UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________________
FORM 10-Q
_________________________
☒ | Quarterly report pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2017March 31, 2021
☐ | Transition report pursuant to Section13 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 | (I.R.S. Employer |
Incorporation or |
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 ☒ YESNo ☐ NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ YESNo ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“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 ☐ YESNo ☒ NO
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 27, 2017,April 30, 2021, there were 34,880,51239,956,714 shares of the registrant’s common stock par value $0.01 per share,issued and outstanding.
HARVARD BIOSCIENCE, INC.
FORM 10-Q
For the Quarter Ended September 30, 2017
FORM 10-Q | |
INDEX |
Page | |||
| Item 1. | Financial Statements | 3 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
Unregistered Sales of Equity Securities and Use of Proceeds. | |||
Financial Statements. |
CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except share and per share data) March 31, December 31, 2021 2020 Accounts receivable, net Other current assets Operating lease right-of-use assets Intangible assets, net Other long-term assets Current portion of long-term debt Current portion of operating lease liabilities Other current liabilities Long-term debt Deferred tax liability Operating lease liabilities Other long-term liabilities Commitments and contingencies - Note 13 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; 47,695,539 and 47,152,587 shares issued and 39,950,032 and 39,407,080 shares outstanding, respectively See accompanying notes to CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share data) Three Months Ended March 31, 2021 2020 Revenues Cost of revenues Gross profit Sales and marketing expenses General and administrative expenses Research and development expenses Amortization of intangible assets Total operating expenses Operating loss Other expense: Interest expense Other (expense) income, net Total other expense Loss before income taxes Income tax (benefit) expense Net loss Loss per share: Basic and diluted loss per common share Weighted-average common shares: Basic and diluted See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited, in thousands) Three Months Ended March 31, 2021 2020 Net loss Other comprehensive loss: Foreign currency translation adjustments Derivatives qualifying as hedges, net of tax: Loss on derivative instruments designated and qualifying as cash flow hedges Amounts reclassified from accumulated other comprehensive loss to net loss Derivatives qualifying as hedges, net of tax Other comprehensive loss Comprehensive loss See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited, in thousands) Accumulated Number Additional Other Total of Shares Common Paid-in Accumulated Comprehensive Treasury Stockholders’ Issued Stock Capital Deficit Loss Stock Equity Balance at December 31, 2020 Vesting of restricted stock units Stock option exercises Shares withheld for taxes Stock compensation expense Net loss Other comprehensive loss Balance at March 31, 2021 Balance at December 31, 2019 Vesting of restricted stock units Shares withheld for taxes Stock compensation expense Net loss Other comprehensive loss Balance at March 31, 2020 See accompanying notes to CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Three Months Ended March 31, 2021 2020 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation Amortization of intangible assets Amortization of deferred financing costs Stock-based compensation expense Other Changes in operating assets and liabilities: Accounts receivable Inventories Other assets Accounts payable and accrued expenses Deferred revenue Other liabilities Net cash provided by operating activities Cash flows from investing activities: Additions to property, plant and equipment Addition to intangible assets Net cash used in investing activities Cash flows from financing activities: Repayments of debt Debt issuance costs Proceeds from exercise of stock options Taxes paid for issuance of stock Net cash used in financing activities Effect of exchange rate changes on cash Decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosures of cash flow information: Cash paid for interest Cash paid (received) for income taxes, net of refunds See accompanying notes to NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited consolidated financial statements of Harvard Bioscience, Inc. and its wholly-owned subsidiaries (collectively, Harvard Bioscience or the Company) as of In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of Summary of Significant Accounting Policies The accounting policies underlying the accompanying unaudited consolidated financial statements are those set forth in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form Risks and Uncertainties On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The COVID-19 pandemic has had a negative impact on the Company’s operations to date and the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. Since the COVID-19 outbreak in the United States, Europe and elsewhere, many customers, particularly academic research institutions, have been unable to maintain laboratory work which has negatively impacted, and will continue to negatively impact, our sales. Additionally, to ensure business continuity while maintaining a safe environment for employees aligned with guidance from government and health organizations, the Company transitioned the majority of its workforce to work-from-home while implementing social distancing requirements and other measures in factories to allow manufacturing and other personnel essential to production to continue work within our facilities. Business travel was significantly reduced during this period. While the Company has maintained operations under these conditions, these measures represent disruptions which can impact productivity including sales and marketing activities. Accordingly, these conditions in addition to the overall impact on the global economy have negatively impacted our results of operations and cash flows. 2. Recently Issued Accounting Pronouncements Accounting Pronouncements Adopted In Accounting Pronouncements to be Adopted In September 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 3. Goodwill and Intangible Assets The change in the carrying amount of goodwill for the (in thousands) Carrying amount at December 31, 2020 Effect of change in currency translation Carrying amount at March 31, 2021 March 31, 2021 December 31, 2020 (in thousands) Amortizable intangible assets: Weighted Average Life* Gross Accumulated Amortization Net Gross Accumulated Amortization Net Distribution agreements/customer relationships Existing technology Trade names and patents Total amortizable intangible assets Indefinite-lived intangible assets: Total intangible assets * Weighted average life in Intangible asset amortization expense was Amortization Year Ending December 31, Expense (in thousands) 2021 (remainder of year) 2022 2023 2024 2025 Thereafter Total 4. Balance Sheet Information The following tables provide details of selected balance sheet items as of the periods indicated: Inventories: March 31, December 31, (in thousands) 2021 2020 Finished goods Work in process Raw materials Total Current Liabilities: March 31, December 31, (in thousands) 2021 2020 Compensation Professional fees Warranty costs Customer related costs Accrued income taxes Other Total 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. (in thousands) Severance Other Total Balance at December 31, 2020 Restructuring and other exit costs Cash payments Balance at March 31, 2021 The restructuring liability has been included in other current liabilities in the consolidated balance sheet and is substantially payable within the next twelve months. Restructuring costs were $0.6 million and $0.9 million during the three months ended March 31, 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 the2014 acquisitions of Multi Channel Systems MCS GmbH three months ended March 31, 2021 and 2020, respectively. 7. Leases The Company has noncancelable operating leases for The components of lease expense Three Months Ended March 31, (in thousands) 2021 2020 Operating lease cost Short term lease cost Sublease income Total lease cost Supplemental cash flow information related to the Company's operating leases was Three Months Ended March 31, (in thousands) 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Supplemental balance sheet information related to the (in thousands) March 31, 2021 December 31, 2020 Operating lease right-of use assets Current portion, operating lease liabilities Operating lease liabilities, long term Total operating lease liabilities Weighted average remaining lease term (in years) Weighted average discount rate Future minimum lease payments for operating leases, with initial or remaining terms in excess of one year at (in thousands) Operating Leases 2022 2023 2024 2025 2026 Thereafter Total lease payments Less interest Total operating lease liabilities 8. Capital Stock and Stock-Based Compensation Stock-Based Payment Awards 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 Granted Exercised Vested (RSUs) Cancelled/Forfeited Balance at March 31, 2021 Stock-based compensation expense related to stock options, restricted stock units, Market Condition RSU’s and the ESPP for the three Three Months Ended March 31, (in thousands) 2021 2020 Cost of revenues Sales and marketing expenses General and administrative expenses Research and development expenses Total stock-based compensation expenses As of March 31, 2021, the total compensation costs related to unvested awards not yet recognized is $7.8 million and the weighted average period over which it is expected to be recognized is approximately 2.4 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 three months ended March 31, 2021 was $4.61. The following assumptions were used to estimate the fair value of the Market Condition RSUs granted during the three months ended March 31, 2021 using a Monte-Carlo valuation simulation: 2021 Volatility % Risk-free interest rate % Correlation coefficient % Dividend yield % Earnings Basic earnings (loss) per share is Three Months Ended March 31, 2021 2021 2020 Dilutive effect of equity awards 9. Long-Term Debt As of March 31, 2021 and December 31, 2020, the Company’s borrowings were comprised of: March 31, December 31, (in thousands) 2021 2020 Long-term debt: Term loan Revolving line Less: unamortized deferred financing costs Total debt Less: current installments Current unamortized deferred financing costs Long-term debt On “Lenders”). The Credit Agreement Borrowings under the Credit Facility will, at the option of the Company, 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 10. Derivatives The Company The following table summarizes the effect of derivatives designated as cash flow hedging instruments and their classification within comprehensive loss for the three Three Months Ended (in thousands) March 31, 2020 Amount of loss recognized in OCI on derivatives (effective portion) Amounts reclassified from accumulated other comprehensive loss to interest expense Total 11. Revenues The following tables Three Months Ended March 31, (in thousands) 2021 2020 Instruments, equipment, software and accessories Service, maintenance and warranty contracts Total revenues The Three Months Ended March 31, (in thousands) 2021 2020 United States Europe Asia Rest of the world Total revenues No customer accounted for more than 10% of revenues for the three months ended March 31, 2021 and 2020. Deferred revenue Changes in deferred revenue from service contracts and advance payments from customers were as follows: Three Months Ended March 31, 2021 Service Customer (in thousands) Contracts Advances Total Balance, beginning of period Deferral of revenue Recognition of deferred revenue Effect of foreign currency translation Balance, end of period Three Months Ended March 31, 2020 Service Customer (in thousands) Contracts Advances Total Balance, beginning of period Deferral of revenue Recognition of deferred revenue Effect of foreign currency translation Balance, end of period Allowance for Doubtful Accounts Allowance for doubtful accounts is based on the Company’s Three Months Ended March 31, (in thousands) 2021 2020 Balance, beginning of period Bad debt expense Charge-offs and other recoveries Effect of foreign currency translation Balance, end of period 12. Income Tax Income tax The difference between the Company’s effective tax rates in 2021 and 2020 compared to the U.S. statutory tax rate 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, against the Company and other defendants, including Biostage, Inc. (f/k/a Harvard Apparatus Regenerative Technology, Inc.), our former subsidiary that was Item 2. Management’s 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 Unless the context requires otherwise, references in this Quarterly Report to “we,” “us” and “our” refer to Harvard Bioscience, Inc., and its subsidiaries. Overview Harvard Bioscience, Inc. Recent Developments COVID-19 On March 11, 2020, the World Health Organization declared the outbreak of a Restructuring Plan In December 2019, we implemented a restructuring plan (the “2019 Restructuring Plan”) to deliver significant cost savings beginning in 2020 and support delivery of a strategic action plan announced in September Selected Results of Operations Three Three Months Ended March 31, (dollars in thousands) 2021 % of revenue 2020 % of revenue Revenues Gross profit Sales and marketing expenses General and administrative expenses Research and development expenses Amortization of intangible assets Interest expense Income tax (benefit) expense Revenues Revenues for the three months ended Sales and marketing expenses Sales and marketing expenses General and administrative expenses General and administrative expenses were Research and development expenses Research and development expenses were Amortization of intangible assets Amortization of intangible asset expenses was Income tax The difference between our effective tax rates in 2021 and 2020 compared to the U.S. statutory tax rate 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 as As of On As of March 31, 2021, the interest rate on our borrowings was 3.25%, and our available borrowing capacity under the revolving line of credit was $19.6 million. We are Based on our current operating plans, including actions taken to mitigate the impact of COVID-19, we expect that our available cash, cash generated from current operations and 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 CONDENSED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Three Months Ended March 31, 2021 2020 Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Effect of exchange rate changes on cash Decrease in cash and cash equivalents Cash provided by operations was $1.0 million and $2.9 million for the three months ended March 31, 2021 and 2020, respectively. Cash flow from operations for the three months ended March 31, 2021, was lower than prior year due to variable compensation paid in 2021 and higher levels of working capital due to sales growth. Cash flow from operations for the three months ended March 31, 2020 was positively impacted by reductions in working capital due to lower revenue and management efforts to offset the initial significant negative impacts that the COVID-19 pandemic had on revenue. Cash used in investing activities was $0.3 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively, primarily consisting of capital expenditures. Cash used in financing activities was $3.1 million and $5.1 million for the three months ended March 31, 2021 and 2020, respectively. During the three months ended March 31, 2021, we repaid $4.5 million of debt, which included a term loan installment payment of $0.5 million and paydown of debt under our revolving facility of $4.0 million. Net cash proceeds from the issuance of common stock associated with stock option exercises were $1.5 million. During the three months ended March 31, 2020, we repaid $4.8 million of debt, which included a term loan installment payment of $0.8 million and an excess cash flow payment of $4.0 million as required by the Prior Credit Facility. 