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What changed in ULTRALIFE CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ULTRALIFE CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+274 added−278 removedSource: 10-K (2024-03-21) vs 10-K (2023-03-31)

Top changes in ULTRALIFE CORP's 2023 10-K

274 paragraphs added · 278 removed · 225 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

74 edited+7 added−2 removed111 unchanged
Biggest changeThe commercial products to date are integration of information technology capability into rugged cases, supporting use of high computing capability in various configurations. We market these products to automotive, cellular carriers and manufacturing industries. Communications and Electronics. Our communications and electronics services include the design, integration, and fielding of portable, mobile and fixed-site communications systems.
Biggest changeOur power systems include AC/DC power supplies with battery backup for tactical manpack radios and power adaptors and chargers. We can provide power supplies for virtually all tactical communications devices. Our commercial products integrate information technology capability into rugged cases, supporting use of high computing capability in various configurations. We market these products to automotive, cellular carriers and manufacturing industries.
A significant portion of the sales of our 9-volt battery is to major smoke alarm OEMs for use in their long-life smoke alarms. We also manufacture our 9‑volt Lithium battery under private labels for a variety of companies. Additionally, we sell our 9‑volt battery to the broader consumer market through national and regional retail chains and online retailers.
A significant portion of the sales of our 9-volt Lithium battery is to major smoke alarm OEMs for use in their long-life smoke alarms. We also manufacture our 9‑volt Lithium battery under private labels for a variety of companies. Additionally, we sell our 9‑volt Lithium battery to the broader consumer market through national and regional retail chains and online retailers.
It is aimed at reducing mercury, cadmium, lead and other metals in the environment by minimizing the use of these substances in batteries and by treating and re-using old batteries. The EU Battery Directive applies to all types of batteries except those used to protect European member states’ security, for military purposes, or sent into space.
It is aimed at reducing mercury, cadmium, lead and other metals in the environment by minimizing the use of these substances in batteries and by treating and re-using old batteries. The EU Battery Directive applies to all types of batteries except those used to protect European Union member states’ security, for military purposes, or sent into space.
While our 9‑volt battery price is generally higher than conventional 9‑volt Carbon Zinc and Alkaline batteries, we believe the enhanced operating performance and decreased costs associated with longer battery life make our 9‑volt battery more cost effective than conventional batteries on a cost per unit of energy or volume basis when used in a variety of applications.
While our 9‑volt Lithium battery price is generally higher than conventional 9‑volt Carbon Zinc and Alkaline batteries, we believe the enhanced operating performance and decreased costs associated with longer battery life make our 9‑volt Lithium battery more cost effective than conventional batteries on a cost per unit of energy or volume basis when used in a variety of applications.
All applicable products sold in the European Union market must pass RoHS compliance. While this directive does not apply to batteries and does not currently affect our defense products, should any changes occur in the directive that would affect our products, we intend and expect to comply with any new regulations that are imposed.
All applicable products sold in the European Union market must pass EU RoHS Directive compliance. While this directive does not apply to batteries and does not currently affect our defense products, should any changes occur in the directive that would affect our products, we intend and expect to comply with any new applicable regulations that are imposed.
We sell our products directly and through authorized distributors to OEMs and directly to defense contractors and U.S. and foreign militaries. We market our products to defense organizations and OEMs in the U.S. and internationally. Sales targets for commercial products include integrated systems for information technology equipment to support fixed, mobile and deployable locations.
We sell our products directly and through authorized distributors to OEMs and directly to defense contractors and U.S. and foreign militaries. We market our products to defense organizations and OEMs in the U.S. and internationally. 8 Sales targets for commercial products include integrated systems for information technology equipment to support fixed, mobile and deployable locations.
These current initiatives include completing the development and testing of new battery and power solutions in our facilities in Newark, New York, Houston and Missouri City, Texas, Canada and Newcastle-under-Lyme, UK; our Thionyl Chloride battery project in China and new product initiatives for our Communications Systems business.
These current initiatives include the following: completing the development and testing of new battery and power solutions in our facilities in Newark, New York, Houston and Missouri City, Texas, Canada and Newcastle-under-Lyme, UK; our Thionyl Chloride battery project in China and new product initiatives for our Communications Systems business.
The regulations require companies to meet certain testing, packaging, labeling, marking and shipping paper specifications for safety reasons. We have not incurred, and do not expect to incur, any significant costs in order to comply with these regulations.
These regulations require companies to meet certain testing, packaging, labeling, marking and shipping paper specifications for safety reasons. We have not incurred, and do not expect to incur, any significant costs in order to comply with these regulations.
However, we cannot ensure that the cost of complying with such new regulations would not have a material adverse effect on us. We believe our commercial chargers are substantially in compliance with the EU RoHS Directive.
However, we cannot ensure that the cost of complying with such new regulations would not have a material adverse effect on us. We believe our commercial chargers are in material compliance with the EU RoHS Directive.
Manufacturing and Raw Materials We manufacture our products from raw materials and component parts that we purchase. Our manufacturing facility in Newark, New York is ISO 9001 and ISO 13485 certified. Our Canadian manufacturing facilities in Calgary and Mississauga are ISO 9001 certified and ISO 13485 certified.
Manufacturing and Raw Materials We manufacture our products from raw materials and component parts that we purchase. Our manufacturing facility in Newark, New York is ISO 9001 and ISO 13485 certified. Our Canadian manufacturing facilities in Calgary, Vancouver and Mississauga are ISO 9001 certified and ISO 13485 certified.
Our annual report on Form SD was filed by the statutory due date of May 31, 2022 for the 2021 calendar year and we continue to utilize appropriate measures with our suppliers to better ascertain the origin of the conflict minerals in our products. 13 Competition Competition in both the battery and communications systems markets is, and is expected to remain, intense.
Our annual report on Form SD was filed by the statutory due date of May 31, 2023 for the 2022 calendar year and we continue to utilize appropriate measures with our suppliers to better ascertain the origin of the conflict minerals in our products. 13 Competition Competition in both the battery and communications systems markets is, and is expected to remain, intense.
Military applications for our non-rechargeable HiRate® batteries include: manpack and survival radios, night vision devices, targeting devices, chemical agent monitors and thermal imaging equipment.
Military applications for our non-rechargeable Ultralife HiRate® batteries include manpack and survival radios, night vision devices, targeting devices, chemical agent monitors and thermal imaging equipment.
We believe our current 9-volt battery manufacturing capacity is adequate to meet forecasted customer demand over the next three years. Cylindrical Batteries.
We believe our current 9-volt Lithium battery manufacturing capacity is adequate to meet forecasted customer demand over the next three years. Cylindrical Batteries.
We hold thirty-six patents issued in the U.S., six patents issued in the European Union member states, four patents issued in the European Union, four patents issued in India, four patents issued in Japan, four patents issued in South Korea, four patents issued in the United Kingdom, three patents issued in Canada, three patents issued in China, three patents issued in Taiwan, two patents issued in Norway, one patent issued in Australia, one patent issued in Hong Kong, one patent issued in Iceland, and one patent issued by the World Intellectual Property Organization.
We hold thirty-four patents issued in the U.S., six patents issued in the European Union member states, five patents issued in the European Union, five patents issued in the United Kingdom, five patents issued in Japan, four patents issued in India, four patents issued in South Korea, three patents issued in Canada, three patents issued in China, three patents issued in Taiwan, two patents issued in Norway, one patent issued in Australia, one patent issued in Hong Kong, one patent issued in Iceland, one patent issued in Mexico and one patent issued by the World Intellectual Property Organization.
The year-over-year 28% increase primarily reflects an increase in materials, including rechargeable cells, required to fulfill the backlog for our batteries primarily used in the medical devices, government & defense and oil & gas sectors. Management continuously monitors inventory levels in an effort to optimize such levels.
The year-over-year 7% increase primarily reflects an increase in materials, including rechargeable cells, required to fulfill the backlog for our batteries primarily used in the medical devices, government and defense, and oil and gas sectors. Management continuously monitors inventory levels in an effort to optimize such levels.
For information relating to total assets by segment, revenues for the last two years by segment, and contribution by segment for the last two years, see Note 10 in the notes to consolidated financial statements. 3 History Ultralife was formed as a Delaware corporation in December 1990.
For information relating to total assets by segment, revenues for the last two years by segment, and contribution by segment for the last two years, see Note 9 in the notes to consolidated financial statements. 3 History Ultralife was formed as a Delaware corporation in December 1990.
We believe we comply with all current U.S. and international regulations for the shipment of our products, and we intend and expect to comply with any new regulations that are imposed. We have established our own testing facilities to ensure that we comply with these regulations.
We believe we comply with all current U.S. and international regulations for the shipment of our products, and we intend and expect to comply with any new applicable regulations that are imposed. We have established our own testing facilities to help ensure that we comply with these regulations.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations and the 2022 Consolidated Financial Statements and Notes thereto contained in this Form 10-K Annual Report for additional information on the expenses referred to above.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations and the 2023 Consolidated Financial Statements and Notes thereto contained in this Form 10-K Annual Report for additional information on the expenses referred to above.
Our expectation is that new product development is one of the factors that will drive our growth. As in the past, we will continue to make funding decisions for our research and development efforts based upon demand for customer applications.
We expect that new product development is one of the factors that will drive our growth. As in the past, we will continue to make funding decisions for our research and development efforts based upon demand for customer applications.
This directive calls on each European Union member state to enact enabling legislation to implement the directive. As additional European Union member states pass enabling legislation our compliance system should be sufficient to meet such requirements. Our current estimated costs associated with our compliance with these directives based on our current market share are not significant.
This directive calls on each European Union member state to enact enabling legislation to implement the directive. As additional European Union member states pass enabling legislation, we believe our compliance system should be sufficient to meet such requirements. Our current estimated costs associated with our continued compliance with these directives based on our current market share are not significant.
Capacity, however, is also affected by demand for particular products, and product mix changes can produce bottlenecks in an individual operation, constraining overall capacity. We have acquired new machinery and equipment in areas where production bottlenecks have occurred in the past and we believe that we have sufficient capacity in these areas.
Capacity, however, is affected by demand for particular products, and product mix changes can produce bottlenecks in an individual operation, constraining overall capacity. We have acquired new machinery and equipment in areas where production bottlenecks have occurred in the past and we believe that we have sufficient capacity in most areas.
Although we have experienced interruptions of product deliveries by sole source and other suppliers in 2022 resulting in the delay of shipments to future periods, we cannot assure that these interruptions and delays will not have an adverse effect on us in the future.
Although we have experienced interruptions of product deliveries by sole source and other suppliers in 2023 resulting in the delay of some shipments to future periods, we cannot assure that these interruptions and delays will not have an adverse effect on us in the future.
We acquired SWE as a bolt-on acquisition to further support our strategy of commercial revenue diversification by providing entry to the oil and gas exploration and production, and subsea electrification markets, which were previously unserved by Ultralife.
We acquired SWE as a bolt-on acquisition which has further supported our strategy of commercial revenue diversification by providing entry to the oil and gas exploration and production, and subsea electrification markets, which were previously unserved by Ultralife.
Our HiRate® and ThinCell® Lithium non-rechargeable batteries are sold primarily to the military and to OEMs in industrial markets for use in a variety of applications including radios, emergency radio beacons, search and rescue transponders, pipeline inspection gauges, portable medical devices, wearable medical products, Bluetooth tracking devices and other specialty applications.
Our Ultralife HiRate® and Ultralife Thin Cell® Lithium non-rechargeable batteries are sold primarily to the military and to OEMs in industrial and medical markets for use in a variety of applications including radios, emergency radio beacons, search and rescue transponders, pipeline inspection gauges, portable medical devices, wearable medical products, Bluetooth tracking devices and other specialty applications.
In 2022 and 2021, we spent $264 and $208, respectively, on environmental compliance, including costs to properly dispose of potentially hazardous waste. Since non-rechargeable and rechargeable Lithium battery chemistries react adversely with water and water vapor, certain of our manufacturing processes must be performed in a controlled environment with low relative humidity.
In 2023 and 2022, we spent $199 and $264, respectively, on environmental compliance, including costs to properly dispose of potentially hazardous waste. Since non-rechargeable and rechargeable Lithium battery chemistries react adversely with water and water vapor, certain of our manufacturing processes must be performed in a controlled environment with low relative humidity.
Our manufacturing facility in Shenzhen, China is ISO 9001, ISO 1401 and ISO 13485 certified. Our manufacturing facility in Missouri City, Texas is ISO 9001 and ISO 13485 certified. Our manufacturing facilities in the United Kingdom are ISO 9001 and ISO 13485 certified.
Our manufacturing facility in Shenzhen, China is ISO 9001, ISO 14001 and ISO 13485 certified. Our manufacturing facility in Missouri City, Texas is ISO 9001 and ISO 13485 certified. Our manufacturing facilities in the United Kingdom are ISO 9001 and ISO 13485 certified.
Acquiring Excell offers us opportunities to further scale our Battery & Energy Products business and drive the operating leverage of our business model, expand into OEM device verticals that we do not presently serve, enhance our contributed value to both our customers and realize cost synergies.
Acquiring Excell has allowed us to further scale our Battery & Energy Products business and drive the operating leverage of our business model, expand into OEM device verticals that we do not presently serve, enhance our contributed value to both our customers and realize cost synergies.
Excell serves a variety of industrial markets including downhole drilling, OEM industrial and medical devices, automated meter reading, ruggedized computers, and mining, marine and other mission critical applications which demand uncompromised safety, service, reliability and quality. We acquired Excell as an important component of our strategy to diversify commercial revenue and expand the end markets we serve.
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. Our acquisition of Excell has been an important component of our strategy to diversify commercial revenue and expand the end markets we serve.
Army’s Leader Radio program and to supply an international defense contractor with our amplifiers and radio vehicle mounts for an ongoing allied country government/defense modernization program. The 2022 year-end backlog is related to orders that are expected to ship throughout 2023.
Army’s Leader Radio program and to supply an international defense contractor with our amplifiers and radio vehicle mounts for an ongoing allied country government/defense modernization program. The 2023 year-end Communications Systems backlog is related to orders that are expected to ship throughout 2024.
The prices and availability of raw materials were impacted by COVID/supply chain disruptions in 2022 and may continue to be affected in 2023. Battery & Energy Products Our Newark, New York and Shenzhen, China facilities have the capacity to produce cylindrical cells, 9-volt batteries, 3-volt battery and thin cells.
