UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
FORM 10-Q
☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31,September 30, 2022
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from_____to _____from to
Commission file number 001-33957
HARVARD BIOSCIENCE, INC.
(Exact Name of Registrant as Specified in Its Charter)
HARVARD BIOSCIENCE, INC. |
(Exact Name of Registrant as Specified in Its Charter) |
Delaware04-3306140
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
Delaware | 04-3306140 |
(State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |
84 October Hill Road, Holliston, Massachusetts 01746
(Address of Principal Executive Offices, including zip code)
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)
(508) 893-8999 |
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | HBIO | The Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S- T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☒ | |
Non-accelerated filer ☐ | Smaller reporting company | ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 29,October 31, 2022, there were 41,241,44941,657,688 shares of the registrant’s common stock issued and outstanding.
HARVARD BIOSCIENCE, INC.
FORM 10-Q
INDEX
(Unaudited, in thousands, except share and per share data) |
March 31, | December 31, | September 30, | December 31, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 5,433 | $ | 7,821 | $ | 5,144 | $ | 7,821 | ||||||||
Accounts receivable, net | 20,274 | 21,834 | 15,023 | 21,834 | ||||||||||||
Inventories | 28,711 | 27,587 | 26,116 | 27,587 | ||||||||||||
Other current assets | 5,030 | 4,341 | 5,535 | 4,341 | ||||||||||||
Total current assets | 59,448 | 61,583 | 51,818 | 61,583 | ||||||||||||
Property, plant and equipment, net | 3,499 | 3,415 | 3,555 | 3,415 | ||||||||||||
Operating lease right-of-use assets | 6,605 | 6,897 | 6,019 | 6,897 | ||||||||||||
Goodwill | 57,356 | 57,689 | 54,851 | 57,689 | ||||||||||||
Intangible assets, net | 25,878 | 27,385 | 22,464 | 27,385 | ||||||||||||
Other long-term assets | 5,258 | 5,375 | 8,306 | 5,375 | ||||||||||||
Total assets | $ | 158,044 | $ | 162,344 | $ | 147,013 | $ | 162,344 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of long-term debt | $ | 2,720 | $ | 3,235 | $ | 2,720 | $ | 3,235 | ||||||||
Current portion of operating lease liabilities | 2,151 | 2,142 | 2,121 | 2,142 | ||||||||||||
Accounts payable | 6,218 | 4,911 | 5,877 | 4,911 | ||||||||||||
Deferred revenue | 3,956 | 4,266 | 3,642 | 4,266 | ||||||||||||
Other current liabilities | 12,181 | 10,762 | 7,000 | 10,762 | ||||||||||||
Total current liabilities | 27,226 | 25,316 | 21,360 | 25,316 | ||||||||||||
Long-term debt, net | 46,244 | 45,095 | 46,534 | 45,095 | ||||||||||||
Deferred tax liability | 1,442 | 1,558 | 1,181 | 1,558 | ||||||||||||
Operating lease liabilities | 6,159 | 6,488 | 5,539 | 6,488 | ||||||||||||
Other long-term liabilities | 598 | 486 | 420 | 486 | ||||||||||||
Total liabilities | 81,669 | 78,943 | 75,034 | 78,943 | ||||||||||||
Commitments and contingencies - Note 12 | ||||||||||||||||
Stockholders' equity: | ||||||||||||||||
Preferred stock, par value $0.01 per share, 5,000,000 shares authorized | 0 | 0 | ||||||||||||||
Common stock, par value $0.01 per share, 80,000,000 shares authorized: 41,241,449 shares issued and outstanding at March 31, 2022; 41,142,876 shares issued and outstanding at December 31, 2021 | 452 | 452 | ||||||||||||||
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: 41,657,688 shares issued and outstanding at September 30, 2022; 41,142,876 shares issued and outstanding at December 31, 2021 | 453 | 452 | ||||||||||||||
Additional paid-in-capital | 226,203 | 225,650 | 228,229 | 225,650 | ||||||||||||
Accumulated deficit | (139,554 | ) | (132,674 | ) | (140,524 | ) | (132,674 | ) | ||||||||
Accumulated other comprehensive loss | (10,726 | ) | (10,027 | ) | (16,179 | ) | (10,027 | ) | ||||||||
Total stockholders' equity | 76,375 | 83,401 | 71,979 | 83,401 | ||||||||||||
Total liabilities and stockholders' equity | $ | 158,044 | $ | 162,344 | $ | 147,013 | $ | 162,344 |
See accompanying notes to condensed consolidated financial statements.
