Harvard Bioscience
HBIO
#10233
Rank
โ‚น2.15 B
Marketcap
โ‚น481.88
Share price
2.16%
Change (1 day)
1,098.75%
Change (1 year)

Harvard Bioscience - 10-Q quarterly report FY2024 Q2


Text size:
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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, 2024

 

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

 

logo.jpg

 

 

HARVARD BIOSCIENCE, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

04-3306140

(State or other jurisdiction of Incorporation or organization)

(I.R.S. Employer 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 31, 2024, there were 43,610,883 shares of the registrant’s common stock issued and outstanding.

 

 

 

HARVARD BIOSCIENCE, INC.

 

FORM 10-Q

 

INDEX

 

 

Page

  

PART I - FINANCIAL INFORMATION

1
  

Item 1.    Condensed Consolidated Financial Statements (unaudited)

1
  

Consolidated Balance Sheets

1
  

Consolidated Statements of Operations

2
  

Consolidated Statements of Comprehensive Income (Loss)

3
  

Consolidated Statements of Stockholders' Equity

4
  

Consolidated Statements of Cash Flows

5
  

Notes to Unaudited Consolidated Financial Statements

6
  

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

16
  

Item 3.     Quantitative and Qualitative Disclosures about Market Risk

21
  

Item 4.     Controls and Procedures

21
  

PART II - OTHER INFORMATION

22
  

Item 1.     Legal Proceedings

22
  

Item1A.   Risk Factors

22
  

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds.

22
  

Item 3.     Defaults Upon Senior Securities

22
  

Item 4.     Mine Safety Disclosures

22
  

Item 5.     Other Information

22
  

Item 6.     Exhibits

22
  

SIGNATURES

24

 

 

 

 

 

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, 2024

  

December 31, 2023

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $4,048  $4,283 

Accounts receivable, net

  12,486   16,099 

Inventories

  25,130   24,716 

Other current assets

  4,766   3,940 

Total current assets

  46,430   49,038 

Property, plant and equipment, net

  4,758   3,981 

Operating lease right-of-use assets

  4,420   4,773 

Goodwill

  56,627   57,065 

Intangible assets, net

  13,441   16,036 

Other long-term assets

  3,236   6,473 

Total assets

 $128,912  $137,366 

Liabilities and Stockholders' Equity

        

Current liabilities:

        

Current portion of long-term debt

 $3,720  $5,859 

Accounts payable

  5,711   5,554 

Contract liabilities

  4,010   4,508 

Other current liabilities

  9,180   10,621 

Total current liabilities

  22,621   26,542 

Long-term debt, net

  31,960   30,704 

Deferred tax liability

  764   776 

Operating lease liabilities

  4,713   4,794 

Other long-term liabilities

  1,607   1,476 

Total liabilities

  61,665   64,292 

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: 43,610,883 shares issued and outstanding at June 30, 2024; 43,394,509shares issued and outstanding at December 31, 2023

  436   434 

Additional paid-in-capital

  234,905   232,435 

Accumulated deficit

  (153,226)  (145,605)

Accumulated other comprehensive loss

  (14,868)  (14,190)

Total stockholders' equity

  67,247   73,074 

Total liabilities and stockholders' equity

 $128,912  $137,366 

 

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,

 
  

2024

  

2023

  

2024

  

2023

 
                 

Revenues

 $23,097  $28,759  $47,609  $58,734 

Cost of revenues

  9,879   12,086   19,619   23,715 

Gross profit

  13,218   16,673   27,990   35,019 
                 

Sales and marketing expenses

  5,395   6,178   11,299   12,156 

General and administrative expenses

  5,686   5,353   11,649   11,687 

Research and development expenses

  2,626   2,957   5,511   5,854 

Amortization of intangible assets

  1,331   1,389   2,664   2,777 

Other operating expenses – Note 1

  249   -   1,215   - 

Total operating expenses

  15,287   15,877   32,338   32,474 
                 

Operating (loss) income

  (2,069)  796   (4,348)  2,545 
                 

Other income (expense):

                

Interest expense

  (749)  (941)  (1,500)  (1,915)

Loss on equity securities - Note 6

  (281)  (1,581)  (1,593)  (1,581)

Other (expense) income, net

  (181)  (372)  (323)  60 

Total other expense

  (1,211)  (2,894)  (3,416)  (3,436)
                 

Loss before income taxes

  (3,280)  (2,098)  (7,764)  (891)

Income tax benefit

  (353)  (1,118)  (143)  (533)

Net loss

 $(2,927) $(980) $(7,621) $(358)
                 

Loss per share:

                

Basic and diluted

 $(0.07) $(0.02) $(0.18) $(0.01)
                 

Weighted-average common shares:

                

Basic and diluted

  43,486   42,354   43,443   42,204 

 

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,

 
  

2024

  

2023

  

2024

  

2023

 
                 

Net loss

 $(2,927) $(980) $(7,621) $(358)

Other comprehensive income (loss):

                

Foreign currency translation adjustments

  (128)  152   (911)  989 

Derivative instruments qualifying as cash flow hedges, net of tax

  34   449   233   9 

Other comprehensive (loss) income

  (94)  601   (678)  998 

Comprehensive (loss) income

 $(3,021) $(379) $(8,299) $640 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, in thousands)

 

                  

Accumulated

     
  

Number

      

Additional

      

Other

  

Total

 
  

of Shares

  

Common

  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders’

 
  

Issued

  

Stock

  

Capital

  

Deficit

  

Loss

  

Equity

 

Balance at March 31, 2024

  43,421  $434  $233,451  $(150,299) $(14,774) $68,812 

Stock option exercises

  4   -   13   -   -   13 

Stock purchase plan

  72   1   175   -   -   176 

Vesting of restricted stock units

  116   1   -   -   -   1 

Shares withheld for taxes

  (2)  -   (12)  -   -   (12)

Stock-based compensation expense

  -   -   1,278   -   -   1,278 

Net loss

  -   -   -   (2,927)  -   (2,927)

Other comprehensive loss

  -   -   -   -   (94)  (94)

Balance at June 30, 2024

  43,611  $436  $234,905  $(153,226) $(14,868) $67,247 

 

                  Accumulated     
  

Number

      

Additional

      

Other

  

Total

 
  

of Shares

  

Common

  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders’

 
  

Issued

  

Stock

  

Capital

  

Deficit

  

Loss

  

Equity

 

Balance at March 31, 2023

  42,190  $455  $230,108  $(141,568) $(14,655) $74,340 

Stock option exercises

  173   2   403   -   -   405 

Stock purchase plan

  91   -   215   -   -   215 

Vesting of restricted stock units

  287   -   -   -   -   - 

Shares withheld for taxes

  (54)  -   (295)  -   -   (295)

