2022
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TO OUR STOCKHOLDERS
Having weathered the pandemic while dealing with persistent supply chain and inflation
challenges, we exited 2022 with a backlog of $111 million, the highest in our history and
representing a 74% increase over the comparable 2021 backlog. From my perspective this
growth is a testament to our employees, including long-tenured, subject matter experts in both
our Battery and Communications Systems businesses, who offer unique expertise to best service
the increasing needs of our customers; our unique products that provide the highest
performance, safety and reliability for critical applications; our multiple facilities which provide
proximity to our customers and localized support facilitating our efforts to build strong, lasting
relationships; and our collective resources and capabilities to expedite global growth
opportunities while diversifying our end markets served.
Our performance for 2022 showcased these key capabilities in a challenging environment. Our
consolidated sales increased 34% to $131.8 million with solid growth in both commercial and
government/defense sales resulting in a 70/30 split between these market sectors, respectively.
We continued our aggressive pursuit of exciting new revenue opportunities, both organically
through market and sales-reach expansion, new product development and customer
partnerships, and continued progress on our transformational new projects. With the successful
integration of our December 2021 acquisition of Excell Battery Group, we expanded our
participation in a variety of industrial markets which further diversifies us into new currently
unserved OEM device verticals such as automated meter reading, ruggedized computers, and
mining, and other mission critical applications that demand uncompromised safety, service,
reliability and quality.
Battery & Energy Products (B&EP)
B&EP sales increased 38% to $120.0 million in 2022, reflecting a 47% increase in commercial
sales and a 14% in government/defense sales. Commercial sales, which comprise 78% of 2022
segment sales, increased primarily due to the full year contribution of Excell and 15% organic
growth in oil & gas market (downhole drilling) sales. Medical sales were down 1% as
component shortages persisted, impacting our ability to fulfill increased demand from a large
global medical device OEM. Government/Defense sales increased 14% and comprised 22% of
total segment sales. The increase reflects higher U.S. and international demand resulting in year-
over-growth of 12% and 34%, respectively. During 2022, we continued to advance several of
our multi-year development new products, most notably the launch of our X-5 medical cart
battery system, our thin cell batteries in the rapidly growing medical wearables and product
tracking markets, our 3-volt product line serving the IOT market, our Thionyl Chloride product
line targeting industrial monitoring and telemetry applications, and our SEASAFE subsurface
batteries for offshore projects, as well as continuing development of our conformal wearable
battery used to power advanced dismounted soldier equipment.
Communications Systems
Communications Systems sales increased 6% to $11.8 million in 2022, reflecting the receipt of
components to commence the fulfillment of a large international order and to continue the
fulfillment of a large U.S. order received in October 2021 to supply a global defense prime with
our Vehicle Amplifier-Adaptors for the U.S. Army’s Leader radio program. Due to the supply
chain lead times, the balance of these orders will be fulfilled in 2023. During 2022, we remained
embedded with our OEM and channel partners making progress on our advanced amplification
and power products to support air, ground and sea communications primarily military in nature,
as well as completing qualification testing for our EL8000 server case and power system to
diversify sales into commercial markets, thereby adding further scale to the segment.
Going Forward
I have spent my career at Ultralife, over nearly 30 years of building the battery business with
my hands in virtually all design, development, testing, operations and sales functions, and firmly
believe this is a very opportune time for the Company.
With a backlog increasing to $111 million and durable demand across our end markets,
augmented by a steady stream of new products, the development of strategies that leverage our
cell design expertise and power system capabilities to best position us to take advantage of
electrification and 5G market demand, and continued discussions with several partners to
collaborate on advanced cell prototypes, our revenue opportunities look promising for 2023 and
beyond. In the near term, our highest priority is to improve gross margins through continued
execution of price realization activities, qualification of alternate component suppliers, and lean
manufacturing initiatives. These actions combined with strengthening our relationships with
our key customers while using our global new product development and sales resources to
further organic growth, position us to deliver high-quality, sustainable profitable growth for
2023 and generate incremental cash flow to pay down our acquisition debt.
In closing, I would like to thank our dedicated employees for their 2022 accomplishments and
commitment toward executing our growth plans; our partners and customers for their continued
collaboration with us; and our shareholders for their continued support in a very challenging
environment.
Mike Manna,
President and Chief Executive Officer
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, 2022
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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of
the registrant included in the filing reflect the correction of an error to previously issued financial statements. Yes ☐ No ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to
§240.10D-1(b). Yes ☐ No ☒
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, 2022, 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 $44,418,638 (in whole dollars) based upon the closing price for
such common stock as reported on the NASDAQ Global Market on June 30, 2022.
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 27, 2023, the registrant had 16,135,358 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
PAGE
PART I
1 Business ..................................................................................................................1
1A Risk Factors ............................................................................................................14
1B Unresolved Staff Comments ..................................................................................24
2 Properties ................................................................................................................24
3 Legal Proceedings ...................................................................................................24
4 Mine Safety Disclosures .........................................................................................24
PART II
5 Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities ..............................................25
6 Selected Financial Data ..........................................................................................25
7 Management’s Discussion and Analysis of Financial Condition and
Results of Operations ............................................................................................26
7A Quantitative and Qualitative Disclosures About Market Risk ............................36
8 Financial Statements and Supplementary Data ......................................................37
9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .............................................................................................64
9A Controls and Procedures.........................................................................................64
9B Other Information ...................................................................................................64
PART III
10 Directors, Executive Officers and Corporate Governance ....................................65
11 Executive Compensation ........................................................................................65
12 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters ................................................................................65
13 Certain Relationships and Related Transactions, and Director Independence......65
14 Principal Accountant Fees and Services ................................................................65
PART IV
15 Exhibits, Financial Statement Schedules ...............................................................66
Signatures .....................................................................................................................69
i
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, changes in economic conditions including inflation and supply chain disruptions affecting our business, revenues
and earnings adversely; the continued impact of COVID-19 causing delays in the manufacture and delivery of our mission
critical products to end customers; our reliance on certain key customers; our efforts to develop new commercial applications
for our products; reduced U.S. and foreign military spending including the uncertainty associated with government budget
approvals; the unique risks associated with our China operations; breaches in information systems security and other
disruptions in our information technology systems; potential disruptions in our supply of raw materials and components;
fluctuations in the price of oil and the resulting impact on the demand for downhole drilling; our ability to retain top
management and key personnel; our resources being overwhelmed by our growth; possible future declines in demand for the
products that use our batteries or communications systems; safety risks, including the risk of fire; variability in our quarterly
and annual results and the price of our common stock; rising interest rate increasing the cost of our variable borrowings;
purchases by our customers of product quantities not meeting the volume expectations in our supply agreements; potential
costs attributable to the warranties we supply with our products and services; our inability to comply with changes to the
regulations for the shipment of our products; our ability to utilize our net operating loss carryforwards; our entrance into new
end-markets which could lead to additional financial exposure; negative publicity concerning Lithium-ion batteries; possible
impairments of our goodwill and other intangible assets; our exposure to foreign currency fluctuations; the risk that we are
unable to protect our proprietary and intellectual property; rules and procedures regarding contracting with the U.S. and foreign
governments; exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-
corruption laws; known and unknown environmental matters; possible audits of our contracts by the U.S. and foreign
governments and their respective defense agencies; our ability to comply with government regulations regarding the use of
“conflict minerals”; technological innovations in the non-rechargeable and rechargeable battery industries; and other risks and
uncertainties, certain of which are beyond our control.
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 its wholly owned subsidiaries ABLE New Energy Co., Limited and its wholly
owned subsidiary ABLE New Energy Co., Ltd (collectively “ABLE”); Ultralife UK LTD and its wholly owned subsidiary
Accutronics Ltd (collectively “Accutronics”); Ultralife Batteries (UK) Ltd.; Southwest Electronic Energy Corporation and
its wholly owned subsidiary, CLB, Inc. (collectively “SWE”); Ultralife Excell Holding Corp. (“UEHC”) and its wholly
owned subsidiary Excell Battery Corporation USA (collectively “Excell Battery USA”), Ultralife Canada Holding Corp
(wholly owned by UEHC, “UCHC”) and its wholly owned subsidiary Excell Battery Canada ULC (“Excell Battery
Canada”), and its majority-owned joint venture Ultralife Batteries India Private Limited (“Ultralife India”).
Dollar amounts throughout this Form 10-K Annual Report are presented in thousands of dollars, except for per share amounts.
ITEM 1. BUSINESS
General
1
We offer products and services ranging from power solutions to communications and electronics systems to customers
across the globe in the government, defense and commercial sectors. With an emphasis on strong engineering and a
collaborative approach to problem solving, we design and manufacture power and communications systems including:
rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems and accessories,
and custom engineered systems related to those product lines. We continually evaluate ways to grow, including the design,
development and sale of new products, expansion of our sales force to penetrate new markets and territories, as well as seeking
opportunities to expand through acquisitions.
We sell our products worldwide through a variety of trade channels, including original equipment manufacturers (“OEMs”),
industrial and defense supply distributors, and directly to U.S. and foreign defense departments. We enjoy strong name
recognition in our markets under our Ultralife® Batteries, Lithium Power®, McDowell Research®, 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, wearable medical products, Bluetooth tracking devices and other specialty 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.
2
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.
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, 2022 were $119,995 and segment contribution (gross profit) was
$26,154.
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.
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.
Commercial products offered to date under the Ultralife brand integrate information technology equipment and power
conversion 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, 2022 were $11,845 and segment contribution (gross profit) was
$3,246.
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, 2022 and our Corporate operating expenses for the year ended
December 31, 2022 were $29,271.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations and the 2022 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 devices, smart metering for utilities 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” and together with Excell Canada and 656700, collectively, “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
4
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 both existing and in development
that are costly for our customers to substitute with products of a competitor.
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”), cellular, and Bluetooth 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, wearable patient monitoring and telemetry systems. Search and rescue
applications include Emergency Locator Transmitters (“ELTs”) for aircraft and Emergency Position Indicating Radio
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Beacons (“EPIRBs”) for ships. Oil and gas applications include battery packs for downhole and directional drilling
applications such as Measurement While Drilling (“MWD”) and Logging While Drilling (“LWD”) and pipeline inspection
and monitoring.
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 and Bluetooth tracking 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 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 notebook 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. We package all systems to meet specific
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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.
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. These amplifiers are used to extend the range of manpack and handheld tactical transceivers, and our RF
amplifiers include both mounted and dismounted versions and many related accessories and kits which can be used on mobile
or fixed site applications.
Integrated Systems. Our integrated systems include: vehicle mounted systems; SATCOM systems; rugged, deployable case
systems; and multiband transceiver kits. These systems provide enhanced capabilities which enable communications
operators to provide links to support Command, Control, Communications, Computers, Cyber and Intelligence,
Surveillance and Reconnaissance (“C5ISR”).
Power Systems. Our power systems include: AC/DC power supplies with battery backup for tactical manpack radios and
power adaptors and chargers. 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 of
high computing capability in various configurations. 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 to us there is no guarantee that the government
will order any product under the contract.
We have one major customer, a large global defense primary contractor, which comprised 17% of our total revenues in 2022,
and 20% of our total revenues in 2021. There were no other customers that comprised greater than 10% of our total revenues
during these years.
In 2022, sales to U.S. and foreign customers were approximately $67,914 and $63,926, respectively. In 2021, sales to U.S. and
foreign customers were approximately $48,819 and $49,448, respectively.
Battery & Energy Products
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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 labels, 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 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 from 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
2023. 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, 2022 and 2021, our backlog related to Battery & Energy Products was approximately $88,600 and $55,300,
respectively. The 60% year-over-year increase in our Battery & Energy Products backlog at December 31, 2022 primarily
resulted from the demand for our medical, government & defense and oil & gas batteries, which in some cases includes orders
pushed into 2023 because of the supply chain disruptions experienced in 2022.
The 2022 year-end backlog is primarily related to orders that are expected to ship throughout 2023 and does not include future
shipments under the indefinite-delivery/indefinite-quantity Defense Logistics Agency award for BA-5390 batteries ($9,900)
and the U.S. Army award for Conformal Wearable Batteries ($168,000).
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 directly 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.
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At December 31, 2022 and 2021, our backlog related to Communications Systems orders was approximately $22,400 and
$8,400, respectively. The 167% increase in our Communications Systems backlog at December 31, 2022 is primarily a result
of purchase orders received in 2022 to supply a global defense prime with our Vehicle Amplifier-Adaptors for the U.S. Army’s
Leader Radio program and to supply an international defense contractor with our amplifiers and radio vehicle mounts for an
ongoing allied country government/defense modernization program. The 2022 year-end backlog is related to orders that are
expected to ship throughout 2023.
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-six 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 India, four patents issued in Japan, four patents issued in South Korea, four patents
issued in the United Kingdom, three patents issued in Canada, three patents issued in China, three patents issued in Taiwan,
two patents issued in Norway, one patent issued in Australia, one patent issued in Hong Kong, one patent issued in Iceland,
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 non-competition and non-solicitation 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, that 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, POW-R BMS®, POW-R TOTE®, POW-R-BMS®, SWE Southwest Electronic Energy Group®, SWE DRILL-
DATA®, SWE DRILL-DATA®, SWE DRILL-DATA OBSERVER®, SWE SEASAFE®, SWE SEASAFE (&
DESIGN)®, SWE SEASAFE + DIRECT®, SWE SOUTHWEST ELECTRONIC ENERGY GROUP ADVANCED
BATTERY SOLUTIONS & DESIGN®, and THE NEW POWER GENERATION®.
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 Canadian manufacturing facilities in Calgary and Mississauga
are ISO 9001 certified 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. 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.
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 2022 and may continue to be
affected in 2023.
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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 2022 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 $32,771 and $25,677 as of December 31, 2022 and 2021, respectively. The year-over-year 28% increase
primarily reflects an increase in materials, including rechargeable cells, required to fulfill the backlog for our batteries primarily
used in the medical devices, government & defense and oil & gas sectors. 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.
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 $8,421 and $7,512 as of December 31, 2022 and 2021, respectively. The year-over-year 12% increase is
due 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.
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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 2022 and 2021, we expended $7,874 and $8,042, respectively, on research and development,
including $793 and $1,216, respectively, on customer sponsored research and development activities, which are included in
cost of products 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 the inclusion of a full year of operations for
Excell which was acquired on December 13, 2021.
We expect that research and development expenditures in the future could increase by 10% or more over 2022 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, Canada 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 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.
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.
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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 ensure 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 levels 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 2022
and 2021, we spent $264 and $208, respectively, on environmental compliance, including costs to properly dispose of
potentially hazardous waste.
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
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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, 2022 for the 2021 calendar year and we continue to utilize
appropriate measures with our suppliers to better ascertain the origin of the conflict minerals in our products.
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
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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, 2022, we employed a total of 547 permanent and temporary employees: 424 in production, 78 in sales
and administration, and 45 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
Changes in economic conditions, including inflation and supply-chain disruptions have affected and may continue to affect
our business, revenues and earnings adversely.
The disruptions resulting from supply chain and logistics complications were more pronounced on the Company in 2022,
in large part because of a sharp uptick for our more-advanced rechargeable battery packs which increased the need for
highly sought-after components, including various electronic components, PC boards, chip sets and certain metals to name
a few. Major contributing factors resulting in the year-over-year reduction in our gross margin from 25.1% in 2021 to 22.3%
in 2022 included the following: (1) Rapid cost inflation on raw materials and key components not entirely aligned with the
timing of customer price increases - In 2022 we experienced more frequent weekly or sometimes daily input cost increases
from our vendors this year versus more periodic customer price increases causing an inevitable lag in cost/price alignment.
Going forward, to reduce this lag, we are initiating more frequent customer price increases closely aligned to cost increases,
subject to our customers’ willingness to accept of the price increases. (2) Incremental fees to source and expedite critical
components – In 2022 increases in demand with tight shipment schedules from both government/defense and medical
customers, in some cases went beyond the wherewithal of our vendors to obtain key materials in a timely manner,
necessitating the one-time use of brokers at a much higher cost and with more complex logistic, and further complicating
the timely matching of higher costs with customer price increases. To minimize the use of costly brokers going forward,
we have now extended the forward time horizon of our sales and operations planning (“S&OP”) process with customers
and suppliers. Should a demand surge with expedited timing again necessitate more costly sourcing alternatives, we will
work closely with our customers to fund all or a large portion of the incremental costs on a timely basis, subject to our
customers’ willingness to share in these costs. (3) Internal manufacturing inefficiencies – As a result of irregular component
availability and lead time extensions, in 2022 we experienced continuous production-line start-ups, shut-downs and
changeovers resulting in labor inefficiencies, higher scrap and decreased absorption of overhead. Most notable were delays
in the supply of rechargeable cells for our fulfillment of a large medical order, as the vendor changed their focus to supplying
large format cells for electric vehicles (“EV”). We have now qualified another vendor to meet the strict FDA requirements
of our designed-in batteries. (4) Increased and uncertain lead times impacting timely deliveries – In 2022 more mundane
yet vital components, such as epoxy, label and boxes, trickled in well past the expected dates reducing productivity and
increasing costs to expedite shipments.
Going forward, we will use our global supply chain more effectively to secure alternate vendors to minimize these
occurrences. Although the Company has focused a great deal of time and effort on improving gross margins, supply-chain
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disruptions, which could continue into 2023 and despite our best efforts, we may not be able to offset and/or minimize the
unfavorable impact these disruptions may continue to cause on business and financial results.
The COVID-19 pandemic and other illnesses has caused and may continue to create significant economic and social
disruption and uncertainty around the world, may impact the health of our employees, and that of our suppliers and
customers causing delays in the manufacture and delivery of our mission critical products to end customers, and may
disrupt business with our collaborative business partners and service providers, which may continue to adversely impact
our operating results.
The novel coronavirus disease of 2019 (COVID-19) has created significant economic disruption and uncertainty around the
world. As we enter the third year of the pandemic, our workforce, customers and vendors still face the risk of the emergence
of new strains, availability of effective treatment, and potential regulatory and macroeconomic effects stemming from such
impacts. Except for certain situations in China, lockdowns, shelter-in-place restrictions, and vaccine mandates, prevalent
during the initial stages of the pandemic, have now been lifted for most companies. While we have maintained normal
business operations at virtually all our facilities throughout the pandemic, the related supply chain disruptions including
increased lead times on key components experienced within our business and by our customers and vendors, continue to
impact our work schedules and timing of shipments. The lingering impact of these conditions, potentially exacerbated by
the emergence of new strains, on our business and financial results is uncertain and will depend on many evolving factors
which we continue to monitor but cannot predict, including the resistance to treatments and current vaccinations, and the
duration and scope of any new pandemic variants, the resulting actions taken by governments, businesses and individuals,
and the flow-through impact on operations and supply chains.
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 17% of our
total revenues in 2022 and 20% of our total revenues in 2021. 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 our industries. There are many new product and technology entrants into
the markets we sell our products to, 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 all may have an 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, 2022 and 2021, $38,795 or 29% and $34,751 or 35%, 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 $33,064 or 25% in 2022 and $26,870 or 27% in 2021. 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.
