hboi20210630_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 June 30, 2021

 

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 July 30, 2021, there were 40,762,931 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 June 30, 2021 and December 31, 2020 (unaudited)

3

     
 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

4

     
 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

5

     
 

Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 31, 2021 and 2020 (unaudited)

6

     
 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (unaudited)

7

     
 

Notes to Unaudited Consolidated Financial Statements

8

     

Item 2.

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

17

     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

     

Item 4.

Controls and Procedures

23

     

PART II - OTHER INFORMATION

     

Item 1.

Legal Proceedings

24

     

Item 1A.

Risk Factors

24

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

25

     

Item 3.

Default Upon Senior Securities

25

     

Item 4.

Mine Safety Disclosures

25

     

Item 5.

Other Information

25

     

Item 6.

Exhibits

25

     

SIGNATURES

26

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

  Financial Statements.

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED BALANCE SHEETS

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

 

  

June 30,

  

December 31,

 
  

2021

  

2020

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $6,237  $8,317 

Accounts receivable, net

  17,391   17,766 

Inventories

  24,709   22,262 

Other current assets

  5,220   3,355 

Total current assets

  53,557   51,700 

Property, plant and equipment, net

  3,429   3,960 

Operating lease right-of-use assets

  7,241   7,761 

Goodwill

  58,424   58,590 

Intangible assets, net

  30,510   33,151 

Other long-term assets

  810   1,092 

Total assets

 $153,971  $156,254 

Liabilities and Stockholders' Equity

        

Current liabilities:

        

Current portion of long-term debt

 $2,220  $1,721 

Current portion of operating lease liabilities

  2,061   2,111 

Accounts payable

  7,489   5,972 

Deferred revenue

  3,675   3,771 

Other current liabilities

  7,823   7,478 

Total current liabilities

  23,268   21,053 

Long-term debt

  40,921   46,286 

Deferred tax liability

  1,572   1,899 

Operating lease liabilities

  6,971   7,481 

Other long-term liabilities

  2,538   2,854 

Total liabilities

  75,270   79,573 

Commitments and contingencies - Note 13

          

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; 40,485,586 and 47,152,587 shares issued and 40,485,586 and 39,407,080 shares outstanding, respectively

  451   444 

Additional paid-in-capital

  225,583   232,357 

Accumulated deficit

  (133,465)  (132,386)

Accumulated other comprehensive loss

  (13,868)  (13,066)

Treasury stock at cost, -0- and 7,745,507 common shares, respectively

  -   (10,668)

Total stockholders' equity

  78,701   76,681 

Total liabilities and stockholders' equity

 $153,971  $156,254 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Revenues

 $29,197  $23,308  $56,186  $47,079 

Cost of revenues

  12,844   9,452   24,402   20,241 

Gross profit

  16,353   13,856   31,784   26,838 
                 

Sales and marketing expenses

  5,730   4,279   11,116   9,858 

General and administrative expenses

  6,399   5,670   12,732   12,429 

Research and development expenses

  2,701   1,897   5,188   4,387 

Amortization of intangible assets

  1,465   1,454   2,929   2,881 

Total operating expenses

  16,295   13,300   31,965   29,555 
                 

Operating income (loss)

  58   556   (181)  (2,717)
                 

Other expense:

                

Interest expense

  (377)  (1,233)  (788)  (2,532)

Other expense, net

  (313)  (191)  (347)  (80)

Total other expense

  (690)  (1,424)  (1,135)  (2,612)
                 

Loss before income taxes

  (632)  (868)  (1,316)  (5,329)

Income tax (benefit) expense

  (222)  713   (237)  768 

Net loss

 $(410) $(1,581) $(1,079) $(6,097)
                 

Loss per share:

                

Basic and diluted loss per common share

 $(0.01) $(0.04) $(0.03) $(0.16)
                 

Weighted-average common shares:

                

Basic and diluted

  40,152   38,468   39,960   38,389 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

Net loss

  $ (410 )   $ (1,581 )   $ (1,079 )   $ (6,097 )

Other comprehensive income (loss):

                               

Foreign currency translation adjustments

    523       619       (802 )     (957 )

Derivatives qualifying as hedges, net of tax

    -       86       -       (58 )

