Ultralife Batteries Reports Second Quarter Results

The second quarter revenue reflects lower shipments of BA-5390batteries to the U.S. military, as anticipated, due to delays incontract awards. Partially offsetting this decline in militaryshipments was an increase in revenue from the company's commercialproduct lines, including 9-volt and rechargeable batteries andsystems.

Gross margins for the quarter were 19% compared to 25% in the samequarter last year, mainly as a result of lower production volumes.Operating expenses were $4.0 million, a $0.6 million increase overlast year, reflecting the company's commitment to new productdevelopment, including charging systems and accessories. Income taxesin the second quarter of 2005 amounted to $1.3 million, primarilyresulting from a change in the New York State tax law that required anon-cash reduction to the company's deferred tax asset. The net lossfor the second quarter of 2005 was $1.4 million, or $0.10 per share,compared with a net loss of $0.4 million, or $0.03 per share, a yearago. Last year's loss included a $4.0 million charge related to awrite-down of the company's investment in Ultralife Taiwan Inc.

For the six-month period ended July 2, 2005, revenues totaled$37.0 million compared with $55.4 million reported for the same periodlast year, resulting mainly from lower shipments of BA-5390 batteriesto the U.S. military. The company reported an operating loss of $1.5million for the first six months of 2005 compared to an operatingincome of $7.0 million last year, reflecting the revenue decline aswell as higher operating expenses necessary to support the company'sgrowth objectives. Net loss for first half of 2005 was $3.0 million,or $0.21 per share, compared to net income of $2.9 million, or $0.19per diluted share, for 2004.

"With about two-thirds of second quarter revenue derived from ourcommercial business, we are clearly gaining meaningful traction in anumber of target commercial markets this year as design wins move intovolume production," said John D. Kavazanjian, president and chiefexecutive officer. "Our rechargeable business set new quarterlyrecords for revenue and gross margin this quarter, an indication thatwe are benefiting from higher gross margin products, such as chargersand accessories. In our military business, we continued to expand ourpresence with international military organizations. We remain on trackto complete qualification of the new and improved version of theBA-5390 battery, with a state-of-charge indicator, during the thirdquarter, which we believe will stimulate new order activity.

"With qualification of the new version of the BA-5390, we willhave a catalyst to resume revenue growth," continued Mr. Kavazanjian."Combined with the strong growth in our commercial markets andadditional product qualifications under the Next Gen II contract, wehave all the elements for continued sequential revenue and profitgrowth throughout 2006."

As of July 2, 2005, the company has reclassified approximately$6.0 million of debt from long-term to current. Management is workingwith its lenders to modify the financial covenants of its creditfacility to accommodate the company's revised outlook. The companyintends to reclassify the debt as long-term pending completion of theamendment to the credit facility and performing in line with itscurrent financial outlook.

Outlook

Management is adjusting its guidance for the second half of 2005as a result of the continued uncertainty of the timing of BA-5390order flow. Management still anticipates that its commercial businesswill continue to grow in the second half of the year in key targetmarkets such as automotive telematics, search and rescue, and medical.

Based on the latest input from the U.S. military, management stillanticipates receiving orders for the BA-5390, but at modest revenuelevels. As previously stated, management anticipates that BA-5390order flow will become more predictable following qualification underthe Next Gen II, Phase IV award, which is expected to occur in thethird quarter. In addition, management believes that the new versionof the BA-5390, with the state-of-charge indicator, will strengthenthe company's competitive advantage and support continued market sharegains, contributing to sequential revenue growth in the fourthquarter.

As a result, management currently projects revenues ofapproximately $21 million for the third quarter, including modestBA-5390 battery shipments, generating positive operating income.Management projects fourth quarter revenue to increase toapproximately $25 million, with operating margins improving in linewith revenue growth. Overall, revenues for the full year of 2005 arenow projected to be approximately $83 million, compared with previousguidance indicating that revenues would be in a range between 2004'slevel of $98.2 million and up to 10% growth.

About Ultralife Batteries, Inc.

Ultralife is a global provider of power solutions for diverseapplications. The company develops, manufactures and markets a widerange of non-rechargeable and rechargeable batteries, charging systemsand accessories for use in military, industrial and consumer portableelectronic products. Through its range of standard products andengineered solutions, Ultralife is able to provide the next generationof power systems. Industrial, retail and government customers includeGeneral Dynamics, Philips Medical Systems, General Motors, Energizer,Kidde Safety, Lowe's, Radio Shack and the national defense agencies ofthe United States, United Kingdom and Germany, among others.

Ultralife's headquarters, principal manufacturing and researchfacilities are in Newark, New York, near Rochester. Ultralife (UK)Ltd., a second manufacturing facility, is located in Abingdon,England. Both facilities are ISO-9001 certified. Detailed informationabout Ultralife is available at the Company's web site,www.ultralifebatteries.com.