HARVARD BIOSCIENCE, INC. |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited, in thousands, except per share data) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
Three Months Ended March 31, | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Revenues | $ | 28,778 | $ | 26,989 | $ | 26,922 | $ | 29,663 | $ | 84,908 | $ | 85,849 | ||||||||||||
Cost of revenues | 12,601 | 11,558 | 14,750 | 13,355 | 39,922 | 37,757 | ||||||||||||||||||
Gross profit | 16,177 | 15,431 | 12,172 | 16,308 | 44,986 | 48,092 | ||||||||||||||||||
Sales and marketing expenses | 6,687 | 5,386 | 5,819 | 6,183 | 19,093 | 17,299 | ||||||||||||||||||
General and administrative expenses | 6,325 | 6,333 | 6,324 | 5,458 | 18,630 | 18,190 | ||||||||||||||||||
Research and development expenses | 3,220 | 2,487 | 2,763 | 2,660 | 9,480 | 7,848 | ||||||||||||||||||
Amortization of intangible assets | 1,466 | 1,464 | 1,572 | 1,459 | 4,492 | 4,388 | ||||||||||||||||||
Settlement of litigation - Note 13 | 5,191 | 0 | ||||||||||||||||||||||
Settlement of litigation, net - Note 13 | (544 | ) | - | (233 | ) | - | ||||||||||||||||||
Total operating expenses | 22,889 | 15,670 | 15,934 | 15,760 | 51,462 | 47,725 | ||||||||||||||||||
Operating loss | (6,712 | ) | (239 | ) | ||||||||||||||||||||
Operating (loss) income | (3,762 | ) | 548 | (6,476 | ) | 367 | ||||||||||||||||||
Other (expense) income: | ||||||||||||||||||||||||
Other expense: | ||||||||||||||||||||||||
Interest expense | (384 | ) | (411 | ) | (749 | ) | (373 | ) | (1,648 | ) | (1,161 | ) | ||||||||||||
Other income (expense), net | 78 | (34 | ) | |||||||||||||||||||||
Other expense, net | (179 | ) | (130 | ) | (163 | ) | (477 | ) | ||||||||||||||||
Total other expense | (306 | ) | (445 | ) | (928 | ) | (503 | ) | (1,811 | ) | (1,638 | ) | ||||||||||||
Loss before income taxes | (7,018 | ) | (684 | ) | ||||||||||||||||||||
Income tax benefit | (138 | ) | (15 | ) | ||||||||||||||||||||
(Loss) income before income taxes | (4,690 | ) | 45 | (8,287 | ) | (1,271 | ) | |||||||||||||||||
Income tax (benefit) expense | (1,285 | ) | 215 | (437 | ) | (22 | ) | |||||||||||||||||
Net loss | $ | (6,880 | ) | $ | (669 | ) | $ | (3,405 | ) | (170 | ) | $ | (7,850 | ) | $ | (1,249 | ) | |||||||
Loss per share: | ||||||||||||||||||||||||
Basic and diluted loss per common share | $ | (0.17 | ) | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.00 | ) | $ | (0.19 | ) | $ | (0.03 | ) | ||||||
Weighted-average common shares: | ||||||||||||||||||||||||
Basic and diluted | 41,219 | 39,787 | 41,637 | 40,754 | 41,353 | 40,202 |
See accompanying notes to condensed consolidated financial statements.
HARVARD BIOSCIENCE, INC. |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
(Unaudited, in thousands) |
Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Net loss | $ | (6,880 | ) | $ | (669 | ) | $ | (3,405 | ) | $ | (170 | ) | $ | (7,850 | ) | $ | (1,249 | ) | ||||||
Other comprehensive loss: | ||||||||||||||||||||||||
Foreign currency translation adjustments | (699 | ) | (1,325 | ) | (2,936 | ) | (1,135 | ) | (6,152 | ) | (1,937 | ) | ||||||||||||
Comprehensive loss | $ | (7,579 | ) | $ | (1,994 | ) | $ | (6,341 | ) | $ | (1,305 | ) | $ | (14,002 | ) | $ | (3,186 | ) |
See accompanying notes to condensed consolidated financial statements.
HARVARD BIOSCIENCE, INC. |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
(Unaudited, in thousands) |
Accumulated | ||||||||||||||||||||||||||||
Number | Additional | Other | Total | |||||||||||||||||||||||||
of Shares | Common | Paid-in | Accumulated | Comprehensive | Treasury | Stockholders’ | ||||||||||||||||||||||
Issued | Stock | Capital | Deficit | Loss | Stock | Equity | ||||||||||||||||||||||
Balance at December 31, 2021 | 41,143 | $ | 452 | $ | 225,650 | $ | (132,674 | ) | $ | (10,027 | ) | $ | 0 | $ | 83,401 | |||||||||||||
Stock option exercises | 11 | 0 | 31 | 0 | 0 | 0 | 31 | |||||||||||||||||||||
Vesting of restricted stock units | 151 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Shares withheld for taxes | (64 | ) | 0 | (501 | ) | 0 | 0 | 0 | (501 | ) | ||||||||||||||||||
Stock-based compensation expense | - | 0 | 1,023 | 0 | 0 | 0 | 1,023 | |||||||||||||||||||||
Net loss | - | 0 | 0 | (6,880 | ) | 0 | 0 | (6,880 | ) | |||||||||||||||||||
Other comprehensive loss | - | 0 | 0 | 0 | (699 | ) | 0 | (699 | ) | |||||||||||||||||||
Balance at March 31, 2022 | 41,241 | $ | 452 | $ | 226,203 | $ | (139,554 | ) | $ | (10,726 | ) | $ | 0 | $ | 76,375 | |||||||||||||
Balance at December 31, 2020 | 47,153 | $ | 444 | $ | 232,357 | $ | (132,386 | ) | $ | (13,066 | ) | $ | (10,668 | ) | $ | 76,681 | ||||||||||||
Stock option exercises | 311 | 4 | 1,920 | 0 | 0 | 0 | 1,924 | |||||||||||||||||||||
Vesting of restricted stock units | 340 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Shares withheld for taxes | (108 | ) | 0 | (464 | ) | 0 | 0 | 0 | (464 | ) | ||||||||||||||||||
Stock-based compensation expense | - | 0 | 968 | 0 | 0 | 0 | 968 | |||||||||||||||||||||
Net loss | - | 0 | 0 | (669 | ) | 0 | 0 | (669 | ) | |||||||||||||||||||
Other comprehensive loss | - | 0 | 0 | 0 | (1,325 | ) | 0 | (1,325 | ) | |||||||||||||||||||
Balance at March 31, 2021 | 47,696 | $ | 448 | $ | 234,781 | $ | (133,055 | ) | $ | (14,391 | ) | $ | (10,668 | ) | $ | 77,115 |
See accompanying notes to condensed consolidated financial statements.