Stock-based compensation expense

  -   -   1,102   -   -   1,102 

Net loss

  -   -   -   (980)  -   (980)

Other comprehensive income

  -   -   -   -   601   601 

Balance at June 30, 2023

  42,687  $457  $231,533  $(142,548) $(14,054) $75,388 

 

                  Accumulated     
  

Number

      

Additional

      

Other

  

Total

 
  

of Shares

  

Common

  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders’

 
  

Issued

  

Stock

  

Capital

  

Deficit

  

Loss

  

Equity

 

Balance at December 31, 2023

  43,395  $434  $232,435  $(145,605) $(14,190) $73,074 

Stock option exercises

  8   -   28   -   -   28 

Stock purchase plan

  72   1   175   -   -   176 

Vesting of restricted stock units

  150   1   -   -   -   1 

Shares withheld for taxes

  (14)  -   (59)  -   -   (59)

Stock-based compensation expense

  -   -   2,326   -   -   2,326 

Net loss

  -   -   -   (7,621)  -   (7,621)

Other comprehensive loss

  -   -   -   -   (678)  (678)

Balance at June 30, 2024

  43,611  $436  $234,905  $(153,226) $(14,868) $67,247 

 

                  Accumulated     
  

Number

      

Additional

      

Other

  

Total

 
  

of Shares

  

Common

  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders’

 
  

Issued

  

Stock

  

Capital

  

Deficit

  

Loss

  

Equity

 

Balance at December 31, 2022

  42,082  $454  $229,008  $(142,190) $(15,052) $72,220 

Stock option exercises

  212   3   506   -   -   509 

Stock purchase plan

  91   -   215   -   -   215 

Vesting of restricted stock units

  412   -   -   -   -   - 

Shares withheld for taxes

  (110)  -   (451)  -   -   (451)

Stock-based compensation expense

  -   -   2,255   -   -   2,255 

Net loss

  -   -   -   (358)  -   (358)

Other comprehensive income

  -   -   -   -   998   998 

Balance at June 30, 2023

  42,687  $457  $231,533  $(142,548) $(14,054) $75,388 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

HARVARD BIOSCIENCE, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited, in thousands)

 
         
  

Six Months Ended June 30,

 
  

2024

  

2023

 

Cash flows from operating activities:

        

Net loss

 $(7,621) $(358)

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

        

Depreciation

  831   665 

Amortization of intangible assets

  2,751   2,777 

Amortization of deferred financing costs

  140   140 

Stock-based compensation expense

  2,326   2,255 

Deferred income taxes and other

  407   86 

Loss on equity securities - Note 6

  1,593   1,581 

Gain on sale of product line - Note 14

  -   (403)

Changes in operating assets and liabilities:

        

Accounts receivable

  3,458   (68)

Inventories

  (1,748)  398 

Other assets

  (813)  (1,268)

Accounts payable and other current liabilities

  170   (270)

Contract liabilities

  (498)  445 

Other liabilities

  (439)  (616)

Net cash provided by operating activities

  557   5,364 

Cash flows from investing activities:

        

Additions to property, plant and equipment

  (1,463)  (741)

Capitalized software development costs

  (223)  (108)

Proceeds from sale of product line

  -   512 

Proceeds from sale of marketable equity securities

  1,919   - 

Net cash provided by (used in) investing activities

  233   (337)

Cash flows from financing activities:

        

Borrowing from revolving line of credit

  5,550   2,500 

Repayment of revolving line of credit

  (2,550)  (5,450)

Repayment of term debt

  (4,023)  (2,591)

Proceeds from exercise of stock options and employee stock purchase plan

  204   724 

Taxes paid related to net share settlement of equity awards

  (59)  (451)

Net cash used in financing activities

  (878)  (5,268)

Effect of exchange rate changes on cash

  (147)  57 

Decrease in cash and cash equivalents

  (235)  (184)

Cash and cash equivalents at beginning of period

  4,283   4,508 

Cash and cash equivalents at end of period

 $4,048  $4,324 

Supplemental disclosures of cash flow information:

     

Cash paid for interest

 $1,515  $2,148 

Cash paid for income taxes, net of refunds

 $131  $115 

 

See accompanying notes to condensed consolidated financial statements.

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.

Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation and Summary of Significant Accounting Policies

 

The unaudited consolidated financial statements of Harvard Bioscience, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “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, 2023 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, 2023.

 

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, 2024, results of operations and comprehensive income (loss) for the three and six months ended June 30, 2024 and 2023, and cash flows for the six months ended June 30, 2024 and 2023, as applicable, have been made. The results of operations for the three and six months ended June 30, 2024, 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 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, 2023. There have been no material changes in the Company’s significant accounting policies during the six months ended June 30, 2024.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally U.S. GAAP requires the use of management estimates. Such estimates include the determination and establishment of certain accruals and provisions, including those for income taxes, credit losses on receivables, and defined benefit pension obligations. Estimates are also required to evaluate the value for inventories reported at lower of cost or net realizable value, stock-based compensation expense, and the recoverability of long-lived and intangible assets, including goodwill. On an ongoing basis, the Company reviews its estimates based upon currently available information. Actual results could differ materially from those estimates.

 

Other Operating Expenses

 

The components of other operating expenses for the three and six months ended June 30, 2024 were as follows:

 

  

Three Months Ended

  

Six Months Ended

 

(in thousands)

 

June 30, 2024

  

June 30, 2024

 

Restructuring expenses (see Note 15)

 $396  $396 

Unclaimed property audits (credit) expense (see Note 13)

  (147)  347 

Employee retention credit fees (see Note 5)

  -   472 

Total other operating expenses

 $249  $1,215 

 

Recently Issued Accounting Pronouncements Yet to Be Adopted

 

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax, which enhances disclosures related to the effective tax rate reconciliation, income taxes paid, as well as other disclosures. The new standard impacts footnote disclosures and is effective for the Company’s annual financial statements for the year ended December 31, 2025. The Company is currently evaluating the potential impact of adopting ASU No. 2023-09 will have on the disclosures in its consolidated financial statements.

 

 

 

2.

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 and restricted stock units into common stock using the treasury method, unless the effect is antidilutive.

 

The following table summarizes the calculation of basic and diluted net loss per share of common stock:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands, except per share data)

 

2024

  

2023

  

2024

  

2023

 

Net loss

 $(2,927) $(980) $(7,621) $(358)

Weighted average shares outstanding - basic

  43,486   42,354   43,443   42,204 

Dilutive effect of equity awards

  -   -   -   - 

Weighted average shares outstanding - diluted

  43,486   42,354   43,443   42,204 

Basic loss per share

 $(0.07) $(0.02) $(0.18) $(0.01)

Diluted loss per share

 $(0.07) $(0.02) $(0.18) $(0.01)

Shares excluded from diluted loss per share

                

due to their anti-dilutive effect

  3,993   4,286   3,600   3,795 

   

 

3.

