Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This report contains certain forward-looking statements and information that are based on the beliefs of management as well as assumptions made by management and information currently available to management. The statements contained in this report relating to matters that are not historical facts are forward-looking statements that involve risks and uncertainties, including, but not limited to, uncertain global economic conditions including the impact of inflation, tariffs, interest rates and supply chain disruptions affecting our business, revenues and earnings adversely; our reliance on certain key customers for a significant portion of our revenues; reductions or delays in U.S. and foreign military spending; our efforts to develop new products or new commercial applications for our products could be prolonged; potential disruptions or delays in our supply of raw materials and components or material increases in their costs due to business conditions, new or additional tariffs, global conflicts, weather, sourcing requirements or other factors not under our control; our resources being overwhelmed by our growth; our ability to recruit and retain top management and key personnel; breaches in information systems security and other disruptions in our information technology systems; fluctuations in the price of oil and the resulting impact on the demand for downhole drilling; the unique risks associated with our China operations; possible future declines in demand for the products that use our batteries or communications systems; safety risks, including the risk of fire inherent in the manufacture, use and transportation of Lithium batteries; variability in our quarterly and annual results and the price of our common stock; purchases by our customers of product quantities not meeting the volume expectations in our supply agreements; rising interest rates increasing the cost of our variable borrowings; our inability to comply with changes to the regulations for the shipment of our products; our entrance into new end-markets which could lead to additional financial exposure; litigation or claims resulting in negative optics in the markets we serve and increased costs; the potential of future pandemics that may arise, causing delays in the manufacture and delivery of our mission critical products to end customers; potential costs attributable to the warranties we supply with our products and services; negative publicity concerning Lithium-ion batteries; rules and procedures regarding contracting with the U.S. and foreign governments; our exposure to foreign currency fluctuations; our ability to utilize our net operating loss carryforwards; the risk that we are unable to protect our proprietary and intellectual property; our ability to comply with government regulations including the use of "conflict minerals"; possible impairments of our goodwill and other intangible assets; known and unknown environmental matters; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; and other risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those forward-looking statements described herein. When used in this report, the words "anticipate," "believe," "estimate," "expect," "seek," "project," "intend," "plan," "may," "will," "should," "foresee," "could," "likely," or words of similar import are intended to identify forward-looking statements. For further discussion of certain of the matters described above and other risks and uncertainties, see Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements do not guarantee future performance and that our actual results of operations, financial condition and liquidity and developments in the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update any risk factors or to publicly announce the results of any revisions to any of the forward-looking statements to reflect new information or risks, future events or other developments.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated financial statements and notes thereto in Part I, Item 1 of this Form 10-Q, and the consolidated financial statements and notes thereto and risk factors in our Annual Report on Form 10-K for the year ended December 31, 2025.

The financial information in this MD&A is presented in thousands of dollars, except for share and per share amounts, unless otherwise specified.

General

We offer products and services ranging from power solutions to communications and electronics systems to customers across the globe in the government, defense and commercial sectors. With an emphasis on strong engineering and a collaborative approach to problem solving, we design and manufacture power and communications systems including rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems and accessories, and custom engineered systems related to those product lines. We continually evaluate ways to grow, including the design, development and sale of new products, expansion of our sales force to penetrate new markets and territories, and seeking opportunities to expand through acquisitions.

We sell our products worldwide through a variety of trade channels, including original equipment manufacturers ("OEMs"), industrial and defense supply distributors, and directly to U.S. and foreign defense departments. Historically, we utilized the following brands, tradenames and trademarks ("sub-brands") to promote our products in the markets we serve: Ultralife®, Ultralife Thin Cell®, Ultralife HiRate®, Ultralife & design®, LithiumPower®, LithiumPower & Design®, SMART CIRCUIT®, SMARTCIRCUIT®, SMART CIRCUIT & design®, SODIUMPOWER®, SODIUMPOWER (design)®, WE. ARE. POWER®, AMTI®, ABLE™, ACCUTRONICS™, ACCUPRO™, ENTELLION™, McDowell Research®, SWE DRILL-DATA®, SWE SEASAFE (& DESIGN)®, SWE SEASAFE DIRECT®, SWE SOUTHWEST ELECTRONIC ENERGY CORP®, SWE Southwest Electronic Energy Group®, Excell Battery Group™ and Criterion Gauge™, POW-R BMS®, POW-R TOTE® and Electrochem®. As explained below, our rebranding initiative will eliminate or de-emphasize our reference to the sub-brands going forward. We have sales, operations and product development facilities in North America, Europe and Asia.

