##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 or
 o
    
    Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from  to
 Commission file number 0-20852
 ULTRALIFE BATTERIES, INC.
  Delaware
    
    16-1387013(State or other jurisdiction 
of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 2000 Technology Parkway, Newark, New York 14513
 (315) 332-7100
 
 þ o
  o þ o
 o þ




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##### 



PagePART I   FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed
Consolidated Balance Sheets  June 30, 2007 and December 31, 2006
    
    
    3Condensed
Consolidated Statements of Operations  Three- and six-month periods ended June 30, 2007 and July 1, 2006
    
    
    4Condensed
Consolidated Statements of Cash Flows  Six-month periods ended June 30, 2007 and July 1, 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4.
    
    Controls and Procedures
    
    
    37PART II   OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    39Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    40Item 6.
    
    Exhibits
    
    
    40Signatures
    
    
    41Index to Exhibits
    
    
    42EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    553
    
    
    $
    720Trade accounts receivable (less allowance for doubtful accounts
of $464 at June 30, 2007 and $447 at December 31, 2006)
    
    
    23,190
    
    
    
    24,197Inventories
    
    
    31,659
    
    
    
    27,360Due from insurance company
    
    
    849
    
    
    
    780Deferred tax asset  current
    
    
    82
    
    
    
    75Prepaid expenses and other current assets
    
    
    1,966
    
    
    
    2,748Total current assets
    
    
    58,299
    
    
    
    55,880Property, plant and equipment, net
    
    
    19,396
    
    
    
    19,396Other assets:Goodwill
    
    
    14,460
    
    
    
    13,344Intangible assets, net
    
    
    7,785
    
    
    
    9,072Security deposit
    
    
    77
    
    
    
    6622,322
    
    
    
    22,482Total Assets
    
    $
    100,017
    
    
    $
    97,758LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of debt and capital lease obligations
    
    $
    13,110
    
    
    $
    12,246Accounts payable
    
    
    14,293
    
    
    
    15,925Other current liabilities
    
    
    9,261
    
    
    
    9,639Total current liabilities
    
    
    36,664
    
    
    
    37,810Long-term liabilities:Debt and capital lease obligations
    
    
    20,350
    
    
    
    20,043Other long-term liabilities
    
    
    482
    
    
    
    316Total long-term liabilities
    
    
    20,832
    
    
    
    20,359Commitments and contingencies (Note 11)Shareholders equity:Preferred stock, par value $0.10 per share, authorized 1,000,000 shares;
none issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.10 per share, authorized 40,000,000 shares;
issued  15,920,046 at June 30, 2007 and 15,853,306 at December 31, 2006
    
    
    1,586
    
    
    
    1,578Capital in excess of par value
    
    
    136,071
    
    
    
    134,736Accumulated other comprehensive loss
    
    
    6
    
    
    
    (321
    )Accumulated deficit
    
    
    (92,764
    )
    
    
    (94,026
    )44,899
    
    
    
    41,967Less Treasury stock, at cost  727,250 shares outstanding
    
    
    2,378
    
    
    
    2,378Total shareholders equity
    
    
    42,521
    
    
    
    39,589Total Liabilities and Shareholders Equity
    
    $
    100,017
    
    
    $
    97,758
  3




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Three-Month Periods Ended
    
    
    Six-Month Periods EndedJune 30,
    
    
    July 1,
    
    
    June 30,
    
    
    July 1,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    35,196
    
    
    $
    21,393
    
    
    $
    67,516
    
    
    $
    39,712Cost of products sold
    
    
    26,579
    
    
    
    17,016
    
    
    
    51,398
    
    
    
    31,365Gross margin
    
    
    8,617
    
    
    
    4,377
    
    
    
    16,118
    
    
    
    8,347Operating expenses:Research and development (including $256, $0, $509
and $0, respectively, of amortization of intangible assets)
    
    
    1,688
    
    
    
    884
    
    
    
    3,302
    
    
    
    1,844Selling, general, and administrative (including $294, $0, $572
and $0, respectively, of amortization of intangible assets)
    
    
    5,212
    
    
    
    3,032
    
    
    
    10,508
    
    
    
    5,814Total operating expenses
    
    
    6,900
    
    
    
    3,916
    
    
    
    13,810
    
    
    
    7,658Operating income
    
    
    1,717
    
    
    