Revenues

 

The following tables represent a disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2024 and 2023:

 

Revenues by type were as follows:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2024

  

2023

  

2024

  

2023

 

Instruments, equipment, software and accessories

 $21,292  $27,268  $44,051  $55,761 

Service, maintenance and warranty contracts

  1,805   1,491   3,558   2,973 

Total revenues

 $23,097  $28,759  $47,609  $58,734 

 

Revenues by timing of recognition were as follows:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2024

  

2023

  

2024

  

2023

 

Goods and services transferred at a point in time

 $21,983  $27,636  $45,726  $56,942 

Goods and services transferred over time

  1,114   1,123   1,883   1,792 

Total revenues

 $23,097  $28,759  $47,609  $58,734 

 

Revenue by geographic destination were as follows:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2024

  

2023

  

2024

  

2023

 

United States

 $10,805  $12,336  $21,788  $24,638 

Europe

  6,535   9,332   13,113   16,773 

Greater China

  3,249   4,136   7,631   10,335 

Rest of the world

  2,508   2,955   5,077   6,988 

Total revenues

 $23,097  $28,759  $47,609  $58,734 

 

 

Contract Liabilities

 

The following table provides details of contract liabilities as of the periods indicated:

 

(dollars in thousands)

 

June 30, 2024

  

December 31, 2023

  

Change

  

Percentage

 

Service, maintenance and warranty contracts

 $2,534  $2,849  $(315)  -11.1%

Customer advances

  1,476   1,659   (183)  -11.0%

Total contract liabilities

 $4,010  $4,508  $(498)  -11.0%

 

Changes in the Company’s contract liabilities are primarily due to the timing of receipt of payments under service, maintenance and warranty contracts and lower sales volumes. During the three months ended June 30, 2024 and 2023, the Company recognized revenue of $1.0 million and $0.6 million from contract liabilities existing at December 31, 2023 and 2022, respectively. During the six months ended June 30, 2024 and 2023, the Company recognized revenue of $2.6 million and $1.6 million from contract liabilities existing at December 31, 2023 and 2022, respectively.

 

Provision for Expected Credit Losses on Receivables

 

Activity in the provision for expected losses on receivables was as follows:

 

  

Six Months Ended June 30,

 

(in thousands)

 

2024

  

2023

 

Balance, beginning of period

 $160  $191 

Provision for expected credit losses

  46   18 

Charge-offs and other

  (29)  (55)

Balance, end of period

 $177  $154 

 

Concentrations

 

No customer accounted for more than 10% of revenues for the three and six months ended June 30, 2024 and 2023. At June 30, 2024 and December 31, 2023, no customer accounted for more than 10% of net accounts receivable.

 

Warranties

 

Activity in the product warranties accrual was as follows:

 

  

Six Months Ended June 30,

 

(in thousands)

 

2024

  

2023

 

Balance, beginning of period

 $336  $268 

Provision for warranties

  231   147 

Warranty claims

  (196)  (114)

Balance, end of period

 $371  $301 

 

 

4.

Goodwill and Intangible Assets

 

The change in the carrying amount of goodwill for the six months ended June 30, 2024 was as follows:

 

(in thousands)

    

Carrying amount at December 31, 2023

 $57,065 

Effect of change in currency translation

  (438)

Carrying amount at June 30, 2024

 $56,627 

 

 

Intangible assets at June 30, 2024 and December 31, 2023 consisted of the following:

 

  

June 30, 2024

  

December 31, 2023

 

(in thousands)

     

Accumulated

          

Accumulated

     

Amortizable intangible assets:

 

Gross

  

Amortization

  

Net

  

Gross

  

Amortization

  

Net

 

Customer relationships

 $15,785  $(10,051) $5,734  $16,038  $(9,706) $6,332 

Technology and software development

  35,102   (28,810)  6,292   35,007   (27,029)  7,978 

Trade names and patents

  7,519   (6,304)  1,215   7,613   (6,094)  1,519 

Total amortizable intangible assets

 $58,406  $(45,165) $13,241  $58,658  $(42,829) $15,829 

Indefinite-lived intangible assets:

          200           207 

Total intangible assets

         $13,441          $16,036 

 

Intangible asset amortization expense for the three and six months ended June 30, 2024 and 2023 was as follows:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2024

  

2023

  

2024

  

2023

 

Cost of revenues

 $43  $-  $87  $- 

Operating expense

  1,331   1,389   2,664   2,777 

Total amortization of intangible assets

 $1,374  $1,389  $2,751  $2,777 

 

As of June 30, 2024, estimated future amortization expense of amortizable intangible assets is as follows:

 

(in thousands)

    

2024 (remainder of the year)

 $2,674 

2025

  4,195 

2026

  2,534 

2027

  1,263 

2028

  1,239 

Thereafter

  1,336 

Total

 $13,241 

 

 

5.

Balance Sheet Information

 

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

 

Inventories:

 

 

  

 

 

(in thousands)

 

June 30, 2024

  

December 31, 2023

 

Finished goods

 $5,491  $5,120 

Work in process

  3,296   4,188 

Raw materials

  16,343   15,408 

Total

 $25,130  $24,716 

 

Other Current Liabilities:

 

 

  

 

 

(in thousands)

 

June 30, 2024

  

December 31, 2023

 

Compensation

 $2,384  $3,929 

Customer credits

  1,105   3,201 

Current portion of operating lease liabilities

  1,058   1,416 

Employee retention credit funds

  3,154   - 

Professional fees

  372   499 

Warranty costs

  371   336 

Other

  736   1,240 

Total

 $9,180  $10,621 

 

 

The Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”) provided an employee retention credit (“ERC”) that was a refundable tax credit against certain employer taxes. The Company elected to account for the credit as a government grant. As there is no authoritative guidance under U.S. GAAP on accounting for grants to for-profit business entities from government entities, the Company accounts for government assistance by analogy to International Accounting Standards Topic 20, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”). Under IAS 20, government grants are recognized when there is reasonable assurance that the grant will be received and that all conditions related to the grant will be met.

 

The Company received ERC refunds of $3.2 million during the six months ended June 30, 2024. Due to the subjectivity of the credit, the Company has included the refunds received in other current liabilities in the consolidated balance sheet as of June 30, 2024, subject to a determination that the refunds are recognizable.

 

The Company engaged a professional services firm under a commission fee arrangement to assist with determining the Company’s eligibility to claim the ERC refunds and accumulating the necessary support that was used as a basis in the filing. During the six months ended June 30, 2024, the Company paid fees of $0.5 million for these services, which are included in other operating expenses in the consolidated statement of operations.