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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 the application and interpretation
of local laws and enforcement of contract and intellectual property rights, currency restrictions, currency exchange controls,
fluctuations in the value of currency to the U.S. dollar 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, war, 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 variant, 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.
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 to prevent
security breach, cyber-attack, cyber intrusion, or disruption, 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 security breaches, cyber-attacks, cyber intrusions, or disruptions. 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 through 2022, 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. Accordingly, for 2022 we maintained our cyber-security insurance
policy to help mitigate the impact of a cyber-security incident.
As reported on Form 8-K filed on March 2, 2023, during performance of their daily information technology security
procedures on January 25, 2023, our Information Technology Team (“IT Team”) discovered an unauthorized entry into our
information technology systems for our Newark, New York and Virginia Beach, Virginia locations. The accounts in
question were immediately disabled by our IT Team, and the Company’s Information Security Committee met
promptly, taking swift action, including the immediate notification of our cyber-security insurance carrier. Shortly
thereafter, with assistance of recommendations from our cyber-security carrier, we engaged external incident response
professionals to assist with our assessment, recovery and response. On February 7, the Company received an electronic
communication allegedly from a third-party, known for nefarious ransomware attacks, claiming responsibility for the
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incident, and discussions with that third party commenced through experienced cyber-security professionals engaged by
the Company.
This incident caused a partial disruption of our business operations at these locations, which resulted in production and
shipping downtime of approximately two weeks. The Company has now restored its information technology systems, and
production has been resumed in both locations. We do not believe that any other Company locations were affected by this
incident, and these other locations have continued their normal operations. The full scope of the costs and related impacts
of this incident on our first quarter 2023 results, including the extent to which the Company’s cyber-security insurance will
offset the costs of the professionals we engaged and of the interruption to our business, is currently under review. The
Company’s deductible for its cyber-security insurance is $100,000.
Based on the recovery of our systems, review of the files affected, as well as the Company’s prompt response to and
assessment of the incident, no ransom or other amount has been or is expected to be paid to the third-party. However, there
may be additional currently unknown ramifications from the intrusion into our information systems. We continue to monitor
our information systems for any irregularities.
In addition to 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
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 to 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 2022
and 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 and its after-effects 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.
As we look forward to potential rising demand for electrification, 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 prolonged, increasing pricing pressure from our suppliers due to rising costs
incurred by these suppliers that could be passed on to us in higher prices for our raw materials. These increased prices could
increase our cost of business, lower our margins and have other materially adverse effects on our business, financial
condition and results of operations, particularly, if our pass through of these price increases is not accepted by our customers.
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.
Fluctuations in the demand, supply and pricing encountered in the oil and gas industry, have placed financial strain on the
producers and the companies that provide oilfield services and equipment to those producers. The cyclicality in this industry,
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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, appears to be a trend.
A significant downturn in the price of oil may result in a decrease in downhole drilling and adversely impact on our financial
results. In response, we would expect we would be able to mitigate a portion, but not all of this risk by diversifying our
product offerings.
Our ability to recruit and retain experienced, competent management is critical to the success of the business, and the loss
of top management and key personnel could significantly harm our business, and ability to implement our succession plan.
The continued service of our officers and executive team is key 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.
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 one or more 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.
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 may be required to deliver large volumes of 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 a substantial increase in our direct labor workforce in a tight job market, 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. While we had the highest
backlog in Company history at December 31, 2022, this does not mean that rapid growth and demand for our products in
all cases will be met by our resources without delay. Although we have highly experienced technical and engineering
employees, we cannot assure you that we will be able to fulfil the orders of our customers for our products, without delay.
The failure to manage growth and expansion effectively could have an adverse effect on our business, financial condition,
and results of operations.
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,
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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 tends 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.
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 quarterly and annual results and the price of our common stock could fluctuate significantly.
Our future operating results and the price of our common stock 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 and other supply-chain disruptions,
the mix of distribution channels through which we sell our products and services and general economic conditions. 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.
Rising interest rates will increase the cost of our variable borrowing and will affect our earnings adversely.
The Company’s 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, 2022, the Company had $8,167 outstanding
principal on the Term Loan Facility, of which $2,000 is due to be paid in 2023 and included in current portion of long-term
debt on the balance sheet, and $13,330 outstanding on the Revolving Credit Facility. The related interest rates on our
borrowings are variable as disclosed in Note 3 to our consolidated financial statements. While it is in the best interests of
the Company to reduce the amount of debt quickly, those funds in some cases have been diverted to purchase raw material
and component inventory above historical levels in order satisfy commitments to our customers in light of the significant
increase in our backlog and the longer lead times and other supply chain disruptions. Accordingly, any increase in interest
rates will adversely impact the Company’s reported financial results.
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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.
We typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the
date of purchase. We also offer separately priced extended warranty contracts on certain Communications Systems
products. Warranty costs expected to be incurred are estimated based on the Company’s experience and recorded as costs
of products sold. There is no assurance that future warranty claims will be consistent with our estimates, 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, 2022, we had approximately $41,000 of U.S. net operating loss carryforwards and $2,600 of U.S. tax
credit carryforwards 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, 2022, 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 26.
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 participated 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 of. 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.
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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.
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, the United Kingdom 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. was 48%
in 2022 and 50% in 2021. A future strengthening of the U.S. dollar relative to our customers’ currencies could make our
products relatively more expensive 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
21
that we will not be subjected to significant liability for damages or that we 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.
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, or to 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 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.
22
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 comply 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.
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 hazardous substance restrictions which are similar
to those 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.
23
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2022, 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 and Excell USA operations, and lease approximately 97,000 square feet in two buildings on one campus in Shenzhen,
China, including a dormitory facility, approximately 25,000 square feet in six buildings in a contiguous area in Newcastle-
under-Lyme, United Kingdom, and approximately 24,000 square feet in three facilities for our Excell Canada operations
located in and Calgary, Mississauga and Vancouver, Canada, all which serve operations in the Battery & Energy Products
operating segment. 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 Battery & Energy Products are conducted at our Newark, New York; Missouri City, Texas;
Newcastle-under-Lyme, United Kingdom; Shenzhen, China; and Canada 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
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.
24
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 March 1, 2023, there were approximately 5,000 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, 2022 and December
31, 2021.
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]
25
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 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, 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. 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” together with Excell Canada and 656700, collectively, “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
26
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.
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 its related strains 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 material protocols established by public health officials. We continue to strive to ensure
an uninterrupted flow of our mission critical products serving medical device, first responder, public safety, energy and
national security customers.
As we enter the third year of the pandemic, our workforce, customers and vendors still face the risk of the emergence of
new strains, availability of effective treatment, and potential regulatory and macroeconomic effects stemming from such
impacts. Except for certain situations in China, lockdowns, shelter-in-place restrictions, and vaccine mandates, prevalent
during the earlier periods of the pandemic, have now been lifted. While we have maintained normal business operations at
virtually all of our facilities throughout the pandemic, the related supply chain disruptions including increased and in some
cases unreliable lead times on key components experienced within our business and by our customers and vendors, continue
to impact our work schedules and timing of shipments. For 2021, we estimated 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. For 2022, the resulting, lingering supply
chain disruptions to our business seemed to intensify, making it not feasible to estimate the resulting financial impact.
Nevertheless, the demand for our products remains strong as evidenced by our backlog of $111.0 million as of December
31, 2022, an increase of $47.3 million or 74.2% compared to that exiting 2021. To some extent, this increase is attributable
to supply chain disruptions pushing shipments into 2023.
Consolidated revenues increased by $33,573 or 34.2% to $131,840 for the year ended December 31, 2022 compared to
$98,267 for the year ended December 31, 2021. During 2022, we experienced revenue growth of 37.8% for our Battery &
Energy Products business and 5.9% for our Communications Systems business. This 2022 performance reflected a $29,529
or 46.5% increase in sales to our commercial customers and a $4,044 or 11.6% increase in sales to government and defense
customers. The increase in our commercial business was due to the full year contribution of Excell which comprised
$27,014 and organic sales growth of $2,515 or 4.0% representing a 14.6% increase in oil and gas market sales. Medical
sales of $27,322 were down $342 or 1.2% due entirely to component shortages to fulfill increased demand from a large
global medical device OEM. The increase in government and defense sales reflects growth in U.S. sales of $6,194 or 23.1%
representing higher demand from prime defense contractors including a $2,621 or 12.3% increase for Battery & Energy
Products and a $3,573 or 64.7% increase for Communications Systems, with the latter reflecting the receipt of components
to commence the fulfillment to supply a defense prime with Vehicle Amplifier-Adaptors for a U.S. Army’s Leader radio
program order with some spillover into 2023. This increase was partially offset by a $2,150 or 27.3% decrease in non-U.S.
government and defense sales primarily due to long lead times for key components experienced by our Communications
Systems business to fulfill a large international order.
Gross margin decreased to 22.3% for the year ended December 31, 2022 from 25.1% for the year ended December 31,
2021. The 280-basis point decrease was due primarily to disruptions resulting from supply chain and logistics complications
in large part because of a sharp increase in demand for our more-advanced rechargeable battery packs which increased the
need for highly sought-after components, including various electronic components, PC boards, chip sets and certain metals
to name a few. Major contributing factors resulting in the year-over-year reduction in our gross margin included the
following: (1) Rapid cost inflation on raw materials and key components not entirely aligned with the timing of customer
price increases - In 2022 we experienced more frequent weekly or sometimes daily input cost increases from our vendors
this year versus more periodic customer price increases causing an inevitable lag in cost/price alignment. (2) Incremental
fees to source and expedite critical components – In 2022 increases in demand with tight shipment schedules from both
government/defense and medical customers, in some cases went beyond the wherewithal of our vendors to obtain key
materials in a timely manner, necessitating the one-time use of brokers at a much higher cost and with more complex
logistics, and further complicating the timely matching of higher costs with customer price increases. (3) Internal
manufacturing inefficiencies – As a result of irregular component availability and lead time extensions, in 2022 we
experienced continuous production-line start-ups, shut-downs and changeovers resulting in labor inefficiencies, higher
scrap and decreased absorption of overhead. Most notable were delays in the supply of rechargeable cells for our fulfillment
of a large medical order, as a major vendor changed their focus to supplying large format cells for EV. (4) Increased and
27
uncertain lead times impacting timely deliveries – In 2022 more mundane yet vital components, such as epoxy, labels and
boxes, arrived well past the expected dates reducing productivity and increasing costs to expedite shipments.
Operating expenses increased by $4,664 or 19.0% to $29,271 during the year ended December 31, 2022, compared to
$24,607 during the year ended December 31, 2021. The increase in operating expense is primarily attributable to Excell
which was acquired on December 13, 2021, accounting for $4,381 of the increase, and a one-time charge of $779 for
severance costs associated with the Company’s former President and CEO, who, as announced on November 22, 2022, is
no longer with the Company. Both periods reflected our continued tight control over discretionary spending. Operating
expenses as a percentage of revenue was 22.2% or 21.6% when excluding the one-time severance expense; the latter
representing a 340 basis-point improvement over 25.0% of revenue which operating expenses represented for the year-
earlier period.
Other expenses totaled $575 for the year-ended December 31, 2022 compared to $186 for the year ended December 31,
2021. The increase is primarily attributable to a $709 increase in interest expense resulting from the debt financing of the
acquisition of Excell on December 13, 2021, partially offset by other income of $376 primarily representing foreign
currency exchange gains due to fluctuations in foreign currency exchange rates.
Income tax benefit was $326 for the year ended December 31, 2022, compared to a provision of $79 for the year ended
December 31, 2021. Our effective tax rate was 73.1% for 2022, as compared to (52.3%) for 2021, primarily due to the
geographic mix of earnings. The income tax benefit for the 2022 period is comprised of a $636 current provision for income
taxes expected to be paid primarily in foreign jurisdictions and a $962 deferred tax benefit which represents a non-cash
benefit primarily for U.S. net operating losses and temporary tax differences which are expected to offset future U.S. taxable
income. The income tax provision for the 2021 period is comprised of a $226 current provision for income taxes due
primarily to foreign jurisdictions and a $147 deferred tax benefit primarily for U.S. net operating losses and temporary tax
differences which are expected to offset future U.S. taxable income.
Net loss attributable to Ultralife was $119 for 2022 as compared to $234 for 2021. Net loss attributable to Ultralife common
shareholders per diluted share was $0.01 for both 2022 and 2021.
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 $6,575 for the year ended December 31, 2022 compared to $4,818 for the prior year.
See the section “Adjusted EBITDA” beginning on page 32 for a reconciliation of adjusted EBITDA to net income
attributable to Ultralife.
The Company’s liquidity remains solid, with cash on hand of $5,713, working capital of $50,075 and a current ratio (current
assets divided by current liabilities) of 2.7. To protect our ability to service our substantial backlog while considering the
longer lead times and unreliable delivery dates for critical components, during 2022 we increased inventory by $8,003 or
24.1%. As of December 31, 2021, the Company had cash on hand of $8,413, working capital of $47,600 and a current ratio
of 3.5.
As we look ahead, we believe our backlog, durable customer relationships, diversified end markets, new product initiatives,
and actions underway to improve our gross margins position us to deliver high-quality, sustainable profitable growth.
28
Results of Operations
Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021:
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, Net
Loss Before Taxes
Income Tax (Benefit) Provision
Net Loss
Net (Loss) Income Attributable to Non-Controlling
Interest
Net Loss Attributable to Ultralife
Net Loss Attributable to Ultralife Common Shares –
Basic
Net Loss Attributable to Ultralife Common Shares –
Diluted
Year Ended December 31,
2022
2021
Increase/
(Decrease)
$119,995
11,845
131,840
93,841
8,599
102,440
26,154
3,246
29,400
29,271
129
575
(446)
(326)
(120)
(1)
($119)
($0.01)
($0.01)
$87,083
11,184
98,267
66,021
7,604
73,625
21,062
3,580
24,642
24,607
35
186
(151)
79
(230)
4
($234)
($0.01)
($0.01)
$32,912
661
33,573
27,820
995
28,815
5,092
(334)
4,758
4,664
94
389
(295)
(405)
110
(5)
$115
$-
$-
Weighted Average Shares Outstanding –Basic
Weighted Average Shares Outstanding – Diluted
16,125,239
16,125,239
16,036,676
16,036,676
88,563
88,563
Revenues. Total revenues for the year ended December 31, 2022 amounted to $131,840, an increase of $33,573, or 34.2%
from the $98,267 reported for the year ended December 31, 2021.
Battery & Energy Products revenues increased $32,912, or 37.8%, for the year ended December 31, 2022 as compared to
the prior year. Commercial revenues of this business increased $29,529 or 46.5% from 2021 and now comprise 77.5% of
total segment sales versus 72.9% last year. The year-over-year increase was due primarily to the full year contribution of
Excell which comprised $27,014 of the growth and organic sales growth of $2,515 or 4.0% driven by a $2,422 or 14.6%
increase in oil & gas market (downhole drilling) sales. Medical sales of $27,322 were down $342 or 1.2% due primarily to
component shortages to fulfill increased demand from a large global medical device OEM. Government and defense sales
of this business increased $3,383 or 14.4% from 2021 and now comprise 22.5% of total segment sales versus 27.1% last
year. The increase primarily reflects higher U.S. and international demand resulting in year-over-growth of 12.3% and
34.3%, respectively. The domestic increase represents growth of 11% for our batteries and radios used for military radios
and 30% growth in batteries used for public safety radios. The international increase of 34.3% reflects higher demand for
our batteries from allied countries.
Communications Systems revenues increased $661 or 5.9% for the year ended December 31, 2022 as compared to the prior
year. The increase reflects the receipt of components to commence the fulfillment of a large international order and to
continue the fulfillment of a large U.S. order received in October 2021 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. Due to supply chain lead
times, there will be some spillover of fulfilling these orders into 2023.
Our order backlog at December 31, 2022 was $110,994, an increase of $47,281 or 74.2% from the backlog at December
31, 2021 which was $63,713. For our Battery & Energy Products business, the backlog increased $33,286 or 60.1% to
$88,632 from $55,346. The year-over-year increase is primarily driven by higher demand across the major markets that we
29
serve including government and defense, medical, oil and gas and industrial, which in some cases includes orders pushed
into 2023 because of the supply chain disruptions experienced in 2022. The 2022 year-end backlog is primarily 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 awards for our BA-5390 batteries ($9,900) and Conformal Wearable Batteries
($168,000).
For our Communications Systems business, the backlog increased $13,995 or 167.3% to $22,362 from $8,367. The year-
over-year increase is primarily a result of a July 2022 purchase order valued at approximately $4,600 to supply a global
defense prime with our Vehicle Amplifier-Adaptors for the U.S. Army’s Leader radio program, a September 2022 contract
valued at approximately $7,500 to supply its integrated system of A-320 amplifiers and A-320HVA radio vehicle mounts
to a major international defense contractor for an ongoing government/defense modernization program, and an October
2022 purchase order for $5,500 to supply its vehicle communications systems to a global prime defense contractor for the
U.S. Army. The 2022 year-end backlog is related to orders that are expected to ship throughout 2023.
Cost of Products Sold and Gross Profit. Cost of products sold for the year ended December 31, 2022 increased $28,815 or
39.1% from the year ended December 31, 2021. Consolidated cost of products sold as a percentage of total revenue
increased from 74.9% for the year ended December 31, 2021 to 77.7% for the year ended December 31, 2022.
Correspondingly, consolidated gross margin was 22.3% for the year ended December 31, 2022, compared with 25.1% for
the year ended December 31, 2021. The 280-basis point decline in gross margin is due primarily to disruptions resulting
from supply chain and logistics complications in large part because of a sharp increase in demand for our more-advanced
rechargeable battery packs which increased the need for highly sought-after components, including various electronic
components, PC boards, chip sets and certain metals to name a few. Major contributing factors resulting in the year-over-
year reduction in our gross margin included the following: (1) Rapid cost inflation on raw materials and key components
not entirely aligned with the timing of customer price increases - In 2022 we experienced more frequent weekly or
sometimes daily input cost increases from our vendors versus more periodic customer price increases causing lags in
cost/price alignment. (2) Incremental fees incurred to source and expedite critical components – In 2022 increases in
demand with tight shipment schedules from both government/defense and medical customers, in some cases went beyond
the wherewithal of our vendors to obtain key materials in a timely manner, necessitating the one-time use of brokers at a
much higher cost and with more complex logistics, and further complicating the timely matching of higher costs with
customer price increases. (3) Internal manufacturing inefficiencies – As a result of irregular component availability and
lead time extensions, in 2022 we experienced continuous production-line start-ups, shut-downs and changeovers resulting
in labor inefficiencies, higher scrap and decreased absorption of overhead. Most notable were delays in the supply of
rechargeable cells for our fulfillment of a large medical order, as the vendor changed their focus to supplying large format
cells for EV. (4) Increased and uncertain lead times impacting timely deliveries – In 2022 more mundane yet vital
components, such as epoxy, label and boxes, arrived well past the expected dates reducing productivity and increasing costs
to expedite shipments.
