hboi20210930_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, 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 November 1, 2021, there were 40,810,515 shares of the registrant’s common stock issued and outstanding.

 

 

1

 

 

HARVARD BIOSCIENCE, INC.

 

FORM 10-Q

 

INDEX

 
 

Page

PART I - FINANCIAL INFORMATION

 
   

Item 1.     Financial Statements

3

   

Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited)

3

   

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

4

   

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

5

   

Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)

6

   

Consolidated Statements of Cash Flows for the Nine Months Ended September 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

                                                                                                                                                                                                        

2

 

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,

 
  

2021

  

2020

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $5,548  $8,317 

Accounts receivable, net

  18,340   17,766 

Inventories

  25,978   22,262 

Other current assets

  5,820   3,355 

Total current assets

  55,686   51,700 

Property, plant and equipment, net

  3,453   3,960 

Operating lease right-of-use assets

  7,081   7,761 

Goodwill

  57,987   58,590 

Intangible assets, net

  28,941   33,151 

Other long-term assets

  724   1,092 

Total assets

 $153,872  $156,254 

Liabilities and Stockholders' Equity

        

Current liabilities:

        

Current portion of long-term debt

 $2,470  $1,721 

Current portion of operating lease liabilities

  2,127   2,111 

Accounts payable

  5,616   5,972 

Deferred revenue

  3,623   3,771 

Other current liabilities

  9,670   7,478 

Total current liabilities

  23,506   21,053 

Long-term debt

  42,740   46,286 

Deferred tax liability

  1,549   1,899 

Operating lease liabilities

  6,716   7,481 

Other long-term liabilities

  2,474   2,854 

Total liabilities

  76,985   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; 40,809,018 and 47,152,587 shares issued and 40,809,018 and 39,407,080 shares outstanding, respectively

  451   444 

Additional paid-in-capital

  225,074   232,357 

Accumulated deficit

  (133,635)  (132,386)

Accumulated other comprehensive loss

  (15,003)  (13,066)

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

  -   (10,668)

Total stockholders' equity

  76,887   76,681 

Total liabilities and stockholders' equity

 $153,872  $156,254 

 

See accompanying notes to condensed consolidated financial statements. 

 

3

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data) 

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

Revenues

  $ 29,663     $ 24,037     $ 85,849     $ 71,116  

Cost of revenues

    13,355       10,542       37,757       30,783  

Gross profit

    16,308       13,495       48,092       40,333  
                                 

Sales and marketing expenses

    6,183       4,588       17,299       14,446  

General and administrative expenses

    5,458       5,399       18,190       17,828  

Research and development expenses

    2,660       1,949       7,848       6,336  

Amortization of intangible assets

    1,459       1,377       4,388       4,258  

Total operating expenses

    15,760       13,313       47,725       42,868  
                                 

Operating income (loss)

    548       182       367       (2,535 )
                                 

Other (expense) income:

                               

Interest expense

    (373 )     (1,205 )     (1,161 )     (3,737 )

Other, net

    (130 )     (392 )     (477 )     (472 )

Total other expense

    (503 )     (1,597 )     (1,638 )     (4,209 )
                                 

Income (loss) before income taxes

    45       (1,415 )     (1,271 )     (6,744 )

Income tax expense (benefit)

    215       (317 )     (22 )     451  

Net loss

  $ (170 )   $ (1,098 )   $ (1,249 )   $ (7,195 )
                                 

Loss per share:

                               

Basic and diluted loss per common share

  $ (0.00 )   $ (0.03 )   $ (0.03 )   $ (0.19 )
                                 

Weighted-average common shares:

                               

Basic and diluted

    40,754       38,920       40,202       38,540  

 

See accompanying notes to condensed consolidated financial statements.

4

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

Net loss

  $ (170 )   $ (1,098 )   $ (1,249 )   $ (7,195 )

Other comprehensive (loss) income:

                               

Foreign currency translation adjustments

    (1,135 )     1,638       (1,937 )     681  

Derivatives qualifying as hedges, net of tax

    -       92       -       34  

Other comprehensive (loss) income

    (1,135 )     1,730       (1,937 )     715  

Comprehensive (loss) income

  $ (1,305 )   $ 632     $ (3,186 )   $ (6,480 )

 

See accompanying notes to consolidated financial statements.

