hboi20200930_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

  

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 For the quarterly period ended September 30, 2020 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from               to              

 

Commission file number 001-33957

 

HARVARD BIOSCIENCE, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

04-3306140

(State or other jurisdiction of

(I.R.S. Employer

Incorporation or organization)

Identification No.)

 

84 October Hill Road, Holliston, Massachusetts 01746

(Address of Principal Executive Offices, including zip code)

 

(508) 893-8999

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

HBIO

The Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer

Non-accelerated filer ☐

Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No ☒

 

As of October 30, 2020, there were 38,975,510 shares of the registrant’s common stock issued and outstanding.

 

 

 

 

HARVARD BIOSCIENCE, INC.

 

FORM 10-Q

 

INDEX

 

 

 

 

Page

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (unaudited)

3

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)

4

 

 

 

 

Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (unaudited)

6

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28

 

 

 

Item 4.

Controls and Procedures

29

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

30

 

 

 

Item 3.

Default Upon Senior Securities

30

 

 

 

Item 4.

Mine Safety Disclosures

30

 

 

 

Item 5.

Other Information

30

 

 

 

Item 6.

Exhibits

30

 

 

 

SIGNATURES

31

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED BALANCE SHEETS 

(Unaudited, in thousands, except share and per share data) 

 

  

September 30,

  

December 31,

 
  

2020

  

2019

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $2,806  $8,335 

Accounts receivable, net

  13,879   20,704 

Inventories

  22,689   22,061 

Other current assets

  4,146   2,472 

Total current assets

  43,520   53,572 
         

Property, plant and equipment, net

  4,309   4,776 

Operating lease right-of-use assets

  7,927   8,463 

Goodwill

  57,647   57,381 

Intangible assets, net

  34,315   38,405 

Other long-term assets

  1,896   2,273 

Total assets

 $149,614   164,870 
         

Liabilities and Stockholders' Equity

        

Current liabilities:

        

Current portion of long-term debt

 $2,807  $6,900 

Current portion of operating lease liabilities

  2,190   2,424 

Accounts payable

  5,990   5,339 

Deferred revenue

  3,559   3,949 

Accrued income taxes

  749   609 

Other current liabilities

  5,953   6,091 

Total current liabilities

  21,248   25,312 
         

Long-term debt

  40,669   46,917 

Deferred tax liability

  1,906   1,974 

Operating lease liabilities

  7,692   8,224 

Other long-term liabilities

  932   749 

Total liabilities

  72,447   83,176 
         

Commitments and contingencies - Note 15

          
         

Stockholders' equity:

        

Preferred stock, par value $0.01 per share, 5,000,000 shares authorized

  -   - 

Common stock, par value $0.01 per share, 80,000,000 shares authorized; 46,719,632 and 45,933,715 shares issued and 38,974,125 and 38,188,208 shares outstanding, respectively

  438   438 

Additional paid-in-capital

  231,142   229,189 

Accumulated deficit

  (131,771)  (124,576)

Accumulated other comprehensive loss

  (11,974)  (12,689)

Treasury stock at cost, 7,745,507 common shares

  (10,668)  (10,668)

Total stockholders' equity

  77,167   81,694 

Total liabilities and stockholders' equity

 $149,614  $164,870 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited, in thousands, except share and per share data) 

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 
                 

Revenues

 $24,037  $27,418  $71,116  $85,204 

Cost of revenues

  10,542   12,439   30,783   38,116 

Gross profit

  13,495   14,979   40,333   47,088 
                 

Operating expenses:

                

Sales and marketing expenses

  4,588   5,294   14,446   17,370 

General and administrative expenses

  5,399   6,604   17,828   17,215 

Research and development expenses

  1,949   2,564   6,336   8,070 

Amortization of intangible assets

  1,377   1,422   4,258   4,289 

Impairment charges

  -   460   -   1,401 

Total operating expenses

  13,313   16,344   42,868   48,345 
                 

Operating income (loss)