 

 

6.

Marketable Equity Securities

 

In April 2023, the Company received shares of common stock of Harvard Apparatus Regenerative Technology, Inc. (“HRGN”, formerly known as Biostage, Inc.) in connection with settlement of indemnification obligations related to litigation which was resolved during the year ended December 31, 2022. These shares had an estimated fair value $3.5 million and are included in the consolidated balance sheet as a component of other long-term assets as of December 31, 2023.

 

During the six months ended June 30, 2024, the Company sold all of its remaining HRGN shares. The Company received cash proceeds of $1.4 million and $1.9 million from HRGN shares sold during the three and six months ended June 30, 2024, respectively. The Company recorded losses on equity securities of $0.3 million and $1.6 million during the three and six months ended June 30, 2024, 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, 2024 and 2023, were as follows:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2024

  

2023

  

2024

  

2023

 

Operating lease cost

 $508  $483  $1,019  $1,026 

Short-term lease cost

  52   64   102   131 

Sublease income

  (26)  (26)  (51)  (51)

Total lease cost

 $534  $521  $1,070  $1,106 

 

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

 

  

Six Months Ended June 30,

 

(in thousands)

 

2024

  

2023

 

Cash paid for amounts included in the measurement of lease liabilities

 $1,162  $1,201 

Right-of-use assets obtained in exchange for lease obligations

  443   95 

 

Supplemental balance sheet information related to the Company’s operating leases is as follows:

 

(in thousands)

 

June 30, 2024

  

December 31, 2023

 

Operating lease right-of-use assets

 $4,420  $4,773 
         

Current portion, operating lease liabilities

 $1,058  $1,416 

Operating lease liabilities, long-term

  4,713   4,794 

Total operating lease liabilities

 $5,771  $6,210 
         

Weighted average remaining lease term (years)

  6     

Weighted average discount rate

  9.4%    

 

 

Future minimum lease payments for operating leases, with initial terms in excess of one year at June 30, 2024, are as follows:

 

(in thousands)

    

2024 (remainder of the year)

 $879 

2025

  1,278 

2026

  1,175 

2027

  1,138 

2028

  1,116 

Thereafter

  1,956 

Total lease payments

  7,542 

Less imputed interest

  (1,771)

Total operating lease liabilities

 $5,771 

 

 

8.

Long-Term Debt

 

As of June 30, 2024 and December 31, 2023, the Company’s borrowings were as follows: 

 

(in thousands)

 

June 30, 2024

  

December 31, 2023

 

Long-term debt:

        

Term loan

 $26,700  $30,723 

Revolving line

  9,400   6,400 

Less: unamortized deferred financing costs

  (420)  (560)

Total debt

  35,680   36,563 

Less: current portion of long-term debt

  (4,000)  (6,139)

Current unamortized deferred financing costs

  280   280 

Long-term debt

 $31,960  $30,704 

 

The Company maintains a Credit Agreement (as amended, the “Credit Agreement”) with Citizens Bank, N.A., Wells Fargo Bank, National Association, and First Citizens Bank & Trust Company (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). 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. Available and unused borrowing capacity under the revolving line of credit was $5.4 million as of June 30, 2024, based on the Credit Agreement, as amended on August 6, 2024 (the “August 2024 Amendment”), as described below. Total revolver borrowing capacity is limited by the consolidated net leverage ratio as defined under the amended Credit Agreement.

 

Borrowings under the Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on the Secured Overnight Financing Rate (“SOFR”) 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 “SOFR 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”). SOFR 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%. Pursuant to the August 2024 Amendment, the applicable interest rate margin varies from 2.0% per annum to 3.75% per annum for SOFR Loans, and from 1.5% per annum to 3.5% per annum for ABR Loans, in each case depending on the Company’s consolidated net leverage ratio, and is determined in accordance with a pricing grid set forth in the Credit Agreement. 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 SOFR Loan breakage and redeployment costs in certain circumstances.

 

The effective interest rate on the Company borrowings for the three months ended June 30, 2024 and 2023, was 7.9% and 8.3%, respectively, and for the six months ended June 30, 2024 and 2023, was 7.8% and 8.1%, respectively. The weighted average interest rate as of June 30, 2024, net of the effect of the Company’s interest rate swaps, was 7.7%. 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.

 

As of June 30, 2024, the term loan requires quarterly installment payments of $1.0 million with a balloon payment at maturity on December 22, 2025. Furthermore, within ninety days after the end of the Company’s fiscal year, the term loan may be permanently reduced pursuant to certain mandatory prepayment events including an annual “excess cash flow sweep”, as defined in the Credit Agreement, provided that, in any fiscal year, any voluntary prepayments of the term loan shall be credited against the Company’s “excess cash flow” prepayment obligations on a dollar-for-dollar basis for such fiscal year. As of December 31, 2023, the current portion of long-term debt included amounts due under the excess cash flow sweep of $2.0 million which was paid on March 29, 2024. 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. 

 

In March 2024, the Company entered into an amendment to the Credit Agreement pursuant to which the Lenders and administrative agent modified the definition of Consolidated EBITDA used in the calculation of certain financial covenants to adjust for charges related to an abandoned property audit (see Note 13) and commission fees expected to be paid in connection with the ERC filings (see Note 5).

 

On August 6, 2024, the Company entered into an amendment to the Credit Agreement that, among other things, modifies the financial covenants relating to the consolidated net leverage ratio and consolidated fixed charge coverage ratio through the period ended December 31, 2024. The amendment also adds a net leverage ratio requirement with respect to additional borrowing under the Company’s revolving credit facility and restrictions on certain additional indebtedness and investments, in each case until the Company delivers to the Lenders the Company’s financial statements for the fiscal year ending December 31, 2024. In addition, until delivery of the financial statements, the applicable interest rate margin will be increased by 50bps during such time as the Company’s consolidated net leverage ratio is greater than 3.0. The Company paid fees of $0.2 million to the Lenders in connection with the amendment. As a result of the August 2024 Amendment, the Company is in compliance with the financial covenants of the Credit Agreement.

 

 

9.

Derivatives

 

In February 2023, the Company entered into an interest rate swap contract to improve the predictability of cash flows from interest payments related to its variable, SOFR-based debt. The swap contract had a notional amount of $24.5 million as of June 30, 2024 and matures on December 22, 2025. This swap contract effectively converts the SOFR-based variable portion of the interest payable under the Credit Agreement into fixed-rate debt at an annual rate of 4.75%. The swap contract does not impact the additional interest related to the applicable interest rate margin as discussed above in Note 8, Long-Term Debt. The swap contract is considered an effective cash flow hedge, and as a result, net gains or losses are reported as a component of other comprehensive income (“OCI”) in the consolidated financial statements and are reclassified when the underlying hedged interest impacts earnings. An assessment is performed quarterly to evaluate the ongoing hedge effectiveness.