Accumulated | ||||||||||||||||||||||||||||
Three Months Ended | Number | Additional | Other | Total | ||||||||||||||||||||||||
September 30, 2022 | of Shares | Common | Paid-in | Accumulated | Comprehensive | Treasury | Stockholders’ | |||||||||||||||||||||
Issued | Stock | Capital | Deficit | Loss | Stock | Equity | ||||||||||||||||||||||
Balance at June 30, 2022 | 41,500 | $ | 453 | $ | 227,413 | $ | (137,119 | ) | $ | (13,243 | ) | $ | - | $ | 77,504 | |||||||||||||
Stock option exercises | 24 | - | 64 | - | - | - | 64 | |||||||||||||||||||||
Vesting of restricted stock units | 233 | - | - | - | - | - | - | |||||||||||||||||||||
Shares withheld for taxes | (100 | ) | - | (387 | ) | - | - | - | (387 | ) | ||||||||||||||||||
Stock-based compensation expense | - | - | 1,139 | - | - | - | 1,139 | |||||||||||||||||||||
Net income | - | - | - | (3,405 | ) | - | - | (3,405 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | - | (2,936 | ) | - | (2,936 | ) | |||||||||||||||||||
Balance at September 30, 2022 | 41,657 | $ | 453 | $ | 228,229 | $ | (140,524 | ) | $ | (16,179 | ) | $ | - | $ | 71,979 |
Accumulated | ||||||||||||||||||||||||||||
Three Months Ended | Number | Additional | Other | Total | ||||||||||||||||||||||||
September 30, 2021 | of Shares | Common | Paid-in | Accumulated | Comprehensive | Treasury | Stockholders’ | |||||||||||||||||||||
Issued | Stock | Capital | Deficit | Loss | Stock | Equity | ||||||||||||||||||||||
Balance at June 30, 2021 | 40,486 | $ | 451 | $ | 225,583 | $ | (133,465 | ) | $ | (13,868 | ) | $ | - | $ | 78,701 | |||||||||||||
Stock option exercises | 38 | - | 150 | - | - | - | 150 | |||||||||||||||||||||
Vesting of restricted stock units | 493 | - | - | - | - | - | - | |||||||||||||||||||||
Shares withheld for taxes | (208 | ) | - | (1,663 | ) | - | - | - | (1,663 | ) | ||||||||||||||||||
Stock-based compensation expense | - | - | 1,004 | - | - | - | 1,004 | |||||||||||||||||||||
Net loss | - | - | - | (170 | ) | - | - | (170 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | - | (1,135 | ) | - | (1,135 | ) | |||||||||||||||||||
Balance at September 30, 2021 | 40,809 | $ | 451 | $ | 225,074 | $ | (133,635 | ) | $ | (15,003 | ) | $ | - | $ | 76,887 |
|
|
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (6,880 | ) | $ | (669 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation | 382 | 445 | ||||||
Amortization of intangible assets | 1,466 | 1,464 | ||||||
Amortization of deferred financing costs | 70 | 70 | ||||||
Stock-based compensation expense | 1,023 | 968 | ||||||
Deferred income taxes and other | (123 | ) | (53 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 1,506 | 584 | ||||||
Inventories | (1,308 | ) | (602 | ) | ||||
Other assets | (466 | ) | (94 | ) | ||||
Accounts payable and accrued expenses | 2,729 | (245 | ) | |||||
Deferred revenue | (300 | ) | (135 | ) | ||||
Other liabilities | (85 | ) | (696 | ) | ||||
Net cash (used in) provided by operating activities | (1,986 | ) | 1,037 | |||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment | (471 | ) | (151 | ) | ||||
Additions to intangible assets | 0 | (150 | ) | |||||
Net cash used in investing activities | (471 | ) | (301 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowing from revolving line of credit | 1,500 | 0 | ||||||
Repayment of revolving line of credit | 0 | (4,000 | ) | |||||
Repayment of term debt | (936 | ) | (500 | ) | ||||
Debt issuance costs | 0 | (101 | ) | |||||
Proceeds from exercise of stock options | 31 | 1,924 | ||||||
Taxes paid related to net share settlement of equity awards | (501 | ) | (464 | ) | ||||
Net cash provided by (used in) financing activities | 94 | (3,141 | ) | |||||
Effect of exchange rate changes on cash | (25 | ) | (97 | ) | ||||
Decrease in cash and cash equivalents | (2,388 | ) | (2,502 | ) | ||||
Cash and cash equivalents at beginning of period | 7,821 | 8,317 | ||||||
Cash and cash equivalents at end of period | $ | 5,433 | $ | 5,815 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 383 | $ | 458 | ||||
Cash paid (received) for income taxes, net of refunds | $ | 107 | $ | (113 | ) |
Accumulated | ||||||||||||||||||||||||||||
Nine Months Ended | Number | Additional | Other | Total | ||||||||||||||||||||||||
September 30, 2022 | of Shares | Common | Paid-in | Accumulated | Comprehensive | Treasury | Stockholders’ | |||||||||||||||||||||
Issued | Stock | Capital | Deficit | Loss | Stock | Equity | ||||||||||||||||||||||
Balance at December 31, 2021 | 41,143 | $ | 452 | $ | 225,650 | $ | (132,674 | ) | $ | (10,027 | ) | $ | - | $ | 83,401 | |||||||||||||
Stock option exercises | 40 | 1 | 106 | - | - | - | 107 | |||||||||||||||||||||
Stock purchase plan | 78 | - | 239 | - | - | - | 239 | |||||||||||||||||||||
Vesting of restricted stock units | 628 | - | - | - | - | - | - | |||||||||||||||||||||
Shares withheld for taxes | (232 | ) | - | (1,167 | ) | - | - | - | (1,167 | ) | ||||||||||||||||||
Stock-based compensation expense | - | - | 3,401 | - | - | - | 3,401 | |||||||||||||||||||||