The prices and availability of some raw materials were impacted by COVID-19/supply chain disruptions in 2023 and may continue to be affected in 2024. Battery & Energy Products Our Newark, New York and Shenzhen, China facilities have the capacity to produce cylindrical cells, 9-volt Lithium batteries, 3-volt battery and thin cells.
This operation generally assembles products and is limited only by physical space and is not constrained by manufacturing equipment capacity. 10 The total carrying value of our Communications Systems inventory, including raw materials, work in process and finished goods, amounted to $8,421 and $7,512 as of December 31, 2022 and 2021, respectively.
This operation generally assembles products and is limited only by physical space and is not constrained by manufacturing equipment capacity. 10 The total carrying value of our Communications Systems inventory, including raw materials, work in process and finished goods, amounted to $6,994 and $8,421 as of December 31, 2023 and 2022, respectively.
We continually evaluate our requirements for additional capital equipment, and we believe that planned increases will be adequate to meet foreseeable customer demand. Certain materials used in our products, other than rechargeable battery cells, are available only from a single source or a limited number of sources.
We continually evaluate our requirements for additional capital equipment and direct labor resources, to help ensure that our planned increases will be adequate to meet foreseeable customer demand. Certain materials used in our products, other than rechargeable battery cells, are available only from a single source or a limited number of sources.
Among the defense uses are manpack radios, night vision goggles, chemical agent monitors and thermal imaging equipment. Medical applications include: Automated External Defibrillators (“AEDs”), infusion pumps, wearable patient monitoring and telemetry systems. Search and rescue applications include Emergency Locator Transmitters (“ELTs”) for aircraft and Emergency Position Indicating Radio Beacons (“EPIRBs”) for ships.
Among the defense uses are manpack radios, night vision goggles, chemical agent monitors and thermal imaging equipment. Medical applications include Automated External Defibrillators (AEDs), infusion pumps, wearable patient monitoring and telemetry systems. Search and rescue applications include Emergency Locator Transmitters (ELTs) for aircraft and Emergency Position Indicating Radio Beacons (EPIRBs) for ships.
Oil and gas applications include battery packs for downhole and directional drilling applications such as Measurement While Drilling (“MWD”) and Logging While Drilling (“LWD”) and pipeline inspection and monitoring. 5 Thin Cell Batteries. We manufacture a range of thin Lithium Manganese Dioxide batteries under the Thin Cell® brand.
Oil and gas applications include battery packs for downhole and directional drilling applications such as Measurement While Drilling (MWD) and Logging While Drilling (LWD) and pipeline inspection and monitoring. 5 Thin Cell Batteries. We manufacture a range of thin Lithium Manganese Dioxide batteries under the Ultralife Thin Cell® brand.
Furthermore, Excell possesses experienced technical resources which we plan to utilize in progressing our global new product initiatives while adding a complementary line of highly engineered products both existing and in development that are costly for our customers to substitute with products of a competitor. 4 Products, Services and Technology Battery & Energy Products ’ A non-rechargeable battery is used until discharged and then replaced.
Furthermore, we utilize Excell experienced technical resources in our global new product initiatives and add a complementary line of highly engineered products, both existing and in development, that are costly for our customers to substitute with products of a competitor. 4 Products, Services and Technology Battery & Energy Products ’ A non-rechargeable battery is used until discharged and then replaced.
A key part of this expansion includes increasing our design and assembly capabilities as well as building our international network of distributors and value-added distributors. At December 31, 2022 and 2021, our backlog related to Battery & Energy Products was approximately $88,600 and $55,300, respectively.
A key part of this expansion includes increasing our design and assembly capabilities as well as building our international network of distributors and value-added distributors. At December 31, 2023 and 2022, our backlog related to Battery & Energy Products was approximately $92,000 and $88,600, respectively.
We expect that research and development expenditures in the future could increase by 10% or more over 2022 levels, based on current initiatives.
We expect that research and development expenditures in the future, including 2024, could increase by 10% or more over 2023 levels, based on current initiatives.
We sell our products directly to commercial businesses in the U.S. At December 31, 2022 and 2021, our backlog related to Communications Systems orders was approximately $22,400 and $8,400, respectively.
We sell our products directly to commercial businesses in the U.S. At December 31, 2023 and 2022, our backlog related to Communications Systems orders was approximately $11,500 and $22,400, respectively.
The 167% increase in our Communications Systems backlog at December 31, 2022 is primarily a result of purchase orders received in 2022 to supply a global defense prime with our Vehicle Amplifier-Adaptors for the U.S.
The 49% decrease in our Communications Systems backlog at December 31, 2023 is primarily a result of fulfillment in 2023 of purchase orders received in 2022 to supply a global defense prime with our Vehicle Amplifier-Adaptors for the U.S.
The total carrying value of our Battery & Energy Products inventory, including raw materials, work in process and finished goods, amounted to $32,771 and $25,677 as of December 31, 2022 and 2021, respectively.
The total carrying value of our Battery & Energy Products inventory, including raw materials, work in process and finished goods, amounted to $35,221 and $32,771 as of December 31, 2023 and 2022, respectively.
In 2021, sales to U.S. and foreign customers were approximately $48,819 and $49,448, respectively. 7 Battery & Energy Products We target sales of our non-rechargeable products to manufacturers of security and safety equipment, medical devices, search and rescue equipment, specialty instruments, oil and gas downhole drilling and pipe inspection equipment, point of sale equipment and metering applications, as well as users of military equipment.
In 2022, sales to U.S. and foreign customers were approximately $67,914 and $63,926, respectively. 7 Battery & Energy Products We target sales of our non-rechargeable products to manufacturers of security and safety equipment, medical devices, search and rescue equipment, specialty instruments, oil and gas downhole drilling and pipe inspection equipment, point of sale equipment and metering applications, as well as users of military equipment.
Similarly, our China and United Kingdom facilities also have capacity to produce significant quantities of non-rechargeable batteries and rechargeable battery packs beyond current volumes and are not constrained by manufacturing equipment capacity. Our Missouri City, Texas facility has the capacity to produce significant quantities of non-rechargeable battery packs and is not constrained by manufacturing equipment capacity.
Similarly, our China and United Kingdom facilities also have capacity to produce significant quantities of non-rechargeable batteries and rechargeable battery packs beyond current volumes and are not constrained by manufacturing equipment capacity.
Army award for Conformal Wearable Batteries ($168,000). 8 Communications Systems We target sales of our communications systems, which include power solutions and accessories to support communications systems such as RF amplifiers, power supplies, power cables, connector assemblies, amplified speakers, equipment mounts, case equipment and integrated communication systems, to military OEMs and U.S. and allied foreign militaries.
Communications Systems We target sales of our communications systems, which include power solutions and accessories to support communications systems such as RF amplifiers, power supplies, power cables, connector assemblies, amplified speakers, equipment mounts, case equipment and integrated communication systems, to military OEMs and U.S. and allied foreign militaries.
As such, we report segment performance at the gross profit level and operating expenses as Corporate charges. (See Note 10 in the notes to consolidated financial statements.) Our website address is www.ultralifecorporation.com.
As such, we report segment performance at the gross profit level and operating expenses as Corporate charges. (See Note 9 in the notes to consolidated financial statements contained in Item 8 of this Form 10-K.) Our website address is www.ultralifecorporation.com.
Sales and Marketing We employ a staff of sales and marketing personnel in North America, Europe and Asia. We sell our products and services directly to commercial customers, including OEMs, as well as government and defense agencies in the U.S. and abroad and have contractual arrangements with sales agents who market our products on a commission basis in defined territories.
We sell our products and services directly to commercial customers, including OEMs, as well as government and defense agencies in the U.S. and abroad and have contractual arrangements with sales agents who market our products on a commission basis in defined territories.
Revenues for this segment for the year ended December 31, 2022 were $119,995 and segment contribution (gross profit) was $26,154. Communications Systems Under our McDowell Research and AMTI brands, we design and manufacture a line of communications systems and accessories to support military communications requirements and under Ultralife Corporation brand provide system integration products and services.
Revenues for this segment for the year ended December 31, 2023 were $129,953 and segment contribution (gross profit) was $30,775. Communications Systems Under our McDowell Research and AMTI brands, we design and manufacture a line of communications systems and accessories to support military communications requirements and under our Ultralife brand we provide system integration products and services.
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.
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.
We have one major customer, a large global defense primary contractor, which comprised 17% of our total revenues in 2022, and 20% of our total revenues in 2021. There were no other customers that comprised greater than 10% of our total revenues during these years. In 2022, sales to U.S. and foreign customers were approximately $67,914 and $63,926, respectively.
We have one major customer, a large global defense primary contractor, which comprised 15% of our total revenues in 2023, and 17% of our total revenues in 2022. There were no other customers that comprised greater than 10% of our total revenues during these years. In 2023, sales to U.S. and foreign customers were approximately $81,396 and $77,248, respectively.
Every effort is made to adjust future prices when and if possible, but the ability to adjust prices is generally based on market conditions. We also distribute some of our products through domestic and foreign distributors and retailers. These sales are generated primarily from customer purchase orders. We have several long-term contracts with the U.S. government and other customers.
Every effort is made to adjust future prices when and if possible, but the ability to adjust prices is generally based on market conditions. We also distribute some of our products through domestic and foreign distributors and retailers. Sales of these products are generated primarily from purchase orders issued by these customers.
We acquired Accutronics to advance our strategy of commercial revenue diversification, to expand our geographical penetration, and to achieve revenue growth from new product development. We are continuing to experience sales synergies between Accutronics and our existing commercial battery business as we cross-sell our existing products and the acquired Accutronics’ products to our respective customer bases.
With our acquisition of Accutronics we advanced our strategy of commercial revenue diversification, expanded our geographical penetration, and achieved revenue growth from new product development. We continue to experience sales synergies between Accutronics and our existing commercial battery business as we cross-sell our existing products and the acquired Accutronics’ products to our respective customer bases.
These amplifiers are used to extend the range of manpack and handheld tactical transceivers, and our RF amplifiers include both mounted and dismounted versions and many related accessories and kits which can be used on mobile or fixed site applications. Integrated Systems. Our integrated systems include: vehicle mounted systems; SATCOM systems; rugged, deployable case systems; and multiband transceiver kits.
Our communications products include the following product configurations: RF Amplifiers. These amplifiers are used to extend the range of manpack and handheld tactical transceivers, and our RF amplifiers include both mounted and dismounted versions and many related accessories and kits which can be used on mobile or fixed site applications. Integrated Systems.
Another key benefit of our acquisition of SWE includes obtaining a highly valuable technical team of battery pack and charger system engineers and technicians to add to our new product development-based revenue growth initiatives in our commercial end-markets particularly asset tracking devices, smart metering for utilities and other industrial applications.
Another key benefit of our acquisition of SWE was obtaining a highly valuable technical team of battery pack and charger system engineers and technicians which has added to our new product development-based revenue growth initiatives in our commercial end-markets particularly asset tracking devices, smart metering for utilities and other industrial applications, as well as their contribution to the development of certain government and defense products.
These contracts do not commit the customers to specific purchase volumes, nor to specific timing of purchase order releases, and they include fixed price agreements over various periods of time.
We have several long-term contracts with the U.S. government and other customers. These contracts do not commit the customers to specific purchase volumes, nor to specific timing of purchase order releases, and they include fixed price agreements over various periods of time.
Employees As of December 31, 2022, we employed a total of 547 permanent and temporary employees: 424 in production, 78 in sales and administration, and 45 in research and development. None of our employees are represented by a labor union.
Employees As of December 31, 2023, we employed a total of 536 permanent and temporary employees: 412 in production, 75 in sales and administration, and 49 in research and development. None of our employees are represented by a labor union.
Our technology contract activities involve the development of new products or the enhancement of existing products through contracts with both government agencies and private sector third parties. 6 Communications Systems Under our McDowell Research and AMTI brands, we design and manufacture a line of communications systems and accessories to support military communications systems, including RF amplifiers, power supplies, power cables, connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems and integrated communication systems for fixed or vehicle applications such as vehicle amplifier-adaptors.
Communications Systems Under our McDowell Research and AMTI brands, we design and manufacture a line of communications systems and accessories to support military communications systems, including RF amplifiers, power supplies, power cables, connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems and integrated communication systems for fixed or vehicle applications such as vehicle amplifier-adaptors.
Battery & Energy Products We manufacture and/or market a family of Lithium Manganese Dioxide (Li-MnO 2 ), Lithium Manganese Dioxide Carbon Monofluoride (Li-CFx/MnO2) hybrid and Lithium Thionyl Chloride (Li-SOCl2) non-rechargeable batteries including 9-volt, HiRate® cylindrical, ThinCell®, and other form factors. Applications for our 9-volt batteries include: smoke alarms, wireless security systems and intensive care monitors, among many other devices.
Battery & Energy Products We manufacture and/or market a family of Lithium Manganese Dioxide (Li-MnO 2 ), Lithium Manganese Dioxide Carbon Monofluoride (Li-CFx/MnO2) hybrid and Lithium Thionyl Chloride (Li-SOCl2) non-rechargeable batteries including 9-volt, Ultralife HiRate® cylindrical, Ultralife Thin Cell®, and other form factors.
We enjoy strong name recognition in our markets under our Ultralife® Batteries, Lithium Power®, McDowell Research®, AMTI TM , ABLE TM , ACCUTRONICS™, ACCUPRO™, ENTELLION™, SWE Southwest Electronic Energy Group™, SWE DRILL-DATA™, SWE SEASAFE™, Excell Battery Group and Criterion Gauge brands. We have sales, operations and product development facilities in North America, Europe and Asia.
We enjoy strong name recognition in our markets under our Ultralife®, Ultralife HiRate®, Ultralife Thin Cell®, Ultralife Batteries Inc.®, Lithium Power®, McDowell Research®, AMTI TM , ABLE TM , ACCUTRONICS™, ACCUPRO™, ENTELLION™, SWE Southwest Electronic Energy Group™, SWE SEASAFE™, Excell Battery Group™ and Criterion Gauge™ brands, among others.
The year-over-year 12% increase is due to the procurement of longer lead time components to meet the commitment dates of our backlog orders. Management continuously monitors inventory levels in an effort to optimize such levels.
The year-over-year 17% decrease is due to the fulfillment of certain large purchase orders in 2023 that contained longer lead time components to meet the commitment dates. Management continuously monitors inventory levels in an effort to optimize such levels.
Our rechargeable products can be used in a wide variety of applications including communications, medical and other portable electronic devices. 2 Within this segment, we also seek to fund the development of new products that we hope will advance our technologies through contracts with both government agencies and private sector third parties.