 

The following table presents the notional amount and fair value of the Company’s derivative instruments as of June 30, 2024 and December 31, 2023:

 

(in thousands)

 

June 30, 2024

  

December 31, 2023

 

Derivatives Instruments

 

Balance Sheet Classification

 

Notional Amount

  

Fair Value (a)

  

Notional Amount

  

Fair Value (a)

 

Interest rate swap

 

Other long-term assets (liabilities)

 $24,482  $34  $27,375  $(199)

 

(a) See Note 10 for the fair value measurements related to these financial instruments.

 

The effect of the cash flow hedge on other comprehensive income (loss) and earnings for the periods presented was as follows:

 

  

Three Months Ended

  

Six Months Ended

 

Derivatives Qualifying as Hedges, net of tax (in thousands)

 

June 30, 2024

  

June 30, 2023

  

June 30, 2024

  

June 30, 2023

 

Gain recognized in OCI on derivatives (effective portion)

 $34  $449  $233  $9 

Gain reclassified from accumulated OCI to interest expense

  44   26   91   26 

 

 

10.

Fair Value Measurements

 

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis: 

 

  

Fair Value as of June 30, 2024

 

Assets (Liabilities) (in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Interest rate swap agreement

 $-  $34  $-  $- 

 

  

Fair Value as of December 31, 2023

 
  

Level 1

  

Level 2

  

Level 3

  

Total

 

Equity securities - common stock

 $3,511  $-  $-  $3,511 

Interest rate swap agreement

 $-  $(199) $-  $(199)

 

 

The Company uses the market approach technique to value its financial liabilities. The Company’s financial assets and liabilities carried at fair value include, when applicable, investments in common stock and derivative instruments used to hedge the Company’s interest rate risks. The fair value of the Company’s investment in HRGN common stock (see Note 6) was based on the closing price per the OTCQB Marketplace at the reporting date. The fair value of the Company’s interest rate swap agreement was based on SOFR yield curves at the reporting date.

 

 

11.

Stock-Based Compensation

 

Stock-based compensation expense for the three and six months ended June 30, 2024 and 2023 was allocated as follows:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2024

  

2023

  

2024

  

2023

 

Cost of revenues

 $66  $95  $118  $164 

Sales and marketing expenses

  159   195   289   340 

General and administrative expenses

  927   704   1,698   1,573 

Research and development expenses

  126   108   221   178 

Total stock-based compensation expense

 $1,278  $1,102  $2,326  $2,255 

 

As of June 30, 2024, the total compensation costs related to unvested awards not yet recognized was $7.8 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.

 

Restricted stock unit (“RSU”) activity for the six months ended June 30, 2024 was as follows:

 

          

Market-

      

Performance-

     
  

Time-Based

      

Based

      

Based

     
  

Restricted

  

Grant Date

  

Restricted

  

Grant Date

  

Restricted

  

Grant Date

 
  

Stock Units

  

Fair Value

  

Stock Units

  

Fair Value

  

Stock Units

  

Fair Value

 

Balance at December 31, 2023

  1,164,996  $3.28   801,845  $3.37   -  $- 

Granted

  981,540   4.00   -   -   375,895   4.19 

Vested

  (150,383)  4.95   -   -   -   - 

Forfeited

  (41,383)  3.61   -   -   -   - 

Balance at June 30, 2024

  1,954,770  $3.51   801,845  $3.37   375,895  $4.19 

 

Unvested shares related to market-based and performance-based vesting conditions are reflected at 100% of their target vesting amount in the table above. Actual vesting could range from zero up to 150% of their target amounts.

 

Performance-based RSU awards are contingent on the achievement of certain performance metrics. Compensation cost associated with performance-based RSUs are recognized based on the estimated number of shares that the Company ultimately expects will be earned. If the estimated number of shares to be earned is revised in the future, then stock-based compensation expense will be adjusted accordingly.

 

Stock option activity for the six months ended June 30, 2024 was as follows:

 

  

Number of Options

  

Weighted-Average Exercise Price

  

Weighted-Average Remaining Contractual Term

  

Aggregate Intrinsic Value (in thousands)

 

Outstanding and exercisable at December 31, 2023

  924,067  $3.37         

Exercised

  (7,848)  3.58         

Cancelled/Forfeited

  (19,266)  4.46         

Outstanding and exercisable at June 30, 2024

  896,953  $3.35   3.00  $91 

 

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $2.85 as of the last trading day of the reporting period, which would have been received by the option holders had all option holders exercised their options as of that date. The aggregate intrinsic value of options exercised during the six months ended June 30, 2024, was not significant.

 

 

 

12.

Income Tax

 

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which the Company operates and the development of tax planning strategies during the year. In addition, as a global commercial enterprise, the Company’s tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

 

The income tax benefit was $0.4 million and $1.1 million for the three months ended June 30, 2024 and 2023, respectively, and was $0.1 million and $0.5 million for the six months ended June 30, 2024 and 2023, respectively. The Company’s effective tax rates of 10.8% and 1.8% for the three and six months ended June 30, 2024, respectively, were lower than the U.S. statutory rate primarily due to the inclusion of non-deductible executive compensation and changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company’s effective tax rates of 53.3% and 59.8% for the three and six months ended June 30, 2023 were higher than the U.S. statutory rate primarily due to a Global Intangible Low-Taxed Income (“GILTI”) inclusion to taxable income and changes in valuation allowances. The Company has valuation allowances against substantially all of its tax credit carryforwards.

 

 

13.

Commitments and Contingent Liabilities

 

The Company is involved in various 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 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.

 

In addition, the Company has entered into indemnification agreements with its directors and officers. It is not possible to determine the maximum potential liability amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. The Company has not recorded any liability for costs related to contingent indemnification obligations as of June 30, 2024.

 

The Company is subject to unclaimed property laws in the ordinary course of its business.  State escheat laws generally require entities to report and remit abandoned and unclaimed property to the state. Failure to timely report and remit the property can result in assessments that could include interest and penalties, in addition to the payment of the escheat liability itself. The Company recorded a credit of $(0.1) million and an expense of $0.3 million during the three and six months ended June 30, 2024, respectively, related to unclaimed property audits which have been included in other operating expenses in the consolidated statement of operations.

 

 

14.

Product Line Disposition

 

In February 2023, the Company sold its Hoefer product line for $0.5 million. The carrying value of assets sold was $0.1 million resulting in a gain on disposition of $0.4 million which was recorded in other income, net in the consolidated statement of operations for the six months ended June 30, 2023. Revenue and gross profit of this disposed product line included in the condensed consolidated statement of operations for the six months ended June 30, 2023 were not significant.

