##### 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 September 30, 2006
 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
    
    (I.R.S. Employer Identification No.)of incorporation or organization)
 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  September 30, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations  Three- and nine-month periods ended September 30, 2006 and October 1, 2005
    
    
    4Condensed Consolidated Statements of Cash Flows  Nine-month periods ended September 30, 2006 and October 1, 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4.
    
    Controls and Procedures
    
    
    35PART II OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    37Item 6.
    
    Exhibits
    
    
    37Signatures
    
    
    
    
    38Index to Exhibits
    
    
    39EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,345
    
    
    $
    3,214Trade accounts receivable (less allowance for doubtful accounts
of $363 at September 30, 2006 and $458 at December 31, 2005)
    
    
    18,453
    
    
    
    10,965Inventories
    
    
    22,949
    
    
    
    19,446Due from insurance company
    
    
    
    
    
    
    482Deferred tax asset  current
    
    
    3,152
    
    
    
    2,508Prepaid expenses and other current assets
    
    
    2,667
    
    
    
    2,747Total current assets
    
    
    48,566
    
    
    
    39,362Property, plant and equipment, net
    
    
    19,663
    
    
    
    19,931Other assets:Goodwill
    
    
    12,513
    
    
    
    Intangible assets, net
    
    
    10,585
    
    
    
    Security deposits and other
    
    
    
    
    
    
    243Deferred tax asset  non-current
    
    
    20,905
    
    
    
    21,22144,003
    
    
    
    21,464Total Assets
    
    $
    112,232
    
    
    $
    80,757LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term debt and current portion of long-term debt
    
    $
    8,736
    
    
    $
    7,715Accounts payable
    
    
    10,295
    
    
    
    5,218Income taxes payable
    
    
    19
    
    
    
    Other current liabilities
    
    
    8,255
    
    
    
    5,450Total current liabilities
    
    
    27,305
    
    
    
    18,383Long-term liabilities:Debt and capital lease obligations
    
    
    20,052
    
    
    
    25Other long-term liabilities
    
    
    156
    
    
    
    242Total long-term liabilities
    
    
    20,208
    
    
    
    267Commitments and contingencies (Note 11)Shareholders equity:Preferred stock, par value $0.10 per share, authorized 1,000,000 shares;
none outstanding
    
    
    
    
    
    
    Common stock, par value $0.10 per share, authorized 40,000,000 shares;
issued  15,759,505 at September 30, 2006 and 15,471,446 at December 31, 2005
    
    
    1,576
    
    
    
    1,547Capital in excess of par value
    
    
    134,078
    
    
    
    130,530Accumulated other comprehensive loss
    
    
    (570
    )
    
    
    (1,054
    )Accumulated deficit
    
    
    (67,987
    )
    
    
    (66,538
    )67,097
    
    
    
    64,485Less Treasury stock, at cost  727,250 shares
    
    
    2,378
    
    
    
    2,378Total shareholders equity
    
    
    64,719
    
    
    
    62,107Total Liabilities and Shareholders Equity
    
    $
    112,232
    
    
    $
    80,757
  3




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Three-Month Periods Ended
    
    
    Nine-Month Periods EndedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    23,725
    
    
    $
    15,692
    
    
    $
    63,437
    
    
    $
    52,658Cost of products sold
    
    
    19,744
    
    
    
    13,332
    
    
    
    51,109
    
    
    
    44,070Gross margin
    
    
    3,981
    
    
    
    2,360
    
    
    
    12,328
    
    
    
    8,588Operating expenses:Research and development
    
    
    1,239
    
    
    
    969
    
    
    
    3,083
    
    
    
    2,874Selling, general, and administrative
    
    
    4,367
    
    
    
    2,902
    
    
    
    10,181
    
    
    
    8,745Amortization of intangible assets
    
    
    512
    
    
    
    
    
    
    
    512
    
    
    
    Total operating expenses
    
    
    6,118
    
    
    
    3,871
    
    
    
    13,776
    
    
    
    11,619Operating income/(loss)
    
    
    (2,137
    )
    
    
    (1,511
    )
    
    
    (1,448
    )
    
    
    (3,031
    )Other income (expense):Interest income
    
    
    19
    
    
    
    44
    
    
    
    104
    
    
    
    162Interest expense
    
    
    (451
    )
    
    
    (220
    )
    
    
    (863
    )
    
