UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2021~~March 31, 2022

☐ 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)

2000 Technology Parkway Newark, New York 14513

(Address of principal executive offices) (Zip Code)

16-1387013

(I.R.S. Employer Identification No.)

(315) 332-7100

(~~Registrant's~~Registrant’s telephone number, including area code:)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.10 par value per share	ULBI	NASDAQ
(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)

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 ☐	Accelerated filer ☒
Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No☒

As of ~~July 26, 2021,~~April 25, 2022, the registrant had ~~16,053,207~~16,127,082 shares of common stock outstanding.

ULTRALIFE CORPORATION AND SUBSIDIARIES

INDEX

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):

	Consolidated Balance Sheets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	1

	Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the ~~Three and Six-Month~~Three-Month Periods Ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020~~	2

	Consolidated Statements of Cash Flows for the ~~Six-Month~~Three-Month Periods Ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020~~	3

	Consolidated Statements of Changes in ~~Stockholders’~~Shareholders’ Equity for the ~~Three and Six-Month~~Three-Month Periods Ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020~~	4

	Notes to Consolidated Financial Statements	5

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	1617

Item 4.	Controls and Procedures	2524

PART II.	OTHER INFORMATION

Item 6.	Exhibits	2625

	Signatures	2726

	June 30,			December 31,
	2021			2020				March 31, 2022			December 31, 2021
ASSETS							*ASSETS*
Current assets:
Cash	$	15,828		$	10,653			$	6,050		$	8,413
Trade accounts receivable, net of allowance for doubtful accounts of $332 and $317, respectively		18,712			21,054
Trade accounts receivable, net of allowance for doubtful accounts of $325 and $346, respectively									22,909			20,232
Inventories, net		27,414			28,193				36,380			33,189
Prepaid expenses and other current assets		2,351			4,596				3,803			4,690
Total current assets		64,305			64,496				69,142			66,524
Property, plant and equipment, net		22,720			22,850				22,773			23,205
Goodwill		27,115			27,018				37,926			38,068
Other intangible assets, net		8,936			9,209				17,043			17,390
Deferred income taxes, net		11,459			11,836				11,804			11,472
Other noncurrent assets		1,985			2,292				2,701			2,879
Total Assets	$	136,520		$	137,701
Total assets								$	161,389		$	159,538

*LIABILITIES AND STOCKHOLDERS’ EQUITY*
Current Liabilities:
LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,545		$	10,839			$	11,235		$	9,823
Current portion of long-term debt		624			1,361				2,000			2,000
Accrued compensation and related benefits		1,396			1,748				1,615			1,842
Accrued expenses and other current liabilities		3,966			4,758				5,165			5,259
Total current liabilities		15,531			18,706				20,015			18,924
Long-term debt									19,981			18,857
Deferred income taxes		492			515				2,178			2,254
Other noncurrent liabilities		1,260			1,557				1,574			1,760
Total liabilities		17,283			20,778				43,748			41,795

Commitments and contingencies (Note 8)
Commitments and contingencies (Note 9)

Stockholders’ equity:
Shareholders’ equity:
Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued		0			0				0			0
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,474,676 shares at June 30, 2021 and 20,373,519 shares at December 31, 2020; outstanding – 16,051,707 shares at June 30, 2021 and 15,959,984 shares at December 31, 2020		2,047			2,037
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,560,796 shares at March 31, 2022 and 20,522,427 shares at December 31, 2021; outstanding – 16,127,082 shares at March 31, 2022 and 16,089,832 shares at December 31, 2021									2,056			2,052
Capital in excess of par value		186,138			185,464				186,816			186,518
Accumulated deficit		(46,116	)		(47,598	)			(48,000	)		(47,832	)
Accumulated other comprehensive loss		(1,586	)		(1,782	)			(1,889	)		(1,653	)
Treasury stock - at cost; 4,422,969 shares at June 30, 2021 and 4,413,535 shares at December 31, 2020		(21,388	)		(21,321	)
Treasury stock - at cost; 4,433,714 shares at March 31, 2022 and 4,432,595 shares at December 31, 2021									(21,476	)		(21,469	)
Total Ultralife Corporation equity		119,095			116,800				117,507			117,616
Non-controlling interest		142			123				134			127
Total stockholders’ equity		119,237			116,923
Total shareholders’ equity									117,641			117,743

Total liabilities and stockholders’ equity	$	136,520		$	137,701
Total liabilities and shareholders’ equity								$	161,389		$	159,538

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

	Three-month period ended					Six-month period ended						Three-month period ended
	June 30, 2021			June 30, 2020		June 30, 2021			June 30, 2020			March 31, 2022			March 31, 2021

Revenues	$	26,770		$	28,560	$	52,743		$	54,374		$	30,373		$	25,973
Cost of products sold		19,503			20,597		38,498			39,077			23,415			18,995
Gross profit		7,267			7,963		14,245			15,297			6,958			6,978

Operating expenses:
Research and development		1,853			1,275		3,500			2,823			1,857			1,647
Selling, general and administrative		4,323			4,394		8,702			8,695			5,396			4,379
Total operating expenses		6,176			5,669		12,202			11,518			7,253			6,026

Operating income		1,091			2,294		2,043			3,779
Operating (loss) income													(295	)		952

Other expense (income):
Other (expense) income:
Interest and financing expense		55			106		111			280			(134	)		(56	)
Miscellaneous		(34	)		11		(34	)		(71	)
Miscellaneous income													17			0
Total other expense		21			117		77			209			(117	)		(56	)

Income before income tax provision		1,070			2,177		1,966			3,570
Income tax provision		248			499		465			818
(Loss) income before income taxes													(412	)		896
Income tax (benefit) provision													(251	)		217

Net income		822			1,678		1,501			2,752
Net (loss) income													(161	)		679

Net income attributable to non-controlling interest		11			20		19			35			(7	)		(8	)

Net income attributable to Ultralife Corporation		811			1,658		1,482			2,717
Net (loss) income attributable to Ultralife Corporation													(168	)		671

Other comprehensive income (loss):
Other comprehensive (loss) gain:
Foreign currency translation adjustments		93			42		196			(765	)		(236	)		103

Comprehensive income attributable to Ultralife Corporation	$	904		$	1,700	$	1,678		$	1,952
Comprehensive (loss) income attributable to Ultralife Corporation												$	(404	)	$	774

Net income per share attributable to Ultralife common stockholders – basic	$	.05		$	.10	$	.09		$	.17
Net (loss) income per share attributable to Ultralife common shareholders – basic												$	(.01	)	$	.04

Net income per share attributable to Ultralife common stockholders – diluted	$	.05		$	.10	$	.09		$	.17
Net (loss) income per share attributable to Ultralife common shareholders – diluted												$	(.01	)	$	.04

Weighted average shares outstanding – basic		16,019			15,882		15,997			15,880			16,104			15,973
Potential common shares		241			251		197			234			0			179
Weighted average shares outstanding - diluted		16,260			16,133		16,194			16,114			16,104			16,152

					Capital			Accumulated																		Capital			Accumulated
	Common Stock				in Excess			Other									Non-					Common Stock				in Excess			Other									Non-
	*Number of*				*of Par*			*Comprehensive*			*Accumulated*			*Treasury*			*Controlling*					*Number of*				*of Par*			*Comprehensive*			*Accumulated*			*Treasury*			*Controlling*
	*Shares*		*Amount*		*Value*			*Income (Loss)*			*Deficit*			*Stock*			*Interest*		*Total*			*Shares*		*Amount*		*Value*			*Income (Loss)*			*Deficit*			*Stock*			*Interest*		*Total*

Balance – December 31, 2019		20,268,050	$	2,026	$	184,292		$	(2,531	)	$	(52,830	)	$	(21,231	)	$	24	$	109,750
Net income												2,717						35		2,752
Stock option exercises		16,631		2		74														76
Stock-based compensation – stock options						470														470
Stock-based compensation -restricted stock						64														64
Vesting of restricted stock		12,501		2											(15	)				(13	)
Foreign currency translation adjustments									(765	)										(765	)
Balance – June 30, 2020		20,297,182	$	2,030	$	184,900		$	(3,296	)	$	(50,113	)	$	(21,246	)	$	59	$	112,334

Balance – December 31, 2020		20,373,519	$	2,037	$	185,464		$	(1,782	)	$	(47,598	)	$	(21,321	)	$	123	$	116,923			20,373,519	$	2,037	$	185,464		$	(1,782	)	$	(47,598	)	$	(21,321	)	$	123	$	116,923
Net income												1,482						19		1,501													671						8		679
Stock option exercises		88,656		9		305									(52	)				262			37,159		4		27									(52	)				(21	)
Stock-based compensation – stock options						337														337							163														163
Stock-based compensation -restricted stock						33														33
Stock-based compensation – restricted stock																											21														21
Vesting of restricted stock		12,501		1		(1	)								(15	)				(15	)		5,833		1		(1	)								(7	)				(7	)
Foreign currency translation adjustments									196											196
Balance – June 30, 2021		20,474,676	$	2,047	$	186,138		$	(1,586	)	$	(46,116	)	$	(21,388	)	$	142	$	119,237
Foreign currency translation adjustments adjustments																														103											103
Balance – March 31, 2021																							20,416,511	$	2,042	$	185,674		$	(1,679	)	$	(46,927	)	$	(21,380	)	$	131	$	117,861