Other comprehensive income (loss)

    523       705       (802 )     (1,015 )
    $ 113     $ (876 )   $ (1,881 )   $ (7,112 )

 

See accompanying notes to consolidated financial statements

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, in thousands)

 

                                   

Accumulated

                 

Three Months Ended

 

Number

           

Additional

           

Other

           

Total

 

June 30, 2021

 

of Shares

   

Common

   

Paid-in

   

Accumulated

   

Comprehensive

   

Treasury

   

Stockholders

 
   

Issued

   

Stock

   

Capital

   

Deficit

   

Loss

   

Stock

   

Equity

 
                                                         

Balance at March 31, 2021

    47,696     $ 448     $ 234,781     $ (133,055 )   $ (14,391 )   $ (10,668 )   $ 77,115  

Retirement of treasury stock

    (7,746 )     -       (10,668 )     -       -       10,668       -  

Stock option exercises

    186       3       630       -       -       -       633  

Stock purchase plan

    56       -       202       -       -       -       202  

Vesting of restricted stock units

    363       -       -       -       -       -       -  

Shares withheld for taxes

    (69 )     -       (526 )     -       -       -       (526 )

Stock compensation expense

    -       -       1,164       -       -       -       1,164  

Net loss

    -       -       -       (410 )     -       -       (410 )

Other comprehensive income

    -       -       -       -       523       -       523  

Balance at June 30, 2021

    40,486     $ 451     $ 225,583     $ (133,465 )   $ (13,868 )   $ -     $ 78,701  
                                                         
                                   

Accumulated

                 

Three Months Ended

 

Number

           

Additional

           

Other

           

Total

 

June 30, 2020

 

of Shares

   

Common

   

Paid-in

   

Accumulated

   

Comprehensive

   

Treasury

   

Stockholders

 
   

Issued

   

Stock

   

Capital

   

Deficit

   

Loss

   

Stock

   

Equity

 

Balance at March 31, 2020

    46,121     $ 438     $ 229,740     $ (129,092 )   $ (14,409 )   $ (10,668 )   $ 76,009  

Stock option exercises

    7       -       19       -       -       -       19  

Stock purchase plan

    64       -       167       -       -       -       167  

Vesting of restricted stock units

    246       -       -       -       -       -       -  

Shares withheld for taxes

    (24 )     -       (20 )     -       -       -       (20 )

Stock compensation expense

    -       -       769       -       -       -       769  

Net loss

    -       -       -       (1,581 )     -       -       (1,581 )

Other comprehensive income

    -       -       -       -       705       -       705  

Balance at June 30, 2020

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

Accumulated

                 

Six Months Ended

 

Number

           

Additional

           

Other

           

Total

 

June 30, 2021

 

of Shares

   

Common

   

Paid-in

   

Accumulated

   

Comprehensive

   

Treasury

   

Stockholders

 
   

Issued

   

Stock

   

Capital

   

Deficit

   

Loss

   

Stock

   

Equity

 

Balance at December 31, 2020

    47,153     $ 444       232,357     $ (132,386 )   $ (13,066 )   $ (10,668 )   $ 76,681  

Retirement of treasury stock

    (7,746 )     -       (10,668 )     -       -       10,668       -  

Stock option exercises

    497       7       2,550       -       -       -       2,557  

Stock purchase plan

    56       -       202       -       -       -       202  

Vesting of restricted stock units

    703       -       -       -       -       -       -  

Shares withheld for taxes

    (177 )     -       (990 )     -       -       -       (990 )

Stock compensation expense

    -       -       2,132       -       -       -       2,132  

Net loss

    -       -       -       (1,079 )     -       -       (1,079 )

Other comprehensive loss

    -       -       -       -       (802 )     -       (802 )

Balance at June 30, 2021

    40,486     $ 451     $ 225,583     $ (133,465 )   $ (13,868 )   $ -     $ 78,701  
                                                         
                                   

Accumulated

                 

Six Months Ended

 

Number

           

Additional

           

Other

           

Total

 

June 30, 2020

 

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

    7       -       19       -       -       -       19  

Stock purchase plan

    64       -       167       -       -       -       167  

Vesting of restricted stock units

    514       -       -       -       -       -       -  

Shares withheld for taxes

    (105 )     -       (262 )     -       -       -       (262 )