Net loss | - | - | - | (7,850 | ) | - | - | (7,850 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | - | (6,152 | ) | - | (6,152 | ) | |||||||||||||||||||
Balance at September 30, 2022 | 41,657 | $ | 453 | $ | 228,229 | $ | (140,524 | ) | $ | (16,179 | ) | $ | - | $ | 71,979 |
Accumulated | ||||||||||||||||||||||||||||
Nine Months Ended | Number | Additional | Other | Total | ||||||||||||||||||||||||
September 30, 2021 | of Shares | Common | Paid-in | Accumulated | Comprehensive | Treasury | Stockholders’ | |||||||||||||||||||||
Issued | Stock | Capital | Deficit | Loss | Stock | Equity | ||||||||||||||||||||||
Balance at December 31, 2020 | 47,153 | $ | 444 | $ | 232,357 | $ | (132,386 | ) | $ | (13,066 | ) | $ | (10,668 | ) | $ | 76,681 | ||||||||||||
Retirement of treasury stock | (7,746 | ) | - | (10,668 | ) | - | - | $ | 10,668 | - | ||||||||||||||||||
Stock option exercises | 535 | 7 | 2,700 | - | - | - | 2,707 | |||||||||||||||||||||
Stock purchase plan | 56 | - | 202 | - | - | - | 202 | |||||||||||||||||||||
Vesting of restricted stock units | 1,196 | - | - | - | - | - | - | |||||||||||||||||||||
Shares withheld for taxes | (385 | ) | - | (2,653 | ) | - | - | - | (2,653 | ) | ||||||||||||||||||
Stock-based compensation expense | - | - | 3,136 | - | - | - | 3,136 | |||||||||||||||||||||
Net loss | - | - | - | (1,249 | ) | - | - | (1,249 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | - | (1,937 | ) | - | (1,937 | ) | |||||||||||||||||||
Balance at September 30, 2021 | 40,809 | $ | 451 | $ | 225,074 | $ | (133,635 | ) | $ | (15,003 | ) | $ | - | $ | 76,887 |
See accompanying notes to condensed consolidated financial statements.
HARVARD BIOSCIENCE, INC. |
(Unaudited, in thousands) |
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (7,850 | ) | $ | (1,249 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation | 1,122 | 1,311 | ||||||
Amortization of intangible assets | 4,492 | 4,388 | ||||||
Amortization of deferred financing costs | 210 | 210 | ||||||
Stock-based compensation expense | 3,401 | 3,136 | ||||||
Deferred income taxes and other | (160 | ) | (498 | ) | ||||
Investment in Convertible Preferred Stock - Note 13 | (3,900 | ) | - | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 6,060 | (727 | ) | |||||
Inventories | (329 | ) | (4,048 | ) | ||||
Other assets | (811 | ) | (2,088 | ) | ||||
Accounts payable and accrued expenses | (2,379 | ) | 1,901 | |||||
Deferred revenue | (551 | ) | (142 | ) | ||||
Other liabilities | (832 | ) | (1,049 | ) | ||||
Net cash (used in) provided by operating activities | (1,527 | ) | 1,145 | |||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment | (1,355 | ) | (837 | ) | ||||
Additions to intangible assets | - | (150 | ) | |||||
Net cash used in investing activities | (1,355 | ) | (987 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowing on bank line of credit | 7,800 | 2,500 | ||||||
Repayment on bank line of credit | (4,650 | ) | (4,000 | ) | ||||
Repayment of term debt | (2,436 | ) | (1,500 | ) | ||||
Debt issuance costs | - | (102 | ) | |||||
Proceeds from exercise of stock options and employee stock purchase plan | 346 | 2,909 | ||||||
Taxes paid related to net share settlement of equity awards | (1,167 | ) | (2,653 | ) | ||||
Net cash used in financing activities | (107 | ) | (2,846 | ) | ||||
Effect of exchange rate changes on cash | 312 | (81 | ) | |||||
Decrease in cash and cash equivalents | (2,677 | ) | (2,769 | ) | ||||
Cash and cash equivalents at beginning of period | 7,821 | 8,317 | ||||||
Cash and cash equivalents at end of period | $ | 5,144 | $ | 5,548 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 1,529 | $ | 836 | ||||
Cash paid for income taxes, net of refunds | $ | 493 | $ | 506 |
See accompanying notes to condensed consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. | Basis of Presentation and Summary of Significant Accounting Policies, and Risks and Uncertainties |
Basis of Presentation and Summary of Significant Accounting Policies
The unaudited consolidated financial statements of Harvard Bioscience, Inc. and its wholly-owned subsidiaries (collectively, “Harvard Bioscience” or the “Company”) as of March 31,September 30, 2022 and for the three and ninemonths ended March 31,September 30, 2022 and 2021, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The December 31, 2021, consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of March 31,September 30, 2022, results of operations and comprehensive loss and cash flows for the three and ninemonths ended March 31,September 30, 2022 and 2021, as applicable, have been made. The results of operations for the three and ninemonths ended March 31,September 30, 2022, are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The accounting policies underlying the accompanying unaudited consolidated financial statements are set forth in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes in the Company’s significant accounting policies during the three and ninemonths ended March 31,September 30, 2022.
