Ultralife Batteries Reports First Quarter Results; Operating Income Increases $2.0 Million on $3.0 Million Revenue Gain

Revenues for the quarter rose $3.0 million over last year, mainlyreflecting higher sales of batteries to commercial customers,particularly in the automotive telematics market, and modestly highersales of a variety of batteries to military customers. As a percentageof revenues, gross margins amounted to 22% compared with 13% in thesame quarter last year, as sales volumes grew and manufacturingefficiencies improved. Operating expenses were $3.7 million,consistent with the comparable period a year ago. Net income for thefirst quarter of 2006 was $0.1 million, or $0.01 per diluted commonshare, compared to a net loss of $1.6 million, or an $0.11 loss perdiluted common share, for the first quarter of 2005.

"Consistent with our preliminary assessment of the first quarterresults, constraints on BA-5390 shipments to the U.S. militaryimpinged on revenue growth for the quarter; however, the manufacturingefficiency improvements and cost controls we implemented in the latterhalf of 2005 produced positive operating income," said John D.Kavazanjian, president and chief executive officer. "Since the quarterclose, we are preparing to accelerate shipments against existingorders for the BA-5390A, the only qualified battery with astate-of-charge indicator (SOCI) currently in production, in responseto a request from the Department of Defense, which intends to beginfielding them as soon as practicable. This request reinforces ourbelief that demand for the BA-5390A is strong and will escalate as theU.S. military continues to convert to lithium-manganese dioxidetechnology over the course of the year, resulting in further marketshare gains for Ultralife.

"As we enter the second half of the year, we are well positionedto leverage our cost infrastructure as revenues grow. Growth incommercial markets is helping us lessen our dependence on BA-5390battery sales and our prospects for continued growth from a broadeningcustomer base in our target markets remain strong."

Outlook

Management expects revenues in the second quarter of 2006 to beapproximately $20 million, with upside dependent in part uponadditional military orders. Management anticipates operating incomewill be in the range of $0.5 million in the second quarter, including$0.3 million of non-cash stock-based compensation expense.

For the full year of 2006, the company reiterates its outlook forat least $90 million, with significant growth in the second half ofthe year related to growth in military sales, particularly BA-5390s.Growth above $90 million will continue to depend on a number offactors, including the pace at which the military transitions tomanganese dioxide technology, and further expansion in commercialmarkets.

About Ultralife Batteries, Inc.

Ultralife is a global provider of high-energy power systems fordiverse applications. The company develops, manufactures and markets awide range of non-rechargeable and rechargeable batteries, chargingsystems and accessories for use in military, industrial and consumerportable electronic products. Through its portfolio of standardproducts and engineered solutions, Ultralife is at the forefront ofproviding the next generation of power systems. Industrial, retail andgovernment customers include General Dynamics, Philips MedicalSystems, General Motors, Energizer, Kidde Safety, Lowe's, Radio Shackand the national defense agencies of the United States, UnitedKingdom, Germany and Australia, among others.

Ultralife's headquarters, principal manufacturing and researchfacilities are in Newark, New York, near Rochester. UltralifeBatteries (UK) Ltd., a second manufacturing facility, is located inAbingdon, England. Both facilities are ISO-9001 certified. Detailedinformation on 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 May 4, 2006 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 #8704306, during the period starting at 1:00p.m. ET May 4 and ending at 1:00 p.m. ET May 11, 2006.

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

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

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Three-Month Periods Ended
April 1, April 2,
2006 2005
---- ----
Revenues:
Non-rechargeable products $ 15,645 $ 12,808
Rechargeable products 2,565 2,128
Technology contracts 109 427
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Total revenues 18,319 15,363

Cost of products sold:
Non-rechargeable products 12,323 10,868
Rechargeable products 1,869 2,077
Technology contracts 157 395
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Total cost of products sold 14,349 13,340
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Gross margin 3,970 2,023

Operating expenses:
Research and development 960 846
Selling, general, and administrative 2,782 2,901
----------- -----------
Total operating expenses 3,742 3,747
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Operating income /(loss) 228 (1,724)

Other income (expense):
Interest income 45 60
Interest expense (205) (193)
Gain on insurance settlement 148 -
Miscellaneous 8 (3)
----------- -----------
Income/(loss) before income taxes 224 (1,860)
----------- -----------

Income tax provision/(benefit)-current 4 (17)
Income tax provision/(benefit)-deferred 80 (293)
----------- -----------
Total income taxes 84 (310)
----------- -----------

Net Income/(Loss) $ 140 $ (1,550)
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Earnings/(Loss) per share - basic $ 0.01 $ (0.11)
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Earnings/(Loss) per share - diluted $ 0.01 $ (0.11)
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Weighted average shares outstanding - basic 14,756 14,376
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Weighted average shares outstanding -
diluted 15,122 14,376
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ULTRALIFE BATTERIES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
(unaudited)
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April 1, December 31,
2006 2005
---- ----
ASSETS
Current assets:
Cash and investments $ 3,491 $ 3,214
Trade accounts receivable, net 12,869 10,965
Inventories 18,868 19,446
Prepaid expenses and other current assets 4,189 5,737
----------- ------------
Total current assets 39,417 39,362

Property and equipment 19,602 19,931

Other assets 21,412 21,464
----------- ------------

Total Assets $ 80,431 $ 80,757
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LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Short-term debt and current portion of
long-term debt $ 7,184 $ 7,715
Accounts payable 5,336 5,218
Other current liabilities 4,765 5,450
----------- ------------
Total current liabilities 17,285 18,383
----------- ------------
Long-term liabilities:
Long-term debt and capital lease obligations 25 25
Other long-term liabilities 282 242
----------- ------------
Total long-term liabilities 307 267
----------- ------------
Shareholders' equity:
Common stock, par value $0.10 per share 1,551 1,547
Capital in excess of par value 131,045 130,530
Accumulated other comprehensive income (981) (1,054)
Accumulated deficit (66,398) (66,538)
----------- ------------
65,217 64,485
Less --Treasury stock, at cost 2,378 2,378
----------- ------------
Total shareholders' equity 62,839 62,107
----------- ------------

Total Liabilities and Shareholders' Equity $ 80,431 $ 80,757
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