ULTRALIFE CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and schedules listed in Item 15(a)(1) are included in this Report beginning on page 44. Page Report of Independent Registered Public Accounting Firm 41 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2024 and 2023 43 Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2024 and 2023 44 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2024 and 2023 45 Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 46 Notes to Consolidated Financial Statements 47 . 40 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Ultralife Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Ultralife Corporation and its subsidiaries (the Company) as of December 31, 2024, and 2023, the related consolidated statements of income and comprehensive income, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Our report dated April 1, 2025, expressed an opinion that the Company had not maintained effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Estimate for excess, obsolete, and slow-moving inventory reserve As discussed in Notes 1 and 4 to the financial statements, inventories are stated at the lower of cost or net realizable value with cost determined under the first-in, first-out method. The Company records provisions for excess, obsolete, and slow-moving inventory based on changes in customer demand, technology developments or other economic factors. The excess, obsolete, and slow-moving inventory reserve serves to reduce the Company’s inventory balance through a charge to cost of products sold. The Company’s reserve for excess, obsolete, and slow-moving inventory is based upon assumptions related to expectations of future demand, product lifecycles, product support, technical obsolescence, regulatory requirements, and economic and market conditions. If the actual realization of excess, obsolete, and slow-moving inventory does not meet the Company’s assumptions future inventory adjustments would result in a decrease in gross margin. Due to the magnitude of the inventory and the subjectivity involved in estimating the reserve, we identified the evaluation of the reserve as a critical audit matter, which required a high degree of auditor judgment. 41 Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedures we performed include: performing retrospective review of prior-year estimates to identify potential bias of management judgements, obtaining an understanding of the process and assumptions used by management to develop the reserve for excess, obsolete, and slow-moving inventory, obtaining an understanding of controls related to the reserve for excess, obsolete, and slow-moving inventory, perform brainstorming meeting among the engagement team to determine where the estimate may be susceptible to material misstatement, test management’s calculation of the reserve for excess, obsolete, and slow-moving inventory, including testing the completeness and accuracy of source information used, mathematical accuracy of management’s calculations, evaluate reasonableness and consistency of methodology and assumptions. Goodwill Impairment Analysis As discussed in Notes 1 and 4 to the financial statements, the Company performs its goodwill impairment test on an annual basis as of October 1st or whenever events and changes in circumstances indicate that the carrying value of a reporting unit might exceed its fair value. For each reporting unit the Company performed a quantitative test, which compares the fair value of the reporting unit to the carrying value of the respective reporting unit. The Company has identified two goodwill reporting units. Management determines fair value of the respective reporting units using a discounted cash flow model. Significant estimates and judgements used in this model include internal operating and cash flow forecasts, excess working capital requirements, and inputs to the weighted-average cost of capital used to discount future cash flows. Future revenue and operating cash flow forecasts, the development of the weighted average cost of capital used to discount the future cash flows, and excess working capital requirements are subject to judgement based on sources utilized and the assessment of risks related to the cash flows. Due to the subjectivity involved with the assumptions used to determine the fair value of the reporting units, we identified the goodwill impairment test as a critical audit matter, which required a high degree of auditor judgement. Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedures we performed include: performing retrospective review of prior-year estimates to identify potential bias of management judgements, obtaining an understanding of the process and assumptions used by management to develop the impairment analysis, obtaining and understanding of controls related to the impairment analysis, performing brainstorming meeting among the engagement team to determine where the estimate may be susceptible to material misstatement, testing management’s impairment analysis, including test the completeness and accuracy of source information used, mathematical accuracy of management’s calculations, evaluate reasonableness and consistency of methodology and assumptions, engaging internal valuation specialist to evaluate assumptions included in the impairment analysis. Electrochem Business Combination and Purchase Price Allocation As discussed in Notes 1 and 2 to the financial statements, effective October 31, 2024, the Company acquired all the outstanding shares of Electrochem Solutions, Inc. (Electrochem). The total net purchase price paid for the shares of Electrochem was approximately $48.0 million. The Company applied the acquisition method of accounting for the acquisition. Under this method, identifiable assets acquired, and liabilities assumed are measured at their acquisition-date fair value. The Company used a valuation hierarchy and utilized an independent third-party valuation specialist to determine the fair values used in this allocation. Intangible assets and goodwill represented an allocation of purchase price of the acquired business in the amount of approximately $10.5 million and $7.6 million, respectively. The Company’s determination of the fair value used for the allocation of the purchase price is based upon assumptions of the future performance of Electrochem and includes work performed by a third-party valuation specialist. Due to the subjectivity involved in estimating the fair values and ultimate allocation of purchase price, we identified the fair value estimates for purchase price allocation of goodwill and intangible assets as a critical audit matter, which required a higher degree of auditor judgement as well as the use of professionals with specialized skill and knowledge. Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedures we performed include: obtaining an understanding of the process and assumptions used by management to develop the estimate of the purchase price allocation, obtaining an understanding of the controls relating to the purchase price allocation, engaging an internal valuation specialist to review/test certain assumptions and approaches used, testing management’s allocation, including test the completeness and accuracy of source information used, mathematical accuracy of management’s calculations, evaluate reasonableness and consistency of methodology and assumptions. /s/ Freed Maxick P.C. (f/k/a Freed Maxick CPAs, P.C.) We have served as the Company's auditor since 2016. Rochester, New York April 1, 2025 42 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Ultralife Corporation Opinion on the Internal Control Over Financial Reporting We have audited Ultralife Corporation's (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of income and comprehensive income, changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements) and our report dated April 1, 2025 expressed an unqualified opinion. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment: ineffective control environment due to the lack of accounting personnel to provide a full complement of accounting and reporting expertise commensurate with the growth of the Company. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2024 financial statements, and this report does not affect our report dated April1, 2025 on those financial statements. As described in Management’s Report on Internal Controls over Financial Reporting, management has excluded Electrochem Solutions, Inc. (Electrochem) from its assessment of internal controls over financial reporting as of December 31, 2024, because it was acquired by the Company in a purchase business combination in the fourth quarter of 2024. We have also excluded Electrochem from our audit of internal controls over financial reporting. Electrochem is a wholly owned subsidiary whose net income and total assets (excluding goodwill and other intangible assets which were included in management’s evaluation) represent approximately 14.5% and 16.4%, respectively, of the related consolidated financial statement amounts for the year ended December 31, 2024. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Freed Maxick P.C. (f/k/a Freed Maxick CPAs, P.C.) Rochester, New York April 1, 2025 43 ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) December 31, 2024 2023 ASSETS Current Assets: Cash $ 6,854 $ 10,278 Trade accounts receivable, net of allowance for expected credit losses of $ 384 and $ 300 , respectively 29,370 31,761 Inventories, net 51,363 42,215 Prepaid expenses and other current assets 9,573 5,949 Total current assets 97,160 90,203 Property, plant and equipment, net 40,485 21,117 Goodwill 45,006 37,571 Other intangible assets, net 24,557 15,107 Deferred income taxes, net 8,413 10,567 Other noncurrent assets 4,830 3,711 Total assets $ 220,451 $ 178,276 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 14,160 $ 11,336 Current portion of long-term debt 2,750 2,000 Accrued compensation and related benefits 2,911 3,115 Accrued expenses and other current liabilities 9,470 7,279 Total current liabilities 29,291 23,730 Long-term debt, net 51,502 23,624 Deferred income taxes 1,443 1,714 Other noncurrent liabilities 4,028 3,781 Total liabilities 86,264 52,849 Commitments and contingencies (Note 5) Stockholders' Equity: Preferred stock – par value $ .10 per share; authorized 1,000,000 shares; none issued - - Common stock – par value $ .10 per share; authorized 40,000,000 shares; issued – 21,069,079 shares and 20,783,607 shares, respectively; outstanding – 16,632,965 shares and 16,347,493 shares, respectively 2,107 2,078 Capital in excess of par value 191,828 189,160 Accumulated deficit ( 34,442 ) ( 40,754 ) Accumulated other comprehensive loss ( 4,006 ) ( 3,660 ) Treasury stock - at cost; 4,436,114 shares and 4,436,114 shares, respectively ( 21,492 ) ( 21,492 ) Total Ultralife Corporation equity 133,995 125,332 Non-controlling interest 192 95 Total stockholders’ equity 134,187 125,427 Total liabilities and stockholders' equity $ 220,451 $ 178,276 The accompanying notes are an integral part of these consolidated financial statements. 44 ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Dollars in Thousands, Except Per Share Amounts) Year ended December 31, 2024 2023 Revenues $ 164,456 $ 158,644 Cost of products sold 122,142 119,444 Gross profit 42,314 39,200 Operating expenses: Research and development 8,268 7,531 Selling, general and administrative 24,081 22,194 Total operating expenses 32,349 29,725 Operating income 9,965 9,475 Other expense (income): Interest and financing expense 1,940 2,016 Miscellaneous income ( 276 ) ( 1,658 ) Total other expense, net 1,664 358 Income before income taxes 8,301 9,117 Income tax provision 1,892 1,951 Net income 6,409 7,166 Net income (loss) attributable to non-controlling interest 97 ( 31 ) Income attributable to Ultralife Corporation 6,312 7,197 Other comprehensive (loss) income: Foreign currency translation adjustments ( 346 ) 90 Comprehensive income attributable to Ultralife Corporation $ 5,966 $ 7,287 Net income per share attributable to Ultralife Corporation common stockholders – Basic $ .38 $ .44 Net income per share attributable to Ultralife Corporation common stockholders – Diluted $ .38 $ .44 Weighted average shares outstanding – Basic 16,555 16,214 Weighted average shares outstanding – Diluted 16,767 16,226 The accompanying notes are an integral part of these consolidated financial statements. 45 ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’ EQUITY (Dollars in Thousands) Common stock Number of shares Amount Capital in excess of par value Accumulated other comprehensive income (loss) Accumulated deficit Treasury stock Non- controlling interest Total Balance – December 31, 2022 20,570,710 $ 2,057 $ 187,405 $ ( 3,750 ) $ ( 47,951 ) $ ( 21,484 ) $ 126 $ 116,403 Net loss 7,197 ( 31 ) 7,166 Stock option exercises 210,397 21 1,227 - 1,248 Stock-based compensation -stock options 522 522 Stock-based compensation -restricted stock 6 6 Vesting of restricted stock 2,500 - - ( 8 ) ( 8 ) Foreign currency translation adjustments 90 90 Balance – December 31, 2023 20,783,607 2,078 189,160 ( 3,660 ) ( 40,754 ) ( 21,492 ) 95 125,427 Net income 6,312 97 6,409 Stock option exercises 285,472 29 1,970 - 1,999 Stock-based compensation -stock options 640 640 Stock-based compensation -restricted stock 58 58 Foreign currency translation adjustments ( 346 ) ( 346 ) Balance – December 31, 2024 21,069,079 $ 2,107 $ 191,828 $ ( 4,006 ) $ ( 34,442 ) $ ( 21,492 ) $ 192 $ 134,187 The accompanying notes are an integral part of these consolidated financial statements. 46 ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Year ended December 31, 2024 2023 OPERATING ACTIVITIES: Net income $ 6,409 $ 7,166 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,125 3,022 Amortization of intangible assets 1,032 889 Amortization of financing fees 91 64 Debt modification expense 162 - Stock-based compensation 698 528 Deferred income tax expense 1,232 1,301 Changes in operating assets and liabilities: Accounts receivable 7,599 ( 3,890 ) Inventories ( 109 ) ( 943 ) Prepaid expenses and other assets ( 3,754 ) ( 3,098 ) Income taxes receivable and payable ( 64 ) ( 142 ) Accounts payable and other liabilities 215 ( 2,968 ) Net cash provided by operating activities 16,636 1,929 INVESTING ACTIVITIES: Purchase of Electrochem ( 48,022 ) - Purchases of property, plant and equipment ( 1,932 ) ( 2,552 ) Net cash used in investing activities ( 49,954 ) ( 2,552 ) FINANCING ACTIVITIES: Borrowings on credit facility 55,000 7,250 Payment of credit facilities ( 25,747 ) ( 3,000 ) Payment of debt issuance costs ( 1,392 ) - Proceeds from exercise of stock options 1,999 1,248 Tax withholdings on stock-based awards - ( 8 ) Net cash provided by financing activities 29,860 5,490 Effect of exchange rate changes on cash 34 ( 302 ) (DECREASE) INCREASE IN CASH ( 3,424 ) 4,565 Cash - Beginning of year 10,278 5,713 Cash - End of year $ 6,854 $ 10,278 Supplemental cash flow information: Construction in process in accounts payable $ 248 $ 347 Income taxes paid $ 722 $ 769 Interest paid $ 1,855 $ 1,961 The accompanying notes are an integral part of these consolidated financial statements. 47 ULTRALIFE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Except Per Share Amounts) Note 1 - Summary of Operations and Significant Accounting Policies a. Description of Business As used in this annual report, unless otherwise indicated, the terms the “Company”, “we”, “our” and “us” refer to Ultralife Corporation (“Ultralife”) and its wholly owned subsidiaries ABLE New Energy Co., Limited and its wholly owned subsidiary ABLE New Energy Co., Ltd (collectively “ABLE”); Ultralife UK LTD and its wholly owned subsidiary Accutronics Ltd (collectively “Accutronics”); Ultralife Batteries (UK) Ltd.; Southwest Electronic Energy Corporation and its wholly owned subsidiary, CLB, Inc. (collectively “SWE”); Ultralife Excell Holding Corp. (“UEHC”) and its wholly owned subsidiary Excell Battery Corporation USA (collectively “Excell Battery USA”); Ultralife Canada Holding Corp (wholly owned by UEHC, “UCHC”) and its wholly owned subsidiary Excell Battery Canada ULC (“Excell Battery Canada”); Electrochem Solutions, Inc. (“Electrochem”); and its majority-owned joint venture Ultralife Batteries India Private Limited (“Ultralife India”). We offer products and services ranging from power solutions to communications and electronics systems. Through our engineering and collaborative approach to problem solving, we serve government, defense and commercial customers across the globe. We design, manufacture, install and maintain power and communications systems including rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems and accessories, and custom engineered systems. We sell our products worldwide through a variety of trade channels, including original equipment manufacturers (“OEMs”), industrial and defense supply distributors, and directly to U.S. and international defense departments. b. Principles of Consolidation The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of Ultralife Corporation and its wholly owned subsidiaries ABLE, Accutronics, Ultralife Batteries (UK) Ltd., SWE, Excell, Electrochem, and its majority-owned joint venture Ultralife India. Intercompany accounts and transactions