Balance – March 31, 2020		20,281,516	$	2,028	$	184,550		$	(3,338	)	$	(51,771	)	$	(21,239	)	$	39	$	110,269
Net income												1,658						20		1,678

Balance – December 31, 2021																							20,522,427	$	2,052	$	186,518		$	(1,653	)	$	(47,832	)	$	(21,469	)	$	127	$	117,743
Net (loss) income																																	(168	)					7		(161	)
Stock option exercises		8,998		1		46														47			38,369		4		109									(7	)				106
Stock-based compensation – stock options						278														278							181														181
Stock-based compensation -restricted stock						26														26
Vesting of restricted stock		6,668		1											(7	)				(6	)
Foreign currency translation adjustments									42											42
Balance – June 30, 2020		20,297,182	$	2,030	$	184,900		$	(3,296	)	$	(50,113	)	$	(21,246	)	$	59	$	112,334

Balance – March 31, 2021		20,416,511	$	2,042	$	185,674		$	(1,679	)	$	(46,927	)	$	(21,380	)	$	131	$	117,861
Net income												811						11		822
Stock option exercises		51,497		5		278														283
Stock-based compensation – stock options						174														174
Stock-based compensation -restricted stock						12														12
Vesting of restricted stock		6,668													(8	)				(8	)
Foreign currency translation adjustments									93											93
Balance – June 30, 2021		20,474,676	$	2,047	$	186,138		$	(1,586	)	$	(46,116	)	$	(21,388	)	$	142	$	119,237
Stock-based compensation – restricted stock																											8														8
Foreign currency translation adjustments adjustments																														(236	)										(236	)
Balance – March 31, 2022																							20,560,796	$	2,056	$	186,816		$	(1,889	)	$	(48,000	)	$	(21,476	)	$	134	$	117,641

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

The accompanying unaudited Consolidated Financial Statements of Ultralife Corporation and its subsidiaries (the “Company”, or “Ultralife”~~, “we” or “our”~~) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and ~~footnotes~~notes for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the Consolidated Financial Statements have been included. Results for interim periods should not be considered indicative of results to be expected for ~~any subsequent interim period or the~~a full year. Reference should be made to the Consolidated Financial Statements and related notes thereto contained in our Form 10-K for the year ended December 31, ~~2020.~~2021.

The December 31, ~~2020~~2021 consolidated balance sheet information referenced herein was derived from audited ~~Consolidated Financial Statements~~financial statements but does not include all disclosures required by GAAP.

Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.

~~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 June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments”, which requires entities to measure all expected credit losses for financial assets held at the reporting ~~date~~data 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.~~consolidated financial statements.

On December 13, 2021, the Company acquired all the outstanding shares of Excell for an aggregate net purchase price of $23,519 in cash.

On December 13, 2021, 1336889 B.C. Unlimited Liability Company, a British Columbia unlimited liability 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 is being held in escrow for indemnification purposes for a period of twelve 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. The purchase price allocation is subject to change should additional information existing as of the acquisition date about the fair value of the assets acquired and liabilities assumed becomes known. The final purchase price allocation may reflect material changes in the valuation of assets acquired and liabilities assumed, including but not limited to intangible assets, fixed assets, deferred taxes, and residual goodwill.

The purchase price allocation was adjusted during the three-month period ended March 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 March 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.

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 three months ended March 31, 2022, Excell contributed revenue of $6,436 and net income of $394, inclusive of amortization expense of $182 on acquired identifiable intangible assets and a $55 increase in cost of products sold attributable to the fair market value step-up of acquired inventory sold during the period.

On ~~May 1, 2019,~~December 13, 2021, Ultralife, Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), ~~and~~ CLB, INC., a Texas corporation and wholly owned subsidiary of SWE (“CLB”), UEHC, UCHC and Excell USA, as borrowers, entered into the ~~First~~Second Amendment Agreement ~~(the “First 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 ~~31, 2017~~1, 2019 (the “Credit Agreement”, and together with the ~~First~~Second Amendment Agreement, the “Amended Credit Agreement”).

The Amended Credit Agreement, among other things, provides for a ~~five~~5-year, ~~$8,000~~$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 ~~“Credit~~“Amended Credit Facilities”) through May ~~31, 2022.~~30, 2025. Up to six months prior to May ~~31, 2022,~~30, 2025, the Revolving Credit Facility may be increased to $50,000 with the Bank’s concurrence.

AsUpon closing of the Excell Acquisition on ~~June 30,~~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 March 31, 2022, the Company had ~~$685~~$9,667 outstanding principal on the Term Loan Facility, ~~all~~$2,000 of which is included in current portion of long-term debt on the ~~Consolidated Balance Sheet,~~consolidated balance sheet, and no ~~amounts~~$12,430 outstanding on the Revolving Credit Facility. As of ~~June 30, 2021,~~March 31, 2022, total unamortized debt issuance costs of ~~$61~~$116, including placement, renewal and legal fees associated with the Amended Credit Agreement, ~~including placement, renewal and legal fees,~~ are classified as a reduction of ~~the current portion of~~ long-term debt on the ~~Consolidated Balance Sheet.~~balance sheet. Debt issuance costs are amortized to interest expense over the ~~remaining~~ 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 ~~sixty~~ (60) equal consecutive monthly payments ~~which commenced~~commencing on ~~May 31, 2019,~~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 ~~April 30, 2024.~~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 ~~31, 2022.~~30, 2025. The Company may voluntarily prepay principal amounts outstanding at any time subject to certain restrictions. ~~The Company made voluntary prepayments of $4,200 during the year ended~~ ~~December 31, 2020.~~ No ~~other voluntary prepayments have been made as of~~ ~~June 30, 2021.~~

In addition to the customary affirmative and negative covenants, the Company must maintain a consolidated ~~fixed charge coverage ratio equal to or greater than 1.15 to~~ ~~1.0,~~ ~~and a consolidated~~ senior leverage ratio, ~~equal to or less than 2.5 to~~ ~~1.0,~~ ~~each~~ as defined in the Amended Credit ~~Agreement. The Company was in full compliance with its covenants under~~Agreement, of equal to or less than 3.5 to 1.0 for the ~~Amended Credit Agreement as of~~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, ~~2021.~~2023 and thereafter.

Borrowings under the Amended Credit Facilities are secured by substantially all the assets of the ~~Company. Availability under the Revolving Credit Facility is subject to certain borrowing base limits based on receivables~~Company and ~~inventories.~~its subsidiaries.

Interest will accrue on outstanding indebtedness under the Amended Credit Facilities at the Base Rate or the Overnight LIBOR Rate, as selected by the Company, plus the applicable margin. The Base Rate is the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 50 basis points, and (c) the Overnight LIBOR Rate plus ~~100~~one hundred basis points. The applicable margin ranges from zero (0) to negative 50 basis points for the Base Rate and from 185 to 215 basis points for the Overnight LIBOR Rate and are determined based on the Company’s senior leverage ratio. The Second Amendment Agreement includes standard market provisions permitting the Bank to transition from LIBOR to a SOFR based rate, in its discretion

The Company must pay a ~~quarterly~~ fee of ~~0.1%~~0.15% to ~~0.2%~~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.

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) attributable to Ultralife by the ~~weighted-average~~weighted average shares outstanding during the period. Diluted EPS includes the dilutive effect of securities, if any, and is calculated using the treasury stock method. For the three-month period ended ~~June 30, 2021,~~March 31, 2022, ~~906,404~~there were no outstanding awards included in the calculation of diluted weighted average shares outstanding and 0 potential common shares included in the calculation of diluted EPS, as no securities were dilutive. There were 1,204,490 outstanding stock options and ~~14,164~~11,664 unvested restricted stock awards not included in the calculation of diluted EPS for the three-month period ended March 31, 2022, as the effect would be antidilutive. For the comparable three-month period ended March 31, 2021, 459,650 stock options and 20,832 restricted stock awards were included in the calculation of diluted ~~EPS as such securities are dilutive. Inclusion of these securities resulted~~weighted average shares outstanding resulting in ~~240,259~~178,781 additional shares in the calculation of ~~fully~~ diluted ~~earnings per share. For~~EPS. There were 668,917 outstanding stock options for the ~~comparable~~ three-month period ended ~~June 30, 2020,~~ 866,910 stock options and 19,165 restricted stock awards were included in the calculation of diluted EPS resulting in 250,561 additional shares in the calculation of fully diluted earnings per share. For the ~~six~~~~-month periods ended~~ ~~June 30,~~March 31, 2021 ~~and~~that were ~~June 30, 2020,~~ not~~659,488 and 866,910 stock options and 14,164 and 19,165 restricted stock awards, respectively, were~~ included in the calculation of diluted EPS, as ~~such securities are dilutive. Inclusion of these securities resulted in 197,848 and 234,532 additional shares, respectively, in the calculation of fully diluted EPS.~~

~~There were 414,916 and 896,167 outstanding stock options for the~~ ~~three~~~~-month periods ended~~ ~~June 30, 2021~~ ~~and~~ ~~June 30, 2020,~~ ~~respectively, which were~~ ~~not~~ ~~included in EPS as~~ the effect would be ~~anti-dilutive. There were 414,916 and 896,167 outstanding stock options for the~~ ~~six~~~~-month periods ended~~ ~~June 30, 2021~~ ~~and~~ ~~June 30, 2020,~~ ~~respectively, which were~~ ~~not~~ ~~included in EPS as the effect would be anti-dilutive.~~antidilutive.