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, especially the British pound, the euro, the Canadian dollar and the Swedish krona. During the three months ended March 31, 2021, changes in foreign currency exchange rates resulted in a favorable translation effect on our The gain associated with the translation of foreign equity into U.S. dollars included as a component of comprehensive income (loss) during the three months ended March 31, 2021 was approximately $1.3 million, compared to In addition, currency exchange rate fluctuations included as a component of net income resulted in currency gains of approximately $0.1 million and $0.2 million during the three months ended March 31, 2021 and 2020, respectively. Critical Accounting Policies The critical accounting policies underlying the accompanying unaudited consolidated financial statements are those set forth in Part II, Item 7 included in our Annual Report on Form 10-K for the fiscal year ended December 31, Recently Issued Accounting Pronouncements Quantitative and Qualitative Disclosures about Market Risk. Not applicable. Controls and Procedures. As of 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. Legal Proceedings. The information included in Note 13 to the Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item Risk Factors. You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which could materially affect our business, financial position, or future results of operations. The risks described in those filings 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. To our knowledge, and except to the extent additional factual information disclosed in this Quarterly Report on Form 10-Q relates to such risk factors, there 2020. Unregistered Sales of Equity Securities and Use of Proceeds. There were no unregistered sales of equity securities during the period covered by this report. Defaults Upon Senior Securities. None. Mine Safety Disclosures. Not applicable. Other Information. None. Exhibits 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) 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. Date: May 7, 2021 HARVARD BIOSCIENCE, INC. By: /s/ JAMES GREEN James Green Chief Executive Officer By: / s/ MICHAEL A. ROSSI Michael A. Rossi (Unaudited, in thousands, except share and per share data) September 30, December 31, 2017 2016 Assets Current assets: Cash and cash equivalents $ 5,836 $ 5,596 $ 5,815 $ 8,317 Accounts receivable, net of allowance for doubtful accounts of $600 and $611, respectively 15,266 15,746 17,074 17,766 Inventories 21,380 19,955 22,676 22,262 Other receivables and other assets 4,917 4,175 3,658 3,355 Total current assets 47,399 45,472 49,223 51,700 Property, plant and equipment, net 4,265 4,296 3,699 3,960 Deferred income tax assets 1,273 1,157 Amortizable intangible assets, net 16,543 17,471 7,408 7,761 Goodwill 39,837 38,032 58,219 58,590 Other indefinite lived intangible assets 1,240 1,209 Other assets 121 128 31,888 33,151 812 1,092 Total assets $ 110,678 $ 107,765 $ 151,249 $ 156,254 Liabilities and Stockholders' Equity Current liabilities: Current portion, long-term debt $ 2,765 $ 2,372 $ 1,970 $ 1,721 2,060 2,111 Accounts payable 5,607 6,196 6,416 5,972 Deferred revenue 633 500 3,637 3,771 Accrued income taxes 207 223 Accrued expenses 4,483 4,550 Other liabilities - current 252 760 6,635 7,478 Total current liabilities 13,947 14,601 20,718 21,053 Long-term debt, less current installments 9,674 11,374 Deferred income tax liabilities 6,624 6,417 Other long term liabilities 3,528 3,177 41,600 46,286 1,809 1,899 7,159 7,481 2,848 2,854 Total liabilities 33,773 35,569 74,134 79,573 Commitments and contingencies 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; 42,626,019 and 42,186,827 shares issued and 34,880,512 and 34,441,320 shares outstanding, respectively 418 418 0 0 448 444 Additional paid-in-capital 217,636 215,134 234,781 232,357 Accumulated deficit (117,966 ) (116,030 ) (133,055 ) (132,386 ) Accumulated other comprehensive loss (12,515 ) (16,658 ) (14,391 ) (13,066 ) Treasury stock at cost, 7,745,507 common shares (10,668 ) (10,668 ) (10,668 ) (10,668 ) Total stockholders' equity 76,905 72,196 77,115 76,681 Total liabilities and stockholders' equity $ 110,678 $ 107,765 $ 151,249 $ 156,254 unauditedconsolidated financial statements. $ 26,989 $ 23,771 11,558 10,789 15,431 12,982 5,386 5,579 6,333 6,759 2,487 2,490 1,464 1,427 15,670 16,255 (239 ) (3,273 ) (411 ) (1,299 ) (34 ) 111 (445 ) (1,188 ) (684 ) (4,461 ) (15 ) 55 $ (669 ) $ (4,516 ) $ (0.02 ) $ (0.12 ) 39,787 38,329 $ (669 ) $ (4,516 ) (1,325 ) (1,576 ) 0 (216 ) 0 72 0 (144 ) (1,325 ) (1,720 ) $ (1,994 ) $ (6,236 ) HARVARD BIOSCIENCE, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(Unaudited, in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Revenues $ 25,050 $ 25,007 $ 74,419 $ 78,106 Cost of revenues 13,411 13,317 39,994 41,796 Gross profit 11,639 11,690 34,425 36,310 Sales and marketing expenses 5,081 5,006 15,111 15,194 General and administrative expenses 4,534 4,783 14,144 15,979 Research and development expenses 1,538 1,309 4,119 4,236 Amortization of intangible assets 622 729 1,825 2,099 Impairment charges - 676 - 676 Total operating expenses 11,775 12,503 35,199 38,184 Operating loss (136 ) (813 ) (774 ) (1,874 ) Other (expense) income: Foreign exchange (73 ) 138 (488 ) 411 Interest expense, net (189 ) (141 ) (531 ) (484 ) Other expense, net (12 ) (64 ) (122 ) (143 ) Other expense, net (274 ) (67 ) (1,141 ) (216 ) Loss before income taxes (410 ) (880 ) (1,915 ) (2,090 ) Income tax expense (benefit) 7 758 (51 ) 897 Net loss $ (417 ) $ (1,638 ) $ (1,864 ) $ (2,987 ) Loss per share: Basic loss per common share $ (0.01 ) $ (0.05 ) $ (0.05 ) $ (0.09 ) Diluted loss per common share $ (0.01 ) $ (0.05 ) $ (0.05 ) $ (0.09 ) Weighted average common shares: Basic 34,840 34,327 34,706 34,157 Diluted 34,840 34,327 34,706 34,157 Comprehensive income (loss): Net loss $ (417 ) $ (1,638 ) $ (1,864 ) $ (2,987 ) Foreign currency translation adjustments 1,181 (2,006 ) 4,189 (1,390 ) Derivatives qualifying as hedges, net of tax: Gain (loss) on derivative instruments designated and qualifying as cash flow hedges - 11 (89 ) (37 ) Amounts reclassified from accumulated other comprehensive loss to net loss 21 8 43 31 Total comprehensive income (loss) $ 785 $ (3,625 ) $ 2,279 $ (4,383 ) 47,153 $ 444 $ 232,357 $ (132,386 ) $ (13,066 ) $ (10,668 ) $ 76,681 340 0 0 0 0 0 0 311 4 1,920 0 0 0 1,924 (108 ) 0 (464 ) 0 0 0 (464 ) - 0 968 0 0 0 968 - 0 0 (669 ) 0 0 (669 ) - 0 0 0 (1,325 ) 0 (1,325 ) 47,696 $ 448 $ 234,781 $ (133,055 ) $ (14,391 ) $ (10,668 ) $ 77,115 45,934 $ 438 $ 229,189 $ (124,576 ) $ (12,689 ) $ (10,668 ) $ 81,694 268 0 0 0 0 0 0 (81 ) 0 (242 ) 0 0 0 (242 ) - 0 793 0 0 0 793 - 0 0 (4,516 ) 0 0 (4,516 ) - 0 0 0 (1,720 ) 0 (1,720 ) 46,121 $ 438 $ 229,740 $ (129,092 ) $ (14,409 ) $ (10,668 ) $ 76,009 unaudited consolidated financial statements.HARVARD BIOSCIENCE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited, in thousands) Nine Months Ended September 30, 2017 2016 Cash flows from operating activities: Net loss $ (1,864 ) $ (2,987 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock compensation expense 2,604 2,596 Depreciation 1,009 1,173 Impairment charges - 676 Non-cash restructuring credits - (27 ) Amortization of catalog costs 31 13 Provision for allowance for doubtful accounts 1 59 Amortization of intangible assets 1,825 2,099 Amortization of deferred financing costs 36 72 Deferred income taxes - 455 Changes in operating assets and liabilities: Decrease in accounts receivable 1,000 2,145 (Increase) decrease in inventories (608 ) 735 Increase in other receivables and other assets (563 ) (742 ) Decrease in trade accounts payable (786 ) (2,785 ) Increase (decrease) in accrued income taxes 35 (158 ) (Decrease) increase in accrued expenses (830 ) 296 Increase in deferred revenue 99 29 Increase in other liabilities 7 7 Net cash provided by operating activities 1,996 3,656 Cash flows used in investing activities: Additions to property, plant and equipment (677 ) (920 ) Additions to catalog costs (39 ) (34 ) Net cash used in investing activities (716 ) (954 ) Cash flows used in financing activities: Proceeds from issuance of debt 2,250 3,000 Repayments of debt (3,502 ) (6,738 ) (Net taxes paid for) net proceeds from issuance of common stock (101 ) 80 Net cash used in financing activities (1,353 ) (3,658 ) Effect of exchange rate changes on cash 313 (443 ) Increase (decrease) in cash and cash equivalents 240 (1,399 ) Cash and cash equivalents at the beginning of period 5,596 6,744 Cash and cash equivalents at the end of period $ 5,836 $ 5,345 Supplemental disclosures of cash flow information: Cash paid for interest $ 503 $ 468 Cash (refunded) paid for income taxes $ (96 ) $ 725 $ (669 ) $ (4,516 ) 445 484 1,464 1,427 70 98 968 793 (53 ) (162 ) 584 5,149 (602 ) (1,413 ) (94 ) (767 ) (245 ) 2,739 (135 ) (256 ) (696 ) (705 ) 1,037 2,871 (151 ) (241 ) (150 ) 0 (301 ) (241 ) (4,500 ) (4,829 ) (101 ) 0 1,924 0 (464 ) (242 ) (3,141 ) (5,071 ) (97 ) (12 ) (2,502 ) (2,453 ) 8,317 8,335 $ 5,815 $ 5,882 $ 458 $ 1,237 $ (113 ) $ 110 unaudited consolidated financial statements.1. Basis of Presentation, Risks and Uncertainties, and Summary of Significant Accounting PoliciesSeptember 30, 2017 March 31, 2021 and for the three and nine months ended September 30, 2017 March 31, 2021 and 20162020, 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, 20162020 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-K10-K for the fiscal year ended December 31, 2016, which was filed with the SEC on March 17, 2017.2020.September 30, 2017, March 31, 2021, results of operations and comprehensive loss for the three and nine months ended September 30, 2017 and 2016income (loss) and cash flows for the ninethree months ended September 30, 2017 March 31, 2021 and 2016,2020, as applicable, have been made. The results of operations for the ninethree months ended September 30, 2017 March 31, 2021 are not necessarily indicative of the operating results for the full fiscal year or any future periods.10-K10-K for the year ended December 31,2020. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2016, which was filed with the SEC on March 17, 2017.2021.2. May 2014, December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which enhances and simplifies various aspects of the income tax accounting guidance related to intra-period tax allocation, interim period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim period tax accounting. ASU 2019-12 also amends other aspects of the guidance to reduce complexity in certain areas. The Company adopted the provisions of ASU 2019-12 effective on January 1, 2021. The adoption of this new accounting guidance did not have a material impact on the Company’s consolidated financial statements.2014-09,No.2016-13,Revenue from Contracts with Customers,Financial Instrumentsa new accounting standard that provides for a comprehensive—Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments (ASU 2016-13), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurredlosses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the accountingearlier recognition of allowances for revenue arising from contracts with customers that will replace most existing revenue recognitionlosses. The FASB issued several ASUs after ASU 2016-13 to clarify implementation guidance within generally accepted accounting principles in the United States. Under this standard, revenue will be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company expects to adopt this standard as of January 1, 2018 using the modified retrospective approach.The Company is in the process of evaluating the impact of the new standard on its consolidated financial position, results of operations and cash flows. As part of this process, the Company has conducted a comprehensive assessment of its contracts concerning any unique customer contract terms or transactions that could have implications under the new guidance. The Company has identified its significant revenue streams, which currently consist primarily of product revenue transactions, and to a lesser extent, extended warranty transactions onprovide transition relief for certain product sales, and revenues from government contracts. The Companyentities. ASU 2016-13 is in the process of updating its revenue recognition policy, systems, and internal controls in response to the new update. The Company does not expect material changes to the timing of revenue recognition, nor does it expect significant changes to its systems or internal controls.Finally, the Company is evaluating the disclosure requirements under the new standard, which are generally more expansive than current guidance. The Company expects these undertakings will be complete in the fourth quarter of 2017. Based on procedures to date, the Company does not anticipate material changes to its consolidated financial statements. The Company continues to work through the adoption process and it is possible that these preliminary conclusions could change.In February 2016, the FASB issued ASU 2016-02,Leases, which is intended to improve financial reporting about leasing transactions. The update requires a lessee to record on the balance sheet the assets and liabilitieseffective for the rights and obligations created by lease terms of more than 12 months. The update is effectiveCompany for fiscal years beginning after December 15, 2018.2022, with early adoption permitted. The Company has commenced the process ofis evaluating the requirements of the standard as well as collecting information on all its leases. The Company has not yet concluded on the impact of the adoption on its consolidated financial position, results of operationsthat adopting ASU 2016-13 and cash flows, however, assets and liabilitiesrelated amendments will increase upon adoption for right-of-use assets and lease liabilities. The Company’s future commitments under lease obligations are summarized in Note 10.- 6 -In May 2017, the FASB issued ASU 2017-09,Stock compensation (Topic 718): Scope of modification accountingwhich amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The Company has evaluated the requirements of this guidance and does not expect the adoption of the standard to have a material impact on its consolidated financial position, results of operations and cash flows.In August 2017, the FASB issued ASU 2017-12,Derivatives and Hedging (Topic 815) which amends the hedge accounting recognition and presentation requirements in ASC 815. The Board’s objectives in issuing the ASU are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. The ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. The Company is evaluating the requirements of this guidance and has not yet determined the impact of the adoption on its consolidated financial position, results of operations and cash flows.Recently Adopted Accounting PronouncementsGoodwillIn March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.The standard requires an entity to recognize all excess tax benefits and tax deficiencies as income tax benefit or expense in the income statement as discrete items in the reporting period in which they occur, and such tax benefits and tax deficiencies are not included in the estimate of an entity’s annual effective tax rate, applied on a prospective basis. Further, the standard eliminates the requirement to defer the recognition of excess tax benefits until the benefit is realized through a reduction to taxes payable. All excess tax benefits previously unrecognized, along with any valuation allowance, should be recognized on a modified retrospective basis as a cumulative adjustment to retained earnings as of the date of adoption. Under ASU 2016-09, an entity that applies the treasury stock method in calculating diluted earnings per share is required to exclude excess tax benefits and deficiencies from the calculation of assumed proceeds since such amounts are recognized in the income statement. Excess tax benefits should also be classified as operating activities in the same manner as other cash flows related to income taxes on the statement of cash flows, as such excess tax benefits no longer represent financing activities since they are recognized in the income statement, and should be applied prospectively or retrospectively to all periods presented.The Company adopted ASU 2016-09 as of January 1, 2017. The Company recorded a cumulative increase in retained earnings of $0.5 million at the beginning of the first quarter of 2017 with a corresponding increase in deferred tax assets related to the prior years’ unrecognized excess tax benefits. An equal amount of valuation allowance was also recorded against these deferred tax assets with a corresponding decrease to retained earnings resulting in no net impact to retained earnings and deferred tax assets. In addition, tax deficiencies related to vested restricted stock units and canceled stock options during the nine months ended September 30, 2017 have been recognized in the current period’s income statement.ASU 2016-09 also allows an entity to elect as an accounting policy either to continue to estimate the total number of awards for which the requisite service period will not be rendered or to account for forfeitures for service based awards as they occur. An entity that elects to account for forfeitures as they occur should apply the accounting change on a modified retrospective basis as a cumulative effect adjustment to retained earnings as of the date of adoption. The Company elected as an accounting policy to account for forfeitures for service based awards as they occur, and as a result, the Company recorded a cumulative effect adjustment of $0.1 million to reduce retained earnings with a corresponding increase in additional paid in capital related to the prior years’ stock-based compensation expense as required under the modified retrospective approach. The tax effect of this adjustment, which included the impact of a valuation allowance was immaterial.