    461
    
    
    
    2,308
    
    
    
    689Other income (expense):Interest income
    
    
    18
    
    
    
    40
    
    
    
    32
    
    
    
    85Interest expense
    
    
    (604
    )
    
    
    (207
    )
    
    
    (1,261
    )
    
    
    (412
    )Gain on insurance settlement
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    191Miscellaneous
    
    
    167
    
    
    
    139
    
    
    
    183
    
    
    
    147Income before income taxes
    
    
    1,298
    
    
    
    476
    
    
    
    1,262
    
    
    
    700Income tax provision-current
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    24Income tax provision-deferred
    
    
    
    
    
    
    347
    
    
    
    
    
    
    
    427Total income taxes
    
    
    
    
    
    
    367
    
    
    
    
    
    
    
    451Net income
    
    $
    1,298
    
    
    $
    109
    
    
    $
    1,262
    
    
    $
    249Earnings per share  basic
    
    $
    0.09
    
    
    $
    0.01
    
    
    $
    0.08
    
    
    $
    0.02Earnings per share  diluted
    
    $
    0.08
    
    
    $
    0.01
    
    
    $
    0.08
    
    
    $
    0.02Weighted average shares outstanding  basic
    
    
    15,123
    
    
    
    14,851
    
    
    
    15,100
    
    
    
    14,807Weighted average shares outstanding  diluted
    
    
    15,331
    
    
    
    15,165
    
    
    
    15,320
    
    
    
    15,150
  4




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Six-Month Periods EndedJune 30,
    
    
    July 1,2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    1,262
    
    
    $
    249Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization of financing fees
    
    
    1,916
    
    
    
    1,817Amortization of intangible assets
    
    
    1,081
    
    
    
    Loss on asset disposal
    
    
    6
    
    
    
    Gain on insurance settlement
    
    
    
    
    
    
    (191
    )Foreign exchange (gain) loss
    
    
    (153
    )
    
    
    (147
    )Non-cash stock-based compensation
    
    
    1,031
    
    
    
    566Changes in deferred income taxes
    
    
    
    
    
    
    427Changes in operating assets and liabilities, net of effects from
the purchase of ABLE and McDowell:Accounts receivable
    
    
    848
    
    
    
    (1,332
    )Inventories
    
    
    (4,282
    )
    
    
    3,455Prepaid expenses and other current assets
    
    
    688
    
    
    
    1,236Insurance receivable relating to fires
    
    
    (49
    )
    
    
    602Income taxes payable
    
    
    
    
    
    
    23Accounts payable and other liabilities
    
    
    (830
    )
    
    
    (2,234
    )Net cash provided by operating activities
    
    
    1,518
    
    
    
    4,471INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (1,370
    )
    
    
    (651
    )Payment for purchase of ABLE, net of cash acquired
    
    
    (1
    )
    
    
    (1,946
    )Payment for purchase of McDowell
    
    
    (1,500
    )
    
    
    Net cash used in investing activities
    
    
    (2,871
    )
    
    
    (2,597
    )FINANCING ACTIVITIESNet change in revolving credit facilities
    
    
    1,800
    
    
    
    (525
    )Proceeds from issuance of common stock
    
    
    312
    
    
    
    555Principal payments on long-term debt and capital lease obligations
    
    
    (1,039
    )
    
    
    (1,000
    )Net cash provided by (used in) in financing activities
    
    
    1,073
    
    
    
    (970
    )Effect of exchange rate changes on cash
    
    
    113
    
    
    
    119Change in cash and cash equivalents
    
    
    (167
    )
    
    
    1,023Cash and cash equivalents at beginning of period
    
    
    720
    
    
    
    3,214Cash and cash equivalents at end of period
    
    $
    553
    
    
    $
    4,237SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for income taxes
    
    $
    
    
    
    $
    5Cash paid for interest
    
    $
    1,155
    
    
    $
    363Noncash investing and financing activities:Issuance of common stock and stock warrants for purchase of ABLE
    
    $
    
    
    
    $
    1,526Purchase of property and equipment via capital lease payable
    
    $
    410
    
    
    $
    
  5




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ABLE New Energy Co., Ltd.
   6




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Risk-free interest rate
    
    
    4.31
    %Volatility factor
    
    
    61.25
    %Dividends
    
    
    0.00
    %Weighted average expected life (years)
    