    
    (593
    )Gain on insurance settlement
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    Miscellaneous
    
    
    39
    
    
    
    (9
    )
    
    
    186
    
    
    
    (203
    )Income/(loss) before income taxes
    
    
    (2,530
    )
    
    
    (1,696
    )
    
    
    (1,830
    )
    
    
    (3,665
    )Income tax provision/(benefit)-current
    
    
    (4
    )
    
    
    5
    
    
    
    20
    
    
    
    3Income tax provision/(benefit)-deferred
    
    
    (828
    )
    
    
    (385
    )
    
    
    (401
    )
    
    
    637Total income taxes
    
    
    (832
    )
    
    
    (380
    )
    
    
    (381
    )
    
    
    640Net Income/(Loss)
    
    $
    (1,698
    )
    
    $
    (1,316
    )
    
    $
    (1,449
    )
    
    $
    (4,305
    )Earnings/(Loss) per share  basic
    
    $
    (0.11
    )
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.30
    )Earnings/(Loss) per share  diluted
    
    $
    (0.11
    )
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.30
    )Weighted average shares outstanding  basic
    
    
    14,987
    
    
    
    14,642
    
    
    
    14,867
    
    
    
    14,497Weighted average shares outstanding  diluted
    
    
    14,987
    
    
    
    14,642
    
    
    
    14,867
    
    
    
    14,497
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Nine-Month Periods EndedSeptember 30,
    
    
    October 1,2006
    
    
    2005OPERATING ACTIVITIESNet income (loss)
    
    $
    (1,449
    )
    
    $
    (4,305
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:Depreciation
    
    
    2,747
    
    
    
    2,375Amortization of intangible assets
    
    
    512
    
    
    
    (Gain)/loss on asset disposal
    
    
    124
    
    
    
    (6
    )Gain on insurance settlement
    
    
    (191
    )
    
    
    Foreign exchange (gain)/loss
    
    
    (186
    )
    
    
    214Non-cash stock-based compensation
    
    
    975
    
    
    
    20Changes in deferred taxes
    
    
    (401
    )
    
    
    680Changes in operating assets and liabilities, net of effects from
the purchase of ABLE and McDowell:Accounts receivable
    
    
    (3,147
    )
    
    
    (2,427
    )Inventories
    
    
    2,743
    
    
    
    (6,045
    )Prepaid expenses and other current assets
    
    
    304
    
    
    
    (395
    )Insurance receivable relating to fires
    
    
    602
    
    
    
    678Income taxes payable
    
    
    19
    
    
    
    Accounts payable and other liabilities
    
    
    1,355
    
    
    
    3,076Net cash provided by (used in) operating activities
    
    
    4,007
    
    
    
    (6,135
    )INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (1,030
    )
    
    
    (3,211
    )Proceeds from asset disposal
    
    
    
    
    
    
    23Sales of securities
    
    
    
    
    
    
    1,000Payment for purchase of ABLE, net of cash acquired
    
    
    (1,949
    )
    
    
    Payment for purchase of McDowell
    
    
    (5,059
    )
    
    
    Net cash used in investing activities
    
    
    (8,038
    )
    
    
    (2,188
    )FINANCING ACTIVITIESNet change in revolving credit facilities
    
    
    2,475
    
    
    
    68Proceeds from issuance of common stock
    
    
    1,076
    
    
    
    2,310Principal payments on long-term debt and capital lease obligations
    
    
    (1,510
    )
    
    
    (1,500
    )Net cash (used in) provided by in financing activities
    
    
    2,041
    
    
    
    878Effect of exchange rate changes on cash
    
    
    121
    
    
    
    (78
    )Increase (decrease) in cash and cash equivalents
    
    
    (1,869
    )
    
    
    (7,523
    )Cash and cash equivalents at beginning of period
    
    
    3,214
    
    
    
    10,529Cash and cash equivalents at end of period
    
    $
    1,345
    
    
    $
    3,006SUPPLEMENTAL CASH FLOW INFORMATIONTaxes paid
    
    $
    5
    
    
    $
    Interest paid
    
    $
    626
    
    
    $
    388Noncash investing and financing activities:Issuance of common stock and stock warrants for purchase of ABLE
    
    $
    1,526
    
    
    $
    Issuance of convertible note payable for purchase of McDowell
    
    $
    20,000
    
    
    $
    Accrual of purchase price adjustment for purchase of McDowell
    
    $
    3,000
    
    
    $
    
  5




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1.
    