This press release may contain forward-looking statements based oncurrent expectations that involve a number of risks and uncertainties.The potential risks and uncertainties that could cause actual resultsto differ materially include: worsening global economic conditions,increased competitive environment and pricing pressures, disruptionsrelated to restructuring actions and delays. Further information onthese factors and other factors that could affect Ultralife'sfinancial results is included in Ultralife's Securities and ExchangeCommission (SEC) filings, including the latest Annual Report on Form10-K.

Conference Call Information

Investors are invited to listen to a live webcast of theconference call at 10:00 a.m. ET on August 4 athttp://investor.ultralifebatteries.com. To listen to the live call,please go to the web site at least fifteen minutes early to downloadand install any necessary audio software. For those who cannot listento the live broadcast, a replay of the webcast will be availableshortly after the call at the same location for 90 days. Investors mayalso listen to a telephone replay of the conference call by dialing888-203-1112, Reservation #8744605, starting at 1:00 p.m. ET August 4until 1:00 p.m. ET August 18.

Ultralife(R) is a registered trademark of Ultralife Batteries,Inc.

ULTRALIFE BATTERIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)

----------------------------------------------------------------------

Three-Month Periods Six-Month Periods
Ended Ended

July 2, June 26, July 2, June 26,
2005 2004 2005 2004
---------- --------- --------- ----------

Revenues:
Non-rechargeable products $17,692 $26,321 $30,500 $51,643
Rechargeable products 3,262 1,691 5,390 3,065
Technology contracts 649 427 1,076 719
---------- --------- --------- ----------
Total revenues 21,603 28,439 36,966 55,427

Cost of products sold:
Non-rechargeable products 13,983 19,273 24,851 37,821
Rechargeable products 2,823 1,773 4,900 3,632
Technology contracts 592 345 987 594
---------- --------- --------- ----------
Total cost of products sold 17,398 21,391 30,738 42,047
---------- --------- --------- ----------

Gross margin 4,205 7,048 6,228 13,380

Operating expenses:
Research and development 1,059 560 1,905 1,063
Selling, general, and
administrative 2,942 2,858 5,843 5,329
---------- --------- --------- ----------
Total operating expenses 4,001 3,418 7,748 6,392
---------- --------- --------- ----------

Operating income/(loss) 204 3,630 (1,520) 6,988

Other income (expense):
Interest income 58 27 118 47
Interest expense (180) (110) (373) (235)
Write-off of UTI
investment and note
receivable - (3,951) - (3,951)
Miscellaneous (191) 32 (194) 93
---------- --------- --------- ----------
(Loss)/income before income
taxes (109) (372) (1,969) 2,942
---------- --------- --------- ----------

Income tax
provision/(benefit)-current 15 - (2) 79
Income tax provision-
deferred 1,315 - 1,022 -
---------- --------- --------- ----------
Total income taxes 1,330 - 1,020 79
---------- --------- --------- ----------

Net (loss)/income $(1,439) $(372) $(2,989) $2,863
========== ========= ========= ==========

(Loss)/earnings per share -
basic $(0.10) $(0.03) $(0.21) $0.21
========== ========= ========= ==========
(Loss)/earnings per share -
diluted $(0.10) $(0.03) $(0.21) $0.19
========== ========= ========= ==========

Weighted average shares
outstanding - basic 14,450 14,115 14,413 13,930
========== ========= ========= ==========
Weighted average shares
outstanding - diluted 14,450 14,115 14,413 15,109
========== ========= ========= ==========


ULTRALIFE BATTERIES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
(unaudited)
----------------------------------------------------------------------

July 2, December 31,
ASSETS 2005 2004
----------- -------------
Current assets:
Cash and investments $8,168 $11,529
Trade accounts receivable, net 10,066 8,585
Inventories 17,491 13,938
Prepaid expenses and other current assets 5,418 6,131
----------- -------------
Total current assets 41,143 40,183

Property and equipment 20,242 20,202

Other assets 19,668 20,749
----------- -------------
Total Assets $81,053 $81,134
=========== =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Short-term debt and current portion of
long-term debt $8,489 $2,390
Accounts payable 6,533 3,545
Other current liabilities 3,945 3,603
----------- -------------
Total current liabilities 18,967 9,538
----------- -------------
Long-term liabilities:
Long-term debt and capital lease
obligations 48 7,215
Other long-term liabilities 458 756
----------- -------------
Total long-term liabilities 506 7,971
----------- -------------
Shareholders' equity:
Common stock, par value $0.10 per share 1,522 1,502
Capital in excess of par value 128,584 127,299
Accumulated other comprehensive income (966) (605)
Accumulated deficit (65,182) (62,193)
----------- -------------
63,958 66,003
Less --Treasury stock, at cost 2,378 2,378
----------- -------------
Total shareholders' equity 61,580 63,625
----------- -------------

Total Liabilities and Shareholders' Equity $81,053 $81,134
=========== =============