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 rapidlycontinuously evolving. Since the global outbreak of COVID-19, many customers, particularly academic research institutions, have reduced laboratory work which has negatively impacted, and will continue to negatively impact, the Company’s sales. Also,Many countries world-wide continue to issue COVID-19 related policies in an attempt to control the pandemic. In particular, during the beginning of 2022, China implemented area-wide shutdowns in order to control the spread of COVID-19.19, To ensure business continuity while maintaining a safe environmentwhich have continued for employees aligned with guidance from government and health organizations, the Company transitioned a significant portiondifferent parts of its workforce to work-from-home while implementing social distancing requirements and other measures to allow manufacturing and other personnel essential to production to continue work within the Company's facilities. Business travel was significantly reduced during this period. While a portion of the workforce has returned to in-office work and travel is less restricted, the Company continued to have restrictions which represent disruptions that can impact productivity including sales and marketing activities.China throughout 2022.
The global supply chain has experienced significant disruptions due to electronic component and labor shortages and other macroeconomic factors which have emerged since the onset of COVID-19, leading to increased cost of freight, purchased materials, and manufacturing labor costs, while also delaying customer shipments. Accordingly, these conditions in addition to the overall impact on the global economy have negatively impacted results of operations and cash flows.
Additionally, during 2022 the global economy has experienced high levels of inflation, rising interest rates and significant fluctuations in currency values, and increasing economic uncertainty, particularly in Europe. The Company’s results of operations have been negatively impacted by higher costs of raw materials, labor and freight resulting from inflationary pressures. These factors and global events including the ongoing military conflict between Russia and Ukraine, a softening economy in Europe and rising interest rates on the Company’s debt may also have a negative impact on the Company’s results.
If business interruptions resulting from COVID-19 or the current macroeconomic conditions described above were to be prolonged or expanded in scope, the Company’s business, financial condition, results of operations and cash flows would likely be negatively impacted.
2. | Recently Issued Accounting Pronouncements |
Accounting Pronouncements to be Adopted
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance (“ASU 2021-10”), which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The new standardASU 2021-10 impacts footnote disclosures and iswill be effective for the Company’s annual financial statements for the year ended December 31, 20222022. annual financial statements. The Company is currently evaluating the potential impact of adopting ASU 2021-10 will have on its consolidated financial statements.
In January 2017, 2017,the FASB issued ASU 2017-04, Intangibles—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU (“ASU 2017-0404”), which eliminates the performance of Step 2 from the goodwill impairment test. In performing its annual or interim impairment testing, an entity will instead compare the fair value of the reporting unit with its carrying amount and recognize any impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. ASU 2017-04 iswill be effective for the Company for fiscal years beginning after December 15, 2022. The Company is currently evaluating the potential impact that adopting ASU 2017-04 will have on its consolidated financial statements.
In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments (ASU(‘ASU 2016-1313’), 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 earlier recognition of allowances for losses. The FASB issued several ASUs after ASU 2016-13 to clarify implementation guidance and to provide transition relief for certain entities. ASU 2016-13 iswill be effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is evaluatingbelieves that the impact that adoptingadoption of ASU 2016-13 and related amendments will nothave a significant impact on its consolidated financial statements.