 

5

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, in thousands)

 

                                   

Accumulated

                 

Three Months Ended

 

Number

           

Additional

           

Other

           

Total

 

September 30, 2021

 

of Shares

   

Common

   

Paid-in

   

Accumulated

   

Comprehensive

   

Treasury

   

Stockholders

 
   

Issued

   

Stock

   

Capital

   

Deficit

   

Loss

   

Stock

   

Equity

 
                                                         

Balance at June 30, 2021

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

Stock option exercises

    38       -       150       -       -       -       150  

Vesting of restricted stock units

    493       -       -       -       -       -       -  

Shares withheld for taxes

    (208 )     -       (1,663 )     -       -       -       (1,663 )

Stock compensation expense

    -       -       1,004       -       -       -       1,004  

Net loss

    -       -       -       (170 )     -       -       (170 )

Other comprehensive loss

    -       -       -       -       (1,135 )     -       (1,135 )

Balance at September 30, 2021

    40,809     $ 451     $ 225,074     $ (133,635 )   $ (15,003 )   $ -     $ 76,887  

 

                                   

Accumulated

                 

Three Months Ended

 

Number

           

Additional

           

Other

           

Total

 

September 30, 2020

 

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  

 

                                   

Accumulated

                 

Nine Months Ended

 

Number

           

Additional

           

Other

           

Total

 

September 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

    535       7       2,700       -       -       -       2,707  

Stock purchase plan

    56       -       202       -       -       -       202  

Vesting of restricted stock units

    1,196       -       -       -       -       -       -  

Shares withheld for taxes

    (385 )     -       (2,653 )     -       -       -       (2,653 )

Stock compensation expense

    -       -       3,136       -       -       -       3,136  

Net loss

    -       -       -       (1,249 )     -       -       (1,249 )

Other comprehensive loss

    -       -       -       -       (1,937 )     -       (1,937 )

Balance at September 30, 2021

    40,809     $ 451     $ 225,074     $ (133,635 )   $ (15,003 )   $ -     $ 76,887  

 

                                   

Accumulated

                 

Nine Months Ended

 

Number

           

Additional

           

Other

           

Total

 

September 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

    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  

 

See accompanying notes to condensed consolidated financial statements. 

 

 

6

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

  

Nine Months Ended September 30,

 
  

2021

  

2020

 

Cash flows from operating activities:

        

Net loss

 $(1,249) $(7,195)

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

        

Depreciation

  1,311   1,453 

Amortization of intangible assets

  4,388   4,258 

Amortization of deferred financing costs

  210   295 

Stock-based compensation expense

  3,136   2,641 

Deferred income taxes and other

  (498)  29 

Changes in operating assets and liabilities:

        

Accounts receivable

  (727)  6,805 

Inventories

  (4,048)  (511)

Other assets

  (2,088)  (878)

Accounts payable and accrued expenses

  1,901   586 

Deferred revenue

  (142)  (380)

Other liabilities

  (1,049)  (262)

Net cash provided by operating activities

  1,145   6,841 
         

Cash flows from investing activities:

        

Additions to property, plant, and equipment

  (837)  (1,088)

Additions to intangible assets

  (150)  - 

Net cash used in investing activities

  (987)  (1,088)
         

Cash flows from financing activities:

        

Proceeds from issuance of debt

  2,500   9,615 

Repayments of debt

  (5,500)  (20,251)

Debt issuance costs

  (102)  - 

Proceeds from exercise of stock options

  2,909   194 

Taxes paid related to net share settlement of equity awards

  (2,653)  (882)

Net cash used in financing activities

  (2,846)  (11,324)
         

Effect of exchange rate changes on cash

  (81)  42 

Decrease in cash and cash equivalents

  (2,769)  (5,529)

Cash and cash equivalents at beginning of period

  8,317   8,335 

Cash and cash equivalents at end of period

 $5,548  $2,806 
         

Supplemental disclosures of cash flow information:

     

Cash paid for interest

 $836  $3,795 

Cash paid for income taxes, net of refunds

 $506  $410 

 

See accompanying notes to consolidated financial statements.

7

 

 

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 September 30, 2021 and for the three and nine months ended September 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 September 30, 2021, results of operations and comprehensive income (loss) and cash flows for the three months and nine months ended September 30, 2021 and 2020, as applicable, have been made. The results of operations for the three months and nine months ended September 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 nine months ended September 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 third 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 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 Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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.

 

 

8

 

Accounting Pronouncements to be Adopted

 

In September 2016, the FASB issued ASU  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.