- 7 -3. Accumulated Other Comprehensive LossChanges in each component of accumulated other comprehensive loss, net of tax are as follows: Foreign currency Derivatives translation qualifying as Defined benefit (in thousands) adjustments hedges pension plans Total Balance at December 31, 2016 $ (14,200 ) $ - $ (2,458 ) $ (16,658 ) Other comprehensive income before reclassifications 4,189 (89 ) - 4,100 Amounts reclassified from AOCI - 43 - 43 Other comprehensive income 4,189 (46 ) - 4,143 Balance at September 30, 2017 $ (10,011 ) $ (46 ) $ (2,458 ) $ (12,515 ) 4. Goodwill and Other Intangible AssetsIntangible assets consist of the following: Weighted Average September 30, 2017 December 31, 2016 Life (a) (in thousands) Amortizable intangible assets: Gross Accumulated Amortization Gross Accumulated Amortization Existing technology $ 16,090 $ (12,948 ) $ 15,082 $ (11,710 ) 6.6 Years Trade names 7,639 (3,931 ) 7,379 (3,479 ) 7.3 Years Distribution agreements/customer relationships 23,713 (14,081 ) 22,976 (12,862 ) 8.3 Years Patents 223 (162 ) 204 (119 ) 1.4 Years Total amortizable intangible assets 47,665 $ (31,122 ) 45,641 $ (28,170 ) Indefinite-lived intangible assets: Goodwill 39,837 38,032 Other indefinite-lived intangible assets 1,240 1,209 Total goodwill and other indefinite-lived intangible assets 41,077 39,241 Total intangible assets, gross $ 88,742 $ 84,882 (a) Weighted average life as of September 30, 2017. ninethree months ended September 30, 2017 March 31, 2021 is as follows: (in thousands) Balance at December 31, 2016 $ 38,032 Effect of change in currency translation 1,805 Balance at September 30, 2017 $ 39,837 - 8 - $ 58,590 (371 ) $ 58,219 Impairment of intangible assetsIntangible Assets 8.6 $ 17,924 $ (7,864 ) $ 10,060 $ 18,237 $ (7,746 ) $ 10,491 4.9 38,931 (21,413 ) 17,518 38,761 (20,674 ) 18,087 5.1 8,576 (4,511 ) 4,065 8,681 (4,362 ) 4,319 $ 65,431 $ (33,788 ) $ 31,643 $ 65,679 $ (32,782 ) $ 32,897 245 254 $ 31,888 $ 33,151 During the third quarter of 2016, the Company initiated plans to sell the operations of its AHN Biotechnologie GmbH subsidiary (AHN), a manufacturer of liquid handling products, locatedNordhausen, Germany. The Company assessed the held for sale accounting guidance, pursuant to ASC 360-10, and concluded that it had not met all the criteria for AHN’s assets and liabilities to be classified as held for saleyears as of September 30, 2016. As such, AHN’s assets and liabilities were presented as held and used, and the results of its operations included within continuing operations as of, and for the three and nine months ended September 30, 2016, respectively.As a result of the Company initiating plans to sell the operations of AHN, the Company evaluated the long-lived assets for impairment, pursuant to ASC 360-10. Based on the impairment analysis, the carrying amount of the long-lived assets exceeded the fair value of the long-lived assets as determined using the probability weighted present value of future cash flows. As a result, the Company recognized an impairment charge of $0.7 million for the three and nine months ended September 30, 2016 as part of operating expenses within its statements of operations. Of the overall charge, approximately $0.1 million was allocated to its intangible assets (trade name and customer relationships), while the remainder of the charge was allocated to its property, plant and equipment (machinery and equipment).On October 26, 2016, the Company sold AHN for $1.7 million in cash proceeds.Amortization of intangible assetsMarch 31, 2021$0.6$1.5 million and $0.7$1.4 million for the three months ended September 30, 2017 March 31, 2021 and 2016,2020, respectively. Intangible assetEstimated amortization expense was $1.8 million and $2.1 million for the nine months ended September 30, 2017 and 2016, respectively. Amortization expense of existing amortizable intangible assets for each of the five succeeding years and thereafter as of March 31, 2021 is currently estimated to be $2.5 million for the year ending December 31, 2017, $2.4 million for the year ending December 31, 2018, $2.2 million for the year ending December 31, 2019, $2.2 million for the year ending December 31, 2020 and $2.2 million for the year ending December 31, 2021.as follows:5. Inventories $ 4,373 5,798 5,690 5,385 4,273 6,124 $ 31,643 Inventories consist of the following: September 30, December 31, 2017 2016 (in thousands) Finished goods $ 9,737 $ 9,340 Work in process 875 823 Raw materials 10,768 9,792 Total $ 21,380 $ 19,955 6. Property, Plant and EquipmentAs of September 30, 2017 and December 31, 2016, property, plant and equipment consist of the following: September 30, December 31, 2017 2016 (in thousands) Land, buildings and leasehold improvements $ 2,201 $ 2,095 Machinery and equipment 7,844 7,224 Computer equipment and software 9,057 8,115 Furniture and fixtures 1,335 1,274 Automobiles 219 196 20,656 18,904 Less: accumulated depreciation (16,391 ) (14,608 ) Property, plant and equipment, net $ 4,265 $ 4,296 - 9 - $ 5,114 $ 4,938 3,544 3,513 14,018 13,811 $ 22,676 $ 22,262 $ 2,711 3,715 432 432 168 185 1,010 1,093 206 286 2,108 1,767 $ 6,635 $ 7,478 7. Related Party TransactionsThe following table summarizes the changes in the restructuring liabilities for the three months ended March 31, 2021: $ 270 $ 18 $ 288 553 0 553 (256 ) (18 ) (274 ) $ 567 $ 0 $ 567 As part(MCS) and Triangle BioSystems, Inc. (TBSI) in 2014,(“MCS”), the Company signedentered into a facility lease agreementsagreement with the former ownersprincipal owner of MCS who also became an employee of the acquired companies.Company. The principals of such former owners of MCS and TBSI were employees of the Company as of September 30, 2017 and 2016. agreement expires on December 31, 2024. Pursuant to athis lease agreement, the Company incurredmade rent expensepayments of approximately $64 thousand and $59 thousand to the former owners of MCS for the three months ended September 30, 2017 and 2016, respectively. The Company incurred rent expense of approximately $11 thousand to the former owner of TBSI for both the three months ended September 30, 2017 and 2016. The Company incurred rent expense of approximately $0.2 million to the former owners of MCS for both the nine months ended September 30, 2017 and 2016. The Company incurred rent expense of approximately $32 thousand to the former owner of TBSI for both the nine months ended September 30, 2017 and 2016.8.WarrantiesWarranties are estimated and accrued at the time revenues are recorded. A rollforward of the Company’s product warranty accrual is as follows: Beginning Ending Balance Payments Additions Balance (in thousands) Year ended December 31, 2016 $ 147 (97 ) 143 $ 193 Nine months ended September 30, 2017 $ 193 (21 ) 76 $ 248 9. Employee Benefit PlansOne of the Company’s subsidiaries in the United Kingdom, UK, Biochrom Limited, maintains contributory, defined benefit pension plans for substantially all of its employees. As of June 30, 2014, these defined benefit pension plans were closed to new employees, as well as closed to the future accrual of benefits for existing employees. The components of the Company’s defined benefit pension expense were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 (in thousands) Components of net periodic benefit cost: Interest cost $ 141 $ 156 $ 399 $ 492 Expected return on plan assets (179 ) (168 ) (505 ) (530 ) Net amortization loss 98 74 276 233 Net periodic benefit cost $ 60 $ 62 $ 170 $ 195 For the three months ended September 30, 2017 and 2016, the Company contributed $0.2 million, for both periods, to its defined benefit pension plans. For the nine months ended September 30, 2017 and 2016, the Company contributed $0.5 million, for both periods, to its defined benefit pension plans. The Company expects to contribute approximately $0.1 million to its defined benefit pension plans duringfor each of the remainder of 2017.- 10 -The Company had an underfunded pension liability of approximately $3.4 million and $3.0 million, as of September 30, 2017 and December 31, 2016, respectively, included in the other long term liabilities line item in the consolidated balance sheets.10. Leasesofficeoffices, manufacturing facilities, warehouse space, automobiles and warehouse spaceequipment expiring at various dates through 20222024 and thereafter. Rent which is recorded on a straight-line basis, is estimated to be $1.9 million for the year ended December 31, 2017. Rent expense was approximately $0.5 million for both the three months ended September 30, 2017 March 31, 2021 and 2016. Rent expense2020 are as follows: $ 517 $ 535 46 42 (25 ) (107 ) $ 538 $ 470 approximately $1.4 million for bothas follows: $ 611 $ 687 nine months ended September 30, 2017 and 2016, respectively.Company's operating leases was as follows: $ 7,408 $ 7,761 $ 2,060 $ 2,111 7,159 7,481 $ 9,219 $ 9,592 7.3 7.4 9.3 % 9.3 % September 30, 2017, March 31, 2021, are as follows: Operating Leases (in thousands) 2018 $ 1,739 2019 1,740 2020 1,537 2021 1,151 2022 1,133 Thereafter 1,879 Net minimum lease payments $ 9,179 2,060 1,981 1,953 1,482 981 4,611 13,068 (3,849 ) $ 9,219 11. Capital StockCommon StockOn February 5, 2008, the Company’s Board of Directors adopted a Shareholder Rights Plan and declared a dividend distribution of one preferred stock purchase right for each outstanding share of the Company’s common stock to shareholders of record as of the close of business on February 6, 2008. Initially, these rights will not be exercisable and will trade with the shares of the Company’s common stock. Under the Shareholder Rights Plan, the rights generally will become exercisable if a person becomes an “acquiring person” by acquiring 20% or more of the common stock of the Company or if a person commences a tender offer that could result in that person owning 20% or more of the common stock of the Company. If a person becomes an acquiring person, each holder of a right (other than the acquiring person) would be entitled to purchase, at the then-current exercise price, such number of shares of preferred stock which are equivalent to shares of the Company’s common stock having a value of twice the exercise price of the right. If the Company is acquired in a merger or other business combination transaction after any such event, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company’s common stock having a value of twice the exercise price of the right. Unless the Board of Directors elects to extend such plan, the Shareholder Rights Plan will expire in February 2018.Preferred StockThe Company’s Board of Directors has the authority to issue up to 5.0 million shares of preferred stock and to determine the price privileges and other terms of the shares. The Board of Directors may exercise this authority without any further approval of stockholders. As of September 30, 2017, the Company had no preferred stock issued or outstanding.Employee Stock Purchase Plan (as amended, the ESPP)In 2000, the Company approved the ESPP. Under this ESPP, participating employees can authorize the Company to withhold a portion of their base pay during consecutive six-month payment periods for the purchase of shares of the Company’s common stock. At the conclusion of the period, participating employees can purchase shares of the Company’s common stock at 85% of the lower of the fair market value of the Company’s common stock at the beginning or end of the period. Shares are issued under the ESPP for the six-month periods ending June 30 and December 31. On May 18, 2017, the stockholders of the Company approved an increase of 300,000 shares of common stock in the number of shares available for issuance under the ESPP. Following such amendment, 1,050,000 shares of common stock are authorized for issuance, of which 762,141 shares were issued, as of September 30, 2017. There were 36,902 and 39,353 shares issued under the ESPP during the nine months ended September 30, 2017 and 2016, respectively.- 11 -Stock Option and Equity Incentive PlansThird Amended and Restated 2000 Stock Option and Incentive Plan (as amended, the Third A&R Plan)The Second Amendment to the Third A&R Plan (the Amendment) was adopted by the Board of Directors on April 3, 2015. Such Amendment was approved by the stockholders at the Company’s 2015 Annual Meeting of Stockholders. Pursuant to the Amendment, the aggregate number of shares authorized for issuance under the Third A&R Plan was increased by 2,500,000 shares to 17,508,929.Restricted Stock Units with a Market Condition (the Market Condition RSU’s)On August 3, 2015, the Compensation Committee of the Board of Directors of the Company approved and granted deferred stock awards of Market Condition RSU’s to certain members of the Company’s management team under the Third A&R Plan. The vesting of these Market Condition RSU’s is cliff-based and linked to the achievement of a relative total shareholder return of the Company’s common stock from August 3, 2015 to the earlier of (i) August 3, 2018 or (ii) upon a change of control (measured relative to the Russell 3000 index and based on the 20-day trading average price before each such date). As of September 30, 2017, the target number of these restricted stock units that may be earned is 170,903 shares; the maximum amount is 150% of the target number.The Company accounts for stock-based payment awards in accordance with the provisions of FASB ASC 718, which requires it to recognize compensation expense for all stock-based payment awards made to employees and directors including stock options, restricted stock units, Market Condition RSU’s and employee stock purchases related to the ESPP.The Company adopted ASU 2016-09 as of January 1, 2017. As disclosed in footnote 2, as a result of this adoption, the Company has elected as an accounting policy to account for forfeitures for service based awards as they occur, with no adjustment for estimated forfeitures. The Company recognized as of January 1, 2017, a cumulative effect adjustment of $0.1 million to reduce retained earnings as required under the modified retrospective approach.Stock option and restricted stock unit activityActivity under the Company’s Third A&R2000 Stock Option and Incentive Plan, as Amended, for the ninethree months ended September 30, 2017 March 31, 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, 2016 4,096,818 $ 3.94 1,072,653 $ 3.15 182,150 $ 4.81 Granted 62,500 2.99 1,293,771 2.48 - - Exercised (75,913 ) 2.49 - - - - Vested (RSUs) - - (457,395 ) 3.09 - - Cancelled / forfeited (303,013 ) 3.93 (70,486 ) 3.08 (11,247 ) 4.81 Balance at September 30, 2017 3,780,392 $ 3.95 1,838,543 $ 2.70 170,903 $ 4.81 The weighted average fair value of the options granted under the Third A&R Plan during the three months ended September 30, 2017 and 2016 was $1.24 and $1.11, respectively. The weighted average fair value of the options granted under the Third A&R Plan during the nine months ended September 30, 2017 and 2016 was $1.17 and $1.21, respectively. The following assumptions were used to estimate the fair value, using the Black-Scholes option pricing model, of stock options granted during the three and nine months ended September 30, 2017 and 2016: Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Volatility 41.99 % 43.05 % 41.30 % 41.97 % Risk-free interest rate 1.74 % 1.01 % 1.88 % 1.29 % Expected holding period (in years) 5.10 years 5.08 years 5.16 years 5.21 years Dividend yield - % - % - % - % - 12 -The Company used historical volatility to calculate the expected volatility for each grant as of the grant date. Historical volatility was determined by calculating the mean reversion of the daily adjusted closing stock price. The risk-free interest rate assumption is based upon observed U.S. Treasury bill interest rates (risk-free) appropriate for the term of the Company’s stock options and Market Condition RSU’s. The expected holding period of stock options represents the period of time options are expected to be outstanding and is based on historical experience. The vesting period ranges from one to four years and the contractual life is ten years. The correlation coefficient, used to value the Market Condition RSU’s, represents the way in which entities move in relation to the Russell 3000 index as a whole. 