For our Battery & Energy Products segment, the cost of products sold increased $27,820 or 42.1%, from the year ended
December 31, 2021. Battery & Energy Products’ gross profit for 2022 was $26,154 or 21.8% of revenues, an increase of
$5,092 or 24.2% from gross profit of $21,062, or 24.2% of revenues, for 2021. Battery & Energy Products’ gross margin
decreased for the year ended December 31, 2022 by 240 basis points from the prior year to 21.8% due to supply chain
disruptions, including rapid cost inflation and lags in price realization, as noted above resulting from the aftermath of
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 increased by $995 or 13.1% from the year ended
December 31, 2021. Communications Systems’ gross profit for the year ended December 31, 2022 was $3,246 or 27.4%
of revenues, a decrease of $334 or 9.3% from gross profit of $3,580 or 32.0% of revenues for the year ended December 31,
2021. The 460 basis points decrease in gross margin during 2022 to 27.4% is primarily due to inefficiencies associated with
delays in receipt of components and sales mix.
Operating Expenses. Total operating expenses for the year ended December 31, 2022 increased $4,664 or 19.0% from the
year ended December 31, 2021. The increase in operating expense is primarily attributable to Excell which was acquired
on December 13, 2021, accounting for $4,381 of the increase, and a one-time charge of $779 for severance costs associated
with the Company’s former President and CEO, who, as announced on November 22, 2022, is no longer with the Company.
Both periods reflected our continued tight control over discretionary spending.
Overall, operating expenses as a percentage of revenues was 22.2% for the year ended December 31, 2022 compared to
25.0% for the comparable 2021 period. Amortization expense associated with intangible assets related to our acquisitions
increased to $1,282 for the year-ended December 31, 2022 ($1,185 in selling, general and administrative expenses and $97
30
in research and development costs) from $633 for the year ended December 31, 2021 ($515 in selling, general and
administrative expenses and $118 in research and development costs) as a result of our acquisition of Excell in December
2021. Research and development costs were $7,081 in 2022, an increase of $255 or 3.7%, from $6,826 reported in 2021.
This increase is largely attributable to our acquisition of Excell in December 2021. Selling, general, and administrative
expenses increased $4,409 or 24.8%, to $22,190 for the year ended December 31, 2022 from $17,781 for the year ended
December 31, 2021. Selling, general, and administrative expenses for 2022 include $4,608 attributable to Excell compared
to $564 for 2021 which included $354 of one-time direct acquisition costs reflecting customary legal, audit and due
diligence fees. 2022 also included a one-time charge of $779 for severance costs associated with the Company’s former
President and CEO, who, as announced on November 22, 2022, is no longer with the Company. We continued tight control
over discretionary spending across the Company.
Other (Income) Expense. Other expense totaled $575 for the year ended December 31, 2022 compared to $186 for the year
ended December 31, 2021. Interest and financing expense increased $709 to $951 for 2022 from $242 for 2021 due to the
debt financing of the acquisition of Excell on December 13, 2021. Miscellaneous income amounted to $376 for 2022
compared to $56 for 2021, primarily attributable to foreign exchange gains and loss due to fluctuations in foreign currency
exchange rates.
Income Tax (Benefit) Provision. Income tax benefit was $326 for the year ended December 31, 2022, compared to a
provision of $79 for the year ended December 31, 2021. Our effective tax rate was 73.1% for 2022, as compared to (52.3%)
for 2021, primarily due to the geographic mix of earnings. The income tax benefit for the 2022 period is comprised of a
$636 current provision for income taxes expected to be paid primarily in foreign jurisdictions and a $962 deferred tax
benefit which represents a non-cash benefit primarily for U.S. net operating losses and temporary tax differences which are
expected to offset future U.S. taxable income. The income tax provision for the 2021 period is comprised of a $226 current
provision for income taxes due primarily to foreign jurisdictions and a $147 deferred tax benefit primarily for U.S. net
operating losses and temporary tax differences which are expected to offset future U.S. taxable income.
Net loss attributable to Ultralife was $119 for 2022 as compared to $234 for 2021. Net loss attributable to Ultralife common
shareholders per diluted share was $0.01 for both 2022 and 2021. Weighted average common shares outstanding used to
compute diluted earnings per share increased from 16,036,676 for the 2021 period to 16,125,239 for the 2022 period, mainly
due to the issuance of common stock upon the exercise of stock options and the vesting of restricted stock in 2022.
31
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.
32
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 attributable to Ultralife
Add:
Interest and financing expense, net
Income tax (benefit) provision
Depreciation expense
Amortization of intangible assets
Stock-based compensation expense
Non-cash purchase accounting adjustments
Severance to Former President & CEO
Adjusted EBIDTA
Year ended December 31,
2022
($119)
951
(326)
3,177
1,282
776
55
779
$6,575
2021
($234)
242
79
2,906
633
671
121
-
$4,418
Liquidity and Capital Resources
Cash Flows and General Business Matters
As of December 31, 2022, cash totaled $5,713 (including restricted cash of $79), a decrease of $2,700 from the $8,413 as of
December 31, 2021, primarily attributable to the procurement of inventory amidst challenging supply chain conditions.
During the year ended December 31, 2022, cash used in operations was $1,263, as compared to $4,325 generated from
operations for the year ended December 31, 2021. For the 2022 period, cash used was comprised of a $120 net loss and a
$5,452 increase in net working capital, partially offset by non-cash items totaling $4,309 for depreciation, amortization,
stock-based compensation, and deferred taxes. The increase in working capital was primarily attributable to $8,747 cash
used to procure inventory to proactively manage our supply chain, reduce lead times and the impact of potential cost
increases on components and raw materials, and enhance our position to service customer orders.
Cash used in investing activities for the year ended December 31, 2022 was $1,679 for capital expenditures, reflecting
investments in equipment for new products transitioning to high-volume manufacturing, as compared to $2,814 capital
spending for the year ended December 31, 2021.
Cash provided by financing activities for the year ended December 31, 2022 was $518, primarily attributable to net
borrowings on our credit facility for the purchase of certain critical raw materials requiring cash-in-advance payment terms
by the vendors.
We continue to have significant U.S. net operating loss carryforwards available to utilize as an offset to taxable income. As
of December 31, 2022, 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, 2022, the Company had $8,167 outstanding principal on the Term Loan Facility, of which $2,000 is
due to be paid in 2023, and $13,330 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, 2022, we had made commitments to purchase approximately $661 of production machinery and
equipment.
33
We typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the
date of purchase. We also offer separately priced extended warranty contracts on certain Communications Systems
products. Warranty costs expected to be incurred are estimated based on the Company’s experience and recorded as costs
of products sold. There is no assurance that future warranty claims will be consistent with our estimates, 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.
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.
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.
Separately priced extended warranty contracts are offered on certain products. Extended warranties are treated as separate
performance obligations and recognized to revenue evenly over the term of the respective contract. Revenue not yet
recognized on extended warranty contracts is recorded as deferred revenue on the consolidated balance sheet.
For customer contracts with an original expected duration of less than one year, we apply 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.
34
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.
We conducted our annual impairment test for goodwill and other indefinite-lived intangible assets as of October 1, 2022. We
identified two (2) goodwill reporting units and five (5) 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. 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, based all available
evidence, both positive and negative, weighted based on objective verifiability.
As of December 31, 2022, we concluded that it is more likely than not that our U.S. deferred tax assets will be fully realized
based on management’s assessment. In evaluating the realizability of our U.S. deferred tax assets, management considered all
available evidence, both positive and negative, weighted based on objective verifiability. Our assessment also considered our
ability to fully utilize before expiration our domestic net operating loss carryforwards, which expire 2025 thru 2035, and our
general business tax credit carryforwards, which expire 2028 thru 2042. As of December 31, 2022, our domestic net operating
loss carryforwards and general business tax credits were approximately $41,000 and $2,600, respectively.
As of December 31, 2022, for certain past operations in the U.K., we continue to report a valuation allowance for net operating
loss carryforwards of approximately $10,000, 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, 2022, 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.
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
35
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 typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the
date of purchase. We also offer separately priced extended warranty contracts on certain products. Warranty costs expected
to be incurred are estimated based on the Company’s experience and recorded as costs of products sold. Standard warranty
costs are recognized upon product sale. Extended warranty costs are recognized over the term of the contract. Provision
for warranty costs is recorded in accrued expenses and other current liabilities and other noncurrent liabilities on our
consolidated balance sheet based on the duration of the warranty.
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
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Loss and Comprehensive Loss for the years ended
December 31, 2022 and 2021
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and
2021
Notes to Consolidated Financial Statements
Page
38
40
41
42
43
44
37
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Ultralife Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ultralife Corporation and its subsidiaries (the Company)
as of December 31, 2022 and 2021, the related consolidated statements of loss, comprehensive loss, 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). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2022 and 2021, 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.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits 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. We believe that our audits provide a reasonable basis for our opinion.
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
38
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 two 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; 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, and verifying certain third party data used by the Company in building their assumptions. 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.
/s/ Freed Maxick CPAs, P.C.
We have served as the Company's auditor since 2016.
Rochester, NY
March 31, 2023
39
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
December 31,
Current Assets:
Cash
Trade accounts receivable, net of allowance for doubtful accounts of $303 and $346, respectively
Inventories, net
Prepaid expenses and other current assets
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:
LIABILITIES AND SHAREHOLDERS' EQUITY
2022
$5,713
27,779
41,192
4,304
78,988
21,716
37,428
15,921
12,069
2,308
$168,430
$16,074
2,000
2,890
7,949
28,913
19,310
1,917
1,887
52,027
2021
$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
Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued
-
-
Common stock – par value $.10 per share; authorized 40,000,000 shares;
issued – 20,570,710 shares and 20,522,427 shares, respectively;
outstanding – 16,135,358 shares and 16,089,832 shares, respectively
Capital in excess of par value
Accumulated deficit
Accumulated other comprehensive loss
Treasury stock - at cost; 4,435,352 shares and 4,432,595 shares, respectively
Total Ultralife Corporation equity
Non-controlling interest
Total shareholders’ equity
2,057
187,405
(47,951)
(3,750)
(21,484)
116,277
126
116,403
2,052
186,518
(47,832)
(1,653)
(21,469)
117,616
127
117,743
Total liabilities and shareholders' equity
$168,430
$159,538
The accompanying notes are an integral part of these consolidated financial statements.
40
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Dollars in Thousands, Except Per Share Amounts)
Year ended December 31,
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
Total other expense, net
Loss before income taxes
Income tax (benefit) provision
Net loss
Net (loss) income attributable to non-controlling interest
Loss attributable to Ultralife Corporation
Other comprehensive (loss) income:
Foreign currency translation adjustments
Comprehensive loss attributable to Ultralife Corporation
Net loss per share attributable to Ultralife Corporation common
shareholders – Basic
Net loss per share attributable to Ultralife Corporation common
shareholders – Diluted
Weighted average shares outstanding – Basic
Weighted average shares outstanding – Diluted
2022
$131,840
102,440
29,400
7,081
22,190
29,271
129
951
(376)
575
(446)
(326)
(120)
(1)
(119)
(2,097)
($2,216)
($.01)
($.01)
16,125
16,125
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)
16,037
16,037
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
20,373,519
$2,037
$185,464
$(1,782)
$(47,598)
$(21,321)
$123
$116,923
133,907
13
15,001
2
385
618
53
(2)
(234)
4
(133)
(15)
129
20,522,427
$2,052
$186,518
$(1,653)
$(47,832)
$(21,469)
39,119
9,164
4
1
112
761
15
(1)
(119)
(7)
(8)
(2,097)
$127
(1)
(230)
265
618
53
(15)
129
$117,743
(120)
109
761
15
(8)
(2,097)
20,570,710
$2,057
$187,405
$(3,750)
$(47,951)
$(21,484)
$126
$116,403
Balance –
December 31, 2020
Net loss
Stock option exercises
Stock-based compensation -
stock options
Stock-based compensation -
restricted stock
Vesting of restricted stock
Foreign currency translation
adjustments
Balance –
December 31, 2021
Net loss
Stock option exercises
Stock-based compensation -
stock options
Stock-based compensation -
restricted stock
Vesting of restricted stock
Foreign currency translation
adjustments
Balance –
December 31, 2022
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,
2022
2021
OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation
Amortization of intangible assets
Amortization of financing fees
Stock-based compensation
Deferred income tax expense
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes receivable and payable
Accounts payable and other liabilities
Net cash (used in) provided by operating activities
INVESTING ACTIVITIES:
Purchase of Excell, net of cash acquired
Purchases of property, plant and equipment
Net cash used in investing activities
FINANCING ACTIVITIES:
Borrowings on credit facility
Payment of credit facilities
Proceeds from exercise of stock options
Payment of debt issuance costs
Tax withholdings on stock-based awards
Net cash provided by financing activities
Effect of exchange rate changes on cash
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
($120)
3,177
1,282
36
776
(962)
(7,881)
(8,747)
911
180
10,085
(1,263)
-
(1,679)
(1,679)
3,350
(2,833)
116
(100)
(15)
518
(276)
(2,700)
8,413
$5,713
$339
$354
$930
($230)
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
(114)
(148)
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
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 the “Company”, “we”, “our” and “us” refer to Ultralife
Corporation (“Ultralife”) and its wholly owned subsidiaries ABLE New Energy Co., Limited and its wholly owned subsidiary
ABLE New Energy Co., Ltd (collectively “ABLE”); Ultralife UK LTD and its wholly owned subsidiary Accutronics Ltd
(collectively “Accutronics”); Ultralife Batteries (UK) Ltd.; Southwest Electronic Energy Corporation and its wholly owned
subsidiary, CLB, Inc. (collectively “SWE”); Ultralife Excell Holding Corp. (“UEHC”) and its wholly owned subsidiary
Excell Battery Corporation USA (collectively “Excell USA”), Ultralife Canada Holding Corp (wholly owned by UEHC,
“UCHC”) and its wholly owned subsidiary Excell Battery Canada ULC (“Excell Canada,” and collectively “Excell”); and
its majority-owned joint venture Ultralife Batteries India Private Limited (“Ultralife India”).
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 its wholly owned subsidiaries ABLE, Accutronics,
Ultralife Batteries (UK) Ltd., SWE, Excell, and its majority-owned joint venture Ultralife India. 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, 2022 and 2021.
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.
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 thirty (30) to sixty (60) 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.
44
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
3 – 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.
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
45
arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has
transferred and there are no further obligations by the Company. Revenue is measured as the amount of consideration we
expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers
are excluded from revenue. Customers, including distributors, do not have a general right of return.
Separately priced extended warranty contracts are offered on certain Communications Systems products for a duration of
up to eight (8) years. Extended warranties are treated as separate performance obligations and recognized to revenue evenly
over the term of the respective contract. Revenue not yet recognized on extended warranty contracts is recorded as deferred
revenue on the consolidated balance sheet.
As of December 31, 2022, there was deferred revenue on extended warranty contracts of $682, comprised of $119 expected
to be recognized as revenue within one (1) year and classified as accrued expenses and other current liabilities on our
consolidated balance sheet, and $563 expected to be recognized as revenue over the remaining duration of the respective
contracts and classified as other noncurrent liabilities on our consolidated balance sheet.
As of December 31, 2022 and 2021, the Company had no other unsatisfied performance obligations for contracts with an
original expected duration of greater than one year. Pursuant to Topic 606, we have applied the practical expedient with
respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to
remaining performance obligations.
l.
Warranty Reserves
We typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the
date of purchase. We also offer separately priced extended warranty contracts on certain products. Warranty costs expected
to be incurred are estimated based on the Company’s experience and recorded as costs of products sold. Standard warranty
costs are recognized upon product sale. Extended warranty costs are recognized over the term of the contract. Provision
for warranty costs is recorded in accrued expenses and other current liabilities and other noncurrent liabilities on our
consolidated balance sheet 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, 2022 and 2021.
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, 2022 and 2021, we expended $7,874 and $8,042, respectively, on research and development, including
costs of $793 and $1,216, respectively, on customer sponsored research and development activities, which are included in cost
of products 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.
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, based all available
evidence, both positive and negative, weighted based on objective verifiability.
46
r.
Concentration Related to Customers and Suppliers
One of our customers, a large global defense primary contractor, comprised 17% and 20% of our total consolidated revenues
for 2022 and 2021, respectively. Revenues for this customer represented 19% and 22% of our total Battery & Energy Products
segment revenues for 2022 and 2021, respectively. There were no other customers that comprised greater than 10% of our
total consolidated 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:
Level 3:
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.
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, 2022 and 2021. 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.
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 years ended December 31, 2022 and 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 1,425,693 outstanding stock options and 2,500 unvested restricted
stock awards not included in the calculation of diluted EPS for the year ended December 31, 2022, as the effect would be
antidilutive. For the comparable year ended December 31, 2021, there were 1,306,824 outstanding stock options and 11,664
unvested restricted stock awards not included in the calculation of diluted EPS, 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
47
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 for operating leases 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.
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, "Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. ASU 2020-04 provides temporary
optional expedients and exceptions for contract modifications and hedge accounting to ease the financial reporting burdens
related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered
rates to alternative reference rates. The standard was effective upon issuance and may be applied prospectively on or before
December 31, 2024. The Company has elected the optional practical expedient for debt contract modifications related to
the discontinuation of reference rates. Adoption of this new standard did not materially impact the Company’s consolidated
financial statements.
Recent Accounting Guidance Not Yet Adopted
In June 2016, the 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 (as defined below) 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 company 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, 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 company 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 was held in escrow for indemnification
purposes for a period of twelve months from the closing date. The remaining indemnification escrow amount is to be held
for a period of sixteen months from the closing date.
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 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.
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
49
$736
3,570
3,622
785
429
10,989
8,870
991
(1,450)
(540)
(720)
Deferred tax liability, net
Other noncurrent liabilities
Net assets acquired
(2,223)
(803)
$24,256
The purchase price allocation was adjusted during the year ended December 31, 2022 to reflect a change in the estimated
fair value of certain other intangible assets acquired. The measurement period adjustment resulted in a $40 increase in other
intangible assets acquired, a $10 increase in deferred tax liabilities and a $30 decrease to goodwill. The adjusted purchase
price allocation is reflected in the consolidated balance sheet as of December 31, 2022.
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.
Estimated
Fair Value
Amortization
Period (Years)
Year
1
Year
2
Year
3
Year
4
Year
5
Annual Amortization
Customer relationships
Trade name
Customer contracts
Backlog
Technology
Total
$4,100
3,150
1,140
360
120
$8,870
15
$273
$273
$273
$273
$273
Indefinite
15
1
7
-
76
360
17
-
76
-
17
-
76
-
17
-
76
-
17
-
76
-
17
$726
$366
$366
$366
$366
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, 2022, Excell contributed revenue of $28,145 and pre-tax income of $1,844, inclusive of
amortization expense of $726 on acquired identifiable intangible assets and $55 in cost of products sold attributable to the
fair market value step-up of acquired finished goods inventory sold during the year.