 

 

3.

Goodwill and Intangible Assets

 

Goodwill

 

The change in the carrying amount of goodwill for the nine months ended September 30, 2021, were as follows:

 

(in thousands)

    

Carrying amount at December 31, 2020

 $58,590 

Effect of change in currency translation

  (603)

Carrying amount at September 30, 2021

 $57,987 

 

Intangible Assets

 

      

September 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

  8.1  $17,874  $(8,482) $9,392  $18,237  $(7,746) $10,491 

Existing technology

  4.4   38,861   (23,179)  15,682   38,761   (20,674)  18,087 

Trade names and patents

  4.7   8,559   (4,935)  3,624   8,681   (4,362)  4,319 

Total amortizable intangible assets

     $65,294  $(36,596) $28,698  $65,679  $(32,782) $32,897 

Indefinite-lived intangible assets:

              243           254 

Total intangible assets

             $28,941          $33,151 

 

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

 

Intangible asset amortization expense was $1.5 million and $1.4 million for the three months ended September 30, 2021 and 2020, respectively, and was $4.4 million and $4.3 million for the nine months ended September 30, 2021 and 2020, respectively. Estimated amortization expense of existing amortizable intangible assets for each of the five succeeding years and thereafter as of September 30, 2021, is as follows:

 

  

Amortization

 

Year Ending December 31,

 

Expense

 
  

(in thousands)

 

2021 (remainder of year)

 $1,456 

2022

  5,791 

2023

  5,684 

2024

  5,379 

2025

  4,271 

Thereafter

  6,117 

Total

 $28,698 

 

 

 

9

 

 

 

4.

Balance Sheet Information

 

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

 

Inventories:

 

September 30,

  

December 31,

 

(in thousands)

 

2021

  

2020

 

Finished goods

 $5,510  $4,938 

Work in process

  3,506   3,513 

Raw materials

  16,962   13,811 

Total

 $25,978  $22,262 

 

Other Current Liabilities:

 

September 30,

  

December 31,

 

(in thousands)

 

2021

  

2020

 

Compensation

 $3,992   3,715 

Professional fees

  793   432 

Warranty costs

  228   185 

Customer related costs

  1,992   1,093 

Interest

  369   46 

Accrued income taxes

  246   286 

Other

  2,050   1,721 

Total

 $9,670  $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 nine months ended September 30, 2021:

 

(in thousands)

 

Severance

  

Other

  

Total

 

Balance at December 31, 2020

 $270  $18  $288 

Restructuring and other exit costs

  1,160   116   1,276 

Non-cash charges

  -   (41)  (41)

Cash payments

  (1,319)  (93)  (1,412)

Balance at September 30, 2021

 $111  $-  $111 

 

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 $0.1 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively. Restructuring costs were $1.3 million and $1.9 million for the nine months ended September 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 September 30, 2021 and 2020, respectively, and $0.2 million for each of the nine months ended September 30, 2021 and 2020, respectively.

 

10

 

 

 

 

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 nine months ended September 30, 2021 and 2020, are as follows:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Operating lease cost

 $521  $565  $1,544  $1,647 

Short term lease cost

  49   46   150   131 

Sublease income

  (25)  (26)  (76)  (158)

Total lease cost

 $545  $585  $1,618  $1,620 

 

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

 

  

Nine Months Ended September 30,

 

(in thousands)

 

2021

  

2020

 

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

 $1,791  $2,041 

Right of use assets obtained in exchange for lease obligations:

 $351  $401 

 

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

 

  

September 30,

  

December 31,

 

(in thousands)

 

2021

  

2020

 

Operating lease right-of use assets

 $7,081  $7,761 
         

Current portion, operating lease liabilities

 $2,127  $2,111 

Operating lease liabilities, long term

  6,716   7,481 

Total operating lease liabilities

 $8,843  $9,592 
         

Weighted average remaining lease term (years)

  6.9   7.4 

Weighted average discount rate

  9.2%  9.2%

 

Maturities of operating lease liabilities for each twelve-month period subsequent to September 30, 2021, are as follows:

 

(in thousands)

    

2021

 $2,127 

2022

  2,057 

2023

  1,964 

2024

  1,047 

2025

  974 

Thereafter

  4,129 

Total lease payments

  12,298 

Less imputed interest

  (3,455)

Total operating lease liabilities

 $8,843 

 

 

 

11

 

 

 