2,637,339 $ 3.51 1,560,461 $ 2.44 813,031 $ 2.12 0 0 714,793 4.39 293,509 4.61 (310,169 ) 4.01 - - - - - - (340,395 ) 2.73 0 0 (474,309 ) 4.64 (11,000 ) 4.17 0 0 1,852,861 $ 3.14 1,923,859 $ 3.10 1,106,540 $ 2.78 and nine months ended September 30, 2017 March 31, 2021 and 20162020 was allocated as follows: Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 (in thousands) Cost of revenues $ 16 $ 17 $ 46 $ 44 Sales and marketing 172 159 461 401 General and administrative 709 736 1,995 2,071 Research and development 36 31 102 80 Total stock-based compensation $ 933 $ 943 $ 2,604 $ 2,596 $ 20 $ 10 93 51 834 696 21 36 $ 968 $ 793 65.1 0.3 35.7 0 per share(Loss) Per Sharebased uponcalculated by dividing net income divided(loss) by the number of weighted average shares of common sharesstock outstanding during the period. The calculation of diluted earnings per share assumes conversion of stock options, restricted stock units and Market Condition RSU’sRSUs into common stock using the treasury method. The weighted average number of shares used to compute basic and diluted earnings per share consists of the following: Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Basic 34,840,324 34,327,459 34,705,947 34,156,606 39,787,281 38,328,791 Effect of assumed conversion of employee and director stock options, restricted stock units and Market Condition RSU's - - - - 0 0 Diluted 34,840,324 34,327,459 34,705,947 34,156,606 39,787,281 38,328,791 ExcludedThe Company has excluded from the shares used in calculating the diluted earnings per common share in the above table are options, restricted stock units and Market Condition RSU’sRSUs totaling 4,883,260 and 4,222,425, as of approximately 5,789,838 March 31, 2021 and 5,300,945 shares of common stock for both the three and nine months ended September 30, 2017 and 2016,2020 respectively, as the impact of these shares would be anti-dilutive.- 13 -12. Long Term Debt $ 39,500 $ 40,000 5,400 9,400 (1,330 ) (1,393 ) 43,570 48,007 (2,250 ) (2,000 ) 280 279 $ 41,600 $ 46,286 August 7, 2009, the Company entered into an Amended and Restated Revolving Credit Loan Agreement related to a $20.0 million revolving credit facility with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co as lenders (as amended, the 2009 Credit Agreement). On March 29, 2013, December 22, 2020, the Company entered into a Second Amended and Restated Revolving Credit Agreement (as amended,(the “Credit Agreement”) with Citizens Bank, N.A., Wells Fargo Bank, National Association, and Silicon Valley Bank (together, the 2013 Credit Agreement) with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co, as lenders that amended and restated the 2009 Credit Agreement. Between September 2011 and May 2017, the Company entered into a series of amendments that among other things did the following:·on September 30, 2011, reduced interest rates to the London Interbank Offered Rate plus 3.0%;·on March 29, 2013, converted existing loan advances into a term loan in the principal amount of $15.0 million (the 2013 Term Loan), provided a revolving credit facility in the maximum principal amount of $25.0 million (the 2013 Revolving Line) and a delayed draw term loan (the 2013 DDTL) of up to $15.0 million;·on October 31, 2013, reduced the 2013 DDTL from up to $15.0 million to up to $10.0 million;·on April 24, 2015, extended the maturity date of the 2013 Revolving Line to March 29, 2018 and reduced the interest rates on the 2013 Revolving Line, 2013 Term Loan and 2013 DDTL;·on June 30, 2015, amended its quarterly minimum fixed charge coverage financial covenant;·on March 9, 2016, amended the principal payment amortization of the 2013 Term Loan and 2013 DDTL to five years, as well as amended its quarterly minimum fixed charge coverage financial covenant; and·on May 2, 2017, entered into a Third Amended and Restated Revolving Credit Agreement (as amended, the Credit Agreement) with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co, as lenders that amended and restated the 2013 Credit Agreement.was entered into to, among other things, consolidate, combineprovides for a term loan of $40.0 million and restatea $25.0 million senior revolving credit facility (including a $10.0 million sub-facility for the outstanding indebtedness, onissuance of letters of credit and a $ 10.0 million swingline loan sub facility) (collectively, the date of“Credit Facility”). The Company’s obligations under the Credit Agreement into a term loan (the Term Loan) in the principal amount of $14.0 million, and also provide for a $25.0 million revolving line of credit (the Revolving Line). The Term Loan and the Revolving Line each have a maturity date of May 1, 2022. Borrowings under the Term Loan accrue interest at a rate based on either the effective LIBOR for certain interest periods selected by the Company, or a daily floating rate based on the BBA LIBOR as published by Reuters (or other commercially available source providing quotations of BBA LIBOR), plus in either case, a margin of 2.75%. Additionally, the Revolving Line accrues interest at a rate based on either the effective LIBOR for certain interest periods selected by the Company, or a daily floating rate based on the BBA LIBOR, plus in either case, a margin of 2.25%. The Term Loan and loans under the Revolving Line evidenced by the Credit Agreement, or the Loans, are guaranteed by allcertain of the Company’s direct, anddomestic wholly-owned subsidiaries; none of the Company’s direct or indirect domesticforeign subsidiaries andhas 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 March 31, 2021, available borrowing capacity under the revolving line of credit was $19.6 million. The Credit Facility replaced the Company’s prior credit facility with Cerberus Business Finance, LLC (the “Prior Credit Facility”), which was repaid with borrowings under the Credit Facility.andbear interest at either (i) a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the guarantors. The Loans are subject to restrictive covenantsCredit Agreement (a “LIBOR Loan”), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”). LIBOR interest under the Credit Agreement is subject to applicable market rates and a floor of 0.50 %. The alternative base rate is based on the Citizens Bank prime rate or the federal funds effective rate of the Federal Reserve Bank of New York and is subject to a floor of 1.0%. The applicable interest rate margin varies from 2.0% per annum to 3.25% per annum for LIBOR Loans, and from 1.5% per annum to 3.0% per annum for ABR Loans, in each case depending on the Company’s consolidated leverage ratio and is determined in accordance with a pricing grid set forth in the Credit Agreement. Interest on LIBOR Loans is payable in arrears on the last day of each applicable interest period, and interest on ABR Loans is payable in arrears at the end of each calendar quarter. There are no prepayment penalties in the event the Company elects to prepay and terminate the Credit Facility prior to its scheduled maturity date, subject to LIBOR breakage and redeployment costs in certain circumstances. As of March 31, 2021, the weighted average interest rate on the Credit Agreement borrowings was 3.25%. The effective interest rate for the three months ended March 31, 2021 and 2020 was 3.3% and 9.4%, respectively.that requirebinding 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 subsidiaries to maintain certaincapital stock. The financial ratios on a consolidated basis, includingcovenants include a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage and minimum working capital. Prepaymentratio, each of which will be tested at the end of each fiscal quarter of the Loans is allowed by theCompany. The Credit Agreement at any time during the termsalso includes customary events of the Loans. The Loans also contain limitations on the Company’s ability to incur additional indebtedness and requires lender approval for acquisitions funded with cash, promissory notes and/or other consideration in excess of $6.0 million and for acquisitions funded solely with equity in excess of $10.0 million.default.As of September 30, 2017 and December 31, 2016, the Company had borrowings net of debt issuance costs of $12.4 million and $13.7 million respectively, outstanding under its Credit Agreement. 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 September 30, 2017, the Company was in compliance with all financial covenants contained in the Credit Agreement, was subject to covenant and working capital borrowing restrictions and had available borrowing capacity under its Credit Agreement of $5.5 million.As of September 30, 2017, the weighted effective interest rate, net of the impact of the Company’s interest rate swap, on its Term Loan was 4.61%.As of September 30, 2017 and December 31, 2016, the Company’s borrowings were comprised of: September 30, December 31, 2017 2016 (in thousands) Long-term debt: Term loan $ 12,598 $ 5,400 DDTL - 4,400 Revolving line - 4,050 Total unamortized deferred financing costs (159 ) (104 ) Total debt 12,439 13,746 Less: current installments (2,800 ) (2,450 ) Current unamortized deferred financing costs 35 78 Long-term debt $ 9,674 $ 11,374 - 14 -13. DerivativesThe Company uses interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. The Company does not speculate using derivative instruments.By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, the Company is not exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial institutions based upon their credit profile.Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate risk attributable to both the Company’s outstanding orand forecasted debt obligations as well as the Company’s offsetting hedge positions.obligations. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the Company’s future cash flows.uses variable-rate London Interbank Offered Rate (LIBOR) debtmay enter into interest-rate-related derivative instruments to financemanage its operations. The debt obligations expose the Company to variability in interest payments dueexposure related to changes in interest rates. Management believes that it is prudent to limit the variability of a portion ofrates on its interest payments. To meet this objective, management enters into LIBOR based interest rate swap agreements to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. These swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows.instruments. Under the terms of the interest rate swaps, the Company receives LIBOR based variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the notional amount of its debt hedged. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. The Company does not speculate using derivative instruments.As disclosed in Note 12, on May 2, 2017, the Company entered into the Credit Agreement to amend its credit facility with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co. as lenders. Immediately after entering into this Credit Agreement, On January 31, 2018, the Company entered into an interest rate swap contract with Bank of America with a notional amount of $14.0$36.0 million and a termination date of March 30, 2022 in order to hedge the risk of changes in the effective benchmark interest rate (LIBOR) associated with the Company’s Term Loan. TheJanuary 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 Loanterm loan under the Prior Credit Facility at 1.86% plus a bank margin of 2.75%.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 swap was designated as a cash flow hedge instrumentswaps to be fully effective in accordance with ASC 815 “Derivatives and Hedging”.The notional amount of the Company’s derivative instruments as of September 30, 2017 was $12.6 million.The following table presents the notional amount, and fair value of the Company’s derivative instruments as of September 30, 2017 and December 31, 2016. September 30, 2017 September 30, 2017 Notional Amount Fair Value (a) Derivatives designated as hedging instruments under ASC 815 Balance sheet classification (in thousands) Interest rate swaps Other liabilities-non current $ 12,600 $ (46 ) December 31, 2016 December 31, 2016 Notional Amount Fair Value (a) Derivatives designated as hedging instruments under ASC 815 Balance sheet classification (in thousands) Interest rate swaps Other liabilities-non current $ 5,500 $ - (a) See Note 14 for the fair value measurements related to these financial instruments.- 15 -All of the Company’s derivative instruments are designated as hedging instruments.The Company has structured its interest rate swap agreements to be 100% effective and as a result, there was no impact to earnings resulting from hedge ineffectiveness. Changestherefore changes in the fair value of interest rate swaps designated as hedging instruments that effectivelythe swap offset the variability of cash flows associated with the variable-rate, long-term debt obligations areand were reported in accumulated other comprehensive income (AOCI). These amounts subsequently arewere 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 Company’s interest rate swap agreement was deemed to be fully effective in accordance with ASC 815, and, as such, unrealized gains and losses related to these derivatives were recorded as AOCI. and nine months ended September 30, 2017 and 2016:March 31, 2020:Derivatives in Hedging Relationships Amount of gain (loss) recognized in OCI on derivative
(effective portion) Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 (in thousands) Interest rate swaps $ - $ 11 $ (89 ) $ (37 ) $ (216 ) 72 $ (144 ) The following table summarizes the reclassifications out of accumulated other comprehensive loss for the three and nine months ended September 30, 2017 and 2016:Details about AOCI Components Amount reclassified from AOCI into income (effective portion) Location of amount Three Months Ended
September 30, Nine Months Ended