 

 

 

15.

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 activities from time to time to transform its business. A portion of these transformation activities are considered restructuring costs under ASC 420, Exit or Disposal Cost Obligations, and are discussed below.

 

During the three and six months ended June 30, 2024, the Company completed a restructuring and incurred expenses of $0.4 million, primarily consisting of severance incurred in connection with headcount reductions in Europe and North America. The changes in the accrued liability for restructuring and other charges for the six months ended June 30, 2024 were as follows:

 

(in thousands)

 

Inventory-Related

  

Severance

  

Total

 

Balance at December 31, 2023

 $84  $-  $84 

Restructuring and other exit costs

  41   396   437 

Non-cash charges

  (27)  -   (27)

Cash payments

  (98)  (320)  (418)

Balance at June 30, 2024

 $-  $76  $76 

 

The inventory-related costs are included in cost of revenues and the severance costs have been included as a component of other operating expenses (see Note 1).

 

 

16.

Subsequent Event

 

On August 6, 2024, the Company entered into the August 2024 Amendment to the Credit Agreement as described in Note 8 – Long-Term Debt.

 

 

 

 

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. We discuss many of these risks in detail in our Annual Report on Form 10-K for the year ended December 31, 2023 and our other filings with the SEC. You should carefully review all of these factors, as well as other risks described in our public filings, and you should be aware that there may be other factors, including factors of which we are not currently aware, that could cause these differences. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. 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. Harvard Bioscience, Inc. is referred to herein as we,” “our,” “us,and the Company.

 

Overview

 

Harvard Bioscience, Inc., a Delaware corporation, is a leading developer, manufacturer and seller of technologies, products and services that enable fundamental advances in life science applications, including research, pharmaceutical and therapy discovery, bioproduction and preclinical testing for pharmaceutical and therapy development. Our products and services are sold globally to customers ranging from renowned academic institutions and government laboratories to the world’s leading pharmaceutical, biotechnology and contract research organizations (“CROs”). With operations in the United States, Europe and China, we sell through a combination of direct and distribution channels to customers around the world.

 

Trends and Developments

 

Our business is affected by global and regional economic trends and uncertainties. The global economy has recently experienced increasing uncertainty as a result of developments including inflationary pressure, higher interest rates, fluctuations in exchange rates, economic conditions in China, and the events in Ukraine and the Middle East. Our business has also been affected by the softening of certain international markets, especially in China and the Asia-Pacific region, as well as by delays in government funding for certain customers. Our business has been affected by a reduced demand from our biotechnology and pharmaceutical company customers, due principally to the increased cost of capital and a reduction in spending following the COVID-19 pandemic.

 

If these trends are prolonged or are more severe, or if the recovery is less robust or takes longer than anticipated, our business, results of operations, and cash flow may be materially impacted.

 

 

 

Selected Results of Operations

 

Three months ended June 30, 2024, compared to three months ended June 30, 2023

 

  

Three Months Ended June 30,

 

(dollars in thousands)

 

2024

  

% of revenue

  

2023

  

% of revenue

 

Revenues

 $23,097      $28,759     

Gross profit

  13,218   57.2%  16,673   58.0%

Sales and marketing expenses

  5,395   23.4%  6,178   21.5%

General and administrative expenses

  5,686   24.6%  5,353   18.6%

Research and development expenses

  2,626   11.4%  2,957   10.3%

Amortization of intangible assets

  1,331   5.8%  1,389   4.8%

Other operating expenses

  249   1.1%  -   - 

Interest expense

  749   3.2%  941   3.3%

Loss on equity securities

  281   1.2%  1,581   5.5%

Income tax benefit

  (353)  -1.5%  (1,118)  -3.9%

 

Revenues

 

Revenues decreased $5.7 million, or 19.7%, to $23.1 million for the three months ended June 30, 2024, compared to $28.8 million for the three months ended June 30, 2023. The decrease in revenue was primarily due to softening of worldwide demand compared to a strong second quarter in 2023 as well as decreased sales of preclinical products from contract research organizations (CRO’s).

 

Gross profit

 

Gross profit decreased $3.5 million, or 20.7%, to $13.2 million for the three months ended June 30, 2024, compared with $16.7 million for the three months ended June 30, 2023, primarily due to the decrease in revenues. Gross margin decreased to 57.2% for the three months ended June 30, 2024, compared with 58.0% for the three months ended June 30, 2023. The decrease in gross margin was primarily the result of under-absorption of fixed manufacturing overhead costs due to the decrease in revenues and lower mix of high margin products.

 

Sales and marketing expenses

 

Sales and marketing expenses decreased $0.8 million, or 12.7%, to $5.4 million for the three months ended June 30, 2024, compared with $6.2 million for the three months ended June 30, 2023. The decrease was primarily due to lower compensation and travel costs.

 

General and administrative expenses

 

General and administrative expenses increased $0.3 million, or 6.2%, to $5.7 million for the three months ended June 30, 2024, compared with $5.4 million for the three months ended June 30, 2023. The increase was primarily due to higher stock-based compensation expense as a result of forfeitures during the prior year period.

 

Research and development expenses

 

Research and development expenses decreased $0.4 million, or 11.2%, to $2.6 million for the three months ended June 30, 2024, compared with $3.0 million for the three months ended June 30, 2023. The decrease was primarily due to lower compensation costs.

 

Amortization of intangible assets

 

Amortization of intangible assets included in operating expenses was $1.3 million for the three months ended June 30, 2024, compared with $1.4 million for the three months ended June 30, 2023.

 

Other operating expenses

 

Other operating expenses for the three months ended June 30, 2024 was $0.2 million and included $0.4 million of restructuring costs in connection with headcount reductions in Europe and North America, which was partially offset by a credit of $0.1 million related to closure of an unclaimed property audit.

 

 

Interest expense

 

Interest expense decreased $0.2 million, or 20.4%, to $0.7 million for the three months ended June 30, 2024, compared with $0.9 million for the three months ended June 30, 2023. The decrease was primarily due to lower average borrowings during the period.

 

Loss on equity securities

 

As of March 31, 2024, we held shares of common stock of HRGN with an estimated fair value of $1.7 million. These shares were received in April 2023 in connection with settlement of indemnification obligations related to litigation which was resolved during the year ended December 31, 2022. During the three months ended June 30, 2024, we sold all of our remaining HRGN shares for $1.4 million and recorded a loss of $0.3 million.