The fair value of financial instruments approximated their carrying values at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~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.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, restricted cash included ~~$88~~$82 and ~~$91,~~$84, respectively, of euro-denominated deposits withheld by the Dutch tax authorities and third-party ~~value-added tax (VAT)~~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~~consolidated statements of ~~Cash Flows.~~cash flows.

Inventories are stated at the lower of cost or net realizable value, net of obsolescence reserves, with cost determined under the first-in, first-out (FIFO) method. The composition of inventories, net was:

Depreciation expense for property, plant and equipment was ~~as follows:~~$816 and $730 for the three-month periods ended March 31, 2022 and March 31, 2021, respectively.

The following table summarizes the goodwill activity by segment for the ~~six~~three-month period ended ~~June 30, 2021.~~March 31, 2022.

The change in the cost of total intangible assets from December 31, ~~2020~~2021 to ~~June 30, 2021~~March 31, 2022 is a result of measurement period adjustment for the Excell Acquisition (Note 2) and the effect of foreign currency translations.

Amortization expense for ~~other~~ intangible assets was ~~as follows:~~$328 and $154 for the three-month periods ended March 31, 2022 and March 31, 2021, respectively. Amortization included in selling, general and administrative expenses was $302 and $121 for the three-month periods ended March 31, 2022 and March 31, 2021, respectively. Amortization included in research and development expenses was $26 and $33 for the three-month periods ended March 31, 2022 and March 31, 2021, respectively.

We have stock options outstanding from various stock-based employee compensation plans for which we record compensation cost relating to share-based payment transactions in our financial statements. As of ~~June 30, 2021,~~March 31, 2022, there was ~~$296~~$670 of total unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted average period of ~~0.9~~1.1 years.

The following table summarizes stock option activity for the ~~six~~three-month period ended ~~June 30, 2021:~~March 31, 2022:

Cash received from stock option exercises under our stock-based compensation plans for the three-month periods ended ~~June 30,~~March 31, 2022 and March 31, 2021 was $113 and ~~June 30, 2020~~ ~~was $283 and $47, respectively. Cash received from stock option exercises under our stock-based compensation plans for the~~ ~~six~~~~-month periods ended~~ ~~June 30, 2021~~ ~~and~~ ~~June 30, 2020~~ ~~was $314 and $76,~~$31, respectively.

In October 2020, 5,000 shares of restricted stock were awarded to an employee at a weighted-average grant date fair value of $6.08 per share. In April 2019, 20,000 shares of restricted stock were awarded to certain of our employees at a weighted-average grant date fair value of $11.12 per share. In ~~January 2018,~~ ~~17,500 shares of restricted stock were awarded to certain of our employees at a weighted-average grant date fair value of $7.16 per share.~~ All outstanding restricted shares vest in equal annual installments over three (3) years. Unrecognized compensation cost related to these restricted shares was ~~$37~~$9 at ~~June 30, 2021,~~March 31, 2022, which is expected to be recognized over a weighted average period of ~~1.5~~1.4 years.

Our effective ~~income~~ tax rate for the ~~six~~three-month periods ended ~~June 30,~~March 31, 2022 and March 31, 2021 was (60.9%) and ~~June 30, 2020~~ ~~was 23.7% and 22.9%~~24.2%, respectively. The period-over-period change was primarily attributable to the geographic mix of ~~earnings.~~our operating results and the larger impact of permanent and discrete adjustments on a smaller amount of pretax loss.

As of December 31, ~~2020,~~2021, we have domestic net operating loss (“NOL”) carryforwards of ~~$47,755,~~$44,716, which expire ~~2021~~2022 ~~through~~thru ~~2035,~~2037, and domestic tax credits of ~~$2,070,~~$2,239, which expire 2028 ~~through~~thru 2039, available to reduce future taxable income. As of ~~June 30, 2021,~~March 31, 2022, management has concluded it is more likely than not that these domestic NOL and credit carryforwards will be fully utilized.

As of ~~June 30, 2021,~~March 31, 2022, for certain past operations in the U.K., we continue to report a valuation allowance for NOL carryforwards of approximately $11,000, nearly all of which can be carried forward indefinitely. Utilization of the ~~NOLs~~net operating losses may be limited due to the change in the past U.K. operation and cannot currently be used to reduce taxable income at our other U.K. subsidiary, Accutronics Ltd. There are no other deferred tax assets related to the past U.K. operations.

As of ~~June 30, 2021,~~March 31, 2022, we have not recognized a valuation allowance against our other foreign deferred tax assets, as realization is considered to be more likely than not.

As of ~~June 30, 2021,~~March 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.

There were 0 unrecognized tax benefits related to uncertain tax positions at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

As a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions. We are routinely subject to examination by taxing authorities in these various jurisdictions. In August 2020, the Internal Revenue Service (“IRS”) completed its examination of the Company’s federal tax returns for 2016-2018 with no material adjustments identified. Our U.S. tax matters for 2019 ~~and~~ -~~2020~~2021 remain subject to IRS examination. Our U.S. tax matters for ~~2001,~~2002,~~2002,~~ 2005-2007 and 2011-2015 also remain subject to IRS examination due to the remaining availability of NOL carryforwards generated in those years. Our U.S. tax matters for ~~2001,~~2002,~~2002,~~ 2005-2007 and 2011-~~2020~~2021 remain subject to examination by various state and local tax jurisdictions. Our tax matters for the years ~~2010~~2011 through ~~2020~~2021 remain subject to examination by the respective foreign tax jurisdiction authorities.

The Company has operating leases predominantly for operating facilities. As of ~~June 30, 2021,~~March 31, 2022, the remaining lease terms on our operating leases range from ~~less than~~approximately one (1) year to ~~three~~ten ~~(3)~~(10) years. ~~Renewal~~Lease terms include renewal options~~not~~ ~~yet exercised and termination options are~~ ~~not~~ reasonably certain of ~~exercise by the Company.~~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:

Supplemental consolidated balance sheet information related to leases was as follows:

Future minimum lease payments as of ~~June 30, 2021~~March 31, 2022 are as follows:

As of ~~June 30, 2021,~~March 31, 2022, we have made commitments to purchase approximately ~~$1,001~~$953 of production machinery and equipment.

We estimate future warranty costs to be incurred for product failure rates, material usage and service costs in the development of our warranty obligations. Estimated future ~~warranty~~ costs are based on actual past experience and are generally estimated as a percentage of sales over the warranty period. Changes in our product warranty liability during the first ~~six~~three months of ~~2021~~2022 and ~~2020~~2021 were as follows:

We are subject to legal proceedings and claims that arise from time to time in the ~~ordinary~~normal 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~~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.

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~~vendor managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has transferred and there are no further obligations by the Company. Revenue is measured as the amount of consideration we expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return.

Revenues recognized from prior period performance obligations for the ~~six~~three-month periods ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021 were not material.

Deferred revenue, unbilled revenue and deferred contract costs recorded on our ~~Consolidated Balance Sheets~~consolidated balance sheets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were not material. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, we have applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations.

We report our results in 2 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.

~~The components of segment performance were as follows:~~Three-month period ended March 31, 2022:

The following tables disaggregate our business segment revenues by major source and geography.

¹Sales classified to U.S. include shipments to U.S.-based prime contractors which in some cases may serve non-U.S. projects.

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

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This report contains certain forward-looking statements and information that are based on the beliefs of management as well as assumptions made by and information currently available to management. The statements contained in this report relating to matters that are not historical facts are forward-looking statements that involve risks and uncertainties, including, but not limited to, the ~~effects~~continued impact of COVID-19 and the ~~novel coronavirus disease of 2019 (“COVID-19”);~~related supply chain disruptions on our business, operating results and financial condition; our reliance on certain key customers; reduced U.S. and foreign military spending including the uncertainty associated with government budget approvals; our efforts to develop new commercial applications for our products; fluctuations in the price of oil and the resulting impact on the demand for downhole drilling; the unique risks associated with our China operations; potential disruptions in our supply of raw materials and components; our ability to retain top management and key personnel; possible breaches in information systems security and other disruptions in our information technology systems; our resources being overwhelmed by our growth; possible future declines in demand for the products that use our batteries or communications systems; ~~the unique risks associated with our China operations;~~ potential costs ~~because of~~attributable to the warranties we supply with our products and services; ~~potential disruptions in our supply of raw materials and components; our efforts to develop new commercial applications for our products; reduced U.S. and foreign military spending~~safety risks, including the ~~uncertainty associated with government budget approvals; possible breaches in security and other disruptions;~~risk of fire; variability in our quarterly and annual results and the price of our common stock; ~~safety risks, including the risk of fire;~~ our entrance into new end-markets which could lead to additional financial exposure; fluctuations in the price of oil and the resulting impact on the level of downhole drilling; our ability to retain top management and key personnel; our resources being overwhelmed by our growth prospects; our inability to comply with changes to the regulations for the shipment of our products; our customers’ demand falling short of volume expectations in our supply agreements; our exposure to foreign currency fluctuations; negative publicity concerning Lithium-ion batteries; possible impairments of our goodwill and other intangible assets; ~~negative publicity concerning Lithium-ion batteries;~~ our ~~exposure~~ability to ~~foreign currency fluctuations;~~utilize our net operating loss carryforwards; the risk that we are unable to protect our proprietary and intellectual property; rules and procedures regarding contracting with the U.S. and foreign governments; ~~our ability to utilize our net operating loss carryforwards;~~ exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; ~~our ability to comply with government regulations regarding the use of “conflict minerals”;~~known and unknown environmental matters; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; ~~known and unknown environmental matters;~~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. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those forward-looking statements described herein. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “seek,” “project,” “intend,” “plan,” “may,” “will,” “should,” or words of similar import ~~and in each case, their negatives,~~ are intended to identify forward-looking statements. For further discussion of certain of the matters described above and other risks and uncertainties, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this quarterly report, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update any risk factors or to publicly announce the results of any revisions to any of the forward-looking statements contained in this Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 to reflect new information or risks, future events or other developments.