As part of our strategic evolution, in October 2025, Ultralife decided to undergo a comprehensive rebranding initiative that consolidates all sub-brands under a singular, unified master brand - Ultralife. This move reflects our commitment to clarity, consistency and amplified brand equity across all markets. By streamlining our global identity, we aim to strengthen customer recognition, enhance operational efficiency and better align to our customers' needs with a singular, powerful brand narrative. To this end, the Accutronics, Southwest Electronic Energy, Excell Battery, McDowell Research and AMTI brands will no longer be emphasized. The Electrochem brand will remain, but as a product brand on select primary cells. We believe this transformation will position Ultralife for ongoing growth and stronger market impact as we continue to lead in mission critical battery and RF power solutions. This rebranding initiative had a non-cash impact of $12,181 to reduce the value of our tradename and trademark intangible assets recorded during our 2025 fourth quarter.

We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes Lithium 9-volt, cylindrical, thin cell and other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies, charging systems and accessories. The Communications Systems segment includes RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and communications and electronics systems design. We believe that segment contribution, defined as gross profit less direct selling, general and administrative ("SG&A") and research and development expenses, is the best indicator of segment performance. As such, we report segment results at the segment contribution level. (See Note 10 in the notes to consolidated financial statements contained in Item 1 of this Form 10-Q.)

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

Overview

Consolidated revenues of $47,943 for the three-month period ended June 30, 2026, decreased by $618 or 1.3%, from $48,561 for the three-month period ended June 30, 2025, reflecting a 4.7% decline in commercial sales partially offset by a 5.0% increase in government/defense sales.

Gross profit was $13,866, or 28.9% of revenue, for the three-month period ended June 30, 2026, compared to $11,601, or 23.9% of revenue, for the same quarter a year ago. The 500-basis point increase primarily resulted from favorable sales product mix and the net refund of IEEPA tariffs which had been recognized as net costs in previous periods.

Operating expenses were $10,429 for the three-month period ending June 30, 2026, compared to $9,345 for the three-month period ended June 30, 2025, reflecting an increase in new product development costs related to continued investment in our product offering and certain one-time, non-recurring costs which amounted to $884 for the current period which represents a $558 increase over the non-recurring costs incurred in the prior year. Operating expenses for the 2026 period were 21.8% of revenue compared to 19.2% of revenue for the year-earlier period.

Operating income for the three-month period ended June 30, 2026, was $3,437, or 7.2% of revenues, compared to $2,256, or 4.6% of revenues, for the year-earlier period. The increase in operating income primarily resulted from the favorable product mix for our Battery & Energy Products and Communications Systems segments and the net refund of IEEPA tariffs previously paid and recognized as costs in prior periods, partially offset by an increase in one-time, non-recurring costs.

Other expense for the second quarter of 2026 was $451 compared to $1,143 for the year-earlier quarter. The decrease for the 2026 period primarily reflects lower interest expense for the financing of our Electrochem acquisition with the continued paydown of the related term loan, the current period estimated portion of a refundable tax credit for certain qualifying battery cells and packs we manufacture under the 45X Advanced Manufacturing Production Tax Credit, established by the Inflation Reduction Act and running through 2032, and more favorable foreign currency rates in the current period.

Net income attributable to Ultralife Corporation was $2,543, or $0.15 per share - basic and diluted, for the three-month period ended June 30, 2026, compared to $879, or $0.05 per share - basic and diluted, for the three-month period ended June 30, 2025.

Adjusted EBITDA, defined as net income attributable to Ultralife Corporation before net interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expenses/income that we do not consider reflective of our ongoing operations, amounted to $6,148, or 12.8% of revenues, for the second quarter of 2026, compared to $4,113, or 8.5% of revenues, for the second quarter of 2025. See the section "Adjusted EBITDA" on page 26 for a reconciliation of adjusted EBITDA to net income attributable to Ultralife Corporation.

We remain intently focused on converting our long-term new product development efforts into revenue, maintaining a strong focus on operational efficiency initiatives to improve our gross margins and advancing vertical integration in the oil & gas segment. We believe these improvements, along with execution and replenishment of our backlog, position Ultralife to deliver sustainable profitable growth generating incremental cash flow for 2026 to further reduce debt, support strategic capital expenditures, continue our investment in new product development and maximize the value of our global brand.