    
    2.50
    ASSETSCurrent assets:Cash and cash equivalents
    
    $
    104Trade accounts receivables, net
    
    
    318Inventories
    
    
    737Prepaid expenses and other current expenses
    
    
    73Total current assets
    
    
    1,232Property, plant and equipment, net
    
    
    740Goodwill
    
    
    1,317Intangible assets:Trademarks
    
    
    90Patents and technology
    
    
    390Customer relationships
    
    
    820Distributor relationships
    
    
    300Non-compete agreements
    
    
    40Total assets acquired
    
    
    4,929LIABILITIESCurrent liabilities:Accounts payable
    
    
    1,085Other current liabilities
    
    
    110Total current liabilities
    
    
    1,195Long-term liabilities:Other long-term liabilities
    
    
    65Deferred tax liability
    
    
    84Total liabilities assumed
    
    
    1,344Total Purchase Price
    
    $
    3,585
  7




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McDowell Research, Ltd.
       8




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ASSETSCurrent assets:Trade accounts receivables, net
    
    $
    3,532Inventories
    
    
    5,155Prepaid inventory and other current expenses
    
    
    10Total current assets
    
    
    8,697Property, plant and equipment, net
    
    
    397Goodwill
    
    
    13,075Intangible assets:Trademarks
    
    
    3,000Patents and technology
    
    
    3,201Customer relationships
    
    
    1,990Non-compete agreements
    
    
    166Total assets acquired
    
    
    30,526LIABILITIESCurrent liabilities:Current portion of long-term debt
    
    
    46Accounts payable
    
    
    1,787Other current liabilities
    
    
    208Total current liabilities
    
    
    2,041Long-term liabilities:Debt
    
    
    37Total liabilities assumed
    
    
    2,078Total Purchase Price
    
    $
    28,448
   9




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June 30, 2007AccumulatedGross Assets
    
    Amortization
    
    NetTrademarks
    
    $
    3,095
    
    
    $
    
    
    
    $
    3,095Patents and technology
    
    
    3,611
    
    
    
    1,133
    
    
    
    2,478Customer relationships
    
    
    2,853
    
    
    
    978
    
    
    
    1,875Distributor relationships
    
    
    315
    
    
    
    88
    
    
    
    227Non-compete agreements
    
    
    208
    
    
    
    98
    
    
    
    110Total intangible assets
    
    $
    10,082
    
    
    $
    2,297
    
    
    $
    7,785
 December 31, 2006AccumulatedGross Assets
    
    Amortization
    
    NetTrademarks
    
    $
    3,090
    
    
    $
    
    
    
    $
    3,090Patents and technology
    
    
    3,737
    
    
    
    619
    
    
    
    3,118Customer relationships
    
    
    2,940
    
    
    
    476
    
    
    
    2,464Distributor relationships
    
    
    300
    
    
    
    55
    
    
    
    245Non-compete agreements
    
    
    204
    
    
    
    49
    
    
    
    155Total intangible assets
    
    $
    10,271
    
    
    $
    1,199
    
    
    $
    9,072
    Non-Rechargeable
    
    Rechargeable
    
    CommunicationsProducts
    
    Products
    
    Accessories
    
    TotalBalance at December 31, 2006
    
    $
    1,239
    
    
    $
    2,421
    
    
    $
    9,684
    
    
    $
    13,344Adjustments to purchase price
allocation
    
    
    78
    
    
    
    194
    
    
    
    776
    
    
    
    1,048Effect of foreign currency
translations
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    68Balance at June 30, 2007
    
    $
    1,385
    
    
    $
    2,615
    
    
    $
    10,460
    
    
    $
    14,460
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Non-Rechargeable
    
    Rechargeable
    
    CommunicationsProducts
    
    Products
    
    Accessories
    
    TotalBalance at December 31,
2005
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Acquisition of ABLE
    
    
    516
    
    
    
    
    
    
    
    
    
    
    
    516Balance at June 30, 2006
    
    $
    516
    
    
    $
    
    
    
    $
    
    
    
    $
    516
    Three-Month Periods Ended
    
    
    Six-Month Periods EndedJune 30,
    
    
    July 1,
    
    
    June 30,
    
    
    July 1,2007
    
    
    2006
    
    
    2007
    
    
    2006Net Income (a)
    