Within this segment, we also seek to fund the development of new products that we hope will advance our technologies through contracts with both government agencies and private sector third parties.
Army for purchases of Conformal Wear Batteries not to exceed $168,000 during the three-year base award period with the potential for up to an additional $350,000 should the six one-year options be exercised. We are scheduled to complete First Article Testing under this contract in the second half of 2023.
Army for purchases of Conformal Wearable Batteries (“CWB”) 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.
The 60% year-over-year increase in our Battery & Energy Products backlog at December 31, 2022 primarily resulted from the demand for our medical, government & defense and oil & gas batteries, which in some cases includes orders pushed into 2023 because of the supply chain disruptions experienced in 2022.
The 4% year-over-year increase in our Battery & Energy Products backlog at December 31, 2023 primarily resulted from the demand for our medical, government and defense, and oil and gas batteries.
The 2022 year-end backlog is primarily related to orders that are expected to ship throughout 2023 and does not include future shipments under the indefinite-delivery/indefinite-quantity Defense Logistics Agency award for BA-5390 batteries ($9,900) and the U.S.
The 2023 year-end Battery & Energy Products backlog is primarily related to orders that are expected to ship throughout 2024 and does not include future shipments under the indefinite-delivery/indefinite-quantity awards with the U.S. Department of Defense.
During 2022 and 2021, we expended $7,874 and $8,042, respectively, on research and development, including $793 and $1,216, respectively, on customer sponsored research and development activities, which are included in cost of products sold.
During 2023 and 2022, we expended $8,587 and $7,874, respectively, on research and development, including $1,056 and $793, respectively, on customer sponsored research and development activities, which are included in cost of products sold. The year-over-year increase in customer sponsored research and development is due to the timing of key projects, including the development of customer-driven new products.
The balance of income and expense, including but not limited to research and development expenses, and selling, general and administrative expenses, are reported as Corporate operating expenses. Corporate had no revenues for the year ended December 31, 2022 and our Corporate operating expenses for the year ended December 31, 2022 were $29,271.
Corporate We report revenues and cost of sales for the above operating segments. The balance of income and expense, including but not limited to research and development expenses, and selling, general and administrative expenses, are reported as Corporate operating expenses.
We package all systems to meet specific customer needs in rugged enclosures to allow their use in extreme environments and under our Ultralife Corporation brand provide system integration products and services for commercial requirements.
We package all systems to meet specific customer needs in rugged enclosures to allow their use in extreme environments and under our Ultralife Corporation brand provide system integration products and services for commercial requirements. 6 We offer a wide range of military communications systems and accessories designed to enhance and extend the operation of communications equipment such as vehicle-mounted, manpack and handheld transceivers.
We market these products to all branches of the U.S. military and foreign defense organizations that we are permitted to sell our products to, as well as U.S. and international prime defense contractors. Commercial products offered to date under the Ultralife brand integrate information technology equipment and power conversion capability into rugged cases, supporting use in various industries.
We market these products to all branches of the U.S. military and to foreign defense organizations that we are permitted to sell our products to, as well as to U.S. and to international prime defense contractors.
Ltd., a British Columbia corporation (“656700”) and its wholly owned subsidiary, Excell Battery Corporation USA, a Texas corporation (“Excell USA” and together with Excell Canada and 656700, collectively, “Excell”), which operate under the name Excell Battery Group, based in Canada with U.S. operations, a leading independent designer and manufacturer of high-performance smart battery systems, battery packs and monitoring systems to customer specifications.
Based in Canada with U.S. operations, Excell Battery Group is a leading independent designer and manufacturer of high-performance smart battery systems, battery packs and monitoring systems to customer specifications.
On December 13, 2021, we acquired Excell Battery Canada Inc., a British Columbia corporation (“Excell Canada”), and 656700 B.C.
On December 13, 2021, we acquired Excell Battery Canada Inc., a British Columbia corporation (“Excell Canada”), and 656700 B.C. Ltd., a British Columbia corporation (“656700”) and its wholly owned subsidiary, Excell Battery Corporation USA, a Texas corporation (“Excell USA” and together with Excell Canada and 656700, collectively, “Excell”), which operate under the name Excell Battery Group.
While the price of our Lithium batteries is generally higher than alkaline batteries, the increased energy per unit of weight and volume of our Lithium batteries allow for longer operating times and less frequent battery replacements for our targeted applications.
While the price of our Lithium batteries is generally higher than alkaline batteries, the increased energy per unit of weight and volume of our Lithium batteries allow for longer operating times and less frequent battery replacements for our targeted applications. 2 We believe that our ability to design and produce lightweight, high-energy Lithium-ion and Nickel Metal Hydride (NiMH) rechargeable batteries and charging systems in a variety of custom sizes, shapes, and thicknesses offers substantial benefits to our customers.
We are in the process of assessing the capacity our Excell facilities in Houston, Texas and in Calgary, Mississauga and Vancouver, Canada to determine constraints associated with human capital resources or manufacturing equipment.
We continue to access the capacity of our global facilities based on increased demand for our products, and to determine constraints associated with human capital resources and/or manufacturing equipment.
These systems provide enhanced capabilities which enable communications operators to provide links to support Command, Control, Communications, Computers, Cyber and Intelligence, Surveillance and Reconnaissance (“C5ISR”). Power Systems. Our power systems include: AC/DC power supplies with battery backup for tactical manpack radios and power adaptors and chargers. We can provide power supplies for virtually all tactical communications devices.
Our integrated systems include vehicle mounted systems; SATCOM systems; rugged, deployable case systems; and multiband transceiver kits. These systems provide enhanced capabilities which enable communications operators to provide links to support Command, Control, Communications, Computers, Cyber and Intelligence, Surveillance and Reconnaissance (C5ISR). Power Systems.
The following are registered trademarks of ours: Ultralife®, Ultralife Thin Cell®, Ultralife HiRate®, Ultralife & design®, Ultra®, LithiumPower®, LithiumPower & Design®, SmartCircuit®, Smart Circuit®, Smart Circuit & design®, We Are Power®, AMTI®, ABLE™, ACCUTRONICS®, ACCUPRO®, ENTELLION®, Intelligent Power Vault®, McDowell Research®, RPS®, POW-R BMS®, POW-R TOTE®, POW-R-BMS®, SWE Southwest Electronic Energy Group®, SWE DRILL-DATA®, SWE DRILL-DATA®, SWE DRILL-DATA OBSERVER®, SWE SEASAFE®, SWE SEASAFE (& DESIGN)®, SWE SEASAFE + DIRECT®, SWE SOUTHWEST ELECTRONIC ENERGY GROUP ADVANCED BATTERY SOLUTIONS & DESIGN®, and THE NEW POWER GENERATION®.
POWER®, AMTI®, ABLE™, ACCUTRONICS™, ACCUPRO™, ENTELLION™, McDowell Research®, SWE Southwest Electronic Energy Group®, SWE DRILL-DATA®, SWE DRILL-DATA OBSERVER®, SWE SEASAFE®, SWE SEASAFE (& DESIGN)®, SWE SEASAFE + DIRECT®, SWE SOUTHWEST ELECTRONIC ENERGY GROUP ADVANCED BATTERY SOLUTIONS & DESIGN®, Excell Battery Group™ and Criterion Gauge™.
We believe that our ability to design and produce lightweight, high-energy Lithium-ion and Nickel Metal Hydride (NiMH) rechargeable batteries and charging systems in a variety of custom sizes, shapes, and thicknesses offers substantial benefits to our customers. We market Lithium-ion and Nickel Metal Hydride rechargeable batteries comprising cells manufactured by qualified cell manufacturers.
We market Lithium-ion and Nickel Metal Hydride rechargeable batteries comprising cells manufactured by qualified cell manufacturers. Our rechargeable products can be used in a wide variety of applications including communications, medical and other portable electronic devices.
We market these products to automotive, cellular carriers and manufacturing industries. Revenues for this segment for the year ended December 31, 2022 were $11,845 and segment contribution (gross profit) was $3,246. Corporate We report revenues and cost of sales for the above operating segments.
Commercial products offered to date under the Ultralife brand integrate information technology equipment and power conversion capability into rugged cases, supporting use in various industries. We market these products to automotive, cellular carriers and manufacturing industries. Revenues for this segment for the year ended December 31, 2023 were $28,691 and segment contribution (gross profit) was $8,425.
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We offer a wide range of military communications systems and accessories designed to enhance and extend the operation of communications equipment such as vehicle-mounted, manpack and handheld transceivers. Our communications products include the following product configurations: RF Amplifiers.
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Applications for our 9-volt batteries include smoke alarms, wireless security systems and intensive care monitors, among many other devices.
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The year-over-year decrease in customer sponsored research and development is due to the timing of key projects and helped to offset our increased costs for the hiring of engineering resources to support new product development in our Battery & Energy Products business segment, including the inclusion of a full year of operations for Excell which was acquired on December 13, 2021.
Added
Corporate had no revenues for the year ended December 31, 2023 and our Corporate operating expenses for the year ended December 31, 2023 were $29,725.
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Our technology contract activities involve the development of new products or the enhancement of existing products through contracts with both government agencies and private sector third parties.
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Communications and Electronics. Our communications and electronics services include the design, integration, and deployment of portable, mobile and fixed-site communications systems. Sales and Marketing We employ a staff of sales and marketing personnel in North America, Europe and Asia.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

82 edited+12 added−16 removed76 unchanged
Biggest change(2) Incremental fees to source and expedite critical components – In 2022 increases in demand with tight shipment schedules from both government/defense and medical customers, in some cases went beyond the wherewithal of our vendors to obtain key materials in a timely manner, necessitating the one-time use of brokers at a much higher cost and with more complex logistic, and further complicating the timely matching of higher costs with customer price increases.
Biggest changeThe underlying factors pressuring our gross margins in this timeframe included rapid cost inflation on raw materials and key components not entirely aligned with the timing of customer price increases; incremental fees to source and expedite critical components in a timely manner, necessitating the one-time use of brokers at a much higher cost and with more complex logistics, and further complicating the timely matching of higher costs with customer price increases; and irregular component availability and lead time extensions causing continuous production-line start-ups, shut-downs and changeovers resulting in labor inefficiencies, higher scrap and decreased absorption of overhead.
We face certain security threats, including threats to our information technology infrastructure, attempts to gain access to our proprietary or classified information, and threats to physical and cyber security. Our information technology networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations.
We face certain security threats, including threats to our information technology infrastructure, attempts to gain access to our proprietary or classified information, and threats to cyber and physical security. Our information technology networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations.
The market for our products is characterized by changing technology and evolving industry standards, often resulting in product obsolescence or short product lifecycles. Although we believe that our products utilize state-of-the-art technology, there can be no assurance that competitors will not develop technologies or products that would render our technologies and products obsolete or less marketable.
The market for our products is characterized by rapidly changing technology and evolving industry standards, often resulting in product obsolescence or short product lifecycles. Although we believe that our products utilize state-of-the-art technology, there can be no assurance that competitors will not develop technologies or products that would render our technologies and products obsolete or less marketable.
Although we currently carry insurance policies which cover loss of plant and machinery, leasehold improvements, inventory and business interruption, any accident, whether at the manufacturing facilities or from the use of the products, may result in significant production delays or claims for damages resulting from injuries or death.
Although we currently carry insurance policies which cover loss of plant and machinery, leasehold improvements, inventory and business interruption, any accident, whether at the manufacturing facilities or from the use and transportation of the products, may result in significant production delays or claims for damages resulting from injuries or death.
Up to six months prior to May 30, 2025, the Revolving Credit Facility may be increased to $50,000 with the Bank’s concurrence. 19 Upon closing of the Excell Acquisition on December 13, 2021, the Company drew down the full amount of the Term Loan Facility and $10,980 under the Revolving Credit Facility.
Up to six months prior to May 30, 2025, the Revolving Credit Facility may be increased to $50,000 with the Bank’s concurrence. Upon closing of the Excell Acquisition on December 13, 2021, the Company drew down the full amount of the Term Loan Facility and $10,980 under the Revolving Credit Facility.
We cannot assure (1) that patents will be issued from any of these pending applications, or that the claims allowed under any issued patents will be sufficiently broad to protect our technology, (2) that any patents issued to us will not be challenged, invalidated or circumvented, or (3) as to the degree or adequacy of protection any patents or patent applications may or will afford.
We cannot assure (1) that patents will be issued from any of these pending applications, or that the claims allowed under any issued patents will sufficiently protect our technology, (2) that any patents issued to us will not be challenged, invalidated or circumvented, or (3) as to the degree or adequacy of protection that any patents or patent applications may or will afford.
We have not incurred, and do not expect to incur, any significant costs in order to comply with these regulations. We believe we comply with all current U.S. and international regulations for the shipment of our products, and we intend and expect to comply with any new regulations that are imposed.
We have not incurred, and do not expect to incur, any significant costs in order to comply with these regulations. We believe we materially comply with all current U.S. and international regulations for the shipment of our products, and we intend and expect to comply with any new regulations that are imposed.
We are subject to many risks beyond our control that influence the success or failure of a particular product or service offered by a customer, including: ● competition faced by the customer in its particular industry, ● market acceptance of the customer’s product or service, ● the engineering, sales, marketing and management capabilities of the customer, 18 ● technical challenges unrelated to our technology or products faced by the customer in developing its products or services, and ● the financial and other resources of the customer.
We are subject to many risks beyond our control that influence the success or failure of a particular product or service offered by a customer, including: ● competition faced by the customer in its particular industry, ● market acceptance of the customer’s product or service, ● the engineering, sales, marketing and management capabilities of the customer, ● challenges unrelated to our technology or products faced by the customer in developing its products or services, and ● the financial and other resources of the customer.
While we consider our relationship with our major customer to be good, the reduction, delay or cancellation of orders from this customer or any delays in payments beyond their payment terms, for any reason, would reduce our revenue and operating income and could materially and adversely affect our business, operating results and financial condition in other ways.
While we consider our relationship with this major customer to be good, the reduction, delay or cancellation of orders from this customer or any delays in payments beyond their payment terms, for any reason, would reduce our revenues and operating income and could materially and adversely affect our business, operating results and financial condition in other ways.
The novel coronavirus disease of 2019 (COVID-19) has created significant economic disruption and uncertainty around the world. As we enter the third year of the pandemic, our workforce, customers and vendors still face the risk of the emergence of new strains, availability of effective treatment, and potential regulatory and macroeconomic effects stemming from such impacts.