The following ~~discussion~~Management’s Discussion and ~~analysis~~Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the ~~Consolidated Financial Statements~~consolidated financial statements and ~~Notes~~notes thereto in Part I, Item 1 of this Form 10-Q, and the ~~Consolidated Financial Statements~~consolidated financial statements and ~~Notes~~notes thereto and ~~Risk Factors~~risk factors in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

The financial information in this ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~MD&A is presented in thousands of dollars, except for share and per share amounts, unless otherwise specified.

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.~~systems related to those product lines. We continually evaluate ~~and implement growth opportunities,~~ways to grow, including the design, development and sale of new products, expansion of our sales force to penetrate new markets and ~~geographies,~~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 ~~international~~foreign defense departments. We enjoy strong name recognition in our markets under our Ultralife® Batteries, Lithium Power®, McDowell Research®, AMTI™, ABLE™, ACCUTRONICS™, ACCUPRO™, ENTELLION™, SWE Southwest Electronic Energy Group™, SWE DRILL-DATA™, ~~and~~ 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~~11 to the ~~Notes to Consolidated Financial Statements~~consolidated financial statements of this Form 10-Q.

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

The COVID-19 pandemic has created significant economic disruption and uncertainty around the world. The Company continues to closely monitor the developments surrounding COVID-19 and take actions to mitigate the business risks involved. During this challenging time, we remain focused on ensuring the health and safety of our employees by implementing the protocols established by public health officials and meeting the demand of our customers. ~~As an essential supplier currently exempt from government-mandated shutdown directives,~~While we ~~are striving to ensure an uninterrupted flow of our mission critical products serving medical device, first responder, public safety, energy, and national security customers. We~~ have maintained normal business operations at all our facilities with the exception of ~~an approximately one-month closure~~the well-publicized shutdowns in China which impacted our Shenzhen facility in the first quarter of ~~our China facility as was mandated by~~2022, the ~~Chinese government through early March 2020.~~

~~For the quarter ended June 30, 2021,~~supply chain disruptions including increased lead times on key components ~~from suppliers~~experienced within our business and by our customers, impacted our work schedules and timing of shipments. The continuing impact of these conditions on our business is uncertain and will depend on many evolving factors which we continue to monitor but cannot predict, including the duration and scope of the pandemic and its variants, resulting actions taken by governments, businesses and individuals, and the flow-through impact on operations and supply chains. Potential effects of COVID-19 that may continue to adversely impact our future business include limited availability and/or increased cost of raw materials and components used in our products, reduced demand and/or pricing for our products, inability of our customers to pay for our products or remain solvent, and reduced availability of our workforce. Prolonged adverse effects of COVID-19 on our business could result in the impairment of long-lived assets including goodwill and other intangible assets. Further, we cannot predict all possible adverse effects the COVID-19 ~~related logistics matters resulted~~pandemic may cause. Consequently, there may be adverse effects in ~~delays in~~addition to those described above. We will continue to closely monitor the developments surrounding COVID-19 and take actions when possible to mitigate the business risks involved and the potential effects of COVID-19 on our shipments to future periods. For the quarter ended June 30, 2021, we estimate that the delayed shipments adversely impacted revenues by approximately $1,500, operating income by approximately $500 and EPS by approximately $0.03.business.

Consolidated revenues of ~~$26,770~~$30,373 for the three-month period ended ~~June 30, 2021, decreased~~March 31, 2022, increased by ~~$1,790~~$4,400 or ~~6.3%~~16.9%, ~~from $28,560~~over $25,973 for the three-month period ended ~~June 30, 2020, as significant increases~~March 31, 2021, reflecting our December 13, 2021 acquisition of Excell Battery Group (“Excell”) and increased sales in our medical, oil & gas and ~~9-volt~~industrial battery ~~sales were~~markets, partially offset by lower ~~medical battery sales, Communications Systems shipments in 2020~~revenues for government/defense which continued to ~~complete delivery orders announced in October 2018~~be impacted by supply chain challenges. Excluding Excell, commercial revenues of $16,824 for ~~vehicle amplifier-adaptor systems to support~~ the ~~U.S. Army’s Network Modernization initiatives~~quarter-ended March 31, 2022 increased $2,479 or 17.3% over the year-earlier period, and ~~shipments~~government/defense revenues of ~~5390 batteries to~~$7,113 decreased $4,515 or 38.8% from the ~~U.S. Department of Defense under a spot purchase announced in December 2019 and completed in 2020.~~ 2021 period.

Gross profit was ~~$7,267,~~$6,958, or ~~27.1%~~22.9% of revenue, for the three-month period ended March 31, 2022, compared to ~~$7,963,~~$6,978, or ~~27.9%~~26.9% of revenue, for the same quarter a year ago. The ~~80-basis~~400-basis point ~~decrease~~decline primarily ~~resulted from unfavorable~~reflects the lower sales ~~product mix attributable to vehicle amplifier-adaptor systems shipped~~volume for Communications Systems resulting in lower factory throughput and incremental costs in 2022 associated with supply chain disruptions, including rapid increases in the ~~second quarter 2020~~cost of some key components in advance of price realization from customers, and the transition of a multitude of new products to ~~complete the delivery orders for the U.S. Army.~~higher volume production.

Operating expenses increased to ~~$6,176 during~~$7,253 for the three-month period ended ~~June 30, 2021, from $5,669 during~~March 31, 2022, compared to $6,026 for the three-month period ended ~~June 30, 2020.~~March 31, 2021. The increase of ~~$507~~$1,227 or ~~8.9%~~20.4% was primarily attributable to our acquisition of Excell which contributed operating expenses of $1,058. Excluding Excell, operating expenses increased by $169 or 2.8% reflecting our continued investment in ~~engineering resources for~~ new product development, including approximately $360 for engineering resources and test materials dedicated to ~~our~~the May 2021 indefinite-delivery/indefinite-quantity contract form the U.S. Army for purchases of Conformal Wear ~~Battery IDIQ contract announced on May 17, 2021.~~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. Operating expenses as a percentage of sales increased ~~330~~70 basis points from ~~19.8%~~23.2% for the ~~second~~first quarter of ~~2020~~2021 to ~~23.1%~~23.9% for the current quarter.

Operating ~~income~~loss for the three-month period ended ~~June 30, 2021~~March 31, 2022 was ~~$1,091~~($295), or ~~4.1%~~(1.0%) of revenues, compared to ~~$2,294~~operating income of $952, or ~~8.0%~~3.7% of revenues, for the year-earlier period. The ~~52.5%~~ decrease in operating income primarily resulted from lower sales for our Communications Systems segment, a reduction in gross margin due to supply chain disruptions, including rapid increases in the cost of some key components in advance of price realization from customers, and the transition of new products to high volume manufacturing, higher new product development costs to support our organic growth ~~initiatives.~~initiatives, and $125 of acquisition accounting adjustments and one-time expenses related to the acquisition of Excell.

Net ~~income~~loss attributable to Ultralife was ~~$811,~~($168), or ~~$0.05~~($0.01) per share – basic and diluted, for the three-month period ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$1,658,~~net income attributable to Ultralife of $671, or ~~$0.10~~$0.04 per share – basic and diluted, for the three-month period ended June 30, 2020. Adjusted EPS was $0.06 on a diluted basis for the second quarter of 2021, representing a 52% decrease from Adjusted EPS on a diluted basis of $0.13 for the 2020 period. Adjusted EPS excludes the provision for deferred income taxes of $177 and $391 for the 2021 and 2020 periods, respectively, which primarily represents non-cash charges for U.S. income taxes which will be fully offset by NOL carryforwards and other tax credits for the foreseeable future. See the section “Adjusted EPS” on Page 23 for a reconciliation of Adjusted EPS to EPS.March 31, 2021.

Adjusted EBITDA, defined as net (loss) income attributable to Ultralife before net interest expense, provision for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expenses/income that we do not consider reflective of our ongoing operations, amounted to ~~$2,186~~$1,103, or ~~8.2% of revenues in the second quarter of 2021 compared to $3,307 or 11.6%~~3.6% of revenues, for the ~~second~~first quarter of ~~2020.~~2022, compared to $2,012, or 7.8% of revenues, for the first quarter of 2021. See the section “Adjusted EBITDA” beginning on Page 2221 for a reconciliation of Adjusted EBITDA to net income attributable to Ultralife.