have been eliminated in consolidation. c. Management's Use of Judgment and Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at year end and the reported amounts of revenues and expenses during the reporting period. Key areas affected by estimates include: (a) carrying value of goodwill and intangible assets; (b) reserves for excess and obsolete inventory, deferred tax assets, warranties, and bad debts; (c) valuation of assets acquired and liabilities assumed in business combinations; (d) various expense accruals; and (e) stock-based compensation. Our actual results could differ from these estimates. d. Reclassifications Certain items previously reported in specific financial statement captions are reclassified to conform to the current presentation. There were no material reclassifications for the years ended December 31, 2024 and 2023. e . Cash Our cash balances may at times exceed federally insured limits. We have not experienced any losses in these accounts and believe we are not exposed to any significant risk with respect to cash. f. Accounts Receivable and Allowance for Expected Credit Losses We extend credit to our customers in the normal course of business. We perform ongoing credit evaluations and generally do not require collateral. Payment terms are generally thirty (30) to sixty (60) days. Trade accounts receivable are recorded at their invoiced amounts, net of allowance for expected credit losses. We evaluate the adequacy of our allowance for expected credit losses quarterly. Accounts outstanding for longer than contractual payment terms are considered past due and are reviewed for collectability. We maintain reserves for potential credit losses based upon our historical experience, aging profile and general market conditions. Receivable balances are written off when collection is deemed unlikely. 48 g. Inventories Inventories are stated at the lower of cost or net realizable value with cost determined under the first‑in, first‑out (FIFO) method. We record provisions for excess, obsolete or slow-moving inventory based on changes in customer demand, technology developments or other economic factors. h. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives. Estimated useful lives are as follows (in years): Buildings 10 – 40 Machinery and Equipment 5 – 10 Furniture and Fixtures 3 – 10 Computer Hardware and Software 2 – 5 Leasehold Improvements Lesser of useful life or lease term Betterments, renewals and extraordinary repairs that extend the life of the assets are capitalized. Other repairs and maintenance costs are expensed when incurred. When disposed, the cost and accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss on disposition is recognized in operating income. i. Long-Lived Assets, Goodwill and Intangibles We assess our long-lived assets for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. For property, plant and equipment and amortizable intangible assets, this is accomplished by comparing the expected undiscounted future cash flows of the assets with the respective carrying amount as of the date of assessment. If the expected undiscounted future cash flows exceed the respective carrying amount as of the date of assessment, no impairment is recognized. Should aggregate undiscounted future cash flows be less than the carrying value, a write-down would be required, measured as the difference between the carrying value and the fair value of the asset. Fair value is estimated as the present value of expected discounted future cash flows. The discount rate used in our evaluation is an industry-based weighted average cost of capital. Under the acquisition method of accounting, the purchase price paid, or the total consideration transferred, to consummate the acquisition is allocated to the identified tangible and intangible assets acquired and liabilities assumed based on their respective estimated fair values as of the acquisition date with the residual amount recorded to goodwill. We do not amortize goodwill and intangible assets with indefinite lives, but instead evaluate these assets for impairment at least annually, or whenever events or circumstances indicate that impairment may exist. We amortize intangible assets that have definite lives so that the economic benefits of the intangible assets are being recognized over their estimated useful life. 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. The annual impairment test for other indefinite-lived intangible assets consists of a comparison of the estimated fair value of each asset to the carrying value of the respective asset. If the estimated fair value of a reporting unit or other indefinite-lived intangible asset exceeds its respective carrying value, the goodwill or indefinite-lived intangible asset is considered not impaired. 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. j. Translation of Foreign Currency The financial statements of our foreign subsidiaries are translated from the functional currency into U.S. dollar equivalents, with translation adjustments recorded as the sole component of accumulated other comprehensive income (loss). Exchange gains and losses related to foreign currency transactions and balances denominated in currencies other than the functional currency are recognized in net income (loss). 49 k . Revenue Recognition Revenues are generated from the sale of products. Performance obligations are met and revenue is recognized upon transfer of control to the customer, which is generally upon shipment. When contract terms require transfer of control upon delivery at a customer’s location, revenue is recognized on the date of delivery. For products shipped under vendor managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has transferred and there are no further obligations by the Company. Revenue is measured as the amount of consideration we expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return. Separately priced extended warranty contracts are offered on certain Communications Systems products for a duration of up to eight ( 8 ) years. Extended warranties are treated as separate performance obligations and recognized to revenue evenly over the term of the respective contract. Revenue not yet recognized on extended warranty contracts is recorded as deferred revenue on the consolidated balance sheets. As of December 31, 2024, there was deferred revenue on extended warranty contracts of $ 1,153 , comprised of $ 298 expected to be recognized as revenue within one ( 1 ) year and classified as accrued expenses and other current liabilities on our consolidated balance sheets, and $ 855 expected to be recognized as revenue over the remaining duration of the respective contracts and classified as other noncurrent liabilities on our consolidated balance sheets. As of December 31, 2024 and 2023, the Company had no other unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, we have applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. l. Warranty Reserves 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. Warranty costs expected to be incurred are estimated based on the Company’s experience and recorded as costs of products sold. Standard warranty costs are recognized upon product sale. Extended warranty costs are recognized over the term of the contract. Provision for warranty costs is recorded in accrued expenses and other current liabilities and other noncurrent liabilities on our consolidated balance sheets based on the duration of the warranty. m. Shipping and Handling Costs Costs incurred by us related to shipping and handling are included in cost of products sold. Amounts charged to customers pertaining to these costs are reflected as revenue. n. Sales Commissions Sales commissions are expensed as incurred for contracts with an expected duration of one year or less. There were no sales commissions capitalized as of December 31, 2024 and 2023. o. Research and Development Research and development expenditures are charged to operations as incurred. The majority of research and development expenses pertain to salaries and benefits, developmental supplies, depreciation and other contracted services. For the years ended December 31, 2024 and 2023, we expended $ 9,549 and $ 8,587 , respectively, on research and development, including costs of $ 1,281 and $ 1,056 , respectively, on customer sponsored research and development activities, which are included in cost of products sold. p. Environmental Costs Environmental expenditures that relate to current operations are expensed. Remediation costs that relate to an existing condition caused by past operations are accrued when it is probable that these costs will be incurred and can be reasonably estimated. 