Results of Operations

Three-Month Periods Ended June 30, 2026, and June 30, 2025

Revenues. Consolidated revenues for the three-month period ending June 30, 2026, were $47,943, a decrease of $618, or 1.3%, from $48,561 for the three-month period ended June 30, 2025. Overall, commercial sales decreased 4.7% and government/defense sales increased 5.0%.

Battery & Energy Products revenues decreased $1,678, or 3.7%, from $45,867 for the three-month period ended June 30, 2025, to $44,189 for the three-month period ended June 30, 2026. The revenue decline was primarily attributable to a 4.7% decrease in commercial sales due to an 8.7% decrease in oil & gas and industrial sales, offsetting a 7.2% increase in medical battery sales, and a 1.4% decline in government/defense sales due to the shipment of a very large order for an allied country last year.

Communications Systems sales increased $1,060, or 39.3%, from $2,694 for the three-month period ended June 30, 2025, to $3,754 for the three-month period ended June 30, 2026, due primarily to the timing of orders.

Our total backlog, which consists of unfilled orders or contracts for shipments in future periods, exiting the second quarter of 2026 was $117.5 million, the highest level in the Company's history, compared to $115.1 million exiting the first quarter of 2026 and $84.5 million exiting the second quarter of 2025.

Cost of Products Sold / Gross Profit. Cost of products sold totaled $34,077 for the quarter ended June 30, 2026, a decrease of $2,883, or 7.8%, from the $36,960 reported for the same three-month period a year ago. Consolidated cost of products sold as a percentage of total revenue decreased from 76.1% for the three-month period ended June 30, 2025, to 71.1% for the three-month period ended June 30, 2026. Correspondingly, consolidated gross margin increased from 23.9% for the three-month period ended June 30, 2025, to 28.9% for the three-month period ended June 30, 2026, primarily reflecting favorable sales product mix for both our Battery & Energy Products and Communications Systems segments and the net refund of IEEPA tariffs which had been recognized as net costs in previous periods. The net IEEPA refund in the second quarter of 2026 was $1,102, accounting for 230 basis point of gross margin for that period.

For our Battery & Energy Products segment, gross profit for the second quarter of 2026 was $12,503, an increase of $1,668 or 15.4% from gross profit of $10,835 for the second quarter of 2025. Battery & Energy Products' gross margin of 28.3% increased by 470-basis points from the 23.6% gross margin for the year-earlier period, primarily due to sales mix and the net refund of IEEPA tariffs. The net refund accounted for 250 basis points of the year-over-year increase in gross margin.

For our Communications Systems segment, gross profit for the second quarter of 2026 was $1,363 or 36.3% of revenues, compared to gross profit of $766 or 28.4% of revenues for the second quarter of 2025. The 790-basis point increase in gross margin was primarily due to favorable sales mix.

Operating Expenses. Operating expenses for the three-month period ended June 30, 2026, were $10,429, an increase of $1,084 or 11.6% from the $9,345 for the three-month period ended June 30, 2025. The increase is primarily attributable to a 39.1% increase in new product development costs related to continued investment in our product offerings and the completion of certain one-time, non-recurring expenses of $884 primarily related to litigation expenses incurred for our cyber-insurance claim and certain consulting costs to help expedite gross margin improvement at our two largest manufacturing facilities. Non-recurring costs reported for the 2025 second quarter were $326 primarily representing litigation expenses for our cyber insurance claim and acquisition transition costs. Both periods reflected continued tight control over discretionary spending.

Overall, operating expenses were 21.8% of revenue for the quarter ending June 30, 2026, compared to 19.2% of revenue for the quarter ended June 30, 2025. Amortization expense associated with intangible assets related to our acquisitions was $268 for the second quarter of 2026 ($263 in selling, general and administrative expenses and $5 in research and development costs), compared with $410 for the second quarter of 2025 ($378 in selling, general, and administrative expenses and $32 in research and development costs). The year-over-year decline in amortization expenses resulted from our decision in the 2025 fourth quarter to undergo a comprehensive rebranding initiative that consolidates all sub-brands under a singular, unified master brand - Ultralife, and the ensuing write-down of tradenames and trademarks associated with our sub-brands during that period. Research and development costs were $3,225 for the three-month period ended June 30, 2026, an increase of $907 or 39.1%, from $2,318 for the three-month period ended June 30, 2025. The increase is attributable to an increase in new product development costs related to continued investment in our product offering as we aggressively pursue both government/defense and commercial opportunities. Selling, general, and administrative expenses were $7,204 for the three-month period ended June 30, 2026, an increase of $177 or 2.5% from $7,027 for the second quarter of 2025. The period-over-period increase was primarily attributable to the inclusion of certain one-time, non-recurring expenses of $884 primarily related to litigation expenses incurred for our cyber-insurance claim and the completion of consulting costs to help expedite gross margin improvement at our two largest manufacturing facilities.

