obsolete, and slow-moving inventory; testing management’s calculation of the reserve for excess, obsolete, and slow-moving inventory by: testing
the completeness and accuracy of the source information used, testing the mathematical accuracy of management’s calculations, evaluating the
reasonableness and consistency of methodology and assumptions applied by management, and performing a retrospective review of the prior-year
estimates used to identify potential bias of management judgements.
Goodwill Impairment Analysis
As discussed in Notes 1 and 4 to the financial statements, the Company performs its goodwill impairment test on an annual basis as of October 1st or
whenever events and changes in circumstances indicate that the carrying value of a reporting unit might exceed its fair value. For each reporting unit the
Company performed a quantitative test, which compares the fair value of the reporting unit to the carrying value of the respective reporting unit. The
Company has identified five goodwill reporting units.
Management determines fair value of the respective reporting units using a discounted cash flow model. Significant estimates and judgements used in this
model include internal operating and cash flow forecasts, excess working capital requirements, and inputs to the weighted-average cost of capital used to
discount future cash flows. Future revenue and operating cash flow forecasts, the development of the weighted average cost of capital used to discount the
future cash flows, and excess working capital requirements are subject to judgement based on sources utilized and the assessment of risks related to the
cash flows. Due to the subjectivity involved with the assumptions used to determine the fair value of the reporting units, we identified the goodwill
impairment test as a critical audit matter, which required a high degree of auditor judgement.
Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the
financial statements. The primary procedures we performed include: obtaining an understanding of the process and assumptions used by management to
perform the impairment test, testing the effectiveness of controls over management’s test for impairment, and testing management’s impairment
calculation by: testing the completeness and accuracy of the source information used, testing the mathematical accuracy of management’s calculations,
evaluating the reasonableness and consistency of methodology and assumptions applied by management, performing a retrospective review of the prior-
year estimates used to identify potential bias of management judgements, verifying certain third party data used by the Company in building their
assumptions, and testing significant assumptions by developing independent expectations. Professionals with specialized skills and knowledge were used
to assist in evaluating certain methodologies and assumptions used in the model and performing sensitivity analysis on various inputs.
Excell Battery Group Purchase Price Allocation
As discussed in Notes 1 and 2 to the financial statements, effective December 13, 2021, the Company acquired all the outstanding shares of Excell Battery
Group (Excell). The total net purchase price paid for the shares of Excell was approximately $23.5 million. The Company applied the acquisition method of
accounting for the acquisition. Under this method, identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair value. The
Company used a valuation hierarchy, and utilized an independent third-party valuation specialist to determine the fair values used in this allocation.
Intangible assets and goodwill represented an allocation of purchase price of the acquired business in the amount of approximately $8.8 million and $11.0
million, respectively.
The Company’s determination of the fair value used for the allocation of the purchase price is based upon assumptions of the future performance of Excell
and includes work performed by a third-party valuation specialist. Due to the subjectivity involved in estimating the fair values and ultimate allocation of
purchase price, we identified the fair value estimates for purchase price allocation of Excell intangible assets as a critical audit matter, which required a
higher degree of auditor judgement as well as the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the
financial statements. The primary procedures we performed include: obtaining an understanding of the process and assumptions used by management to
develop the estimate of the purchase price allocation, obtaining an understanding of management’s controls relating to the purchase price allocation and
tested the operating effectiveness of the controls, as necessary, engaging an internal valuation specialist to test certain assumptions and approaches used,
testing cut-off of working capital at the acquisition date for any impact to the fair value assigned to the identifiable tangible and intangible assets acquired
or liabilities assumed, testing management’s allocation, including testing of the completeness and accuracy of source information used, mathematical
accuracy of management’s calculations, and evaluated reasonableness and consistency of methodology and assumption.
/s/ Freed Maxick CPAs, P.C.
We have served as the Company's auditor since 2016.
Rochester, New York
March 8, 2022
39
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
Current Assets:
Cash
Trade accounts receivable, net of allowance for doubtful accounts of $346 and $317, respectively
Inventories, net
Prepaid expenses and other current assets
ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current assets
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Deferred income taxes, net
Other noncurrent assets
Total assets
Current Liabilities:
Accounts payable
Current portion of long-term debt
Accrued compensation and related benefits
Accrued expenses and other current liabilities
Total current liabilities
Long-term debt, net
Deferred income taxes
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 5)
Shareholders' Equity:
Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,522,427 shares and
20,373,519 shares, respectively; outstanding – 16,089,832 shares and 15,959,984 shares, respectively
Capital in excess of par value
Accumulated deficit
Accumulated other comprehensive loss
Treasury stock - at cost; 4,432,595 shares and 4,413,535 shares, respectively
Total Ultralife Corporation equity
Non-controlling interest
Total shareholders’ equity
$
$
$
December 31,
2021
2020
8,413 $
20,232
33,189
4,690
66,524
23,205
38,068
17,390
11,472
2,879
159,538 $
9,823 $
2,000
1,842
5,259
18,924
18,857
2,254
1,760
41,795
10,653
21,054
28,193
4,596
64,496
22,850
27,018
9,209
11,836
2,292
137,701
10,839
1,361
1,748
4,758
18,706
-
515
1,557
20,778
-
-
2,052
186,518
(47,832)
(1,653)
(21,469)
117,616
127
117,743
2,037
185,464
(47,598)
(1,782)
(21,321)
116,800
123
116,923
137,701
Total liabilities and shareholders' equity
$
159,538 $
The accompanying notes are an integral part of these consolidated financial statements.
40
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(Dollars in Thousands, Except Per Share Amounts)
Revenues
Cost of products sold
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Total operating expenses
Operating income
Other expense (income):
Interest and financing expense
Miscellaneous income
Gain on litigation settlement
Total other expense (income)
(Loss) income before income taxes
Income tax provision
Net (loss) income
Net income attributable to non-controlling interest
Net (loss) income attributable to Ultralife Corporation
Other comprehensive income:
Foreign currency translation adjustments
Comprehensive (loss) income attributable to Ultralife Corporation
Net (loss) income per share attributable to Ultralife Corporation common shareholders – Basic
Net (loss) income per share attributable to Ultralife Corporation common shareholders – Diluted
Year ended December 31,
2020
2021
98,267 $
73,625
24,642
6,826
17,781
24,607
35
242
(56)
-
186
(151)
79
(230)
4
(234)
129
(105) $
(.01) $
(.01) $
107,712
78,553
29,159
5,947
17,511
23,458
5,701
436
(165)
(1,593)
(1,322)
7,023
1,692
5,331
99
5,232
749
5,981
.33
.33
$
$
$
$
Weighted average shares outstanding – Basic
Weighted average shares outstanding – Diluted
16,037
16,037
15,902
16,096
The accompanying notes are an integral part of these consolidated financial statements.
41
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in Thousands)
Common stock
Number of
shares
Amount
Capital in
excess of
par value
Accumulated
other
comprehensive
income (loss)
Accumulated
deficit
Treasury
stock
Non-
controlling
interest
Total
Balance – December 31, 2019
20,268,050 $
2,026 $
184,292 $
(2,531) $
(52,830) $
(21,231) $
24 $
109,750
Net income
Stock option exercises
Stock-based compensation -stock
options
Stock-based compensation -
restricted stock
Vesting of restricted stock
Foreign currency translation
adjustments
92,968
9
229
12,501
2
838
105
749
5,232
99
(75)
(15)
5,331
163
838
105
(13)
749
Balance – December 31, 2020
20,373,519 $
2,037 $
185,464 $
(1,782) $
(47,598) $
(21,321) $
123 $
116,923
Net loss
Stock option exercises
Stock-based compensation -stock
options
Stock-based compensation -
restricted stock
Vesting of restricted stock
Foreign currency translation
adjustments
133,907
13
385
(133)
(234)
4
15,001
2
618
53
(2)
(15)
129
(230)
265
618
53
(15)
129
Balance – December 31, 2021
20,522,427 $
2,052 $
186,518 $
(1,653) $
(47,832) $
(21,469) $
127 $
117,743
The accompanying notes are an integral part of these consolidated financial statements.