WeLooking forward, as we balance the impact of current supply chain disruptions, we continue to advance new product development initiatives, receive early acceptance of our new product rollouts, and transition new products to production, thereby retaining the view that our long-term profitable growth drivers, strategy, and expectations remain ~~focused on executing near-term growth initiatives~~sound and ~~developing long-term growth opportunities while adhering to our proven and profitable business model.~~achievable.

Three-Month Periods Ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020~~

Revenues. Consolidated revenues for the three-month period ended ~~June 30, 2021 amounted to $26,770, a decrease~~March 31, 2022 were $30,373, an increase of ~~$1,790~~$4,400, or ~~6.3%~~16.9%, ~~from $28,560~~over $25,973 for the three-month period ended ~~June 30, 2020.~~March 31, 2021. Overall, commercial sales ~~decreased 1.0%~~increased 62.1% while government/defense sales decreased ~~13.2%~~38.8% from the ~~2020~~2021 period. Revenues for the 2022 period include Excell which was acquired by the Company on December 13, 2021.

Battery & Energy Products revenues ~~decreased $1,161,~~increased $7,039, or ~~4.8%~~31.8%, from ~~$24,036~~$22,111 for the three-month period ended ~~June 30, 2020~~March 31, 2021 to ~~$22,875~~$29,150 for the three-month period ended ~~June 30, 2021.~~March 31, 2022. The ~~decrease primarily resulted~~increase was attributable to the $6,436 revenue contribution from the acquisition of Excell, and a ~~48.6%~~17.3% increase in commercial sales excluding Excell, partially offset by a 24.2% reduction in government/defense sales. The increase in commercial sales, excluding Excell, was driven by a 30.5% increase in industrial market sales including our new Thionyl Chloride and thin cell battery cells, a 20.0% increase in oil & gas market sales reflecting the recent rebound in the energy sector, and a ~~23.2%~~8.4% increase ~~in 9-volt sales offset by a 27.9% decrease~~ in medical battery sales due to the high ~~volume of orders~~demand for our batteries used in ~~2020 for~~ventilators, respirators, ~~ventilators and~~ infusion pumps ~~to meet the sector’s initial response to COVID-19~~ and ~~a 12.7% decrease~~other medical devices. The decline in government/defense sales was primarily due to ~~the shipment of 5390 batteries~~supply chain disruptions experienced by our customers which pushed out sales to ~~the U.S. Department of Defense under a spot purchase announced in December 2019 and completed in 2020 .~~future periods.

Communications Systems revenues decreased ~~$629,~~$2,639, or ~~13.9%~~68.3%, from ~~$4,524 during the three-month period ended June 30, 2020 to $3,895~~$3,862 for the three-month period ended ~~June 30, 2021.~~March 31, 2021 to $1,223 for the three-month period ended March 31, 2022. This decrease is primarily attributable to ~~2020 shipments~~supply chain disruptions including extended lead times for components and the push out of ~~vehicle amplifier-adaptor systems~~certain orders by our customers which delayed approximately $1,600 of sales to ~~support~~future periods and the ~~U.S. Army’s Network Modernization initiatives completing~~placement and fulfillment of an order from an international defense contractor in the ~~delivery orders announced~~first quarter of 2021 which is not expected to reoccur until later in ~~October 2018.~~2022.

Cost of Products Sold / Gross Profit. Cost of products sold totaled ~~$19,503~~$23,415 for the quarter ended ~~June 30, 2021, a decrease~~March 31, 2022, an increase of ~~$1,094,~~$4,420, or ~~5.3%~~23.3%, from the ~~$20,597~~$18,995 reported for the same three-month period a year ago. Consolidated cost of products sold as a percentage of total revenue increased from ~~72.1%~~73.1% for the three-month period ended ~~June 30, 2020~~March 31, 2021 to ~~72.9%~~77.1% for the three-month period ended ~~June 30, 2021.~~March 31, 2022. Correspondingly, consolidated gross margin decreased from ~~27.9%~~26.9% for the three-month period ended ~~June 30, 2020,~~March 31, 2021, to ~~27.1%~~22.9% for the three-month period ended ~~June 30, 2021,~~March 31, 2022, primarily reflecting ~~unfavorable sales product mix~~lower factory volume for our Communications ~~Systems.~~Systems segment, incremental costs in 2022 associated with supply chain disruptions, including rapid increases in the cost of some key components in advance of price realization from customers, and the transition of a multitude of new products to higher volume production.

For our Battery & Energy Products segment, gross profit for the ~~second~~first quarter of ~~2021~~2022 was ~~$6,016, essentially flat with the~~$6,721, an increase of $1,285 or 23.6% over gross profit of ~~$6,026~~$5,436 for the ~~second~~first quarter of ~~2020.~~2021. Battery & Energy Products’ gross margin of ~~26.3% increased~~23.1% decreased by ~~120~~150 basis points from the ~~25.1%~~24.6% gross margin for the year-earlier period, ~~primarily~~ reflecting ~~favorable~~ sales ~~product~~ mix, ~~and lower scrap and rework on~~incremental costs associated with the transition of new products ~~transitioning~~ to ~~high~~higher volume ~~production.~~production and higher materials and logistics costs on incoming materials in advance of price realization from customers.

For our Communications Systems segment, gross profit for the ~~second~~first quarter of ~~2021~~2022 was ~~$1,251~~$237 or ~~32.1%~~19.4% of revenues, ~~a decrease of $686 or 35.4%, from~~compared to gross profit of ~~1,937,~~$1,542 or ~~42.8%~~39.9% of revenues, for the ~~second~~first quarter of ~~2020.~~2021. The ~~decrease reflects product sales mix most notably improved efficiencies and productivity~~decline was primarily due to lower factory volume resulting in the ~~production~~under-absorption of ~~vehicle amplifier-adaptor systems to complete the U.S. Army orders in the second quarter of 2020.~~factory costs and unfavorable sales mix.

Operating Expenses. Operating expenses for the three-month period ended ~~June 30, 2021~~March 31, 2022 were ~~$6,176,~~$7,253, an increase of ~~$507~~$1,227 or ~~9.0%~~20.4% from the ~~$5,669~~$6,026 for the three-month period ended ~~June 30, 2020.~~March 31, 2021. The increase inis primarily attributable to the acquisition of Excell, which contributed operating expenses ~~reflects~~of $1,058 in the first quarter, including $182 of intangible asset amortization. Excluding Excell, operating expenses increased $169 or 2.8% due to our continued investment in ~~engineering resources for~~ new product development, including approximately $360 for engineering resources and test materials dedicated to the May 2021 indefinite-delivery/indefinite-quantity contract from the U.S. Army for purchases of Conformal Wear ~~Battery IDIQ contract announced on May 17, 2021.~~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. Both periods reflected continued tight control over discretionary spending.

Overall, operating expenses as a percentage of revenues were ~~23.1%~~23.9% for the quarter ended ~~June 30, 2021 and 19.8%~~March 31, 2022 compared to 23.2% for the quarter ended ~~June 30, 2020.~~March 31, 2021. Amortization expense associated with intangible assets related to our acquisitions was ~~$156~~$328 for the ~~second~~first quarter of 2022 ($302 in selling, general and administrative expenses and $26 in research and development costs), compared with $154 for the first quarter of 2021 ($~~123~~121 in selling, general, and administrative expenses and $33 in research and development costs)~~, compared with $146 for the second quarter of 2020 ($116 in selling, general, and administrative expenses and $30 in research and development costs)~~. Research and development costs were ~~$1,853~~$1,857 for the three-month period ended ~~June 30, 2021,~~March 31, 2022, an increase of ~~$578~~$210 or ~~45.3%~~12.8%, from ~~$1,275~~$1,647 for the three-months ended ~~June 30, 2020.~~March 31, 2021. The increase is largely attributable to the hiring of engineering resources and the purchase of test materials to support new product development in our Battery & Energy Products ~~business.~~business, including those resources and materials dedicated to our Conformal Wearable Battery contract. Selling, general, and administrative expenses ~~decreased $71~~increased $1,017 or ~~1.6%~~23.2%, to ~~$4,323~~$5,396 for the ~~second~~first quarter of ~~2021~~2022 from ~~$4,394~~$4,379 for the ~~second~~first quarter of ~~2020.~~2021. The ~~decrease reflects a 6.1%~~ increase inis largely attributable to the December 2021 acquisition of Excell which contributed $985 of selling, ~~expenses for sales resources to support our new product market launches offset by a 4.0% decrease in~~ general and administrative ~~expenses.~~expenses, including intangible asset amortization of $182, for the first quarter of 2022. The remainder includes $70 of one-time non-recurring costs resulting from the acquisition of Excell.