Other Expense. Other expense totaled $451 for the three-month period ended June 30, 2026, compared to $1,143 for the three-month period ended June 30, 2025. Interest and financing expense decreased $153, or 15.4%, from $992 for the second quarter of 2025 to $839 for the comparable period in 2026 resulting from the continued paydown of the term loan financing of the Electrochem acquisition on October 31, 2024. Miscellaneous (income) expense amounted to ($388) for the second quarter of 2026 compared to $151 for the second quarter of 2025, primarily attributable to refundable tax credits for certain qualifying battery cells and packs we manufacture under the 45X Advanced Manufacturing Production Credit, established by the Inflation Reduction Act which runs through 2032. In addition, both periods reflect foreign exchange gains and losses due to fluctuations in foreign currency exchange rates.

Income Taxes. For the three-month period ended June 30, 2026, Ultralife recognized an income tax provision of $468, comprised of a current tax provision of $47 and a deferred tax provision of $421 which primarily represents non-cash charges for U.S. taxes which we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. This compares to a tax provision of $243 comprised of a current tax benefit of $22 and a deferred tax provision of $265 for the three-month period ended June 30, 2025. Our effective tax rate was 15.7% for the second quarter of 2026 as compared to 21.8% for the second quarter of 2025, primarily attributable to the geographic mix of our operating results and other income recognized on the nontaxable refundable tax credits under the 45X Advanced Manufacturing Production Credit. See Note 6 to the consolidated financial statements in Item 1 of Part I of this Form 10-Q for additional information regarding our income taxes.

Net Income Attributable to Ultralife Corporation. Net income attributable to Ultralife Corporation was $2,543, or $0.15 per share - basic and diluted, for the three-month period ended June 30, 2026, compared to $879, or $0.05 per share - basic and diluted, for the three-month period ended June 30, 2025.

Weighted average shares outstanding used to compute diluted earnings per share increased from 16,656,408 for the second quarter of 2025 to 16,714,196 for the second quarter of 2026. The increase is attributable to stock option exercises since the second quarter. Dilutive shares of 55,268 were added to basic weighted average shares for the 2026 period compared to 21,856 for the 2025 period.

Six-Month Periods Ended June 30, 2026, and June 30, 2025

Revenues. Consolidated revenues for the six-month period ended June 30, 2026, were $95,388, a decrease of $3,919 or 3.9%, from $99,307 for the six-month period ended June 30, 2025. Overall, commercial sales decreased $3,259 or 5.1% and government/defense sales decreased $660 or 1.8%.

Battery & Energy Products revenues decreased $3,844, or 4.2%, from $92,188 for the six-month period ended June 30, 2025, to $88,344 for the six-month period ended June 30, 2026. The decrease is primarily attributable to a $3,259 or 5.1% decline in commercial sales and a $585 or a 2.0% decline in government/defense sales. The decrease in commercial sales was driven by a $2,265 or 12.7% decline in industrial sales and a $2,049 or 6.9% decline in oil & gas sales, partially offset by a $1,055 or 6.5% increase in medical battery sales. The overall decline in commercial sales was in large part a result of lost production days due to the failure of the substation providing power to our Newark, NY facility and winter blizzards and a prolonged shutdown to conduct a comprehensive physical inventory at our Raynham, MA facility during the first quarter of 2026. The government/defense sales decline was due to the shipment of a very large charger order for an allied country in the 2025 period.

Communications Systems revenues decreased $75 or 1.1%, from $7,119 for the six-month period ended June 30, 2025, to $7,044 for the six-month period ended June 30, 2026. The decrease was primarily attributable to shipments in the prior year to a major international defense contractor and the timing of expected orders in the current period.