42
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Year ended December 31,
2020
2021
OPERATING ACTIVITIES:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
$
(230) $
Depreciation
Amortization of intangible assets
Amortization of financing fees
Stock-based compensation
Deferred income tax expense
Gain on litigation settlement
Changes in operating assets and liabilities:
Accounts receivable
Inventories, gross
Prepaid expenses and other assets
Income taxes receivable and payable
Accounts payable and other liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchase of Excell, net of cash acquired
Purchases of property, plant and equipment
Proceeds from sale of equipment
Net cash used in investing activities
FINANCING ACTIVITIES:
Proceeds from amended credit facilities
Payment of credit facilities
Proceeds from exercise of stock options
Tax withholdings on stock-based awards
Payment of debt issuance costs
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
INCREASE (DECREASE) IN CASH
Cash - Beginning of year
Cash - End of year
Supplemental cash flow information:
Construction in process in accounts payable
Income taxes paid
Interest paid
2,906
633
104
671
(147)
-
4,423
(1,296)
64
(91)
(2,712)
4,325
(23,519)
(2,814)
-
(26,333)
20,980
(1,474)
398
(148)
(114)
19,642
126
(2,240)
10,653
8,413 $
135 $
324 $
142 $
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
43
5,331
2,340
595
51
943
1,386
(1,593)
9,211
1,799
(134)
139
1,652
21,720
-
(3,101)
120
(2,981)
-
(15,842)
238
(90)
-
(15,694)
203
3,248
7,405
10,653
675
264
375
ULTRALIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Note 1 - Summary of Operations and Significant Accounting Policies
a.
Description of Business
As used in this annual report, unless otherwise indicated, the terms “we”, “our” and “us” refer to Ultralife Corporation (“Ultralife”) and includes our
wholly-owned subsidiaries, ABLE New Energy Co., Limited and its wholly-owned subsidiary ABLE New Energy Co., Ltd; Ultralife UK LTD and its
wholly-owned subsidiary, Accutronics Ltd; Ultralife Batteries (UK) Ltd.; Southwest Electronic Energy Corporation and its wholly-owned subsidiary, CLB,
INC.; Ultralife Excell Holding Corp. (“UEHC”); Ultralife Canada Holding Corp (“UCHC,” wholly owned by UEHC); Excell Battery Canada ULC (wholly
owned by UCHC); 1336902 B.C. Unlimited Liability Company (“1336902 B.C.”, wholly owned by UCHC); Excell Battery Corporation USA (wholly
owned by 1336902 B.C.); and our majority-owned joint venture Ultralife Batteries India Private Limited.
We offer products and services ranging from power solutions to communications and electronics systems. Through our engineering and collaborative
approach to problem solving, we serve government, defense and commercial customers across the globe. We design, manufacture, install and maintain
power and communications systems including: rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems
and accessories, and custom engineered systems. We sell our products worldwide through a variety of trade channels, including original equipment
manufacturers (“OEMs”), industrial and defense supply distributors, and directly to U.S. and international defense departments.
b.
Principles of Consolidation
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include
the accounts of Ultralife Corporation and our wholly owned subsidiaries: Ultralife Batteries (UK) Ltd., Ultralife UK LTD, and its wholly-owned subsidiary
Accutronics Ltd, ABLE New Energy Co., Limited and its wholly-owned subsidiary ABLE New Energy Co., Ltd. (“ABLE” collectively), Southwest
Electronic Energy Corporation and its wholly-owned subsidiary, CLB, INC. (“SWE” collectively), Ultralife Excell Holding Corp. (“UEHC”), Ultralife
Canada Holding Corp (“UCHC,” wholly owned by UEHC), Excell Battery Canada ULC (wholly owned by UCHC), 1336902 B.C. Unlimited Liability
Company (“1336902 B.C.”, wholly owned by UCHC), Excell Battery Corporation USA (wholly owned by 1336902 B.C), and the majority-owned
subsidiary Ultralife Batteries India Private Limited (“India JV”). Intercompany accounts and transactions have been eliminated in consolidation.
c.
Management's Use of Judgment and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at year end and the reported amounts of revenues and expenses during the
reporting period. Key areas affected by estimates include: (a) carrying value of goodwill and intangible assets; (b) reserves for excess and obsolete
inventory, deferred tax assets, warranties, and bad debts; (c) valuation of assets acquired and liabilities assumed in business combinations; (d) various
expense accruals; and (e) stock-based compensation. Our actual results could differ from these estimates.
d.
Reclassifications
Certain items previously reported in specific financial statement captions are reclassified to conform to the current presentation. There were no material
reclassifications for the years ended December 31, 2021 and 2020.
e.
Cash
Our cash balances may at times exceed federally insured limits. We have not experienced any losses in these accounts and believe we are not exposed to
any significant risk with respect to cash.
44
f.
Accounts Receivable and Allowance for Doubtful Accounts
We extend credit to our customers in the normal course of business. We perform ongoing credit evaluations and generally do not require collateral.
Payment terms are generally 30 days. Trade accounts receivable are recorded at their invoiced amounts, net of allowance for doubtful accounts. We
evaluate the adequacy of our allowance for doubtful accounts quarterly. Accounts outstanding for longer than contractual payment terms are considered
past due and are reviewed for collectability. We maintain reserves for potential credit losses based upon our historical experience and the aging of specific
receivables. Receivable balances are written off when collection is deemed unlikely.
g.
Inventories
Inventories are stated at the lower of cost or net realizable value with cost determined under the first‑in, first‑out (FIFO) method. We record provisions for
excess, obsolete or slow-moving inventory based on changes in customer demand, technology developments or other economic factors.
h.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives. Estimated useful
lives are as follows (in years):
Buildings
Machinery and Equipment
Furniture and Fixtures
Computer Hardware and Software
Leasehold Improvements
10 – 40
5 – 10
5 – 10
3 – 5
Lesser of useful
life or lease term
Betterments, renewals and extraordinary repairs that extend the life of the assets are capitalized. Other repairs and maintenance costs are expensed when
incurred. When disposed, the cost and accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss on
disposition is recognized in operating income.
i.
Long-Lived Assets, Goodwill and Intangibles
We assess our long-lived assets for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. For
property, plant and equipment and amortizable intangible assets, this is accomplished by comparing the expected undiscounted future cash flows of the
assets with the respective carrying amount as of the date of assessment. If the expected undiscounted future cash flows exceed the respective carrying
amount as of the date of assessment, no impairment is recognized. Should aggregate undiscounted future cash flows be less than the carrying value, a write-
down would be required, measured as the difference between the carrying value and the fair value of the asset. Fair value is estimated as the present value
of expected discounted future cash flows. The discount rate used in our evaluation is an industry-based weighted average cost of capital.
Under the acquisition method of accounting, the purchase price paid, or the total consideration transferred, to consummate the acquisition is allocated to the
identified tangible and intangible assets acquired and liabilities assumed based on their respective estimated fair values as of the acquisition date with the
residual amount recorded to goodwill. We do not amortize goodwill and intangible assets with indefinite lives, but instead evaluate these assets for
impairment at least annually, or whenever events or circumstances indicate that impairment may exist. We amortize intangible assets that have definite lives
so that the economic benefits of the intangible assets are being recognized over their estimated useful life.
The annual impairment test for goodwill consists of a comparison of the estimated fair value for each reporting unit to which goodwill is assigned to the
carrying value of the respective reporting unit. The annual impairment test for other indefinite-lived intangible assets consists of a comparison of the
estimated fair value of each asset to the carrying value of the respective asset. If the estimated fair value of a reporting unit or other indefinite-lived
intangible asset exceeds its respective carrying value, the goodwill or indefinite-lived intangible asset is considered not impaired. If carrying value of a
reporting unit or indefinite-lived intangible asset exceeds its estimated fair value, the excess carrying value of the respective goodwill or indefinite-lived
intangible asset is recognized as an impairment loss.
45
j.
Translation of Foreign Currency
The financial statements of our foreign subsidiaries are translated from the functional currency into U.S. dollar equivalents, with translation adjustments
recorded as the sole component of accumulated other comprehensive income (loss). Exchange gains and losses related to foreign currency transactions and
balances denominated in currencies other than the functional currency are recognized in net income (loss).
k.
Revenue Recognition
Revenues are generated from the sale of products. Performance obligations are met and revenue is recognized upon transfer of control to the customer,
which is generally upon shipment. When contract terms require transfer of control upon delivery at a customer’s location, revenue is recognized on the date
of delivery. For products shipped under vendor managed inventory arrangements, revenue is recognized and billed when the product is consumed by the
customer, at which point control has transferred and there are no further obligations by the Company. Revenue is measured as the amount of consideration
we expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers are excluded from revenue.
Customers, including distributors, do not have a general right of return.
Revenues recognized from prior period performance obligations for the years ended December 31, 2021 and 2020 were not material.
As of December 31, 2021 and 2020, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater
than one year. Pursuant to Topic 606, we have applied the practical expedient with respect to disclosure of the deferral and future expected timing of
revenue recognition for transaction price allocated to remaining performance obligations.
Deferred revenue, unbilled revenue and deferred contract costs recorded on our consolidated balance sheets as of December 31, 2021 and 2020 were not
material.
l.
Warranty Reserves
We generally offer standard warranties against product defects. We do not offer separate service-type warranties. We estimate future warranty costs to be
incurred for product failure rates, material usage and service costs in the development of our warranty obligations. Estimated future costs are based on
actual past experience and are generally estimated as a percentage of sales over the warranty period. Warranty costs are recorded as costs of products sold.