Stock compensation expense

    -       -       1,562       -       -       -       1,562  

Net loss

    -       -       -       (6,097 )     -       -       (6,097 )

Other comprehensive loss

    -       -       -       -       (1,015 )     -       (1,015 )

Balance at June 30, 2020

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

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

  

Six Months Ended June 30,

 
  

2021

  

2020

 

Cash flows from operating activities:

        

Net loss

 $(1,079) $(6,097)

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

        

Depreciation

  891   982 

Amortization of intangible assets

  2,929   2,881 

Amortization of deferred financing costs

  140   197 

Stock-based compensation expense

  2,132   1,562 

Deferred income taxes and other

  (303)  423 

Changes in operating assets and liabilities:

        

Accounts receivable

  323   5,855 

Inventories

  (2,526)  (1,374)

Other assets

  (1,517)  (601)

Accounts payable and accrued expenses

  1,629   1,925 

Deferred revenue

  (100)  (276)

Other liabilities

  (714)  (233)

Net cash provided by operating activities

  1,805   5,244 
         

Cash flows from investing activities:

        

Additions to property, plant and equipment

  (357)  (524)

Additions to intangible assets

  (150)  - 

Net cash used in investing activities

  (507)  (524)
         

Cash flows from financing activities:

        

Proceeds from issuance of debt

  -   6,115 

Repayments of debt

  (5,000)  (16,411)

Debt issuance costs

  (102)  - 

Proceeds from exercise of stock options

  2,759   187 

Taxes paid related to net share settlement of equity awards

  (990)  (262)

Net cash used in financing activities

  (3,333)  (10,371)
         

Effect of exchange rate changes on cash

  (45)  (55)

Decrease in cash and cash equivalents

  (2,080)  (5,706)

Cash and cash equivalents at beginning of period

  8,317   8,335 

Cash and cash equivalents at end of period

 $6,237  $2,629 
         

Supplemental disclosures of cash flow information:

     

Cash paid for interest

 $834  $2,549 

Cash paid for income taxes, net of refunds

 $168  $98 

 

See accompanying notes to consolidated financial statements.

 

 

HARVARD BIOSCIENCE, INC.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.

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

 

Basis of Presentation and Summary of Significant Accounting Policies

 

The unaudited consolidated financial statements of Harvard Bioscience, Inc. and its wholly-owned subsidiaries (collectively, Harvard Bioscience or the Company) as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020, 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, 2020 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, 2020.

 

In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of June 30, 2021, results of operations and comprehensive income (loss) and cash flows for the three months and six months ended June 30, 2021 and 2020, as applicable, have been made. The results of operations for the three months and six months ended June 30, 2021 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

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, 2020. There have been no material changes in the Company’s significant accounting policies during the three and six months ended June 30, 2021.

 

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 global outbreak of COVID-19, many customers, particularly academic research institutions, have reduced laboratory work which has negatively impacted, and will continue to negatively impact, the Company’s sales. While many of the Company's customers, including academic labs, have reopened, a significant number of them remained closed or at significantly lower capacity levels through the second quarter of 2021. Additionally, to ensure business continuity while maintaining a safe environment for employees aligned with guidance from government and health organizations, the Company transitioned a significant portion of its workforce to work-from-home while implementing social distancing requirements and other measures to allow manufacturing and other personnel essential to production to continue work within the Company's facilities. Business travel was significantly reduced during this period. While a portion of the workforce has returned to in-office work and travel is less restricted, the Company continued to have restrictions which represent disruptions which can impact productivity including sales and marketing activities.

 

The global supply chain has experienced significant disruptions during the first half of 2021 due to electronic component and labor shortages and other macroeconomic factors which have emerged since the onset of COVID-19, leading to increased cost of freight and purchased materials, while also delaying customer shipments. Accordingly, these conditions in addition to the overall impact on the global economy have negatively impacted results of operations and cash flows.

 

 

2.

Recently Issued Accounting Pronouncements

 

Accounting Pronouncements Adopted

 

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. The Company adopted the provisions of ASU 2019-12 effective on January 1, 2021. The adoption of this new accounting guidance did not have a material impact on the Company’s consolidated financial statements.