Cost of Products Sold / Gross Profit. Cost of products sold totaled $71,412 for the six-month period ended June 30, 2026, a decrease of $3,549, or 4.7%, from the $74,961 reported for the same six-month period a year ago. Consolidated cost of products sold as a percentage of total revenue decreased from 75.5% for the six-month period ended June 30, 2025, to 74.9% for the six-month period ended June 30, 2026. Correspondingly, consolidated gross margin increased from 24.5% for the six-month period ended June 30, 2025, to 25.1% for the six-month period ended June 30, 2026, reflecting the net refund of IEEPA tariffs of $1,102 in the second quarter which had been recognized as net costs in previous periods.

For our Battery & Energy Products segment, gross profit for the 2026 period was $21,861, a decrease of $414 or 1.9% from gross profit of $22,275 for the 2025 period. Battery & Energy Products' gross margin of 24.7% increased by 50-basis points from the 24.2% gross margin for the year-earlier period, primarily due to sales mix and the net refund of IEEPA tariffs.

For our Communications Systems segment, gross profit for the 2026 period was $2,115 or 30.0% of revenues, compared to gross profit of $2,071 or 29.1% of revenues for the 2025 period. The 90-basis point increase in gross margin was primarily due to favorable sales mix.

Operating Expenses. Operating expenses for the six-month period ended June 30, 2026, were $20,754, an increase of $2,063 or 11.0% from the $18,691 for the six-month period ended June 30, 2025. The increase is primarily attributable to a 31.0% increase in new product development costs related to continued investment in our product offerings and the completion of certain one-time, non-recurring expenses of $1,731, compared to $518 for the year-earlier quarter, primarily related to litigation expenses incurred for our cyber-insurance claim and certain consulting costs to help expedite gross margin improvement at our two largest manufacturing facilities. Both periods reflected continued tight control over discretionary spending.

Overall, operating expenses as a percentage of revenues were 21.8% for the six-month period ended June 30, 2026, compared to 18.8% for the six-month period ended June 30, 2025. Amortization expense associated with intangible assets related to our acquisitions was $535 for the first six months of 2026 ($525 in selling, general and administrative expenses and $10 in research and development costs), compared with $815 for the first six months of 2025 ($754 in selling, general, and administrative expenses and $61 in research and development costs). The year-over-year decline in amortization expenses resulted from our decision in the 2025 fourth quarter to undergo a comprehensive rebranding initiative that consolidates all sub-brands under a singular, unified master brand - Ultralife, and the ensuing write-down of tradenames and trademarks associated with out sub-brands during that period. Research and development costs were $6,186 for the six-month period ended June 30, 2026, an increase of $1,464 or 31.0 %, from $4,722 for the six months ended June 30, 2025. Selling, general, and administrative expenses increased $599, or 4.3%, from $13,969 for the first six months of 2025 to $14,568 for the first six months of 2026. The period-over-period increase was primarily attributable to the inclusion of certain one-time, non-recurring expenses primarily related to litigation expenses incurred for our cyber-insurance claim and the completion of consulting costs to help expedite gross margin improvement at our two largest manufacturing facilities.

Other Expense. Other expense totaled $899 for the six-month period ended June 30, 2026, compared to $2,096 for the six-month period ended June 30, 2025. Interest and financing expense decreased $317, or 15.7%, from $2,024 for the first half of 2025 to $1,707 for the comparable period in 2026 resulting from the continued paydown of the term loan financing of the Electrochem acquisition on October 31, 2024. Miscellaneous (income) expense amounted to ($808) for the first half of 2026 compared to $72 for the first half of 2025, primarily attributable to refundable tax credits for certain qualifying battery cells and packs we manufacture under the 45X Advanced Manufacturing Production Credit, established by the Inflation Reduction Act which runs through 2032. In addition, both periods reflect foreign exchange gains and losses due to fluctuations in foreign currency exchange rates.

Income Taxes. The income tax provision for the 2026 six-month period was $276 compared to $810 for the 2025 six-month period. Our effective tax rate decreased to 11.9% from 22.8% for the 2025 period, primarily attributable to the geographic mix of our operating results and other income recognized on the nontaxable refundable tax credits under the 45X Advanced Manufacturing Production Credit. The income tax provision for the first six months of 2026 is comprised of a $183 current tax provision for taxes expected to be paid on income primarily in foreign jurisdictions and a $93 deferred tax provision which primarily represents non-cash charges for U.S. income taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. For the comparable 2025 period, the income tax provision was comprised of a $201 current provision for taxes expected to be paid on income primarily in foreign jurisdictions and a $609 deferred tax provision which primarily represents non-cash charges for U.S. taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. See Note 6 to the consolidated financial statements in Item 1 of Part I of this Form 10-Q for additional information regarding our income taxes.