Provision for warranty costs is recorded in other current liabilities and other long-term liabilities on our consolidated balance sheets based on the duration
of the warranty.
m.
Shipping and Handling Costs
Costs incurred by us related to shipping and handling are included in cost of products sold. Amounts charged to customers pertaining to these costs are
reflected as revenue.
n.
Sales Commissions
Sales commissions are expensed as incurred for contracts with an expected duration of one year or less. There were no sales commissions capitalized as of
December 31, 2021 and 2020.
o.
Research and Development
Research and development expenditures are charged to operations as incurred. The majority of research and development expenses pertain to salaries and
benefits, developmental supplies, depreciation and other contracted services. For the years ended December 31, 2021 and 2020, we expended $8,042 and
$7,316, respectively, on research and development, including costs of $1,216 and $1,369, respectively, on customer sponsored research and development
activities, which are included in cost of goods sold.
p.
Environmental Costs
Environmental expenditures that relate to current operations are expensed. Remediation costs that relate to an existing condition caused by past operations
are accrued when it is probable that these costs will be incurred and can be reasonably estimated.
46
q.
Income Taxes
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. Pursuant to ASC 740, a valuation allowance is recognized when the realizability of deferred tax assets is not
more likely than not, on the basis of all available evidence, both positive and negative, weighted based on objective verifiability.
r.
Concentration Related to Customers and Suppliers
One of our customers, a large defense primary contractor, comprised 20% and 17% of our total consolidated revenues for 2021 and 2020, respectively.
Revenues for this customer represented 22% and 20% of our total Battery & Energy Products segment revenues for 2021 and 2020, respectively. There
were no other customers that comprised greater than 10% of our total revenues during these years.
s.
Fair Value Measurements and Disclosures
Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most
advantageous market in an orderly transaction between market participants on the measurement date. Fair value is estimated by applying the following
hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of
input that is available and significant to the fair value measurement:
Level 1:
Quoted prices in active markets for identical assets or liabilities.
Level 2:
Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or that we corroborate with observable market data for substantially the full term of the
related assets or liabilities.
Level 3:
Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities.
The fair value of financial instruments approximated their carrying values at December 31, 2021 and 2020. The fair value of cash, accounts receivable,
accounts payable, accrued liabilities, and the current portion of long-term debt approximates carrying value due to the short-term nature of these
instruments. The carrying value of long-term debt approximates fair value, as the variable interest rates approximate current market rates.
47
t.
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income (loss) attributable to Ultralife Corporation by the weighted average shares of
common stock outstanding for the period. Diluted EPS reflects the assumed exercise and conversion of dilutive outstanding stock options and unvested
restricted stock, if any, applying the treasury stock method.
For the year ended December 31, 2021, there were no outstanding awards included in the calculation of diluted weighted average shares outstanding and no
potential common shares included in the calculation of diluted EPS, as no securities were dilutive. There were 1,306,824 outstanding stock options and
11,664 unvested restricted stock awards not included in the calculation of diluted EPS for the year ended December 31, 2021, as the effect would be
antidilutive. For the comparable year ended December 31, 2020, 526,244 outstanding stock options and 26,665 outstanding restricted stock awards were
included in the calculation of diluted weighted average shares outstanding, resulting in 193,568 potential common shares included in the calculation of
diluted EPS. There were 690,919 outstanding stock options not included in the calculation of diluted EPS for the year ended December 31, 2020, as the
effect would be antidilutive.
u.
Stock-Based Compensation
We have various stock-based employee compensation plans that are described more fully in Note 6. The compensation cost relating to share-based payment
transactions is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite
service period (generally the vesting period of the equity award).
v.
Segment Reporting
We have two operating segments – Battery & Energy Products and Communications Systems. The basis for determining our operating segments is the
manner in which financial information is used in monitoring our operations. Management operates and organizes itself according to business units that
comprise unique products and services across geographic locations.
w.
Business Combinations
We allocate the purchase price of acquired businesses to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair
values on the acquisition date. Any excess of the purchase price over the net fair value of the separately identifiable assets acquired and liabilities assumed
is allocated to goodwill. Management determines the fair values of identifiable intangible assets acquired based on historical data, estimated discounted
future cash flows, expected royalty rates for trademarks and trade names, as well as certain other information. The valuation of assets acquired and
liabilities assumed requires a number of judgments and is subject to change as additional information about the fair value of assets and liabilities becomes
available. Additional information, which existed as of the acquisition date but unknown to us at that time, may become known during the remainder of the
measurement period. This measurement period may not exceed twelve months from the acquisition date. We will recognize any adjustments to provisional
amounts that are identified during the measurement period in the reporting period in which the adjustments are determined. Additionally, in the same period
in which adjustments are recognized, we will record the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a
result of any change to the provisional amounts, calculated as if the accounting adjustment had been completed at the acquisition date. Acquisition costs are
expensed as incurred. The results of operations and cash flows of acquired businesses are included in our consolidated financial statements from the date of
acquisition.
x.
Leases
At contract inception, the Company determines whether the arrangement is or contains a lease and determines the lease classification. The lease term is
determined based on the non-cancellable term of the lease adjusted to the extent optional renewal terms and termination rights are reasonably certain. Lease
expense is recognized evenly over the lease term. Variable lease payments are recognized as period costs. The present value of remaining lease payments is
recognized as a liability on the balance sheet with a corresponding right-of-use asset adjusted for prepaid or accrued lease payments. The Company uses its
incremental borrowing rate for the discount rate, unless the interest rate implicit in the lease contract is readily determinable. The Company has adopted the
practical expedients to not separate non-lease components from lease components and to not present short-term leases on the balance sheet. See Note 8 for
further disclosure regarding lease accounting.
y.
Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
Effective January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes (Topic
740)”. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent
application. Adoption of the new standard did not materially impact the Company’s Consolidated Financial Statements.
Recent Accounting Guidance Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) –
Measurement of Credit Losses on Financial Instruments”, which requires entities to measure all expected credit losses for financial assets held at the
reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model
and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for the Company for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently assessing the impact that adopting this
new accounting standard will have on our consolidated financial statements.
48
Note 2 – Acquisition
On December 13, 2021, the Company acquired all the outstanding shares of Excell for an aggregate net purchase price of $23,519 in cash.
On December 13, 2021, 1336889 B.C. Unlimited Liability Company, a British Columbia unlimited liability corporation and wholly-owned subsidiary of
Ultralife Canada Holding Corp., a Delaware corporation (“UCHC”) and wholly-owned subsidiary of Ultralife Excell Holding Corp., a Delaware
corporation (“UEHC”) and wholly-owned subsidiary of Ultralife Corporation, a Delaware corporation (“Ultralife” or the “Company”), completed the
acquisition of all issued and outstanding shares of Excell Battery Canada Inc., a British Columbia corporation (“Excell Canada”) (the “Excell Canada
Acquisition”), and, concurrently, 1336902 B.C. Unlimited Liability Company, a British Columbia unlimited liability corporation and wholly-owned
subsidiary of UCHC, completed the acquisition of all issued and outstanding shares of 656700 B.C. LTD, a British Columbia corporation and sole owner of
all issued and outstanding shares of Excell Battery Corporation USA, a Texas corporation (“Excell USA”, and together with Excell Canada, “Excell Battery
Group” or “Excell”) (the “Excell USA Acquisition”, and together with the Excell Canada Acquisition, the “Excell Acquisition”).
Based in Canada with U.S. operations, Excell is a leading independent designer and manufacturer of high-performance smart battery systems, battery packs
and monitoring systems to customer specifications. Excell serves a variety of industrial markets including downhole drilling, OEM industrial and medical
devices, automated meter reading, ruggedized computers, and mining, marine and other mission critical applications which demand uncompromised safety,
service, reliability and quality.
The Excell Canada Acquisition was completed pursuant to a Share Purchase Agreement dated December 13, 2021 (the “Excell Canada Acquisition
Agreement”) by and among 1336889 B.C. Unlimited Liability Company, Mark Kroeker, Randolph Peters, Brian Larsen, M. & W. Holdings Ltd., Karen
Kroeker, Heather Peterson, Michael Kroeker, Nicholas Kroeker, Brentley Peters, Craig Peters, Kurtis Peters, Heather Larsen, Ian Kane, Carol Peters, and
0835205 B.C. LTD (the “Excell Canada Sellers”), Mark Kroeker in his capacity as the Excell Canada Sellers’ Representative, and Excell Canada. The
Excell USA Acquisition was completed pursuant to a Share Purchase Agreement dated December 13, 2021 (the “Excell USA Acquisition Agreement”, and
together with the Excell Canada Acquisition Agreement, the “Excell Acquisition Agreements”) by and among 1336902 B.C. Unlimited Liability Company,
M. & W. Holdings Ltd., Ian Kane, Sanford Capital Ltd., Arcee Enterprises Inc., and 0835205 B.C. Ltd. (the “Excell USA Sellers”, and together with the
Excell Canada Sellers, the “Sellers”), Mark Kroeker in his capacity as the Excell USA Sellers’ Representative, and 656700 B.C. LTD. The Excell
Acquisition Agreements contain customary terms and conditions including representations, warranties and indemnification provisions. A portion of the
consideration paid to the Sellers will be held in escrow for indemnification purposes.
