ACQUISITION

May 1, 2019,

the Company completed the acquisition of

100%

of the issued and outstanding shares of Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), for an aggregate purchase price of

$26,190

inclusive of

$942

cash acquired and post-closing adjustments.

SWE is a leading independent designer and manufacturer of high-performance smart battery systems and battery packs to customer specifications using lithium cells. SWE serves a variety of industrial markets, including oil & gas, remote monitoring, process control and marine, which demand uncompromised safety, service, reliability and quality. The Company acquired SWE as a bolt-on acquisition to further support our strategy of commercial revenue diversification by providing entry to the oil and gas exploration and production, and subsea electrification markets, which are currently unserved by Ultralife. Another key benefit includes obtaining a highly valuable technical team of battery pack and charger system engineers and technicians to add to our new product development-based revenue growth initiatives in our commercial end-markets particularly asset tracking, smart metering and other industrial applications.

The acquisition of SWE was completed pursuant to a Stock Purchase Agreement dated

May 1, 2019 (

the “Stock Purchase Agreement”) by and among Ultralife, SWE, Southwest Electronic Energy Medical Research Institute, a Texas non-profit (the “Seller”), and Claude Leonard Backstein, an individual (the “Shareholder”). The Stock Purchase Agreement contains customary terms and conditions including representations, warranties and indemnification provisions. A portion of the consideration paid to the Seller is being held in escrow for indemnification purposes.

The aggregate purchase price for the acquisition was funded by the Company through a combination of cash on hand and borrowings under the Credit Facilities (see Note

The purchase price allocation was determined in accordance with the accounting treatment of a business combination pursuant to FASB ASC Topic

805,

Business Combinations (ASC

805

). Accordingly, the fair value of the consideration was determined, and the assets acquired and liabilities assumed have been recorded at their fair values at the date of the acquisition. The excess of the purchase price over the estimated fair values has been recorded as goodwill.

The allocation of purchase price to the assets acquired and liabilities assumed at the date of the acquisition is presented in the table below. Management is responsible for determining the fair value of the tangible and intangible assets acquired and liabilities assumed as of the date of acquisition. Management considered several factors, including reference to an analysis performed under ASC

805

solely for the purpose of allocating the purchase price to the assets acquired and liabilities assumed. The Company’s estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions, which would

not

reflect unanticipated events and circumstances that

may

occur. The resulting purchase price allocation is considered preliminary and could differ materially from the final allocation based on further analysis and future events. The final purchase price allocation

may

include changes in the valuation of assets acquired and liabilities assumed, including intangible assets, inventories, fixed assets, deferred taxes and residual goodwill.

Cash	$	942
Accounts receivable		3,621
Inventories		4,685
Prepaid expenses and other current assets		431
Property, equipment and improvements		9,177
Goodwill		6,474
Other intangible assets		3,649
Accounts payable		(1,060	)
Other current liabilities		(718	)
Deferred tax liability, net		(1,011	)
Net assets acquired	$	26,190

The goodwill included in the Company’s purchase price allocation presented above represents the value of SWE’s assembled and trained workforce, the incremental value that SWE 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.

The operating results and cash flows of SWE are reflected in the Company’s consolidated financial statements from the date of acquisition. SWE is included in the Battery & Energy Products segment.

For the

nine

months ended

September 29, 2019,

SWE contributed revenue of

$11,993

and net income of

$740,

inclusive of a

$264

increase in cost of products sold for the fair value step-up of acquired inventory sold during the period, non-recurring expenses of

$165

directly related to the acquisition, interest expense of

$289

directly related to the financing of the SWE acquisition, amortization expense of

$101

on acquired identifiable intangible assets, a

$55

reduction of depreciation expense as a result of fair value adjustments and useful life changes, and stock-based compensation charges of

$49

for stock options and restricted stock awarded to certain SWE employees.

During the

nine

-month period ended

September 29, 2019,

the Company incurred non-recurring transaction costs of

$322

directly attributable to the acquisition. Debt issuance costs of

$157,

including placement, renewal and legal fees, are amortized to interest expense over a weighted average life of

4.6

years based on the terms of the related Credit Facilities. Other non-recurring transaction costs of

$165,

including

one

-time accounting, legal and due diligence services, were expensed during the

nine

-month period. There were

non-recurring transaction costs incurred during the

three

-month period ended

September 29, 2019.

The following supplemental pro forma information presents the combined results of operations, inclusive of the purchase accounting adjustments and

one

-time acquisition-related expenses described above, as if the acquisition of SWE had been completed on

January

2018,

the beginning of the comparable prior period.

The supplemental pro forma results do

not

reflect the agreed upon departure of the Shareholder from SWE and dissolution of the SWE Board of Directors upon consummation of the acquisition or the realization of any expected 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 SWE for the

nine

-month periods ended

September 29, 2019

and

September 30, 2018

as if the acquisition had occurred as of

January

2018.

	Nine Months Ended
	September 30, 2018		September 29, 2019
Revenue	$	86,506	$	84,567
Operating income		4,397		5,536
Net Income attributable to Ultralife Corporation		4,009		3,900
Net income per share attributable to Ultralife Corporation:
Basic	$	.25	$	.25
Diluted	$	.25	$	.24