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 equity incentive plans for the nine months ended September 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

  (534,862)  3.78   -   -   -   - 

Vested (RSUs)

  -   -   (799,264)  2.48   (396,274)  2.09 

Cancelled/Forfeited

  (651,368)  4.24   (57,215)  3.65   (6,179)  2.98 

Performance Factor Adjustment

  -   -   -   -   163,216   2.98 

Balance at September 30, 2021

  1,451,109  $3.12   1,497,950  $3.54   867,303  $3.13 

 

Stock-based compensation expense related to stock options, restricted stock units, Market Condition RSU’s and the Company’s employee stock purchase plan for the three and nine months ended September 30, 2021 and 2020, was allocated as follows:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Cost of revenues

 $32  $19  $83  $43 

Sales and marketing expenses

  149   92   373   205 

General and administrative expenses

  790   908   2,593   2,249 

Research and development expenses

  33   60   87   144 

Total stock-based compensation expenses

 $1,004  $1,079  $3,136  $2,641 

 

As of September 30, 2021, the total compensation costs related to unvested awards not yet recognized is $6.0 million and the weighted average period over which it is expected to be recognized is approximately 2.0 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 nine months ended September 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 nine months ended September 30, 2021 using a Monte-Carlo valuation simulation:

 

  

2021

 

Volatility

  65.1

%

Risk-free interest rate

  0.3

%

Correlation coefficient

  35.7

%

Dividend yield

  -

%

 

12

 

Earnings (Loss) Per Share

 

Basic earnings (loss) per share (EPS) 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

September 30,

  

Nine Months Ended

September 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Basic

  40,754   38,920   40,202   38,540 

Dilutive effect of equity awards

  -   -   -   - 

Diluted

  40,754   38,920   40,202   38,540 

 

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 3,816,362 and 5,473,292 as of September 30, 2021 and 2020 respectively, as the impact of these shares would be anti-dilutive.

 

 

9.

Long-Term Debt

 

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

 

  

September 30,

  

December 31,

 

(in thousands)

 

2021

  

2020

 

Long-term debt:

        

Term loan

 $38,500  $40,000 

Revolving line

  7,900   9,400 

Less: unamortized deferred financing costs

  (1,190)  (1,393)

Total debt

  45,210   48,007 

Less: current portion of long-term debt

  (2,750)  (2,000)

Current unamortized deferred financing costs

  280   279 

Long-term debt

 $42,740  $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 September 30, 2021, available borrowing capacity under the revolving line of credit was $17.1 million. The Credit Facility replaced the Company’s 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 nine 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.

 

13

 

As of September 30, 2021, the weighted average interest rate on the Credit Agreement borrowings was 3.0%. The effective interest rate for the three months ended September 30, 2021 and 2020, was 3.2% and 10.1%, respectively. The effective interest rate for the nine months ended September 30, 2021 and 2020, was 3.3% and 9.8%, 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 Company’s 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 nine months ended September 30, 2020:

 

  

Three Months Ended

  

Nine Months Ended

 

(in thousands)

 

September 30, 2020

  

September 30, 2020

 

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

 $(1) $(228)

Amounts reclassified from accumulated other comprehensive loss to interest expense

  93   262 

Total

 $92  $34 

 

14

 

 

11.

Revenues

 

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

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Instruments, equipment, software and accessories

 $28,485  $21,851  $82,304  $66,857 

Service, maintenance and warranty contracts

  1,178   2,186   3,545   4,259 

Total revenues

 $29,663  $24,037  $85,849  $71,116 

 

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

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

United States

 $12,709  $11,110  $37,300  $30,381 

Europe

  8,366   6,777   25,569   20,617 

Asia

  7,161   4,240   18,588   14,180 

Rest of the world

  1,427   1,910   4,392   5,938 

Total revenues

 $29,663  $24,037  $85,849  $71,116 

 

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

 

Deferred revenue

 

The following tables provide details of deferred revenue as of the periods indicated:

 

  

September 30,

  

December 31,

 

(in thousands)

 

2021

  

2020

 

Service contracts

 $1,839  $1,629 

Customer advances

  1,784   2,142 

Total deferred revenue

 $3,623  $3,771 

 

During the nine months ended September 30, 2021 and 2020, the Company recognized revenue of $1.4 million and $1.7 million from contract liabilities existing at December 31, 2020 and 2019, respectively.