The Excell Acquisition was funded by the Company through a combination of cash on hand and borrowings under the Amended Credit Facilities (Note 3).
The Excell Acquisition was accounted for in accordance with the accounting treatment of a business combination pursuant to FASB ASC Topic 805,
Business Combinations (“ASC 805”). Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities
assumed based on their estimated fair values on the acquisition date. The excess of the purchase price over the estimated fair
49
value of the separately identifiable assets acquired and liabilities assumed was allocated to goodwill. Management is responsible for determining the
acquisition date fair value of the assets acquired and liabilities assumed, which requires the use of various assumptions and judgments that are inherently
subjective. The purchase price allocation presented below reflects all known information about the fair value of the assets acquired and liabilities
assumed as of the acquisition date. The purchase price allocation is subject to change should additional information existing as of the acquisition date
about the fair value of the assets acquired and liabilities assumed become known. The final purchase price allocation may reflect material changes in the
valuation of assets acquired and liabilities assumed, including but not limited to intangible assets, fixed assets, deferred taxes, and residual goodwill.
Cash
Accounts receivable
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Goodwill
Other intangible assets
Other noncurrent assets
Accounts payable
Accrued compensation and related benefits
Accrued expenses and other current liabilities
Deferred tax liability, net
Other noncurrent liabilities
Net assets acquired
$
$
736
3,570
3,622
785
429
11,019
8,830
991
(1,450)
(540)
(720)
(2,213)
(803)
24,256
The goodwill included in the Company’s purchase price allocation presented above represents the value of Excell’s assembled and trained workforce, the
incremental value that Excell engineering and technology will bring to the Company and the revenue growth which is expected to occur over time which is
attributable to increased market penetration from future new products and customers. The goodwill acquired in connection with the acquisition is not
deductible for income tax purposes.
Other intangible assets were valued using the income approach which requires a forecast of all expected future cash flows and the use of certain
assumptions and estimates. The following table summarizes the estimated fair value and annual amortization for each of the identifiable intangible assets
acquired.
Customer relationships
Trade name
Customer contracts
Backlog
Technology
Total
$
$
Estimated
Fair Value
Amortization
Period
(Years)
15
Indefinite
15
1
7
$
$
4,070
3,150
1,130
360
120
8,830
Annual Amortization
Year 1
Year 2
Year 3
Year 4
Year 5
271 $
-
75
360
17
724 $
271 $
-
75
-
17
364 $
271 $
-
75
-
17
364 $
271 $
-
75
-
17
364 $
271
-
75
-
17
364
We acquired right-of-use assets and assumed lease liabilities of $960 for Excell’s operating facilities. Right-of-use assets are classified as other noncurrent
assets, and current and long-term lease liabilities are classified as accrued expenses and other current liabilities and other noncurrent liabilities, respectively,
on the Company’s consolidated balance sheet.
The operating results and cash flows of Excell are reflected in the Company’s consolidated financial statements from the date of acquisition. Excell is
included in the Battery & Energy Products segment.
For the year ended December 31, 2021, from the December 13, 2021 acquisition date, Excell contributed revenue of $1,131 and net loss of $128, inclusive
of a $121 increase in cost of products sold for the fair value step-up of acquired finished goods inventory sold during the period, and amortization expense
of $30 on acquired identifiable intangible assets. Excell did not have operations from December 23, 2021 thru December 31, 2021 due to a planned holiday
closure.
50
During the year ended December 31, 2021, the Company incurred acquisition-related costs and other non-recurring expenses of $354 directly attributable
to the acquisition, including one-time accounting, legal and due diligence services.
The following supplemental pro forma information presents the combined results of operations, inclusive of the acquisition accounting adjustments and
one-time expenses described above, as if the acquisition of Excell had been completed on January 1, 2020, the beginning of the comparable prior period.
The supplemental pro forma results do not reflect the realization of potential synergies or other cost reductions following the completion of the business
combination. The supplemental pro forma results are presented for informational purposes only and should not be considered indicative of the financial
position or results of operations had the acquisition been completed as of the dates indicated and does not purport to indicate the future combined financial
position or results of operation.
Set forth below are the unaudited supplemental pro forma results of the Company and Excell for the years ended December 31, 2021 and 2020 as if the
acquisition had occurred as of January 1, 2020.
Revenue
Operating income
Net Income attributable to Ultralife Corporation
Net income per share attributable to Ultralife Corporation:
Basic
Diluted
Year Ended December 31,
2020
2021
118,467 $
1,450
1,367
.09 $
.08 $
125,826
4,489
4,081
.26
.25
$
$
$
The historical results of Excell reflected in the unaudited supplemental pro forma results for the year ended December 31, 2020 include a non-cash charge
of $950 for the write-off of obsolete inventory in January 2020.
51
Note 3 – Debt
Credit Facilities
On December 13, 2021, Ultralife, Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), CLB, INC., a Texas corporation and wholly
owned subsidiary of SWE (“CLB”), UEHC, UCHC and Excell USA, as borrowers, entered into the Second Amendment Agreement with KeyBank
National Association (“KeyBank” or the “Bank”), as lender and administrative agent, to amend the Credit and Security Agreement dated May 31, 2017 as
amended by the First Amendment Agreement by and among Ultralife, SWE, CLB and KeyBank dated May 1, 2019 (the “Credit Agreement”, and together
with the Second Amendment Agreement, the “Amended Credit Agreement”).
The Amended Credit Agreement, among other things, provides for a 5-year, $10,000 senior secured term loan (the “Term Loan Facility”) and extends the
term of the $30,000 senior secured revolving credit facility (the “Revolving Credit Facility”, and together with the Term Loan Facility, the “Amended
Credit Facilities”) through May 30, 2025. Up to six months prior to May 30, 2025, the Revolving Credit Facility may be increased to $50,000 with the
Bank’s concurrence.
Upon closing of the Excell Acquisition on December 13, 2021, the Company drew down the full amount of the Term Loan Facility and $10,980 under the
Revolving Credit Facility. As of December 31, 2021, the Company had $10,000 outstanding principal on the Term Loan Facility, $2,000 of which is
included in current portion of long-term debt on the balance sheet, and $10,980 outstanding on the Revolving Credit Facility. As of December 31, 2021,
total unamortized debt issuance costs of $123, including placement, renewal and legal fees associated with the Amended Credit Agreement, are classified
as a reduction of long-term debt on the balance sheet. Debt issuance costs are amortized to interest expense over the term of the Amended Credit Facilities.
The remaining availability under the Revolving Credit Facility is subject to certain borrowing base limits based on trade receivables and inventories.
The Company is required to repay the borrowings under the Term Loan Facility in equal consecutive monthly payments commencing on February 1, 2022,
in arrears, together with applicable interest. All unpaid principal and accrued and unpaid interest with respect to the Term Loan Facility is due and payable
in full on January 1, 2027. All unpaid principal and accrued and unpaid interest with respect to the Revolving Credit Facility is due and payable in full on
May 30, 2025. The Company may voluntarily prepay principal amounts outstanding at any time subject to certain restrictions.
In addition to the customary affirmative and negative covenants, the Company must maintain a consolidated senior leverage ratio, as defined in the
Amended Credit Agreement, of equal to or less than 3.5 to 1.0 for the fiscal quarters ending December 31, 2022 and March 31, 2023, and equal to or less
than 3.0 to 1.0 for the fiscal quarters ending June 30, 2023 and thereafter.
Borrowings under the Amended Credit Facilities are secured by substantially all the assets of the Company and its subsidiaries.
Interest will accrue on outstanding indebtedness under the Amended Credit Facilities at the Base Rate or the Overnight LIBOR Rate, as selected by the
Company, plus the applicable margin. The Base Rate is the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 50 basis points, and (c)
the Overnight LIBOR Rate plus one hundred basis points. The applicable margin ranges from zero to negative 50 basis points for the Base Rate and from
185 to 215 basis points for the Overnight LIBOR Rate and are determined based on the Company’s senior leverage ratio. The Second Amendment
Agreement includes standard market provisions permitting the Bank to transition from LIBOR to a SOFR based rate, in its discretion
The Company must pay a fee of 0.15% to 0.25% based on the average daily unused availability under the Revolving Credit Facility.
Payments must be made by the Company to the extent borrowings exceed the maximum amount then permitted to be drawn on the Amended Credit
Facilities and from the proceeds of certain transactions. Upon the occurrence of an event of default, the outstanding obligations may be accelerated, and the
Bank will have other customary remedies including resort to the security interest the Company provided to the Bank.