Net Income Attributable to Ultralife. Net income attributable to Ultralife was $2,092, or $0.13 per share - basic and diluted for the six-month period ended June 30, 2026, compared to $2,744, or $0.17 per share - basic and diluted, for the six-month period ended June 30, 2025.

Weighted average shares outstanding used to compute diluted earnings per share increased from 16,671,000 for the first six months of 2025 to 16,702,714 for the first six months of 2026. The increase is attributable to stock option exercises since the second quarter of 2025, a slight increase in the average stock price used to compute diluted shares from $6.36 for the six-month period ended June 30, 2025, to $6.43 for the six-month period ended June 30, 2026. Accordingly diluted shares of 44,992 were added to basic weighted average shares in 2026 compared to 37,237 in 2025.

Adjusted EBITDA

In evaluating our business, we consider and use adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure of our operating performance. We define adjusted EBITDA as net income (loss) attributable to Ultralife Corporation before interest expense, provision for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expense/income that we do not consider reflective of our ongoing continuing operations. We also use adjusted EBITDA as a supplemental measure to review and assess our operating performance and to enhance comparability between periods. We believe the use of adjusted EBITDA facilitates investors' understanding of operating performance from period to period by backing out potential differences caused by variations in such items as capital structures (affecting relative interest expense and stock-based compensation expense), the amortization of intangible assets acquired through our business acquisitions (affecting relative amortization expense and provision (benefit) for income taxes), the age and book value of facilities and equipment (affecting relative depreciation expense) and one-time charges/benefits relating to income taxes. Adjusted EBITDA should not be considered in isolation, as a substitute for, or superior to net income, operating income, cash flows from operating activities or any other measure of financial performance prepared in accordance with GAAP. We also present adjusted EBITDA from operations because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. We reconcile adjusted EBITDA to net income (loss) attributable to Ultralife Corporation, the most comparable financial measure under GAAP.

We use adjusted EBITDA in our decision-making processes relating to the operation of our business together with GAAP financial measures such as operating (loss) income. We believe that adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while eliminating the effects of depreciation and amortization, which may vary from period to period without any correlation to underlying operating performance, and of stock-based compensation, which is a non-cash expense that varies widely among companies. We believe that by presenting adjusted EBITDA, we assist investors in gaining a better understanding of our business on a going forward basis. We provide information relating to our adjusted EBITDA so that securities analysts, investors and other interested parties have the same data that we employ in assessing our overall operations. We believe that trends in our adjusted EBITDA are a valuable indicator of our operating performance on a consolidated basis and of our ability to produce operating cash flows to fund working capital needs, to service debt obligations and to fund capital expenditures.

The term adjusted EBITDA is not defined under GAAP and is not a measure of operating (loss) income, operating performance or liquidity presented in accordance with GAAP. Our adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, adjusted EBITDA should not be considered in isolation or as a substitute for net income attributable to Ultralife Corporation or other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include, but are not limited to, the following:

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Adjusted EBITDA does not reflect (1) our cash expenditures or future requirements for capital expenditures or contractual commitments; (2) changes in, or cash requirements for, our working capital needs; (3) the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; (4) income taxes or the cash requirements for any tax payments; and (5) all of the costs associated with operating our business;

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Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA from continuing operations does not reflect any cash requirements for such replacements;

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While stock-based compensation is a component of cost of products sold and operating expenses, the impact on our consolidated financial statements compared to other companies can vary significantly due to such factors as assumed life of the stock-based awards and assumed volatility of our common stock; and

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Other companies may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA only on a supplemental basis. Neither current nor potential investors in our securities should rely on adjusted EBITDA as a substitute for any GAAP measures and we encourage investors to review the following reconciliation of adjusted EBITDA to net income attributable to Ultralife Corporation.