3. | Goodwill and Intangible Assets |
Goodwill
The change in the carrying amount of goodwill for the threenine months ended March 31,September 30, 2022, were as follows:
(in thousands) | ||||||||
Carrying amount at December 31, 2021 | $ | 57,689 | $ | 57,689 | ||||
Effect of change in currency translation | (333 | ) | (2,838 | ) | ||||
Carrying amount at March 31, 2022 | $ | 57,356 | ||||||
Carrying amount at September 30, 2022 | $ | 54,851 |
Intangible Assets
Identifiable intangible assets at March 31,September 30, 2022 and December 31, 2021 consist of the following:
March 31, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | Average | Accumulated | Accumulated | Average | Accumulated | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||
Amortizable intangible assets: | Life* | Gross | Amortization | Net | Gross | Amortization | Net | Life* | Gross | Amortization | Net | Gross | Amortization | Net | ||||||||||||||||||||||||||||||||||||||||||
Distribution agreements/customer relationships | 7.7 | $ | 17,594 | $ | (8,938 | ) | $ | 8,656 | $ | 17,689 | $ | (8,675 | ) | $ | 9,014 | 7.3 | $ | 16,716 | $ | (9,034 | ) | $ | 7,682 | $ | 17,689 | $ | (8,675 | ) | $ | 9,014 | ||||||||||||||||||||||||||
Existing technology | 3.9 | 38,611 | (24,786 | ) | 13,825 | 38,707 | (23,962 | ) | 14,745 | 3.5 | 37,744 | (25,748 | ) | 11,996 | 38,707 | (23,962 | ) | 14,745 | ||||||||||||||||||||||||||||||||||||||
Trade names and patents | 4.2 | 8,467 | (5,304 | ) | 3,163 | 8,496 | (5,108 | ) | 3,388 | 3.8 | 8,162 | (5,583 | ) | 2,579 | 8,496 | (5,108 | ) | 3,388 | ||||||||||||||||||||||||||||||||||||||
Total amortizable intangible assets | $ | 64,672 | $ | (39,028 | ) | $ | 25,644 | $ | 64,892 | $ | (37,745 | ) | $ | 27,147 | $ | 62,622 | $ | (40,365 | ) | $ | 22,257 | $ | 64,892 | $ | (37,745 | ) | $ | 27,147 | ||||||||||||||||||||||||||||
Indefinite-lived intangible assets: | 234 | 238 | 207 | 238 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total intangible assets | $ | 25,878 | $ | 27,385 | $ | 22,464 | $ | 27,385 |
* Weighted average life in years as of September 30, 2022 |
* Weighted average life in years as
Intangible asset amortization expense was $1.6 million and $1.5 million for each the three months ended March 31,September 30, 2022 and 2021.2021, respectively, and $4.5 million and $4.4 million for the nine months ended September 30, 2022 and 2021, respectively. Estimated amortization expense of existing amortizable intangible assets for each of the five succeeding years and thereafter as of March 31,September 30, 2022, is as follows:
Amortization | ||||
Year Ending December 31, | Expense | |||
(in thousands) | ||||
2022 (remainder of year) | $ | 4,366 | ||
2023 | 5,728 | |||
2024 | 5,427 | |||
2025 | 4,109 | |||
2026 | 2,368 | |||
Thereafter | 3,646 | |||
Total | $ | 25,644 |
(in thousands) | ||||
2022 (remainder of year) | $ | 1,564 | ||
2023 | 5,486 | |||
2024 | 5,194 | |||
2025 | 4,009 | |||
2026 | 2,348 | |||
Thereafter | 3,656 | |||
Total | $ | 22,257 |
4. | Balance Sheet Information |
The following tables provide details of selected balance sheet items as of the periods indicated:
Inventories: | March 31, | December 31, | September 30, | December 31, | ||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Finished goods | $ | 6,798 | $ | 5,646 | $ | 5,340 | $ | 5,646 | ||||||||
Work in process | 3,439 | 3,410 | 3,846 | 3,410 | ||||||||||||
Raw materials | 18,474 | 18,531 | 16,930 | 18,531 | ||||||||||||
Total | $ | 28,711 | $ | 27,587 | $ | 26,116 | $ | 27,587 |
Other Current Liabilities: | March 31, | December 31, | September 30, | December 31, | ||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Compensation | $ | 2,878 | $ | 6,048 | $ | 3,091 | $ | 6,048 | ||||||||
Professional fees | 396 | 480 | 514 | 480 | ||||||||||||
Warranty costs | 242 | 240 | 255 | 240 | ||||||||||||
Customer related costs | 2,058 | 2,265 | 2,184 | 2,265 | ||||||||||||
Settlement of litigation | 4,814 | 0 | ||||||||||||||
Accrued income taxes | 141 | 224 | - | 224 | ||||||||||||
Other | 1,653 | 1,505 | 956 | 1,505 | ||||||||||||
Total | $ | 12,181 | $ | 10,762 | $ | 7,000 | $ | 10,762 |
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. A portion of these transformation activities are considered restructuring costs under ASC 420 – Exit or Disposal Cost Obligations and are discussed below.
During 2019, the Company initiated a restructuring program to improve operational efficiency and reduce costs which entailed consolidating and downsizing several sites and headcount reductions in Europe and North America. This program was completed in 2021. Restructuring costs under this program were $0.6$0.1 million and $1.3 million for the three and ninemonths ended March 31,September 30, 2021, substantiallyrespectively. Substantially all of whichthese costs have been included as a component of general and administrative expenses.
During the three months ended September 30, 2022, the Company completed a review of its product portfolio in which the Company identified certain non-strategic products for discontinuation. In the three months ended September 30, 2022, we incurred charges of $1.3 million, included in cost of revenues, in connection with excess and obsolete inventory, and $0.6 million in severance expense included in general and administrative expense, in connection with headcount reductions in Europe and North America.
The following table summarizes the activity for accrued restructuring liabilities for the nine months ended September 30, 2022:
Cost of | ||||||||||||||||
(in thousands) | Revenues | Severance | Other | Total | ||||||||||||
Balance at December 31, 2021 | $ | - | $ | - | $ | - | $ | - | ||||||||
Restructuring and other exit costs | 1,320 | 561 | 28 | 1,909 | ||||||||||||
Non-cash charges | (1,320 | ) | - | - | (1,320 | ) | ||||||||||
Cash payments | - | (82 | ) | (28 | ) | (110 | ) | |||||||||
Balance at September 30, 2022 | $ | - | $ | 479 | $ | - | $ | 479 |
6. | Related Party Transactions |
In connection with the 2014 acquisitions of Multi Channel Systems MCS GmbH (“MCS”), the Company entered into a facility lease agreement with the former principal owner of MCS who became an employee of the Company at the time of the acquisition and subsequently retired in 2021. The MCS agreement expires on December 31, 2024. Pursuant to this lease agreement, the Company made rent payments of approximately $0.1$0.1 million for each of the three months ended March 31,September 30, 2022 and 2021, and $0.2 million for each of the nine months ended September 30, 2022 and 2021.