For the year ended December 31, 2021, from the December 13, 2021 acquisition date, Excell contributed revenue of $1,131
and pre-tax 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.
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.
50
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”). On November
28, 2022, Ultralife, SWE, CLB, UEHC, UCHC, Excell USA, and Excell Battery Canada entered into that certain Third
Amendment Agreement with KeyBank, to further amend the Credit Agreement to, among other things, facilitate the joinder
of Excell Battery Canada as a guarantor under the Credit Agreement and to replace the LIBOR benchmark thereunder with
SOFR (the “Third Amendment Agreement”, and together with the Second Amendment Agreement and the Credit
Agreement, the “Amended Credit Agreement”).
The Amended Credit Agreement, among other things, provides for a 5-year, $10,000 senior secured term loan (the “Term
Loan Facility”) and extends the term of the $30,000 senior secured revolving credit facility (the “Revolving Credit Facility”,
and together with the Term Loan Facility, the “Amended Credit Facilities”) through May 30, 2025. Up to six months prior
to May 30, 2025, the Revolving Credit Facility may be increased to $50,000 with the Bank’s concurrence.
As of December 31, 2022, the Company had $8,167 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 $13,330 outstanding on the Revolving Credit Facility.
As of December 31, 2022, total unamortized debt issuance costs of $187, 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.
Upon the effectiveness of the Third Amendment Agreement, interest accrues on outstanding indebtedness under the
Amended Credit Facilities at the Daily Simple SOFR Rate, plus an index spread adjustment of 0.10%, plus the applicable
margin. The applicable margin ranges from 185 to 215 basis points and is determined based on the Company’s senior
leverage ratio.
The Company must pay a fee of 0.15% to 0.25% based on the average daily unused availability under the Revolving Credit
Facility.
Payments must be made by the Company to the extent borrowings exceed the maximum amount then permitted to be
drawn on the Amended Credit Facilities and from the proceeds of certain transactions. Upon the occurrence of an event of
default, the outstanding obligations may be accelerated, and the Bank will have other customary remedies including resort
to the security interest the Company provided to the Bank.
Future minimum principal repayment obligations on our Amended Credit Facilities as of December 31, 2022 are as
follows:
2023
$2,000
51
2024
2025
2026
2027
Thereafter
Total
2,000
15,330
2,000
167
0
$21,497
52
Note 4 - Supplemental Balance Sheet Information
a.
Cash and Restricted Cash
The Company had cash and restricted cash totaling $5,713 and $8,413 as of December 31, 2022 and 2021, respectively.
Cash
Restricted cash
Total
December 31,
2022
$5,634
79
$5,713
2021
$8,329
84
$8,413
As of December 31, 2022 and December 31, 2021, restricted cash included $79 and $84, 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,
2022
$29,200
2,757
9,235
$41,192
2021
$21,660
4,227
7,302
$33,189
December 31,
2022
$1,759
15,572
63,495
2,845
7,744
1,245
92,660
(70,944)
$21,716
2021
$1,273
15,442
63,780
2,588
7,579
761
91,423
(68,218)
$23,205
Depreciation expense was $3,177 and $2,906 for the years ended December 31, 2022 and 2021, 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,
2022. We identified two (2) goodwill reporting units and five (5) 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, 2022, no impairment
was identified.
The following table summarizes the goodwill activity by segment for the years ended December 31, 2022 and 2021:
Balance – January 1, 2022
Effect of foreign currency translation
Balance – December 31, 2022
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 names
Trademarks
Other
Total other intangible assets
Battery &
Energy
Products
$26,575
(640)
$25,935
Communications
Systems
$11,493
-
$11,493
Total
$38,068
(640)
$37,428
December 31, 2022,
Accumulated
amortization
$5,992
5,171
522
-
454
$12,139
December 31, 2021,
Accumulated
amortization
$5,484
5,126
436
-
18
$11,064
Cost
$12,970
5,557
4,629
3,404
1,500
$28,060
Cost
$13,214
5,667
4,670
3,413
1,490
$28,454
Net
$6,978
386
4,107
3,404
1,046
$15,921
Net
$7,730
541
4,234
3,413
1,472
$17,390
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,
2022
$97
1,185
$1,282
2021
$118
515
$633
Future amortization expense of amortizable intangible assets will be approximately $907, $897, $897, $767 and $767 for
the five fiscal years ending December 31, 2023 through 2027, 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.
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, 2022, we have made commitments to purchase approximately $661 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
As of December 31, 2022, we had an Employment Agreement dated December 6, 2010 with Michael D. Popielec (the
“Employment Agreement”), our former President and Chief Executive Officer. Under the terms of the Employment
Agreement, Mr. Popielec was given sixty days advance notice of his involuntary termination by the Company’s Board of
Directors on November 22, 2022, at which time he relinquished his position as President and Chief Executive Officer and
as a member of the Board of Directors, with his employment ending on January 20, 2023.
In connection with the termination of his employment, Mr. Popielec was entitled to receive the following severance benefits
under the terms of the Employment Agreement with the total cost of $779 comprising a one-time charge reflected in the
Company’s 2022 fourth quarter results:
• Salary, any unpaid bonus from the prior year, and the cash value of any accrued Paid Time Off through January
20, 2023 plus continued salary for a period of twelve months thereafter in accordance with the Company’s regular
payroll schedule;
• A pro-rata amount (calculated on a per-diem basis) of the full year bonus which Mr. Popielec would have earned
for the 2023 calendar year;
• Acceleration of vesting of all outstanding stock options held by Mr. Popielec; however that the acceleration shall
not cover more than eighteen months from January 20, 2023, and all such options shall remain exercisable for one
year from January 20, 2023;
• Continuation of health benefits for Mr. Popielec, his spouse and any dependent children for a period of twelve
months following January 20, 2023.
The foregoing description of the termination benefits provided by Mr. Popielec’s Employment Agreement does not purport
to be complete and is qualified in its entirety by reference to the full text of the Employment Agreement, a copy of which
55
is filed as Exhibit 10.40 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 15,
2011 and is incorporated herein by reference.
There is no employment agreement in place between Mr. Manna, appointed as President and Chief Executive Officer on
November 22, 2022, and the Company.
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 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.
f.
Product Warranties
We typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the
date of purchase. We also offer separately priced extended warranty contracts on certain products. Warranty costs expected to
be incurred are estimated based on the Company’s experience and recorded as costs of products sold. Standard warranty costs
are recognized upon product sale. Extended warranty costs are recognized over the term of the contract.
Accrued warranty obligations – beginning
Accruals for warranties issued
Settlements made
Accrued warranty obligations - ending
2022
$133
287
(97)
$323
2021
$149
142
(158)
$133
Note 6 – Stock-Based Compensation
We recorded non-cash stock compensation expense in each period as follows:
Stock options
Restricted stock
Total
Year ended December 31,
2021
2022
$618
$761
53
15
$671
$776
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 2014, our shareholders approved the 2014 Long-Term Incentive Plan (“2014 LTIP”) as the successor plan to the 2004
Long-Term Incentive Plan (“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 2014 LTIP 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 in equal installments on the first, second and third anniversaries of the grant date and expire
on the seventh anniversary of the grant date. As of December 31, 2022, there were 1,425,693 stock options outstanding under
the 2014 LTIP. There were no stock options outstanding under the 2004 LTIP.
56
As of December 31, 2022, there was $691 of total unrecognized compensation costs related to outstanding stock options,
which we expect to recognize over a weighted average period of 1.4 years.
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, 2022 and 2021:
Risk-free interest rate
Volatility factor
Weighted average expected life (years)
Forfeiture rate
Dividends
Year ended December 31,
2022
4.2%
50%
4.8
10.0%
0.0%
2021
1.0%
50%
4.8
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, 2022 and 2021.
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 based
on historical experience.
The following tables summarize data for the stock options issued by us:
Year ended December 31, 2022
Weighted
average
exercise
price
per share
$6.87
5.42
3.82
6.56
$6.72
Number
of shares
1,306,824
289,950
(59,500)
(111,581)
1,425,693
1,300,732
$6.78
$7.13
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
Options exercisable – December 31
881,804
Year ended December 31, 2021
Shares under option – January 1
Options granted
Options exercised
Options forfeited or expired
Shares under option – December 31
Weighted
average
remaining
contractual
term
Aggregate
intrinsic
value
4.15
3.97
2.96
-
-
-
Weighted
average
exercise
price
per share
$6.50
6.78
4.39
7.44
$6.87
Number
of shares
1,217,163
340,500
(204,429)
(46,410)
1,306,824
Options exercisable – December 31
745,288
$6.85
57
The following table represents additional information about stock options outstanding at December 31, 2022:
Range of
exercise prices
$4.29 - $5.45
$5.71 - $6.51
$6.69 - $6.97
$8.25 - $9.96
Number of
outstanding
options
516,949
302,244
177,667
428,833
Option outstanding
Weighted-
average
remaining
contractual
life
4.65
3.53
5.76
3.34
Weighted-
average
exercise
price
$5.10
6.29
6.96
8.88
Options exercisable
Number of
options
exercisable
197,001
224,937
65,362
394,504
Weighted-
average
exercise
price
$4.64
6.22
6.96
8.92
$4.29 - $9.96
1,425,693
4.16
$6.72
881,804
$7.13
The weighted average fair value of options granted during the years ended December 31, 2022 and 2021 was $2.55 and $2.90,
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, 2022 and 2021 was $88 and $738,
respectively.
Cash received from stock option exercises under our stock-based compensation plans for the years ended December 31,
2022 and 2021 was $116 and $398, respectively.
Restricted shares vest in equal annual installments over three years. As of December 31, 2022, there was $3 of total
unrecognized compensation costs related to outstanding restricted shares.
There were 763,617 shares of common stock available for future issuance under equity compensation plans as of December
31, 2022.
58
Note 7 - Income Taxes
For the years ended December 31, 2022 and 2021, we recognized income tax (benefit) provision of ($326) and $79,
respectively.
Current:
State
Foreign
Deferred:
Federal
Foreign
Total income tax (benefit) provision
Year ended December 31,
2022
19
617
636
(661)
(301)
(962)
($326)
2021
$16
210
226
(158)
11
(147)
$79
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
Research and development
Tax credit carryforwards
Accrued expenses, reserves and other
Intangible assets
Total deferred tax assets
Valuation allowance for deferred tax assets
Net deferred tax assets
Deferred tax liabilities:
Intangible assets
Accrued expenses, reserves and other
Total deferred tax liabilities
December 31,
2022
2021
$11,460
2,812
2,600
2,419
1,521
20,812
(2,416)
18,396
(8,176)
(68)
(8,244)
$12,567
1,999
2,239
1,996
1,412
20,213
(2,697)
17,516
(8,219)
(79)
(8,298)
Net deferred tax assets
$10,152
$9,218
Net deferred tax assets (liabilities) are comprised of the following balance sheet amounts:
Deferred tax assets
Deferred tax liabilities
December 31,
2022
2021
$12,069
(1,917)
$10,152
$11,472
(2,254)
$9,218
For financial reporting purposes, net loss from continuing operations before income taxes is as follows:
United States
Foreign
59
Year ended December 31,
2021
($704)
553
($151)
2022
($2,771)
2,325
($446)
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
Global intangible low-taxed income
China R&D deduction
Income tax credits
Foreign tax rate change
Foreign tax rates
States taxes
Other
Effective income tax rate
Year ended December 31,
2022
21%
(29.7)
-
(73.1)
20.6
81.0
18.3
11.5
(3.4)
26.9
73.1%
2021
21%
11.6
(34.7)
-
48.2
72.7
(89.7)
(15.5)
(10.8)
(55.1)
(52.3)%
As of December 31, 2022, 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, both positive and negative, weighted based on objective verifiability. Our assessment also
considered our ability to fully utilize before expiration our domestic net operating loss carryforwards, which expire 2025 thru
2035, and our general business tax credit carryforwards, which expire 2028 thru 2042. As of December 31, 2022, our domestic
net operating loss carryforwards and general business tax credits were $40,952 and $2,600, respectively.
As of December 31, 2022, for certain past operations in the U.K., we continue to report a valuation allowance for net operating
loss carryforwards of approximately $10,000, 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, 2022, 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, 2022 and 2021.
As of December 31, 2022, 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. Our U.S. tax matters
for 2019-2021 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 2011-2021 remain subject to examination by various state and local tax jurisdictions.
Our tax matters for the years 2012 through 2021 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, 2022, the remaining lease terms
on our operating leases range from approximately one (1) year to nine (9) 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:
Year ended December 31,
2022
$894
95
$989
2021
$762
79
$841
Year ended December 31,
2022
$908
$476
2021
$744
$1,020
Assets:
Operating lease right-of-use asset
Liabilities:
Balance Sheet Classification
December 31,
2022
2021
Other noncurrent assets
$2,187
$2,581
Current operating lease liability
Accrued expenses and other current
$895
liabilities
Other noncurrent liabilities
1,307
$867
1,743
$2,202
$2,610
4.4
4.5
Operating lease liability, net of current
portion
Total operating lease liability
Weighted-average remaining lease term
(years)
Weighted-average discount rate
4.5%
4.5%
Future minimum lease payments as of December 31, 2022 are as follows:
Maturity of Operating Lease Liabilities
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Imputed interest
Present value of remaining lease payments
61
$918
518
215
217
217
425
$2,510
(308)
$2,202
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 years ended December 31, 2022 and 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 2022 and 2021, we contributed
$600 and $586, 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.
2022:
Revenue
Segment contribution
Other expense, net
Income tax benefit
Non-controlling interest
Net loss attributable to Ultralife
Total assets
Capital expenditures
Goodwill
Depreciation and amortization
of intangible assets
Stock-based compensation
2021:
Revenue
Segment contribution
Other expense
Income tax expense
Non-controlling interest
Net loss attributable to Ultralife
Battery &
Energy
Products
$119,995
26,154
Communications
Systems
$11,845
3,246
$117,017
$1,371
$25,935
$3,761
$29,424
$81
$11,493
$261
Corporate
$-
(29,271)
575
(326)
(1)
$21,989
$227
$-
$437
Total
$131,840
129
575
(326)
(1)
($119)
$168,430
$1,679
$37,428
$4,459
$396
$82
$298
$776
Battery &
Energy
Products
$87,083
21,063
Communications
Systems
$11,184
3,579
Corporate
$-
(24,607)
186
79
4
$23,546
$455
-
$366
Total
$98,267
35
186
79
4
($234)
159,538
$2,814
$38,068
$3,539
$248
$671
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
62
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 $24,405 and $26,762 as of December 31, 2022 and 2021,
respectively.
The following tables disaggregate our business segment revenues by major source and geography.
Commercial and Government/Defense Revenue Information:
Year ended December 31, 2022:
Battery & Energy Products
Communications Systems
Total
Year ended December 31, 2021:
Battery & Energy Products
Communications Systems
Total
U.S. and Non-U.S. Revenue Information1:
Year ended December 31, 2022:
Battery & Energy Products
Communications Systems
Total
Year ended December 31, 2021:
Battery & Energy Products
Communications Systems
Total
Total
Revenue
$119,995
11,845
$131,840
Total
Revenue
$87,083
11,184
$98,267
Total
Revenue
$119,995
11,845
$131,840
Total
Revenue
$87,083
11,184
$98,267
Commercial
$93,045
-
$93,045
71%
Commercial
$63,516
-
$63,516
65%
United
States
$58,820
9,094
$67,914
52%
United
States
$43,298
5,521
$48,819
50%
Government/
Defense
$26,950
11,845
$38,795
29%
Government/
Defense
$23,567
11,184
$34,751
35%
Non-United
States
$61,175
2,751
$63,926
48%
Non-United
States
$43,785
5,663
$49,448
50%
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
ITEM 9.
FINANCIAL DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
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, 2022. 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,
2022, our internal control over financial reporting was effective based on those criteria.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
64
PART III
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.
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)
1,425,693
$6.72
763,617
-
1,425,693
-
$6.72
-
763,617
Plan Category
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved by
security holders
Total
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.
65
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
Documents filed as part of this report:
1. Financial Statements
The financial statements and schedules required by this Item 15 are set forth in Part II, Item 8 of this Form 10-K.
Auditor information:
Freed Maxick CPAs, P.C.
Rochester, New York
PCAOB ID 317
(b)
Exhibits. The following exhibits are filed as a part of this report:
Exhibit
Index
2.1
Description of Document
Filed Herewith or Incorporated by
Reference from:
Share Purchase Agreement, dated December
Exhibit 2.1 of the Form 8-K filed on
December 16, 2021
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.
2.2
Share Purchase Agreement, dated December
Exhibit 2.2 of the Form 8-K filed on
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
December 16, 2021
2.3
Stock Purchase Agreement, dated May 1,
Exhibit 10.1 of the Form 8-K filed on
2019, by and among Ultralife Corporation,
Southwest Electronic Energy Corporation,
Southwest Electronic Energy Medical
Research Institute, and Claude Leonard
Benckenstein
2.4
Stock Purchase Agreement Relating to
Accutronics Limited by and between Robert
Andrew Phillips and Others and Ultralife
Corporation
3.1
Restated Certificate of Incorporation
3.2
4.1
Amended and Restated By-laws
Specimen Stock Certificate
4.2
Description of Registrant’s Securities
May 2, 2019
Exhibit 2.2 of the Form 10-K for the
year ended December 31, 2015, filed
March 2, 2016
Exhibit 3.1 of the Form 10-K for the
year ended December 31, 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
Exhibit 4.2 of the Form 10-K/A for the
year ended December 31, 2019, filed
April 28, 2020
66
10.1*
Amendment to the Agreement relating to
rechargeable batteries
10.2†
Employment Agreement between the
Registrant and Michael D. Popielec dated
December 6, 2010
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)
Exhibit 10.40 of the Form 10-K for the
year ended December 31, 2010, filed
March 15, 2011
10.3†
Ultralife Corporation Amended 2014 Long-
Appendix B of Form DEF 14A filed on
Term Incentive Plan
June 1, 2021
10.4
Credit and Security Agreement between
Exhibit 10.1 of the Form 8-K filed on
10.5
10.6†
Ultralife Corporation and 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
Amendment No. 1 to Ultralife Corporation
Amended 2014 Long-Term Incentive Plan
June 6, 2017
Exhibit 10.1 of the Form 8-K filed on
May 2, 2019
Appendix A of Form DEF 14A filed on
June 1, 2021
10.7
Second Amendment Agreement, dated
Exhibit 10.1 of the Form 8-K filed on
10.8
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
Third Amendment Agreement, dated
November 28, 2022, by and among Ultralife
Corporation, Southwest Electronic Energy
Corporation, CLB, Inc., Ultralife Excell
Holding Corp., Ultralife Canada Holding
Corp., Excell Battery Corporation USA,
Excell Battery Canada ULC and KeyBank
National Association
December 16, 2021
Filed herewith
21
23.1
31.1
Subsidiaries
Consent of Freed Maxick CPAs, P.C.