 

 

Accounting Pronouncements to be Adopted

 

In September 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial InstrumentsCredit 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.

 

 

3.

Goodwill and Intangible Assets

 

Goodwill

 

The change in the carrying amount of goodwill for the six months ended June 30, 2021 is as follows:

 

(in thousands)

    

Carrying amount at December 31, 2020

 $58,590 

Effect of change in currency translation

  (166)

Carrying amount at June 30, 2021

 $58,424 

 

Intangible Assets

 

      

June 30, 2021

  

December 31, 2020

 
  

Weighted

  

(in thousands)

 

Amortizable intangible assets:

 

Average

Life*

  

Gross

  

Accumulated

Amortization

  

Net

  

Gross

  

Accumulated

Amortization

  

Net

 

Distribution agreements/customer relationships

  8.4  $18,039  $(8,267) $9,772  $18,237  $(7,746) $10,491 

Existing technology

  4.7   39,032   (22,403)  16,629   38,761   (20,674)  18,087 

Trade names and patents

  4.9   8,617   (4,756)  3,861   8,681   (4,362)  4,319 

Total amortizable intangible assets

     $65,688  $(35,426) $30,262  $65,679  $(32,782) $32,897 

Indefinite-lived intangible assets:

              248           254 

Total intangible assets

             $30,510          $33,151

 

 

* Weighted average life in years as of June 30, 2021

 

Intangible asset amortization expense was $1.5 million for each of the three months ended June 30, 2021 and 2020, respectively, and was $2.9 million for each of the six months ended June 30, 2021 and 2020, respectively. Estimated amortization expense of existing amortizable intangible assets for each of the five succeeding years and thereafter as of June 30, 2021 is as follows:

 

  

Amortization

 

Year Ending December 31,

 

Expense

 
  

(in thousands)

 

2021 (remainder of year)

 $2,923 

2022

  5,814 

2023

  5,704 

2024

  5,398 

2025

  4,280 

Thereafter

  6,143 

Total

 $30,262 

 

 

 

 

 

4.

Balance Sheet Information

 

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

 

Inventories:

 

June 30,

   

December 31,

 

(in thousands)

 

2021

   

2020

 

Finished goods

  $ 5,434     $ 4,938  

Work in process

    3,758       3,513  

Raw materials

    15,517       13,811  

Total

  $ 24,709     $ 22,262  

 

Other Current Liabilities:

 

June 30,

   

December 31,

 

(in thousands)

 

2021

   

2020

 

Compensation

  $ 3,409       3,715  

Professional fees

    815       432  

Warranty costs

    237       185  

Customer related costs

    1,120       1,093  

Accrued income taxes

    544       286  

Other

    1,698       1,767  

Total

  $ 7,823     $ 7,478  

 

 

5.

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 table summarizes the changes in the restructuring liabilities for the six months ended June 30, 2021:

 

(in thousands)

 

Severance

  

Other

  

Total

 

Balance at December 31, 2020

 $270  $18  $288 

Restructuring and other exit costs

  1,145   79   1,224 

Non-cash charges

  -   (41)  (41)

Cash payments

  (882)  (45)  (927)

Balance at June 30, 2021

 $533  $11  $544 

 

The restructuring liability has been included in other current liabilities in the consolidated balance sheet and is payable within the next twelve months. Restructuring costs were $0.7 million for each of the three months ended June 30, 2021 and 2020, respectively, and were $1.2 million and $1.6 million for the six months ended June 30, 2021 and 2020, respectively. Substantially all of these restructuring costs have been included as a component of general and administrative expenses.

 

 

6.

Related Party Transactions

 

In connection with the 2014 acquisitions of Multi Channel Systems MCS GmbH (“MCS”), the Company entered into a facility lease agreement with the former principal owner of MCS who became an employee of the Company at the time of the acquisition and subsequently retired in 2021. The MCS agreement expires on December 31, 2024. Pursuant to this lease agreement, the Company made rent payments of $0.1 million for each of the three months ended June 30, 2021 and 2020 respectively, and $0.2 million for each of the six months ended June 30, 2021 and 2020, respectively.