7. | Leases |
The Company has noncancelable operating leases for offices, manufacturing facilities, warehouse space, automobiles and equipment expiring at various dates through 2030.
The components of lease expense for the three and ninemonths ended March 31,September 30, 2022 and 2021, are as follows:
Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||
Operating lease cost | $ | 504 | $ | 517 | $ | 486 | $ | 521 | $ | 1,483 | $ | 1,544 | ||||||||||||
Short-term lease cost | 64 | 46 | 58 | 49 | 180 | 150 | ||||||||||||||||||
Sublease income | (25 | ) | (25 | ) | (25 | ) | (25 | ) | (76 | ) | (76 | ) | ||||||||||||
Total lease cost | $ | 543 | $ | 538 | $ | 519 | $ | 545 | $ | 1,587 | $ | 1,618 |
Supplemental cash flow information related to the Company's operating leases was as follows:
Three Months Ended March 31, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | $ | 594 | $ | 611 | $ | 1,759 | $ | 1,791 | ||||||||
Right-of-use assets obtained in exchange for lease obligations: | $ | 39 | $ | 0 | $ | 248 | $ | 351 |
Supplemental balance sheet information related to the Company'sCompany’s operating leases wasare as follows:
March 31, | December 31, | September 30, | December 31, | |||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Operating lease right-of-use assets | $ | 6,605 | $ | 6,897 | $ | 6,019 | $ | 6,897 | ||||||||
Current portion, operating lease liabilities | $ | 2,151 | $ | 2,142 | $ | 2,121 | $ | 2,142 | ||||||||
Operating lease liabilities, long-term | 6,159 | 6,488 | 5,539 | 6,488 | ||||||||||||
Total operating lease liabilities | $ | 8,310 | $ | 8,630 | $ | 7,660 | $ | 8,630 | ||||||||
Weighted average remaining lease term (years) | 6.5 | 6.7 | 6.4 | 6.7 | ||||||||||||
Weighted average discount rate | 9.3 | % | 9.3 | % | 9.4 | % | 9.3 | % |
Future minimum lease payments for operating leases for each twelve-month period subsequent to March 31,September 30, 2022, are as follows:
Year Ending December 31, | ||||||||
(in thousands) | ||||||||
2022 (remainder of year) | $ | 1,611 | $ | 531 | ||||
2023 | 2,133 | 2,101 | ||||||
2024 | 1,765 | 1,755 | ||||||
2025 | 1,019 | 1,052 | ||||||
2026 | 980 | 1,016 | ||||||
Thereafter | 3,871 | 3,970 | ||||||
Total lease payments | 11,379 | 10,425 | ||||||
Less imputed interest | (3,069 | ) | (2,765 | ) | ||||
Total operating lease liabilities | $ | 8,310 | $ | 7,660 |
8. | Capital Stock and Stock-Based Compensation |
Stock-Based Payment Awards
Stock-based awards consist of stock options, time-based restricted stock units (“RSUs”), performance-based RSU’sRSUs and shares issued under the Company’s employee stock purchase plan. Activity under the Company’s equity incentive plans for the threenine months ended March 31,September 30, 2022 was as follows:
Weighted | Weighted | |||||||||||||||||||||||||||||||||||||||||||||||
Stock | Average | Time-Based | Performance- | Stock | Average | Time-Based | Performance- | |||||||||||||||||||||||||||||||||||||||||
Options | Exercise | RSUs | Grant Date | Based RSUs | Grant Date | Options | Exercise | RSUs | Grant Date | Based RSUs | Grant Date | |||||||||||||||||||||||||||||||||||||
Outstanding | Price | Outstanding | Fair Value | Outstanding | Fair Value | Outstanding | Price | Outstanding | Fair Value | Outstanding | Fair Value | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 1,404,816 | $ | 3.10 | 1,141,164 | $ | 3.57 | 860,155 | $ | 3.13 | 1,404,816 | $ | 3.10 | 1,141,164 | $ | 3.57 | 860,155 | $ | 3.13 | ||||||||||||||||||||||||||||||
Granted | 0 | 0 | 518,163 | 5.52 | 205,122 | 5.92 | - | - | 807,345 | 4.91 | 283,641 | 5.38 | ||||||||||||||||||||||||||||||||||||
Exercised | (10,987 | ) | 2.78 | - | - | - | - | (40,267 | ) | 2.64 | - | - | - | - | ||||||||||||||||||||||||||||||||||
Vested (RSUs) | - | - | (151,185 | ) | 2.30 | 0 | 0 | - | - | (232,157 | ) | 3.77 | (396,279 | ) | 2.09 | |||||||||||||||||||||||||||||||||
Cancelled/Forfeited | (3,126 | ) | 3.79 | (12,917 | ) | 3.07 | 0 | 0 | (76,658 | ) | 2.81 | (145,580 | ) | 4.64 | (20,284 | ) | 3.93 | |||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 1,390,703 | $ | 3.10 | 1,495,225 | $ | 4.37 | 1,065,277 | $ | 3.67 | |||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 1,287,891 | $ | 3.13 | 1,570,772 | $ | 4.13 | 727,233 | $ | 4.55 |
Stock-based compensation expense for the three and ninemonths ended March 31,September 30, 2022 and 2021 was allocated as follows:
Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||
Cost of revenues | $ | 36 | $ | 20 | $ | - | $ | 32 | $ | 88 | $ | 83 | ||||||||||||
Sales and marketing expenses | 154 | 93 | 147 | 149 | 493 | 373 | ||||||||||||||||||
General and administrative expenses | 791 | 834 | 919 | 790 | 2,633 | 2,593 | ||||||||||||||||||
Research and development expenses | 42 | 21 | 73 | 33 | 187 | 87 | ||||||||||||||||||
Total stock-based compensation expenses | $ | 1,023 | $ | 968 | $ | 1,139 | $ | 1,004 | $ | 3,401 | $ | 3,136 |
As of March 31,September 30, 2022, the total compensation costs related to unvested awards not yet recognized is $8.2$6.6 million and the weighted average period over which it is expected to be recognized is approximately 2.21.7 years. The Company did not capitalize any stock-based compensation.