  182   (1,365)  (2,535)  (1,257)
                 

Other expense:

                

Interest expense, net

  (1,205)  (1,348)  (3,737)  (4,129)

Other (expense) income, net

  (392)  39   (472)  (214)

Total other expense

  (1,597)  (1,309)  (4,209)  (4,343)
                 

Loss before income taxes

  (1,415)  (2,674)  (6,744)  (5,600)

Income tax expense (benefit)

  (317)  (54)  451   (363)

Net loss

 $(1,098) $(2,620) $(7,195) $(5,237)
                 

Loss per share:

                

Basic and diluted loss per share

 $(0.03) $(0.07) $(0.19) $(0.14)
                 

Weighted-average common shares:

                

Basic and diluted

  38,920   38,036   38,540   37,764 
                 

Comprehensive income (loss):

                

Net loss

 $(1,098) $(2,620) $(7,195) $(5,237)

Other comprehensive income/(loss):

                

Foreign currency translation adjustments

  1,638   (1,495)  681   (1,686)

Derivatives qualifying as hedges, net of tax:

                

Gain (loss) on derivative instruments designated and qualifying as cash flow hedges

  (1)  (78)  (228)  (572)

Amounts reclassified from accumulated other comprehensive loss to net loss

  93   37   262   73 

Derivatives qualifying as hedges, net of tax

  92   (41)  34   (499)

Other comprehensive (loss) income

  1,730   (1,536)  715   (2,185)

Comprehensive loss

 $632  $(4,156) $(6,480) $(7,422)

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, in thousands)

 

Three Months Ended September 30, 2020

 
                                   

Accumulated

                 
   

Number

           

Additional

           

Other

           

Total

 
   

of Shares

   

Common

   

Paid-in

   

Accumulated

   

Comprehensive

   

Treasury

   

Stockholders’

 
   

Issued

   

Stock

   

Capital

   

Deficit

   

Loss

   

Stock

   

Equity

 
                                                         

Balance at June 30, 2020

    46,414     $ 438     $ 230,675     $ (130,673 )   $ (13,704 )   $ (10,668 )   $ 76,068  

Stock option exercises

    3       -       7       -       -       -       7  

Stock purchase plan

    -       -       1       -       -       -       1  

Vesting of restricted stock units

    467       -       -       -       -       -       -  

Shares withheld for taxes

    (164 )     -       (620 )     -       -       -       (620 )

Stock compensation expense

    -       -       1,079       -       -       -       1,079  

Net loss

    -       -       -       (1,098 )     -       -       (1,098 )

Other comprehensive income

    -       -       -       -       1,730       -       1,730  

Balance at September 30, 2020

    46,720     $ 438     $ 231,142     $ (131,771 )   $ (11,974 )   $ (10,668 )   $ 77,167  

 

Three Months Ended September 30, 2019

 
                                   

Accumulated

                 
   

Number

           

Additional

           

Other

           

Total

 
   

of Shares

   

Common

   

Paid-in

   

Accumulated

   

Comprehensive

   

Treasury

   

Stockholders’

 
   

Issued

   

Stock

   

Capital

   

Deficit

   

Loss

   

Stock

   

Equity

 

Balance at June 30, 2019

    45,640     $ 436     $ 227,249     $ (122,506 )   $ (14,181 )   $ (10,668 )   $ 80,330  

Stock purchase plan

    -       -       70       -       -       -       70  

Vesting of restricted stock units

    238       -       -       -       -       -       -  

Shares withheld for taxes

    (68 )     -       (129 )     1       -       -       (128 )

Stock compensation expense

    -       -       987       -       -       -       987  

Net loss

    -       -       -       (2,620 )     -       -       (2,620 )

Other comprehensive loss

    -       -       -       -       (1,536 )     -       (1,536 )

Balance at September 30, 2019

    45,810     $ 436     $ 228,177     $ (125,125 )   $ (15,717 )   $ (10,668 )   $ 77,103  

 

Nine Months Ended September 30, 2020

 
                                   