52
Note 4 - Supplemental Balance Sheet Information
a.
Cash and Restricted Cash
The Company had cash and restricted cash totaling $8,413 and $10,653 as of December 31, 2021 and 2020, respectively.
Cash
Restricted cash
Total
December 31,
2021
2020
$
$
8,329 $
84
8,413 $
10,562
91
10,653
As of December 31, 2021 and December 31, 2020, restricted cash included $84 and $91, respectively, of euro-denominated deposits withheld by the Dutch
tax authorities and third-party VAT representatives in connection with a previously utilized logistics arrangement in the Netherlands. Restricted cash is
included as a component of the cash balance for purposes of the consolidated statements of cash flows.
b.
Inventory, Net
Inventories are stated at the lower of cost or net realizable value with cost determined under the first-in, first-out (FIFO) method. The composition of
inventories, net was:
Raw materials
Work in process
Finished products
Total
c.
Property, Plant and Equipment
Major classes of property, plant and equipment consisted of the following:
Land
Buildings and leasehold improvements
Machinery and equipment
Furniture and fixtures
Computer hardware and software
Construction in progress
Less – Accumulated depreciation
Total
December 31,
2021
2020
$
$
21,660 $
4,227
7,302
33,189 $
17,277
3,411
7,505
28,193
December 31,
2021
2020
1,273 $
15,442
63,780
2,588
7,579
761
91,423
(68,218)
23,205 $
1,273
15,393
61,048
2,235
6,894
1,227
88,070
(65,220)
22,850
$
$
Depreciation expense was $2,906 and $2,340 for the years ended December 31, 2021 and 2020, respectively.
53
d.
Goodwill and Other Intangible Assets
The Company conducted its annual impairment test for goodwill and other indefinite-lived intangible assets as of October 1, 2021. We identified five
goodwill reporting units and four indefinite-lived intangible assets. We performed a quantitative impairment assessment of each goodwill reporting unit and
indefinite-lived intangible asset. Based on the results of our quantitative impairment tests, and consideration of qualitative factors as of our test date and
December 31, 2021, no impairments were identified.
The following table summarizes the goodwill activity by segment for the years ended December 31, 2021 and 2020:
Balance – January 1, 2021
Acquisition of Excell
Effect of foreign currency translation
Balance – December 31, 2021
The composition of intangible assets was:
Customer relationships
Patents and technology
Trade names
Trademarks
Other
Total other intangible assets
Customer relationships
Patents and technology
Trade name
Trademarks
Total other intangible assets
Battery & Energy
Products
Communications
Systems
Total
$
$
15,525 $
11,019
31
26,575 $
11,493 $
-
-
11,493 $
27,018
11,019
31
38,068
December 31, 2021,
Accumulated
amortization
Cost
13,214 $
5,667
4,670
3,413
1,490
28,454 $
5,484 $
5,126
436
-
18
11,064 $
Net
7,730
541
4,234
3,413
1,472
17,390
December 31, 2020,
Accumulated
amortization
Net
Cost
9,171 $
5,557
1,524
3,410
19,662 $
5,115 $
5,014
324
-
10,453 $
4,056
543
1,200
3,410
9,209
$
$
$
$
The change in the cost value of other intangible assets is a result of the Excell Acquisition (Note 2) and the effect of foreign currency translations.
Amortization of other intangible assets was included in the following financial statement captions:
Research and development expense
Selling, general and administrative expense
Total
Year ended December 31,
2020
2021
$
$
118 $
515
633 $
124
471
595
Future amortization expense of amortizable intangible assets will be approximately $1,286, $938, $927, $927 and $783 for the five fiscal years ending
December 31, 2022 through 2026, respectively.
54
Note 5 - Commitments and Contingencies
a.
Legal Matters
We are subject to legal proceedings and claims that arise from time to time in the ordinary course of business. We believe that the final disposition of any
such matters of which we are currently aware will not have a material adverse effect on the Company’s financial position, results of operations or cash
flows. However, recognizing that legal matters are subject to inherent uncertainties, there exists the possibility that ultimate resolution of current or future
legal matters could have a material adverse impact on the Company’s financial position, results of operations or cash flows. We are not aware of any such
situations at this time.
On December 14, 2020, Ultralife was awarded a final settlement of $1,593 (net of fees) upon court approval and order authorizing distribution of settlement
funds in a class action lawsuit (In Re: Lithium-ion Batteries Antitrust Litigation, 13-MD-02420-YGR, United States District Court, Northern District of
California). At the time of the court order, the settlement funds were held in an escrow account controlled by the court for administrative purposes, and
there remained no potential for appeal or reversal of the court order. Based on all conditions present upon the court order, it was concluded that the net
settlement amount was fully realizable. Accordingly, a gain of $1,593 was recognized and was separately reported as gain on litigation settlement on the
consolidated statement of income and comprehensive income for the year ended December 31, 2020. The corresponding amount due was collected in full
in January 2021.
b.
Indemnity
Our organizational documents provide that our directors or officers will be reimbursed for all expenses, to the fullest extent permitted by law arising out of
their performance.
c.
Purchase Commitments
As of December 31, 2021, we have made commitments to purchase approximately $630 of production machinery and equipment.
d.
China
Our operating facility in China presents risks including, but not limited to, changes in local regulatory requirements, changes in labor laws, local wage
laws, environmental regulations, taxes and operating licenses, compliance with U.S. regulatory requirements, including the Foreign Corrupt Practices Act,
uncertainties as to application and interpretation of local laws and enforcement of contract and intellectual property rights, currency restrictions, currency
exchange controls, fluctuations of currency, and currency revaluations, eminent domain claims, civil unrest, power outages, water shortages, labor
shortages, labor disputes, increase in labor costs, rapid changes in government, economic and political policies, political or civil unrest, acts of terrorism, or
the threat of boycotts, other civil disturbances and the possible impact of the imposition of tariffs by the U.S. Government on 9 Volt batteries that we
manufacture in China as well as any retaliating trade policies or restrictions. Any such disruptions could depress our earnings and have other material
adverse effects on our business, financial condition and results of operations.
e.
Employment Contracts
We have an employment contract with Michael D. Popielec, our President and Chief Executive Officer, which remains in effect until terminated by either
party. This agreement provides for a base salary, as adjusted for increases at the discretion of our Board of Directors, and includes incentive bonuses based
upon attainment of specified quantitative and qualitative performance goals. This agreement also provides for severance payments in the event of specified
events of termination of employment. In addition, this agreement provides for a lump sum payment in the event of termination of employment in
connection with a change in control.
As part of our employment commencement process, employees are required to enter into agreements providing for confidentiality of certain information
and the assignment of rights to inventions made by them while employed by us. These agreements also contain certain non-competition and non-
solicitation provisions effective during the employment term and for varying periods thereafter depending on position and location. There can be no
assurance that we will be able to enforce these agreements. All of our employees agree to abide by the terms of a Code of Ethics policy that provides for the
confidentiality of certain information received during the course of their employment.
55
f.
Product Warranties
We estimate future warranty costs to be incurred for product failure rates, material usage and service costs in the development of our warranty obligations.
Estimated future costs are based on actual past experience and are generally estimated as a percentage of sales over the warranty period. Changes in our
product warranty liability during the years ended December 31, 2021 and 2020 were as follows:
Balance, January 1
Provision for warranties issued
Settlements made
Balance, December 31
2021
2020
$
$
149 $
142
(158)
133 $
195
200
(246)
149
Note 6 - Shareholders' Equity
We recorded non-cash stock compensation expense in each period as follows:
Stock options
Restricted stock
Total
Year ended December 31,
2021
2020
$
$
618 $
53
671 $
838
105
943
We have various stock-based employee compensation plans, for which compensation cost is recognized in the financial statements. The cost is measured at
the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the
vesting period of the equity award).
Our shareholders have approved various equity-based plans that permit the grant of stock options, restricted stock and other equity-based awards. In
addition, our shareholders have approved the grant of stock options outside of these plans.
In June 2004, our shareholders adopted the 2004 Long-Term Incentive Plan (“2004 LTIP”) pursuant to which we were authorized to issue up to 750,000
shares of common stock and grant stock options, restricted stock awards, stock appreciation rights and other stock-based awards. Through shareholder
approved amendments to the LTIP in 2006, 2008, 2011, and 2013, the total number of shares authorized under the 2004 LTIP was increased to 2,900,000.
In June 2014, our shareholders approved the 2014 Long-Term Incentive Plan (“2014 LTIP”) as the successor plan to the 2004 LTIP that expired on June 10,
2014. Under the 2014 LTIP, a total of 1,750,000 shares of common stock were made available for grant of awards. In July 2021, our shareholders approved
an amendment to the 2014 LTIP to increase the total number shares of our common stock authorized to be issued pursuant to the 2014 LTIP to 2,750,000.