Other Expense. Other expense totaled ~~$21 for the three-month period ended June 30, 2021 compared to~~ $117 for the three-month period ended ~~June 30, 2020.~~March 31, 2022 compared to $56 for the three-month period ended March 31, 2021. Interest and financing expense, net of interest income, ~~decreased $51,~~increased $78, or ~~48.1%~~139.3%, from ~~$106~~$56 for the ~~second~~first quarter of ~~2020~~2021 to ~~$55~~$134 for the comparable period in ~~2021.~~2022. The ~~decrease~~increase is ~~primarily~~ due to ~~the continued reduction of debt incurred in connection with~~ the financing of the ~~SWE~~Excell acquisition. Miscellaneous income, ~~of $34~~which primarily represents gains and losses on foreign currency transactions, amounted to $17 for the ~~second~~first quarter of 2022 compared with $0 for the first quarter of 2021, ~~compared to expense~~which primarily reflects the translation of ~~$11 for the second quarter of 2020 represents foreign currency exchange gains and losses particularly for certain~~U.S.-denominated transactions and balances of Accutronics (U.K.) ~~denominated in~~for the respective periods. The U.S. ~~dollars. The~~dollar strengthened against the Pound Sterling by 1.5% during the 2022 first quarter, whereas the U.S. dollar weakened against the Pound Sterling by ~~0.5% from~~0.9% during the ~~beginning to the end of the second quarter of~~ 2021 ~~and the U.S. dollar strengthened to the Pound Sterling by 0.3% from the beginning to the end of the second quarter of 2020.~~first quarter.

Income Taxes. ~~The~~For the three-month period ended March 31, 2022, Ultralife recognized an income tax benefit of $251, comprised of a current provision of $151 and deferred benefit of $402, compared to a provision of $217 ($49 current, $168 deferred) for the ~~2021 second~~three-month period ended March 31, 2021. Our effective tax rate was 60.9% for the first quarter ~~was $248~~of 2022 as compared to ~~$499~~24.2% for the ~~second quarter of 2020. Our effective income tax rate increased slightly to 23.2% for the second~~first quarter of 2021, ~~as compared to 22.9% for the second quarter of 2020,~~ primarily ~~due~~attributable to the geographic mix of ~~earnings. The~~our operating results, including income ~~tax provision for~~taxes incurred on our Excell Canada results, and the ~~second quarter~~larger impact of ~~2021 is comprised~~permanent and discrete adjustments on a smaller amount of a $71 current provision for taxes expected to be paid on income from our foreign operations, representing a cash-based effective income tax rate of 6.6%, and a $177 deferred income tax provision which primarily represents non-cash charges for U.S. taxes which will be fully offset by NOL carryforwards and other tax credits for the foreseeable future. For the 2020 period, the income tax provision was comprised of a $108 current tax provision, representing a cash-based effective tax rate of 5.0%, and a $391 deferred income tax provision.pretax loss. See Note ~~6 in~~7 to the ~~Notes to Consolidated Financial Statements~~consolidated financial statements in Item 1 of Part I of this Form 10-Q for additional information regarding our income taxes.

Net (Loss) Income Attributable to Ultralife. Net ~~income~~loss attributable to Ultralife was ~~$811,~~($168), or ~~$0.05~~($0.01) per share – basic and diluted, for the three-month period ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$1,658,~~net income of $671, or ~~$0.10~~$0.04 per share – basic and diluted, for the three-month period ended June 30, 2020. Adjusted EPS was $0.06 on a diluted basis for the second quarter of 2021, representing a 52% decrease from Adjusted EPS on a diluted basis of $0.13 for the second quarter of 2020. Adjusted EPS excludes the provision for deferred income taxes of $177 and $391 for the 2021 and 2020 periods, respectively, which primarily represents non-cash charges for U.S. income taxes which will be fully offset by NOL carryforwards and other tax credits for the foreseeable future. See the section “Adjusted EPS” on Page 23 for a reconciliation of Adjusted EPS to EPS.March 31, 2021. Weighted average ~~common~~ shares outstanding used to compute diluted earnings per share ~~increased~~decreased from ~~16,133,015~~16,152,160 for the first quarter of 2021 to 16,103,599 for the first quarter of 2022. The decrease is attributable to there being no dilutive effect of outstanding stock awards for the first quarter of 2022 due to the net loss recognized for the period, as compared to the inclusion of 178,781 potential shares in the ~~second~~computation of diluted EPS for the first quarter of ~~2020 to 16,259,584 in~~2021, partially offset by the ~~second quarter~~effect of ~~2021. The increase in 2021 is attributable to~~ stock option exercises since the ~~second quarter of 2020 and an increase in the average stock price used to compute diluted shares from $7.18 for the second quarter of 2020 to $8.66 for the second~~first quarter of 2021.

~~Revenues.~~ Consolidated revenues for the six-month period ended June 30, 2021 amounted to $52,743, a decrease of $1,631 or 3.0%, from the $54,374 reported for the six-month period ended June 30, 2020. Overall, commercial sales decreased 2.0% and government/defense sales decreased 4.3% from the six-month 2020 period.

Battery & Energy Products revenues increased $189, or 0.4%, from $44,797 for the six-month period ended June 30, 2020 to $44,986 for the six-month period ended June 30, 2021. The growth was attributable to a $807 or 5.8% increase in government/defense sales partially offset by a $618 or 2.0%, decrease in commercial sales. The increase in government/defense sales reflects higher demand from a large global defense contractor for military and public safety radio batteries and chargers, partially offset by shipments of 5390 batteries to the U.S. Department of Defense under a spot purchase announced in December 2019 and completed in 2020. The decline in commercial sales primarily resulted from a 6.6% decline in medical battery sales and a 1.1% reduction in oil & gas market sales, partially offset by a 32% increase in 9-volt battery sales.

Communications Systems revenues decreased $1,820, or 19.0%, from $9,577 during the six-month period ended June 30, 2020 to $7,757 for the six-month period ended June 30, 2021. This decrease is attributable to 2020 first half shipments of vehicle amplifier-adaptor systems in the amount of $5,680 to support the U.S. Army’s Network Modernization initiatives completing the delivery orders announced in October 2018.

~~Cost of Products Sold / Gross Profit.~~ Cost of products sold totaled $38,498 for the six-month period ended June 30, 2021, a decrease of $579 or 1.5%, from the $39,077 reported for the same six-month period a year ago. Consolidated cost of products sold as a percentage of total revenue increased from 71.9% for the six-month period ended June 30, 2020 to 73.0% for the six-month period ended June 30, 2021. Correspondingly, consolidated gross margin was 27.0% for the six-month period ended June 30, 2021, compared with 28.1% for the six-month period ended June 30, 2020, due primarily to unfavorable sales product mix for Communications Systems.

For our Battery & Energy Products segment, the cost of products sold increased $79 or 0.2%, from $33,455 during the six-month period ended June 30, 2020 to $33,534 during the six-month period ended June 30, 2021. Battery & Energy Products’ gross profit for the 2021 six-month period was $11,452 or 25.5% of revenues, an increase of $110 or 1.0% from gross profit of $11,342, or 25.3% of revenues, for the 2020 six-month period. Battery & Energy Products’ gross margin increased for the six-month period ended June 30, 2021 by 20 basis points, primarily due to favorable sales product mix.

For our Communications Systems segment, the cost of products sold decreased by $658 or 11.7% from $5,622 during the six-month period ended June 30, 2020 to $4,964 during the six-month period ended June 30, 2021. Communications Systems’ gross profit for the first six months of 2021 was $2,793 or 36.0% of revenues, a decrease of $1,162 or 29.4% from gross profit of $3,955 or 41.3% of revenues, for the six-month period ended June 30, 2020. The decrease in gross margin primarily reflects the favorable sales mix in 2020 of the vehicle amplifier-adaptor systems for the U.S. Army.

~~Operating Expenses.~~ Total operating expenses for the six-month period ended June 30, 2021 totaled $12,202, an increase of $684 or 5.9% from the $11,518 for the six-month period ended June 30, 2020. The increase in operating expenses reflects our continued investment in engineering resources for new product development, including resources dedicated to the Conformal Wear Battery IDIQ contract announced on May 17, 2021. Both periods reflected continued tight control over discretionary spending.

Overall, operating expenses as a percentage of revenues were 23.1% for the six-month period ended June 30, 2021 compared to 21.2% for the comparable 2020 period. Amortization expense associated with intangible assets related to our acquisitions was $310 for the first six months of 2021 ($244 in selling, general and administrative expenses and $66 in research and development costs), compared with $295 for the first six months of 2020 ($234 in selling, general, and administrative expenses and $61 in research and development costs). Research and development costs were $3,500 for the six-month period ended June 30, 2021 an increase of $677 or 24.0% over $2,823 for the six-months ended June 30, 2020. The increase is largely attributable to the hiring of engineering resources to support new product development in our Battery & Energy Products business. Selling, general, and administrative expenses increased $7 from $8,695 during the first six months of 2020 to $8,702 during the first six months of 2021, primarily reflecting a 7.9% increase in selling expenses for sales resources to support our new product market launches virtually offset by a 2.4% decrease in general and administrative expenses.

~~Other Expense.~~ Other expense totaled $77 for the six-month period ended June 30, 2021 compared to $209 for the six-month period ended June 30, 2020. Interest and financing expense, net of interest income, decreased $169 to $111 for the 2021 period from $280 for the comparable period in 2020, as a result of the continued reduction of debt incurred with the financing for the SWE acquisition. Miscellaneous income amounted to $34 for the first six months of 2021 compared with income of $71 for the first six months of 2020, primarily due to fluctuations in the U.S. dollar relative to the Pound Sterling.