September 30, reclassified from AOCI 2017 2016 2017 2016 into income (effective portion) (in thousands) Interest rate swaps $ 21 $ 8 $ 43 $ 31 Interest expense As of September 30, 2017, $48 thousand of deferred losses on derivative instruments accumulated in AOCI are expected to be reclassified to earnings during the next twelve months. Transactions and events expected to occur over the next twelve months that will necessitate reclassifying these derivatives’ losses to earnings include the repricing of variable-rate debt. As a result of entering into the May 2017 interest rate swap contract, the Company unwound its previous interest rate swap contracts, and received an immaterial amount in proceeds. There were no cash flow hedges discontinued during 2016.- 16 -14. Fair Value MeasurementsFair value measurement is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:Level 1—Quoted prices in active markets for identical assets or liabilities.Level 2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.Level 3—Unobservable inputs based on the Company’s own assumptions.presentrepresent a disaggregation of revenue from contracts with customers for the fair value hierarchy for those liabilities measured at fair value on a recurring basis:three months ended March 31, 2021 and 2020: Fair Value as of September 30, 2017 (In thousands) Level 1 Level 2 Level 3 Total Liabilities: Interest rate swap agreements $ - $ (46 ) $ - $ (46 ) Fair Value as of December 31, 2016(In thousands)Level 1Level 2Level 3TotalLiabilities:Interest rate swap agreements$-$-$-$- $ 25,827 $ 22,937 1,162 834 $ 26,989 $ 23,771 Company usesfollowing tables represent a disaggregation of revenue by geographic destination for the market approach technique to value its financial liabilities. The Company’s financial liabilities carried at fair value include derivative instruments used to hedgethree months ended March 31, 2021 and 2020: $ 11,177 $ 9,930 8,589 7,643 5,538 4,422 1,685 1,776 $ 26,989 $ 23,771 $ 1,629 $ 2,142 $ 3,771 1,251 341 1,592 (1,165 ) (558 ) (1,723 ) (3 ) 0 (3 ) $ 1,712 $ 1,925 $ 3,637 $ 1,587 $ 2,362 $ 3,949 308 223 531 (499 ) (322 ) (821 ) 14 0 14 $ 1,410 $ 2,263 $ 3,673 interest rate risks. The fair valueassessment of the Company’s interest rate swap agreements was based on LIBOR yield curves atcollectability of accounts receivable. A rollforward of the reporting date. allowance for doubtful accounts is as follows: $ 227 $ 325 5 4 26 (31 ) (4 ) (1 ) $ 254 $ 297 15. Income Taxexpense was approximately $7 thousand and $0.8 million for the three months ended September 30, 2017 and 2016, respectively. The tax(benefit) expense for the three months ended September 30, 2017 reflects the incremental expense recorded for the nine months ended September 30, 2017 associated with the actual results for the nine-month period, as described below.Discrete items included in the tax expense for the three months ended September 30, 2017 included foreign currency gains March 31, 2021 and losses. Tax benefit for the three months ended September 30, 2016 included the recording of a full valuation allowance against the net deferred tax assets of one of the Company’s German subsidiaries, as well as the impact of an enacted tax rate change on the net deferred tax assets of one of the Company’s UK subsidiaries.Income tax2020 was an approximately $0.1 million benefit and a $0.9 million expense for the nine months ended September 30, 2017 and 2016, respectively.not significant. The effective income tax rate was 2.7% for the nine months ended September 30, 2017, compared with (42.9%) for the same period in 2016. The tax rates for the ninethree months ended September 30, 2017 March 31, 2021 and 20162020, were based on actual results for the nine-month period rather than an effective tax rate estimated for the entire year. In 20172.2% and 2016, the Company determined that using a year-to-date approach resulted in a better estimate of income tax expense/benefit based on its forecast of pre-tax income/loss, the mix of taxable income/loss across several jurisdictions with different statutory tax rates, and the impact of the full valuation allowance against U.S. deferred tax assets.(1.2)%, respectively.period over periodof 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.primarily attributable to higher pre-tax income at certain individual subsidiariesspun off in 2017 versus 2016, despite an overall pre-tax loss in both periods,2013, as well as another third party. The complaint seeks payment for an unspecified amount of damages and alleges that the settlementplaintiff sustained terminal injuries allegedly caused by products, including synthetic trachea scaffold and bioreactors, provided by certain of an uncertain tax positionthe named defendants and utilized in 2017,connection with surgeries performed by third parties in Europe in 2012 and 2013. The Company intends to vigorously defend this case by counsel provided by the recordingliability insurance carrier for Biostage, Inc. While the Company believes that the claims made in this lawsuit are without merit, the Company is unable to predict the ultimate outcome of a valuation allowance at a German subsidiary in 2016. In addition, both periods included the tax impact of amortization of certain indefinite-lived intangibles which are amortized for tax purposes only, against which a valuation allowance is not established.this litigation.As disclosedThe Company is involved in footnote 2,various other claims and legal proceedings arising in the ordinary course of business. After consultation with legal counsel, the Company adopted ASU 2016-09 ashas determined that the ultimate disposition of January 1, 2017. Assuch proceedings is not likely to have a result,material adverse effect on its business, financial condition, results of operations or cash flows. Although unfavorable outcomes in the proceedings are possible, the Company recordedhas 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 cumulative increase in retained earnings of $0.5 million at the beginning of the first quarter of 2017 with a corresponding increase in deferred tax assets relatedmanner adverse to the prior years’ unrecognized excess tax benefits. An equal amountCompany, the impact on the Company’s business, financial condition, results of valuation allowance was also recorded against these deferred tax assets with a corresponding decrease to retained earnings resulting in a net impact of $0. In addition, tax deficiencies related to vested restricted stock unitsoperations and canceled stock options during the nine months ended September 30, 2017 have been recognized in the current period’s income statement.cash flows could be material.- 17 -Management’s Discussion and Analysis of Financial Condition and Results of Operations.Act)Act”). The forward-looking statements are principally, but not exclusively, contained in “Item“Item 2: Management’sManagement’s 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 management’smanagement’s 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,“may,” “will,“will,” “should,“should,” “could,“could,” “would,“would,” “seek,“seek,” “expects,“expects,” “plans,“plans,” “aim,“aim,” “anticipates,“anticipates,” “believes,“believes,” “estimates,“estimates,” “projects,“projects,” “predicts,“predicts,” “intends,“intends,” “think,“think,” “potential,“potential,” “objectives,“objectives,” “optimistic,“optimistic,” “strategy,“strategy,” “goals,“goals,” “sees,“sees,” “new,“new,” “guidance,“guidance,” “future,“future,” “continue,“continue,” “drive,“drive,” “growth,“growth,” “long-term,“long-term,” “projects,“projects,” “develop,“develop,” “possible,“possible,” “emerging,“emerging,” “opportunity,“opportunity,” “pursue”“pursue” and 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 andseverity of the COVID-19 pandemic and its impact on our business; reductions in customers’customers’ research 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 failure to realize the expected benefits of facility consolidations; our inability to manage our growth; competition from our competitors; material weaknessour substantial debt and our ability to meet the financial covenants contained in our internal control over financial reporting; ineffective disclosure controls and procedures;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; our inability to effectively sell spectrophotometer products following the retirement of the GE Healthcare brand; failure of any banking institution in which we deposit our funds or its failure to provide services; our substantial debt and our ability to meet the financial covenants contained in our credit facility; our failure to raise or generate capital necessary to implement our acquisition and expansion strategy; the failure of our spin-off of Biostage, Inc., f/k/a Harvard Apparatus Regenerative Technology, Inc., to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes; the failure of Biostage to indemnify us for any liabilities associated with Biostage’sBiostage’s 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 others’others’ intellectual property; exposure to product and other liability claims; global stock market volatility, currency exchange rate fluctuations and regulatory changes caused by the United Kingdom’s likelyKingdom’s exit from the European Union; plus other factors described under the heading “Item“Item 1A. Risk Factors”Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2020, 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., a Delaware corporation, is a globalleading developer, manufacturer and marketerseller 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.broad rangenovel 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 scientific instruments, systemsthe pandemic and lab consumables usedany resulting economic impact remain unknown and rapidly evolving. Since the global outbreak of COVID-19, many customers, particularly academic research institutions, have been unable to advance life sciencemaintain laboratory work which has negatively impacted, and will continue to negatively impact, our sales. Additionally, to ensure business continuity while maintaining a safe environment for basic research, drug discovery, clinicalemployees aligned with guidance from government and environmental testing. Our products are soldhealth organizations, we transitioned the majority of our workforce to thousands of researchers around the world through our global sales organization, websites, catalogs, and through distributors including Thermo Fisher Scientific Inc., VWR,work-from-home while implementing social distancing requirements and other specialized distributors. Wemeasures in factories to allow manufacturing and other personnel essential to production to continue work within our facilities. Business travel was significantly reduced during this period. While we have maintained operations under these conditions, these measures represent disruptions which can impact productivity including sales and manufacturingmarketing activities. Accordingly, these conditions in addition to the overall impact on the global economy has negatively impacted our results of operations in the United States, the United Kingdom, Germany, Sweden, Spain, France, Canada, and China.cash flows.Our StrategyOur vision is to be a world leading life science company that excels in meeting the needs of our customers by providing a wide breadth of innovative products and solutions, while providing exemplary customer service. Our business strategy is to grow our top-line and bottom-line, and build shareholder value through a commitment to:commercial excellence;new product development;strategic acquisitions; andoperational efficiencies.Components of Operating IncomeRevenues. We generate revenues by selling apparatus, instruments, devices and consumables through our distributors, direct sales force, websites and catalogs. Our websites and catalogs serve as the primary sales tools for our Cell and Animal Physiology product line. This product line includes both proprietary manufactured products and complementary products from various suppliers. Our reputation as a leading producer in many of our manufactured products creates traffic to our website, enables cross-selling and facilitates the introduction of new products. We have field sales teams in the U.S., Canada, the United Kingdom, Germany, France, Spain and China. In those regions where we do not have a direct sales team, we use distributors. Revenues from direct sales to end users represented approximately 68% and 64% of our revenuesRevenue for the three months ended March 31, 2021 and for the year ending December 31, 2020 was negatively impacted due to the conditions noted, and is likely to continue to be negatively impacted by delayed or partial reopening of academic research institutions. If business interruptions resulting from COVID-19 were to be prolonged or expanded in scope, our business, financial condition, results of operations and cash flows would be negatively impacted. We will continue to actively monitor this situation and will implement actions necessary to maintain business continuity.30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, revenues from direct sales to end users represented approximately 66% and 63%2019. The 2019 Restructuring Plan includes consolidation of our revenues, respectively.Connecticut manufacturing plant with our existing Massachusetts site, downsizing of operations in the United Kingdom and a reduction in force across the business equal to approximately 10% of our headcount. The 2019 Restructuring Plan is expected to deliver annualized run-rate savings of $4.0 million to $5.0 million. The original initiatives under the 2019 Restructuring Plan were completed in the second half of 2020.ProductsWe continued to execute the 2019 Restructuring Plan during the COVID-19 pandemic and expanded the scope of the restructuring by realigning our organizational structure to reduce management layers and accelerated our efforts to move to a leaner organization and operation. As a result of this expanded scope, we eliminated additional headcount during 2020 and in the first quarter of 2021 communicated to employees our Molecular Separationplan to consolidate certain engineering operations and Analysis product lineeliminate two small facilities in Europe. These incremental actions are generally sold by distributors,expected to generate additional annualized cost savings of approximately $2.0 million, and are typically pricedexpected to be complete in the rangefirst half of $5,000-$15,000. They are mainly scientific instruments like spectrophotometers and plate readers that analyze light to detect and quantify a wide range of molecular and cellular processes, or apparatus like gel electrophoresis units. We also use distributors for both our catalog products and our higher priced products, as well as for sales in locations where we do not have subsidiaries or where we have existing distributors in place from acquired businesses. For the three months ended September 30, 2017 and 2016, approximately 32% and 36% of our total revenues, respectively, were derived from sales to distributors. For the nine months ended September 30, 2017 and 2016, approximately 34% and 37% of our total revenues, respectively, were derived from sales to distributors.2021.ForA portion of the three and nine months ended September 30, 2017, approximately 62% of our revenues, for both periods, were derivedsavings generated from products we manufacture, approximately 13%, for both periods, were derived from complementary products we distribute in orderthese actions is expected to provide the researcher with a single source for all equipment neededbe reinvested to conduct a particular experiment, and approximately 25%, for both periods, were derived from distributed products sold under our brand names. For the three and nine months ended September 30, 2016, approximately 60% and 61% of our revenues, respectively, were derived from products we manufacture, approximately 14%, for both periods were derived from complementary products we distribute in order to provide the researcher with a single source for all equipment needed to conduct a particular experiment, and approximately 26% and 25%, respectively, were derived from distributed products sold under our brand names.drive profitable revenue growth.ForAs a result of the three months ended September 30, 2017actions taken under the 2019 Restructuring Plan and 2016,incremental cost reduction actions taken, we expect to incur costs associated with headcount reductions, program management and other transition costs required to affect the site consolidations and other business improvements totaling approximately 34% and 36%$8.0 million, substantially all of our revenues, respectively,which is expected to result in cash outlays. Through March 31, 2021, approximately $6.7 million of cash payments were derived from sales made by our non-United States operations. Forrelated to these restructuring activities. We believe these strategic actions will position the nine months ended September 30, 2017 and 2016, approximately 33% and 38% of our revenues, respectively, were derived from sales made by our non-United States operations. As discussed later under “Selected Results of Operations”, the decrease in revenues derived by our non-United States operations is primarily attributable to currency translation and the sale of our AHN Biotechnologie GmbH subsidiary (AHN).business for improved financial performance.Changes in the relative proportion of our revenue sources between direct sales and distribution sales are primarily the result of changes in geographic mix.Cost of revenues. Cost of revenues includes material, labor and manufacturing overhead costs, obsolescence charges, packaging costs, warranty costs, shipping costs and