    $
    1,298
    
    
    $
    109
    
    
    $
    1,262
    
    
    $
    249Average Shares Outstanding  Basic (b)
    
    
    15,123
    
    
    
    14,851
    
    
    
    15,100
    
    
    
    14,807Effect of Dilutive Securities:Stock Options / Warrants
    
    
    202
    
    
    
    314
    
    
    
    215
    
    
    
    343Restricted Stock
    
    
    6
    
    
    
    
    
    
    
    5
    
    
    
    Convertible Note Payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average Shares Outstanding  Diluted (c)
    
    
    15,331
    
    
    
    15,165
    
    
    
    15,320
    
    
    
    15,150EPS  Basic (a/b)
    
    $
    0.09
    
    
    $
    0.01
    
    
    $
    0.08
    
    
    $
    0.02EPS  Diluted (a/c)
    
    $
    0.08
    
    
    $
    0.01
    
    
    $
    0.08
    
    
    $
    0.02
     11




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Six-Month
    
    Six-MonthPeriod Ended
    
    Period EndedJune 30, 2007
    
    July 1, 2006Risk-free interest rate
    
    
    4.54
    %
    
    
    4.76
    %Volatility factor
    
    
    57.99
    %
    
    
    60.08
    %Dividends
    
    
    0.00
    %
    
    
    0.00
    %Weighted average expected life (years)
    
    
    3.75
    
    
    
    3.58
   Weighted
    
    WeightedAverage
    
    Average
    
    AggregateNumber
    
    Exercise Price
    
    Remaining
    
    Intrinsicof Shares
    
    Per Share
    
    Contractual Term
    
    ValueShares under option at January 1, 2007
    
    
    1,815,471
    
    
    $
    11.03Options granted
    
    
    173,500
    
    
    
    9.70Options exercised
    
    
    (67,140
    )
    
    
    4.67Options forfeited
    
    
    (78,300
    )
    
    
    9.80Options expired
    
    
    (10,500
    )
    
    
    15.16Shares under option at June 30, 2007
    
    
    1,833,031
    
    
    $
    11.17
    
    
    4.52 years
    
    $
    2,553Vested and expected to vest as of
June 30, 2007
    
    
    1,756,215
    
    
    $
    11.19
    
    
    4.45 years
    
    $
    2,508Options exercisable at June 30, 2007
    
    
    1,093,137
    
    
    $
    11.71
    
    
    3.62 years
    
    $
    1,978
   13




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WeightedAverageNumber of
    
    
    Grant DateShares
    
    
    Fair ValueUnvested at December 31, 2006
    
    
    72,334
    
    
    $
    10.50Granted
    
    
    
    
    
    
    Vested
    
    
    (13,334
    )
    
    
    10.30Forfeited
    
    
    
    
    
    
    Unvested at June 30, 2007
    
    
    59,000
    
    
    $
    10.55
    Three-Month Periods Ended
    
    Six-Month Periods EndedJune 30,
    
    July 1,
    
    June 30,
    
    July 1,2007
    
    2006
    
    2007
    
    2006Net income (loss)
    
    $
    1,298
    
    
    $
    109
    
    
    $
    1,262
    
    
    $
    249Foreign currency translation adjustments
    
    
    213
    
    
    
    318
    
    
    
    340
    
    
    
    370Change in fair value of derivatives,
net of tax
    
    
    (1
    )
    
    
    11
    
    
    
    (13
    )
    
    
    32Total comprehensive income
    
    $
    1,510
    
    
    $
    438
    
    
    $
    1,589
    
    
    $
    651
 14




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June 30,
    
    December 31,2007
    
    2006Raw materials
    
    $
    21,140
    
    
    $
    14,964Work in process
    
    
    5,850
    
    
    
    9,061Finished goods
    
    
    6,876
    
    
    
    4,54133,866
    
    
    
    28,566Less: Reserve for obsolescence
    
    
    2,207
    
    
    
    1,206$
    31,659
    
    
    $
    27,360
   June 30,
    
    December 31,2007
    
    2006Land
    
    $
    123
    
    
    $
    123Buildings and leasehold improvements
    
    
    4,786
    
    
    
    4,336Machinery and equipment
    
    
    40,996
    
    
    
    40,485Furniture and fixtures
    
    
    1,173
    
    
    
    982Computer hardware and software
    
    
    2,295
    
    
    