 

Income tax benefit

 

The income tax benefit was $0.4 million and $1.1 million for the three months ended June 30, 2024 and 2023, respectively. The effective tax rates for the three months ended June 30, 2024 and 2023 were 10.8% and 53.3%, respectively. The lower effective tax rate during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was related to a decrease in the Global Intangible Low Tax Income (“GILTI”) inclusion. The effective tax rate for both the second quarters of 2024 and 2023 differed from the U.S. statutory rate primarily due to the inclusion of non-deductible executive compensation and changes in valuation allowances associated with our assessment of the likelihood of the recoverability of deferred tax assets.

 

Six months ended June 30, 2024, compared to six months ended June 30, 2023

 

  

Six Months Ended June 30,

 

(dollars in thousands)

 

2024

  

% of revenue

  

2023

  

% of revenue

 

Revenues

 $47,609      $58,734     

Gross profit

  27,990   58.8%  35,019   59.6%

Sales and marketing expenses

  11,299   23.7%  12,156   20.7%

General and administrative expenses

  11,649   24.5%  11,687   19.9%

Research and development expenses

  5,511   11.6%  5,854   10.0%

Amortization of intangible assets

  2,664   5.6%  2,777   4.7%

Other operating expenses

  1,215   2.6%  -   - 

Interest expense

  1,500   3.2%  1,915   3.3%

Loss on equity securities

  1,593   3.3%  1,581   2.7%

Income tax benefit

  (143)  -0.3%  (533)  -0.9%

 

Revenues

 

Revenues decreased $11.1 million, or 18.9%, to $47.6 million for the six months ended June 30, 2024, compared to $58.7 million for the six months ended June 30, 2023. The decrease in revenue was primarily due to softening worldwide demand compared to a strong first half in 2023 as well as decreased sales of preclinical products from CRO’s.

 

Gross profit

 

Gross profit decreased $7.0 million, or 20.1%, to $28.0 million for the six months ended June 30, 2024 compared with $35.0 million for the six months ended June 30, 2023, primarily due to the decrease in revenues. Gross margin decreased to 58.8% for the six months ended June 30, 2024, compared with 59.6% for the six months ended June 30, 2023. The decrease in gross margin was primarily the result of under-absorption of manufacturing overhead costs due to the decrease in revenues.

 

Sales and marketing expenses

 

Sales and marketing expenses decreased $0.9 million, or 7.1%, to $11.3 million for the six months ended June 30, 2024, compared with $12.2 million for the six months ended June 30, 2023. The decrease was primarily due to lower compensation and travel costs.

 

General and administrative expenses

 

General and administrative expenses remained relatively unchanged and were $11.6 million for the six months ended June 30, 2024, compared with $11.7 million for the six months ended June 30, 2023. Decreases in compensation during the period were partially offset by increases in professional fees.

 

Research and development expenses

 

Research and development expenses decreased $0.4 million, or 5.9%, to $5.5 million for the six months ended June 30, 2024, compared with $5.9 million for the six months ended June 30, 2023. The decrease was primarily due to lower compensation costs.

 

 

Amortization of intangible assets

 

Amortization of intangible assets included in operating expenses remained relatively unchanged and were $2.7 million for the six months ended June 30, 2024, compared with $2.8 million for the six months ended June 30, 2023.

 

Other operating expenses

 

Other operating expenses for the six months ended June 30, 2024, were $1.2 million and included a fee of $0.5 million in connection with the receipt of employee retention credits, $0.3 million related to settlement of an unclaimed property audit, and restructuring costs of $0.4 million in connection with headcount reductions in Europe and North America.

 

Interest expense

 

Interest expense decreased $0.4 million, or 21.7%, to $1.5 million for the six months ended June 30, 2024, compared with $1.9 million for the six months ended June 30, 2023. The decrease was primarily due to lower average borrowings during the period.

 

Loss on equity securities

 

As of December 31, 2023, we held shares of common stock of HRGN with an estimated fair value of $3.5 million. These shares were received in April 2023 in connection with settlement of indemnification obligations related to litigation which was resolved during the year ended December 31, 2022. During the six months ended June 30, 2024, we sold all of our remaining HRGN shares for $1.9 million and recorded a loss of $1.6 million.

 

Income tax benefit

 

The income tax benefit was $0.1 million and $0.5 million for the six months ended June 30, 2024 and 2023, respectively. The effective tax rates for the six months ended June 30, 2024 and 2023 were 1.8% and 59.8%, respectively. The lower effective tax rate during the six months ended June 30, 2024, compared to the six months ended June 30, 2023 related to a decrease in the GILTI inclusion and changes to reserves for uncertain tax positions. The effective tax rate for both the second quarters of 2024 and 2023 differed from the U.S. statutory rate primarily due to the inclusion of non-deductible executive compensation and changes in valuation allowances associated with our assessment of the likelihood of the recoverability of deferred tax assets.

 

Liquidity and Capital Resources

 

Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations and our revolving credit facility. Our expected cash outlays relate primarily to cash payments due under our Credit Agreement described below as well salaries, inventory, and capital expenditures.

 

We held cash and cash equivalents of $4.0 million and $4.3 million as of June 30, 2024 and December 31, 2023, respectively. Borrowings outstanding were $36.1 million and $37.1 million as of June 30, 2024 and December 31, 2023, respectively.

 

We maintain a Credit Agreement which provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility both maturing on December 22, 2025. On March 28, 2024, we entered into an amendment to the Credit Agreement pursuant to which the Lenders and administrative agent modified the definition of Consolidated EBITDA used in the calculation of certain financial covenants to adjust for charges related to the ongoing abandoned property audit and commission fees expected to be paid in connection with our employee retention credit filings.

 

On August 6, 2024, we entered into an amendment to the Credit Agreement that, among other things, modifies the financial covenants relating to the consolidated net leverage ratio and consolidated fixed charge coverage ratio through the period ended December 31, 2024. The amendment also adds a net leverage ratio requirement with respect to additional borrowing under our revolving credit facility and restrictions on certain additional indebtedness and investments, in each case until we deliver to the Lenders our financial statements for the fiscal year ending December 31, 2024. In addition, until delivery of the financial statements, the applicable interest rate margin will be increased by 50bps during such time as the consolidated net leverage ratio is greater than 3.0. We paid fees of $0.2 million to the Lenders in connection with the amendment. As a result of the August 2024 Amendment, we are in compliance with the financial covenants of the Credit Agreement (see Note 8 to the Consolidated Condensed Financial Statements included in Part I, Item 1. of this report).

 

As of June 30, 2024, the weighted average interest rate on our borrowings, net of the effect of the interest rate swaps, was 7.7%, and the available and unused borrowing capacity was $5.4 million. Total revolver borrowing capacity is limited by our consolidated net leverage ratio as defined under the Credit Agreement, as amended on August 6, 2024.