Rule 13a-14(a) / 15d-14(a) CEO
Filed herewith
Filed herewith
Filed herewith
Certifications
31.2
Rule 13a-14(a) / 15d-14(a) CFO
Filed herewith
32
101.IN
S
101.SC
H
101.CA
L
101.LA
B
101.PR
E
101.DE
F
104
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
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit
101)
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
* Confidential treatment has been granted as to certain portions of this exhibit.
† Management contract or compensatory plan or arrangement.
67
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, 2022 and December 31, 2021, (ii) Consolidated Statements of Loss and
Comprehensive Loss for the years ended December 31, 2022 and December 31, 2021, (iii) Consolidated Statements of Cash
Flows for the years ended December 31, 2022 and December 31, 2021, (iv) Consolidated Statements of Changes in
Shareholders’ Equity for the years ended December 31, 2022 and December 31, 2021, 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 31, 2023
ULTRALIFE CORPORATION
/s/ Michael E. Manna
Michael E. Manna
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 31, 2023
Date: March 31, 2023
Date: March 31, 2023
Date: March 31, 2023
Date: March 31, 2023
Date: March 31, 2023
Date: March 31, 2023
/s/ Michael E. Manna
Michael E. Manna
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/ Janie Goddard
Janie Goddard (Director)
/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
THIRD AMENDMENT AGREEMENT
Exhibit 10.8
This Third Amendment Agreement (this “Agreement”) is made and entered into as of this 28th day of November,
2022, by and among ULTRALIFE CORPORATION, a Delaware corporation (“Ultralife”), SOUTHWEST ELECTRONIC
ENERGY CORPORATION, a Texas corporation (“Southwest”), CLB, INC., a Texas corporation (“CLB”), ULTRALIFE
EXCELL HOLDING CORP., a Delaware corporation (“UEHC”), ULTRALIFE CANADA HOLDING CORP., a Delaware
corporation (“UCHC”), EXCELL BATTERY CORPORATION USA, a Texas corporation (“Excell USA”, and together
with Ultralife, Southwest, CLB, UEHC and UCHC, collectively, the “Borrowers”, and each individually a “Borrower”),
EXCELL BATTERY CANADA ULC, a British Columbia unlimited liability company (“Excell Canada”), the lending
institutions currently a party to the Credit Agreement (as hereinafter defined) (each, a “Lender” and collectively, the
“Lenders”), and KEYBANK NATIONAL ASSOCIATION (“KeyBank”, and in its capacity as agent for the Lenders under
the Credit Agreement, “Agent”).
WHEREAS, Lenders, Agent and Borrowers are parties to a certain Credit and Security Agreement dated as of
May 31, 2017 (as amended by that certain First Amendment Agreement dated as of May 1, 2019 and that certain Second
Amendment Agreement dated as of December 13, 2021, and as it may from time to time be further amended, restated or
otherwise modified or supplemented from time to time, the “Credit Agreement”).
WHEREAS, Lenders, Agent and Borrowers desire to amend the Credit Agreement by modifying certain provisions
thereof, including, among other things, joining Excell Canada as a Credit Party under the Credit Agreement and other Loan
Documents.
WHEREAS, unless defined herein, each term used herein shall be defined in accordance with the Credit
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable
consideration Lenders, Agent, and Credit Parties agree as follows:
As of the date of this Agreement, the Credit Agreement is hereby amended to delete the stricken text (indicated in
the same manner as the following example: stricken text) and to add the bold and double underlined text (indicated textually
in the same manner as the following example: bold and double underlined text) as set forth on the pages of the Credit
Agreement attached as Exhibit 1 hereto. Such amended Credit Agreement constitutes the entire Credit Agreement as of the
date hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the Credit
Agreement.
Credit Parties, Agent and the Lenders agree and acknowledge that all references in the Credit Agreement and each
other Loan Document to the term “Credit Parties” shall be deemed to include Excell Canada as a co-Credit Party with the
other Credit Parties. The obligations, duties, undertakings and liabilities of Excell Canada and the Borrowers as “Credit
Parties” under the Credit Agreement and each other Loan Document shall be joint and several and, without limiting the
generality of the foregoing, each Credit Party hereby specifically and expressly ratifies and reaffirms all of the provisions
of Article XII of the Credit Agreement and its guaranty of the full and prompt payment and performance when due of the
Secured Debt provided for thereunder, and agrees that its obligations, duties, undertakings and liabilities under such Article
XII and such guaranty are unaffected by the joinder of Excell Canada as a co-Credit Party with the Borrowers under the
Credit Agreement and the other Loan Documents.
As a condition precedent to the effectiveness of this Agreement:
(a)
Credit Parties shall have executed and delivered to Agent an Assumption and Joinder Agreement
(the “Joinder Agreement”) and such Joinder Agreement shall be in form and substance satisfactory to Agent;
(b)
Pursuant to the Pledge Agreement executed by UEHC on the Second Amendment Closing Date,
UEHC has pledged all Equity Interests of Excell USA. In connection therewith, UEHC shall have executed and
delivered to Agent share certificates (or control agreements), appropriate stock powers (or equivalent), and such
other documents in connection therewith as Agent shall reasonably request, each in form and substance satisfactory
to Agent;
UCHC shall have executed and delivered to Agent a Pledge Agreement (the “New Pledge
Agreement”), in form and substance satisfactory to Agent, together with the delivery of share certificates (or
(c)
control agreements), appropriate stock powers (or equivalent), and such other documents in connection therewith
as Agent shall reasonably request, each in form and substance satisfactory to Agent;
(d)
Excell Canada shall have executed and delivered to Agent (i) a Canadian Security Agreement,
and (ii) a Canadian Guarantee, each in form and substance satisfactory to Agent;
(e)
Each Credit Party shall have delivered to Agent an officer’s certificate (or equivalent) certifying
the names of the officers of such Credit Party authorized to sign this Agreement, the Joinder Agreement, the New
Pledge Agreement, the Canadian Security Agreement, the Canadian Guarantee, and each other document,
agreement, writing or instrument executed in connection with this Agreement (collectively, the “Amendment
Documents”) by such Credit Party, together with the true signatures of such officers, and certified copies of (i) the
resolutions of the board of directors (or equivalent governing body) of such Credit Party evidencing approval of
the execution and delivery of such documents, (ii) the articles of incorporation (or equivalent organizational
document) of such Credit Party, and in the case of any Credit Party other than Excell Canada, having been certified,
not more than ten (10) days prior to this Agreement, by the Secretary of State (or equivalent appropriate
governmental officer) of the jurisdiction under which such Credit Party is organized, and (iii) the bylaws (or
equivalent governance documents) of such Credit Party. Notwithstanding the foregoing, Ultralife may, in lieu of
providing copies of such Borrower’s articles of incorporation (or equivalent organizational document) and bylaws
(or equivalent governance documents), certify that there has been no change since the Closing Date to such
Borrower’s formation and governance documents and that such documents are in full force and effect on and as
of the date hereof and no action for any amendment to such documents has been taken or is pending;
(f)
Agent shall have received a good standing certificate (or equivalent) available in the jurisdiction
of incorporation, formation or organization for each Credit Party from the appropriate governmental officer in
such jurisdiction;
(g)
Agent shall have received an executed legal opinion for Excell Canada, in form and substance
satisfactory to Agent, which shall cover such matters incident to the transactions contemplated by this Agreement
and the Amendment Documents being executed in connection herewith, and Excell Canada hereby authorizes and
directs counsel providing such legal opinion to deliver such opinion to Agent and Lenders;
(h)
Credit Parties shall have delivered to Agent revised schedules to the Credit Agreement, in form
and substance satisfactory to Agent;
(i)
Agent shall have received for Excell Canada, (i) the results of lien searches in such jurisdictions
reasonably satisfactory to Agent; and (ii) termination statements and payoff letters reflecting termination of all
financing statements (other than financing statements related to Permitted Liens) previously filed by any party
having a security interest in any part of the Collateral or any other property securing the Secured Debt;
(j)
Excell Canada shall have delivered to Agent appropriate financing statements duly filed pursuant
to the PPSA;
(k)
Excell Canada shall have delivered to Agent a landlord’s waiver, in form and substance
satisfactory to Agent and the Lenders, for each location where Excell Canada’s books and records are located;
(l)
Agent shall have received in form and substance satisfactory to Agent, one or more insurance
certificates and copies of Excell Canada’s casualty insurance policies, and copies of Excell Canada’s liability
insurance policies; and
(m)
Borrowers shall have paid all reasonable and documented out of pocket legal fees and expenses
of Agent incurred in connection with this Agreement.
Each Credit Party hereby represents and warrants to Agent and the Lenders that as of the date hereof: (a) such
Credit Party has the legal power and authority to execute and deliver the Amendment Documents executed by such Credit
Party in connection with this Agreement; (b) the officers (or other authorized Persons) of such Credit Party executing the
Amendment Documents have been duly authorized to execute and deliver the same and bind such Credit Party with respect
to the provisions thereof; (c) the execution and delivery by such Credit Party of the Amendment Documents to which it is
a party and the performance and observance by such Loan Party of the provisions thereof do not violate or conflict with the
Organizational Documents of such Credit Party or any law applicable to such Credit Party or result in a breach of any
provision of or constitute a default under any other material agreement, instrument or document binding upon or enforceable
against such Loan Party; (d) after giving effect to this Agreement, no Default or Event of Default exists under the Loan
Documents, nor will any occur upon giving effect to the execution and delivery of the Amendment Documents or by the
performance or observance of any provision thereof; (e) such Credit Party does not have any claim or offset against, or
defense or counterclaim to, any of such Credit Party’s obligations or liabilities under the Credit Agreement or the other
Loan Documents; (f) the representations and warranties set forth in Article VII of the Credit Agreement are true and correct
in all material respects (without duplication of materiality qualifiers) on and as of the date hereof, except to the extent such
representation or warranty relates to an earlier specified date, in which case such representation and warranty is reaffirmed
true and correct in all material respects as of such date; and (g) the Amendment Documents to which such Credit Party is a
party constitute a valid and binding obligation of such Credit Party in every respect, enforceable in accordance with their
respective terms, except as such enforceability may be limited by any Debtor Relief Laws.
In consideration of this Agreement, each Credit Party hereby waives and releases Agent and the Lenders and their
respective affiliates, officers, directors, equity holders, agents, attorneys, employees and representatives from any and all
such claims, offsets, defenses and counterclaims of which such Credit Party is aware or unaware in connection with the
Credit Agreement to the extent arising on or prior to the date hereof, such waiver and release being with full knowledge
and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.
Each reference that is made in the Credit Agreement or any other writing shall hereafter be construed as a reference
to the Credit Agreement as amended hereby. Except as herein otherwise specifically provided, all provisions of the Credit
Agreement shall remain in full force and effect and be unaffected hereby. Each Amendment Document is a Loan Document
as defined in the Credit Agreement.
Each Credit Party hereby reaffirms its obligations, as applicable, under the Credit Agreement and all other Loan
Documents to which such Credit Party is a party, as any of them may from time to time be amended, restated or otherwise
modified (the “Reaffirmed Documents”). Each Credit Party agrees (i) that each Reaffirmed Document shall remain in full
force and effect following the execution and delivery of this Agreement and any other Amendment Document, and (ii) that
all references in any of the Reaffirmed Documents to the “Credit Agreement” or “Loan Agreement” shall be deemed to
refer to the Credit Agreement, as amended by this Agreement or as it may be further amended, restated or otherwise
modified from time to time.
This Agreement may be executed in any number of counterparts and by different parties hereto in separate
counterparts and may be delivered by facsimile or pdf electronic transmission, each of which when so executed and
delivered shall be deemed to be an original and effective as a manually signed counterpart and all of which when taken
together shall constitute but one and the same agreement.
The rights and obligations of all parties hereto shall be governed by the laws of the State of New York, without
regard to principles of conflicts of laws (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).
EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR
THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH
PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the duly authorized officers of the parties to this Agreement have executed this
Agreement as of the date first written above.
BORROWERS:
ULTRALIFE CORPORATION
By: /s/ Michael E. Manna
Name: Michael E. Manna
Title: President and Chief Executive Officer
SOUTHWEST ELECTRONIC ENERGY
CORPORATION
By: /s/ Michael E. Manna
Name: Michael E. Manna
Title: President
CLB, INC.
By: /s/ Michael E. Manna
Name: Michael E. Manna
Title: President
ULTRALIFE EXCELL HOLDING CORP.
By: /s/ Michael E. Manna
Name: Michael E. Manna
Title: President
ULTRALIFE CANADA HOLDING CORP.
By: /s/ Michael E. Manna
Name: Michael E. Manna
Title: President
EXCELL BATTERY CORPORATION USA
By: /s/ Michael E. Manna
Name: Michael E. Manna
Title: President
OTHER CREDIT PARTIES:
EXCELL BATTERY CANADA ULC
By: /s/ Michael E. Manna
Name: Michael E. Manna
Title: President and Director
AGENT AND THE LENDERS:
KEYBANK NATIONAL ASSOCIATION,
as Agent and as a Lender
By: /s/ Peter F. Leonard
Name: Peter F. Leonard
Title: Senior Vice President
EXHIBIT 1
CONFORMED CREDIT AGREEMENT
See attachment to Form 10-K filing with SEC.
SUBSIDIARIES
Exhibit 21
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.
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 a 100% ownership interest in Ultralife Batteries (UK) LTD, 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 Excell Battery Corporation USA, a Texas corporation, and 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.
We have a 51% ownership interest in Ultralife Batteries India Private Limited, incorporated in India.
We have a 100% ownership interest in Ultralife Energy Services Corporation, incorporated in Florida.
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 X, 2023, relating to the consolidated financial statements of Ultralife Corporation appearing in this
Annual Report on Form 10-K for the year ended December 31, 2022.
Exhibit 23.1
/s/ Freed Maxick CPAs, P.C.
Rochester, New York
March 31, 2023
I, Michael E. Manna, 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 31, 2023
/s/ Michael E. Manna
Michael E. Manna
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 31, 2023
/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 E. Manna 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, 2022
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 31, 2023
Date: March 31, 2023
/s/ Michael E. Manna
Michael E. Manna
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.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(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, 2022
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 ☒
Emerging growth company ☐
Accelerated filer ☐
Smaller reporting 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 by Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
On June 30, 2022, 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 $44,418,638 (in whole dollars) based upon the closing price for
such common stock as reported on the NASDAQ Global Market on June 30, 2022.
As of April 24, 2023, the registrant had 16,135,358 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
This Amendment No. 1 to the Annual Report on Form 10-K of Ultralife Corporation (the “Company”) for the year ended
December 31, 2022 as originally filed with the Securities and Exchange Commission on March 31, 2023 (the “Original
Form 10-K”) is being filed solely to include the information required by Items 10 through 14 of Part III and to amend Item
15 of Part IV and the Index of Exhibits of Form 10-K. This information from Part III of Form 10-K was previously omitted
from the Original Form 10-K in reliance on General Instruction G(3) to Form 10-K, which permits the information in the
above referenced items to be incorporated in the Form 10-K by reference from our definitive proxy statement if such
statement is filed no later than 120 days after our fiscal year-end. We are including this Part III information in this
Amendment No. 1 to our Form 10-K because we will not file a definitive proxy statement containing such information
within 120 days after the end of the fiscal year covered by the Original Form 10-K. We plan on filing our definitive proxy
statement on or about May 30, 2023 as we are holding our 2023 Annual Stockholders’ Meeting (the “Meeting”) on July 19,
2023.
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (“the Exchange Act”), Part III,
Items 10 through 14, and Part IV, Item 15 of the Original Form 10-K are hereby amended and restated in their entirety.
The reference on the cover of the Original Form 10-K to the incorporation by reference to portions of our definitive proxy
statement into Part III of the Original Form 10-K is hereby deleted. Pursuant to Rule 12b-15 under the Exchange Act, this
Amendment No. 1 contains new certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which are
attached hereto.
Except as set forth in the first paragraph of this Explanatory Note, this Amendment No. 1 does not amend, modify, or
otherwise update any other information in or on exhibits filed with the Original Form 10-K. Accordingly, this Amendment
No.1 should be read in conjunction with the Original Form 10-K. In addition, this Amendment No. 1 does not reflect events
that may have occurred subsequent to the filing date of the Original Form 10-K.
Unless expressly indicated or the context requires otherwise, the terms “Company,” “we,” “our,” and “us” in this document
refer to Ultralife Corporation (“Ultralife”), a Delaware corporation, and, where appropriate, its subsidiaries.
TABLE OF CONTENTS
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Exhibit Index
Signatures
1
7
16
18
19
20
21
23
i
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The following sets forth certain information concerning our directors as of April 24, 2023.
Name
Age
Present Principal Occupation, Employment History and Expertise
Michael E. Manna
53
Janie Goddard
52
Thomas L. Saeli
66
Mr. Manna has served as our President and Chief Executive Officer and as a
director of the Company since November 22, 2022. Mr. Manna has almost
thirty years’ experience in the battery industry, all with Ultralife Corporation.
He joined the Company in 1993 and held numerous leadership positions of
increasing responsibility in engineering, operations, product management,
research & development and sales. Most recently, Mr. Manna served as
President, Battery & Energy Products and continues in his leadership of this
business segment. Mr. Manna is a well-recognized expert in rechargeable and
primary battery cell design across multiple chemistries in both commercial and
government/defense markets. He has been awarded several patents for the
Company and was a key member of the team that delivered the first Lithium-
Ion Polymer Cell to the market. Mr. Manna has a BS degree in Computer
Science from Rochester Institute of Technology. Mr. Manna has been
nominated for election to our Board of Directors because of his battery industry
expertise and his position as President and Chief Executive Officer of the
Company.
Ms. Goddard has been a director of the Company since February 21,
2023. Most recently, Ms. Goddard served as a Divisional Chief Executive for
the Environmental and Analysis Sector at Halma plc, a global group of
technology companies and as a Divisional Chief Executive of Halma’s Medical
and Environmental Sector. Before joining Halma, from 2016 to 2019,
Ms. Goddard served as Divisional President of the Detection and Analysis
Business Unit at Novanta Inc., where she led a portfolio of solutions for
medical device OEMs. Prior to Novanta, Ms. Goddard served in leadership
roles at Welch Allyn (acquired by Hill-Rom), Covidien (acquired by
Medtronic), and Johnson & Johnson. Ms. Goddard also serves on the board of
directors of Methode Electronics, Inc., a public company (NYSE: MEI) that
develops and manufactures custom solutions for the transportation (including
electric vehicles), industrial and medical markets. She received a B.S. in
Business Administration from Washington University in St. Louis and an
M.B.A. from Harvard Business School. Ms. Goddard has been nominated for
election to our Board of Directors because of her strong track record of P&L
leadership within global companies, her background in commercial execution,
strategic marketing, and product development and her depth and breadth of
experience in global medical device and industrial markets.