    BASIS OF PRESENTATION
    2.
    
    ACQUISITIONS
  ABLE New Energy Co., Ltd.
   6




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##### Table of Contents



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
    
    
    789Prepaid expenses and other current expenses
    
    
    73Total current assets
    
    
    1,284Property, plant and equipment, net
    
    
    746Goodwill
    
    
    1,234Intangible Assets:Trademarks
    
    
    90Patents and technology
    
    
    390Customer relationships
    
    
    830Distributor relationships
    
    
    300Non-compete agreements
    
    
    40Total assets acquired
    
    
    4,914LIABILITIESCurrent liabilities:Accounts payable
    
    
    1,085Other current liabilities
    
    
    110Total current liabilities
    
    
    1,195Long-term liabilities:Other long-term liabilities
    
    
    65Deferred tax liability
    
    
    75Total liabilities assumed
    
    
    1,335Total Purchase Price
    
    $
    3,579
 7




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McDowell Research, Ltd.
    8




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ASSETSCurrent assets:Trade accounts receivables, net
    
    $
    3,849Inventories
    
    
    5,155Prepaid inventory and other current expenses
    
    
    10Total current assets
    
    
    9,014Property, plant and equipment, net
    
    
    397Goodwill
    
    
    11,279Intangible Assets:Trademarks
    
    
    3,610Patents and technology
    
    
    4,384Customer relationships
    
    
    1,280Non-compete agreements
    
    
    173Total assets acquired
    
    
    30,137LIABILITIESCurrent liabilities:Current portion of long-term debt
    
    
    46Accounts payable
    
    
    1,783Other current liabilities
    
    
    212Total current liabilities
    
    
    2,041Long-term liabilities:Debt
    
    
    37Total liabilities assumed
    
    
    2,078Total Purchase Price
    
    $
    28,059
   9




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Three-Month Periods Ended
    
    Nine-Month Periods Ended(in thousands, except per
    
    September 30,
    
    October 1,
    
    September 30,
    
    October 1,share data)
    
    2006
    
    2005
    
    2006
    
    2005Revenues
    
    $
    23,725
    
    
    $
    20,836
    
    
    $
    75,582
    
    
    $
    67,051Net Income/(Loss)
    
    $
    (1,698
    )
    
    $
    (1,358
    )
    
    $
    (177
    )
    
    $
    (4,686
    )Earnings/(Loss) per
share  Basic
    
    $
    (0.11
    )
    
    $
    (0.09
    )
    
    $
    (0.01
    )
    
    $
    (0.32
    )Earnings/(Loss) per
share  Diluted
    
    $
    (0.11
    )
    
    $
    (0.09
    )
    
    $
    (0.01
    )
    
    $
    (0.32
    )
  3.
    
    GOODWILL AND OTHER INTANGIBLE ASSETS
   4.
    
    EARNINGS (LOSS) PER SHARE
   10




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Three-Month Periods
    
    
    Nine-Month PeriodsEnded
    
    
    EndedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,(In thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net Income/(Loss) (a)
    
    $
    (1,698
    )
    
    $
    (1,316
    )
    
    $
    (1,449
    )
    
    $
    (4,305
    )Average Shares Outstanding  Basic (b)
    
    
    14,987
    
    
    
    14,642
    
    
    
    14,867
    
    
    
    14,497Effect of Dilutive Securities:Stock Options / Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible Note Payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average Shares Outstanding  Diluted (c)
    
    
    14,987
    
    
    
    14,642
    
    
    
    14,867
    
    
    
    14,497EPS  Basic (a/b)
    
    $
    (0.11
    )
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.30
    )EPS  Diluted (a/c)
    
    $
    (0.11
    )
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.30
    )
  5.
    