Of the total number of shares of common stock available for awards under the 2014 LTIP, no more than 800,000 shares of common stock may be used for
awards other than stock options and stock appreciation rights. Grants under the 2014 LTIP may be awarded through June 2, 2024.
Stock options granted under the LTIPs are either Incentive Stock Options (“ISOs”) or Non-Qualified Stock Options (“NQSOs”). Key employees are
eligible to receive ISOs and NQSOs; however, directors and consultants are eligible to receive only NQSOs. Stock options vest over a three-year period
and expire on the seventh anniversary of the grant date. As of December 31, 2021, there were 1,306,824 stock options outstanding under the 2014 LTIP.
There were no stock options outstanding under the 2004 LTIP.
As of December 31, 2021, there was $850 of total unrecognized compensation costs related to outstanding stock options, which we expect to recognize
over a weighted average period of 1.4 years.
56
We use the Black-Scholes option-pricing model to estimate fair value of stock-based awards. The following weighted average assumptions were used to
value options granted during the years ended December 31, 2021 and 2020:
Risk-free interest rate
Volatility factor
Weighted average expected life (years)
Forfeiture rate
Dividends
Year ended December 31,
2020
2021
1.0%
50%
4.8
10.0%
0.0%
0.4%
49%
5.3
10.0%
0.0%
We used a Monte Carlo simulation option-pricing model to estimate the fair value of market performance stock-based awards, of which there were no new
awards for the years ended December 31, 2021 and 2020.
We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term
was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting
schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. Forfeiture
rates are calculated by dividing unvested shares forfeited by beginning shares outstanding. The pre-vesting forfeiture rate is calculated yearly and is
determined using a historical twelve-quarter rolling average of the forfeiture rates.
The following tables summarize data for the stock options issued by us:
Year ended December 31, 2021
Shares under option – January 1
Options granted
Options exercised
Options forfeited or expired
Shares under option – December 31
Vested and expected to vest - December 31
Weighted
average
exercise
price
per share
6.50
6.78
4.39
7.44
6.87
6.86
Number
of shares
1,217,163 $
340,500
(204,429)
(46,410)
1,306,824 $
1,189,175 $
Weighted
average
remaining
contractual
term
Aggregate
intrinsic
value
4.22 $
4.05 $
504
492
439
Options exercisable – December 31
745,288 $
6.85
2.80 $
Year ended December 31, 2020
Shares under option – January 1
Options granted
Options exercised
Options forfeited or expired
Shares under option – December 31
Options exercisable – December 31
57
Weighted
average
exercise
price
per share
6.88
6.51
6.08
9.76
6.50
5.82
Number
of shares
1,541,792 $
256,000
(355,797)
(224,832)
1,217,163 $
738,452 $
The following table represents additional information about stock options outstanding at December 31, 2021:
Option outstanding
Weighted-
average
remaining
contractual
life
Number of
outstanding
options
Options exercisable
Weighted-
average
exercise
price
Number of
options
exercisable
Weighted-
average
exercise
price
325,579
321,411
205,750
454,084
1,306,824
2.68 $
4.36
6.45
4.22
4.22 $
4.58
6.28
6.97
8.88
6.87
240,579 $
166,602
11,667
326,440
745,288 $
4.34
6.07
7.09
9.08
6.85
Range of
exercise prices
$3.71 - $5.31
$5.71 - $6.51
$6.69 - $7.16
$8.25 - $9.96
$3.71 - $9.96
The weighted average fair value of options granted during the years ended December 31, 2021 and 2020 was $2.90 and $2.78, respectively. The total
intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during
the years ended December 31, 2021 and 2020 was $738 and $427, respectively.
Cash received from stock option exercises under our stock-based compensation plans for the years ended December 31, 2021 and 2020 was $398 and $238,
respectively.
Restricted shares vest in equal annual installments over three years. As of December 31, 2021, there was $17 of total unrecognized compensation costs
related to outstanding restricted shares, which we expect to recognize over a weighted average period of 1.2 years
There were 941,986 shares of common stock available for future issuance under equity compensation plans as of December 31, 2021.
58
Note 7 - Income Taxes
For the years ended December 31, 2021 and 2020, we recognized income tax expense of $79 and $1,692, respectively.
Current:
State
Foreign
Deferred:
Federal
Foreign
Total income tax provision
Year ended December 31,
2020
2021
$
$
16 $
210
226
(158)
11
(147)
79 $
23
283
306
1,673
(287)
1,386
1,692
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
Deferred tax assets:
Net operating loss carryforwards
Tax credit carryforwards
Intangible assets
Accrued expenses, reserves and other
Research and development
Total deferred tax assets
Valuation allowance for deferred tax assets
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Intangible assets
Total deferred tax liabilities
Net deferred tax assets
Net deferred tax assets (liabilities) are comprised of the following balance sheet amounts:
Deferred tax assets
Deferred tax liabilities
December 31,
2021
2020
$
12,567 $
2,239
1,412
1,996
1,999
20,213
(2,697)
17,516
(79)
(8,219)
(8,298)
$
9,218 $
12,481
2,070
1,352
2,176
984
19,063
(1,942)
17,121
(262)
(5,538)
(5,800)
11,321
December 31,
2021
2020
$
$
11,472 $
(2,254)
9,218 $
11,836
(515)
11,321
For financial reporting purposes, net (loss) income from continuing operations before income taxes is as follows:
United States
Foreign
Year ended December 31,
2020
2021
$
$
(704) $
553
(151) $
6,586
437
7,023
59
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to
income from continuing operations before income taxes as follows:
Statutory income tax rate
Increase (decrease) in tax provision resulting from:
Equity compensation
Acquisition-related costs
Income tax credits
Foreign tax rate change
Foreign tax rates
States taxes
Other
Effective income tax rate
Year ended December 31,
2021
2020
21%
11.6
(34.7)
72.7
(89.7)
(15.5)
(10.8)
(7.0)
(52.4)%
21%
4.5
(2.3)
-
0.1
0.3
0.5
24.1%
As of December 31, 2021, it was concluded that it is more likely than not that our U.S. deferred tax assets will be fully realized on the basis of
management’s assessment. In evaluating the realizability of our U.S. deferred tax assets, management considered all available evidence and concluded that
positive factors, including our sustained profitability and continued improvement in our ability to achieve internal earnings forecasts, outweighed all
negative factors, including our history of operating losses (prior to 2015) and historical operating volatility. Our assessment also considered our ability to
fully utilize before expiration our domestic net operating loss carryforwards, which expire 2022 thru 2037, and our general business tax credit
carryforwards, which expire 2028 thru 2039. As of December 31, 2021, our domestic net operating loss carryforwards and general business tax credits
were $44,716 and $2,239, respectively.
As of December 31, 2021, for certain past operations in the U.K., we continue to report a valuation allowance for net operating loss carryforwards of
approximately $11,000, nearly all of which can be carried forward indefinitely. Management has concluded that utilization of the U.K. net operating losses
may be limited due to the change in the past U.K. operation, and that they cannot currently be used to reduce taxable income of our other U.K. subsidiary,
Accutronics Ltd. There are no other deferred tax assets related to the past U.K. operations.
As of December 31, 2021, we have not recognized a valuation allowance against our other foreign deferred tax assets.
There were no unrecognized tax benefits related to uncertain tax positions at December 31, 2021 and 2020.
As of December 31, 2021, the Company maintains its assertion that all foreign earnings will be indefinitely reinvested in those operations, other than
earnings generated in the U.K.
As a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions. We are
routinely subject to examination by taxing authorities in these various jurisdictions. In August 2020, the Internal Revenue Service (“IRS”) completed its
examination of the Company’s federal tax returns for 2016-2018 with no material adjustments identified. Our U.S. tax matters for 2020 and 2019 remain
subject to IRS examination. Our U.S. tax matters for 2002, 2005-2007 and 2011-2015 also remain subject to IRS examination due to the remaining
availability of net operating loss carryforwards generated in those years. Our U.S. tax matters for 2002, 2005-2007 and 2011-2020 remain subject to
examination by various state and local tax jurisdictions. Our tax matters for the years 2011 through 2020 remain subject to examination by the respective
foreign tax jurisdiction authorities.
60
Note 8 – Operating Leases
The Company has operating leases predominantly for operating facilities. As of December 31, 2021, the remaining lease terms on our operating leases
range from approximately one (1) year to ten (10) years. Lease terms include renewal options reasonably certain of exercise. There is no transfer of title or
option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants.
