UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
| | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
| | 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
HARVARD BIOSCIENCE, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | |
| (State or other jurisdiction of | (I.R.S. Employer |
| Incorporation or organization) | Identification No.) |
(Address of Principal Executive Offices, including zip code)
(
(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 |
| | | |
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.
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).
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 ☐ | |
| 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
As of October 30, 2020, there were
HARVARD BIOSCIENCE, INC.
FORM 10-Q
| Financial Statements. |
HARVARD BIOSCIENCE, INC.
(Unaudited, in thousands, except share and per share data)
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | |||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Accounts payable | ||||||||
| Deferred revenue | ||||||||
| Accrued income taxes | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Deferred tax liability | ||||||||
| Operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies - Note 15 | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, par value $ per share, shares authorized | ||||||||
| Common stock, par value $ per share, shares authorized; and shares issued and and shares outstanding, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock at cost, common shares | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
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 | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Impairment charges | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other expense: | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense (benefit) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share: | ||||||||||||||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average common shares: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income/(loss): | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Derivatives qualifying as hedges, net of tax: | ||||||||||||||||
| Gain (loss) on derivative instruments designated and qualifying as cash flow hedges | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss to net loss | ||||||||||||||||
| Derivatives qualifying as hedges, net of tax | ( | ) | ( | ) | ||||||||||||
| Other comprehensive (loss) income | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
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 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Stock option exercises |
||||||||||||||||||||||||||||
| Stock purchase plan |
||||||||||||||||||||||||||||
| Vesting of restricted stock units |
||||||||||||||||||||||||||||
| Shares withheld for taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock compensation expense |
- | |||||||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||||||
| Balance at September 30, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| 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 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Stock purchase plan |
||||||||||||||||||||||||||||
| Vesting of restricted stock units |
||||||||||||||||||||||||||||
| Shares withheld for taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock compensation expense |
- | |||||||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance at September 30, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| 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 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Stock option exercises |
||||||||||||||||||||||||||||
| Stock purchase plan |
||||||||||||||||||||||||||||
| Vesting of restricted stock units |
||||||||||||||||||||||||||||
| Shares withheld for taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock compensation expense |
- | |||||||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||||||
| Balance at September 30, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| 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 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Stock option exercises |
||||||||||||||||||||||||||||
| Stock purchase plan |
||||||||||||||||||||||||||||
| Vesting of restricted stock units |
||||||||||||||||||||||||||||
| Shares withheld for taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock compensation expense |
- | |||||||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance at September 30, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
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 |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation |
||||||||
| Impairment charges |
||||||||
| Amortization of intangible assets |
||||||||
| Amortization of deferred financing costs |
||||||||
| Stock-based compensation expense |
||||||||
| Provision for allowance for doubtful accounts |
||||||||
| Other |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
||||||||
| Inventories |
( |
) | ||||||
| Other assets |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ||||||
| Accrued income taxes |
( |
) | ||||||
| Other current liabilities |
( |
) | ||||||
| Deferred revenue |
( |
) | ( |
) | ||||
| Other long-term liabilities |
( |
) | ( |
) | ||||
| Net cash provided by operating activities |
||||||||
| Cash flows from investing activities: |
||||||||
| Additions to property, plant and equipment |
( |
) | ( |
) | ||||
| Disposition of business |
||||||||
| Other |
( |
) | ||||||
| Net cash (used in) provided by investing activities |
( |
) | ||||||
| Cash flows from financing activities: |
||||||||
| Proceeds from borrowings |
||||||||
| Repayments of debt |
( |
) | ( |
) | ||||
| Taxes paid for net share settlement of equity awards |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Effect of exchange rate changes on cash |
( |
) | ||||||
| Decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental disclosures of cash flow information: |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Cash paid for income taxes, net of refunds |
$ | $ | ||||||
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 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Other comprehensive income (loss) before reclassifications | ( | ) | ||||||||||||||
| Amounts reclassified from AOCI into income | ||||||||||||||||
| Net other comprehensive income | ||||||||||||||||
| Balance at September 30, 2020 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| 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 | $ | |||
| Effect of change in currency translation | ||||
| Carrying amount at September 30, 2020 | $ |
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 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Existing technology | ( | ) | ( | ) | ||||||||||||||||||||||||
| Trade names | ( | ) | ( | ) | ||||||||||||||||||||||||
| Patents | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Total amortizable intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Indefinite-lived intangible assets: | ||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ||||||||||||||||||||||||||
* Weighted average life as of September 30, 2020.
Effective January 1, 2020, the Company determined that $
Intangible asset amortization expense was $
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) | $ | |||
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Thereafter | ||||
| Total | $ | |||
| 5. | Balance Sheet Information |
The following tables provide details of selected balance sheet items as of the periods indicated:
Inventories:
| September 30, 2020 | December 31, 2019 | |||||||
| (in thousands) | ||||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| Total | $ | $ | ||||||
Other Current Liabilities:
| September 30, 2020 | December 31, 2019 | |||||||
| (in thousands) | ||||||||
| Compensation and payroll | $ | $ | ||||||
| Professional fees | ||||||||
| Warranty costs | ||||||||
| Customer related costs | ||||||||
| Interest | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| 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 | $ | $ | $ | $ | ||||||||||||
| Severance costs | ||||||||||||||||
| Impairment charges | ||||||||||||||||
| Other | ||||||||||||||||
| Restructuring and other exit costs | $ | $ | $ | $ | ||||||||||||
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 | $ | $ | $ | ||||||||||
| Restructuring and other exit costs | |||||||||||||
| Non-cash charges | ( | ) | ( | ) | |||||||||
| Cash payments | ( | ) | ( | ) | ( | ) | |||||||
| Balance at September 30, 2020 | $ | $ | $ | ||||||||||
During the nine months ended September 30, 2019, the Company incurred impairment charges of $
As of September 30, 2020, the Company had a restructuring liability of $
| 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 $
| 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 | $ | $ | $ | $ | ||||||||||||
| Short term lease cost | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
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: | $ | $ | ||||||
| Right of use assets obtained in exchange for lease obligations: | $ | $ | ||||||
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 | $ | $ | ||||||
| Current portion, operating lease liabilities | $ | $ | ||||||
| Operating lease liabilities, long term | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term (in years) | | | ||||||
| Weighted average discount rate | % | % | ||||||
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 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
| 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
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 | $ | $ | $ | |||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Exercised | ( | ) | - | - | - | - | ||||||||||||||||||
| Vested (RSUs) | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Cancelled/Forfeited | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Market Condition RSU - Performance Factor Adjustment | - | - | ||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | |||||||||||||||||||||
As of September 30, 2020, the total compensation costs related to unvested awards not yet recognized is $
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 | $ | $ | $ | $ | ||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Total stock-based compensation expenses | $ | $ | $ | $ | ||||||||||||
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 $
| Volatility | % | |||
| Risk-free interest rate | % | |||
| Expected holding period (in years) | ||||
| 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 $
| Volatility | % | |||
| Risk-free interest rate | % | |||
| Correlation coefficient | ||||
| 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 | ||||||||||||||||
| Dilutive effect of equity awards | ||||||||||||||||
| Diluted | ||||||||||||||||
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