50 q. Income Taxes We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Pursuant to ASC 740, a valuation allowance is recognized when the realizability of deferred tax assets is not more likely than not, based all available evidence, both positive and negative, weighted based on objective verifiability. r. Concentration Related to Customers and Suppliers One of our customers, a large global defense primary contractor, comprised 23 % and 15 % of our total consolidated revenues for 2024 and 2023, respectively. Revenues for this customer represented 24 % and 18 % of our total Battery & Energy Products segment revenues for 2024 and 2023, respectively. There were no other customers that comprised greater than 10% of our total consolidated revenues during these years. s. Fair Value Measurements and Disclosures Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or that we corroborate with observable market data for substantially the full term of the related assets or liabilities. Level 3: Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities. The fair value of financial instruments approximated their carrying values at December 31, 2024 and 2023. The fair value of cash, accounts receivable, accounts payable, accrued liabilities, and the current portion of long-term debt approximates carrying value due to the short-term nature of these instruments. The carrying value of long-term debt approximates fair value, as the variable interest rates approximate current market rates. t. Earnings Per Share Basic earnings per share (“EPS”) is computed by dividing net income (loss) attributable to Ultralife Corporation by the weighted average shares of common stock outstanding for the period. Diluted EPS reflects the assumed exercise and conversion of dilutive outstanding stock options and unvested restricted stock, if any, applying the treasury stock method. For the year ended December 31, 2024, there were 770,376 outstanding stock options and 38,386 unvested restricted stock awards included in the calculation of diluted weighted average shares outstanding, as such securities were dilutive, resulting in 212,197 potential common shares included in the calculation of diluted EPS. There were 336,060 outstanding stock options for the year ended December 31, 2024 not included in EPS as the effect would be antidilutive. For the comparable year ended December 31, 2023, there were 111,247 outstanding stock options and 4,029 unvested restricted stock awards included in the calculation of diluted weighted average shares outstanding, as such securities were dilutive, resulting in 12,661 potential common shares included in the calculation of diluted EPS. There were 1,139,348 outstanding stock options for the year ended December 31, 2023 not included in EPS as the effect would be antidilutive. u. Stock-Based Compensation We have various stock-based employee compensation plans that are described more fully in Note 6. The compensation cost relating to share-based payment transactions is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the equity award). 51 v. Segment Reporting We have two operating segments – Battery & Energy Products and Communications Systems. The basis for determining our operating segments is the manner in which financial information is used in monitoring our operations. Management operates and organizes itself according to business units that comprise unique products and services across geographic locations. w. Business Combinations We allocate the purchase price of acquired businesses to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values on the acquisition date. Any excess of the purchase price over the net fair value of the separately identifiable assets acquired and liabilities assumed is allocated to goodwill. Management determines the fair values of identifiable intangible assets acquired based on historical data, estimated discounted future cash flows, expected royalty rates for trademarks and trade names, as well as certain other information. The valuation of assets acquired and liabilities assumed requires a number of judgments and is subject to change as additional information about the fair value of assets and liabilities becomes available. Additional information, which existed as of the acquisition date but unknown to us at that time, may become known during the remainder of the measurement period. This measurement period may not exceed twelve months from the acquisition date. We will recognize any adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are determined. Additionally, in the same period in which adjustments are recognized, we will record the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting adjustment had been completed at the acquisition date. Acquisition costs are expensed as incurred. The results of operations and cash flows of acquired businesses are included in our consolidated financial statements from the date of acquisition. x. Leases At contract inception, the Company determines whether the arrangement is or contains a lease and determines the lease classification. The lease term is determined based on the non-cancellable term of the lease adjusted to the extent optional renewal terms and termination rights are reasonably certain. Lease expense for operating leases is recognized evenly over the lease term. Variable lease payments are recognized as period costs. The present value of remaining lease payments is recognized as a liability on the balance sheet with a corresponding right-of-use asset adjusted for prepaid or accrued lease payments. The Company uses its incremental borrowing rate for the discount rate, unless the interest rate implicit in the lease contract is readily determinable. The Company has adopted the practical expedients to not separate non-lease components from lease components and to not present short-term leases on the balance sheet. See Note 8 for further disclosure regarding lease accounting. y. Recent Accounting Pronouncements Recently Adopted Accounting Guidance In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments” which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance was effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The adoption of this new accounting standard did not have a material impact on the Company’s consolidated financial statements. In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” to expand the disclosure requirements for reportable segments. The standard expands reportable segment disclosure requirements for public business entities primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment operating profit (loss). This standard is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The adoption of this new accounting standard did not have an impact on the Company's results of operations, financial position or cash flows. Recent Accounting Guidance Not Yet Adopted In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual reporting period beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact that ASU 2023-09 will have on its consolidated financial statement disclosures. 52 In November 2024, the FASB issued ASU 2024-03 “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” which requires public entities to disclose specified information about certain costs and expenses. ASU 2024-03 is effective for the Company’s annual reporting period beginning January 1, 2027 and interim reporting periods beginning January 1, 2028, with early adoption permitted. The Company is currently evaluating the impact that ASU 2024-03 will have on its consolidated financial statements. Note 2 – Acquisition On October 31, 2024, the Company completed the acquisition of all issued and outstanding shares of Electrochem Solutions, Inc., a Massachusetts corporation (“Electrochem”), pursuant to a stock purchase agreement (the “Agreement”) with Greatbatch Ltd., a New York corporation (the “Seller”), dated September 27, 2024 (the “Acquisition”). The Agreement established a purchase price of $ 50,000 for the Acquisition subject to customary working capital adjustments. The Company completed the Acquisition for $ 48,022 in cash, inclusive of working capital adjustments of $ 1,978 . Based in Raynham, MA and with over forty years of battery technology experience in critical applications, Electrochem designs and manufactures primary lithium metal and ultracapacitor cells and battery packs serving energy, military and various environmental, industrial and utility end markets on a global basis. Acquiring Electrochem advances our strategy of more fully realizing the operating leverage of our business model through scale and manufacturing cost efficiencies. Electrochem brings a blue-chip customer base with little or no overlap with Ultralife’s customers, long-tenured technical resources which we plan to utilize in progressing our global new product initiatives, and a complimentary portfolio of highly engineered thionyl, sulfuryl and bromine chloride cells and packs which can be commercially cost prohibitive to substitute or switch out. We view this acquisition as an avenue to create highly attractive opportunities to drive revenue growth through heightened cross-selling platforms and extend our reach into underserved adjacent markets that demand uncompromised safety, service, reliability and quality. In addition, the combination of Electrochem and Ultralife creates achievable opportunities for gross margin expansion through the realization of vertical integration, supply chain synergies and lean initiatives. With Electrochem we are increasing our value to our customers and significantly strengthening our competitive position in our end markets. The Company funded the purchase price for the Acquisition through the New Credit Agreement (refer to Note 3). The Acquisition was accounted for in accordance with the accounting treatment of a business combination pursuant to FASB ASC Topic 805, Business Combinations (“ASC 805”). Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values on the acquisition date. The excess of the purchase price over the estimated fair value of the separately identifiable assets acquired and liabilities assumed was allocated to goodwill. Management is responsible for determining the acquisition date fair value of the assets acquired and liabilities assumed, which requires the use of various assumptions and judgments that are inherently subjective. The purchase price allocation presented below reflects all known information about the fair value of the assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation is subject to change should additional information existing as of the acquisition date about the fair value of the assets acquired and liabilities assumed become known. The final purchase price allocation may reflect material changes in the valuation of assets acquired and liabilities assumed, including but not limited to intangible assets, fixed assets, deferred taxes, and residual goodwill. Accounts receivable $ 5,270 Inventories 9,172 Prepaid expenses and other current assets 251 Property, plant and equipment 20,735 Goodwill 7,558 Other intangible assets 10,500 Other noncurrent assets 237 Accounts payable ( 2,231 ) Accrued compensation and related benefits ( 1,561 ) Accrued expenses and other current liabilities ( 904 ) Deferred tax liability, net ( 748 ) Other noncurrent liabilities ( 257 ) Net assets acquired $ 48,022 53 The goodwill included in the Company’s purchase price allocation presented above represents the value of Electrochem’s assembled and trained workforce, the incremental value that Excell engineering and technology will bring to the Company and the revenue growth which is expected to occur over time which is attributable to increased market penetration from future new products and customers. The goodwill acquired in connection with the acquisition is not deductible for income tax purposes. Other intangible assets were valued using the income approach which requires a forecast of all expected future cash flows and the use of certain assumptions and estimates. The following table summarizes the estimated fair value and annual amortization for each of the identifiable intangible assets acquired. Annual Amortization Estimated Fair Value Amortization Period (Years) Year 1 Year 2 Year 3 Year 4 Year 5 Trade name $ 5,300 15 $ 353 $ 353 $ 353 $ 353 $ 353 Customer relationships 5,100 15 340 340 340 340 340 Patents and technology 100 5 20 20 20 20 20 Total $ 10,500 $ 713 $ 713 $ 713 $ 713 $ 713 We acquired right-of-use assets and assumed operating lease liabilities of $ 230 . Right-of-use assets are classified as other noncurrent assets, and current and long-term lease liabilities are classified as accrued expenses and other current liabilities and other noncurrent liabilities, respectively, on the Company’s consolidated balance sheets. The operating results and cash flows of Electrochem are reflected in the Company’s consolidated financial statements from the date of acquisition. Electrochem is included in the Battery & Energy Products segment. For the year ended December 31, 2024, subsequent to the October 31, 2024 acquisition date, Electrochem contributed revenue of $ 6,062 and net income of $ 932 , inclusive of a $ 120 increase in cost of products sold for the fair value step-up of acquired finished goods inventory sold during the period, and amortization expense of $ 119 on acquired identifiable intangible assets. During the year ended December 31, 2024, the Company incurred transaction costs and other non-recurring expenses of $ 1,294 directly attributable to the acquisition, including one-time accounting, legal and due diligence services. These costs are included in selling, general and administrative expense on the consolidated statement of income and comprehensive income for the year ended December 31, 2024. The following supplemental pro forma information presents the combined results of operations, inclusive of the acquisition accounting adjustments and one-time expenses described above, as if the acquisition of Electrochem had been completed on January 1, 2023, the beginning of the comparable prior period. The supplemental pro forma results do not reflect the realization of potential synergies or other cost reductions following the completion of the business combination. The supplemental pro forma results are presented for informational purposes only and should not be considered indicative of the financial position or results of operations had the acquisition been completed as of the dates indicated and does not purport to indicate the future combined financial position or results of operation. Set forth below are the unaudited supplemental pro forma results of the Company and Electrochem for the years ended December 31, 2024 and 2023 as if the acquisition had occurred as of January 1, 2023. Year Ended December 31, 2024 2023 Revenue $ 188,724 $ 197,777 Operating income 9,139 7,350 Net income attributable to Ultralife Corporation 3,618 2,780 Net income per share attributable to Ultralife Corporation: Basic $ .22 $ .17 Diluted $ .22 $ .17 54 Note 3 – Debt On October 31, 2024, Ultralife, SWE, CLB, Excell USA, and Electrochem, as borrowers, and certain other subsidiaries of the Company, entered into a new Credit and Security Agreement with KeyBank National Association (“KeyBank” or the “Bank”), as lender and administrative agent (the “New Credit Agreement”). The proceeds of the loans under the New Credit Agreement were used, in part, to repay outstanding indebtedness under the Company’s Amended Credit Agreement. The New Credit Agreement, among other things, provides in its term loan provisions for a 5 -year, $ 55 million senior secured term loan (the “Term Loan” or “Term Loan Facility”). The Term Loan is subject to repayment in quarterly installments commencing March 31, 2025 in amounts as set forth in the New Credit Agreement. Interest is payable on the unpaid principal outstanding under the Term Loan. All amounts of unpaid principal and accrued and unpaid interest remaining due under the Term Loan are scheduled to be paid in full October 31, 2029. Upon closing of the Acquisition on October 31, 2024, the Company borrowed the full amount of the Term Loan Facility. As of December 31, 2024, the Company had $ 55,000 outstanding principal on the Term Loan, $ 2,750 of which is included in current portion of long-term debt on the consolidated balance sheets, and no amounts outstanding on the Revolving Credit Facility. As of December 31, 2024, unamortized debt issuance costs associated with the Term Loan of $ 748 are classified on the consolidated balance sheets as a reduction of long-term debt, and unamortized debt issuance costs associated with the Revolving Credit Facility of $ 514 are classified on the consolidated balance sheets as other noncurrent assets. Debt issuance costs include lender fees and certain costs paid to third parties, including legal and accountant fees, and are amortized to interest expense over the term of the New Credit Agreement. The New Credit Agreement also provides under its revolving credit provisions for revolving loans, letters of credit, and swing loans (“Revolving Credit Facility”). Upon the effectiveness of the New Credit Agreement, any amounts outstanding under letters of credit issued pursuant to the Amended Credit