royalties. Our cost of revenues may vary over time based on the mix of products sold. We sell products that we manufacture and products that we purchase from third parties. The products that we purchase from third parties typically have a higher cost of revenues as a percent of revenues because the profit is effectively shared with the original manufacturer. We anticipate that our manufactured products will continue to have a lower cost of revenues as a percentage of revenues as compared with the cost of non-manufactured products for the foreseeable future. Additionally, our cost of revenues as a percent of revenues will vary based on mix of direct to end user sales and distributor sales, mix by product line and mix by geography.Sales and marketing expenses. Sales and marketing expense consists primarily of salaries and related expenses for personnel in sales, marketing and customer support functions. We also incur costs for travel, trade shows, demonstration equipment, public relations and marketing materials, consisting primarily of the printing and distribution of our catalogs, supplements and the maintenance of our websites. We may from time to time expand our marketing efforts by employing additional technical marketing specialists in an effort to increase sales of selected categories of products. We may also from time to time expand our direct sales organizations in an effort to concentrate on key accounts or promote certain product lines.General and administrative expenses. General and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance, accounting, information technology and human resource functions. Other costs include professional fees for legal and accounting services, information technology infrastructure, facility costs, investor relations, insurance and provision for doubtful accounts.Research and development expenses. Research and development expense consists primarily of salaries and related expenses for personnel and spending to develop and enhance our products. Other research and development expense includes fees for consultants and outside service providers, and material costs for prototype and test units. We expense research and development costs as incurred. Grants received from governmental entities related to research projects are accounted for as a reduction in research and development expense over the period of the project. We believe that investment in product development is a competitive necessity and plan to continue to make these investments in order to realize the potential of new technologies that we develop, license or acquire for existing markets.Stock-based compensation expenses. Stock-based compensation expense for the three months ended September 30, 2017 and 2016 was $0.9 million for both periods. Stock-based compensation expense for the nine months ended September 30, 2017 and 2016 was $2.6 million for both periods. The stock-based compensation expense related to stock options, restricted stock units, restricted stock units with a market condition and the employee stock purchase plan and was recorded as a component of cost of revenues, sales and marketing expenses, general and administrative expenses and research and development expenses.Months Ended September 30, 2017months ended March 31, 2021 compared to Three Months Ended September 30, 2016three months ended March 31, 2020 Three Months Ended September 30, Dollar % 2017 2016 Change Change (dollars in thousands) Revenues $ 25,050 $ 25,007 $ 43 0.2 % Cost of revenues 13,411 13,317 94 0.7 % Gross margin percentage 46.5 % 46.7 % N/A -0.6 % Sales and marketing expenses 5,081 5,006 75 1.5 % General and administrative expenses 4,534 4,783 (249 ) -5.2 % Research and development expenses 1,538 1,309 229 17.5 % Amortization of intangible assets 622 729 (107 ) -14.7 % Impairment charges - 676 (676 ) -100.0 % - 20 - $ 26,989 $ 23,771 15,431 57.2 % 12,982 54.6 % 5,386 20.0 % 5,579 23.5 % 6,333 23.5 % 6,759 28.4 % 2,487 9.2 % 2,490 10.5 % 1,464 5.4 % 1,427 6.0 % 411 1.5 % 1,299 5.5 % (15 ) -0.1 % 55 0.2 % September 30, 2017March 31, 2021 were $25.1$27.0 million, an increase of approximately 0.2%,$3.2 million, or $43 thousand,13.5%, compared to revenues of $25.0$23.8 million for the three months ended September 30, 2016. March 31, 2020. Revenue increased due to improved sales of products from our preclinical product family associated with improved sales processes and product enhancements released in 2020. Revenue was negatively impacted by the COVID-19 pandemic, most significantly by lower sales to academic labs and other institutions temporarily closed as a result of the pandemic. The negative impact of academic lab closures has moderated since the middle of 2020 but continued to negatively impact the business through the first quarter of 2021.The loss in revenues from the October 2016 AHN disposition negatively impacted revenues in the quarter by approximately $0.7 million, while the impact of currency translation positively impacted revenues in the quarter by approximately $0.2 million. The favorability in currency translation in the quarter was primarily from the strengthening of the Euro and British Pound against the U.S. dollar. Excluding the impact of the AHN disposition and currency translation, revenues grew approximately 2%, or $0.5 million in the third quarter. This result was primarily due to growth in the U.S. and China, partially offset by a decline in Europe.Reconciliation of Changes In Revenues Compared to theSame Period of the Prior YearFor the Three Months EndedSeptember 30, 2017Organic and AHN change-0.7%Foreign exchange effect0.9%Total revenue change0.2%Each reporting period, we face currency exposure that arises from translating the results of our worldwide operations to the United States dollar at exchange rates that fluctuate from the beginning of such period. We evaluate our results of operations on both a reported and a foreign currency-neutral basis, which excludes the impact of fluctuations in foreign currency exchange rates. We believe that disclosing this non-GAAP financial information provides investors with an enhanced understanding of the underlying operations of the business. This non-GAAP financial information is used by our management to internally evaluate our operating results. The non-GAAP financial information provided in the table above should be considered in addition to, not as a substitute for, the financial information provided and presented in accordance with accounting principles generally accepted in the United States, or GAAP and may be different than other companies’ non-GAAP financial information.Cost of revenuesGross profitCost of revenues were $13.4Gross profit increased $2.4 million, or 18.9%, to $15.4 million for the three months ended September 30, 2017, an increase of $0.1 million, or 0.7%,March 31, 2021, compared with $13.3$13.0 million for the three months ended September 30, 2016. TheMarch 31, 2020, due primarily to the increase in cost of revenues was primarily duerevenue noted. Gross margin increased to the effect of changes in volume and mix of distributed or manufactured products in comparison to the prior period. These increases were offset by the effect on cost of revenues of the sale of AHN which was approximately $0.5 million. Gross profit margin as a percentage of revenues decreased slightly to 46.5%57.2% for the three months ended September 30, 2017March 31, 2021 compared with 46.7%54.6% for 2016.the three months ended March 31, 2020. The increase in gross margin was due to higher volume and improved product mix.were relatively flat, increasing $0.1decreased $0.2 million, or 1.5%3.5%, to $5.1$5.4 million for the three months ended September 30, 2017March 31, 2021 compared to $5.0$5.6 million during the same period in 2016.2020. The increase in sales and marketing expensesdecrease was primarily due to increases in employeecost reduction initiatives and lower travel and trade show related costs and stock compensationdue to Covid-related restrictions, offset by decreasesinvestments in consultingnew marketing and purchased services as well as the impact of the sale of AHN.sales support personnel and higher variable sales costs.$4.5$6.3 million for the three months ended September 30, 2017,March 31, 2021, a decrease of $0.3$0.4 million, or 5.2%6.3%, compared with $4.8$6.8 million for the three months ended September 30, 2016.March 31, 2020. The reduction in these expensesdecrease was primarily due to a decrease in employee, consultingcost reduction initiatives and purchased serviceslower restructuring and other costs to affect our strategic plans, offset by an increase in facilities costs.higher variable compensation.$1.5$2.5 million for the three months ended September 30, 2017, an increase of $0.2 million, or 17.5%,March 31, 2021 and did not change materially as compared with $1.3 million forto the three months ended September 30, 2016. The increase in expense was primarily due to an increase in employee, consulting and other purchased services costs due to investments in new product development and compliance efforts.March 31, 2020.- 21 -$0.6 million and $0.7$1.5 million for the three months ended September 30, 2017March 31, 2021 and 2016, respectively. The decrease in amortization expense was primarily duedid not change materially as compared to the effect of certain long-lived intangible assets becoming fully amortized towards the end of fiscal year 2016.three months ended March 31, 2020.Impairment chargesInterest expenseImpairment charges were $0.7Interest expense was $0.4 million for the three months ended September 30, 2016. During the third quarterMarch 31, 2021, a decrease of 2016, we initiated plans to sell the operations of AHN. As a result of initiating the plan to sell the operations of AHN, we evaluated the long-lived assets for impairment, pursuant to ASC 360-10. Based on the resulting impairment analysis, we recognized an impairment charge of $0.7$0.9 million, or 68.4%, compared with $1.3 million for the three months ended September 30, 2016.March 31, 2020. The decrease was due to lower interest rates under our new Credit Agreement entered into on December 22, 2020, as well as reduced average borrowing as compared to the prior period.OtherIncome tax (benefit) expense netOther expense, net, was $0.3 million and $0.1 million for the three months ended September 30, 2017 and 2016, respectively. Included in other expense, net for three months ended September 30, 2017 and 2016 was interest expense of $0.2 million and $0.1 million, respectively. The increase in other expense, net was primarily due to an increase in foreign exchange losses. Currency exchange rate fluctuations included as a component of net loss resulted in approximately $0.1 million in currency losses and $0.1 million in currency gains for the three months ended September 30, 2017 and 2016, respectively.Income taxesexpense was approximately $7 thousand and $0.8 million for the three months ended September 30, 2017 and 2016, respectively. The tax( benefit) expense for the three months ended September 30, 2017 reflects the incremental expense recorded for the nine months ended September 30, 2017 associated with the actual results for the nine-month period. Discrete items included in theMarch 31, 2021 and 2020 was not significant. The effective tax expenserates for the three months ended September 30, 2017 included foreign currency gainsMarch 31, 2021 and losses. Discrete items for the three months ended September 30, 2016 included the recording of a full valuation allowance against the net deferred tax assets of one of the Company’s German subsidiaries, as well as the impact of an enacted tax rate change on the net deferred tax assets of one of the Company’s UK subsidiaries.We have operations in the UK2020 were 2.2% and several European countries where we historically had material current and deferred income tax balances related to those activities. As such, the UK’s 2016 decision to withdraw from the European Union or the EU could have a material effect on our current and deferred income taxes. In March 2017, the UK initiated, through letter submission to the EU, a formal two-year process to officially withdraw its membership. During this two-year period, the UK and EU member states are expected to negotiate many provisions in the UK bilateral agreements and tax treaties with EU member states as well as EU rules governing the income tax treatment of deferred intercompany profits. The final outcome of these negotiations will not be known until both the EU and the UK approve them and the UK enacts the related changes in its tax laws. EU law will cease to apply in the UK at the end of the two-year process in March 2019, unless the negotiations are extended. The letter submission in March 2017 is an administrative step required to begin the formal withdrawal process and is not considered a tax law enactment under ASC 740. Additionally, in order to ensure that all EU laws remain in place until specifically repealed, the UK government has announced its intention to enact a ‘Repeal Bill’ which enshrines all EU law into domestic UK legislation. As of the filing date of this Form 10-Q, this Repeal Bill has not been enacted. Consequently, we plan to adjust our current and deferred taxes when tax law changes related to UK’s withdrawal from the EU are actually enacted and/or when EU law ceases to apply in the UK.Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2017 2016 Dollar
Change %
Change (dollars in thousands) Revenues $ 74,419 $ 78,106 $ (3,687 ) -4.7 % Cost of product revenues 39,994 41,796 (1,802 ) -4.3 % Gross margin percentage 46.3 % 46.5 % N/A -0.5 % Sales and marketing expenses 15,111 15,194 (83 ) -0.5 % General and administrative expenses 14,144 15,979 (1,835 ) -11.5 % Research and development expenses 4,119 4,236 (117 ) -2.8 % Amortization of intangible assets 1,825 2,099 (274 ) -13.1 % Impairment charges - 676 (676 ) -100.0 % - 22 -RevenuesRevenues for the nine months ended September 30, 2017 were $74.4 million, a decrease of 4.7%(1.2)%, or $3.7 million, compared to revenues of $78.1 million for the same period in 2016.Excluding the effects of currency translation, primarily from the weakening of the British Pound against the U.S. dollar, our revenues decreased 3.4%, or $2.7 million from the same period in 2016. Also included in the revenue decline for the quarter is a decrease of $2.0 million, due to the AHN disposition in October 2016. Excluding the unfavorable currency translation and the revenue impact of the AHN disposition, revenues declined by approximately 1%. The decrease was primarily due to continued softness in Europe, partially offset with revenue growth in the U.S. and China for the nine months ended September 30, 2017.Reconciliation of Changes In Revenues Compared to theSame Period of the Prior YearFor the Nine Months EndedSeptember 30, 2017Organic and AHN change-3.4%Foreign exchange effect-1.3%Total revenue change-4.7%Each reporting period, we face currency exposure that arises from translating the results of our worldwide operations to the United States dollar at exchange rates that fluctuate from the beginning of such period. We evaluate our results of operations on both a reported and a foreign currency-neutral basis, which excludes the impact of fluctuations in foreign currency exchange rates. We believe that disclosing this non-GAAP financial information provides investors with an enhanced understanding of the underlying operations of the business. This non-GAAP financial information approximates information used by our management to internally evaluate our operating results. The non-GAAP financial information provided in the table above should be considered in addition to, not as a substitute for, the financial information provided and presented in accordance with accounting principles generally accepted in the United States, or GAAP.Cost of revenuesCost of revenues decreased $1.8 million, or 4.3%, to $40 million for the nine months ended September 30, 2017 compared with $41.8 million for the nine months ended September 30, 2016. The decrease in cost of revenues was primarily due to the decrease in revenues, including the effect on cost of revenues of the sale of AHN which was approximately $1.4 million. Gross profit margin as a percentage of revenues was relatively flat at 46.3% for the nine months ended September 30, 2017 compared with 46.5% for 2016.Sales and marketing expensesSales and marketing expenses decreased $0.1 million, or 0.5%, to $15.1 million for the nine months ended September 30, 2017 compared with $15.2 million for the nine months ended September 30, 2016. The decrease was primarily due to currency fluctuation and also included the effect of a decrease in sales commissions, and the impact of the sale of AHN. Sales commissions decreased due to lower revenues during the nine months ended September 30, 2017 in comparison to the same period in 2016. These decreases were offset by increases in freight and stock compensation costs.