Accumulated

                 
   

Number

           

Additional

           

Other

           

Total

 
   

of Shares

   

Common

   

Paid-in

   

Accumulated

   

Comprehensive

   

Treasury

   

Stockholders’

 
   

Issued

   

Stock

   

Capital

   

Deficit

   

Loss

   

Stock

   

Equity

 
                                                         

Balance at December 31, 2019

    45,934     $ 438     $ 229,189     $ (124,576 )   $ (12,689 )   $ (10,668 )   $ 81,694  

Stock option exercises

    10       -       26       -       -       -       26  

Stock purchase plan

    64       -       168       -       -       -       168  

Vesting of restricted stock units

    981       -       -       -       -       -       -  

Shares withheld for taxes

    (269 )     -       (882 )     -       -       -       (882 )

Stock compensation expense

    -       -       2,641       -       -       -       2,641  

Net loss

    -       -       -       (7,195 )           -       (7,195 )

Other comprehensive income

    -       -       -             715       -       715  

Balance at September 30, 2020

    46,720     $ 438     $ 231,142     $ (131,771 )   $ (11,974 )   $ (10,668 )   $ 77,167  

 

Nine Months Ended September 30, 2019

 
                                   

Accumulated

                 
   

Number

           

Additional

           

Other

           

Total

 
   

of Shares

   

Common

   

Paid-in

   

Accumulated

   

Comprehensive

   

Treasury

   

Stockholders’

 
   

Issued

   

Stock

   

Capital

   

Deficit

   

Loss

   

Stock

   

Equity

 

Balance at December 31, 2018

    45,124     $ 436     $ 226,377     $ (119,889 )   $ (13,532 )   $ (10,668 )   $ 82,724  

Stock option exercises

    3       -       -       -       -       -       -  

Stock purchase plan

    94       -       159       -       -       -       159  

Vesting of restricted stock units

    792       -       -       -       -       -       -  

Shares withheld for taxes

    (203 )     -       (552 )     1       -       -       (551 )

Stock compensation expense

    -       -       2,193       -       -       -       2,193  

Net loss

    -       -       -       (5,237 )     -       -       (5,237 )

Other comprehensive loss

    -       -       -       -       (2,185 )     -       (2,185 )

Balance at September 30, 2019

    45,810     $ 436     $ 228,177     $ (125,125 )   $ (15,717 )   $ (10,668 )   $ 77,103  

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

   

2020

   

2019

 

Cash flows from operating activities:

               

Net loss

  $ (7,195 )   $ (5,237 )

Adjustments to reconcile net loss to net cash provided by operating activities:

               

Depreciation

    1,453       1,497  

Impairment charges

    -       1,401  

Amortization of intangible assets

    4,258       4,289  

Amortization of deferred financing costs

    295       287  

Stock-based compensation expense

    2,641       2,193  

Provision for allowance for doubtful accounts

    24       394  

Other

    5       41  

Changes in operating assets and liabilities:

               

Accounts receivable

    6,805       3,805  

Inventories

    (511 )     635  

Other assets

    (878 )     (147 )

Accounts payable

    665       (2,059 )

Accrued income taxes

    102       (591 )

Other current liabilities

    (181 )     180  

Deferred revenue

    (380 )     (255 )

Other long-term liabilities

    (262 )     (608 )

Net cash provided by operating activities

    6,841       5,825  
                 

Cash flows from investing activities:

               

Additions to property, plant and equipment

    (1,088 )     (778 )

Disposition of business

    -       1,020  

Other

    -       (15 )

Net cash (used in) provided by investing activities

    (1,088 )     227  
                 

Cash flows from financing activities:

               

Proceeds from borrowings

    9,615       4,300  

Repayments of debt

    (20,251 )     (11,103 )

Taxes paid for net share settlement of equity awards

    (688 )     (392 )

Net cash used in financing activities

    (11,324 )     (7,195 )
                 

Effect of exchange rate changes on cash

    42       (185 )

Decrease in cash and cash equivalents

    (5,529 )     (1,328 )

Cash and cash equivalents at beginning of period

    8,335       8,173  

Cash and cash equivalents at end of period

  $ 2,806     $ 6,845  
                 

Supplemental disclosures of cash flow information:

               

Cash paid for interest

  $ 3,795     $ 4,226  

Cash paid for income taxes, net of refunds

  $ 410     $ 411  

 

See accompanying notes to condensed consolidated financial statements.