Agreement became issued under the New Credit Agreement. The availability under the Revolving Credit Facility is subject to certain borrowing base limits based on trade receivables and inventories. All unpaid principal and accrued and unpaid interest with respect to the Revolving Credit Facility is due and payable in full on October 31, 2029. The Company may voluntarily prepay principal amounts outstanding under the New Credit Agreement at any time subject to certain advance notifications and other restrictions. In addition to the customary affirmative and negative covenants, the Company must maintain a consolidated fixed charge coverage ratio, as defined in the New Credit Agreement, of equal to or greater than 1.15 to 1.00 for the fiscal quarter ending March 31, 2025, and for each fiscal quarter thereafter, as calculated for the four (4) consecutive fiscal quarters ending on such date, and a consolidated senior leverage ratio, as defined in the New Credit Agreement, not to exceed (i) 3.50 to 1.00 for the fiscal quarters ending March 31, 2025 through December 31, 2025, (ii) 3.25 to 1.00 for the fiscal quarters ending March 31, 2026 through December 31, 2026, (iii) 3.00 to 1.00 for the fiscal quarter ending March 31, 2027 and on the last day of each fiscal quarter thereafter, for the remaining term of the New Credit Agreement. Borrowings under the New Credit Agreement are secured by substantially all the assets of the Company and certain of its present and future subsidiaries who are or become parties to, or guarantors under the new Credit Agreement. Interest will accrue on outstanding indebtedness under the Term Loan Facility and Revolving Credit Facilities at a variable rate of interest based on designated interest rate benchmarks plus a varying margin determined by reference to the consolidated senior leverage ratio in effect from time to time. Our borrowing rate was 7.07 % as of December 31, 2024. The Company must pay a fee of twenty, twenty-five or thirty basis points (depending on the consolidated senior leverage ratio in effect from time to time) based on the average daily unused availability under the Revolving Credit Facility. The Company must make payments to the extent borrowings exceed the maximum amount then permitted to be borrowed and from the proceeds of certain transactions. Upon the occurrence of an event of default, the outstanding obligations may be accelerated, and the Bank will have other customary remedies including resort to the security interest the Company provided to the Bank. Future minimum principal repayment obligations on our Amended Credit Facilities as of December 31, 2024 are as follows: 2025 $ 2,750 2026 4,125 2027 5,500 2028 5,500 2029 37,125 Total $ 55,000 55 Note 4 - Supplemental Balance Sheet Information a. Cash and Restricted Cash The composition of the Company’s cash was as follows. December 31, 2024 2023 Cash $ 6,854 $ 10,196 Restricted cash - 82 Total $ 6,854 $ 10,278 As December 31, 2023, restricted cash of $ 82 represented euro-denominated deposits withheld by the Dutch tax authorities and third-party VAT representatives in connection with a previously utilized logistics arrangement in the Netherlands. During the year ended December 31, 2024, the deposits were returned to the Company and no longer restricted. As of December 31, 2024, there was no cash classified as restricted cash. Restricted cash as of December 31, 2023 is included as a component of the cash balance for purposes of the consolidated statements of cash flows. b. Inventory, Net Inventories are stated at the lower of cost or net realizable value with cost determined under the first-in, first-out (FIFO) method. The composition of inventories, net was: December 31, 2024 2023 Raw materials $ 36,035 $ 29,098 Work in process 4,501 3,187 Finished products 10,827 9,930 Total $ 51,363 $ 42,215 c. Property, Plant and Equipment Major classes of property, plant and equipment consisted of the following: December 31, 2024 2023 Land $ 4,693 $ 1,273 Buildings and leasehold improvements 30,109 15,998 Machinery and equipment 60,986 57,584 Furniture and fixtures 3,067 2,845 Computer hardware and software 7,990 7,868 Construction in progress 2,077 2,033 108,922 87,601 Less: Accumulated depreciation ( 68,437 ) ( 66,484 ) Total $ 40,485 $ 21,117 Depreciation expense was $ 3,125 and $ 3,022 for the years ended December 31, 2024 and 2023, respectively. 56 d. Goodwill and Other Intangible Assets The Company conducted its annual impairment test for goodwill and other indefinite-lived intangible assets as of October 1, 2024. We identified two (2) goodwill reporting units and five (5) indefinite-lived intangible assets. We performed a quantitative impairment assessment of each goodwill reporting unit and indefinite-lived intangible asset. Based on the results of our quantitative impairment tests, and consideration of qualitative factors as of our test date and December 31, 2024, no impairment was identified. The following table summarizes the goodwill activity by segment for the years ended December 31, 2024 and 2023: Battery & Energy Products Communications Systems Total Balance – January 1, 2024 $ 26,078 $ 11,493 $ 37,571 Acquisition of Electrochem 7,558 - 7,558 Effect of foreign currency translation ( 123 ) - ( 123 ) Balance – December 31, 2024 $ 33,513 $ 11,493 $ 45,006 The composition of intangible assets was: December 31, 2024 Cost Accumulated amortization Net Customer relationships $ 18,154 $ 7,296 $ 10,858 Trade names 9,942 813 9,129 Patents and technology 5,690 5,428 262 Trademarks 3,399 - 3,399 Other 1,500 591 909 Total other intangible assets $ 38,685 $ 14,128 $ 24,557 December 31, 2023 Cost Accumulated amortization Net Customer relationships $ 13,092 $ 6,656 $ 6,436 Trade names 4,647 647 4,000 Patents and technology 5,606 5,322 284 Trademarks 3,402 - 3,402 Other 1,500 515 985 Total other intangible assets $ 28,247 $ 13,140 $ 15,107 The change in the cost value of other intangible assets is a result of the Electrochem acquisition (Note 2) and the effect of foreign currency translations. Amortization of other intangible assets was included in the following financial statement captions: Year ended December 31, 2024 2023 Selling, general and administrative expense $ 929 $ 792 Research and development expense 103 97 Total $ 1,032 $ 889 Future amortization expense of amortizable intangible assets will be approximately $ 1,620 , $ 1,486 , $ 1,486 , $ 1,486 and $ 1,465 for the five fiscal years ending December 31, 2025 through 2029, respectively. 57 Note 5 - Commitments and Contingencies a. Legal Matters We are subject to legal proceedings and claims that arise from time to time in the ordinary course of business. We believe that the final disposition of any such matters of which we are currently aware will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, recognizing that legal matters are subject to inherent uncertainties, there exists the possibility that ultimate resolution of current or future legal matters could have a material adverse impact on the Company’s financial position, results of operations or cash flows. We are not aware of any such situations at this time. b. Indemnity Our organizational documents provide that our directors or officers will be reimbursed for all expenses, to the fullest extent permitted by law arising out of their performance. c. Purchase Commitments As of December 31, 2024, we have made commitments to purchase approximately $ 752 of production machinery and equipment. d. China Our operating facility in China presents risks including, but not limited to, changes in local regulatory requirements, changes in labor laws, local wage laws, environmental regulations, taxes and operating licenses, compliance with U.S. regulatory requirements, including the Foreign Corrupt Practices Act, uncertainties as to application and interpretation of local laws and enforcement of contract and intellectual property rights, currency restrictions, currency exchange controls, fluctuations of currency, and currency revaluations, eminent domain claims, civil unrest, power outages, water shortages, labor shortages, labor disputes, increase in labor costs, rapid changes in government, economic and political policies, political or civil unrest, acts of terrorism, or the threat of boycotts, other civil disturbances and the possible impact of the imposition of tariffs by the U.S. Government on 9 Volt batteries that we manufacture in China as well as any retaliating trade policies or restrictions. Any such disruptions could depress our earnings and have other material adverse effects on our business, financial condition and results of operations. e. Product 