 

Based on our current operating plans, we expect that our available cash, cash generated from current operations and debt capacity will be sufficient to finance current operations and capital expenditures for at least the next 12 months. This assessment includes consideration of our best estimates of the impact of macroeconomic conditions on our financial results described above. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary as a result of a number of factors.

 

 

CONDENSED CONSOLIDATED CASH FLOW STATEMENTS

 

  Six Months Ended June 30, 

(in thousands)

 

2024

  

2023

 

Cash provided by operating activities

 $557  $5,364 

Cash provided by (used in) investing activities

  233   (337)

Cash used in financing activities

  (878)  (5,268)

Effect of exchange rate changes on cash

  (147)  57 

Decrease in cash and cash equivalents

 $(235) $(184)

 

Cash provided by operating activities was $0.6 million and $5.4 million for the six months ended June 30, 2024 and 2023, respectively. Cash flow from operations for the six months ended June 31, 2024 was negatively impacted as a result of the decline in net income for the period adjusted for non-cash items and was positively impacted by the receipt of $3.2 million of employee retention credits.

 

Cash provided by investing activities was $0.2 million for the six months ended June 30, 2024, and consisted of $1.9 million in proceeds from the sale of marketable equity securities, offset by $1.7 million of capital expenditures in manufacturing and information technology infrastructure, and software development. Cash used in investing activities was $0.3 million for the six months ended June 30, 2023, and consisted of $0.8 million of capital expenditures in manufacturing, information technology infrastructure, and software development, partially offset by $0.5 million from proceeds of the sale our Hoefer product line.

 

Cash used in financing activities was $0.9 million and $5.3 million for the six months ended June 30, 2024 and 2023, respectively. During the six months ended June 30, 2024, debt outstanding under our credit facility decreased by $1.0 million, consisting of net borrowings under our revolver of $3.0 million, and payments of $4.0 million against the term loan. We also received proceeds of $0.2 million from the exercise of stock options and employee stock purchases and paid $0.1 million for taxes related to net share settlement of equity awards. During the six months ended June 30, 2023, debt outstanding under our credit facility decreased by $5.5 million, consisting of net payments against our revolver of $2.9 million and payments of $2.6 million against the term loan. During the six months ended June 30, 2023, we also received proceeds of $0.7 million from the exercise of stock options and employee stock purchases and paid $0.5 million for taxes related to net share settlement of equity awards.

 

Impact of Foreign Currencies

 

Our international operations in some instances operate in a natural hedge, as we sell our products in many countries and a substantial portion of our revenues, costs and expenses are denominated in foreign currencies, primarily the euro and British pound.

 

During the three months ended June 30, 2024 changes in foreign currency exchange rates had an insignificant effect on our revenues and expenses. During the six months ended June 30, 2024, changes in foreign currency exchange rates resulted in an unfavorable effect on our revenue of approximately $0.1 million and a favorable effect on expenses of approximately $0.1 million.

 

The gain (loss) associated with the translation of our foreign equity into U.S. dollars included as a component of other comprehensive income (loss) was $(0.1) million and $0.2 million for the three months ended June 30, 2024 and June 30, 2023, respectively, and $(0.9) million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively.

 

Currency exchange rate fluctuations included as a component of net loss resulted in currency losses of $(0.1) million for both the three months ended June 30, 2024 and 2023, respectively, and $(0.1) million for both the six months ended June 30, 2024 and 2023, respectively.

 

Critical Accounting Policies

 

There have been no material changes to the critical accounting policies underlying the accompanying unaudited consolidated financial statements and as set forth in Part II, Item 7 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

 

Recent Accounting Pronouncements

 

For information on recent accounting pronouncements impacting our business, see “Recently Issued Accounting Pronouncements Yet to Be Adopted” included in Note 1 to our Condensed Consolidated Financial Statements included in Part I, Item 1. of this report.

 

 

Item 3.       Quantitative and Qualitative Disclosures about Market Risk

 

Not Applicable.

 

Item 4.       Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As of June 30, 2024, the end of the period covered by this report, our management, including our Chief Executive Officer and our Chief Financial Officer, reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based upon management's review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the second quarter of fiscal 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating our controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud within the Company have been detected.

 

 

 

PART II. OTHER INFORMATION

 

Item 1        Legal Proceedings.

 

The information included in Note 13 to the Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this quarterly report is incorporated herein by reference.

 

Item 1A.    Risk Factors.

 

You should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which could materially affect our business, financial position, or future results of operations. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial position, or future results of operations.

 

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds.

 

There were no unregistered sales of equity securities during the period covered by this report.

 

Item 3.       Defaults Upon Senior Securities.

 

None.

 

Item 4.       Mine Safety Disclosures.

 

Not applicable.

 

 

Item 5.        Other Information.

 

On May 13, 2024Bertrand Loy, a member of our Board of Directorsadopted a trading plan intended to satisfy the affirmative defense available under Rule 10b5-1(c) (the “Trading Plan”) in connection with the exercise of options to purchase shares of our common stock expiring on November 13, 2024 and the sale of the underlying shares. The maximum number of shares of our common stock that may be sold under the Trading Plan is 55,300 shares.

 

The description of the August 2024 Amendment to the Credit Agreement included in Note 8 to the Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this quarterly report is incorporated herein by reference. The foregoing description of the August 2024 Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the August 2024 Amendment, which is filed as Exhibit 10.1 to this quarterly report. 

 

 

Item 6.       Exhibits

 

10.1

Fourth Amendment to Credit Agreement dated August 6, 2024, among Harvard Bioscience, Inc., Citizen Bank, N. A., as the administrative agent, and the lenders party thereto. (filed with this report).

10.2

Form of Director and Officer Indemnification Agreement (filed with this report)

10.3

Form of Time-Based Restricted Stock Unit Award Agreement -2021 Incentive Plan (for awards granted on or after March 5, 2024) (filed with this report)

10.4

Form of Performance-Based Restricted Stock Unit Award Agreement -2021 Incentive Plan (for awards granted on or after March 5, 2024) (filed with this report)

31.1

Certification of Chief Financial Officer of Harvard Bioscience, Inc., pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002..

31.2

Certification of Chief Executive Officer of Harvard Bioscience, Inc., pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

32.1*

Certification of Chief Financial Officer of Harvard Bioscience, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Chief Executive Officer of Harvard Bioscience, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

  

*

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934

 

 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by undersigned thereunto duly authorized.

 

 

HARVARD BIOSCIENCE, INC.

 

Date: August 8, 2024         

   
 

By:

/s/ JAMES GREEN

 
  

James Green

 
  

Chief Executive Officer

 
    
    
 

By:

/s/ JENNIFER COTE  

 
  

Jennifer Cote

 
  

Chief Financial Officer

 

 

 

 

 

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