 

 

HARVARD BIOSCIENCE, INC.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

1.

Basis of Presentation, Risks and Uncertainties, and Summary of Significant Accounting Policies

 

Basis of Presentation

 

The unaudited consolidated financial statements of Harvard Bioscience, Inc. and its wholly-owned subsidiaries (collectively, Harvard Bioscience or the Company) as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. The December 31, 2019 consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 16, 2020.

 

In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of September 30, 2020, results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019, as applicable, have been made. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

Risks and Uncertainties 

 

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The COVID-19 pandemic has had a negative impact on the Company’s operations to date and the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. Since the COVID-19 outbreak in the United States, Europe and elsewhere, many customers, particularly academic research institutions, have been unable to maintain laboratory work which has negatively impacted, and will continue to, negatively impact our sales. Additionally, to ensure business continuity while maintaining a safe environment for employees aligned with guidance from government and health organizations, the Company transitioned the majority of its workforce to work-from-home while implementing social distancing requirements and other measures in factories to allow manufacturing and other personnel essential to production to continue work within our facilities. Business travel was significantly reduced during this period. While the Company has maintained operations under these conditions, these measures represent disruptions which can impact productivity including sales and marketing activities. Accordingly, these conditions in addition to the overall impact on the global economy have negatively impacted our results of operations and cash flows.

 

As a result of these market and economic conditions, in accordance with the guidelines set forth in ASC 350 and ASC 360, the Company performed an analysis for potential interim impairment indicators of its intangible and other long-lived assets. As of September 30, 2020, the Company concluded there were no impairments of goodwill, other indefinite-lived intangibles, or long-lived assets that resulted from triggering events due to the COVID-19 pandemic.

 

Summary of Significant Accounting Policies

 

The accounting policies underlying the accompanying unaudited consolidated financial statements are those set forth in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 16, 2020. There have been no material changes in the Company’s significant accounting policies during the three and nine months ended September 30, 2020.

 

 

 

 

2.

Recently Issued Accounting Pronouncements

 

Accounting Pronouncements to be Adopted

 

In September 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The FASB issued several ASUs after ASU 2016-13 to clarify implementation guidance and to provide transition relief for certain entities. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the impact that adopting ASU 2016-13 and related amendments will have on its consolidated financial position, results of operations and cash flows.

 

In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14), which amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The ASU is effective for public entities for fiscal years ending after December 15, 2020, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on the disclosure in the Company’s Consolidated Financial Statements.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which enhances and simplifies various aspects of the income tax accounting guidance related to intra-period tax allocation, interim period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim period tax accounting. ASU 2019-12 also amends other aspects of the guidance to reduce complexity in certain areas. ASU 2019-12 is effective for the Company on January 1, 2021. Early adoption is permitted. The Company is evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on the Company’s Consolidated Financial Statements.

 

 

 

3.

Accumulated Other Comprehensive Loss

 

Changes in each component of accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2020 are as follows:

 

  

Foreign currency

  

Derivatives

         
  

translation

  

qualifying as

  

Defined benefit

     

(in thousands)

 

adjustments

  

hedges

  

pension plans

  

Total

 

Balance at December 31, 2019

 $(13,173) $(603) $1,087  $(12,689)

Other comprehensive income (loss) before reclassifications

  681   (228)  -   453 

Amounts reclassified from AOCI into income

  -   262   -   262 

Net other comprehensive income

  681   34   -   715 

Balance at September 30, 2020

 $(12,492) $(569) $1,087  $(11,974)

 

 

 

4.