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. Warranty costs expected to be incurred are estimated based on the Company’s experience and recorded as costs of products sold. Standard warranty costs are recognized upon product sale. Extended warranty costs are recognized over the term of the contract. The following table summarizes the warranty activity for the years ended December 31, 2024 and 2023: 2024 2023 Accrued warranty obligations – beginning $ 547 $ 323 Accruals for warranties issued 1,149 458 Settlements made ( 809 ) ( 234 ) Accrued warranty obligations - ending $ 887 $ 547 Note 6 – Stock-Based Compensation We recorded non-cash stock compensation expense in each period as follows: Year ended December 31, 2024 2023 Stock options $ 640 $ 522 Restricted stock 58 6 Total $ 698 $ 528 58 We have various stock-based employee compensation plans, for which compensation cost is recognized in the financial statements. The cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). Our stockholders have approved various equity-based plans that permit the grant of stock options, restricted stock and other equity-based awards. In addition, our stockholders have approved the grant of stock options outside of these plans. On July 16, 2024, our stockholders approved the 2024 Long-Term Incentive Plan (“2024 LTIP”) as the successor plan to the 2014 Long-Term Incentive Plan (“2014 LTIP”) that expired on June 2, 2024. Under the 2024 LTIP, a total of 2,000,000 shares of common stock were made available for grant of awards.. Of the total number of shares of common stock available for awards under the 2024 LTIP, no more than 800,000 shares of common stock may be used for awards other than stock options and stock appreciation rights. Grants under the 2024 LTIP may be awarded through July 15, 2034. Stock options granted under the 2024 LTIP and 2014 LTIP are either Incentive Stock Options (“ISOs”) or Non-Qualified Stock Options (“NQSOs”). Key employees are eligible to receive ISOs and NQSOs; however, directors and consultants are eligible to receive only NQSOs. Stock options vest in equal installments on the first, second and third anniversaries of the grant date and expire on the seventh anniversary of the grant date. As of December 31, 2024, there were 258,060 stock options outstanding under the 2024 LTIP and 848,376 stock options outstanding under the 2014 LTIP. As of December 31, 2024, there was $ 1,108 of total unrecognized compensation costs related to outstanding stock options, which we expect to recognize over a weighted average period of 2.1 years. We use the Black-Scholes option-pricing model to estimate fair value of stock-based awards. The following weighted average assumptions were used to value options granted during the years ended December 31, 2024 and 2023: Year ended December 31, 2024 2023 Risk-free interest rate 4.3 % 4.1 % Volatility factor 58 % 57 % Weighted average expected life (years) 4.7 4.9 Forfeiture rate 10.0 % 10.0 % Dividends 0.0 % 0.0 % We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on historical experience of similar awards and consideration of the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. Forfeiture rates are calculated by dividing unvested shares forfeited by beginning shares outstanding. The pre-vesting forfeiture rate is calculated yearly and is determined based on historical experience. The following tables summarize data for the stock options issued by us: Year ended December 31, 2024 Number of shares Weighted average exercise price per share Weighted average remaining contractual term Aggregate intrinsic value Shares under option – January 1 1,250,595 $ 7.10 Options granted 261,520 7.85 Options exercised ( 298,293 ) 7.08 Options forfeited or expired ( 107,386 ) 8.41 Shares under option – December 31 1,106,436 $ 7.15 4.53 $ 741 Vested and expected to vest - December 31 1,003,942 $ 7.17 4.36 $ 674 Options exercisable – December 31 625,826 $ 7.18 3.18 $ 477 59 Year ended December 31, 2023 Number of shares Weighted average exercise price per share Shares under option – January 1 1,425,693 $ 6.72 Options granted 231,650 6.69 Options exercised ( 254,393 ) 5.83 Options forfeited or expired ( 152,355 ) 5.06 Shares under option – December 31 1,250,595 $ 7.10 Options exercisable – December 31 789,209 $ 7.56 The following table represents additional information about stock options outstanding at December 31, 2024: Option outstanding Options exercisable Range of exercise prices Number of outstanding options Weighted- average remaining contractual life Weighted- average exercise price Number of options exercisable Weighted- average exercise price $ 4.07 - $ 6.51 316,702 4.01 $ 5.68 235,589 $ 5.83 $ 6.84 - $ 6.97 317,594 5.21 6.88 176,157 6.92 $ 7.86 - $ 7.86 258,060 6.95 7.86 0 0 $ 8.25 - $ 9.85 214,080 1.37 8.89 214,080 8.89 $ 4.07 - $ 9.85 1,106,436 4.53 $ 7.15 625,826 $ 7.18 The weighted average fair value of options granted during the years ended December 31, 2024 and 2023 was $ 4.08 and $ 3.48 , respectively. The total intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the years ended December 31, 2024 and 2023 was $ 1,007 and $ 556 , respectively. Cash received from stock option exercises under our stock-based compensation plans for the years ended December 31, 2024 and 2023 was $ 1,999 and $ 1,248 , respectively. Restricted stock awards vest in equal annual installments over three years. The Company granted restricted stock awards of 35,700 shares and 4,029 shares for the years ended December 31, 2024 and 2023, respectively. The average grant date fair value of restricted stock awards was $ 8.71 and $ 7.45 for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, there was $ 280 of total unrecognized compensation costs related to outstanding restricted shares. There were 1,707,440 shares of common stock available for future issuance under equity compensation plans as of December 31, 2024. 60 Note 7 - Income Taxes For the years ended December 31, 2024 and 2023, we recognized an income tax provision of $ 1,892 and $ 1,951 , respectively. Year ended December 31, 2024 2023 Current: Domestic $ 50 $ 27 Foreign 610 623 660 650 Deferred: Domestic 1,371 1,466 Foreign ( 139 ) ( 165 ) 1,232 1,301 Total income tax provision $ 1,892 $ 1,951 Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows: December 31, 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 5,817 $ 8,515 Research and development 4,894 3,536 Tax credit carryforwards 3,180 2,898 Inventory reserves 2,859 1,794 Intangible assets 1,678 1,596 Accrued expenses and other 1,539 1,115 Total deferred tax assets 19,964 19,454 Valuation allowance for deferred tax assets ( 2,404 ) ( 2,441 ) Net deferred tax assets 17,563 17,013 Deferred tax liabilities: Intangible assets ( 9,480 ) ( 8,095 ) Property, plant and equipment ( 1,113 ) ( 65 ) Total deferred tax liabilities ( 10,593 ) ( 8,160 ) Net deferred tax assets $ 6,970 $ 8,853 Net deferred tax assets (liabilities) are comprised of the following balance sheet amounts: December 31, 2024 2023 Deferred tax assets, net $ 8,413 $ 10,567 Deferred tax liabilities ( 1,443 ) ( 1,714 ) $ 6,970 $ 8,853 For financial reporting purposes, net income from continuing operations before income taxes is as follows: Year ended December 31, 2024 2023 United States $ 7,044 $ 7,294 Foreign 1,257 1,823 $ 8,301 $ 9,117 61 The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income from continuing operations before income taxes as follows: Year ended December 31, 2024 2023 Statutory income tax rate 21.0 % 21.0 % Increase (decrease) in tax provision resulting from: Equity compensation 0.5 0.4 Global intangible low-taxed income 0.7 1.4 China R&D deduction ( 1.1 ) ( 1.0 ) Income tax credits ( 3.6 ) ( 3.3 ) Tax rate changes ( 0.1 ) - Foreign exchange loss 0.8 - Foreign tax rates 2.3 1.7 States taxes 1.1 0.8 Transaction costs 0.7 - Other 0.5 0.4 Effective income tax rate 22.8 % 21.4 % As of December 31, 2024, it was 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. 