~~Income Taxes.~~ We recognized an income tax provision of $465 for the first two quarters of 2021 compared with an income tax provision of $818 for the first two quarters of 2020. Our effective income tax rate increased to 23.7% for the first six months of 2021 as compared to 22.9% for the first six months of 2020, primarily due to the geographic mix of earnings. The income tax provision for the 2021 period is comprised of a $120 current provision for taxes expected to be paid on income from our foreign operations, representing a cash-based effective income tax rate of 6.1%, and a $345 deferred income tax provision which primarily represents non-cash charges for U.S. income taxes which will be fully offset by NOL carryforwards and other tax credits for the foreseeable future. For the 2020 period, the income tax provision was comprised of a $185 current income tax provision, representing a cash-based effective income tax rate of 5.2%, and a non-cash $633 deferred provision for income taxes. See Note 6 in the Notes to Consolidated Financial Statements of this Form 10-Q for additional information regarding our income taxes.

~~Net Income Attributable to Ultralife.~~ Net income attributable to Ultralife and net income attributable to Ultralife common stockholders per diluted share was $1,482 and $0.09, respectively, for the six months ended June 30, 2021, compared to $2,717 and $0.17 for the six months ended June 30, 2020. Weighted average common shares outstanding used to compute diluted earnings per share increased from 16,114,418 for the 2020 period to 16,194,377 for the 2021 period, attributable to stock option exercises since the second quarter of 2020 and an increase in the average stock price used to compute diluted shares from $7.00 for the first six months of 2020 to $7.89 for the first six months of 2021.

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 interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus ~~expenses/~~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 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.~~income (loss). 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 (loss), 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 (loss) 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:

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 (loss) attributable to Ultralife.

In evaluating our business, we consider and use Adjusted EPS, a non-GAAP financial measure, as a supplemental measure of our business performance in addition to GAAP financial measures. We define Adjusted EPS as net income attributable to Ultralife Corporation, excluding the provision for deferred income taxes, divided by our weighted average shares outstanding on both a basic and diluted basis. We believe that this information is useful in providing period-to-period comparisons of our results by reflecting the portion of our income tax provision that will be offset by our U.S. NOL carryforwards and other tax credits for the foreseeable future. We reconcile Adjusted EPS to EPS, the most comparable financial measure under GAAP. Neither current nor potential investors in our securities should rely on Adjusted EPS as a substitute for any GAAP measures and we encourage investors to review the following reconciliation of Adjusted EPS to EPS and net income attributable to Ultralife.

As of ~~June 30, 2021,~~March 31, 2022, cash totaled ~~$15,828~~$6,050 (including restricted cash of ~~$88)~~$82), ~~an increase~~a decrease of ~~$5,175~~$2,363 as compared to ~~$10,653~~$8,413 of cash held at December 31, ~~2020. The increase was~~2021, primarily attributable to cash ~~generated from operations.~~used in operations primarily caused by increases in inventory and accounts receivable.

During the ~~six-month~~three-month period ended ~~June 30, 2021,~~March 31, 2022, we used $3,222 from our operations as compared to the generation of cash of $3,903 from operations for the three-month period ended March 31, 2021. The net cash used in the 2022 period was largely attributable to cash of $3,274 used to procure inventory to enhance our ability to service our backlog requested by customers to ship in 2022 amidst challenging supply conditions. The increase in inventory along with the timing of collections and disbursements resulted in net cash of $3,999 used for working capital. In addition to the increase in working capital, the use of cash from operating activities ~~provided cash~~in the first quarter of ~~$6,955, consisting~~2022 reflects the net loss of ~~net income~~$161, including purchase accounting adjustments of ~~$1,501, deferred income taxes of $345,~~$55, and non-cash expenses oftotaling $938 for depreciation, amortization, ~~and~~ stock-based compensation, ~~totaling $2,192,~~ and ~~a $2,917 reduction in net working capital.~~deferred taxes.

Cash used in investing activities for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$1,225, attributable~~$371 for capital expenditures, reflecting investments in equipment for new products transitioning to ~~strategic capital investments for our Battery & Energy Products business.~~high-volume manufacturing.

Net cash ~~used in~~provided by financing activities for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$542,~~$1,223, consisting of ~~$789~~draws from our credit facility for the purchase of certain critical raw materials requiring cash-in-advance payment terms by the vendors, partially offset by $333 of principle payments against our ~~remaining~~ term loan balance and ~~$67~~$7 of tax withholdings for stock awards, partially offset by ~~stock option exercise~~ proceeds of ~~$314.~~$113 from stock options exercises.

We continue to have significant U.S. ~~NOL~~net operating loss carryforwards available to utilize as an offset to future taxable income. See Note 67 to the Consolidated Financial Statements of this Form 10-Q 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 general funding requirements for the foreseeable future. Over the long-term, we expect that some of our future investments, including strategic business opportunities such as acquisitions, may be made through a number of sources, including internally available cash, availability of borrowing under our Credit Facilities, new debt financing, the issuance of equity securities or any combination of these sources.

To provide flexibility in accessing the capital market, the Company filed a shelf registration statement on Form S-3 on March 30, 2021, which was declared effective by the SEC on April 2, 2021. Under this registration statement, upon the filing of an appropriate supplemental prospectus, we may offer and sell certain of our securities from time to time in one or more offerings, at our discretion, of up to an aggregate offering price of $100 million. We intend to use the net proceeds resulting from any sales of our securities for general corporate purposes which may include, but are not limited to, potential acquisitions of complementary businesses or technologies, strategic capital expenditures to expand and protect our competitive position, and investments in the development of transformational, competitively-differentiated products for attractive growth markets.

As of ~~June 30, 2021,~~March 31, 2022, the Company had ~~$685~~$12,430 outstanding ~~principal~~borrowings on the Revolving Credit Facility and $9,667 on the Term Loan Facility, all of which is included in current portion of long-term debt on the Consolidated Balance Sheet, net of $61 unamortized debt issuance costs, and no amounts outstanding on the Revolving Credit Facility. The Company was in full compliance with all covenants under the Credit Facilities as of ~~June 30, 2021.~~March 31, 2022.

As of ~~June 30, 2021,~~March 31, 2022, we had made commitments to purchase approximately ~~$1,001~~$953 of production machinery and equipment.

Management exercises judgment in making important decisions pertaining to choosing and applying accounting policies and methodologies in many areas. Not only are these decisions necessary to comply with GAAP, but they also reflect management’s view of the most appropriate manner in which to record and report our overall financial performance. All accounting policies are important, and all policies described in Note 1 (“Summary of Operations and Significant Accounting Policies”) to ~~our~~the Consolidated Financial Statements in our ~~2020~~2021 Annual Report on Form 10-K should be reviewed for a greater understanding of how our financial performance is recorded and reported.

During the first ~~six months~~quarter of ~~2021,~~2022, there were no significant changes in the manner in which our significant accounting policies were applied or in which related assumptions and estimates were developed.

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

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

Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, (ii) Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2022 and 2021, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021, (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2022 and 2021, and (v) Notes to Consolidated Financial Statements.

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

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

	Six-month period ended						Three-month period ended
	June 30, 2021			June 30, 2020			March 31, 2022			March 31, 2021
OPERATING ACTIVITIES:
Net income	$	1,501		$	2,752
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income							$	(161	)	$	679
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation		1,460			1,161			816			730
Amortization of intangible assets		310			295			328			154
Amortization of financing fees		52			24			7			26
Stock-based compensation		370			534			189			184
Deferred income taxes		345			633			(402	)		168
Proceeds from litigation settlement								0			1,593
Changes in operating assets and liabilities:
Accounts receivable		2,390			3,578			(2,724	)		1,952
Inventories		864			1,507			(3,274	)		367
Prepaid expenses and other assets		2,536			1,307			977			225
Accounts payable and other liabilities		(2,873	)		(2,909	)		1,022			(2,175	)
Net cash provided by operating activities		6,955			8,882
Net cash (used in) provided by operating activities								(3,222	)		3,903

INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(1,225	)		(1,533	)		(371	)		(489	)
Proceeds from sale of equipment		0			120
Net cash used in investing activities		(1,225	)		(1,413	)		(371	)		(489	)

FINANCING ACTIVITIES:
Payment of credit facilities		(789	)		(6,410	)
Borrowings on revolving credit facility								1,450			0
Payments on term loan facility								(333	)		(393	)
Proceeds from exercise of stock options		314			76			113			31
Tax withholdings on stock-based awards		(67	)		(15	)		(7	)		(58	)
Net cash used in financing activities		(542	)		(6,349	)
Net cash provided by (used in) financing activities								1,223			(420	)

Effect of exchange rate changes on cash		(13	)		(136	)		7			15

INCREASE IN CASH		5,175			984
(DECREASE) INCREASE IN CASH								(2,363	)		3,009

Cash, Beginning of period		10,653			7,405			8,413			10,653
Cash, End of period	$	15,828		$	8,389		$	6,050		$	13,662

Cash	$	736
Accounts receivable		3,570
Inventories		3,622
Prepaid expenses and other current assets		785
Property, plant and equipment		429
Goodwill		10,989
Other intangible assets		8,870
Other noncurrent assets		991
Accounts payable		(1,450	)
Accrued compensation and related benefits		(540	)
Accrued expenses and other current liabilities		(720	)
Deferred tax liability, net		(2,223	)
Other noncurrent liabilities		(803	)
Net assets acquired	$	24,256

					Annual Amortization
	Estimated Fair Value		Amortization Period (Years)		Year 1		Year 2		Year 3		Year 4		Year 5
Customer relationships	$	4,100		15	$	273	$	273	$	273	$	273	$	273
Trade name		3,150		Indefinite		-		-		-		-		-
Customer contracts		1,140		15		76		76		76		76		76
Backlog		360		1		360		0		0		0		0
Technology		120		7		17		17		17		17		17
Total	$	8,870			$	726	$	366	$	366	$	366	$	366