Mr. Saeli has been a director of the Company since March 2010. Since 2011,
Mr. Saeli has served as the Chief Executive Officer and a director of JRB
Enterprises, a diversified manufacturer of primarily commercial low slope
roofing systems. From 2009 to 2011, Mr. Saeli was a consultant to
international corporate clients on matters involving business development
strategies, acquisitions and operations. He previously served as Chief
Executive Officer and a member of the board of directors of Noble
International, Ltd., an international automotive supplier. Prior to that, Mr. Saeli
was Vice President of Corporate Development for Lear Corporation, an
international automotive supplier. Mr. Saeli has served on boards of various
privately held businesses and nonprofit organizations. Mr. Saeli has a BA in
Economics from Hamilton College, and an MBA in Finance and Accounting
1
Robert W. Shaw II
66
Ranjit C. Singh
70
Bradford T. Whitmore
66
from Columbia University’s Graduate School of Business. Mr. Saeli has been
nominated for re-election to our Board of Directors because of his
manufacturing, corporate development, mergers and acquisitions and finance
experience. Mr. Saeli qualifies as an audit committee financial expert under
applicable SEC rules.
Mr. Shaw has been a director of the Company since June 2010. Since 2015 he
has been a consultant for Pratt Miller, Inc., a large engineering company for
automotive racing and defense businesses. Since 2015 as well, he has been a
senior advisor to Hornblower Group, the world's largest operator of excursion
vessels. Mr. Shaw has served as President of the largest dining and excursion
boat operator in the United States, with over 100 vessels. He has been President
of a large mechanical contracting company specializing in the federal
government and healthcare markets. Mr. Shaw served in the US Marine Corps
as an infantry Captain, has an MBA degree from Harvard University and a BS
degree in engineering from Cornell University. Mr. Shaw has been nominated
for re-election to our Board of Directors because of his management expertise
and experience as an executive officer.
Mr. Singh has been a director of the Company since August 2000 and served
as Chair of our Board of Directors from December 2001 to June 2007. Mr.
Singh is currently the Chief Executive Officer of CSR Consulting Group,
which provides business and technology consulting services, a position that he
has held since 2008. He previously served as President and Chief Executive
Officer of Aptara, a content outsourcing services company, from February
2003 until July 2008. Prior to that, he was President and Chief Operating
Officer of ContentGuard, which develops and markets digital property rights
software. Before joining ContentGuard, Mr. Singh worked for Xerox as a
corporate Senior Vice President responsible for the software and services
businesses. Mr. Singh has a BS and MS in Electrical Engineering from
University of Bath, England and an MBA from Worcester Polytechnic
Institute. We believe Mr. Singh’s service as a member of our Board of
Directors is appropriate because of his experience as an executive of and
advisor to growing technology-based companies, his familiarity with
international operations and his expertise in mergers and acquisitions. Mr.
Singh is not eligible for election at the 2023 Annual Meeting of Stockholders
since, in accordance with the Company’s Corporate Governance Principles, he
has reached the director mandatory retirement age of seventy (70) prior to the
Meeting.
Mr. Whitmore has been a director of the Company since June 2007 and Chair
of our Board of Directors since March 2010. Since 1985, he has been the
Managing Partner of Grace Brothers LP, an investment firm that holds
approximately 3% of the outstanding shares of our common stock. Mr.
Whitmore and Grace Brothers LP collectively hold or claim beneficial
ownership of 37.1% of the outstanding shares of our common stock. Mr.
Whitmore has a BS in Mechanical Engineering from Purdue University and an
MBA from Northwestern University’s J.L. Kellogg Graduate School of
Management. Over the past several years, Mr. Whitmore has served as a
director of several privately held companies in which Grace Brothers LP and
its affiliates held investments as well as not-for-profit organizations. Mr.
Whitmore has been nominated for re-election to our Board of Directors because
of his corporate development expertise and significant expertise in corporate
financial matters.
Executive Officers
Our executive officers are appointed annually by our Board of Directors. Our executive officers for the year ended
December 31, 2022 were:
2
• Michael D. Popielec, President and Chief Executive Officer from January 1, 2022 to November 22, 2022
• Michael E. Manna, President and Chief Executive Officer commencing November 22, 2022
• Philip A. Fain, Chief Financial Officer, Treasurer and Secretary
There were no other individuals who meet the definition of Named Executive Officer.
Mr. Manna’s information is set forth above with the other directors. Certain information with respect to our other executive
officers for fiscal 2022 is presented below.
Name
Age
Present Principal Occupation and Employment History
Philip A. Fain
68 Mr. Fain was named our Chief Financial Officer in November 2009, Treasurer
in December 2009 and Corporate Secretary in April 2013. He previously served
as Vice President of Business Development, having joined us in February 2008.
Prior to joining us, he was Managing Partner of CXO on the GO, LLC, a
management-consulting firm, which he co-founded in November 2003 and
which we retained in connection with our acquisition activity. Prior to founding
CXO on the GO, LLC, Mr. Fain served as Vice President of Finance - RayBan
Sunoptics for Luxottica, SpA. Prior to the acquisition of Bausch & Lomb’s
global eyewear business by Luxottica, Mr. Fain served as Bausch & Lomb’s
Senior Vice President Finance - Global Eyewear from 1997 to 1999 and as Vice
President and Controller for the US Sunglass business from 1993 to 1996. In
these roles, he led the process to acquire some of the world’s most sought-after
sunglass companies and brands for Bausch & Lomb. From 1983 to 1993, Mr.
Fain served in various positions with Bausch & Lomb including executive
positions in corporate accounting, finance and audit. Mr. Fain began his career
as a CPA and consultant with Arthur Andersen & Co. in 1977. He received his
BA in Economics from the University of Rochester and an MBA from the
William E. Simon Graduate School of Business Administration of the University
of Rochester.
Michael D. Popielec
61
Mr. Popielec served as our President and Chief Executive Officer and as a
director of the Company from December 30, 2010 to November 22, 2022. Mr.
Popielec has over 30 years’ experience in growing domestic and international
industrial businesses. Prior to joining us, Mr. Popielec operated his own
management consulting business from 2009 to 2010 and was Group President,
Applied Technologies from 2008 to 2009 and Group President, Diversified
Components from 2005 to 2007 at Carlisle Companies, Inc., a $2.5 billion
diversified global manufacturer. Prior to that, from 2003 to 2005, he held various
positions, including Chief Operating Officer, Americas, for Danka Business
Systems, PLC. From 1985 to 2002, Mr. Popielec held positions of increasing
responsibility at General Electric Company, culminating in his serving as a GE
corporate officer and as President and Chief Executive Officer of GE Power
Controls, the European arm of GE Industrial Systems. Mr. Popielec has a BS in
Mechanical Engineering from Michigan State University. We believe Mr.
Popielec’s service as a member of our Board of Directors was appropriate
because of his position as President and Chief Executive Officer of the
Company.
Corporate Governance
General
Pursuant to the General Corporation Law of the State of Delaware and our By-laws, our business, property and affairs are
managed under the direction of our Board of Directors. Members of our Board of Directors are kept informed of Company
3
business through regular discussions with our President and Chief Executive Officer and our Chief Financial Officer, Treasurer
and Secretary, by reviewing materials provided to them by the Company’s management and by participating in meetings of
the Board and its committees.
Our Board of Directors has determined that, except for Michael E. Manna, our President and Chief Executive Officer, and
Michael D. Popielec, who previously served as President and Chief Executive Officer and a director of the Company, are
“independent” for purposes of listing standards of The NASDAQ Stock Market (“NASDAQ”) applicable to the Corporate
Development and Governance Committee and the Compensation and Management Committee. In addition, our Board of
Directors has determined that, except for Michael E. Manna, Bradford T. Whitmore, our Board Chair, and Michael D. Popielec,
all directors are “independent” for purposes of NASDAQ listing standards applicable to the Audit and Finance Committee.
We believe that the segregation of the roles of Board Chair from that of the President and Chief Executive Officer ensures
better overall governance of our Company and provides meaningful checks and balances regarding our overall performance.
This structure allows our President and Chief Executive Officer to focus on our business while the Board Chair leads our Board
of Directors in establishing corporate policy and enhancing our governance structure and practices. We believe this structure
is appropriate for a company with our varied product portfolio addressing both commercial and defense markets.
Our Board of Directors has three standing committees: an Audit and Finance Committee, a Corporate Development and
Governance Committee, and a Compensation and Management Committee. During 2022, our Board of Directors held five
meetings and the committees of our Board of Directors held a total of thirteen meetings. During 2022, Bradford T. Whitmore
served as our Board Chair. As Board Chair, Mr. Whitmore served as a non-voting ex-officio member of all of our Board
committees. Each director attended, in person or virtually, at least 75% of the aggregate of: 1) the total number of meetings of
the Board; and 2) the total number of meetings held by all committees of the Board on which he or she served.
Our Board of Directors has adopted a charter for each of the three standing committees that addresses the composition and
function of each committee and has also adopted Corporate Governance Principles that address the composition and function
of the Board of Directors. These charters and Corporate Governance Principles are available on our website at
http://investor.ultralifecorporation.com under the subheading “Corporate Governance.” Pursuant to our Corporate Governance
Principles, it is our policy that directors retire from service at the annual meeting following their 70th birthday.
Our Board of Directors has determined that all directors who serve on these committees are “independent” for purposes of
listing standards of NASDAQ, and that the members of the Audit and Finance Committee are also “independent” for purposes
of Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended. Our Board of Directors based these determinations
primarily on a review of the responses of the directors to questions regarding employment, compensation history, affiliations
and family and other relationships, and on follow-up discussions with directors.
Our Board of Directors, consisting of six members, has one director who identifies as “diverse” and one director who
identifies as “Female” and “African American or Black” in accordance with NASDAQ listing standards. Ranjit C. Singh,
who identifies as “diverse”, will be retiring and not standing for re-election at the 2023 Annual Meeting.
Committees of the Board of Directors
The composition and the functions of our three standing committees of our Board of Directors are set forth below.
Audit and Finance Committee
The current members of the Audit and Finance Committee are Thomas L. Saeli (Chair), Janie Goddard, Robert W. Shaw II
and Ranjit C. Singh. This committee selects our independent registered public accounting firm and has oversight responsibility
for reviewing the scope and results of the independent registered public accounting firm’s annual audit of our financial
statements and the quality and integrity of those financial statements. Further, the committee reviews the qualifications and
independence of the independent registered public accounting firm. The Committee meets with our Chief Financial Officer
and Treasurer, our Corporate Controller and the independent registered public accounting firm to review matters relating to
internal accounting controls, our accounting practices and procedures and other matters relating to our financial condition and
has the power to engage outside counsel and other outside experts. The committee also reviews and monitors areas of financial
and cybersecurity risk that could have a material impact on our Company. The Audit and Finance Committee met five times
during 2022.
Our Board of Directors has determined that each of the members of the Audit and Finance Committee is “financially literate”
in accordance with NASDAQ listing standards. In addition, our Board of Directors has determined that Mr. Saeli qualifies as
an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.
4
Corporate Development and Governance Committee
The current members of the Corporate Development and Governance Committee are Ranjit C. Singh (Chair), Janie Goddard,
Thomas L. Saeli and Robert W. Shaw II. This committee works with management to develop corporate strategy and to identify
and evaluate acquisition opportunities, reviews the performance and compensation of our directors annually, makes annual
recommendations to our Board of Directors for nominations for election to the Board of Directors and committee assignments
and for the compensation of our directors, and manages the annual evaluation of the performance of our President and Chief
Executive Officer and our Board Chair. The Corporate Development and Governance Committee met four times during 2022.
The Corporate Development and Governance Committee identifies potential nominees for director based on its own research
for appropriate candidates as well as on recommendations received by directors or from stockholders as described below. The
Corporate Development and Governance Committee has the authority to retain an executive search firm to assist in the
identification of potential director nominees. The evaluation process and the factors considered in undertaking that evaluation
are set forth under the caption “Stockholder Recommendations and Standards for Director Nominations” below.
The Corporate Development and Governance Committee also has overall responsibility for assessing and managing our
exposure to risks associated with the conduct of our business.
Compensation and Management Committee
The current members of the Compensation and Management Committee are Robert W. Shaw II (Chair), Janie Goddard,
Thomas L. Saeli and Ranjit C. Singh. The Compensation and Management Committee has ultimate responsibility for
determining the compensation of officers appointed by our Board of Directors, granting stock options and other equity awards
and otherwise administering our equity compensation plans, and approving and administering any other compensation plans
or agreements. The Compensation and Management Committee has the authority to retain outside experts in making
compensation determinations. Our 2014 Long-Term Incentive Plan (“2014 LTIP”) is administered by the Compensation and
Management Committee. The Compensation and Management Committee met four times during 2022.
Stockholder Recommendations and Standards for Director Nominations
As noted above, the Corporate Development and Governance Committee considers and establishes procedures regarding
recommendations for nomination to our Board of Directors, including nominations submitted by stockholders. Such
recommendations, if any, should be sent to our Corporate Secretary, Attn: Philip A. Fain, Ultralife Corporation, 2000
Technology Parkway, Newark, New York 14513. Any recommendations submitted to the Corporate Secretary should be in
writing and should include any material the stockholder considers appropriate in support of that recommendation but must
include the information that would be required under the rules of the SEC in a proxy statement soliciting proxies for the election
of such candidate and a signed consent of the candidate to serve as a director, should he or she be elected. The Corporate
Development and Governance Committee evaluates all potential candidates in the same manner, regardless of the source of
the recommendation.
The Corporate Development and Governance Committee reviews the credentials of potential director candidates, including
those recommended by stockholders, in making a determination whether to conduct a full evaluation of a candidate. The
Corporate Development and Governance Committee considers the composition, size and diversity of the existing Board of
Directors, along with other factors such as any anticipated vacancies due to retirement or other reasons and the Company’s
need for a person with specific skills, experiences or attributes, in making its determination to conduct a full evaluation of
a candidate. As part of the full evaluation process, the Corporate Development and Governance Committee may conduct
interviews, obtain additional background information and conduct reference checks of candidates. The Corporate
Development and Governance Committee may also ask the candidate to meet with management and other members of our
Board of Directors.
In evaluating a director candidate, our Board of Directors, with the assistance of the Corporate Development and Governance
Committee, considers a variety of factors that would qualify the candidate to serve as a director. The criteria for selection to
our Board of Directors, as described in our Corporate Governance Principles, include character and leadership skills; general
business acumen and executive experience; knowledge of strategy, finance and relations between business and government;
and internal business operations – all to ensure an active and diverse Board of Directors whose members work well together
and possess the collective knowledge and expertise required to meaningfully contribute as directors. Our Corporate
Development and Governance Committee reviews the qualifications of director candidates with those of our current directors
to augment and complement the skills, experiences and attributes of our current Board members. The Company is committed
to a Board of Directors comprised of individuals with diverse backgrounds, skills and experiences.
5
Annual Meeting Attendance
Our policy is that all our directors, absent special circumstances, should participate in our Annual Meeting of Stockholders,
either in person or telephonically. All directors participated in last year’s Annual Meeting of Stockholders.
Executive Sessions
Our Corporate Governance Principles require our independent directors to meet in executive session regularly by requiring
them to have at least four regularly scheduled meetings per year without management present. Our independent directors
met in executive session four times during 2022. In addition, our standing committees meet in executive session on a regular
basis.
Communicating with the Board of Directors
Stockholders interested in communicating directly with our Board of Directors as a group or individually may do so in writing
to our Corporate Secretary, Attn. Philip A. Fain, Ultralife Corporation, 2000 Technology Parkway, Newark, New York 14513.
The Corporate Secretary will review all such correspondence and forward to our Board of Directors a summary of that
correspondence and copies of any correspondence that, in his opinion, deals with the functions of the Board of Directors or
that he otherwise determines requires their attention. Directors may at any time review a log of all correspondence received by
us that are addressed to members of the Board of Directors and request copies of any such correspondence. Any concerns
relating to accounting, internal controls or auditing matters will be brought to the attention of the Audit and Finance Committee
and handled in accordance with the procedures established by the Audit and Finance Committee with respect to such matters.
Risk Management
Our management team is responsible for assisting the Corporate Development and Governance Committee in its assessment
of our exposure to risks associated with the conduct of business. We have an enterprise risk management process to identify,
assess and manage the most significant risks facing our Company. Our Corporate Development and Governance Committee
has overall responsibility to regularly review management’s risk management process, including the policies and guidelines
used by management to identify, assess and manage our exposure to risk on an on-going basis. Our Audit and Finance
Committee has oversight responsibility for financial risks and other risks that could have a material impact on our Company.
Our management reviews these financial risks with our Audit and Finance Committee regularly and reviews the risk
management process, as it affects financial risks, with our Audit and Finance Committee on an on-going basis. Based upon
this risk assessment and management process, the Board may recommend changes to the operations of the Company to reduce
risk.
Code of Ethics
We have a Code of Ethics applicable to all employees, including our executive officers and all members of our Board of
Directors. Our Code of Ethics incorporates the elements of a code of ethics specified in Item 406 of Regulation S-K and
also complies with NASDAQ requirements for a code of conduct. Stockholders can find a link to this Code of Ethics on
our website at http://investor.ultralifecorporation.com under the subheading “Corporate Governance.”
Our Code of Ethics emphasizes our commitment to conducting business in a legal and ethical manner and encourages prompt
and confidential reporting of any suspected violations of law or the Code of Ethics. As part of our Code of Ethics, directors
and employees are expected to make business decisions and to take actions based upon the best interests of our Company and
not based upon personal relationships or benefits. In conjunction with our Code of Ethics, our General Counsel conducts an
annual training session with our Board of Directors with emphasis on all facets of compliance with new and existing regulations
and best practices. Any potential conflict of interest, and any transaction or relationship involving our officers or directors that
could give rise to a conflict of interest, must be reviewed and resolved by our Corporate Development and Governance
Committee.
Employee, Officer and Director Hedging
Pursuant to our Insider Trading Compliance Policy, the Company’s directors, officers and employees are prohibited from
engaging in short sales of Ultralife securities or from buying or selling put options, call options or other derivatives of Ultralife
securities.
6
ITEM 11. EXECUTIVE COMPENSATION
Director Compensation
We presently use cash compensation to attract and retain qualified candidates to serve on our Board of Directors. Our practice
is to survey our peer group companies, generally consisting of like-sized micro-cap companies and/or public companies in our
industry, periodically to ascertain whether our overall director compensation is appropriate and balanced. If we perceive that
there has been a major change in our Company or the market, we may alter the time between surveys. In setting director
compensation, we consider the amount of time that directors spend fulfilling their duties to us, the skill-level required by
members of our Board of Directors, and based on publicly available data, the compensation paid to directors in similar-sized
organizations in our industry. Our program is designed to deliver annual director compensation at the median levels of director
compensation for companies in similar industries and of similar size. Our annual director compensation period runs from July
1 to June 30.
Annual Retainers
Each non-employee director will receive an annual cash retainer of $70,040, except for the Board Chair, who will receive
an annual cash retainer of $103,000, for the period July 1, 2022 through June 30, 2023, the same as the amounts for the
period July 1, 2021 through June 30, 2022. These retainers are paid quarterly in cash. In addition, each director who is a
member of a Board committee receives an additional cash retainer for such committee service.