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 2044. As of December 31, 2024, our domestic net operating loss carryforwards and general business tax credits were $ 15,000 and $ 3,200 , respectively. As of December 31, 2024, for certain past operations in the U.K., we continue to report a valuation allowance for net operating loss carryforwards of approximately $ 9,600 , nearly all of which can be carried forward indefinitely. Management has concluded that utilization of the U.K. net operating losses may be limited due to the change in the past U.K. operation, and that they cannot currently be used to reduce taxable income of our other U.K. subsidiary, Accutronics Ltd. There are no other deferred tax assets related to the past U.K. operations. As of December 31, 2024, we have not recognized a valuation allowance against our other foreign deferred tax assets, including net operating loss carryforwards of $ 1,000 which expire 2029 thru 2033, as we believe that it is more likely than not that they will be fully realized. There were no unrecognized tax benefits related to uncertain tax positions at December 31, 2024 and 2023. As of December 31, 2024, the Company maintains its assertion that all foreign earnings will be indefinitely reinvested in those operations, other than earnings generated in the U.K. As a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions. We are routinely subject to examination by taxing authorities in these various jurisdictions. Our U.S. tax matters for 2021 thru 2023 remain subject to IRS examination. Our U.S. tax matters for 2001 -2002, 2005-2007, 2009, and 2011-2015 also remain subject to IRS examination due to the remaining availability of net operating loss carryforwards generated in those years. Our U.S. tax matters for 2014 thru 2023 remain subject to examination by various state and local tax jurisdictions. Our tax matters for the years 2014 thru 2023 remain subject to examination by the respective foreign tax jurisdiction authorities. 62 Note 8 – Operating Leases The Company has operating leases predominantly for operating facilities. As of December 31, 2024, the remaining lease terms on our operating leases range from approximately one ( 1 ) year to seven ( 7 ) years. Lease terms include renewal options reasonably certain of exercise. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants. The components of lease expense for the current and prior-year comparative periods were as follows: Year ended December 31, 2024 2023 Operating lease cost $ 1,101 $ 1,016 Variable lease cost 100 114 Total lease cost $ 1,201 $ 1,130 Supplemental cash flow information related to leases was as follows: Year ended December 31, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 1,108 $ 1,036 Right-of-use assets obtained in exchange for lease liabilities: $ 1,706 $ 2,192 Supplemental balance sheet information related to leases was as follows: December 31, Balance Sheet Classification 2024 2023 Assets: Operating lease right-of-use asset Other noncurrent assets $ 4,153 $ 3,589 Liabilities: Current operating lease liability Accrued expenses and other current liabilities $ 1,138 $ 894 Operating lease liability, net of current portion Other noncurrent liabilities 2,998 2,644 Total operating lease liability $ 4,136 $ 3,538 Weighted-average remaining lease term (years) 4.5 5.3 Weighted-average discount rate 6.7 % 4.5 % Future minimum lease payments as of December 31, 2024 are as follows: Maturity of Operating Lease Liabilities 2025 $ 1,178 2026 1,035 2027 981 2028 965 2029 507 Thereafter 107 Total lease payments $ 4,773 Less: Imputed interest ( 637 ) Present value of remaining lease payments $ 4,136 63 Note 9 - 401(k) Retirement Benefit Plan We maintain a defined contribution 401(k) plan covering substantially all employees. Employees can contribute a portion of their salary or wages as prescribed under Section 401(k) of the Internal Revenue Code and, subject to certain limitations, we may, at the discretion of our Board of Directors, authorize an employer contribution based on a portion of the employees' contributions. For the years ended December 31, 2024 and 2023, the Company matched 100 % on the first 3 % and 50 % on the next 2 % contributed by the employee, or a maximum of 4 % of the employee’s income. For 2024 and 2023, we contributed $ 771 and $ 678 , respectively, to the 401(k) plan. Note 10 - Business Segment Information We structure our operations primarily around the products we sell and report our financial results in following two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes Lithium 9-volt, cylindrical and various other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies, charging systems and accessories. The Communications Systems segment includes RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and communications and electronics systems design. Our Chief Operating Decision Maker (“CODM”) is Mike Manna, President & Chief Executive Officer. Both of our business segments are regularly reviewed by the CODM through weekly revenue, gross margin and consolidated financial forecast updates, bi-weekly business and financial reviews to assess business performance, top priorities, utilization of resources and to regularly communicate with segment management, who are part of the CODM’s executive leadership team, and monthly meetings with the executive leadership team. In his role as CODM, Mr. Manna is deeply involved in business operations through daily updates by the segment management and ongoing financial, revenue and operations discussions. The primary financial measures used by the CODM to monitor and evaluate the performance of the operating segments is segment contribution, as defined by gross profit less direct research and development (“R&D”) and direct selling, general and administrative (“SG&A”) expenses. This metric is used as a consistent benchmark for comparison across reporting periods. Corporate general and administrative (“G&A”) expenses, including costs associated with our acquisitions, include corporate functions including board of directors, executive officers, accounting & finance, human resources, legal, information technology and their related functional expenses. These costs are not directly allocable to the business segments. 2024: Battery & Energy Products Communications Systems Corporate Total Revenue $ 144,081 $ 20,375 $ - $ 164,456 Cost of products sold ( 107,764 ) ( 14,378 ) - ( 122,142 ) Gross profit 36,317 5,997 - 42,314 Direct R&D and SG&A expenses ( 17,320 ) ( 4,806 ) - ( 22,126 ) Segment contribution 18,997 1,191 - 20,188 Corporate G&A expenses - - ( 10,223 ) ( 10,223 ) Operating profit 9,965 Other expense, net ( 1,664 ) ( 1,664 ) Income tax provision ( 1,892 ) ( 1,892 ) Non-controlling interest ( 97 ) ( 97 ) Net income attributable to Ultralife $ 6,312 Total assets $ 173,954 $ 26,876 $ 19,621 $ 220,451 Capital expenditures $ 1,261 $ 513 $ 158 $ 1,932 Goodwill $ 33,513 $ 11,493 $ - $ 45,006 Depreciation and amortization of intangible assets $ 3,676 $ 237 $ 244 $ 4,157 Stock-based compensation $ 383 $ 96 $ 219 $ 698 64 2023: Battery & Energy Products Communications Systems Corporate Total Revenue $ 129,953 $ 28,691 $ - $ 158,644 Cost of products sold ( 99,178 ) ( 20,266 ) - ( 119,444 ) Gross profit 30,775 8,425 - 39,200 Direct R&D and SG&A expenses ( 16,499 ) ( 4,467 ) - ( 20,966 ) Segment contribution 14,276 3,958 - 18,234 Corporate G&A expenses - - ( 8,759 ) ( 8,759 ) Operating profit 9,475 Other expense, net ( 358 ) ( 358 ) Income tax provision ( 1,951 ) ( 1,951 ) Non-controlling interest 31 31 Net income attributable to Ultralife $ 7,197 Total assets $ 124,411 $ 28,873 $ 24,992 $ 178,276 Capital expenditures $ 2,064 $ 118 $ 370 $ 2,552 Goodwill $ 26,078 $ 11,493 $ - $ 37,571 Depreciation and amortization of intangible assets $ 3,336 $ 183 $ 392 $ 3,911 Stock-based compensation $ 336 $ 74 $ 118 $ 528 Long-lived assets (comprised of property, plant and equipment; goodwill; and other intangible assets) held outside the U.S., principally in Canada, United Kingdom and China, were $ 22,306 and $ 23,709 as of December 31, 2024 and 2023, respectively. The following tables disaggregate our business segment revenues by major source and geography. Commercial and Government/Defense Revenue Information: Year ended December 31, 2024: Total Revenue Commercial Government/ Defense Battery & Energy Products $ 144,081 $ 102,082 $ 41,999 Communications Systems 20,375 - 20,375 Total $ 164,456 $ 102,082 $ 62,374 62 % 38 % Year ended December 31, 2023: Total Revenue Commercial Government/ Defense Battery & Energy Products $ 129,953 $ 100,842 $ 29,111 Communications Systems 28,691 - 28,691 Total $ 158,644 $ 100,842 $ 57,802 64 % 36 % 65 U.S. and Non-U.S. Revenue Information 1 : Year ended December 31, 2024: Total Revenue United States Non-United States Battery & Energy Products $ 144,081 $ 82,227 $ 61,854 Communications Systems 20,375 14,813 5,562 Total $ 164,456 $ 97,040 $ 67,416 59 % 41 % Year ended December 31, 2023: Total Revenue United States Non-United States Battery & Energy Products $ 129,953 $ 64,120 $ 65,833 Communications Systems 28,691 17,276 11,415 Total $ 158,644 $ 81,396 $ 77,248 51 % 49 % 1 Sales classified to U.S. include shipments to U.S.-based prime contractors which in some cases may serve non-U.S. projects. 66 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.