 

 

 

 

7.

Leases

 

The Company has noncancelable operating leases for offices, manufacturing facilities, warehouse space, automobiles and equipment expiring at various dates through 2030.

 

The components of lease expense for the three and six months ended June 30, 2021 and 2020 are as follows:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Operating lease cost

 $506  $544  $1,023  $1,079 

Short term lease cost

  55   43   101   85 

Sublease income

  (26)  (25)  (51)  (132)

Total lease cost

 $535  $562  $1,073  $1,032 

 

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

 

  

Six Months Ended June 30,

 

(in thousands)

 

2021

  

2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 $1,061  $1,381 

Right of use assets obtained in exchange for lease obligations:

 $400  $387 

 

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

 

(in thousands)

 

June 30, 2021

  

December 31, 2020

 

Operating lease right-of use assets

 $7,241  $7,761 
         

Current portion, operating lease liabilities

 $2,061  $2,111 

Operating lease liabilities, long term

  6,971   7,481 

Total operating lease liabilities

 $9,032  $9,592 
         

Weighted average remaining lease term (years)

  7.1   7.4 

Weighted average discount rate

  9.3%  9.3%

 

Maturities of operating lease liabilities at June 30, 2021 were as follows:

 

(in thousands)

    

2021 (remainder of year)

 $1,053 

2022

  2,044 

2023

  1,999 

2024

  1,732 

2025

  1,001 

Thereafter

  4,854 

Total lease payments

  12,683 

Less imputed interest

  (3,651)

Total operating lease liabilities

 $9,032 

 

 

 

 

8.

Capital Stock and Stock-Based Compensation

 

Retirement of Treasury Stock

 

In May, 2021, the Company retired the 7,745,507 shares of common stock held by the Company as treasury shares and returned these shares to the status of authorized and unissued shares of common stock.

 

Stock-Based Payment Awards

 

Activity under the Company’s incentive plan for the six months ended June 30, 2021 was as follows:

 

  

Stock Options

  

Restricted Stock Units

  

Market Condition RSU's

 
      

Weighted

                 
  

Stock

  

Average

  

Restricted

      

Market

     
  

Options

  

Exercise

  

Stock Units

  

Grant Date

  

Condition RSU's

  

Grant Date

 
  

Outstanding

  

Price

  

Outstanding

  

Fair Value

  

Outstanding

  

Fair Value

 

Balance at December 31, 2020

  2,637,339  $3.51   1,560,461  $2.44   813,031   2.12 

Granted

  -   -   793,968   4.65   293,509   4.61 

Exercised

  (496,792)  3.76   -   -   -   - 

Vested (RSUs)

  -   -   (539,417)  2.83   (163,218)  2.98 

Cancelled/Forfeited

  (609,310)  4.28   (56,642)  3.64   (6,179)  2.98 

Performance Factor Adjustment

  -   -   -   -   163,216   2.98 

Balance at June 30, 2021

  1,531,237  $3.13   1,758,370  $3.28   1,100,359  $2.78 

 

Stock-based compensation expense related to stock options, restricted stock units, Market Condition RSU’s and the ESPP for the three and six months ended June 30, 2021 and 2020 was allocated as follows:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Cost of revenues

 $31  $14  $51  $24 

Sales and marketing expenses

  131   62   224   113 

General and administrative expenses

  969   645   1,803   1,341 

Research and development expenses

  33   48   54   84 

Total stock-based compensation expenses

 $1,164  $769  $2,132  $1,562 

 

As of June 30, 2021, the total compensation costs related to unvested awards not yet recognized is $7.0 million and the weighted average period over which it is expected to be recognized is approximately 2.2 years. The Company did not capitalize any stock-based compensation.

 

The weighted average estimated fair value of the Market Condition RSUs that were granted during the six months ended June 30, 2021 was $4.61 per unit. The following assumptions were used to estimate the fair value of the Market Condition RSUs granted during the six months ended June 30, 2021 using a Monte-Carlo valuation simulation:

 

  

2021

 

Volatility

  65.1

%

Risk-free interest rate

  0.3

%

Correlation coefficient

  35.7

%

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 June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Basic

  40,152   38,468   39,960   38,389 

Dilutive effect of equity awards

  -   -   -   - 

Diluted

  40,152   38,468   39,960   38,389 

 

The Company has excluded from the shares used in calculating the diluted earnings per common share options, restricted stock units and Market Condition RSUs totaling 4,389,966 and 5,727,716 as of June 30, 2021 and 2020 respectively, as the impact of these shares would be anti-dilutive.