    2,127Construction in progress
    
    
    1,968
    
    
    
    1,30051,341
    
    
    
    49,353Less: Accumulated depreciation
    
    
    31,945
    
    
    
    29,957$
    19,396
    
    
    $
    19,396
     15




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Balance at December 31, 2006
    
    $
    522Accruals for warranties issued
    
    
    272Settlements made
    
    
    (21
    )Balance at June 30, 2007
    
    $
    773
  18




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Three-Month Period Ended June 30, 2007
 Non-Rechargeable
    
    
    Rechargeable
    
    
    Communications
    
    
    TechnologyProducts
    
    
    Products
    
    
    Accessories
    
    
    Contracts
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    22,808
    
    
    $
    4,561
    
    
    $
    7,688
    
    
    $
    139
    
    
    $
    
    
    
    $
    35,196Segment contribution
    
    
    6,201
    
    
    
    943
    
    
    
    1,451
    
    
    
    22
    
    
    
    (6,900
    )
    
    
    1,717Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (586
    )
    
    
    (586
    )Miscellaneous
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    167
    
    
    
    167Income taxes-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income taxes-deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,298Total assets
    
    $
    51,410
    
    
    $
    18,459
    
    
    $
    25,440
    
    
    $
    74
    
    
    $
    4,634
    
    
    $
    100,017
 Three-Month Period Ended July 1, 2006
 Non-Rechargeable
    
    
    Rechargeable
    
    
    Communications
    
    
    TechnologyProducts
    
    
    Products
    
    
    Accessories
    
    
    Contracts
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    18,458
    
    
    $
    2,648
    
    
    $
    
    
    
    $
    287
    
    
    $
    
    
    
    $
    21,393Segment contribution
    
    
    3,558
    
    
    
    789
    
    
    
    
    
    
    
    30
    
    
    
    (3,916
    )
    
    
    461Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (167
    )
    
    
    (167
    )Miscellaneous
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    182Income taxes-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    (20
    )Income taxes-deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (347
    )
    
    
    (347
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    109Total assets
    
    $
    47,160
    
    
    $
    3,883
    
    
    $
    
    
    
    $
    158
    
    
    $
    30,542
    
    
    $
    81,743
 Six-Month Period Ended June 30, 2007
 Non-Rechargeable
    
    
    Rechargeable
    
    
    Communications
    
    
    TechnologyProducts
    
    
    Products
    
    
    Accessories
    
    
    Contracts
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    40,966
    
    
    $
    10,090
    
    
    $
    16,179
    
    
    $
    281
    
    
    $
    
    
    
    $
    67,516Segment contribution
    
    
    10,749
    
    
    
    2,305
    
    
    
    2,971
    
    
    
    93
    
    
    
    (13,810
    )
    
    
    2,308Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,229
    )
    
    
    (1,229
    )Miscellaneous
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    183Income taxes-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income taxes-deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,262Total assets
    
    $
    51,410
    
    
    $
    18,459
    
    
    $
    25,440
    
    
    $
    74
    
    
    $
    4,634
    
    
    $
    100,017
 Six-Month Period Ended July 1, 2006
 Non-Rechargeable
    
    
    Rechargeable
    
    
    Communications
    
    
    TechnologyProducts
    
    
    Products
    
    
    Accessories
    
    
    Contracts
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    34,103
    
    
    $
    5,213
    
    
    $
    
    
    
    $
    396
    
    
    $
    
    
    
    $
    39,712Segment contribution
    
    
    6,880
    
    
    
    1,485
    
    
    
    
    
    
    
    (18
    )
    
    
    (7,658
    )
    
    
    689Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (327
    )
    
    
    (327
    )Miscellaneous
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338
    
    
    
    338Income taxes-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    (24
    )Income taxes-deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (427
    )
    
    
    (427
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    249Total assets
    
    $
    47,160
    
    
    $
    3,883
    
    
    $
    
    
    
    $
    158
    
    
    $
    30,542
    
    
    $
    81,743
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Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    General
    25




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Results of Operations
 Three-month periods ended June 30, 2007 and July 1, 2006
 Revenues.
 Cost of Products Sold.
 Operating Expenses.
 27




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Other Income (Expense).
 Income Taxes.
  Net Income (Loss).
 Six-month periods ended June 30, 2007 and July 1, 2006
 Revenues.
 Cost of Products Sold.
 28




