Business Context and Reporting Period
Company: Ultralife Batteries, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 1997 (Third Quarter of Fiscal Year 1997)
Business Overview: The company manufactures and sells batteries, including lithium and rechargeable lithium-ion solid-polymer batteries. Operations are impacted by a fire at its UK subsidiary in December 1996 and ongoing development of new rechargeable technology.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 1997 | Nine Months Ended Mar 31, 1997 |
|---|---|---|
| Total Revenue | $4,381,185 | $12,418,951 |
| Gross Profit | $553,779 | $945,977 |
| Gross Margin | 3% | 4% |
| Operating Loss | $(2,241,779) | $(6,398,311) |
| Net Loss | $(2,700,441) | $(6,056,095) |
| EPS (Loss) | $(0.34) | $(0.76) |
| Cash and Equivalents | $1,872,992 | $1,872,992 (Balance Sheet) |
| Total Investments | $21,385,474 | $21,385,474 (Balance Sheet) |
| Long-Term Debt | $0 | $0 |
Material Changes vs. Prior Period
- Revenue: Total revenue increased 5% ($204,000) for the quarter and 1.5% ($186,000) year-to-date compared to the prior year. Battery sales grew 19% (quarter) and 15% (YTD), while technology contract revenue dropped 66% (quarter) and 62% (YTD) due to contract completions and delays in new programs.
- Profitability: Gross margin collapsed from 29% to 3% (quarter) and 26% to 4% (YTD). This erosion is attributed to the decline in high-margin technology contracts and increased unabsorbed factory overhead from reduced 9-volt battery production.
- Expenses: Operating expenses rose 11% (quarter) and 20% (YTD), driven primarily by a 33% increase in Research & Development (R&D) spending to commercialize rechargeable lithium-ion batteries.
- Net Income: The company reported a net loss of $2.7 million for the quarter and $6.1 million YTD, compared to a net loss of $121,000 and net income of $789,000 in the prior year periods. The prior year included a $1.93 million gain on the sale of securities.
Outlook, Risks, and Unusual Items
- UK Subsidiary Fire: A fire in December 1996 damaged production capacity. The company is fully insured for asset replacement and business interruption but expects short-term adverse impacts on revenue. A provision of $137,700 was recorded for unreimbursable costs.
- China Development Program: A provision of $605,296 was recorded for potential non-payment of the final holdback amount and impairment of the investment, as negotiations for the final payment have stalled.
- Rechargeable Battery Development: Management anticipates continued substantial R&D expenditures. A new contract with a leading electronics manufacturer for solid-state rechargeable batteries includes an initial $800,000 payment, with potential future revenues exceeding $10 million if the product succeeds.
- Liquidity: The company holds over $23.25 million in cash and available-for-sale securities. It has no long-term debt but is negotiating a $1 million low-cost loan and $250,000 grant from the Empire State Development Corporation.
Investor Verification Checklist
- Verify the timeline for the installation and qualification of the new rechargeable battery manufacturing machinery (expected Q2 1997).
- Confirm the status of insurance claim settlements regarding the UK fire, specifically the calculation of business interruption losses.
- Monitor the resolution of the China Development Program holdback payment and the likelihood of recovering the remaining $400,000.
- Assess the progress of the new $800,000 contract with the electronics manufacturer and the potential for the projected $10 million in future revenues.
- Review the final terms of the proposed financing agreement with the Empire State Development Corporation.