	June 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Raw materials	$	16,817	$	17,277	$	23,673	$	21,660
Work in process		3,117		3,411		3,521		4,227
Finished goods		7,480		7,505		9,186		7,302
Total	$	27,414	$	28,193	$	36,380	$	33,189

	Battery & Energy		Communications
	Products		Systems		Total
Balance – December 31, 2020	$	15,525	$	11,493	$	27,018
Effect of foreign currency translation		97		0		97
Balance – June 30, 2021	$	15,622	$	11,493	$	27,115

	June 30, 2021						at March 31, 2022
			Accumulated						Accumulated
	Cost		Amortization		Net		Cost		Amortization		Net
Trademarks	$	3,412	$	0	$	3,412
Customer relationships		9,207		5,313		3,894	$	13,170	$	5,614	$	7,556
Patents and technology		5,572		5,087		485		5,637		5,137		500
Distributor relationships		377		377		0
Trade name		1,530		385		1,145
Total	$	20,098	$	11,162	$	8,936
Trade names								4,659		458		4,201
Trademarks								3,413		0		3,413
Other								1,500		127		1,373
Total other intangible assets							$	28,379	$	11,336	$	17,043

	December 31, 2020						at December 31, 2021
			Accumulated						Accumulated
	Cost		Amortization		Net		Cost		Amortization		Net
Trademarks	$	3,410	$	0	$	3,410
Customer relationships		9,171		5,115		4,056	$	13,214	$	5,484	$	7,730
Patents and technology		5,557		5,014		543		5,667		5,126		541
Distributor relationships		377		377		0
Trade name		1,524		324		1,200
Total	$	20,039	$	10,830	$	9,209
Trade names								4,670		436		4,234
Trademarks								3,413		0		3,413
Other								1,490		18		1,472
Total other intangible assets							$	28,454	$	11,064	$	17,390

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2021		1,217,163		$	6.50
Granted		0			0
Exercised		(128,096	)		4.60
Forfeited or expired		(14,663	)		7.07
Outstanding at June 30, 2021		1,074,404		$	6.72		3.78	$	2,037
Vested and expected to vest at June 30, 2021		998,941		$	6.66		3.66	$	1,963
Exercisable at June 30, 2021		744,455		$	6.42		3.05	$	1,710

	Three months ended				Six months ended				Three-month period ended March 31,
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		2022		2021
Operating lease cost	$	189	$	168	$	376	$	336	$	233	$	187
Variable lease cost		13		18		32		36		24		19
Total lease cost	$	202	$	186	$	408	$	372	$	257	$	206

	Six months ended				Three-month period ended March 31,
	June 30, 2021		June 30, 2020		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:							��
Operating cash flows from operating leases	$	365	$	329	$	227	$	181
Right-of-use assets obtained in exchange for lease liabilities:	$	0	$	0	$	0	$	0

	Balance Sheet Classification	June 30, 2021			December 31, 2020			Balance sheet classification	March 31, 2022			December 31, 2021
Assets:
Operating lease right-of-use asset	Other noncurrent assets	$	1,881		$	2,189		Other noncurrent assets	$	2,401		$	2,581

Liabilities:
Current operating lease liability	Accrued expenses and other current liabilities	$	663		$	680		Accrued expenses and other current liabilities	$	869		$	867
Operating lease liability, net of current portion	Other noncurrent liabilities		1,243			1,524		Other noncurrent liabilities		1,558			1,743
Total operating lease liability	Total operating lease liability	$	1,906		$	2,204		Total operating lease liability	$	2,427		$	2,610

Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)		2.9			3.3		Weighted-average remaining lease term (years)		4.4			4.5

Weighted-average discount rate	Weighted-average discount rate		4.5	%		4.5	%	Weighted-average discount rate		4.5	%		4.5	%

Maturity of Operating Lease Liabilities
2021		363
Maturity of operating lease liabilities
2022		700	$	664
2023		720		897
2024		279		464
2025				140
2026				142
2027				142
Thereafter				288
Total lease payments		2,062		2,737
Less: Imputed interest		156		(310	)
Present value of remaining lease payments	$	1,906	$	2,427

	Six-month period ended June 30,						Three-month period ended March 31,
	2021			2020			2022			2021
Accrued warranty obligations – beginning	$	149		$	195		$	133		$	149
Accruals for warranties issued		121			59			18			45
Settlements made		(108	)		(26	)		(31	)		(23	)
Accrued warranty obligations – ending	$	162		$	228		$	120		$	171

	Battery & Energy Products		Communications Systems		Corporate			Total
Revenues	$	29,150	$	1,223	$	-		$	30,373
Segment contribution		6,721		237		(7,253	)		(295	)
Other expense						(117	)		(117	)
Tax benefit						251			251
Non-controlling interest						(7	)		(7	)
Net loss attributable to Ultralife								$	(168	)

	June 30,			December 31,			March 31,			December 31,
	2021			2020			2022			2021
Land	$	1,273		$	1,273		$	1,273		$	1,273
Buildings and leasehold improvements		15,407			15,393			15,443			15,442
Machinery and equipment		62,109			61,048			64,137			63,780
Furniture and fixtures		2,328			2,235			2,654			2,588
Computer hardware and software		7,124			6,894			7,586			7,579
Construction in process		1,189			1,227			704			761
		89,430			88,070			91,797			91,423
Less: Accumulated depreciation		(66,710	)		(65,220	)		(69,024	)		(68,218	)
Property, plant and equipment, net	$	22,720		$	22,850		$	22,773		$	23,205

	Battery & Energy Products		Communications Systems		Corporate			Total
Revenues	$	44,986	$	7,757	$	0		$	52,743
Segment contribution		11,452		2,793		(12,202	)		2,043
Other expense						(77	)		(77	)
Income tax provision						(465	)		(465	)
Non-controlling interest						(19	)		(19	)
Net income attributable to Ultralife								$	1,482

	Total Revenue		Commercial			Government/ Defense			Total Revenue		Commercial			Government/ Defense
Battery & Energy Products	$	22,875	$	16,011		$	6,864		$	29,150	$	23,260		$	5,890
Communications Systems		3,895		0			3,895			1,223		0			1,223
Total	$	26,770	$	16,011		$	10,759		$	30,373	$	23,260		$	7,113
				60	%		40	%				77	%		23	%

	Total Revenue		United States			Non-United States			Total Revenue		United States			Non-United States
Battery & Energy Products	$	22,875	$	11,813		$	11,062		$	29,150	$	14,540		$	14,610
Communications Systems		3,895		1,953			1,942			1,223		1,152			71
Total	$	26,770	$	13,766		$	13,004		$	30,373	$	15,692		$	14,681
				51	%		49	%				52	%		48	%

	Three-Month Period Ended				Six-Month Period Ended				Three-month period ended
	June 30,		June 30,		June 30,		June 30,		March 31,			March 31,
	2021		2020		2021		2020		2022			2021

Net income attributable to Ultralife Corporation	$	811	$	1,658	$	1,482	$	2,717
Net (loss) income attributable to Ultralife									$	(168	)	$	671
Add:
Interest expense		55		106		111		280		134			56
Income tax provision		248		499		465		818
Income tax (benefit) provision										(251	)		217
Depreciation expense		730		582		1,460		1,161		816			730
Amortization expense		156		158		310		319
Amortization of intangible assets										328			154
Stock-based compensation expense		186		304		370		534		189			184
Non-cash purchase accounting adjustments										55			-
Adjusted EBITDA	$	2,186	$	3,307	$	4,198	$	5,829	$	1,103		$	2,012

	Three-Month Period Ended
	June 30, 2021						June 30, 2020
	Amount		Per Basic Share		Per Diluted Share		Amount		Per Basic Share		Per Diluted Share
Net income attributable to Ultralife Corporation	$	811	$	.05	$	.05	$	1,658	$	.10	$	.10
Deferred income tax provision		177		.01		.01		391		.03		.03
Adjusted net income attributable to Ultralife Corporation	$	988	$	.06	$	.06	$	2,049	$	.13	$	.13

Weighted average shares outstanding				16,019		16,260				15,882		16,133

Exhibit Index	Exhibit Description	Incorporated by Reference from
31.1	Rule 13a-14(a) / 15d-14(a) CEO Certifications	Filed herewith
31.2	Rule 13a-14(a) / 15d-14(a) CFO Certifications	Filed herewith
32	Section 1350 Certifications	Furnished herewith
101.INS	Inline XBRL Instance Document	Filed herewith
101.SCH	Inline XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)	Filed herewith

		ULTRALIFE CORPORATION
	~~(Registrant)~~
		(Registrant)

Date: ~~July 29, 2021~~April 28, 2022	By:	~~By:~~ /s/ Michael D. Popielec
		Michael D. Popielec
		President and Chief Executive Officer
		~~(Principal~~(Principal Executive Officer)

Date: ~~July 29, 2021~~April 28, 2022	By:	~~By:~~ /s/ Philip A. Fain
		Philip A. Fain
		Chief Financial Officer and Treasurer
		~~(Principal~~(Principal Financial Officer and
		Principal Accounting Officer)