The novel coronavirus disease of 2019 (COVID-19) has created significant economic disruption and uncertainty around the world. As we enter the fourth year of the pandemic, our workforce, customers and vendors still face the risk of the emergence of new strains, availability of effective treatment, and potential regulatory and macroeconomic effects stemming from such impacts.
However, if the government did not provide us with a government preference in such circumstances or if the suppliers are not able to meet the necessary demand for the components, the difficulty in obtaining supplies could have a material adverse effect on our business, financial condition and results of operations.
However, if the government did not provide us with a government preference in such circumstances or if the suppliers are not able to meet the necessary demand for the components, the difficulty in obtaining supplies on a timely basis could have a material adverse effect on our business, financial condition and results of operations.
Government or any prime defense contractor could significantly reduce our revenue. Our competitors continuously engage in efforts to expand their business relationships with the U.S. Government and will continue these efforts in the future, and the U.S. Government may choose to use other contractors or suppliers. Budget and appropriations decisions made by the U.S.
Government or any prime defense contractor could significantly reduce our revenues. Our competitors continuously engage in efforts to expand their business relationships with the U.S. Government and will continue these efforts in the future, and the U.S. Government may choose to use other contractors or suppliers. Budget and appropriations decisions made by the U.S.
The regulatory framework of China RoHS 2 also now references the updated marking and labeling requirements under Standard SJ/T 11364-2014. The methods under China RoHS 2 only apply to EEP placed in the marketplace in China. We believe our compliance system is sufficient to meet our requirements under China RoHS 2.
The regulatory framework of China RoHS 2 also now references the updated marking and labeling requirements under Standard SJ/T 11364-2014. The methods required by China RoHS 2 only apply to EEP placed in the marketplace in China. We believe our compliance system is sufficient to meet our requirements under China RoHS 2.
While we perform extensive due diligence in the launch of our products in new end markets and mitigate our risks with our contracts and insurance coverage, we may not be fully aware of the risks that may exist until we gain more experience in these markets.
While we perform extensive due diligence in the launch of our products in new end markets and attempt to mitigate our risks with our contracts and insurance coverage, we may not be fully aware of the risks that may exist until we gain more experience in these markets.
The risks of a security breach, cyber-attack, cyber intrusion, or disruption, particularly through actions taken by computer hackers, foreign governments and cyber terrorists, have increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
The risks of a security breach, cyberattack, cyber intrusion, or disruption, particularly through actions taken by computer hackers, foreign governments and cyber terrorists, have increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
We cannot guarantee the degree of protection these various claims may or will afford, or that competitors will not independently develop or patent technologies that are substantially equivalent or superior to our technology. We protect our proprietary rights in our products and operations through contractual obligations, including nondisclosure agreements with certain employees, customers, consultants and strategic partners.
We cannot guarantee the degree of protection these various claims may or will afford, or that competitors will not independently develop, patent or license technologies that are substantially equivalent or superior to our technologies. We also protect our proprietary rights in our products and operations through contractual obligations, including nondisclosure agreements with certain employees, customers, consultants and strategic partners.
The cyclicality in this industry, whether driven by geopolitical developments; international tensions; supply and demand economics; the introduction of new global, national, and industry-specific regulations; U.S. administration policies; and technology, appears to be a trend. A significant downturn in the price of oil may result in a decrease in downhole drilling and adversely impact on our financial results.
The volatility in this industry, whether driven by geopolitical developments; international tensions; supply and demand economics; the introduction of new global, national, and industry-specific regulations; U.S. administration policies; and technology, appears to be a trend. A significant downturn in the price of oil may result in a decrease in downhole drilling and adversely impact our financial results.
We have established our own testing facilities to ensure that we comply with these regulations.
We have established our own testing facilities to ensure that we materially comply with these regulations.
Although we have acquired and developed systems and processes designed to protect our proprietary or classified information, they may not be sufficient to prevent security breach, cyber-attack, cyber intrusion, or disruption, and the failure to prevent these types of events could disrupt our operations, require significant management attention and resources, and could negatively impact our reputation among our customers and the public, which could have a negative impact on our financial condition, and weaken our results of operations and liquidity.
Although we have acquired and developed systems and processes designed to protect our proprietary or classified information, they may not be sufficient to prevent security breach, cyberattack, cyber intrusion, or disruption, and the failure to prevent these types of events could disrupt our operations, require significant management attention and resources, and could negatively impact our reputation among our customers and the public, which could have a negative impact on our financial condition, operating results and liquidity.
Company Risk Factors Changes in economic conditions, including inflation and supply-chain disruptions have affected and may continue to affect our business, revenues and earnings adversely.
Company Risk Factors Changes in economic conditions, including inflation, interest rates, and supply-chain disruptions have affected and may continue to affect our business, revenues and earnings adversely.
In 2018, this Committee with the assistance of outside security consultants completed a comprehensive Systems Security Plan (“SSP”) and a Plan of Action & Milestones (“POAM”) in compliance with the requirements of National Institute of Standards and Technology (“NIST”) Special Publication 800-171, Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations.
In 2018, with the assistance of outside security consultants, we completed a comprehensive Systems Security Plan (“SSP”) and a Plan of Action & Milestones (“POAM”) in compliance with the requirements of National Institute of Standards and Technology (“NIST”) Special Publication 800-171, Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations.
Accordingly, any increase in interest rates will adversely impact the Company’s reported financial results. Our customers may not meet the volume expectations in our supply agreements. We sell most of our products and services through supply agreements and contracts.
Accordingly, any increase in interest rates will adversely impact the Company’s reported financial results, perhaps materially. 19 Our customers may not meet the volume expectations in our supply agreements. We sell most of our products and services through supply agreements and contracts.
The accounts in question were immediately disabled by our IT Team, and the Company’s Information Security Committee met promptly, taking swift action, including the immediate notification of our cyber-security insurance carrier. Shortly thereafter, with assistance of recommendations from our cyber-security carrier, we engaged external incident response professionals to assist with our assessment, recovery and response.
The accounts in question were immediately disabled by our IT Team, and the Company’s Security Steering Committee met promptly, taking swift action, including the immediate notification of our cybersecurity insurance carrier. Shortly thereafter, with assistance of recommendations from our cybersecurity carrier, we engaged external incident response professionals to assist with our assessment, recovery and response.
Ongoing negative attention being given to Lithium-ion batteries that are used in certain cellular phones or are integrated into the power systems of new commercial aircraft and electric motor vehicles may have an impact on the Lithium-ion battery industry as a whole, regardless of the design or usage of those batteries.
Ongoing negative attention regarding Lithium-ion batteries that are used in certain cellular phones or are integrated into the power systems of new commercial aircraft and electric motor vehicles may have an impact on the Lithium-ion battery industry as a whole, regardless of the design or usage of those batteries.
There is no assurance that future warranty claims will be consistent with our estimates, and in the event we experience a significant increase in warranty claims, there is no assurance that our reserves will be sufficient. Excessive warranty claims could have a material adverse effect on our business, financial condition and results of operations.
There is no assurance that future warranty claims will be consistent with our estimates, and in the event we experience a significant increase in warranty claims, there is no assurance that our reserves will be sufficient to cover such increased warranty claims. Excessive warranty claims could have a material adverse effect on our business, financial condition and results of operations.
For example, the percentage of our business with customers outside of the U.S. was 48% in 2022 and 50% in 2021. A future strengthening of the U.S. dollar relative to our customers’ currencies could make our products relatively more expensive and, may adversely affect our sales levels and reduce profitability.
For example, the percentage of our business with customers outside of the U.S. was 49% in 2023 and 48% in 2022. A future strengthening of the U.S. dollar relative to our customers’ currencies could make our products relatively more expensive and may adversely affect our sales levels and reduce profitability.
While it is in the best interests of the Company to reduce the amount of debt quickly, those funds in some cases have been diverted to purchase raw material and component inventory above historical levels in order satisfy commitments to our customers in light of the significant increase in our backlog and the longer lead times and other supply chain disruptions.
While it is in the best interests of the Company to reduce the amount of debt quickly, those funds in some cases have been diverted to purchase raw material and component inventory above historical levels in order satisfy commitments to our customers in light of the continuing increase in our backlog and lingering long lead times and other supply chain disruptions.
The related interest rates on our borrowings are variable as disclosed in Note 3 to our consolidated financial statements.
The related interest rates on our borrowings are variable as disclosed in Note 2 to our consolidated financial statements.
These risk factors may change from time to time and may be amended, supplemented, or superseded by updates to the risk factors contained in periodic reports on Form 10-Q and Form 10-K that we file with the SEC in the future.
These risk factors may change from time to time and may be amended, supplemented, or superseded by updates to the risk factors and other information contained in periodic reports on Form 10-Q, Form 10-K, and current reports on Form 8-K that we file with the SEC in the future.
Our operations in China are subject to unique risks and uncertainties, including political shifts, tariffs and trade restrictions.
Our operations in China are subject to unique risks and uncertainties, including political changes, tariffs and trade restrictions.
Breaches in security, whether cyber or physical, and related disruptions and/or our inability to prevent or respond to such breaches, could diminish our ability to generate revenues or contain costs, compromise our assets, and negatively impact our business in other ways.
Breaches in security, whether cyber or physical, and related disruptions and/or our inability to prevent or respond to such breaches, has previously, and in the future could diminish our ability to generate revenues or contain costs, compromise our assets, and negatively impact our business in other ways.
The disruptions resulting from supply chain and logistics complications were more pronounced on the Company in 2022, in large part because of a sharp uptick for our more-advanced rechargeable battery packs which increased the need for highly sought-after components, including various electronic components, PC boards, chip sets and certain metals to name a few.
The disruptions resulting from supply chain and logistics complications hit a crescendo in 2022 in large part because of a sharp uptick for our more-advanced rechargeable battery packs which increased our need for highly sought-after components, including various electronic components, PC boards, chip sets and certain metals to name a few.
We have experienced interruptions of product deliveries by sole source and other suppliers in the past, most notably in 2022 and 2021, and we cannot guarantee that we will not experience a continuation of material interruption of deliveries from sole source or other suppliers in the future.
We have experienced interruptions of product deliveries by sole source and other suppliers in the past, and we cannot guarantee that we will not experience a continuation of material interruption of deliveries from sole source or other suppliers in the future.
The amounts and percentages of our net revenue that were derived from sales to U.S. Government customers, including the Department of Defense, whether directly or through prime contractors, was approximately $33,064 or 25% in 2022 and $26,870 or 27% in 2021. Therefore, any significant disruption or deterioration of our relationship with the U.S.
The amounts and percentages of our net revenue that were derived from sales to U.S. Government customers, including the Department of Defense, whether directly or through prime contractors, was approximately $43,476 or 27% in 2023 and $33,064 or 25% in 2022. Therefore, any significant disruption to or deterioration of our relationship with the U.S.
In 2020 through 2022, we continued to make substantial progress towards achieving full implementation of all NIST 800-171 security standards, as well as the requirements under the Cybersecurity Maturity Model Certification (CMMC) framework released by the Department of Defense in 2020.
In 2020 through 2023, we continued to make progress towards achieving full implementation of all NIST 800-171 security standards, as well as the requirements under the Cybersecurity Maturity Model Certification (“CMMC”) framework released by the Department of Defense in 2020.
Every effort is made to adjust future prices accordingly, but our ability to adjust prices is generally based on market conditions and we may not be able to adjust prices in various circumstances. This could have an adverse impact in the form of lost revenue or decreasing margins.
Every effort is made to adjust future prices accordingly, but our ability to adjust prices is generally based on market conditions and we may not be able to adjust prices in various circumstances. This could have an adverse impact in the form of reduced revenues or lower margins.
We are subject to the contract rules and procedures of the U.S. and foreign governments. These rules and procedures create significant risks and uncertainties for us that are not usually present in contracts with private parties. We continue to develop battery products and communications systems to meet the needs of the U.S. and foreign governments.
These rules and procedures create significant risks and uncertainties for us that are not usually present in contracts with private parties. We continue to develop battery products and communications systems to meet the needs of the U.S. and foreign governments. We compete in solicitations for awards of contracts from these governments.
The Committee continues to review all key aspects of cyber security utilizing our outside security consultants to ensure a robust plan is in place and provides quarterly updates to our Board. Despite these measures, we cannot eliminate the risk of such security breaches and the potential adverse impacts these breaches may have on our business and financial results.
We continue to review all key aspects of cybersecurity utilizing our outside security consultants to ensure a robust plan is in place and provides timely updates to our Board. Despite these measures, we cannot eliminate the risk of such security breaches and the potential adverse impacts these breaches may have on our business and financial results.
Future determinations that the estimated fair value of our goodwill and/or indefinite-lived intangible assets is less than their respective carrying values may result in significant (non-cash) impairment charges which could have a material adverse impact on future results of operations. We are subject to foreign currency fluctuations.
Future determinations that the estimated fair value of our goodwill and/or indefinite-lived intangible assets is less than their respective carrying values may result in significant (non-cash) impairment charges which could have a material adverse impact on our future results of operations.
Additionally, goodwill and other indefinite-lived intangible assets are assessed for impairment whenever events and circumstances indicate that impairment may exist. Any excess carrying value of goodwill and/or other intangible assets resulting from an impairment assessment must be written off in the period of determination.
Our goodwill and other indefinite-lived intangible assets are subject to impairment testing on an annual basis. Additionally, goodwill and other indefinite-lived intangible assets are assessed for impairment whenever events and circumstances indicate that impairment may exist. Any excess carrying value of goodwill and/or other intangible assets resulting from an impairment assessment must be written off in the period of determination.
In the years ended December 31, 2022 and 2021, $38,795 or 29% and $34,751 or 35%, respectively, of our revenues were comprised of sales made directly or indirectly to U.S. and foreign militaries. 15 While significant gains have been made in commercial markets with our business, we are still highly dependent on sales to U.S. Government customers.
In the years ended December 31, 2023 and 2022, $57,802 or 36% and $38,795 or 29%, respectively, of our revenues were comprised of sales made directly or indirectly to U.S. and foreign militaries. While significant gains have been made in commercial markets with our business, we are still highly dependent on sales to U.S. Government customers.
As of December 31, 2022, the Company had $8,167 outstanding principal on the Term Loan Facility, of which $2,000 is due to be paid in 2023 and included in current portion of long-term debt on the balance sheet, and $13,330 outstanding on the Revolving Credit Facility.