 

 

9.

Long-Term Debt

 

As of June 30, 2021 and December 31, 2020, the Company’s borrowings were comprised of:

 

  

June 30,

  

December 31,

 

(in thousands)

 

2021

  

2020

 

Long-term debt:

        

Term loan

 $39,000  $40,000 

Revolving line

  5,400   9,400 

Less: unamortized deferred financing costs

  (1,259)  (1,393)

Total debt

  43,141   48,007 

Less: current installments

  (2,500)  (2,000)

Current unamortized deferred financing costs

  280   279 

Long-term debt

 $40,921  $46,286 

 

On December 22, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) with Citizens Bank, N.A., Wells Fargo Bank, National Association, and Silicon Valley Bank (together, the “Lenders”). The Credit Agreement provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility (including a $10.0 million sub-facility for the issuance of letters of credit and a $10.0 million swingline loan sub facility) (collectively, the “Credit Facility”). The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s direct, domestic wholly-owned subsidiaries; none of the Company’s direct or indirect foreign subsidiaries has guaranteed the Credit Facility. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of Harvard Bioscience, Inc. and each guarantor (including all or a portion of the equity interests in certain of the Company’s domestic and foreign subsidiaries). The Credit Facility matures on December 22, 2025. Issuance costs of $1.4 million are amortized over the contractual term to maturity date on a straight-line basis, which approximates the effective interest method. As of June 30, 2021, available borrowing capacity under the revolving line of credit was $19.6 million. The Credit Facility replaced the Company’s prior credit facility with Cerberus Business Finance, LLC (the “Prior Credit Facility”), which was repaid with borrowings under the Credit Facility.

 

Borrowings under the Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the Credit Agreement (a “LIBOR Loan”), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”). LIBOR interest under the Credit Agreement is subject to applicable market rates and a floor of 0.50 %. The alternative base rate is based on the Citizens Bank prime rate or the federal funds effective rate of the Federal Reserve Bank of New York and is subject to a floor of 1.0%. The applicable interest rate margin varies from 2.0% per annum to 3.25% per annum for LIBOR Loans, and from 1.5% per annum to 3.0% per annum for ABR Loans, in each case depending on the Company’s consolidated leverage ratio and is determined in accordance with a pricing grid set forth in the Credit Agreement. Interest on LIBOR Loans is payable in arrears on the last day of each applicable interest period, and interest on ABR Loans is payable in arrears at the end of each calendar quarter. There are no prepayment penalties in the event the Company elects to prepay and terminate the Credit Facility prior to its scheduled maturity date, subject to LIBOR breakage and redeployment costs in certain circumstances.

 

 

As of June 30, 2021, the weighted average interest rate on the Credit Agreement borrowings was 3.0%.The effective interest rate for the three months ended June 30, 2021 and 2020 was 3.4% and 9.8%, respectively. The effective interest rate for the six months ended June 30, 2021 and 2020 was 3.3% and 9.6%, respectively.

 

Commencing on March 31, 2021, the outstanding term loans amortizes in quarterly installments of $0.5 million per quarter on such date and during each of the next three quarters thereafter, $0.75 million per quarter during the next eight quarters thereafter and $1.0 million per quarter thereafter, with a balloon payment at maturity. Furthermore, within ninety days after the end of the Company’s fiscal year ended December 31, 2021 and for each fiscal year thereafter, the term loans may be permanently reduced pursuant to certain mandatory prepayment events including an annual “excess cash flow sweep” of 50% of the consolidated excess cash flow, as defined in the agreement; provided that, in any fiscal year, any voluntary prepayments of the term loans shall be credited against the Company’s “excess cash flow” prepayment obligations on a dollar-for-dollar basis for such fiscal year. Amounts outstanding under the revolving credit facility can be repaid at any time but are due in full at maturity.

