Ultralife Corp: Form 10-Q for the period ended Mar 31, 2025

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, changes in economic conditions including 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; potential disruptions in our supply of raw materials and components or material increases in their costs due to business conditions, new or additional tariffs, global conflicts or other factors not under our control; our resources being overwhelmed by our growth; breaches in information systems security and other disruptions in our information technology systems; our ability to recruit and retain top management and key personnel; the unique risks associated with our China operations; fluctuations in the price of oil and the resulting impact on the demand for downhole drilling; 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; rising interest rates increasing the cost of our variable borrowings; purchases by our customers of product quantities not meeting the volume expectations in our supply agreements; the continued impact of COVID-19, or other 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; 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; negative publicity concerning Lithium-ion batteries; 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; rules and procedures regarding contracting with the U.S. and foreign governments; possible impairments of our goodwill and other intangible assets; our ability to comply with government regulations including the use of “conflict minerals”; exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; known and unknown environmental matters; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; 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, 2024.

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, 2024.

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, as well as 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. We enjoy strong name recognition in our markets under our Ultralife®, Ultralife HiRate®, Ultralife Thin Cell®, Ultralife Batteries Inc.®, Lithium Power®, McDowell Research®, AMTITM, ABLETM, ACCUTRONICS™, ACCUPRO™, ENTELLION™, SWE Southwest Electronic Energy Group™, SWE SEASAFE™, Excell Battery Group™ and Criterion Gauge™ brands, among others. We have sales, operations and product development facilities in North America, Europe and Asia.

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, as defined by 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. Refer to Note 10 in the notes to Consolidated Financial Statements in Item 1 of Part 1 of this Form 10-Q.

Our website address is www.ultralifecorporation.com (http://www.ultralifecorporation.com). We make available free of charge via a hyperlink on our website (see Investor Relations 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 (http://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 $50,746 for the three-month period ended March 31, 2025, increased by $8,819 or 21.0%, over $41,927 for the three-month period ended March 31, 2024, reflecting the inclusion of Electrochem and an increase in government/defense sales of 18.6% partially offset by a 12.3% decrease in medical sales.

Gross profit was $12,745, or 25.1% of revenue, for the three-month period ended March 31, 2025, compared to $11,470, or 27.4% of revenue, for the same quarter a year ago. The 230-basis point decline primarily resulted from sales product mix.

Operating expenses were $9,346 for the three-month period ending March 31, 2025, compared to $7,407 for the three-month period ended March 31, 2024, reflecting the inclusion of Electrochem, a 24.0% increase in new product development costs related to continued investment in our product offering, the strengthening of our sales and marketing leadership team to expedite organic growth and further leverage our global brand and resources, and certain one-time, non-recurring costs. Operating expenses for the 2025 period were 18.4% of revenue compared to 17.7% of revenue for the year-earlier period.

Operating income for the three-month period ended March 31, 2025 was $3,399, or 6.7% of revenues, compared to $4,063, or 9.7% of revenues, for the year-earlier period. The decrease in operating income primarily resulted from the decline in gross margin resulting from sales product mix and the increase in operating expenses, including $402 in one-time, non-recurring costs and purchase accounting adjustments.

Net income attributable to Ultralife Corporation was $1,865, or $0.11 per share – basic and diluted, for the three-month period ended March 31, 2025, compared to $2,891, or $0.18 per share – basic and diluted, for the three-month period ended March 31, 2024.

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 $5,448, or 10.7% of revenues, for the first quarter of 2025, compared to $5,243, or 12.5% of revenues, for the first quarter of 2024. See the section “Adjusted EBITDA” on page 21 for a reconciliation of adjusted EBITDA to net income attributable to Ultralife Corporation.

We are confident in our ability to deliver and sustain profitable growth, generating incremental cash flow to reduce acquisition-related debt, and continuing to invest in strategic product development. Our strong backlog replenishment this quarter, combined with a growing pipeline of innovative products targeting high-growth markets, positions us to scale efficiently and capitalize on market demand. With enhanced sales and marketing leadership in place, we’re accelerating organic growth and maximizing the value of our global brand and resources.

Results of Operations

Three-Month Periods Ended March 31, 2025 and March 31, 2024

Revenues. Consolidated revenues for the three-month period ending March 31, 2025 were $50,746, an increase of $8,819, or 21.0%, over $41,927 for the three-month period ended March 31, 2024. Overall, government/defense sales increased 18.6% and commercial sales decreased 8.7%, when excluding the 2025 sales of Electrochem.

Battery & Energy Products revenues increased $11,332, or 32.4%, from $34,989 for the three-month period ended March 31, 2024 to $46,321 for the three-month period ended March 31, 2025. The revenue growth was primarily attributable to the inclusion of Electrochem and organic growth of 10.6% driven by a 53.6% increase in government/defense sales reflecting strong demand from our U.S.-based global prime, partially offset by a 12.3% decrease in medical battery sales.