    STOCK-BASED COMPENSATION
    11




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12




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Three-Month
    
    
    Nine-MonthPeriod Ended
    
    
    Period Ended(In thousands, except per share data)
    
    October 1, 2005
    
    
    October 1, 2005Net loss, as reported
    
    $
    (1,316
    )
    
    $
    (4,305
    )Add: Stock-based employee
compensation expense included in
reported net income, net of related
tax effects
    
    
    
    
    
    
    Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects
    
    
    (427
    )
    
    
    (1,481
    )Pro forma net loss
    
    $
    (1,743
    )
    
    $
    (5,786
    )Loss per share:Basic  as reported
    
    $
    (0.09
    )
    
    $
    (0.30
    )Basic  pro forma
    
    $
    (0.12
    )
    
    $
    (0.40
    )Diluted  as reported
    
    $
    (0.09
    )
    
    $
    (0.30
    )Diluted  pro forma
    
    $
    (0.12
    )
    
    $
    (0.40
    )
  Risk-free interest rate
    
    
    4.91
    %Volatility factor
    
    
    60.20
    %Dividends
    
    
    0.00
    %Weighted average expected life (years)
    
    
    3.64
  13




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WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber
    
    Exercise Price
    
    Contractual
    
    Intrinsicof Shares
    
    Per Share
    
    Term
    
    ValueShares under option at January 1, 2006
    
    
    1,430,271
    
    
    $
    10.94Options granted
    
    
    455,300
    
    
    $
    10.53Options exercised
    
    
    (84,600
    )
    
    $
    6.76Options forfeited
    
    
    (9,200
    )
    
    $
    4.51Options expired
    
    
    (33,000
    )
    
    $
    15.33Shares under option at September 30, 2006
    
    
    1,758,771
    
    
    $
    10.99
    
    
    4.72 years
    
    $
    2,997Vested and expected to vest as of
September 30, 2006
    
    
    1,676,930
    
    
    $
    11.01
    
    
    4.66 years
    
    $
    2,924Options exercisable at September 30, 2006
    
    
    1,020,409
    
    
    $
    11.81
    
    
    4.08 years
    
    $
    1,910
    Three Months EndedSeptember 30, 2006Number of shares awarded
    
    
    26,668Weighted average fair value per share
    
    $
    10.30Aggregate total value
    
    $
    274,787
 14




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Weighted AverageNumber
    
    Grant DateOf Shares
    
    Fair ValueUnvested at December 31, 2005
    
    
    0
    
    
    $
    0Granted
    
    
    26,668
    
    
    
    10.30Vested
    
    
    (6,667
    )
    
    
    10.30Forfeited
    
    
    0
    
    
    
    0Unvested at September 30, 2006
    
    
    20,001
    
    
    $
    10.30
  6.
    
    COMPREHENSIVE INCOME (LOSS)
  Three-Month Periods
    
    
    Nine-Month PeriodsEnded
    
    
    EndedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    (1,698
    )
    
    $
    (1,316
    )
    
    $
    (1,449
    )
    
    $
    (4,305
    )Foreign currency translation adjustments
    
    
    117
    
    
    
    (13
    )
    
    
    487
    
    
    
    (478
    )Change in fair value of derivatives,
net of tax
    
    
    (35
    )
    
    
    44
    
    
    
    (3
    )
    
    
    148Total comprehensive income (loss)
    
    $
    (1,616
    )
    
    $
    (1,285
    )
    
    $
    (965
    )
    
    $
    (4,635
    )
 7.
    
    INVENTORIES
  September 30, 2006
    
    
    December 31, 2005Raw materials
    
    $
    12,384
    
    
    $
    8,817Work in process
    
    
    7,711
    
    
    
    8,648Finished goods
    
    
    3,958
    
    
    
    2,84924,053
    
    
    
    20,314Less: Reserve for obsolescence
    
    
    1,104
    
    
    
    868$
    22,949
    
    
    $
    19,446
 15




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##### Table of Contents



8.
    
    PROPERTY, PLANT AND EQUIPMENT
  September 30, 2006
    
    
    December 31, 2005Land
    
    $
    123
    
    
    $
    123Buildings and leasehold improvements
    
    
    4,334
    
    
    
    4,229Machinery and equipment
    
    
    39,944
    
    
    
    37,876Furniture and fixtures
    
    
    969
    
    
    
    788Computer hardware and software
    
    
    2,101
    
    
    
    2,197Construction in progress
    
    
    992
    
    
    
    1,05948,463
    
    
    
    46,272Less: Accumulated depreciation
    
    
    28,800
    
    
    
    26,341$
    19,663
    
    
    $
    19,931
 9.
    
    DEBT
    16




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10.
    
    INCOME TAXES
     17




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##### Table of Contents



11.
    