 

Allowance for Doubtful Accounts

 

Allowance for doubtful accounts is based on the Company’s assessment of the collectability of accounts receivable. A rollforward of the allowance for doubtful accounts is as follows:

 

  

Nine Months Ended

September 30,

 

(in thousands)

 

2021

  

2020

 

Balance, beginning of period

 $227  $325 

Bad debt (credit) expense

  (13)  24 

Charge-offs and other

  (71)  (60)

Effect of foreign currency translation

  (5)  4 

Balance, end of period

 $138  $293 

 

15

 

 

12.

Income Tax

 

Income tax expense (benefit) was $0.2 million and $(0.3) million for the three months ended September 30, 2021 and 2020, respectively, and was less than $(0.1) million and $0.5 million for the nine months ended September 30, 2021 and 2020. The effective tax rates for the three months ended September 30, 2021 and 2020, were 477.8% and 22.4%, respectively. The effective tax rates for the nine months ended September 30, 2021 and 2020, were 1.7% and (6.7)%, respectively.

 

The difference between the Company’s effective tax rates in 2021 and 2020 compared to the U.S. statutory tax rate of 21% is primarily due to changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company currently has valuation allowances against substantially all of its net operating loss carryforwards and tax credit carryforwards.

 

 

13.

Commitments and Contingent Liabilities

 

On April 14, 2017, representatives for the estate of an individual plaintiff filed a wrongful death complaint with the Suffolk Superior Court, in the County of Suffolk, Massachusetts (the “Court”), against the Company and other defendants, including Biostage, Inc. (f/k/a Harvard Apparatus Regenerative Technology, Inc.) (“Biostage”), a former subsidiary of the Company that was spun off in 2013, as well as another third party. The complaint seeks payment for an unspecified amount of damages and alleges that the plaintiff sustained terminal injuries allegedly caused by products, including one synthetic trachea scaffold and two bioreactors, provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013.

 

On October 1, 2019, the Court entered an order granting plaintiffs’ motion to compel the defendant to produce discovery. Subsequently, the plaintiffs filed a motion for sanctions against the Company on January 6, 2020 claiming failure to produce. The Company’s counsel at the time, which had been selected for the case by the Company’s liability insurance carrier, never notified the Company of plaintiffs’ motion and never responded to plaintiff’ motion. As a result of the failure of our former counsel to respond, on January 29, 2020, the Court entered an order allowing plaintiffs’ sanctions against the Company and the other defendants, which establishes a sanction of admitted liability. In June 2021, the Company was informed of these 2019 and 2020 court actions by new defense counsel appointed by the Company’s liability insurance carrier. On June 9, 2021, the Company, together with the other defendants, filed a motion to vacate the Court’s order allowing plaintiffs’ motion for sanctions. On August 6, 2021, the Court issued a ruling in the Company’s favor, vacating the sanctions.

 

On September 15, 2021, Biostage’s products liability insurance carrier, which insures the Company as an additional insured and which had appointed defense counsel and had been defending both Biostage and the Company on this case, notified the Company and Biostage that it was denying coverage under the applicable policy for the lawsuit and would no longer be providing a defense to the Company or Biostage with respect thereto, or covering related legal expenses incurred after September 30, 2021. The insurance carrier also filed a corresponding complaint for declaratory judgment with the Court asking the Court to declare that said insurance provider is not required to defend, indemnify or provide coverage to the Company or Biostage with respect to the lawsuit. The Company believes that the insurance carrier’s grounds for denying coverage are without merit, and intends to vigorously defend against this complaint for declaratory judgment and the insurance carrier’s denial of the claim and related matters in order to, among other things, restore the Company’s rights to seek insurance coverage for any damages awarded in the lawsuit. However, there can be no assurance that the Company and Biostage will prevail in the insurance coverage litigation. As such, it is unclear at this point if the Company’s liability insurance coverage will reimburse the Company for all or any portion of any defense costs or damages if the Company were to lose the underlying case on the merits. 