Communications Systems sales decreased $2,513, or 36.2%, from $6,938 for the three-month period ended March 31, 2024 to $4,425 for the three-month period ended March 31, 2025. The decrease was primarily attributable to shipments in the prior year of integrated systems of amplifiers and radio vehicle mounts to a major international defense contractor.

Cost of Products Sold / Gross Profit. Cost of products sold totaled $38,001 for the quarter ended March 31, 2025, an increase of $7,544, or 24.8%, from the $30,457 reported for the same three-month period a year ago. Consolidated cost of products sold as a percentage of total revenue increased from 72.6% for the three-month period ended March 31, 2024 to 74.9% for the three-month period ended March 31, 2025. Correspondingly, consolidated gross margin decreased from 27.4% for the three-month period ended March 31, 2024, to 25.1% for the three-month period ended March 31, 2025, primarily reflecting unfavorable sales mix for both segments.

For our Battery & Energy Products segment, gross profit for the first quarter of 2025 was $11,440, an increase of $2,454 or 27.3% from gross profit of $8,986 for the first quarter of 2024. Battery & Energy Products’ gross margin of 24.7% decreased by 100-basis points from the 25.7% gross margin for the year-earlier period, primarily due to sales mix reflecting the 12.3% decline in medical battery sales.

For our Communications Systems segment, gross profit for the first quarter of 2025 was $1,305 or 29.5% of revenues, compared to gross profit of $2,484 or 35.8% of revenues for the first quarter of 2024. The 630-basis point decrease in gross margin was primarily due to unfavorable sales mix and the 36.2% revenue decline reducing factory volume.

Operating Expenses. Operating expenses for the three-month period ended March 31, 2025 were $9,346, an increase of $1,939 or 26.2% from the $7,407 for the three-month period ended March 31, 2024. The increase is primarily attributable to the inclusion of $1,060 for Electrochem, a 24.0% increase in new product development costs related to continued investment in our product offering, the strengthening of our sales and marketing leadership team to expedite organic growth and further leverage our global brand and resources, and certain one-time, non-recurring expenses which include costs related to our acquisition of Electrochem. Both periods reflected continued tight control over discretionary spending.

Overall, operating expenses were 18.4% of revenue for the quarter ending March 31, 2025 compared to 17.7% of revenue for the quarter ended March 31, 2024. Amortization expense associated with intangible assets related to our acquisitions was $405 for the first quarter of 2025 ($376 in selling, general and administrative expenses and $29 in research and development costs), compared with $228 for the first quarter of 2024 ($203 in selling, general, and administrative expenses and $25 in research and development costs). Research and development costs were $2,403 for the three-month period ended March 31, 2025, an increase of $647 or 36.8%, from $1,756 for the three-month period ended March 31, 2024. The increase is attributable to the inclusion of Electrochem and a 24.0% 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 $6,943 for the three-month period ended March 31, 2025, an increase of $1,292 or 22.9% from $5,651 for the first quarter of 2024. The period-over-period increase was primarily attributable to the inclusion of Electrochem, the strengthening of our sales and marketing leadership team to expedite organic growth and further leverage our global brand and resources, and certain one-time, non-recurring expenses which include costs related to our acquisition of Electrochem.

Other Expense. Other expense totaled $953 for the three-month period ended March 31, 2025 compared to $456 for the three-month period ended March 31, 2024. Interest and financing expense increased $512, or 98.5%, from $520 for the first quarter of 2024 to $1,032 for the comparable period in 2025 resulting from the financing of the Electrochem acquisition on October 31, 2024. Miscellaneous income amounted to $79 for the first quarter of 2025 compared to $64 for the first quarter of 2024, primarily attributable to interest income recognized in the 2025 period on the Employee Retention Credit under the Coronavirus Aid, Relief and Economic Security Act filed on June 22nd 2023 and approved for payment by the Internal Revenue Service on March 31, 2025 and foreign exchange gains and losses due to fluctuations in foreign currency exchange rates.

Income Taxes. For the three-month period ended March 31, 2025, Ultralife recognized an income tax provision of $567, comprised of a current provision of $223 expected to be paid on income primarily in foreign jurisdictions and a deferred tax provision of $344 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. This compares to a provision of $703 comprised of a current provision of $53 and a deferred tax provision of $650 for the three-month period ended March 31, 2024. Our effective tax rate was 23.2% for the first quarter of 2025 as compared to 19.5% for the first quarter of 2024, primarily attributable to the geographic mix of our operating results. See Note 7 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 $1,865, or $0.11 per share – basic and diluted, for the three-month period ended March 31, 2025, compared to $2,891, or $0.18 per share – basic and diluted, for the three-month period ended March 31, 2024. Adjusted EPS was $0.13 per share on a diluted basis for the first quarter of 2025, compared to an adjusted $0.21 per share for the 2024 period. Adjusted EPS for 2025 excludes the provision for deferred income taxes of $344 which represents non-cash charges primarily 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. Adjusted EPS for 2024 excludes the deferred income taxes of $650 which represents non-cash charges primarily for U.S. net operating losses and temporary tax differences which are expected to offset future U.S. taxable income. See section “Adjusted Earnings Per Share” on page 22 for a reconciliation of adjusted EPS to EPS. Weighted average shares outstanding used to compute diluted earnings per share increased from 16,518,389 for the first quarter of 2024 to 16,679,758 for the first quarter of 2025. The increase is attributable to the exercise of stock options and the vesting of restricted stock since the first quarter of 2024.