As of December 31, 2023, the Company had $6,167 outstanding principal on the Term Loan Facility, of which $2,000 is due to be paid in 2024 and included in current portion of long-term debt on the balance sheet, and $19,580 outstanding on the Revolving Credit Facility.
In addition, our United Kingdom and China subsidiaries maintain their books in local currency and the translation of the subsidiary financial statements into U.S. dollars for our consolidated financial statements could have an adverse effect on our consolidated financial results due to changes in local currency value relative to the U.S. dollar.
In addition, our United Kingdom and China subsidiaries maintain their books in local currency and their translation to U.S. dollars for our consolidated financial statements have and may in the future have an adverse effect on our consolidated financial results due to changes in local currency values relative to the U.S. dollar.
Failure to comply with the procurement laws or regulations can result in civil, criminal or administrative proceedings involving fines, penalties, suspension of payments, or suspension or disbarment from government contracting or subcontracting for a period of time, which could have a material adverse effect on the Company.
Failure to comply with the procurement laws or regulations can result in civil, criminal or administrative proceedings involving fines, penalties, suspension of payments, or suspension or disbarment from government contracting or subcontracting for a period of time, which could have a material adverse effect on the Company. 23 Compliance with government regulations regarding the use of " conflict minerals " may result in increased costs and risks to the Company.
We compete in solicitations for awards of contracts. The receipt of an award, however, does not always result in the immediate release of an order and does not guarantee in any way any given volume of orders.
The receipt of an award, however, does not always result in the immediate release of an order and does not guarantee in any way any given volume of orders.
Certain materials and components used in our products are available only from a single or a limited number of suppliers. As such in the present situation, some materials and components have been in short supply resulting in limited availability and/or increased costs.
Certain materials and components used in our products are available only from a single or a limited number of suppliers. Some materials and components have been and may continue to be in short supply resulting in limited availability and/or increased costs.
A significant portion of our revenues is derived from certain key customers. We have one customer, L3Harris Technologies, a large global defense primary contractor, which comprised 17% of our total revenues in 2022 and 20% of our total revenues in 2021. There were no other customers that comprised greater than 10% of our total revenues during these years.
We have one customer, L3Harris Technologies, a large global defense primary contractor, which comprised 15% of our total revenues in 2023 and 17% of our total revenues in 2022. There were no other customers that comprised greater than 10% of our total revenues during these years.
Our ability to effectively pursue our business strategy will depend upon, among other factors, the successful retention of our key personnel, recruitment of additional highly skilled and experienced managerial, sales, engineering and technical personnel, and the integration of such personnel obtained through business acquisitions. We cannot assure that we will be able to retain or recruit this type of personnel.
Our ability to effectively pursue our business strategy will depend upon, among other factors, the successful retention of our key personnel, recruitment of additional highly skilled and experienced managerial, sales, engineering and technical personnel, and the integration of such personnel obtained through business acquisitions.
In addition, these customers must be successful with their products in their markets for us to gain increased business. Increased competition, failure to gain customer acceptance of products, the introduction of competitive technologies or failure of our customers in their markets all may have an adverse effect on our business and reduce our revenue and operating income.
Increased competition, failure to gain customer acceptance of our products, the introduction of competitive technologies or failure of our customers to purchase our products in their markets all may have an adverse effect on our business and reduce our revenues and operating income.
The procurement laws and regulations also contain guidelines for managing contracts after they are awarded, including conditions under which contracts may be terminated, in whole or in part, at the government’s convenience or for default.
These contracts are subject to procurement laws and regulations that lay out policies and procedures for acquiring goods and services. The procurement laws and regulations also contain guidelines for managing contracts after they are awarded, including conditions under which contracts may be terminated, in whole or in part, at the government’s convenience or for default.
We are subject to certain safety risks, including the risk of fire, inherent in the manufacture, use and transportation of Lithium batteries. Due to the high energy inherent in Lithium batteries, our Lithium batteries can pose certain safety risks, including the risk of fire.
Due to the high energy inherent in Lithium batteries, our Lithium batteries can pose certain safety risks, including the risk of fire.
Accordingly, for 2022 we maintained our cyber-security insurance policy to help mitigate the impact of a cyber-security incident. 16 As reported on Form 8-K filed on March 2, 2023, during performance of their daily information technology security procedures on January 25, 2023, our Information Technology Team (“IT Team”) discovered an unauthorized entry into our information technology systems for our Newark, New York and Virginia Beach, Virginia locations.
As reported on Form 8-K filed on March 2, 2023, during performance of their daily information technology security procedures on January 25, 2023, our Information Technology Team (“IT Team”) discovered an unauthorized entry into our information technology systems for our Newark, New York and Virginia Beach, Virginia locations.
See discussion in Management’s Discussion & Analysis beginning on Page 26. 20 Our entrance into new markets could lead to additional exposure to financial risk or increased liability, and our failure to enter into those markets could lead to negative customer perception or loss of business from existing customers.
Our entrance into new markets could lead to additional exposure to financial risk or increased liability, and our failure to successfully enter into those markets could lead to negative customer perception or loss of business from existing customers.
We maintain manufacturing operations in North America, the United Kingdom and China, and we export products to various countries. We purchase materials and sell our products in foreign currencies, and therefore currency fluctuations may impact our pricing of products sold and materials purchased. Sales to non-U.S. customers make up a significant percentage of our total revenues.
We purchase materials and sell our products in foreign currencies, and therefore currency fluctuations have and may in the future impact our pricing of products sold and materials purchased. Sales to non-U.S. customers make up a significant percentage of our total revenues.
The failure to obtain necessary licenses could delay product shipments or the introduction of new products, and costly attempts to design around such patents could foreclose the development, manufacture or sale of products, all of which could materially adversely affect our business and the results of operations.
In this event, the failure to obtain necessary licenses could delay product shipments or the introduction of new products, and costly attempts to design around such patents could foreclose the development, manufacture or sale of products, all of which could materially adversely affect our business and our results of operations. 21 We are subject to the contract rules and procedures of the U.S. and foreign governments.
The COVID-19 pandemic and other illnesses has caused and may continue to create significant economic and social disruption and uncertainty around the world, may impact the health of our employees, and that of our suppliers and customers causing delays in the manufacture and delivery of our mission critical products to end customers, and may disrupt business with our collaborative business partners and service providers, which may continue to adversely impact our operating results.
The failure to manage growth and expansion effectively could have a material adverse effect on our business, financial condition, and results of operations. 17 The COVID-19 pandemic and other related illnesses have caused and may continue to create significant economic and social disruption and uncertainty around the world, may impact the health of our employees, the employees of our customers, and the employees of our suppliers, causing delays in the manufacture and delivery of our mission critical products to end customers, and may disrupt business with our collaborative business partners and service providers, which may continue to adversely impact our business and operating results.
These environmental laws govern, among other things, air emissions, wastewater discharges and the handling, storage and release of wastes and hazardous substances. Such laws and regulations can be complex and are subject to change.
We use and generate a variety of chemicals and other hazardous by-products in our manufacturing operations. These environmental laws govern, among other things, air emissions, wastewater discharges and the handling, storage and release of wastes and hazardous substances. Such laws and regulations can be complex and are subject to change.
We continue to monitor our information systems for any irregularities. In addition to the impact of COVID-19, our supply of raw materials and components could be disrupted or delayed due to business conditions, weather, or other factors not under our control, or the cost of those raw materials and components may materially increase.
Our supply of raw materials and components could be disrupted or delayed due to business conditions, global conflicts, weather, the continuing impact of COVID-19 or other factors not under our control, or the cost of those raw materials and components may materially increase.
Our ability to recruit and retain experienced, competent management is critical to the success of the business, and the loss of top management and key personnel could significantly harm our business, and ability to implement our succession plan.
We continue to monitor our information systems for any intrusions or other irregularities. Our ability to recruit and retain experienced, competent management is critical to the success of the business, and the loss of top management and key personnel could significantly harm our business, and ability to implement our succession plan.
If these companies successfully market their products in a manner that renders our technologies obsolete, this would reduce our revenue and operating income and could have other material adverse effects on our business, financial condition and results of operations.
If these companies successfully market their products in a manner that renders our technologies obsolete, this may reduce our revenues and operating income and could have other material adverse effects on our business, financial condition and results of operations. 18 Our quarterly and annual results and the price of our common stock have and could in the future continue to fluctuate significantly.
We may incur significant costs because of known and unknown environmental matters. National, state and local laws impose various environmental controls on the manufacture, transportation, storage, use and disposal of batteries and of certain chemicals used in the manufacture of batteries. We use and generate a variety of chemicals and other hazardous by-products in our manufacturing operations.
Such circumstances, if they occur, could have a material adverse impact on our results of operations. We may incur significant costs because of known and unknown environmental matters. National, state and local laws impose various environmental controls on the manufacture, transportation, storage, use and disposal of batteries and of certain chemicals used in the manufacture of batteries.
Although we have highly experienced technical and engineering employees, we cannot assure you that we will be able to fulfil the orders of our customers for our products, without delay. The failure to manage growth and expansion effectively could have an adverse effect on our business, financial condition, and results of operations.
Although we have highly experienced technical and engineering employees, we cannot assure you that we will be able to fulfil the orders of our customers for our products, without delay.
While we had the highest backlog in Company history at December 31, 2022, this does not mean that rapid growth and demand for our products in all cases will be met by our resources without delay.
While our backlog remained at over $100 million for the last five quarters, this does not mean that rapid growth and demand for our products in all cases will be met by our resources without delay.
ITEM 1A. RISK FACTORS Our business faces many risks. As such, prospective investors and shareholders should carefully consider and evaluate all of the risk factors described below as well as other factors discussed in this Form 10-K Annual Report and in our other filings with the SEC.
As such, prospective investors and stockholders should carefully consider and evaluate all of the risk factors described below as well as other factors discussed in this Form 10-K Annual Report, including without limitation, the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in our other filings with the SEC.
Our efforts to develop new products or new commercial applications for our products could be prolonged or could fail. Although we develop certain products for new commercial applications, we cannot assure that these new products will be accepted due to the highly competitive nature of our industries.
Although we develop certain products for new commercial applications, we cannot assure that these new products will be accepted due to the highly competitive nature of our industries. There are many new product and technology entrants into the markets we sell our products to.
There are many new product and technology entrants into the markets we sell our products to, and we must continually reassess the markets in which our products can be successful and seek to engage customers in those markets that will adopt our products for use in their products.
We must continually reassess the markets in which our products can be successful and seek to engage customers in those markets that will adopt our products for use in their products. In addition, these customers must be successful with their products in their markets for us to gain increased business.
Government, including possible future sequestration periods or other similar formulaic reductions in federal expenditures, are outside of our control and have long-term consequences for our business. A decline in U.S. military expenditures could result in a reduction in the military’s demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.
A decline in U.S. or foreign military expenditures could result in a reduction in the military demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.
This may limit the number of suppliers that can provide products in sufficient quantities to meet customer demand or at competitive prices.
Such demands may limit the number of suppliers that can provide products in sufficient quantities to meet customer demand or at competitive prices. Any of these consequences may increase our costs of operations, increase or margins and harm our business. 24
These increased prices could increase our cost of business, lower our margins and have other materially adverse effects on our business, financial condition and results of operations, particularly, if our pass through of these price increases is not accepted by our customers. 17 Fluctuations in the demand, supply and price of oil and gas and the resulting volatility in the level of downhole drilling could have a material adverse effect on our business, financial condition and results of operations.
These increased prices could increase our cost of business, lower our margins and have other materially adverse effects on our business, financial condition and results of operations, particularly, if our pass through of these price increases is not accepted by our customers or if our lean manufacturing initiatives take longer than anticipated.
Any such disruptions could depress our earnings and have other material adverse effects on our business, financial condition and results of operations.
Any such disruptions could depress our earnings and have other material adverse effects on our business, financial condition and results of operations. Fluctuations in the demand, supply and price of oil and gas and the resulting volatility in the level of downhole drilling could have a material adverse effect on our business, financial condition and results of operations.
On February 7, the Company received an electronic communication allegedly from a third-party, known for nefarious ransomware attacks, claiming responsibility for the incident, and discussions with that third party commenced through experienced cyber-security professionals engaged by the Company.
On February 7, 2023, the Company received an electronic communication allegedly from a third-party, known for nefarious ransomware attacks, claiming responsibility for the incident, and discussions with that third party commenced through experienced cybersecurity professionals engaged by the Company. 16 This incident caused a partial disruption of our business operations at these locations, which resulted in production and shipping downtime of several weeks.
In 2017, we formed a cyber security executive management committee (the “Committee”) with oversight responsibility to minimize the risk of security breaches, cyber-attacks, cyber intrusions, or disruptions.
In 2017, we formed a cross-functional executive management Security Steering Committee focused on mitigating the risk of security breaches, cyberattacks, cyber intrusions, or disruptions.
As we look forward to potential rising demand for electrification, our lead times for certain critical components from our suppliers could be extended even further, resulting in shipping delays causing us to miss contractual timelines.
Accordingly, these circumstances require us to regularly monitor all aspects of our supply chain and share the updates with our customers, to ensure that any potential supply interruptions are understood with all efforts taken to minimize. 15 As we look forward to potential rising demand for electrification, our lead times for certain critical components from our suppliers could be extended even further, resulting in shipping delays causing us to miss contractual timelines.
The present supply chain disruptions and increased component lead times resulting from COVID-19 and its after-effects have been exacerbated by the increased demand for Lithium-based cells from the electric vehicle manufacturers. While the latter has resulted in increased supply of such cells, meeting such demand may result in delays or even the discontinuation of the cells required for our products.
Past supply chain disruptions and increased component lead times resulting from COVID-19 and its after-effects were exacerbated by the increased demand for Lithium-based cells from the electric vehicle manufacturers.
However, failure to achieve our business targets could result in future charges to our income tax provision if any of the net operating loss or tax credit carryforwards are not utilized.
Based on our latest assessment at December 31, 2023, we believe it is more likely than not that our U.S. deferred tax assets will be fully realized. However, failure to achieve our business targets could result in future charges to our income tax provision if any of the net operating loss or tax credit carryforwards are not utilized.
Finally, we maintain certain domestic U.S. cash balances denominated in foreign currencies, and the U.S. dollar equivalent of these balances fluctuates with changes in the foreign exchange rates between these currencies and the U.S. dollar. 21 A finding that our proprietary and intellectual property rights are not enforceable or invalid could allow our competitors and others to produce competing products based on our proprietary and intellectual property or limit our ability to continue to manufacture and market our products.