 

While there can be no assurance of prevailing, the Company intends to defend the plaintiff’s claims against the Company vigorously. The Company has retained new defense counsel for the lawsuit and a trial date has been set for October 2022. If the Company loses on the merits and a jury awards damages, the Company does not know the exact amount of compensatory and, potentially, punitive damages that could be awarded, but the amounts could be substantial. The Company is also evaluating possible malpractice claims as one source of recovery but has not asserted such a claim and cannot provide assurance that such a claim would provide a recovery. Further, while Biostage has agreed to indemnify the Company for claims and losses relating to certain liabilities that it has assumed from the Company, including liabilities in connection with the sale of Biostage’s products and other liabilities related to the operation of Biostage’s business, the Company cannot be assured that Biostage will have the ability to indemnify the Company against the liabilities the Company may incur in this lawsuit, in particular due to Biostage’s overall financial condition. If Biostage is unable to satisfy its obligations under its indemnity to the Company and if the insurance carrier does not fund the defense of the case, the Company may have to fund the entire defense of the case and satisfy the liabilities in this lawsuit, which could have an adverse impact on the Company’s financial condition or cash flows.

 

The Company is involved in various other claims and legal proceedings arising in the ordinary course of business. After consultation with legal counsel, the Company has determined that the ultimate disposition of such proceedings is not likely to have a material adverse effect on its business, financial condition, results of operations or cash flows. Although unfavorable outcomes in the proceedings are possible, the Company has not accrued for loss contingencies relating to any such matters as they are not considered to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to the Company, the impact on the Company’s business, financial condition, results of operations and cash flows could be material.

  

16

 

 

 

Item 2.        Managements Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains statements that are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). The forward-looking statements are principally, but not exclusively, contained in Item 2: Managements Discussion and Analysis of Financial Condition and  Results  of  Operations.These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about managements confidence or expectations, and our plans, objectives, expectations, and intentions that are not historical facts. In some cases, you can identify forward-looking statements by terms such as may,” “will,” “should,” “could,” “would,” “seek,” “expects,” “plans,” “aim,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “think,” “potential,” “objectives,” “optimistic,” “strategy,” “goals,” “sees,” “new,” “guidance,” “future,” “continue,” “drive,” “growth,” “long-term,” “projects,” “develop,” “possible,” “emerging,” “opportunity,” “pursueand similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Factors that may cause our actual results to differ materially from those in the forward-looking statements include the duration and severity of the COVID-19 pandemic and its impact on our business; reductions in customersresearch budgets or government funding; domestic and global economic conditions; economic, political and other risks associated with international revenues and operations; recently enacted U.S. government tax reform;  currency exchange  rate  fluctuations; economic and political conditions generally and those affecting pharmaceutical and biotechnology industries; the seasonal nature  of  purchasing  in Europe; our  failure to expand into foreign countries and international markets; our inability to manage our growth; competition from our competitors; our substantial debt and our ability to meet the financial covenants contained in our credit facility; failure or inadequacy of the our information technology structure; impact of difficulties implementing our enterprise resource planning systems; information security incidents or cybersecurity breaches; our failure to identify potential acquisition candidates and successfully close such acquisitions with favorable pricing or integrate acquired businesses or technologies; unanticipated costs relating to acquisitions and known and unknown costs arising in connection with our consolidation of business functions and our current and any future restructuring initiatives; failure of any banking institution in which we deposit our funds or its failure to provide services; our failure to raise or generate capital necessary to implement our acquisition and expansion strategy; the failure of Biostage to indemnify us for any liabilities associated with Biostages business; impact of any impairment of our goodwill or intangible assets; our ability to retain key personnel; failure or inadequacy or our information technology structure; rising commodity and precious metals costs; our ability to protect our intellectual property and operate without infringing on othersintellectual property; exposure to product and other liability claims; global stock market volatility, currency exchange rate fluctuations and regulatory changes caused by the United Kingdoms exit from the European Union; plus other factors described under the heading  Item 1A. Risk Factorsin our Annual Report on Form 10-K for year ended December 31, 2020, or described in our other public filings. Our results may also be affected by factors of which we are not currently aware. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information.

 

Unless the context requires otherwise, references in this Quarterly Report to “we,” “us” and “our” refer to Harvard Bioscience, Inc., and its subsidiaries.

 

17

 

Overview

 

Harvard Bioscience, Inc. is a leading developer, manufacturer and seller of technologies, products and services that enable fundamental research, discovery, and preclinical testing for drug development. Our customers range from renowned academic institutions and government laboratories to the world’s leading pharmaceutical, biotechnology and contract research organizations. With operations in North America, Europe, and China, we sell through a combination of direct and distribution channels to customers around the world.

 

Recent Developments

 

COVID-19

 

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 our operations to date and the future impacts of the pandemic and any resulting economic impact remain unknown and rapidly evolving. Since the global o