Annual retainers for Board committee service for the period July 1, 2022 to June 30, 2023 were the same as amounts for
the period July 1, 2021 through June 30, 2022, as follows:
Audit and Finance Committee
Compensation and Management Committee
Corporate Development and Governance
Committee
Annual Retainer for
Committee Members
$6,950
$5,410
Annual Retainer for
Committee Chair
$17,250
$13,650
$6,950
$17,250
Annual retainers for both committee members and committee chairs are paid quarterly in cash. For Board and committee
service during the fiscal year ended December 31, 2022, we paid our non-employee directors an aggregate $399,890.
Our non-employee directors have stock ownership guidelines that require them to maintain ownership of at least $40,000
of our common stock. Newly elected directors have two years from their election to the Board to achieve the stock
ownership requirement. Currently, all our non-employee directors, except for Ms. Goddard who joined the Board on
February 21, 2023 and has two years from that date to achieve the stock ownership requirement, meet the stock ownership
guidelines. Refer to the Executive Officer Compensation section contained herein for stock ownership guidelines for our
executive officers.
7
Director Compensation Table
The table below summarizes the compensation paid by us to our non-employee directors for their service for the fiscal year
ended December 31, 2022.
(1) Amounts shown represent cash compensation earned during for 2022. Amounts may differ from amounts paid in
2022 due to timing of payments.
(2) There were no stock awards granted to our non-employee directors during 2022 or outstanding at December 31,
2022.
(3) There were no option awards granted to our non-employee directors during 2022 or outstanding at December 31,
2022.
(4) There was no non-equity incentive plan compensation paid to our non-employee directors for the fiscal year ended
December 31, 2022.
(5)
There were no non-qualified deferred compensation earnings for our non-employee directors for the fiscal year ended
December 31, 2022.
(6) There was no other compensation paid to our non-employee directors for the fiscal year ended December 31, 2022.
Each of Michael E. Manna, our current President and Chief Executive Officer and Michael D. Popielec, our former President
and Chief Executive Officer, were ineligible to receive compensation for his service as a director because he is/was also an
employee. Refer to the Summary Compensation Table for the compensation of our executive officers.
Executive Officer Compensation
We have determined that Mr. Popielec from January 1, 2022 to November 22, 2022, Mr. Manna commencing November 22,
2022, and Mr. Fain were our named executive officers for 2022.
As a smaller reporting company under the Securities Exchange Act of 1934, as amended, we are providing executive
compensation information in accordance with the scaled disclosure requirements of Regulation S-K. As a result, a
Compensation Disclosure and Analysis and certain other disclosures are not included.
8
Summary Compensation Table
The following table sets forth information concerning the compensation earned by or awarded to our executive officers for
their services in all capacities to us during 2022 and 2021:
Name and Principal Position (1)
Michael E. Manna, President and Chief
Executive Officer (Current)
Philip A. Fain, Chief Financial Officer,
Treasurer and Secretary
Michael D. Popielec, President and Chief
Executive Officer (Former)
Salary
($)
(2)
241,422
340,414
338,713
534,400
531,761
Bonus ($)
(3)
31,283
36,363
20,000
85,631
30,000
Year
2022
2022
2021
2022
2021
Stock
Awards ($)
Option
Awards ($)
All Other
Compensation ($)
Total ($)
(4)
-
-
-
-
-
(5)
32,087
51,339
60,028
102,678
120,056
(6)
13,814
16,910
16,712
24,467
24,483
318,606
445,026
435,453
747,176
706,300
(1)
The 2022 amounts presented in the Compensation Table above for Mr. Popielec represent his compensation for the
full year, although he served as a named executive officer from January 1, 2022 to November 22, 2022. Similarly,
the 2022 amounts presented for Mr. Manna represent his compensation for the full year, although he served as a
named executive officer commencing on November 22, 2022.
(2) Amounts shown represent base salary cash compensation paid during the respective years. Amounts may differ
from amounts earned due to timing of payroll periods. Refer to the “Narrative to Summary Compensation Table”
below for further information.
(3) Amounts shown represent short-term incentive plan (“STIP”) cash awards earned during the respective years and
paid in the subsequent year. Refer to the “Narrative to Summary Compensation Table” for further information.
(4)
There were no stock awards other than stock options granted during fiscal years 2022 and 2021.
(5) Amounts shown represent the aggregate grant date fair value of stock options awarded during the respective years
computed in accordance with Accounting Standards Codification Topic 718, Compensation – Stock Compensation
(“ASC 718”). See the notes to our audited consolidated financial statements included in our Annual Reports on
Form 10-K for the fiscal years ended December 31, 2022 and December 31, 2021, respectively, for the assumptions
used in valuing these stock option awards in accordance with ASC 718. Refer to the “Narrative to Summary
Compensation Table” below for further information.
(6) Amounts shown as “All Other Compensation” consist of the following:
Michael E. Manna
Philip A. Fain
Michael D. Popielec
2022
2022
2021
2022
2021
401(k) Plan
Employer Match
($)
9,656
12,200
11,600
9,206
10,349
Other
Benefits (a)
($)
4,158
4,710
5,112
15,261
14,134
Total
($)
13,814
16,910
16,712
24,467
24,483
(a)
The “Other Benefits” column of the above table includes premiums paid for group medical and dental coverage
and long-term care insurance, reimbursement for tax preparation and certain financial planning expenses.
Narrative to Summary Compensation Table
Compensation Overview
9
Our executive compensation program is evaluated and approved each year by our Compensation and Management Committee.
Annual total compensation for our executive officers is comprised of the following key components:
• Base salary;
• Short-term incentive plan (“STIP”);
• Long-term incentive plan (“LTIP”); and
• Limited perquisites and other benefits.
Our executive compensation program is structured to align the interests of our executive officers with those of our
stockholders by rewarding performance that achieves successful execution of our business strategy, grows our business and
increases stockholder value. Our executive compensation program is designed to incentivize our executive officers to
achieve strong financial, operational and strategic performance and to provide a link between the compensation earned by
our executives and the creation of long-term sustainable value. The Compensation and Management Committee establishes
specific annual, long-term and strategic goals and seeks to reward our executive officers for performance that meets or
exceeds those goals. In addition, we expect our executive officers to work toward achievement of these goals while
maintaining the highest ethical standards.
Base Salary
The Compensation and Management Committee evaluates the performance of the President and Chief Executive Officer
and presents its evaluation and recommendation annually for base salary adjustment, if any, to the Board of Directors for
approval. The President and Chief Executive Officer evaluates the performance of Mr. Fain, our Chief Financial Officer,
Treasurer and Secretary, and presents his evaluation and recommendation annually for a base salary adjustment, if any, to
the Compensation and Management Committee, which, in turn, may recommend acceptance of or adjustment to such base
salary recommendation to the Board of Directors. If adjustments to base salaries are recommended and approved, the
adjustments are made to be effective for a period ranging from twelve to fifteen months from the date of the last salary
adjustment.
In 2021, Mr. Popielec and Mr. Fain informed the Compensation and Management Committee, that they would voluntarily
forego any base salary increases for 2021, although they were eligible for increases based on a number of factors including
individual and Company performance. In October 2022, the Board of Directors, at the recommendation of the
Compensation and Management Committee, approved a base salary increase of 3.0% for Mr. Popielec ($531,761 to
$547,715) and 3.0% for Mr. Fain ($338,713 to $348,875). The salary increases were approved by the Committee based on
a number of factors including individual and Company performance. On November 22, 2022, upon his appointment as
President and Chief Executive Officer, the Board of Directors upon recommendation of the Compensation and Management
Committee, approved a base salary of $375,000 for Mr. Manna. His salary as President, Battery & Energy Products prior
to his appointment as President and Chief Executive Officer had been $253,000.
Short-Term Incentive Plan
Our Compensation and Management Committee establishes a STIP each fiscal year to provide our executive officers an
opportunity to earn an annual cash award in addition to their base salaries. The STIP is designed to place “at risk” a
significant portion of the annual total cash compensation of our executive officers to incentivize them to achieve our short-
term financial objectives while making progress toward our longer-term goals. Generally, the STIP target levels are set such
that, assuming achievement of pre-established performance metrics, the combined annual base salary and STIP award for
our executive officers will be at or near the 50th percentile for executive officers at the companies in our peer group.
For 2022, the STIP target bonus levels for Messrs. Popielec, Fain and Manna were 75%, 50% and 50% of their respective
base salaries. For Messrs. Popielec and Fain, the performance goals to be achieved to be awarded the STIP targeted bonus
for 2022 were consolidated operating profit and consolidated revenue goals of $7.3 million and $139.2 million, respectively,
as measured pursuant to generally accepted accounting principles. For Mr. Manna, the performance goals to be achieved to
be awarded the STIP target bonus were consolidated operating profit and Battery & Energy Products revenue goals of $7.3
million and $118.2 million, respectively, as measured pursuant to generally accepted accounting principles. The STIP
award was structured with a 70% weighting on the consolidated operating profit goal and a 30% weighting on the respective
revenue goal. Achievement of less than 75% of the consolidated operating profit and less than 90% of the revenue goals
would result in no award being earned with respect to that metric. Achievement of the target goals would result in an 80%
payment of the target bonus levels with respect to that metric. Achievement of over 100% to 112.5% of the consolidated
10
operating profit goal and achievement of over 100% to 112.5% of the revenue goal would result in an award ranging from
81% to 100% of the target award with respect to the metric for which such performance levels had been achieved.
Achievement of over 112.5% to 150% of the consolidated operating profit goal and over 112.5% to 125% of the revenue
goal would result in an award ranging from 101% to 120% of the target award with respect to the metric for which such
performance levels had been achieved. Our executive officers were eligible for a partial award if one of the two metrics
was achieved.
Based on our 2022 financial performance, Messrs. Popielec, Fain and Manna earned STIP awards for 2022 of $85,631,
$36,362, and $31,283, respectively, which were paid in April 2023. In addition, at the recommendation of the Compensation
Committee, the Board of Directors approved discretionary bonuses of $30,000 and $20,000 for Mr. Popielec and Mr. Fain,
respectively, which were paid in February 2022 for their roles in the 2021 acquisition and integration of Excell Battery
Group.
For 2021, the STIP target bonus levels for Messrs. Popielec and Fain were 75% and 50% of their respective base salaries.
The performance goals to be achieved to be awarded the STIP targeted bonus for 2021 were consolidated operating profit
and consolidated revenue goals of $7.1 million and $114.0 million, respectively, as measured pursuant to generally accepted
accounting principles. The STIP award was structured with a 70% weighting on the consolidated operating profit goal and
a 30% weighting on the consolidated revenue goal. Achievement of less than the consolidated operating profit and revenue
goals would result in no award being earned with respect to that metric. Achievement of the target goals would result in a
75% payment of the target bonus levels with respect to that metric. Achievement of over 100% to 132% of the consolidated
operating profit goal and achievement of over 100% to 111% of the revenue goal would result in an award ranging from
76% to 100% of the target award with respect to the metric for which such performance levels had been achieved.
Achievement of over 132% to 166% of the consolidated operating profit goal and over 111% to 139% of the revenue goal
would result in an award ranging from 101% to 150% of the target award with respect to the metric for which such
performance levels had been achieved. Our executive officers were eligible for a partial award if one of the two metrics
was achieved.
Based on our 2021 financial performance, Messrs. Popielec and Fain did not earn STIP awards for 2021.
Long-Term Incentive Plan
Stock options and other equity awards are used to align the interests of our executive officers with those of our stockholders
by incentivizing our executive officers to achieve long-term growth and sustainable stockholder value.
Refer to “Outstanding Equity Awards” below for stock options granted during 2022 and 2021. There were no other equity-
based awards granted to our executive officers during 2022 and 2021.
Retirement Benefits
We provide a tax-qualified 401(k) plan to all active employees that provides for both employer and employee contributions.
Under this plan, employees may contribute a portion of their eligible cash compensation to the plan. For 2022 and 2021,
the Company matched 100% on the first 3% and 50% on the next 2% of an employee’s eligible contributions.
Perquisites and Other Personal Benefits
We provide our executive officers with certain perquisites and other personal benefits which are consistent with the
objectives of our overall compensation program to better enable us to attract and retain superior employees for key positions.
The Compensation and Management Committee periodically reviews the levels of such perquisites and other personal
benefits to ensure they remain at appropriate levels. The aggregate incremental costs of the perquisites and other personal
benefits provided to our executive officers are included in the “All Other Compensation” column of the Summary
Compensation Table with components detailed in an accompanying note.
Outstanding Equity Awards
The following table sets forth information concerning the number of shares underlying exercisable and non-exercisable
stock option awards outstanding at December 31, 2022 for our executive officers.
11
Equity Incentive
Plan Awards:
Number of
Number of
Number of
Securities
Securities
Securities
Underlying
Underlying
Underlying
Unexercised
Unexercised
Unexercised
Options (#)
Options (#)
Options (#)
Name
Exercisable Unexercisable
Unearned
Michael E. Manna
Philip A. Fain
Michael D. Popielec
10,000
20,000
8,500
10,000
10,000
7,334
4,167
-
20,000
20,000
20,000
25,000
13,334
6,667
-
40,000
40,000
45,000
26,667
13,334
-
-
-
-
-
-
3,666 (1)
8,333 (2)
12,500 (3)
-
-
-
6,666 (4)
13,333 (5)
20,000 (6)
-
-
-
13,333 (7)
13,333 (8)
13,334 (9)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Option
Exercise
Price ($)
4.2902
5.3057
9.8514
8.2523
8.4476
6.5062
6.9694
5.4533
4.2902
5.7075
9.8514
8.2523
6.5062
6.9694
5.4533
4.2902
9.8514
8.2523
6.5062
6.9694
5.4533
Option
Expiration
Date
6/1/2023
1/18/2024
4/18/2025
7/23/2026
9/6/2026
4/22/2027
10/20/2028
10/19/2029
6/1/2023
4/19/2024
4/18/2025
7/23/2026
4/22/2027
10/20/2028
10/19/2029
6/1/2023
1/20/2024 (10)
1/20/2024 (10)
1/20/2024 (10)
1/20/2024 (10)
1/20/2024 (10)
(1) On April 22, 2020, our Board of Directors, on recommendation of the Compensation and Management Committee,
granted to Mr. Manna the option to purchase 11,000 shares of our common stock. This option vested with respect to
3,667 shares on April 22, 2021, 3,667 shares on April 22, 2022 and 3,666 shares on April 23, 2023.
(2) On October 20, 2021, our Board of Directors, on recommendation of the Compensation and Management Committee,
granted to Mr. Manna the option to purchase 12,500 shares of our common stock. This option vested with respect to
4,167 shares on October 20, 2022 and will vest with respect to, 4,167 shares on October 20, 2023 and 4,166 shares on
October 20, 2024.
(3) On October 19, 2022, our Board of Directors, on recommendation of the Compensation and Management Committee,
granted to Mr. Manna the option to purchase 12,500 shares of our common stock. This option will vest with respect to
4,167 shares on October 19, 2023, 4,167 shares on October 19, 2024 and 4,166 shares on October 19, 2025.
(4) On April 22, 2020, our Board of Directors, on recommendation of the Compensation and Management Committee,
granted to Mr. Fain the option to purchase 20,000 shares of our common stock. This option vested with respect to 6,667
shares on April 22, 2021, 6,667 shares on April 22, 2022 and 6,666 shares on April 22, 2023.
(5) On October 20, 2021, our Board of Directors, on recommendation of the Compensation and Management Committee,
granted to Mr. Fain the option to purchase 20,000 shares of our common stock. This option vested with respect to 6,667
shares on October 20, 2022, and will vest with respect to 6,667 shares on October 20, 2023 and 6,666 shares on October
20, 2024.
12
(6) On October 19, 2022, our Board of Directors, on recommendation of the Compensation and Management Committee,
granted to Mr. Fain the option to purchase 20,000 shares of our common stock. This option will vest with respect to
6,667 shares on October 19, 2023, 6,667 shares on October 19, 2024 and 6,666 shares on October 19, 2025.
(7) On April 22, 2020, our Board of Directors, on recommendation of the Compensation and Management Committee,
granted to Mr. Popielec the option to purchase 40,000 shares of our common stock. This option vested with respect to
13,334 shares on April 22, 2021, 13,333 shares on April 22, 2022, and 13,333 shares on January 20, 2023 upon Mr.
Popielec’s termination, pursuant to the terms of his employment agreement dated December 6, 2010 (the “Employment
Agreement”).
(8) On October 20, 2021 our Board of Directors, on recommendation of the Compensation and Management Committee,
granted to Mr. Popielec the option to purchase 40,000 shares of our common stock. This option vested with respect to
13,334 shares on October 20, 2022 and 13,333 shares on January 20, 2023 upon Mr. Popielec’s termination, pursuant
to the Employment Agreement. The remaining 13.333 shares underlying this option will not vest as a result of the
termination.
(9) On October 19, 2022 our Board of Directors, on recommendation of the Compensation and Management Committee,
granted to Mr. Popielec the option to purchase 40,000 shares of our common stock. This option vested with respect to
13,334 shares on January 20, 2023 upon Mr. Popielec’s termination, pursuant to the Employment Agreement. The
remaining 26,666 shares underlying this option will not vest as a result of the termination.
(10) Mr. Popielec’s exercisable stock options outstanding as of his termination shall remain exercisable for one year
following the termination date, or through the original expiration date, if earlier, pursuant to the terms of his
Employment Agreement.
There were no other equity awards outstanding at December 31, 2022 for our executive officers.
Option Exercises
The following table sets forth information concerning the exercise of stock option awards for the year ended December 31,
2022 for our executive officers.
Name
Philip A. Fain
Number of Shares
Acquired on
Exercise (#)
8,500 (1)
Value Realized on
Exercise ($)
46,423 (2)
(1) Represents share of the Company’s common stock acquired on March 2, 2022 upon the exercise of options for
30,000 shares of common stock otherwise expiring on March 3, 2022, net of shares of common stock having a fair
value equal to the aggregate exercise price of the shares of common stock for which the options were exercised
together with the amount of minimum statutory tax withholdings.
(2) Represents the aggregate fair market value of the net shares of the Company’s common stock acquired pursuant
to the Company’s 2014 LTIP.
Employment Arrangements
As of December 31, 2022, we had an Employment Agreement dated December 6, 2010 with Michael D. Popielec (the
“Employment Agreement”), our former President and Chief Executive Officer. Under the terms of the Employment
Agreement, Mr. Popielec was given sixty days advance notice of his involuntary termination by the Company’s Board of
Directors on November 22, 2022, at which time he relinquished his position as President and Chief Executive Officer and
as a member of the Board of Directors, with his employment ending on January 20, 2023.
In connection with the termination of his employment, Mr. Popielec was entitled to receive the following severance benefits
under the terms of the Employment Agreement with the total cost of approximately $779,000 comprising a one-time charge
reflected in the Company’s 2022 fourth quarter results:
13
• Salary, any unpaid bonus from the prior year, and the cash value of any accrued Paid Time Off through January
20, 2023 plus continued salary for a period of twelve months thereafter in accordance with the Company’s regular
payroll schedule;
• A pro-rata amount (calculated on a per-diem basis) of the full year bonus which Mr. Popielec would have earned
for the 2023 calendar year;
• Acceleration of vesting of all outstanding stock options held by Mr. Popielec; however that the acceleration shall
not cover more than eighteen months from January 20, 2023, and all such options shall remain exercisable for one
year from January 20, 2023;
• Continuation of health benefits for Mr. Popielec, his spouse and any dependent children for a period of twelve
months following January 20, 2023.