 

The Credit Agreement includes customary affirmative, negative, and financial covenants binding on the Company. The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments, sell assets and pay dividends on its capital stock. The financial covenants include a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio. The Credit Agreement also includes customary events of default.

 

The carrying value of the debt approximates fair value because the interest rate under the obligation approximates market rates of interest available to the Company for similar instruments.

 

 

10.

Derivatives

 

The Company monitors interest rate risk attributable to both its outstanding and forecasted debt obligations by the use of cash flow sensitivity analysis which estimates the expected impact of changes in interest rates on the Company’s future cash flows.

 

On January 31, 2018, the Company entered into an interest rate swap contract with a notional amount of $36.0 million and a termination date of January 1, 2023. This swap contract, which converted specific variable-rate debt into fixed-rate debt and fixed the LIBOR rate associated with a portion of the term loan under the Prior Credit Facility at 2.72% was cancelled on December 22, 2020, in connection with the new Credit Agreement as described in Note 9. The Company structured this interest rate swaps to be fully effective in accordance with ASC 815 “Derivatives and Hedging”, and therefore changes in the fair value of the swap offset the variability of cash flows associated with the variable-rate, long-term debt obligations and were reported in accumulated other comprehensive income (AOCI). These amounts subsequently were reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings.

 

The following table summarizes the effect of derivatives designated as cash flow hedging instruments and their classification within comprehensive loss for the three and six months ended June 30, 2020:

 

  

Three Months Ended

  

Six Months Ended

 

(in thousands)

 

June 30, 2020

  

June 30, 2020

 

Amount of loss recognized in OCT on derivatives (effective portion)

 $(11) $(227)

Amounts reclassified from accumulated other comprehensive loss

        

to interest expense

  97   169 

Total

 $86  $(58)

 

 

 

11.

Revenues

 

The following tables represent a disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2021 and 2020:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Instruments, equipment, software and accessories

 $27,992  $22,069  $53,819  $45,006 

Service, maintenance and warranty contracts

  1,205   1,239   2,367   2,073 

Total revenues

 $29,197  $23,308  $56,186  $47,079 

 

The following tables represent a disaggregation of revenue by geographic destination for the three and six months ended June 30, 2021 and 2020:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

United States

 $13,151  $9,341  $24,328  $19,271 

Europe

  8,026   6,340   16,615   13,983 

Asia

  5,695   5,554   11,233   9,976 

Rest of the world

  2,325   2,073   4,010   3,849 

Total revenues

 $29,197  $23,308  $56,186  $47,079 

 

No customer accounted for more than 10% of revenues for the three and six months ended June 30, 2021 and 2020.

 

 

Deferred revenue

 

Changes in deferred revenue from service contracts and advance payments from customers were as follows:

 

  

Three Months Ended June 30, 2021

 

(in thousands)

 

Service Contracts

  

Customer Advances

  

Total

 

Balance at March 31, 2021

 $1,712  $1,925  $3,637 

Deferral of revenue

  988   322   1,310 

Recognition of deferred revenue

  (846)  (433)  (1,279)

Effect of foreign currency translation

  7   -   7 

Balance at June 30, 2021

 $1,861  $1,814  $3,675 
             
  

Three Months Ended June 30, 2020

 

(in thousands)

 

Service Contracts

  

Customer Advances

  

Total

 

Balance at March 31, 2020

 $1,410  $2,263  $3,673 

Deferral of revenue

  1,177   121   1,298 

Recognition of deferred revenue

  (1,144)  (145)  (1,289)

Effect of foreign currency translation

  (30)  -   (30)

Balance at June 30, 2020

 $1,413  $2,239  $3,652 

 

 

  

Six Months Ended June 30, 2021

 

(in thousands)

 

Service Contracts

  

Customer Advances

  

Total

 

Balance at December 31, 2020

 $1,629  $2,142  $3,771 

Deferral of revenue

  2,239   663   2,902 

Recognition of deferred revenue

  (2,011)  (991)  (3,002)

Effect of foreign currency translation

  4   -   4 

Balance at June 30, 2021

 $1,861  $1,814  $3,675 
             
  

Six Months Ended June 30, 2020

 

(in thousands)