Goodwill and Intangible Assets

 

 Goodwill

 

The change in the carrying amount of goodwill for the nine months ended September 30, 2020 is as follows:

 

(in thousands)

    

Carrying amount at December 31, 2019

 $57,381 

Effect of change in currency translation

  266 

Carrying amount at September 30, 2020

 $57,647 

 

8

 

 Intangible Assets

 

      

September 30, 2020

  

December 31, 2019

 
  

Weighted

  

(in thousands)

 
  Average Life*      Accumulated          Accumulated     

Amortizable intangible assets:

 

(in years)

  

Gross

  

Amortization

  

Net

  

Gross

  

Amortization

  

Net

 

Distribution agreements/customer relationships

  9.1  $18,130  $(7,400) $10,730  $17,891  $(6,340) $11,551 

Existing technology

  5.4   41,347   (22,524)  18,823   41,222   (19,698)  21,524 

Trade names

  5.7   8,668   (4,150)  4,518   7,692   (3,497)  4,195 

Patents

  -   213   (213)  -   218   (218)  - 

Total amortizable intangible assets

     $68,358  $(34,287) $34,071  $67,023  $(29,753) $37,270 

Indefinite-lived intangible assets:

              244           1,135 

Total intangible assets

             $34,315          $38,405 

 

* Weighted average life as of September 30, 2020.

 

Effective January 1, 2020, the Company determined that $0.9 million of tradenames previously classified as indefinite-lived should be classified as amortizing due to anticipated changes in worldwide marketing programs and estimated an economic life of 4 years for this intangible asset.

 

Intangible asset amortization expense was $1.4 million for each of the three months ended September 30, 2020 and 2019, respectively and was $4.3 million for each of the nine months ended September 30, 2020 and 2019, respectively.

 

Estimated amortization expense of existing amortizable intangible assets for each of the five succeeding years and thereafter as of September 30, 2020 is as follows:

 

Year Ending December 31,

 

Amortization Expense

 
  

(in thousands)

 

2020 (remainder of year)

 $1,676 

2021

  5,703 

2022

  5,672 

2023

  5,569 

2024

  5,267 

Thereafter

  10,184 

Total

 $34,071 

 

 

 

5.

Balance Sheet Information

 

The following tables provide details of selected balance sheet items as of the periods indicated:

 

 

9

 

 Inventories

 

  

September 30, 2020

  

December 31, 2019

 
  

(in thousands)

 

Finished goods

 $5,311  $5,561 

Work in process

  3,897   3,153 

Raw materials

  13,481   13,347 

Total

 $22,689  $22,061 

 

 Other Current Liabilities:

 

  

September 30, 2020

  

December 31, 2019

 
  

(in thousands)

 

Compensation and payroll

 $2,218  $2,554 

Professional fees

  594   395 

Warranty costs

  184   252 

Customer related costs

  1,038   963 

Interest

  376   425 

Other

  1,543   1,502 

Total

 $5,953  $6,091 

 

 

 

6.

Restructuring and Other Exit Costs

 

On an ongoing basis, the Company reviews the global economy, the healthcare industry, and the markets in which it competes to identify operational efficiencies, enhance commercial capabilities and align its cost base and infrastructure with customer needs and its strategic plans. In order to realize these opportunities, the Company undertakes restructuring-type activities from time to time to transform its business.

 

The following tables summarize restructuring and other exit charges for the periods set forth below:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 

(in thousands)

 

2020

  

2019

  

2020

  

2019

 

Cost of revenues

 $-  $235  $-  $235 

Severance costs

  234   209   1,585   209 

Impairment charges

  -   460   -   460 

Other

  85   10   310   10 

Restructuring and other exit costs

 $319  $914  $1,895  $914 

 

  The following table summarizes the changes in the restructuring liabilities for the nine months ended September 30, 2020:

 

(in thousands)

 

Severance

  

Other

  

Total

 

Balance at December 31, 2019

 $364  $4  $368 

Restructuring and other exit costs

  1,585   310   1,895 

Non-cash charges

  -   (168)  (168)

Cash payments

  (1,370)  (117)  (1,487)

Balance at September 30, 2020

 $579  $29  $608 

 

10

 

During the nine months ended September 30, 2019, the Company incurred impairment charges of $1.4 million consisting of pre-restructuring plan charges of $0.9 million to write-off certain in-process research and development intangible assets, and restructuring plan charges of $0.5 million to write-off certain intangible assets as a result of a decision to discontinue a product line and cease operations in its facility in North Carolina.