A finding that our proprietary and intellectual property rights are not enforceable or invalid could allow our competitors and others to produce competing products based on our proprietary and intellectual property or limit our ability to continue to manufacture and market our products.
Based on the recovery of our systems, review of the files affected, as well as the Company’s prompt response to and assessment of the incident, no ransom or other amount has been or is expected to be paid to the third-party. However, there may be additional currently unknown ramifications from the intrusion into our information systems.
With the efforts of internal resources supported by external expertise, the Company restored its information technology systems and production was resumed in both locations. Based on the recovery of our systems, review of the files affected, as well as the Company’s prompt response to and assessment of the incident, no ransom or other amount has been paid to the third-party.
However, we continue to evaluate the impact of these regulations, and actual costs could differ from our current estimates and additional laws could be enacted by these and other states which entail greater costs of compliance. 23 The U.S. and foreign governments can audit our contracts with their respective defense and government agencies and, under certain circumstances, can adjust the economic terms, delivery schedule or other terms of those contracts.
The compliance costs associated with current recycling statutes and regulations are not expected to be significant at this time. However, we continue to evaluate the impact of these regulations, and actual costs could differ from our current estimates and additional laws could be enacted by these and other states which entail greater costs of compliance.
Our ability to use our net operating loss and tax credit carryforwards in the future may be limited, which could increase our tax liabilities and reduce our cash flow and net income. At December 31, 2022, we had approximately $41,000 of U.S. net operating loss carryforwards and $2,600 of U.S. tax credit carryforwards available to offset future taxable income.
The effects of such events could have an adverse effect on our business, financial condition, and results of operations. 20 Our ability to use our net operating loss and tax credit carryforwards in the future may be limited, which could increase our tax liabilities and reduce our cash flow and net income.
Although the Company has focused a great deal of time and effort on improving gross margins, supply-chain disruptions, which could continue into 2023 and despite our best efforts, we may not be able to offset and/or minimize the unfavorable impact these disruptions may continue to cause on business and financial results.
Despite our proactive actions to improve gross margins and to secure alternate vendors to minimize the disruptions experienced in the past, we may not be able to fully offset in a timely fashion the unfavorable impact these disruptions may continue to cause on our business and financial results going forward. 14 A significant portion of our revenues is derived from certain key customers.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe that our facilities are adequate and suitable for our current needs.
Biggest changeWe believe that our facilities are adequate and suitable for our current needs and provide sufficient capacity to produce our products to meet current demand.
We own one building in Missouri City, Texas comprising 69,000 square feet, which houses our SWE and Excell USA operations, and lease approximately 97,000 square feet in two buildings on one campus in Shenzhen, China, including a dormitory facility, approximately 25,000 square feet in six buildings in a contiguous area in Newcastle-under-Lyme, United Kingdom, and approximately 24,000 square feet in three facilities for our Excell Canada operations located in and Calgary, Mississauga and Vancouver, Canada, all which serve operations in the Battery & Energy Products operating segment.
We own one building in Missouri City, Texas comprising 69,000 square feet, which houses our SWE and Excell USA operations, and lease approximately 97,000 square feet in two buildings on one campus in Shenzhen, China, including a dormitory facility, approximately 25,000 square feet in six buildings in a contiguous area in Newcastle-under-Lyme, United Kingdom, and approximately 24,000 square feet in three facilities for our Excell Canada operations located in Calgary, Mississauga and Vancouver, Canada, all which serve operations in the Battery & Energy Products operating segment.
Our research and development efforts for Battery & Energy Products are conducted at our Newark, New York; Missouri City, Texas; Newcastle-under-Lyme, United Kingdom; Shenzhen, China; and Canada facilities, while our research and development efforts for our Communications Systems products are conducted in our leased facilities in Tallahassee, Florida and in Virginia Beach, Virginia.
Our research and development efforts for Battery & Energy Products are conducted at our Newark, New York; Missouri City, Texas; Newcastle-under-Lyme, United Kingdom; Shenzhen, China; and our Canada facilities, while our research and development efforts for our Communications Systems products are conducted in our leased facilities in Tallahassee, Florida and in Virginia Beach, Virginia.
ITEM 2. PROPERTIES As of December 31, 2022, we own two buildings in Newark, New York comprising approximately 250,000 square feet, which serve operations primarily in the Battery & Energy Products operating segment. Our corporate headquarters are located in our Newark, New York facility.
ITEM 2. PROPERTIES As of December 31, 2023, we own two buildings in Newark, New York comprising approximately 250,000 square feet, which serve operations primarily in the Battery & Energy Products operating segment. Our corporate headquarters are located in our Newark, New York facility.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePurchases of Equity Securities by the Issuer There were no purchases of our common stock by the Company during the years ended December 31, 2022 and December 31, 2021. Dividends We have never declared or paid any cash dividends on our capital stock. Pursuant to our current credit facility, we are precluded from paying any dividends.
Biggest changePurchases of Equity Securities by the Issuer There were no purchases of our common stock by the Company during the years ended December 31, 2023 and December 31, 2022. Dividends We have never declared or paid any cash dividends on our capital stock. Pursuant to our current credit facility, we are precluded from paying any dividends.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Ultralife’s common stock is listed on the NASDAQ Global Market under the symbol “ULBI.” Holders As of March 1, 2023, there were approximately 5,000 registered holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Ultralife’s common stock is listed on the NASDAQ Global Market under the symbol “ULBI.” Holders As of March 1, 2024, there were approximately 4,300 registered holders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAs we look ahead, we believe our backlog, durable customer relationships, diversified end markets, new product initiatives, and actions underway to improve our gross margins position us to deliver high-quality, sustainable profitable growth. 28 Results of Operations Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021: Year Ended December 31, Increase/ 2022 2021 (Decrease) Revenues: Battery & Energy Products $ 119,995 $ 87,083 $ 32,912 Communications Systems 11,845 11,184 661 Total 131,840 98,267 33,573 Cost of Products Sold: Battery & Energy Products 93,841 66,021 27,820 Communications Systems 8,599 7,604 995 Total 102,440 73,625 28,815 Gross Profit: Battery & Energy Products 26,154 21,062 5,092 Communications Systems 3,246 3,580 (334 ) Total 29,400 24,642 4,758 Operating Expenses 29,271 24,607 4,664 Operating Income 129 35 94 Other Expense, Net 575 186 389 Loss Before Taxes (446 ) (151 ) (295 ) Income Tax (Benefit) Provision (326 ) 79 (405 ) Net Loss (120 ) (230 ) 110 Net (Loss) Income Attributable to Non-Controlling Interest (1 ) 4 (5 ) Net Loss Attributable to Ultralife $ (119 ) $ (234 ) $ 115 Net Loss Attributable to Ultralife Common Shares – Basic $ (0.01 ) $ (0.01 ) $ - Net Loss Attributable to Ultralife Common Shares – Diluted $ (0.01 ) $ (0.01 ) $ - Weighted Average Shares Outstanding –Basic 16,125,239 16,036,676 88,563 Weighted Average Shares Outstanding – Diluted 16,125,239 16,036,676 88,563 Revenues.
Biggest changeAs we look ahead, we believe our backlog, durable customer relationships, diversified end markets, new product initiatives, and ongoing actions to improve our gross margins and further strengthen our balance sheet position us to deliver high-quality, sustainable profitable growth. 30 Results of Operations Year ended December 31, 2023 compared with the year ended December 31, 2022: Year ended December 31, Increase/ 2023 2022 (decrease) Revenues: Battery & Energy Products $ 129,953 $ 119,995 $ 9,958 Communications Systems 28,691 11,845 16,846 Total 158,644 131,840 26,804 Cost of products sold: Battery & Energy Products 99,178 93,841 5,337 Communications Systems 20,266 8,599 11,667 Total 119,444 102,440 17,004 Gross profit: Battery & Energy Products 30,775 26,154 4,621 Communications Systems 8,425 3,246 5,179 Total 39,200 29,400 9,800 Operating expenses 29,725 29,271 454 Operating income 9,475 129 9,346 Other expense, net 358 575 (217 ) Income (loss) before income taxes 9,117 (446 ) 9,563 Income tax provision (benefit) 1,951 (326 ) 2,277 Net income (loss) 7,166 (120 ) 7,286 Net loss attributable to non-controlling interest (31 ) (1 ) (30 ) Net income (loss) attributable to Ultralife Corporation $ 7,197 $ (119 ) $ 7,316 Net income (loss) attributable to Ultralife common shares – basic $ 0.44 $ (0.01 ) $ 0.45 Net income (loss) attributable to Ultralife common shares – diluted $ 0.44 $ (0.01 ) $ 0.45 Weighted average shares outstanding – basic 16,213,746 16,125,239 88,507 Weighted average shares outstanding – diluted 16,226,407 16,125,239 101,168 Revenues.
Department of Defense and other international defense organizations can be sporadic based on the needs of those particular customers and allocated funding levels. 26 The COVID-19 pandemic has created significant economic disruption and uncertainty around the world. The Company continues to closely monitor the developments surrounding COVID-19 and its related strains and take actions to mitigate the business risks involved.
Department of Defense and other international defense organizations can be sporadic based on the needs of those particular customers and allocated funding levels. The COVID-19 pandemic has created significant economic disruption and uncertainty around the world. The Company continues to closely monitor the developments surrounding COVID-19 and its related strains and take actions to mitigate the business risks involved.
The results of operations of acquired businesses are included in the consolidated statements of income and comprehensive income beginning on the respective acquisition date. Warranties: We typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the date of purchase. We also offer separately priced extended warranty contracts on certain products.
The results of operations of acquired businesses are included in the consolidated statements of income and comprehensive income beginning on the respective acquisition date. 39 Warranties: We typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the date of purchase. We also offer separately priced extended warranty contracts on certain products.
There is a possibility that our goodwill and other intangible assets could be impaired in the future should there be a significant change in the significant estimates and assumptions used in our impairment assessment. Impairment of Long-Lived Assets: We assess our long-lived assets for impairment whenever events or circumstances indicate their carrying amounts may not be recoverable.
There is a possibility that our goodwill and other intangible assets could be impaired in the future should there be a significant change in the significant estimates and assumptions used in our impairment assessment. 38 Impairment of Long-Lived Assets: We assess our long-lived assets for impairment whenever events or circumstances indicate their carrying amounts may not be recoverable.
We will continue to evaluate the realizability of our deferred tax assets in future periods. 35 Stock-Based Compensation: We recognize compensation cost relating to share-based payment transactions in our financial statements.
We will continue to evaluate the realizability of our deferred tax assets in future periods. Stock-Based Compensation: We recognize compensation cost relating to share-based payment transactions in our financial statements.
As of December 31, 2022, we concluded that it is more likely than not that our U.S. deferred tax assets will be fully realized based on management’s assessment. In evaluating the realizability of our U.S. deferred tax assets, management considered all available evidence, both positive and negative, weighted based on objective verifiability.
As of December 31, 2023, we concluded that it is more likely than not that our U.S. deferred tax assets will be fully realized based on management’s assessment. In evaluating the realizability of our U.S. deferred tax assets, management considered all available evidence, both positive and negative, weighted based on objective verifiability.
If carrying value of a reporting unit or indefinite-lived intangible asset exceeds its estimated fair value, the excess carrying value of the respective goodwill or indefinite-lived intangible asset is recognized as an impairment loss. We conducted our annual impairment test for goodwill and other indefinite-lived intangible assets as of October 1, 2022.
If carrying value of a reporting unit or indefinite-lived intangible asset exceeds its estimated fair value, the excess carrying value of the respective goodwill or indefinite-lived intangible asset is recognized as an impairment loss. We conducted our annual impairment test for goodwill and other indefinite-lived intangible assets as of October 1, 2023.
Other companies may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. 32 We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA only on a supplemental basis.
Other companies may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. 34 We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA only on a supplemental basis.
The year-over-year increase is primarily a result of a July 2022 purchase order valued at approximately $4,600 to supply a global defense prime with our Vehicle Amplifier-Adaptors for the U.S.
The year-over-year decrease is primarily a result of fulfilling a July 2022 purchase order valued at approximately $4,600 to supply a global defense prime with our Vehicle Amplifier-Adaptors for the U.S.
During this challenging time, we remain focused on ensuring the health and safety of our employees by implementing the material protocols established by public health officials. We continue to strive to ensure an uninterrupted flow of our mission critical products serving medical device, first responder, public safety, energy and national security customers.
We remain focused on ensuring the health and safety of our employees by implementing the material protocols established by public health officials. We continue to strive to ensure an uninterrupted flow of our mission critical products serving medical device, first responder, public safety, energy and national security customers.
As of December 31, 2022, we had made commitments to purchase approximately $661 of production machinery and equipment. 33 We typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the date of purchase. We also offer separately priced extended warranty contracts on certain Communications Systems products.
As of December 31, 2023, we had made commitments to purchase approximately $890 of production machinery and equipment. We typically offer standard warranties against product defects that range from ninety (90) days to three (3) years from the date of purchase. We also offer separately priced extended warranty contracts on certain Communications Systems products.
The Battery & Energy Products segment includes: Lithium 9-volt, cylindrical, thin cell and other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies, charging systems and accessories such as cables.
The 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.
We acquired SWE as a bolt-on acquisition to further support our strategy of commercial revenue diversification by providing entry to the oil and gas exploration and production, and subsea electrification markets, which were previously unserved by us.
We acquired SWE as a bolt-on acquisition which has supported our strategy of commercial revenue diversification by providing entry to the oil and gas exploration and production, and subsea electrification markets, which were previously unserved by us.
Cash used in investing activities for the year ended December 31, 2022 was $1,679 for capital expenditures, reflecting investments in equipment for new products transitioning to high-volume manufacturing, as compared to $2,814 capital spending for the year ended December 31, 2021.
Cash used in investing activities for the year ended December 31, 2023 was $2,552 for capital expenditures, reflecting investments in equipment for new products transitioning to high-volume manufacturing, as compared to $1,679 capital spending for the year ended December 31, 2022.
Acquiring Excell offers us opportunities to further scale our Battery & Energy Products business and drive the operating leverage of our business model, expand into OEM device verticals that we do not presently serve, enhance our contributed value to our customers and realize cost synergies.
Acquiring Excell has allowed us to further scale our Battery & Energy Products business and drive the operating leverage of our business model, expand into OEM device verticals that we do not presently serve, enhance our contributed value to both our customers and realize cost synergies.