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Operating Expenses.
 Other Income (Expense).
 Income Taxes.
  29




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Net Income (Loss).
 Adjusted EBITDA
    
    
    Adjusted EBITDA (1) does not reflect our cash expenditures or future requirements
for capital expenditures or contractual commitments; (2) does not reflect changes in,
or cash requirements for, our working capital needs; (3) does not reflect the
interest expense, or the cash requirements necessary to service interest or principal
payments, on our debt; (4) does not reflect income taxes or the cash requirements for
any tax payments; and (5) does not reflect all of the costs associated with operating
our business;
    
    although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future, and Adjusted
EBITDA does not reflect any cash requirements for such replacements;
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
    
    while stock-based compensation is a component of cost of products sold and
operating expenses, the impact on our consolidated financial statements compared to
other companies can vary significantly due to such factors as assumed life of the
stock-based awards and assumed volatility of our common stock; and
    
    other companies may calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure.
  Three-Month Period Ended
    
    
    Six-Month Period EndedJune 30,
    
    
    July 1,
    
    
    June 30,
    
    
    July 1,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    1,298
    
    
    $
    109
    
    
    $
    1,262
    
    
    $
    249Add: interest expense, net
    
    
    586
    
    
    
    167
    
    
    
    1,229
    
    
    
    327Add: income tax provision
    
    
    
    
    
    
    367
    
    
    
    
    
    
    
    451Add: depreciation expense
    
    
    953
    
    
    
    982
    
    
    
    1,916
    
    
    
    1,817Add: amortization expense
    
    
    550
    
    
    
    
    
    
    
    1,081
    
    
    
    Add: stock-based
compensation expense
    
    
    481
    
    
    
    308
    
    
    
    1,031
    
    
    
    566Adjusted EBITDA
    
    $
    3,868
    
    
    $
    1,933
    
    
    $
    6,519
    
    
    $
    3,410
 Liquidity and Capital Resources
     31




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33




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Outlook
  34




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Recent Accounting Pronouncements and Developments
  
    35




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Critical Accounting Policies
   36




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Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Dollars in thousands)
    
 Item 4.
    
    CONTROLS AND PROCEDURES
    a)
    
    Ineffective information systems and related control processes
surrounding such systems;b)
    
    Inadequate controls and supporting documentation for inventory
valuations;c)
    
    Lack of routine and complete reconciliations of general ledger
accounts to detailed supporting documentation; andd)
    
    Levels of staffing that would promote sufficient segregation of
duties and assure a sufficient level of expertise in manufacturing accounting
and proper application of generally accepted accounting principles.
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PART II OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings (Dollars in thousands)
   39




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(a)
    
    On June 6, 2007, we held our Annual Meeting of Shareholders.(b)
    
    At the Annual Meeting, our shareholders elected to the Board of Directors all
eight nominees for Director with the following votes:
 DIRECTOR
    
    FOR
    
    
    AGAINSTCarole Lewis Anderson
    
    
    13,137,390
    
    
    
    74,040Patricia C. Barron
    
    
    13,003,689
    
    
    
    207,741Anthony J. Cavanna
    
    
    13,109,334
    
    
    
    102,096Paula H. J. Cholmondeley
    
    
    11,140,094
    
    
    
    2,071,336Daniel W. Christman
    
    
    13,108,584
    
    
    
    102,846John D. Kavazanjian
    
    
    13,148,450
    
    
    
    62,980Ranjit C. Singh
    
    
    13,150,072
    
    
    
    61,358Bradford T. Whitmore
    
    
    13,153,190
    
    
    
    58,240
 (c)
    
    At the Annual Meeting, our shareholders voted for the ratification of the
selection of BDO Seidman, LLP as our independent registered public accounting firm for
2007 with the following votes:
 FOR
    
    AGAINST
    
    ABSTENTIONS13,163,891
    
    
    28,091
    
    
    
    19,447
 
 Item 6.
    
    Exhibits
 31.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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ULTRALIFE BATTERIES, INC.
(Registrant)Date: August 9, 2007
    By:
    /s/ John D. KavazanjianJohn D. KavazanjianPresident and Chief Executive OfficerDate: August 9, 2007
    By:
    /s/ Robert W. FishbackRobert W. FishbackVice President  Finance and Chief
Financial Officer 41




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31.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 42