- 23 -General and administrative expensesGeneral and administrative expenses decreased $1.9 million, or 11.5%, to $14.1 million for the nine months ended September 30, 2017 compared with $16.0 million for the nine months ended September 30, 2016. The decrease was primarily due to forensic investigation costs incurred during the nine months ended September 30, 2016, as well as a decrease in consulting fees, and lower travel costs compared to the same period in 2016.Research and development expensesResearch and development expenses were $4.1 million for the nine months ended September 30, 2017, a decrease of $0.1 million, or 2.8%, compared with $4.2 million for the nine months ended September 30, 2016. The decrease was primarily due to a reduction in payroll related costs.Amortization of intangible assetsAmortization of intangible asset expenses was $1.8 million and $2.1 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease in amortization expense was primarily due to the effect of certain long-lived intangible assets becoming fully amortized towards the end of fiscal year 2016, as well as the sale of AHN during October 2016.Impairment chargesImpairment charges were $0.7 million for the nine months ended September 30, 2016. During the third quarter of 2016, we initiated plans to sell the operations of AHN. As a result of initiating the plan to sell the operations of AHN, we evaluated the long-lived assets for impairment, pursuant to ASC 360-10. Based on the resulting impairment analysis, we recognized an impairment charge of $0.7 million for the nine months ended September 30, 2016.Other expense, netOther expense, net, was $1.1 million and $0.2 million for the nine months ended September 30, 2017 and 2016, respectively. The increase in other expense, net was primarily due to an increase in foreign currency losses as compared to foreign currency gains in the prior period. Currency exchange rate fluctuations included as a component of net loss resulted in approximately $0.4 million in currency losses and $0.4 million in currency gains during the nine months ended September 30, 2017 and 2016, respectively. Interest expense was $0.5 million for both the nine months ended September 30, 2017 and 2016.Income taxesIncome tax was an approximately a $0.1 million benefit and a $0.9 million expense for the nine months ended September 30, 2017 and 2016, respectively. The effective income tax rate was 2.7% for the nine months ended September 30, 2017, compared with (42.9%) for the same period in 2016. The tax rates for the nine months ended September 30, 2017 and 2016, respectively, were based on actual results for the nine-month period rather than an effective tax rate estimated for the entire year. We determined that using a year-to-date approach resulted in a better estimate of income tax expense based on our updated forecasts of pre-tax income, mix of income across several jurisdictions with different statutory tax rates as well as the impact of the full valuation allowance against U.S. deferred tax assets.period over period wasof 21% is primarily attributabledue to higher pre-tax income at certain individual subsidiarieschanges in 2017 versus 2016 despite an overall pre-taxvaluation allowances associated with our assessment of the likelihood of the recoverability of our deferred tax assets. We currently have valuation allowances against substantially all of our net operating loss in both periods,carryforwards and tax credit carryforwards.the settlement of an uncertain tax position in 2017, and the recording of a valuation allowance at a German subsidiary in 2016. In addition, both periods included the tax impact of amortization of certain indefinite-lived intangibles which are amortized for tax purposes only, against which a valuation allowance is not established.We have operations in the UK and several European countries where we historically had material current and deferred income tax balances related to those activities. As such, the UK’s 2016 decision to withdraw from the European Union or the EU could have a material effect on our current and deferred income taxes. In March 2017, the UK initiated, through letter submission to the EU, a formal two-year process to officially withdraw its membership. During this two-year period, the UK and EU member states are expected to negotiate many provisions in the UK bilateral agreements and tax treaties with EU member states as well as EU rules governing the income tax treatment of deferred intercompany profits. The final outcome of these negotiations will not be known until both the EU and the UK approve them and the UK enacts the related changes in its tax laws. EU law will cease to apply in the UK at the end of the two-year process in March 2019, unless the negotiations are extended. The letter submission in March 2017 is an administrative step required to begin the formal withdrawal process and is not considered a tax law enactment under ASC 740. Additionally, in order to ensure that all EU laws remain in place until specifically repealed, the UK government has announced its intention to enact a ‘Repeal Bill’ which enshrines all EU law into domestic UK legislation. As of the filing date of this Form 10-Q, this Repeal Bill has not been enacted. Consequently, we plan to adjust our current and deferred taxes when tax law changes related to UK’s withdrawal from the EU are actually enacted and/or when EU law ceases to apply in the UK.- 24 -Liquidity and Capital ResourcesHistorically, we have financed our business through cash provided by operating activities, the issuance of common stock, and bank borrowings. Our liquidity requirements arise primarily from investing activities, including funding of acquisitions,capital expenditures, severance and other capital expenditures.payments associated with ongoing restructuring and cost reduction initiatives.September 30, 2017,March 31, 2021, we held cash and cash equivalents of $5.8 million, compared with $5.6$8.3 million at December 31, 2016.2020. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, we had $12.4$44.9 million and $13.7$49.4 million of borrowings outstanding under our credit facility, net of deferred financing costs.Credit Facility, respectively. Total debt, net of cash and cash equivalents, was $6.6$39.1 million at September 30, 2017,March 31, 2021, compared to $8.1$41.1 million at December 31, 2016, respectively. In addition, we had an underfunded United Kingdom pension liability of approximately $3.4 million and $3.0 million at September 30, 2017 and December 31, 2016, respectively.As of September 30, 2017 and December 31, 2016, cash and cash equivalents held by our foreign subsidiaries was $4.6 million and $4.5 million, respectively. Funds held by our foreign subsidiaries are not available for domestic operations unless the funds are repatriated. If we planned to or did repatriate these funds, then United States federal and state income taxes would have to be recorded on such amounts. Our reinvestment determination is based on the future operational and capital requirements of our U.S. and non-U.S. operations. As of December 31, 2015, we determined that the assertion of permanent reinvestment at our foreign subsidiaries in Canada and France was no longer appropriate and we repatriated approximately $3.5 million during the nine months ended September 30, 2016. We did not repatriate any funds during the nine months ended September 30, 2017. Cash balances did not exceed the level required for normal business operations at our subsidiaries in Canada and France as of September 30, 2017. With no funds available to repatriate, no deferred tax liability was recorded as of that date. The total tax liability associated with the repatriation of undistributed earnings in Canada and France during the nine months ended September 30, 2016 was approximately $1.2 million, however it is anticipated that any taxable income generated by the repatriation will be offset by the use of carried forward net operating losses. We currently have no plans to repatriate any of our undistributed foreign earnings in any other countries outside of Canada and France. These balances are considered permanently reinvested and will be used for foreign items including foreign acquisitions, capital investments, pension obligations and operations. It is impracticable to estimate the total tax liability, if any, which would be created by the future distribution of these earnings.We currently intend to retain all of our earnings to finance the expansion and development of our business and do not anticipate paying any cash dividends to holders of our common stock in the near future. As a result, capital appreciation, if any, of our common stock will be a stockholder’s sole source of gain for the near future.Condensed Cash Flow Statements(unaudited) Nine Months Ended September 30, 2017 2016 (in thousands) Cash flows from operations: Net loss $ (1,864 ) $ (2,987 ) Other adjustments to operating cash flows 5,506 7,116 Changes in assets and liabilities (1,646 ) (473 ) Net cash provided by operating activities 1,996 3,656 Investing activities: Additions to property, plant and equipment (677 ) (920 ) Other investing activities (39 ) (34 ) Net cash used in investing activities (716 ) (954 ) Financing activities: Net repayments of debt (1,252 ) (3,738 ) Other financing activities (101 ) 80 Net cash used in financing activities (1,353 ) (3,658 ) Effect of exchange rate changes on cash 313 (443 ) Increase (decrease) in cash and cash equivalents $ 240 $ (1,399 ) - 25 -Our operating activities provided cash of $2.0 million and $3.7 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease in net cash flow from operations was primarily due to the effect of changes in working capital quarter over quarter.Our investing activities used cash of $0.7 million and $1.0 million for the nine months ended September 30, 2017 and 2016, respectively. Investing activities during the nine months ended September 30, 2017 and 2016 primarily included cash used for purchases of property, plant and equipment. We spent $0.7 million and $0.9 million on capital expenditures during the nine months ended September 30, 2017 and 2016, respectively.Our financing activities have historically consisted of borrowings and repayments under our revolving credit facility and term loans, payments of debt issuance costs and the issuance of common stock. During the nine months ended September 30, 2017, financing activities used cash of $1.4 million, compared with $3.7 million of cash used by financing activities for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, we borrowed $2.3 million under our credit facility, repaid $3.5 million of debt under our credit facility and term loans and ended the quarter with $12.4 million of borrowings, net of deferred financing costs of $0.2 million. Net cash paid for tax withholdings from the issuance of common stock for the nine months ended September 30, 2017 was $0.1 million, which related to the vesting of restricted stock units. During the nine months ended September 30, 2016, we borrowed $3.0 million under our credit facility, repaid $6.7 million of debt under our credit facility and term loans and ended with $15.0 million of borrowings at September 30, 2016, net of deferred financing costs of $0.1 million. Net proceeds from the issuance of common stock for the nine months ended September 30, 2016 were $0.1 million, which related to the exercise of stock options and vesting of restricted stock units.Borrowing Arrangements2020.August 7, 2009,December 22, 2020, we entered into an Amended and Restated Revolving Credit Loan Agreement related to a $20.0 million revolving credit facility with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co as lenders (as amended, the 2009 Credit Agreement). On March 29, 2013, we entered into a Second Amended and Restated Revolving Credit Agreement (as amended, the 2013 Credit Agreement) with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co, as lenders that amended and restated the 2009 Credit Agreement. Between September 2011 and May 2017, we entered into a series of amendments that among other things did the following:·on September 30, 2011, reduced interest rates to the London Interbank Offered Rate plus 3.0%;·on March 29, 2013, converted existing loan advances into a term loan in the principal amount of $15.0 million (the 2013 Term Loan), provided a revolving credit facility in the maximum principal amount of $25.0 million (the 2013 Revolving Line) and a delayed draw term loan (the 2013 DDTL) of up to $15.0 million;·on October 31, 2013, reduced the 2013 DDTL from up to $15.0 million to up to $10.0 million;·on April 24, 2015, extended the maturity date of the 2013 Revolving Line to March 29, 2018 and reduced the interest rates on the 2013 Revolving Line, 2013 Term Loan and 2013 DDTL;·on June 30, 2015, amended its quarterly minimum fixed charge coverage financial covenant;·on March 9, 2016, amended the principal payment amortization of the 2013 Term Loan and 2013 DDTL to five years, as well as amended its quarterly minimum fixed charge coverage financial covenant; and·on May 2, 2017, entered into a Third Amended and Restated Revolving Credit Agreement (as amended, the Credit Agreement) with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co, as lenders that amended and restated the 2013 Credit Agreement.- 26 -The Credit Agreement was entered into to, among other things, consolidate, combine and restate the outstanding indebtedness, on the date of the Credit Agreement, intoFacility which provides for a term loan (the Term Loan) in the principal amount of $14.0$40.0 million and also provide for a $25.0 million senior revolving line of credit (the Revolving Line). The Term Loan and the Revolving Line each have a maturity date of May 1, 2022. Borrowings under the Term Loan accrue interest at a rate based on either the effective LIBOR for certain interest periods selected by us, or a daily floating rate based on the BBA LIBOR as published by Reuters (or other commercially available source providing quotations of BBA LIBOR), plus in either case, a margin of 2.75%. Additionally, the Revolving Line accrues interest at a rate based on either the effective LIBOR for certain interest periods selected by us, or a daily floating rate based on the BBA LIBOR, plus in either case, a margin of 2.25%. At September 30, 2017, the weighted effective interest rate, net of the impact of our interest rate swap, on the Term Loan was 4.61%. The Credit Agreement includes covenants relating to income, debt coverage and cash flow, as well as minimum working capital requirements. The Credit Agreement also contains limitations on our ability to incur additional indebtedness and requires lender approval for acquisitions funded with cash, promissory notes and/or other consideration in excess of $6.0 million and for acquisitions funded solely with equity in excess of $10.0 million. As of September 30, 2017, we were in compliance with all financial covenants contained in the Credit Agreement; we were subject to covenant and working capital borrowing restrictions, and had available borrowing capacityfacility. Obligations under the Credit Agreement of $5.5 million.The Term Loan and loans under the Revolving Line as evidenced by the Credit Agreement, or the Loans, are guaranteed by all of our direct and indirect domestic subsidiaries, and secured by substantially all of our assets and are guaranteed by certain of our direct, domestic wholly-owned subsidiaries. The Credit Agreement matures on December 22, 2025. See Note 9 to the guarantors. The LoansConsolidated Financial Statements for a detailed discussion regarding our Credit Agreement.subject to restrictivecompliant with all covenants under the Credit Agreement as of March 31, 2021.financial covenants that require usdebt capacity will be sufficient to finance current operations, any costs associated with restructuring activities and