 

As of September 30, 2020, the Company had a restructuring liability of $0.6 million which is payable within the next twelve months and has been included in other current liabilities in the consolidated balance sheet.

 

 

 

7.

Related Party Transactions

 

In connection with the 2014 acquisitions of Multi Channel Systems MCS GmbH (“MCS”) and Triangle BioSystems, Inc. (“TBSI”), the Company entered into facility lease agreements with the former principal owners of these companies and both became employees of the Company. The TBSI agreement expired on September 30, 2019, and the MCS agreement expires on December 31, 2024. Pursuant to these lease agreements, the Company made rent payments of approximately $0.1 million and $0.2 million for the three and nine months ended September 30, 2020, respectively, and $0.1 million and $0.3 million for the three and nine months ended September 30, 2019, respectively.

 

 

 

 

 

 

 

 

8.

Leases

 

The Company has noncancelable operating leases for offices, manufacturing facilities, warehouse space, automobiles and equipment expiring at various dates through 2024 and thereafter.

 

The components of lease expense for the three and nine months ended September 30, 2020 and 2019 are as follows:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2020

  

September 30, 2019

  

September 30, 2020

  

September 30, 2019

 
                 

Operating lease cost

 $565  $523  $1,647  $1,561 

Short term lease cost

  46   29   131   156 

Sublease income

  (26)  (104)  (158)  (309)

Total lease cost

 $585  $448  $1,620  $1,408 

 

Supplemental cash flow information related to the Company's operating leases was as follows:

 

  

Nine Months Ended

 
  

September 30, 2020

  

September 30, 2019

 
  

(in thousands)

 

Cash paid for operating lease liabilities:

 $2,041  $1,815 

Right of use assets obtained in exchange for lease obligations:

 $401  $- 

 

Supplemental balance sheet information related to the Company's operating leases was as follows:

 

  

September 30, 2020

  

December 31, 2019

 
  

(in thousands)

 

Operating lease right-of use assets

 $7,927  $8,463 
         

Current portion, operating lease liabilities

 $2,190  $2,424 

Operating lease liabilities, long term

  7,692   8,224 

Total operating lease liabilities

 $9,882  $10,648 
         

Weighted average remaining lease term (in years)

 

7.6

  

8.1

 

Weighted average discount rate

  9.2%  9.2%

 

12

 

Future minimum lease payments for operating leases, with initial or remaining terms in excess of one year at September 30, 2020, are as follows:

 

  

Operating

 
  

Leases

 
     

2021

 $2,198 

2022

  1,999 

2023

  1,944 

2024

  1,897 

2025

  1,044 

Thereafter

  5,086 

Total lease payments

  14,168 

Less interest

  (4,286)

Total operating lease liabilities

 $9,882 

 

 

 

9.

 Capital Stock and Stock-Based Compensation

 

Fourth Amended and Restated 2000 Stock Option and Incentive Plan

 

On June 11, 2020, the stockholders of the Company approved the Fourth Amended and Restated 2000 Stock Option and Incentive Plan (the “Fourth A&R Plan”), which plan authorizes the grant of stock options and stock-based awards to officers, employees, non-employee directors and other key persons of the Company and its subsidiaries. The Fourth A&R Plan modified the Company’s Third Amended and Restated 2000 Stock Option and Incentive Plan to, among other things, increase the aggregate number of shares authorized for issuance by 3,700,000 shares and reduce the fungible share ratio for deferred stock awards from 1.79 to 1.49. As of September 30, 2020, there were 3,288,084 shares available for issuance under the Fourth A&R Plan. Under the terms of the Fourth A&R Plan, each restricted stock unit or other deferred stock award that is granted decreases the shares available for grant by 1.49 shares and each restricted stock unit that is cancelled or forfeited increases the shares available for grant by 1.49 shares.