Another key benefit includes obtaining a highly valuable technical team of battery pack and charger system engineers and technicians to add to our new product development-based revenue growth initiatives in our commercial end-markets particularly asset tracking, smart metering and other industrial applications.
Another key benefit has been obtaining a highly valuable technical team of battery pack and charger system engineers and technicians which has added to our new product development-based revenue growth initiatives in our commercial end-markets particularly asset tracking, smart metering and other industrial applications.
Adjusted EBITDA, defined as net income (loss) attributable to Ultralife before net interest expense, provision (benefit) for income taxes, depreciation and amortization, plus/minus income/expense that we do not consider reflective of our continuing operations, amounted to $6,575 for the year ended December 31, 2022 compared to $4,818 for the prior year.
Adjusted EBITDA, defined as net income (loss) attributable to Ultralife Corporation before net interest expense, provision (benefit) for income taxes, depreciation and amortization, plus/minus income/expense that we do not consider reflective of our continuing operations, amounted to $15,703 for the year ended December 31, 2023, compared to $6,575 for the prior year.
In January 2016, we acquired Accutronics Limited (“Accutronics”), a U.K. corporation based in Newcastle-under-Lyme, U.K., a leading independent designer and manufacturer of smart batteries and charger systems for high-performance, feature-laden portable and handheld electronic devices. We acquired Accutronics to advance our strategy of commercial revenue diversification, to expand our geographic penetration, and to achieve revenue growth from new product development.
In January 2016, we acquired Accutronics Limited (“Accutronics”), a U.K. corporation based in Newcastle-under-Lyme, U.K., a leading independent designer and manufacturer of smart batteries and charger systems for high-performance, feature-laden portable and handheld electronic devices. Our acquisition of Accutronics advanced our strategy of commercial revenue diversification, expanded our geographic penetration, and achieved revenue growth from new product development.
As of December 31, 2022, for certain past operations in the U.K., we continue to report a valuation allowance for net operating loss carryforwards of approximately $10,000, nearly all of which can be carried forward indefinitely.
As of December 31, 2023, for certain past operations in the U.K., we continue to report a valuation allowance for net operating loss carryforwards of approximately $9,800, nearly all of which can be carried forward indefinitely.
Weighted average common shares outstanding used to compute diluted earnings per share increased from 16,036,676 for the 2021 period to 16,125,239 for the 2022 period, mainly due to the issuance of common stock upon the exercise of stock options and the vesting of restricted stock in 2022. 31 Adjusted EBITDA In evaluating our business, we consider and use adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure of our operating performance.
Weighted average common shares outstanding used to compute diluted earnings per share increased from 16,125,239 for the 2022 period to 16,226,407 for the 2023 period, primarily due to the issuance of common stock upon the exercise of stock options and the vesting of restricted stock in 2023. 33 Adjusted EBITDA In evaluating our business, we consider and use adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure of our operating performance.
We continued tight control over discretionary spending across the Company. Other (Income) Expense. Other expense totaled $575 for the year ended December 31, 2022 compared to $186 for the year ended December 31, 2021.
We continued tight control over discretionary spending across the Company. Other Expense. Other expense totaled $358 for the year ended December 31, 2023 compared to $575 for the year ended December 31, 2022.
During the year ended December 31, 2022, cash used in operations was $1,263, as compared to $4,325 generated from operations for the year ended December 31, 2021.
During the year ended December 31, 2023, cash generated from operations was $1,929, as compared to $1,263 used in operations for the year ended December 31, 2022.
As of December 31, 2022, the Company had $8,167 outstanding principal on the Term Loan Facility, of which $2,000 is due to be paid in 2023, and $13,330 outstanding principal on the Revolving Credit Facility. The Company is in full compliance with its debt covenants under the Credit Facilities.
Commitments As of December 31, 2023, the Company had $6,167 outstanding principal on the Term Loan Facility, of which $2,000 is due to be paid in 2024, and $19,580 outstanding principal on the Revolving Credit Facility. The Company is in full compliance with its debt covenants under the Credit Facilities.
Amortization expense associated with intangible assets related to our acquisitions increased to $1,282 for the year-ended December 31, 2022 ($1,185 in selling, general and administrative expenses and $97 in research and development costs) from $633 for the year ended December 31, 2021 ($515 in selling, general and administrative expenses and $118 in research and development costs) as a result of our acquisition of Excell in December 2021.
Amortization expense associated with intangible assets related to our acquisitions decreased to $889 for the year-ended December 31, 2023 ($792 in selling, general and administrative expenses and $97 in research and development costs) from $1,282 for the year ended December 31, 2022 ($1,185 in selling, general and administrative expenses and $97 in research and development costs) as a result of the amortization periods of certain intangible assets associated with our acquisition of Excell in December 2021.
The Communications Systems segment includes RF amplifiers, power supplies, power cables, connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems and integrated communication systems for fixed or vehicle applications such as vehicle amplifier-adaptors (“VAA”) for multiple programs. We believe that reporting performance at the gross profit level is the best indicator of segment performance.
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.
Consolidated cost of products sold as a percentage of total revenue increased from 74.9% for the year ended December 31, 2021 to 77.7% for the year ended December 31, 2022. Correspondingly, consolidated gross margin was 22.3% for the year ended December 31, 2022, compared with 25.1% for the year ended December 31, 2021.
Consolidated cost of products sold as a percentage of total revenue decreased from 77.7% for the year ended December 31, 2022 to 75.3% for the year ended December 31, 2023. Correspondingly, consolidated gross margin was 24.7% for the year ended December 31, 2023, compared with 22.3% for the year ended December 31, 2022.
To protect our ability to service our substantial backlog while considering the longer lead times and unreliable delivery dates for critical components, during 2022 we increased inventory by $8,003 or 24.1%. As of December 31, 2021, the Company had cash on hand of $8,413, working capital of $47,600 and a current ratio of 3.5.
To protect our ability to service our substantial backlog while considering the longer lead times and unreliable delivery dates for critical components, during 2023 we increased inventory by $1,023 or 2.5%. As of December 31, 2022, the Company had cash on hand of $5,713, working capital of $50,075 and a current ratio of 2.7.
Our assessment also considered our ability to fully utilize before expiration our domestic net operating loss carryforwards, which expire 2025 thru 2035, and our general business tax credit carryforwards, which expire 2028 thru 2042. As of December 31, 2022, our domestic net operating loss carryforwards and general business tax credits were approximately $41,000 and $2,600, respectively.
Our assessment also considered our ability to fully utilize before expiration our domestic net operating loss carryforwards, which expire 2031 thru 2035, and our general business tax credit carryforwards, which expire 2028 thru 2043. As of December 31, 2023, our domestic net operating loss carryforwards and general business tax credits were approximately $27,200 and $2,900, respectively.
See the section “Adjusted EBITDA” beginning on page 32 for a reconciliation of adjusted EBITDA to net income attributable to Ultralife. The Company’s liquidity remains solid, with cash on hand of $5,713, working capital of $50,075 and a current ratio (current assets divided by current liabilities) of 2.7.
See the section “Adjusted EBITDA” beginning on page 34 for a reconciliation of adjusted EBITDA to net income attributable to Ultralife. The Company’s liquidity remains solid, with cash on hand of $10,278, working capital of $66,473 and a current ratio (current assets divided by current liabilities) of 3.8.
Furthermore, Excell possesses experienced engineering and technical resources which we plan to utilize in progressing our global new product initiatives while adding a complementary line of highly engineered products that are costly to switch out. Currently, we do not experience significant seasonal sales trends in either of our operating segments, although sales to the U.S.
Furthermore, we utilize Excell experienced technical resources in our global new product initiatives and add a complementary line of highly engineered products, both existing and in development, that are costly for our customers to substitute with products of a competitor. 28 Currently, we do not experience significant seasonal sales trends in either of our operating segments, although sales to the U.S.
For our Communications Systems segment, the cost of products sold increased by $995 or 13.1% from the year ended December 31, 2021.
For our Communications Systems segment, the cost of products sold increased by $11,667 or 135.7% from the year ended December 31, 2022.
As of December 31, 2022, we have not recognized a valuation allowance against our other foreign deferred tax assets, as we believe that it is more likely than not that they will be realized.
As of December 31, 2023, we have not recognized a valuation allowance against our other foreign deferred tax assets, including net operating loss carryforwards of $1,300 which expire 2028 thru 2033, as we believe that it is more likely than not that they will be fully realized.
Excessive warranty claims could have a material adverse effect on our business, financial condition and results of operations. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Critical Accounting Policies and Estimates The above discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. 37 Critical Accounting Policies and Estimates The above discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, included in Item 8 of this Form 10-K, which have been prepared in accordance with GAAP.
Research and development costs were $7,081 in 2022, an increase of $255 or 3.7%, from $6,826 reported in 2021. This increase is largely attributable to our acquisition of Excell in December 2021. Selling, general, and administrative expenses increased $4,409 or 24.8%, to $22,190 for the year ended December 31, 2022 from $17,781 for the year ended December 31, 2021.
Research and development costs were $7,531 in 2023, an increase of $450 or 6.4%, from $7,081 reported in 2022. This increase is largely attributable to investments in new product development. Selling, general, and administrative expenses increased $4 to $22,194 for the year ended December 31, 2023 from $22,190 for the year ended December 31, 2022.
Commercial revenues of this business increased $29,529 or 46.5% from 2021 and now comprise 77.5% of total segment sales versus 72.9% last year.
Commercial revenues of this business increased $7,797 or 8.4% from 2022 and now comprise 77.6% of total segment sales versus 77.5% last year.
Army. The 2022 year-end backlog is related to orders that are expected to ship throughout 2023. Cost of Products Sold and Gross Profit. Cost of products sold for the year ended December 31, 2022 increased $28,815 or 39.1% from the year ended December 31, 2021.
Army. We expect additional orders for Leader Radio and Vehicle Amplifier-Adaptors in 2024. The 2023 year-end backlog is related to orders that are expected to ship throughout 2024. Cost of Products Sold and Gross Profit. Cost of products sold for the year ended December 31, 2023 increased $17,004 or 16.6% from the year ended December 31, 2022.
We do not amortize goodwill and other intangible assets with indefinite lives, but instead evaluate these assets for impairment at least annually and whenever events or circumstances indicate that impairment may exist. 34 The annual impairment test for goodwill consists of a comparison of the estimated fair value for each reporting unit to which goodwill is assigned to the carrying value of the respective reporting unit.
We do not amortize goodwill and other intangible assets with indefinite lives, but instead evaluate these assets for impairment at least annually and whenever events or circumstances indicate that impairment may exist.
Total revenues for the year ended December 31, 2022 amounted to $131,840, an increase of $33,573, or 34.2% from the $98,267 reported for the year ended December 31, 2021. Battery & Energy Products revenues increased $32,912, or 37.8%, for the year ended December 31, 2022 as compared to the prior year.
Total revenues for the year ended December 31, 2023 amounted to $158,644, an increase of $26,804, or 20.3% from the $131,840 reported for the year ended December 31, 2022. Battery & Energy Products revenues increased $9,958, or 8.3%, for the year ended December 31, 2023 as compared to the prior year.
The 2022 year-end backlog is primarily related to orders expected to ship in the next year and does not include future shipments under the indefinite delivery/indefinite quantity U.S. Department of Defense awards for our BA-5390 batteries ($9,900) and Conformal Wearable Batteries ($168,000). For our Communications Systems business, the backlog increased $13,995 or 167.3% to $22,362 from $8,367.
The 2023 year-end backlog is primarily related to orders expected to ship in the next year and does not include future shipments under any of the indefinite delivery/indefinite quantity U.S. Department of Defense awards. 31 For our Communications Systems business, the backlog decreased $10,824 or 48.4% to $11,538 from $22,362.
Both periods reflected our continued tight control over discretionary spending. Overall, operating expenses as a percentage of revenues was 22.2% for the year ended December 31, 2022 compared to 25.0% for the comparable 2021 period.
Overall, operating expenses as a percentage of revenues was 18.7% for the year ended December 31, 2023 compared to 22.2% for the comparable 2022 period.
The income tax benefit for the 2022 period is comprised of a $636 current provision for income taxes expected to be paid primarily in foreign jurisdictions and a $962 deferred tax benefit which represents a non-cash benefit primarily for U.S. net operating losses and temporary tax differences which are expected to offset future U.S. taxable income.
Adjusted EPS for 2022 excludes the benefit for deferred income taxes of $962 which represents a non-cash benefit primarily for U.S. net operating losses and temporary tax differences which are expected to offset future U.S. taxable income. See section “Adjusted EPS” on page 36 for a reconciliation of adjusted EPS to EPS.
The income tax benefit for the 2022 period is comprised of a $636 current provision for income taxes expected to be paid primarily in foreign jurisdictions and a $962 deferred tax benefit which represents a non-cash benefit primarily for U.S. net operating losses and temporary tax differences which are expected to offset future U.S. taxable income.
Adjusted EPS for 2022 excludes the benefit for deferred income taxes of $962 which represents a non-cash benefit primarily for U.S. net operating losses and temporary tax differences which are expected to offset future U.S. taxable income. See section “Adjusted EPS” on page 36 for a reconciliation of adjusted EPS to EPS.
Ltd., a British Columbia corporation (“656700”) and its wholly owned subsidiary, Excell Battery Corporation USA, a Texas corporation (“Excell USA” together with Excell Canada and 656700, collectively, “Excell”), which operate under the name Excell Battery Group, based in Canada with U.S. operations, Excell is a leading independent designer and manufacturer of high-performance smart battery systems, battery packs and monitoring systems to customer specifications.
Based in Canada with U.S. operations, the Excell Battery Group is a leading independent designer and manufacturer of high-performance smart battery systems, battery packs and monitoring systems to customer specifications.
Communications Systems’ gross profit for the year ended December 31, 2022 was $3,246 or 27.4% of revenues, a decrease of $334 or 9.3% from gross profit of $3,580 or 32.0% of revenues for the year ended December 31, 2021.
Communications Systems’ gross profit for the year ended December 31, 2023 was $8,425 or 29.4% of revenues, an increase of $5,179 or 159.6% from gross profit of $3,246 or 27.4% of revenues for the year ended December 31, 2022.
On December 13, 2021, we acquired Excell Battery Canada Inc., a British Columbia corporation (“Excell Canada”) and 656700 B.C.
On December 13, 2021, we acquired Excell Battery Canada Inc., a British Columbia corporation (“Excell Canada”) and 656700 B.C. Ltd., a British Columbia corporation (“656700”) and its wholly owned subsidiary, Excell Battery Corporation USA, a Texas corporation (“Excell USA” together with Excell Canada and 656700, collectively, “Excell”), which operate under the name Excell Battery Group.