The foregoing description of the termination benefits provided by Mr. Popielec’s Employment Agreement does not purport
to be complete and is qualified in its entirety by reference to the full text of the Employment Agreement, a copy of which
is filed as Exhibit 10.40 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 15,
2011 and is incorporated herein by reference.
There are no employment agreements in place for Mr. Manna, appointed as President and Chief Executive Officer on
November 22, 2022, and for Mr. Fain. Mr. Manna and Mr. Fain have executed Employee Confidentiality Non-Disclosure,
Non-Compete, Non-Disparagement and Assignment Agreement in our standard form.
Retirement Benefits and Potential Payments upon Termination, Change in Control or Retirement
The only arrangement that we maintain that provides for retirement benefits is our tax-qualified defined contribution 401(k)
plan. The material terms of our tax-qualified defined contribution 401(k) plan are summarized above under the heading
“Retirement Benefits.”
All potential payments and benefits payable by us to those of our executive officers in the event of various circumstances
involving either a termination of employment or change in control are determined pursuant to the employment agreement
with Mr. Popielec or the 2014 LTIP. The employment agreement with Mr. Popielec is summarized above under the heading
“Employment Arrangements”. On June 18, 2018, the Compensation and Management Committee unanimously approved
a resolution for full vesting of all outstanding unvested stock options and other equity awards upon the occurrence of a
“Change in Control” (as defined by the 2014 LTIP). On October 18, 2018, the Compensation and Management Committee
unanimously approved a modification to the retirement policy whereby an executive officer upon retirement and signing
the Company’s non-compete agreement and fully complying with the same will retain any and all unexpired stock options
until the relevant option term has expired.
Stock Ownership Guidelines
To better align the interests of our executive officers and stockholders, the Compensation and Management Committee
implemented stock ownership requirements for our executive officers. The stock ownership requirements for our executive
officers are as follows:
President & CEO
Chief Financial Officer
1.00 times salary
0.50 times salary
For 2022, the Compensation and Management Committee established the presumed share price to be used for purposes of
determining the minimum number of shares to be owned by the executive officers. This presumed price was $9.11 per
share, which was based on the volume weighted average price (“VWAP”), calculated as an amount equal to the sum of the
dollar value of every transaction in our common stock for the two-year period ended December 31, 2022, divided by the
total shares traded for such two-year period. Each year the Compensation and Management Committee will establish a new
price per share to be used to determine the minimum number of shares required to be held which will be based on the
VWAP of our common stock for the preceding two-year period. Executive officers have three years from the date of hire
or appointment as an executive officer to achieve the required holdings, which are based on the price per share as calculated
above. Additionally, our stock ownership policy requires that until the share ownership guidelines are met, executive
officers are prohibited from disposing of more than 50% of vested shares received from restricted share grants (on an after-
tax basis) and 50% of shares received on exercise of stock options. Shares owned by an executive, as well as shares
underlying awards of stock options and restricted stock are treated as owned by the executive for purposes of determining
14
whether required ownership has been achieved. Our executive officers have met their respective stock ownership
requirement.
15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The table below shows certain information regarding the beneficial ownership of shares of our common stock by each
person known by us to beneficially own more than five percent of the outstanding shares of our common stock, with
percentages based on 16,135,358 shares issued and outstanding as of April 24, 2023.
Name and Address of Beneficial Owner
Bradford T. Whitmore (1)
5215 Old Orchard Road, Suite 620
Skokie, IL 60077
Visionary Wealth Advisors (2)
1405 North Green Mount Rd., Suite 500
O’Fallon, IL 62208
Dimensional Fund Advisors LP (3)
Building One
6300 Bee Cave Road
Austin, TX 78746
Number of Shares
Beneficially Owned
Percent of Class
Beneficially Owned
5,985,852
37.1%
1,030,135
1,010,647
6.4%
6.3%
(1) Based on information contained in a Form 4 dated March 13, 2023 as filed by Bradford T. Whitmore with the SEC on
that same date, Mr. Whitmore individually and as sole manager and sole voting member of SUNRAY I, LLC, a
Delaware limited liability company and as General Partner of Grace Brothers LP, a Delaware limited partnership,
beneficially owns 5,985,852 shares of our common stock. Mr. Whitmore has sole voting and dispositive power with
respect to 5,467,236 of such shares, of which 4,452,283 are held in the name in SUNRAY I, LLC, and shared voting
and dispositive power (with Grace Brothers, LP) with respect to 518,616 of such shares.
(2) Based on information contained in a Schedule 13G dated February 14, 2023 as filed by Visionary Wealth Advisors, a
registered investment adviser, with the SEC on that same date to report beneficial ownership of shares of the Company’s
common stock as of December 31, 2022, and, consequently, the beneficial ownership of Visionary Wealth Advisors
may have subsequently changed. The Schedule 13G reported that Visionary Wealth Advisors had sole voting power
as to 8,000 shares of common stock and shared dispositive power as to 1,030,135 shares of common stock.
(3) Based on information contained in a Schedule 13G dated February 10, 2023 as filed by Dimensional Fund Advisors
LP, a registered investment adviser, with the SEC on that same date to report beneficial ownership of shares of the
Company’s common stock as of December 30, 2022, and, consequently, the beneficial ownership of Dimensional Fund
Advisors LP may have subsequently changed. The Schedule 13G reported that Dimensional Fund Advisors LP had sole
voting power as to 983,048 shares of common stock and sole dispositive power as to 1,010,647 shares of common
stock, all of which shares of common stock were held in portfolios of four registered investment companies to which
Dimensional Fund Advisors LP or one of its subsidiaries furnishes investment advice and of certain other commingled
funds, group trusts and separate accounts for which Dimensional Fund Advisors LP or one of its subsidiaries serves as
investment manager or sub-adviser. The shares of common stock reported were owned by the investment companies,
commingled funds, group trusts, and separate accounts and Dimensional Fund Advisors LP disclaimed beneficial
ownership of the reported shares of common stock.
16
Security Ownership of Management
The table below shows certain information regarding the beneficial ownership of shares of our common stock as of April
24, 2023 by (1) each of our directors, (2) each of our executive officers, and (3) all of our directors and executive officers
as a group.
Name of Beneficial Owner (1)
Michael E. Manna
Michael D. Popielec
Janie Goddard
Thomas L. Saeli
Robert W. Shaw II
Ranjit C. Singh
Bradford T. Whitmore
Philip A. Fain
All Directors and Executive
Officers as a group (8 persons)
*Less than 1%
Number of Shares
Beneficially Owned (1)
84,167 (3)
521,510 (5)
-
75,446
60,750
79,801
5,985,852 (7)
241,667 (8)
7,049,193 (10)
Percent of Class
Beneficially Owned (1)(2)
* (4)
3.2% (6)
-
*
*
*
37.1%
1.5% (9)
42.7% (11)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Except as otherwise indicated, the stockholders named in this table have sole voting and investment power with
respect to the shares of our common stock beneficially owned by them. The information provided in this table is
based upon information provided to us by such stockholders. The table reports beneficial ownership for our
directors and executive officers in accordance with Rule 13d-3 under the Exchange Act. This means all our
securities over which directors and executive officers directly or indirectly have or share voting or investment
power are included as beneficially owned. The amounts also include shares that may be acquired by exercise of
stock options within 60 days, which shares are referred to in the footnotes to this table as “shares of common stock
subject to options that may be exercised.”
Except as otherwise indicated, computations are based on 16,135,358 shares outstanding as of April 24, 2023.
The number of shares deemed to be beneficially owned consists of 10,500 shares of common stock held by Mr.
Manna as of April 24, 2023, or less than 1% of common stock outstanding as of that date, and 73,667 shares of
common stock subject to options that may be exercised within 60 days by Mr. Manna.
Computed based on 16,209,025 shares of common stock deemed outstanding, which consists of 16,135,358 shares
of common stock outstanding as of April 24, 2023, and 73,667 shares of common stock subject to options that
may be exercised within 60 days by Mr. Manna.
The number of shares deemed to be beneficially owned consists of 316,509 shares of common stock held by Mr.
Popielec as of April 24, 2023, or 2.0% of common stock outstanding as of that date, and 205,001 shares of common
stock subject to options that may be exercised within 60 days by Mr. Popielec.
Computed based on 16,340,359 shares of common stock deemed outstanding, which consists of 16,135,358 shares
of common stock outstanding as of April 24, 2023, and 205,001 shares of common stock subject to options that
may be exercised within 60 days by Mr. Popielec.
See “Security Ownership of Certain Beneficial Owners” above.
The number of shares deemed to be beneficially owned consists of 130,000 shares of common stock held by Mr.
Fain as of April 24, 2023, or less than 1% of common stock outstanding as of that date, and 111,667 shares of
common stock subject to options that may be exercised within 60 days by Mr. Fain.
Computed based on 16,247,025 shares of common stock deemed outstanding, which consists of 16,135,358 shares
of common stock outstanding as of April 24, 2023, and 111,667 shares of common stock subject to options that
may be exercised within 60 days by Mr. Fain.
17
(10)
(11)
The number of shares deemed to be beneficially owned consists of 6,658,858 shares of common stock held by all
directors and executive officers as a group as of April 24, 2023, or 41.3% of common stock outstanding as of that
date, and 390,335 shares of common stock subject to options that may be exercised within 60 days.
Computed based on 16,525,694 shares of common stock deemed outstanding, which consists of 16,135,358 shares
of common stock outstanding as of April 24, 2023 and 390,335 shares of common stock subject to options that
may be exercised within 60 days.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes compensation plans under which our equity securities are authorized for issuance as of
December 31, 2022.
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)
1,425,693
-
1,425,693
$6.72
-
$6.72
763,617
-
763,617
Plan Category
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved by
security holders
Total
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Related Party Transactions
We have adopted written policies and procedures for the review and approval or ratification of any “related party transaction,”
as defined by Regulation S-K, Item 404. The policy provides that each related party transaction must be reviewed by our Audit
and Finance Committee. The Audit and Finance Committee reviews the relevant facts and circumstances of the transaction,
including if the transaction is on terms comparable to those that could be obtained in arms-length dealings with an unrelated
third party and the extent of the related party’s interest in the transaction, taking into account the conflicts of interest and
corporate opportunity provisions of our Code of Ethics, and either recommends that the Board of Directors approve or
disapprove the related party transaction. We will disclose all related party transactions, as required, in our filings with the SEC.
No reportable transactions occurred during 2022 and 2021, and there are currently no such proposed transactions.
Director Independence
Refer to the Corporate Governance section of Part III, Item 10 of this Amendment No. 1.
18
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The firm of Freed Maxick CPAs P.C. served as our independent registered public accounting firm for the years ended
December 31, 2022 and 2021.
Principal Accountant Fees and Services
Aggregate fees for professional services rendered for us for 2022 and 2021 were:
Audit Fees
Audit - Related Fees
Tax Fees
Total Fees
Audit Fees
2022
$575,057
18,500
5,891
$599,448
2021
$425,341
8,500
19,224
$453,065
Audit fees were for professional services rendered for the audits of our consolidated financial statements and reviews of
our quarterly consolidated financial statements. Audit fees for 2022 include fees attributable to the full year inclusion of
Excell Battery Group in the Company’s financial results. Audit fees for 2021 include fees attributable to business
combination accounting and reporting relating to the Company’s acquisition of the business of Excell Battery Group in
December 2021.
Audit-Related Fees
Audit-related fees were for the annual audits of our 401(k) defined contribution plan.
Tax Fees
Tax fees were attributable to the amalgamation/restructuring of our legal entity structure for Excell Battery Group in 2022
and due diligence performed in connection with the Company’s acquisition of Excell Battery Group in 2021.
Our Audit and Finance Committee has not adopted pre-approval policies and procedures for audit and non-audit services.
Nevertheless, all audit, audit-related and permitted non-audit services for which our independent registered public
accounting firm was engaged were reviewed and approved prior to the commencement of the services by our Audit and
Finance Committee in compliance with applicable SEC requirements.
19
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements:
Previously filed with Form 10-K for the year ended December 31, 2022, as filed on March 31, 2023.
Auditor information:
Freed Maxick CPAs, P.C.
Rochester, New York
PCAOB ID 317
3. Exhibits:
See the Exhibit Index below.
20
EXHIBIT INDEX
Exhibit
Index
2.1
Description of Document
Filed Herewith or Incorporated by
Reference from:
Share Purchase Agreement, dated December
Exhibit 2.1 of the Form 8-K filed on
December 16, 2021
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.
2.2
Share Purchase Agreement, dated December
Exhibit 2.2 of the Form 8-K filed on
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
December 16, 2021
2.3
Stock Purchase Agreement, dated May 1,
Exhibit 10.1 of the Form 8-K filed on
2019, by and among Ultralife Corporation,
Southwest Electronic Energy Corporation,
Southwest Electronic Energy Medical
Research Institute, and Claude Leonard
Benckenstein
2.4
Stock Purchase Agreement Relating to
Accutronics Limited by and between Robert
Andrew Phillips and Others and Ultralife
Corporation
3.1
Restated Certificate of Incorporation
3.2
4.1
Amended and Restated By-laws
Specimen Stock Certificate
4.2
Description of Registrant’s Securities
10.1*
Amendment to the Agreement relating to
rechargeable batteries
10.2†
Employment Agreement between the
Registrant and Michael D. Popielec dated
December 6, 2010
May 2, 2019
Exhibit 2.2 of the Form 10-K for the
year ended December 31, 2015, filed
March 2, 2016
Exhibit 3.1 of the Form 10-K for the
year ended December 31, 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
Exhibit 4.2 of the Form 10-K/A for the
year ended December 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)
Exhibit 10.40 of the Form 10-K for the
year ended December 31, 2010, filed
March 15, 2011
10.3†
Ultralife Corporation Amended 2014 Long-
Appendix B of Form DEF 14A filed on
Term Incentive Plan
June 1, 2021
10.4
Credit and Security Agreement between
Exhibit 10.1 of the Form 8-K filed on
10.5
Ultralife Corporation and 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
June 6, 2017
Exhibit 10.1 of the Form 8-K filed on
May 2, 2019
21
10.6†
Amendment No. 1 to Ultralife Corporation
Amended 2014 Long-Term Incentive Plan
Appendix A of Form DEF 14A filed on
June 1, 2021
10.7
Second Amendment Agreement, dated
Exhibit 10.1 of the Form 8-K filed on
10.8
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
Third Amendment Agreement, dated
November 28, 2022, by and among Ultralife
Corporation, Southwest Electronic Energy
Corporation, CLB, Inc., Ultralife Excell
Holding Corp., Ultralife Canada Holding
Corp., Excell Battery Corporation USA,
Excell Battery Canada ULC and KeyBank
National Association
21
Subsidiaries
December 16, 2021
Exhibit 10.8 of the Form 10-K for the
year ended December 31, 2022, filed
March 31, 2023
Filed with Form 10-K for the year
ended December 31, 2022, filed March
31, 2023
23.1
Consent of Freed Maxick CPAs, P.C.
Filed with Form 10-K for the year
31.1
Rule 13a-14(a) / 15d-14(a) CEO
Certifications
ended December 31, 2022, filed March
31, 2023
Filed herewith
31.2
Rule 13a-14(a) / 15d-14(a) CFO
Filed herewith
Certifications
32
Section 1350 Certifications
101.IN
S
101.SC
H
101.CA
L
101.LA
B
101.PR
E
101.DE
F
104
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
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit
101)
Furnished with Form 10-K for the year
ended December 31, 2022, filed March
31, 2023
Filed with Form 10-K for the year
ended December 31, 2022, filed March
31, 2023
Filed with Form 10-K for the year
ended December 31, 2022, filed March
31, 2023
Filed with Form 10-K for the year
ended December 31, 2022, filed March
31, 2023
Filed with Form 10-K for the year
ended December 31, 2022, filed March
31, 2023
Filed with Form 10-K for the year
ended December 31, 2022, filed March
31, 2023
Filed with Form 10-K for the year
ended December 31, 2022, filed March
31, 2023
Filed herewith
* Confidential treatment has been granted as to certain portions of this exhibit.
† Management contract or compensatory plan or arrangement.
22
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 tfhe undersigned, thereunto duly authorized.
SIGNATURES
Date: April 28, 2023
ULTRALIFE CORPORATION
/s/ Michael E. Manna
Michael E. Manna
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: April 28, 2023
Date: April 28, 2023
Date: April 28, 2023
Date: April 28, 2023
Date: April 28, 2023
Date: April 28, 2023
Date: April 28, 2023
/s/ Michael E. Manna
Michael E. Manna
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/ Janie Goddard
Janie Goddard (Director)
/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)
23
Exhibit 31.1
I, Michael E. Manna, certify that:
1.
2.
I have reviewed this Amendment No. 1 to annual report on Form 10-K of Ultralife Corporation; and
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.
Date: April 28, 2023
/s/ Michael E. Manna
Michael E. Manna
President and Chief Executive Officer
I, Philip A. Fain, certify that:
1.
2.
I have reviewed this Amendment No. 1 to annual report on Form 10-K of Ultralife Corporation; and
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.
Exhibit 31.2
Date: April 28, 2023
/s/ Philip A. Fain
Philip A. Fain
Chief Financial Officer and Treasurer
CORPORATE & SHAREHOLDER INFORMATION
Board of Directors
Bradford T. Whitmore
Board Chair; Managing Partner, Grace Brothers LP
Michael E. Manna
President and Chief Executive Officer, Ultralife Corporation
Janie Goddard
Managing Partner, ZPB Strategic Partners, LLC
Thomas L. Saeli
Chief Executive Officer, Duro-Last
Robert W. Shaw II
Consultant for Domestic Maritime and Defense Vehicle Companies
Corporate Officers
Michael E. Manna
President and Chief Executive Officer
Philip A. Fain
Chief Financial Officer, Treasurer and Secretary
Stock Exchange Listing
NASDAQ
Stock Symbol
ULBI
Stock Transfer Agent
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Annual Meeting
July 19, 2023
9:00 AM Eastern Time
Ultralife Corporate Headquarters
2000 Technology Parkway
Newark, NY 14513
Form 10-K
Shareholders may obtain a copy of our Annual
Report on Form 10-K for the fiscal year ended
December 31, 2022 by going to the Investor
Info page at www.ultralifecorporation.com or
by calling us at 1-315-210-6110. This
information is also available at no charge by
sending a request to Shareholder Services at
the following address:
Ultralife Corporation
Attn: Philip A. Fain
2000 Technology Parkway
Newark, NY 14513
Ultralife Corporation• 2000 Technology Parkway• Newark, NY 14513 • 315-332-7100
www.ultralifecorp.com
©2023 Ultralife Corporation. All rights reserved.