 

Stock-Based Payment Awards

 

Stock option and restricted stock unit activity for the nine months ended September 30, 2020 were as follows:

 

  

Stock Options

  

Restricted Stock Units

  

Market Condition RSUs

 
  

Stock

  

Weighted

  

Restricted

      

Market

     
  

Options

  Average   

Stock Units

  

Grant Date

  

Condition RSUs

  

Grant Date

 
  

Outstanding

  Exercise Price  

Outstanding

  

Fair Value

  

Outstanding

  Fair Value 
                         

Balance at December 31, 2019

  2,266,122  $3.93   1,590,450  $2.27   529,491  $1.67 

Granted

  894,154   2.61   1,001,113   2.73   332,622   2.98 

Exercised

  (9,994)  2.56   -   -   -   - 

Vested (RSUs)

  -   -   (748,096)  2.34   (233,056)  1.47 

Cancelled/Forfeited

  (253,419)  3.43   (89,864)  3.27   (39,286)  3.03 

Market Condition RSU - Performance Factor Adjustment

  -   -   -   -   233,055   1.47 

Balance at September 30, 2020

  2,896,863  $3.56   1,753,603  $2.46   822,826  $2.13 

 

       As of September 30, 2020, the total compensation costs related to unvested awards not yet recognized is $5.4 million and the weighted average period over which it is expected to be recognized is approximately 2.4 years.

 

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Stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019 was allocated as follows:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 
  

(in thousands)

         

Cost of revenues

 $19  $13  $43  $34 

Sales and marketing expenses

  92   39   205   68 

General and administrative expenses

  908   895   2,249   1,975 

Research and development expenses

  60   40   144   116 

Total stock-based compensation expenses

 $1,079  $987  $2,641  $2,193 

 

 The Company did not capitalize any stock-based compensation.

 

         The weighted average estimated fair value per share of stock options granted during the nine months ended September 30, 2020 and 2019 was $1.21 The following assumptions were used to estimate the fair value of the options granted during the nine months ended September 30, 2020:

 

Volatility

  58.3

%

Risk-free interest rate

  0.3

%

Expected holding period (in years)

  4.4 

Dividend Yield

  -

%

 

The weighted average estimated fair value of the Market Condition RSUs that were granted during the nine months ended September 30, 2020 was $2.98. The following assumptions were used to estimate the fair value of the Market Condition RSUs granted during the nine months ended September 30, 2020, using a Monte-Carlo valuation simulation:

 

Volatility

  80.6

%

Risk-free interest rate

  0.2

%

Correlation coefficient

  0.3 

Dividend Yield

  -

%

 

Earnings (Loss) Per Share

 

Basic earnings (loss) per share is calculated by dividing net income (loss) by the number of weighted average shares of common stock outstanding during the period. The calculation of diluted earnings per share assumes conversion of stock options, restricted stock units and Market Condition RSUs into common stock using the treasury method. The weighted average number of shares used to compute basic and diluted earnings per share consists of the following:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30 ,2020

  

September 30, 2019

  

September 30 ,2020

  

September 30, 2019

 

Basic

  38,920,041   38,036,261   38,539,703   37,764,489 

Dilutive effect of equity awards

  -   -   -   - 

Diluted

  38,920,041   38,036,261   38,539,703   37,764,489 

 

The shares used in calculating the diluted earnings per share of common stock in the above table exclude options, restricted stock units and Market Condition RSUs of approximately 5,473,292 and 4,055,076 as of September 30, 2020 and 2019, respectively, as the impact of these shares would be anti-dilutive.

 

14