The components of lease expense for the current and prior-year comparative periods were as follows:
Operating lease cost
Variable lease cost
Total lease cost
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for lease liabilities:
Supplemental balance sheet information related to leases was as follows:
Assets:
Operating lease right-of-use asset
Other noncurrent assets
Balance Sheet Classification
Liabilities:
Current operating lease liability
Operating lease liability, net of current portion Other noncurrent liabilities
Accrued expenses and other current liabilities
Total operating lease liability
Weighted-average remaining lease term (years)
Weighted-average discount rate
Future minimum lease payments as of December 31, 2021 are as follows:
Maturity of Operating Lease Liabilities
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: Imputed interest
Present value of remaining lease payments
61
Year ended December 31,
2020
2021
$
$
762 $
79
841 $
703
75
778
Year ended December 31,
2020
2021
$
$
744 $
1,020 $
688
875
$
$
$
December 31,
2021
2020
2,581
$
2,189
867
1,743
2,610
$
$
4.5
4.5%
680
1,524
2,204
3.3
4.5%
$
$
$
889
894
434
139
140
424
2,920
(310)
2,610
Note 9 - 401(k) Retirement Benefit Plan
We maintain a defined contribution 401(k) plan covering substantially all employees. Employees can contribute a portion of their salary or wages as
prescribed under Section 401(k) of the Internal Revenue Code and, subject to certain limitations, we may, at the discretion of our Board of Directors,
authorize an employer contribution based on a portion of the employees' contributions. For the year ended December 31, 2021, the Company matched
100% on the first 3% and 50% on the next 2% contributed by the employee, or a maximum of 4% of the employee’s income. For the year ended December
31, 2020, the Company matched 50% on the first 6% contributed by the employee, or a maximum of 3% of the employee’s income. For 2021 and 2020, we
contributed $586 and $466, respectively, to the 401(k) plan.
Note 10 - Business Segment Information
We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment
includes: Lithium 9-volt, cylindrical and various other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies,
charging systems and accessories. The Communications Systems segment includes: RF amplifiers, power supplies, cable and connector assemblies,
amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and
communications and electronics systems design. We believe that reporting performance at the gross profit level is the best indicator of segment
performance.
2021:
Revenue
Segment contribution
Other expense
Income tax expense
Non-controlling interest
Net loss attributable to Ultralife
Battery &
Energy
Products
Communications
Systems
$
87,083 $
21,063
11,184 $
3,579
Total assets
Capital expenditures
Goodwill
Depreciation and amortization of intangible assets
Stock-based compensation
$
$
$
$
$
110,633 $
2,104 $
26,575 $
2,847 $
298 $
25,359 $
255 $
11,493
326 $
125 $
2020:
Revenue
Segment contribution
Other income
Income tax expense
Non-controlling interest
Net income attributable to Ultralife
Battery &
Energy
Products
Communications
Systems
$
91,907 $
23,400
15,805 $
5,759
Total assets
Capital expenditures
Goodwill
Depreciation and amortization of intangible assets
Stock-based compensation
$
$
$
$
$
85,112 $
3,031 $
15,525 $
2,269 $
446 $
26,425 $
- $
11,493
342 $
155 $
Corporate
Total
- $
(24,607)
186
79
4
$
23,546
455 $
- $
366 $
248 $
98,267
35
186
79
4
(234)
159,538
2,814
38,068
3,539
671
Corporate
Total
- $
(23,458)
(1,322)
1,692
99
$
26,164 $
70 $
- $
324 $
342 $
107,712
5,701
(1,322)
1,692
99
5,232
137,701
3,101
27,018
2,935
943
Long-lived assets (comprised of property, plant and equipment; goodwill; and other intangible assets) held outside the U.S., principally in Canada, United
Kingdom and China, were $26,762 and $12,456 as of December 31, 2021 and 2020, respectively.
62
The following tables disaggregate our business segment revenues by major source and geography.
Commercial and Government/Defense Revenue Information:
Year ended December 31, 2021:
Total
Revenue
Commercial
Government/
Defense
Battery & Energy Products
Communications Systems
Total
Year ended December 31, 2020:
Battery & Energy Products
Communications Systems
Total
U.S. and Non-U.S. Revenue Information1:
Year ended December 31, 2021:
Battery & Energy Products
Communications Systems
Total
Year ended December 31, 2020:
Battery & Energy Products
Communications Systems
Total
$
$
$
$
$
$
$
$
87,083 $
11,184
98,267 $
$
64,079
-
64,079
$
65%
23,004
11,184
34,188
35%
Total
Revenue
Commercial
Government/
Defense
91,907 $
15,805
107,712 $
$
62,330
-
62,330
$
58%
29,577
15,805
45,382
42%
Total
Revenue
United
States
Non-United
States
87,083 $
11,184
98,267 $
$
43,298
5,521
48,819
$
50%
43,785
5,663
49,448
50%
Total
Revenue
United
States
Non-United
States
91,907 $
15,805
107,712 $
$
49,930
12,325
62,255
$
58%
41,977
3,480
45,457
42%
1 Sales classified to U.S. include shipments to U.S.-based prime contractors which in some cases may serve non-U.S. projects.
63
Note 11 – Impact of COVID-19
The COVID-19 pandemic has created significant economic disruption and uncertainty around the world. The Company continues to closely monitor the
developments surrounding COVID-19 and take actions to mitigate the business risks involved. During this challenging time, we remain focused on
ensuring the health and safety of our employees by implementing the protocols established by public health officials in addition to working closely with our
customers and suppliers to meet the demand for our mission critical products serving medical device, first responder, public safety, energy and national
security customers in an efficient and economically responsible manner.
COVID-19 adversely impacted our operating results during 2021 with an estimated negative impact to sales and operating profit of $11,000 and $4,500,
respectively, primarily as a result of overall disruptions in supply chains and operations impacting both commercial and government/defense markets.
While we have maintained normal business operations at all our facilities throughout the year, the supply chain disruptions including increased lead times
on key components experienced within our business and by our customers, impacted our work schedules and timing of shipments. We exited 2021 with a
backlog of $53,166, excluding Excell, representing an increase of $13,874 million or 35.3% from year-end 2020, largely attributable to the supply chain
disruptions pushing shipments into 2022.
The extent to which COVID-19 may further impact our business is uncertain and will depend on many factors which we continue to monitor but cannot
predict or fully control, including the duration and scope of the pandemic and its variants, resulting actions taken by governments, businesses and
individuals, limited availability and/or increased cost of raw materials and components used in our products, and the flow-through impact on operations and
supply chains. 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 cannot predict the lingering effects the COVID-19 pandemic may cause, we will continue to work closely with our customers
and suppliers to take actions when possible and within our control to mitigate the business risks involved.
64
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A.
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 Rule 13a-15(e)) as
of the end of the period covered by this annual 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 Controls 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 fourth quarter of the fiscal year covered by this annual report that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting – Our management team is responsible for establishing and maintaining adequate
internal control over our financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. Because of the inherent limitations of internal control systems, our internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, we used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework
(2013). Based on our assessment, we concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those
criteria.
In accordance with guidance issued by the SEC, registrants are permitted to exclude acquisitions from the final assessment of internal control over financial
reporting for the first fiscal year in which the acquisition occurred while integrating the acquired operations. Our management’s evaluation of internal
control over financial reporting excluded Excell, which we acquired on December 13, 2021, as discussed in Note 2 to the consolidated financial statements.
Total revenue of Excell from the date of acquisition included in our consolidated results represented 1% of our consolidated revenues for the year ended
December 31, 2021. Total assets of Excell (excluding acquired goodwill and other intangible assets which were included in management’s evaluation)
represented 6% of our consolidated total assets as of December 31, 2021.
Freed Maxick CPAs, P.C., an independent registered public accounting firm, which has audited and reported on the consolidated financial statements
contained in this Annual Report on Form 10-K, has audited the effectiveness of the Company’s internal control over financial reporting as stated in their
report, which is included in Part II, Item 8.
ITEM 9B.OTHER INFORMATION
None.
65
The information required by Part III, other than as set forth in Item 12, and each of the following items is omitted from this report and will be presented in
our definitive proxy statement (“Proxy Statement”) to be filed pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered
by this report, in connection with our 2022 Annual Meeting of Shareholders, which information included therein is incorporated herein by reference.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The sections entitled “Election of Directors”, “Executive Officers”, “Delinquent Section 16(a) Reports Compliance” and “Corporate Governance” in the
Proxy Statement are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled “Executive Compensation”, “Directors Compensation”, “Employment Arrangements” and “Compensation and Management
Committee” in the Proxy Statement are incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The section entitled “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” in the Proxy Statement is incorporated
herein by reference.
Equity Compensation Plan Information
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans
(excluding securities
reflected in column (a))
(c)
Plan Category
Equity compensation plans approved by security holders
1,306,824 $
Equity compensation plans not approved by security holders
Total
-
1,306,824 $
6.87
-
6.87
941,986
-
941,986
See Note 6 in the notes to consolidated financial statements for additional information.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The section entitled “Corporate Governance – General” in the Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The section entitled “Proposal to Ratify the Selection of Independent Registered Accounting Firm - Principal Accountant Fees and Services” in the Proxy
Statement is incorporated herein by reference.