    COMMITMENTS AND CONTINGENCIES
   Balance at December 31, 2005
    
    $
    464Accruals for warranties issued
    
    
    46Settlements made
    
    
    (42
    )Balance at September 30, 2006
    
    $
    468
    18




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##### Table of Contents



12.
    
    BUSINESS SEGMENT INFORMATION
  Three-Month Period Ended September 30, 2006
 Non-rechargeable
    
    
    Rechargeable
    
    
    Communications
    
    
    TechnologyBatteries
    
    
    Batteries
    
    
    Accessories
    
    
    Contracts
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    16,998
    
    
    $
    3,463
    
    
    $
    3,046
    
    
    $
    218
    
    
    $
    
    
    
    $
    23,725Segment contribution
    
    
    2,400
    
    
    
    397
    
    
    
    1,104
    
    
    
    80
    
    
    
    (6,118
    )
    
    
    (2,137
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (432
    )
    
    
    (432
    )Miscellaneous
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    39Income taxes-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Income taxes-deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    828
    
    
    
    828Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,698
    )Total assets
    
    $
    47,748
    
    
    $
    7,602
    
    
    $
    27,526
    
    
    $
    120
    
    
    $
    29,236
    
    
    $
    112,232
 20




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##### Table of Contents



Three-Month
Period Ended October 1, 2005
 Non-rechargeable
    
    
    Rechargeable
    
    
    Communications
    
    
    TechnologyBatteries
    
    
    Batteries
    
    
    Accessories
    
    
    Contracts
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    12,805
    
    
    $
    2,286
    
    
    $
    
    
    
    $
    601
    
    
    $
    
    
    
    $
    15,692Segment contribution
    
    
    1,811
    
    
    
    456
    
    
    
    
    
    
    
    93
    
    
    
    (3,871
    )
    
    
    (1,511
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176
    )
    
    
    (176
    )Miscellaneous
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Income taxes-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Income taxes-deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    385
    
    
    
    385Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,316
    )Total assets
    
    $
    45,581
    
    
    $
    4,255
    
    
    $
    
    
    
    $
    8
    
    
    $
    30,918
    
    
    $
    80,762
 Nine-Month Period Ended September 30, 2006
 Non-rechargeable
    
    
    Rechargeable
    
    
    Communications
    
    
    TechnologyBatteries
    
    
    Batteries
    
    
    Accessories
    
    
    Contracts
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    51,101
    
    
    $
    8,676
    
    
    $
    3,046
    
    
    $
    614
    
    
    $
    
    
    
    $
    63,437Segment contribution
    
    
    9,280
    
    
    
    1,882
    
    
    
    1,104
    
    
    
    62
    
    
    
    (13,776
    )
    
    
    (1,448
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (759
    )
    
    
    (759
    )Miscellaneous
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    377
    
    
    
    377Income taxes-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    (20
    )Income taxes-deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    401
    
    
    
    401Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,449
    )Total assets
    
    $
    47,748
    
    
    $
    7,602
    
    
    $
    27,526
    
    
    $
    120
    
    
    $
    29,236
    
    
    $
    112,232
 Nine-Month Period Ended October 1, 2005
 Non-rechargeable
    
    
    Rechargeable
    
    
    Communications
    
    
    TechnologyBatteries
    
    
    Batteries
    
    
    Accessories
    
    
    Contracts
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    43,305
    
    
    $
    7,676
    
    
    $
    
    
    
    $
    1,677
    
    
    $
    
    
    
    $
    52,658Segment contribution
    
    
    7,460
    
    
    
    946
    
    
    
    
    
    
    
    182
    
    
    
    (11,619
    )
    
    
    (3,031
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (431
    )
    
    
    (431
    )Miscellaneous
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (203
    )
    
    
    (203
    )Income taxes-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Income taxes-deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (637
    )
    
    
    (637
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (4,305
    )Total assets
    
    $
    45,581
    
    
    $
    4,255
    
    
    $
    
    
    
    $
    8
    
    
    $
    30,918
    
    
    $
    80,762
 13.
    
    FIRES AT MANUFACTURING FACILITIES
  21




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14.
    
    RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
    22




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23




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General
    24




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Results of Operations
 Three-month periods ended September 30, 2006 and October 1, 2005
 Impact of Adoption of FAS 123R, and Amortization Expense Associated with Acquisitions.
  25




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Three-Month
    
    
    
    
    
    
    
    
    
    
    Three-Month
    
    
    Three-MonthPeriod Ended
    
    
    
    
    
    
    
    
    
    
    Period Ended
    
    
    Period EndedSeptember 30,
    
    
    
    
    
    
    Amortization
    


    
    September 30,
    
    
    October 1,2006 (as
    

    
FAS 123R
    

    
    of Intangible
    
    
    2006 (as
    
    
    2005reported)
    
    

Impact
    
    
    Assets
    
    
    adjusted)
    
    
    (as reported)Revenues
    
    $
    23,725
    
    
    $
    
    
    
    $
    
    
    
    $
    23,725
    
    
    $
    15,692Cost of Products Sold
    
    
    19,744
    
    
    
    (54
    )
    
    
    
    
    
    
    19,690
    
    
    
    13,332Gross Margin
    
    
    3,981
    
    
    
    54
    
    
    
    
    
    
    
    4,035
    
    
    
    2,360Operating Expenses
    
    
    6,118
    
    
    
    (355
    )
    
    
    (512
    )
    
    
    5,251
    
    
    
    3,871Operating Income
    
    $
    (2,137
    )
    
    $
    409
    
    
    $
    512
    
    
    $
    (1,216
    )
    
    $
    (1,511
    )
  Revenues.
 Cost of Products Sold.
 26




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##### Table of Contents



Operating Expenses.
 Other Income (Expense).
 Income Taxes.
 Net (Loss)/Income.
 Nine-month periods ended September 30, 2006 and October 1, 2005
 Impact of Adoption of FAS 123R, and Amortization Expense Associated with Acquisitions.
  27




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Nine-Month
    
    
    
    
    
    
    
    
    
    
    Nine-Month
    
    
    Nine-MonthPeriod Ended
    
    
    
    
    
    
    
    
    
    
    Period Ended
    
    
    Period EndedSeptember 30,
    
    
    
    
    
    
    Amortization
    
    
    September 30,
    
    
    September2006 (as
    
    
    FAS 123R    

    
    of Intangible
    
    
    2006 (as
    
    
    30, 2005reported)
    
    
    Impact
    
    
    Assets
    
    
    adjusted)
    
    
    (as reported)Revenues
    
    $
    63,437
    
    
    $
    
    
    
    $
    
    
    
    $
    63,437
    
    
    $
    52,658Cost of Products Sold
    
    
    51,109
    
    
    
    (122
    )
    
    
    
    
    
    
    50,987
    
    
    
    44,070Gross Margin
    
    
    12,328
    
    
    
    122
    
    
    
    
    
    
    
    12,450
    
    
    
    8,588Operating Expenses
    
    
    13,776
    
    
    
    (853
    )
    
    
    (512
    )
    
    
    12,411
    
    
    
    11,619Operating Income/(Loss)
    
    $
    (1,448
    )
    
    $
    975
    
    
    $
    512
    
    
    $
    39
    
    
    $
    (3,031
    )
  Revenues.
 Cost of Products Sold.
 28




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Operating Expenses.
 Other Income (Expense).
 Income Taxes.
 Net (Loss)/Income.
 Liquidity and Capital Resources
  29




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30




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31




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##### Table of Contents



Outlook
  Recent Accounting Pronouncements and Developments
  32




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##### Table of Contents



33




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##### Table of Contents



Critical Accounting Policies
    34




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##### Table of Contents



35




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##### Table of Contents



a)
    
    Ineffective information systems and related control processes
surrounding such systems;b)
    
    Lack of routine and complete reconciliations of general ledger
accounts to detailed supporting documentation; andc)
    
    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.
   36




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##### Table of Contents



PART II OTHER INFORMATION
 
    
  31.1
    
    Section 302 Certification  CEO31.2
    
    Section 302 Certification  CFO32
    
    Section 906 Certifications
 37




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##### Table of Contents



ULTRALIFE BATTERIES, INC.(Registrant)Date: November 9, 2006
    
    By:
    
    /s/ John D. KavazanjianJohn D. KavazanjianPresident and Chief Executive OfficerDate: November 9, 2006
    
    By:
    
    /s/ Robert W. FishbackRobert W. FishbackVice President  Finance and Chief
Financial Officer
 38




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##### Table of Contents



31.1
    
    Section 302 Certification  CEO31.2
    
    Section 302 Certification  CFO32
    
    Section 906 Certifications
 39