capital expenditures for at least the next 12 months. This assessment includes consideration of our subsidiaries to maintain certain financial ratios on a consolidated basis, including a maximum leverage, minimum fixed charge coverage and minimum working capital. Prepaymentbest estimates of the Loans is allowed by the Credit Agreement at any time during the termsimpact of the Loans. The Loans also contain limitationsCOVID-19 pandemic on our ability to incur additional indebtedness and requires lender approval for acquisitions funded with cash, promissory notes and/or other consideration in excess of $6.0 million and for acquisitions funded solely with equity in excess of $10.0 million.financial results described above.factors. Basedfactors $ 1,037 $ 2,871 (301 ) (241 ) (3,141 ) (5,071 ) (97 ) (12 ) $ (2,502 ) $ (2,453 ) current operationsconsolidated revenues of approximately $0.8 million and current operating plans, we expect that our available cash, cash generated from current operations and debt capacity will be sufficientan unfavorable effect on expenses of approximately $0.7 million.finance current operations, any potential future acquisitions and capital expendituresa gain of $1.6 million for the next 12three months and beyond. This may involve incurring additional debt or raising equity capital for our business. Additional capital raising activities will dilute the ownership interests of existing stockholders to the extent we raise capital by issuing equity securities and we cannot guarantee that we will be successful in raising additional capital on favorable terms or at all.ended March 31, 2020.2016, which was filed with the SEC on March 17, 2017.Impact of Foreign CurrenciesOur 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, especially the British pound sterling, the Euro, the Canadian dollar and the Swedish krona.During the nine months ended September 30, 2017, changes in foreign currency exchange rates resulted in an unfavorable translation effect on our consolidated revenues and a neutral effect on our consolidated net loss. Changes in foreign currency exchange rates resulted in an unfavorable effect on revenues of approximately $1.0 million and a favorable effect on expenses of approximately $1.0 million. During the nine months ended September 30, 2016, changes in foreign currency exchange rates resulted in an unfavorable effect on revenues of $1.2 million and a favorable effect on expenses of $1.1 million.The gain associated with the translation of foreign equity into U.S. dollars included as a component of comprehensive loss during the three months ended September 30, 2017, was approximately $1.2 million, compared to a loss of $2.0 million for the three months ended September 30, 2016. The gain associated with the translation of foreign equity into U.S. dollars included as a component of comprehensive loss during the nine months ended September 30, 2017, was approximately $4.2 million, compared to a loss of $1.4 million for the nine months ended September 30, 2016.- 27 -In addition, currency exchange rate fluctuations included as a component of net loss resulted in approximately $0.1 million in currency losses and $0.1 million in currency gains during the three months ended September 30, 2017 and 2016, respectively. Currency exchange rate fluctuations included as a component of net loss resulted in approximately $0.5 million in currency losses and $0.4 million in currency gains during the nine months ended September 30, 2017 and 2016, respectively.2020.In May 2014, theFor information on recent accounting pronouncements impacting our business, see “Recently Issued Accounting Pronouncements” included in Note 2 to our Consolidated Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09,Revenue from Contracts with Customers, a new accounting standard that provides for a comprehensive model to useStatements included in the accounting for revenue arising from contracts with customers that will replace most existing revenue recognition guidance within generally accepted accounting principles in the United States. Under“Part I, Item 1. Financial Statement” of this standard, revenue will be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We expect to adopt this standard as of January 1, 2018 using the modified retrospective approach.report.We are in the process of evaluating the impact of the new standard on our consolidated financial position, results of operations and cash flows. As part of this process, we have conducted a comprehensive assessment of our contracts concerning any unique customer contract terms or transactions that could have implications under the new guidance. We have identified our significant revenue streams, which currently consist primarily of product revenue transactions, and to a lesser extent, extended warranty transactions on certain product sales, and revenues from government contracts. We are in the process of updating our revenue recognition policy, systems, and internal controls in response to the new update. We do not expect material changes to the timing of revenue recognition, nor do we expect significant changes to our systems or internal controls.Finally, we are evaluating the disclosure requirements under the new standard, which are generally more expansive than current guidance. We expect these undertakings will be complete in the fourth quarter of 2017. Based on procedures to date, we do not anticipate material changes to our consolidated financial statements. We continue to work through the adoption process and it is possible that these preliminary conclusions could change.In February 2016, the FASB issued ASU 2016-02,Leases, which is intended to improve financial reporting about leasing transactions. The update requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. The update is effective for fiscal years beginning after December 15, 2018. We have commenced the process of evaluating the requirements of the standard as well as collecting information on all our leases. We have not yet concluded on the impact of the adoption on our consolidated financial position, results of operations and cash flows, however, assets and liabilities will increase upon adoption for right-of-use assets and lease liabilities. Our future commitments under lease obligations are summarized in Note 10.In May 2017, the FASB issued ASU 2017-09,Stock compensation (Topic 718): Scope of modification accountingwhich amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. We have evaluated the requirements of this guidance and do not expect the adoption of the standard to have a material impact on our consolidated financial position, results of operations and cash flows.In August 2017, the FASB issued ASU 2017-12,Derivatives and Hedging (Topic 815) which amends the hedge accounting recognition and presentation requirements in ASC 815. The Board’s objectives in issuing the ASU are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. The ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. We are evaluating the requirements of this guidance and have not yet determined the impact of the adoption on our consolidated financial position, results of operations and cash flows.Recently Adopted Accounting PronouncementsIn March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.The standard requires an entity to recognize all excess tax benefits and tax deficiencies as income tax benefit or expense in the income statement as discrete items in the reporting period in which they occur, and such tax benefits and tax deficiencies are not included in the estimate of an entity’s annual effective tax rate, applied on a prospective basis. Further, the standard eliminates the requirement to defer the recognition of excess tax benefits until the benefit is realized through a reduction to taxes payable. All excess tax benefits previously unrecognized, along with any valuation allowance, should be recognized on a modified retrospective basis as a cumulative adjustment to retained earnings as of the date of adoption. Under ASU 2016-09, an entity that applies the treasury stock method in calculating diluted earnings per share is required to exclude excess tax benefits and deficiencies from the calculation of assumed proceeds since such amounts are recognized in the income statement. Excess tax benefits should also be classified as operating activities in the same manner as other cash flows related to income taxes on the statement of cash flows, as such excess tax benefits no longer represent financing activities since they are recognized in the income statement, and should be applied prospectively or retrospectively to all periods presented.We adopted ASU 2016-09 as of January 1, 2017. We recorded a cumulative increase in retained earnings of $0.5 million at the beginning of the first quarter of 2017 with a corresponding increase in deferred tax assets related to the prior years’ unrecognized excess tax benefits. An equal amount of valuation allowance was also recorded against these deferred tax assets with a corresponding decrease to retained earnings resulting in no net impact to retained earnings and deferred tax assets. In addition, tax deficiencies related to vested restricted stock units and canceled stock options during the nine months ended September 30, 2017 have been recognized in the current period’s income statement.ASU 2016-09 also allows an entity to elect as an accounting policy either to continue to estimate the total numberEvaluation of awards for which the requisite service period will not be rendered or to account for forfeitures for service based awards as they occur. An entity that elects to account for forfeitures as they occur should apply the accounting change on a modified retrospective basis as a cumulative effect adjustment to retained earnings as of the date of adoption. We elected as an accounting policy to account for forfeitures for service based awards as they occur,Disclosure Controls and as a result, we recorded a cumulative effect adjustment of $0.1 million to reduce retained earnings with a corresponding increase in additional paid in capital related to the prior years as required under the modified retrospective approach. The tax effect of this adjustment, which included the impact of a valuation allowance was immaterial.Item 3. Quantitative and Qualitative Disclosures about Market Risk.ProceduresThe majority of our manufacturing and testing of products occurs in our facilities in the United States, Germany, Sweden and Spain. We sell our products globally through our distributors, direct sales force, websites and catalogs. As a result, our financial results are affected by factors such as changes in foreign currency exchange rates and weak economic conditions in foreign markets.We collect amounts representing a substantial portion of our revenues and pay amounts representing a substantial portion of our operating expenses in foreign currencies. As a result, changes in currency exchange rates from time to time may affect our operating results.We are exposed to market risk from changes in interest rates primarily through our financing activities. As of September 30, 2017, we had $12.4 million outstanding under our Credit Agreement, net of deferred financing costs.As noted above under the heading “Borrowing Arrangements”, on May 2, 2017, we entered into the Credit Agreement to amend our credit facility with Bank of America, as agent, and Bank of America and Brown Brothers Harriman & Co. as lenders. Immediately after entering into this Credit Agreement, we entered into a new interest rate swap contract with Bank of America with a notional amount of $14.0 million and a termination date of March 30, 2022 in order to hedge the risk of changes in the effective benchmark interest rate (LIBOR) associated with our Term Loan. The swap contract converted specific variable-rate debt into fixed-rate debt and fixed the LIBOR rate associated with the Term Loan at 1.86%. The interest rate swap was designated as a cash flow hedge instrument in accordance with ASC 815 “Derivatives and Hedging”. As a result of entering into the new interest rate swap contract, we unwound the previous interest rate swap contracts, and received an immaterial amount in proceeds.September 30, 2017,March 31, 2021, the weighted effective interest rates, netend of the impactperiod covered by this report, our management, including our Chief Executive Officer and our Chief Financial Officer, reviewed and evaluated the effectiveness of our interest rate swaps, on our Term Loan was 4.61%. Assuming no other changes which would affect the margin of the interest rate under our Term Loan, due to interest rate on the Term Loan being fixed at a rate of 1.86% plus a bank margin of 2.75%, there would be no effect of interest rate fluctuations on outstanding borrowings under our Credit Agreement as of September 30, 2017, over the next twelve months.- 29 -Item 4. Controls and Procedures.Disclosuredisclosure controls and procedures (as defined in RulesRule 13a-15(e) andor 15d-15(e) underof the Exchange Act) are designed. 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 ensureprovide reasonable assurance that information required to be disclosed in reports filed or submitted under theour Exchange Act reports is recorded, processed, summarized and reported within the time periods specified inby the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.disclosure.As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, our management, under the supervision and with the participation of our Chief Executive Officer and ChiefChanges in Internal Control over Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and our management necessarily was required to apply its judgment in evaluating and implementing our disclosure controls and procedures. Based upon the evaluation described above, our management concluded that our disclosure controls and procedures for the periods covered by this report were not effective, as of September 30, 2017, because of the material weaknesses in internal control over financial reporting described in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 17, 2017 (the 2016 Form 10-K). Management has concluded that the material weaknesses that were present at December 31, 2016 were also present at September 30, 2017.ReportingNotwithstanding the assessment that our internal controls over financial reporting were not effective and that there were material weaknesses as identified in the 2016 Form 10-K, we believe that our financial statements contained in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017, fairly present our financial condition, results of operations and cash flows in all material respects.As previously disclosed in the 2016 Form 10-K, to remediate the material weaknesses described under the subheading “Management’s Report on Internal Control Over Financial Reporting” in Item 9A of the 2016 Form 10-K, we have continued to implement the remediation initiatives described under the subheading “Remediation Plan” in Item 9A of the 2016 Form 10-K. Specifically, we have implemented a new ERP system at MCS, continue to review authority and reporting lines at MCS, and continue to design and implement additional income tax related controls. We will continue to evaluate the remediation and may in the future implement additional measures. While improvements have been made, thereThere were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act that occurred during the first quarter ended September 30, 2017of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We continue to monitor the impact of the COVID-19 pandemic and, despite many of our employees working remotely, have not experienced any changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.1A. Risk Factors.1 of this quarterly report is incorporated herein by reference.hashave been no material changes in the risk factors described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which was filed with the SEC on March 17, 2017.- 30 -Exhibit101.INS101.SCH101.CAL101.PRE101.DEFXBRL Taxonomy Extension Definition Linkbase Document* 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, 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.November 2, 2017 HARVARD BIOSCIENCE, INC. By: /S/ JEFFREY A. DUCHEMINJeffrey A. DucheminChief Executive Officer By: S/ ROBERT E. GAGNON Robert E. Gagnon Chief Financial Officer - 32 -INDEX TO EXHIBITS*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.- 33 -