Income tax benefit was $326 for the year ended December 31, 2022, compared to a provision of $79 for the year ended December 31, 2021. Our effective tax rate was 73.1% for 2022, as compared to (52.3%) for 2021, primarily due to the geographic mix of earnings.
Income tax provision was $1,951 for the year ended December 31, 2023, compared to an income tax benefit of $326 for the year ended December 31, 2022. Our effective tax rate decreased to 21.4% for the 2023 period as compared to 73.1% for the 2022 period, primarily attributable to the year over year increase in income before income taxes.
For the 2022 period, cash used was comprised of a $120 net loss and a $5,452 increase in net working capital, partially offset by non-cash items totaling $4,309 for depreciation, amortization, stock-based compensation, and deferred taxes.
For the 2023 period, cash provided by our operations was comprised of net income of $7,166 plus non-cash items totaling $5,804 for depreciation, amortization, stock-based compensation, and deferred taxes, partially offset by $11,041 attributable to increased working capital.
The income tax provision for the 2021 period is comprised of a $226 current provision for income taxes due primarily to foreign jurisdictions and a $147 deferred tax benefit primarily for U.S. net operating losses and temporary tax differences which are expected to offset future U.S. taxable income.
For the comparable 2022 period, the income tax benefit was comprised of a $636 current tax provision and a $962 deferred tax benefit primarily for U.S. net operating losses and temporary tax differences expected to offset future U.S. taxable income. Net income attributable to Ultralife Corporation was $7,197 for 2023, as compared to a net loss of $119 for 2022.
Interest and financing expense increased $709 to $951 for 2022 from $242 for 2021 due to the debt financing of the acquisition of Excell on December 13, 2021. Miscellaneous income amounted to $376 for 2022 compared to $56 for 2021, primarily attributable to foreign exchange gains and loss due to fluctuations in foreign currency exchange rates. Income Tax (Benefit) Provision.
Excluding the ERC gain in the 2023 period, miscellaneous income amounted to $114 for the 2023 period compared to $376 for the 2022 period, primarily attributable to foreign exchange gains and loss due to fluctuations in foreign currency exchange rates. 32 Income Tax (Benefit) Provision.
As of December 31, 2022, none of our U.S. net operating loss carryforwards have expired. See Note 7 to the consolidated financial statements for additional information. Going forward, we expect positive operating cash flow and the availability under our Revolving Credit Facility will be sufficient to meet our obligations for both financing and investing.
Going forward, we expect positive operating cash flow and the availability under our credit facilities will be sufficient to meet our obligations for both financing and investing.
The increase in government and defense sales reflects growth in U.S. sales of $6,194 or 23.1% representing higher demand from prime defense contractors including a $2,621 or 12.3% increase for Battery & Energy Products and a $3,573 or 64.7% increase for Communications Systems, with the latter reflecting the receipt of components to commence the fulfillment to supply a defense prime with Vehicle Amplifier-Adaptors for a U.S.
The increase in government and defense sales reflects growth in Battery & Energy Products sales of $2,161 or 8.0% representing higher demand from prime defense contractors and growth in Communications Systems of $16,846 or 142.2% primarily attributable to fulfilling long-lead time orders of vehicle-amplifier adaptors to a global defense contractor for the U.S.
Net loss attributable to Ultralife was $119 for 2022 as compared to $234 for 2021. Net loss attributable to Ultralife common shareholders per diluted share was $0.01 for both 2022 and 2021.
Net income attributable to Ultralife Corporation common stockholders per diluted share was $0.44 for 2023 and a net loss of $0.01 for 2022. Adjusted EPS was $0.52 per share on a diluted basis for 2023, compared to a $0.07 loss per share for 2022.
Income tax benefit was $326 for the year ended December 31, 2022, compared to a provision of $79 for the year ended December 31, 2021. Our effective tax rate was 73.1% for 2022, as compared to (52.3%) for 2021, primarily due to the geographic mix of earnings.
The income tax provision for 2023 was $1,951, compared to an income tax benefit of $326 for 2022. Our effective tax rate decreased to 21.4% for the 2023 period as compared to 73.1% for the 2022 period, primarily attributable to the year over year increase in income before income taxes.
The 460 basis points decrease in gross margin during 2022 to 27.4% is primarily due to inefficiencies associated with delays in receipt of components and sales mix. 30 Operating Expenses. Total operating expenses for the year ended December 31, 2022 increased $4,664 or 19.0% from the year ended December 31, 2021.
The 200 basis points increase in gross margin during 2022 to 29.4% is primarily due to higher factory throughput resulting in higher cost absorption. Operating Expenses. Total operating expenses for the year ended December 31, 2023 increased $454 or 1.6% from the year ended December 31, 2022.
Year ended December 31, 2022 2021 Net loss attributable to Ultralife $ (119 ) $ (234 ) Add: Interest and financing expense, net 951 242 Income tax (benefit) provision (326 ) 79 Depreciation expense 3,177 2,906 Amortization of intangible assets 1,282 633 Stock-based compensation expense 776 671 Non-cash purchase accounting adjustments 55 121 Severance to Former President & CEO 779 - Adjusted EBIDTA $ 6,575 $ 4,418 Liquidity and Capital Resources Cash Flows and General Business Matters As of December 31, 2022, cash totaled $5,713 (including restricted cash of $79), a decrease of $2,700 from the $8,413 as of December 31, 2021, primarily attributable to the procurement of inventory amidst challenging supply chain conditions.
Year ended December 31, 2023 2022 Net income (loss) attributable to Ultralife Corporation $ 7,197 $ (119 ) Adjustments: Interest expense, net 2,016 951 Income tax provision (benefit) 1,951 (326 ) Depreciation expense 3,022 3,177 Amortization of intangible assets 889 1,282 Stock-based compensation expense 528 776 Cyber insurance policy deductible 100 - Non-cash purchase accounting adjustments - 55 Severance to former President & CEO - 779 Adjusted EBIDTA $ 15,703 $ 6,575 35 Adjusted Earnings Per Share In evaluating our business, we consider and use adjusted earnings per share (“EPS”), a non-GAAP financial measure, as a supplemental measure of our business performance.
Battery & Energy Products’ gross profit for 2022 was $26,154 or 21.8% of revenues, an increase of $5,092 or 24.2% from gross profit of $21,062, or 24.2% of revenues, for 2021.
For our Battery & Energy Products segment, the cost of products sold increased $5,337 or 5.7%, from the year ended December 31, 2022. Battery & Energy Products’ gross profit for 2023 was $30,775 or 23.7% of revenues, an increase of $4,621 or 17.7% from gross profit of $26,154, or 21.8% of revenues, for 2022.
The year-over-year increase is primarily driven by higher demand across the major markets that we serve including government and defense, medical, oil and gas and industrial, which in some cases includes orders pushed into 2023 because of the supply chain disruptions experienced in 2022.
For our Battery & Energy Products business, the backlog increased $3,365 or 3.8% to $91,997 from $88,632. The year-over-year increase is primarily driven by higher demand across the major markets that we serve including government and defense, medical, oil and gas and industrial.
Medical sales of $27,322 were down $342 or 1.2% due primarily to component shortages to fulfill increased demand from a large global medical device OEM. Government and defense sales of this business increased $3,383 or 14.4% from 2021 and now comprise 22.5% of total segment sales versus 27.1% last year.
Government and defense sales of this business increased $2,161 or 8.0% from 2022 and now comprise 22.4% of total segment sales versus 22.5% last year. The increase primarily reflects higher U.S. demand resulting in year-over-growth of 9.3%. This was partially offset by a 2.3% decrease in sales to allied countries.
The income tax provision for the 2021 period is comprised of a $226 current provision for income taxes due primarily to foreign jurisdictions and a $147 deferred tax benefit primarily for U.S. net operating losses and temporary tax differences which are expected to offset future U.S. taxable income.
The income tax provision for 2023 is comprised of a $650 current provision for taxes expected to be paid on income primarily in foreign jurisdictions, representing a cash-based effective tax rate of 7.1%, and a $1,301 deferred tax provision which primarily represents non-cash charges for U.S. taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future.
The increase is primarily attributable to a $709 increase in interest expense resulting from the debt financing of the acquisition of Excell on December 13, 2021, partially offset by other income of $376 primarily representing foreign currency exchange gains due to fluctuations in foreign currency exchange rates.
The increase is primarily due to the financing of our acquisition of Excell in December 2021, working capital funding resulting from our January 2023 cyberattack and rising interest rates.
Cash provided by financing activities for the year ended December 31, 2022 was $518, primarily attributable to net borrowings on our credit facility for the purchase of certain critical raw materials requiring cash-in-advance payment terms by the vendors. We continue to have significant U.S. net operating loss carryforwards available to utilize as an offset to taxable income.
We continue to have significant U.S. net operating loss carryforwards available to utilize as an offset to taxable income. As of December 31, 2023, none of our U.S. net operating loss carryforwards have expired. See Note 6 to the consolidated financial statements included in Item 8 of this Form 10-K for additional information.
During 2022, we experienced revenue growth of 37.8% for our Battery & Energy Products business and 5.9% for our Communications Systems business. This 2022 performance reflected a $29,529 or 46.5% increase in sales to our commercial customers and a $4,044 or 11.6% increase in sales to government and defense customers.
This 2023 performance reflected a $7,797 or 8.4% increase in sales to our commercial customers and a $19,007 or 49.0% increase in sales to government and defense customers.
Battery & Energy Products’ gross margin decreased for the year ended December 31, 2022 by 240 basis points from the prior year to 21.8% due to supply chain disruptions, including rapid cost inflation and lags in price realization, as noted above resulting from the aftermath of COVID-19, costs associated with the transition of new products to higher volume production, and unfavorable sales product mix.
Battery & Energy Products’ gross margin increased for the year ended December 31, 2023 by 190 basis points from the prior year to 23.7% primarily due to improved price realization as well as our concerted effort to level-load production more evenly resulting in labor utilization efficiencies and higher cost absorption.
Removed
As we enter the third year of the pandemic, our workforce, customers and vendors still face the risk of the emergence of new strains, availability of effective treatment, and potential regulatory and macroeconomic effects stemming from such impacts.
Added
Consolidated revenues increased by $26,804 or 20.3% to $158,644 for the year ended December 31, 2023 compared to $131,840 for the year ended December 31, 2022. During 2023, we experienced revenue growth of 8.3% for our Battery & Energy Products business and 142.2% for our Communications Systems business.
Removed
Except for certain situations in China, lockdowns, shelter-in-place restrictions, and vaccine mandates, prevalent during the earlier periods of the pandemic, have now been lifted.
Added
The increase in our commercial business was due to medical sales of $36,945 which increased $9,624 or 35.2% due primarily to higher demand from a large global medical device OEM and the successful launch of our X-5 medical cart battery system.
Removed
While we have maintained normal business operations at virtually all of our facilities throughout the pandemic, the related supply chain disruptions including increased and in some cases unreliable lead times on key components experienced within our business and by our customers and vendors, continue to impact our work schedules and timing of shipments.
Added
Army and of integrated systems of amplifiers and radio vehicle mounts to a major international defense contractor under an ongoing allied country government/defense modernization program. Demand for our products remains strong with our 2023 year-end backlog of $103,535. Gross margin increased to 24.7% for the year ended December 31, 2023 from 22.3% for the year ended December 31, 2022.
Removed
For 2021, we estimated that the net impact of COVID-19 was a reduction to sales of approximately $11,000, a reduction to operating income of approximately $4,500 and a reduction to net income of approximately $3,400 or approximately $0.21 per diluted share.
Added
The 240-basis point improvement was due primarily to the following: better alignment of the timing of our customer price increases with the impact of cost inflation on raw materials and key components; extending the time horizon of our sales & operations planning process (“S&OP”) with both customers and suppliers while upgrading our internal resources responsible for the process to reduce the negative impact of production line start-ups, shutdowns and changeovers due to irregular component availability and lead time extensions; concerted efforts to level-load production resulting in improved labor utilization efficiency and higher cost absorption; and improving our process for launching new products to reduce the cost and time of transitioning to high-volume manufacturing.
Removed
For 2022, the resulting, lingering supply chain disruptions to our business seemed to intensify, making it not feasible to estimate the resulting financial impact. Nevertheless, the demand for our products remains strong as evidenced by our backlog of $111.0 million as of December 31, 2022, an increase of $47.3 million or 74.2% compared to that exiting 2021.
Added
Operating expenses increased by $454 or 1.6% to $29,725 during the year ended December 31, 2023, compared to $29,271 during the year ended December 31, 2022.
Removed
To some extent, this increase is attributable to supply chain disruptions pushing shipments into 2023. Consolidated revenues increased by $33,573 or 34.2% to $131,840 for the year ended December 31, 2022 compared to $98,267 for the year ended December 31, 2021.
Added
The increase is primarily attributable to increased new product development investments, the recording of the $100 deductible on our cybersecurity insurance policy for expenses incurred associated with the January 2023 cyberattack and higher variable compensation, including Officer and Executive Team bonuses and salesforce commissions, and insurance costs. Both periods reflected continued tight control over discretionary spending.
Removed
The increase in our commercial business was due to the full year contribution of Excell which comprised $27,014 and organic sales growth of $2,515 or 4.0% representing a 14.6% increase in oil and gas market sales.
Added
Operating expenses as a percentage of revenue was 18.7% for 2023 compared to 22.2% for 2022, a 350-basis point improvement reflecting the sales leverage of our business model. Other expenses totaled $358 for the year-ended December 31, 2023 compared to $575 for the year ended December 31, 2022.
Removed
Medical sales of $27,322 were down $342 or 1.2% due entirely to component shortages to fulfill increased demand from a large global medical device OEM.
Added
Other expenses for the 2023 period includes an Employee Retention Credit (“ERC”) of $1,544 under Section 2301 of the Coronavirus Aid, Relief and Economic Security Act which was filed with the Internal Revenue Service during the second quarter of 2023. Interest and financing expense increased $1,065, or 112.0%, from $951 for 2022 to $2,016 for the comparable period in 2023.
Removed
Army’s Leader radio program order with some spillover into 2023. This increase was partially offset by a $2,150 or 27.3% decrease in non-U.S. government and defense sales primarily due to long lead times for key components experienced by our Communications Systems business to fulfill a large international order.

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Other ULBI 10-K year-over-year comparisons