66
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
1. Financial Statements
PART IV
The financial statements and schedules required by this Item 15 are set forth in Part II, Item 8 of this Form 10-K.
(b) Exhibits. The following exhibits are filed as a part of this report:
Exhibit
Index
2.1
2.2
Description of Document
Share Purchase Agreement, dated December 13, 2021, by and
among 1336889 B.C. Unlimited Liability Company, Mark
Kroeker, Randolph Peters, Brian Larsen, M. & W. Holdings Ltd.,
Karen Kroeker, Heather Peterson, Michael Kroeker, Nicholas
Kroeker, Brentley Peters, Craig Peters, Kurtis Peters, Heather
Larsen, Ian Kane, Carol Peters, 0835205 B.C. LTD, and Excell
Battery Canada Inc.
Share Purchase Agreement, dated December 13, 2021, by and
among 1336902 B.C. Unlimited Liability Company, M. & W.
Holdings Ltd., Ian Kane, Sanford Capital Ltd., Arcee Enterprises
Inc., 0835205 B.C. Ltd., and 656700 B.C. LTD
Filed Herewith or Incorporated by Reference from:
Exhibit 2.1 of the Form 8-K filed on December 16, 2021
Exhibit 2.2 of the Form 8-K filed on December 16, 2021
2.3
Stock Purchase Agreement, dated May 1, 2019, by and among
Exhibit 10.1 of the Form 8-K filed on May 2, 2019
Ultralife Corporation, Southwest Electronic Energy Corporation,
Southwest Electronic Energy Medical Research Institute, and
Claude Leonard Benckenstein
Stock Purchase Agreement Relating to Accutronics Limited by
and between Robert Andrew Phillips and Others and Ultralife
Corporation
Exhibit 2.2 of the Form 10-K for the year ended December 31,
2015, filed March 2, 2016
Restated Certificate of Incorporation
Exhibit 3.1 of the Form 10-K for the year ended December 31,
Amended and Restated By-laws
Specimen Stock Certificate
2008, filed March 13, 2009
Exhibit 3.2 of the Form 8-K filed December 9, 2011
Exhibit 4.1 of the Form 10-K for the year ended December 31,
2008, filed March 13, 2009
Description of Registrant’s Securities
Exhibit 4.2 of the Form 10-K/A for the year ended December
2.4
3.1
3.2
4.1
4.2
10.1*
Amendment to the Agreement relating to rechargeable batteries
31, 2019, filed April 28, 2020
Exhibit 10.24 of our Form 10-K for the fiscal year ended June
30, 1996 (this Exhibit may be found in SEC File No. 0-20852)
67
10.2†
Employment Agreement between the Registrant and Michael D.
Exhibit 10.40 of the Form 10-K for the year ended December
10.3†
10.4
10.5
Popielec dated December 6, 2010
31, 2010, filed March 15, 2011
Ultralife Corporation Amended 2014 Long-Term Incentive Plan
Credit and Security Agreement between Ultralife Corporation and
Appendix B of Form DEF 14A filed on June 1, 2021
Exhibit 10.1 of the Form 8-K filed on June 6, 2017
KeyBank National Association dated May 31, 2017
First Amendment Agreement, dated May 1, 2019, by and among
Ultralife Corporation, Southwest Electronic Energy Corporation,
CLB, INC., and KeyBank National Association
Exhibit 10.1 of the Form 8-K filed on May 2, 2019
10.6†
Amendment No. 1 to Ultralife Corporation Amended 2014 Long-
Appendix A of Form DEF 14A filed on June 1, 2021
Term Incentive Plan
10.7
Second Amendment Agreement, dated December 13, 2021, by
and among Ultralife Corporation, Southwest Electronic Energy
Corporation, CLB, INC., Ultralife Excell Holding Corp., Ultralife
Canada Holding Corp., Excell Battery Corporation USA, and
KeyBank National Association
Exhibit 10.1 of the Form 8-K filed on December 16, 2021
21
23.1
31.1
31.2
32
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
104
Subsidiaries
Consent of Freed Maxick CPAs, P.C.
Rule 13a-14(a) / 15d-14(a) CEO Certifications
Rule 13a-14(a) / 15d-14(a) CFO Certifications
Section 1350 Certifications
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase
Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase
Document
Inline XBRL Taxonomy Extension Definition Linkbase Document Filed herewith
Filed herewith
Filed herewith
Filed herewith
Cover Page Interactive Data File (formatted as Inline XBRL and
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
contained in Exhibit 101)
* Confidential treatment has been granted as to certain portions of this exhibit.
† Management contract or compensatory plan or arrangement.
Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance
Sheets as of December 31, 2021 and December 31, 2020, (ii) Consolidated Statements of Income and Comprehensive Income for the years ended
December 31, 2021 and December 31, 2020, (iii) Consolidated Statements of Cash Flows for the years ended December 31, 2021 and December 31, 2020,
(iv) Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021 and December 31, 2020, and (v) Notes to
Consolidated Financial Statements.
68
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: March 8, 2022
ULTRALIFE CORPORATION
/s/ Michael D. Popielec
Michael D. Popielec
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date: March 8, 2022
Date: March 8, 2022
Date: March 8, 2022
Date: March 8, 2022
Date: March 8, 2022
Date: March 8, 2022
/s/ Michael D. Popielec
Michael D. Popielec
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Philip A.
Fain
Philip A. Fain
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
/s/ Thomas L.
Saeli
Thomas L. Saeli (Director)
/s/ Robert W. Shaw
II
Robert W. Shaw II (Director)
/s/ Ranjit C. Singh
Ranjit C. Singh (Director)
/s/ Bradford T. Whitmore
Bradford T. Whitmore (Director)
69
SUBSIDIARIES
Exhibit 21
We have a 100% ownership interest in Ultralife Batteries (UK) LTD, incorporated in the United Kingdom.
We have a 100% ownership interest in ABLE New Energy Co., Limited, incorporated in Hong Kong, which has a 100% ownership interest in ABLE New
Energy Co., Ltd, incorporated in the People’s Republic of China.
We have a 100% ownership interest in Ultralife Energy Services Corporation, incorporated in Florida.
We have a 51% ownership interest in Ultralife Batteries India Private Limited, incorporated in India.
Through our ownership interest in Ultralife UK LTD, we have a 100% controlling interest in Accutronics, Ltd., also incorporated in the United Kingdom.
We have 100% ownership interest in Southwest Electronic Energy Corporation and its wholly-owned subsidiary, CLB, Inc. (collectively “SWE”), both
incorporated in Texas.
We have 100% ownership interest in Ultralife Excell Holding Corp., a Delaware corporation, which has 100% ownership interest in Ultralife Canada
Holding Corp., a Delaware corporation, which has 100% ownership interest in Excell Battery Canada ULC, a British Columbia unlimited liability
corporation, and 100% ownership interest in 1336902 B.C. Unlimited Liability Company, a British Columbia unlimited liability corporation, which has
100% ownership interest in Excell Battery Corporation USA, a Texas corporation.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-136737, 333-136738, 333-155347, 333-155349, 333-
179235, 333-203037, 333-258107) and Form S-3 (Registration No. 333-254846) of our report dated March 8, 2022, relating to the consolidated financial
statements and effectiveness of internal control over financial reporting of Ultralife Corporation appearing in this Annual Report on Form 10-K for the year
ended December 31, 2021.
Exhibit 23.1
/s/ Freed Maxick CPAs, P.C.
Rochester, New York
March 8, 2022
I, Michael D. Popielec, certify that:
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Ultralife Corporation;
Based on my knowledge, this 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 report;
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 8, 2022
/s/ Michael D. Popielec
Michael D. Popielec
President and Chief Executive Officer
I, Philip A. Fain, certify that:
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Ultralife Corporation;
Based on my knowledge, this 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 report;
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 8, 2022
/s/ Philip A. Fain
Philip A. Fain
Chief Financial Officer and Treasurer
Section 1350 Certification
Exhibit 32
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), Michael D. Popielec and
Philip A. Fain, the President and Chief Executive Officer and Chief Financial Officer and Treasurer, respectively, of Ultralife Corporation, certify that (i)
the Annual Report on Form 10-K for the year ended December 31, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in such report fairly presents, in all material respects, the financial condition and results of
operations of Ultralife Corporation.
A signed original of this written statement required by Section 906 has been provided to Ultralife Corporation and will be retained by Ultralife Corporation
and furnished to the Securities and Exchange Commission or its staff upon request.
Date: March 8, 2022
Date: March 8, 2022
/s/ Michael D. Popielec
Michael D. Popielec
President and Chief Executive Officer
/s/ Philip A. Fain
Philip A. Fain
Chief Financial Officer and Treasurer
This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or
otherwise subject to the liability of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate this certification by reference.