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 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. 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 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 income (loss). 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 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:

• 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;
• 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;
• While stock-based compensation is a component of cost of products sold and operating expenses, the impact on our consolidated financial statements compared to other companies can vary significantly due to such factors as assumed life of the stock-based awards and assumed volatility of our common stock; and
• Other companies may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

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 loss attributable to Ultralife Corporation.

Adjusted EBITDA is calculated as follows for the periods presented:

21

Adjusted Earnings Per Share

In evaluating our business, we consider and use adjusted earnings per share (“EPS”), a non-GAAP financial measure, as a supplemental measure of our business performance. We define adjusted EPS as net income (loss) attributable to Ultralife Corporation excluding the provision (benefit) for deferred income taxes divided by our weighted average shares outstanding on both a basic and diluted basis. We believe that this information is useful in providing period-to-period comparisons of our results by reflecting the portion of our tax provision that will be predominantly offset by our U.S. net operating loss carryforwards and other tax credits for the foreseeable future. We reconcile adjusted EPS to EPS, the most comparable financial measure under GAAP. Neither current nor potential investors in our securities should rely on adjusted EPS as a substitute for any GAAP measures and we encourage investors to review the following reconciliation of adjusted EPS to EPS and net income (loss) attributable to Ultralife Corporation.

Adjusted EPS is calculated as follows for the periods presented:

22

Liquidity and Capital Resources

As of March 31, 2025, cash totaled $8,719, an increase of $1,865 as compared to $6,854 of cash held at December 31, 2024.

For the three-month period ended March 31, 2025, cash generated from operations was $3,368, as compared to $81 cash used for the three-month period ended March 31, 2024. For the 2025 period, cash generated from operations was comprised of net income of $1,879, plus non-cash items totaling $1,991 for depreciation, amortization, stock-based compensation, and deferred taxes, less $502 attributable to changes in working capital.

Cash used in investing activities for the three months ended March 31, 2025 was $895 for capital expenditures, primarily reflecting investments in equipment for new products transitioning to high-volume manufacturing.

Cash used in financing activities for the three months ended March 31, 2025 was $687, representing principle payments due on our term loan.

We continue to have significant U.S. net operating loss carryforwards available to utilize as an offset to future taxable income. See Note 7 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 March 31, 2025, the Company had $54,313 outstanding on the Term Loan and no amounts outstanding on the Revolving Credit Facility. The Company is in full compliance with its debt covenants under the Credit Facilities.

As of March 31, 2025, we have made commitments to purchase approximately $828 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 2024 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 three months of 2025, 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.

Evaluation of Disclosure Controls and Procedures

Management, under the supervision and with the participation of our President and Chief Executive Officer (principal executive officer) and our Chief Financial Officer and Treasurer (principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report. Management has concluded that our disclosure control and procedures were not effective as of March 31, 2025 because of the existing material weakness in our internal control over financial reporting as previously reported in our Annual Report on Form 10-K for the year ended December 31, 2024.

Notwithstanding the material weakness identified, management believes that the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with U.S. generally accepted accounting principles for each of the periods presented.

Remediation Efforts to Address Material Weaknesses

Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on our evaluation, management concluded that there is a material weakness in our internal control over financial reporting attributable to our need for additional accounting personnel to provide a full complement of accounting and reporting expertise commensurate with the growth of the Company both organic and through acquisitions. As a result of the material weakness identified, management concluded that our internal control over financial reporting was not effective as of December 31, 2024. The material weakness was not yet fully remediated as of March 31, 2025.

A material weakness is defined as 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 our financial statements will not be prevented or detected on a timely basis.

Management has already taken steps to remediate our identified material weakness and will continue to take further steps until the remediation is complete. The Company is currently seeking to hire additional personnel including certified public accountants to augment the experience and expertise of our accounting team and provide for a full complement of resources commensurate with the Company’s continued growth. During the fourth quarter of 2024, we hired a highly experienced individual as VP of Financial Growth, Transition & Efficiency and in the first quarter of 2025 we hired a Controller for Electrochem. Until all of the necessary resources are in place, expected to occur in 2025, the current members of our accounting team will continue their best efforts to provide additional oversight. We believe that with this interim additional oversight, coupled with the additional personnel we are in the process of recruiting and hiring, will allow us to execute business process controls more quickly and ensure a greater level of monitoring whether controls are present and functioning.

Remediation will be deemed complete once our corrective actions are fully implemented and further evaluation is performed, including testing, to conclude that our internal control over financial reporting is effective.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Securities Exchange Act Rule 13a-15(f)) that occurred during the fiscal quarter covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.