Adjusted EBITDA is calculated as follows for the periods presented:

		Three-Month Period Ended								Six-Month Period Ended
		June 30,				June 30,				June 30,				June 30,
		2026				2025				2026				2025
Net income attributable to Ultralife Corporation		$	2,543			$	879			$	2,092			$	2,744
Adjustments:
Interest expense			839				992				1,707				2,024
Income tax provision			468				243				276				810
Depreciation expense			1,056				1,008				2,110				1,958
Amortization expense			268				410				535				815
Stock-based compensation expense			90				235				89				462
Other non-recurring costs			884				326				1,731				518
One-Time events impacting production			-				-				817				-
Severance cost for plant closure			-				-				-				150
Non-cash purchase accounting adjustments			-				20				-				80
Adjusted EBITDA		$	6,148			$	4,113			$	9,357			$	9,561

Liquidity and Capital Resources

As of June 30, 2026, cash totaled $6,663, as compared to $9,345 at December 31, 2025. The decrease in cash was largely attributable to payments totaling $5,125 against the outstanding principal on our Term Loan during the first half of 2026.

For the six-month period ended June 30, 2026, cash generated from operations was $3,444, as compared to $9,303 generated for the six-month period ended June 30, 2025. For the 2026 period, cash generated from operations was comprised of net income of $2,047 plus non-cash items totaling $2,959 for depreciation, amortization, stock-based compensation, and deferred taxes, offset by decrease of $1,562 attributable to working capital.

Cash used in investing activities for the six months ended June 30, 2026, was $1,223 for capital expenditures, primarily reflecting investments in equipment for new products transitioning to higher-volume manufacturing.

Cash used in financing activities for the six months ended June 30, 2026, was $5,089, representing a $5,125 reduction in our outstanding debt partially offset by $36 of cash generated from employee stock option exercise proceeds during the period.

We continue to have significant U.S. net operating loss carryforwards available to utilize as an offset to future taxable income. See Note 6 to the consolidated financial statements in Item 1 of Part 1 of this Form 10-Q for additional information.

Going forward, we expect positive operating cash flow and the availability of borrowings under our Revolving Credit Facility will be sufficient to meet our general funding requirements for the foreseeable future.

To provide flexibility in accessing the capital markets, on March 30, 2021, the Company filed a shelf registration statement on Form S-3 (File No. 333-254846) (the "Prior Registration Statement") registering securities in an aggregate amount of $100,000,000. None of the $100,000,000 of registered securities were sold under the Prior Registration Statement (the "Unsold Securities"). Under the rules of the Securities and Exchange Commission (the "SEC") the Prior Registration Statement was set to expire on April 2, 2024. Therefore, on March 29, 2024, the Company filed a new shelf registration statement on Form S-3 (File No. 333-278360) (the "New Registration Statement") to replace the Prior Registration Statement. The New Registration Statement includes all $100,000,000 of the Unsold Securities registered on the Prior Registration Statement. The SEC declared the New Registration Statement effective May 7, 2024. Pursuant to Rule 415(a)(6) under Securities Act of 1933, as amended (the "Securities Act"), the offering of the Unsold Securities under the Prior Registration Statement was deemed terminated as of the date of effectiveness of the New Registration Statement. Upon the filing of an appropriate prospectus supplement or supplements under the New Registration Statement, we may offer and sell our securities from time to time in one or more offerings, at our discretion. We intend to use the net proceeds resulting from any sales of these securities for general corporate purposes which may include, but are not limited to, potential acquisitions of complementary businesses or technologies, strategic capital expenditures to expand and protect our competitive position, and investments in the development of transformational, competitively differentiated products for attractive growth markets.

Commitments

As of June 30, 2026, the Company had $45,125 outstanding on the Term Loan and no amounts outstanding on the Revolving Credit Facility. The Company was in full compliance with its debt covenants under the Revolving Credit Facility and Term Loan as of June 30, 2026.

As of June 30, 2026, we have made commitments to purchase approximately $301 of production machinery and equipment.

Critical Accounting Policies

Management exercises judgment in making important decisions pertaining to choosing and applying accounting policies and methodologies in many areas. Not only are these decisions necessary to comply with GAAP, but they also reflect management's view of the most appropriate manner in which to record and report our overall financial performance. All accounting policies are important, and all policies described in Note 1 to the consolidated financial statements in our 2025 Annual Report on Form 10-K should be reviewed for a greater understanding of how our financial performance is recorded and reported.

During the first six months of 2026, there were no significant changes in the manner in which our significant accounting policies were applied or in which related assumptions and estimates were developed.