The weighted average estimated fair value of the performance-based RSUs that were granted during the threenine months ended March 31,September 30, 2022 was $5.92$5.38 per unit. The following assumptions were used to estimate the fair value of the performance-based RSUs granted during the threenine months ended March 31,September 30, 2022 using a Monte-Carlo valuation simulation:
2022 | ||||
Volatility | % | |||
Risk-free interest rate | % | |||
Correlation | % | |||
Dividend yield | % |
Earnings (Loss) Per Share
Basic earnings (loss) per share (EPS) is calculated by dividing net income (loss) by the number of weighted average shares of common stock outstanding during the period. The calculation of diluted earnings per share assumes conversion of stock options, time-based RSUs, and performance-based RSUs into common stock using the treasury method. The weighted average number of shares used to compute basic and diluted earnings per shareEPS consists of the following:
Three Months Ended March 31, | ||||||||
(in thousands) | 2022 | 2021 | ||||||
Basic | 41,219 | 39,787 | ||||||
Dilutive effect of equity awards | 0 | 0 | ||||||
Diluted | 41,219 | 39,787 |
For the three months ended March 31, 2022, and 2021, the Company excluded from the calculations of diluted earnings per share approximately 3.5 million shares and 4.5 million shares, respectively, of weighted average shares of underlying stock-based awards as the impact of including these potential shares would be anti-dilutive.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Net loss available to common stockholders | $ | (3,405 | ) | $ | (170 | ) | $ | (7,850 | ) | $ | (1,249 | ) | ||||
Weighted average shares outstanding - basic | 41,637 | 40,754 | 41,353 | 40,202 | ||||||||||||
Dilutive effect of equity awards | - | - | - | - | ||||||||||||
Weighted average shares outstanding - diluted | 41,637 | 40,754 | 41,353 | 40,202 | ||||||||||||
Basic and diluted loss per share | $ | (0.08 | ) | $ | (0.00 | ) | $ | (0.19 | ) | $ | (0.03 | ) | ||||
Shares excluded from diluted loss per share due to their anti-dilutive effect | 3,594 | 3,908 | 3,676 | 4,438 |
9. | Long-Term Debt |
As of March 31,September 30, 2022 and December 31, 2021, the Company’s borrowings were comprised of:
March 31, | December 31, | September 30, | December 31, | |||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Long-term debt: | ||||||||||||||||
Term loan | $ | 37,064 | $ | 38,000 | $ | 35,564 | $ | 38,000 | ||||||||
Revolving line | 12,950 | 11,450 | 14,600 | 11,450 | ||||||||||||
Less unamortized deferred financing costs | (1,050 | ) | (1,120 | ) | ||||||||||||
Less: unamortized deferred financing costs | (910 | ) | (1,120 | ) | ||||||||||||
Total debt | 48,964 | 48,330 | 49,254 | 48,330 | ||||||||||||
Current portion of long-term debt | (3,000 | ) | (3,515 | ) | ||||||||||||
Less: current installments | (3,000 | ) | (3,515 | ) | ||||||||||||
Current unamortized deferred financing costs | 280 | 280 | 280 | 280 | ||||||||||||
Long-term debt | $ | 46,244 | $ | 45,095 | $ | 46,534 | $ | 45,095 |
On December 22, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) with Citizens Bank, N.A., Wells Fargo Bank, National Association, and Silicon Valley Bank (together, the “Lenders”). The Credit Agreement provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility (including a $10.0 million sub-facility for the issuance of letters of credit and a $10.0 million swingline loan sub facility) (collectively, the “Credit Facility”). The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s direct, domestic wholly-owned subsidiaries; none of the Company’s direct or indirect foreign subsidiaries has guaranteed the Credit Facility. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of Harvard Bioscience, Inc., and each guarantor (including all or a portion of the equity interests in certain of the Company’s domestic and foreign subsidiaries). The Credit Facility matures on December 22, 2025. Issuance costs of $1.4 million are amortized over the contractual term to maturity date on a straight-line basis, which approximates the effective interest method. Available and unused borrowing capacity under the revolving line of credit was $6.8$3.0 million as of March 31, 2022.September 30, 2022 based on the Credit Agreement, as amended pursuant to the first and second amendments to the Credit Agreement (the “April 2022” and “November 2022 Amendments”, respectively) described below. Total revolver borrowing capacity is limited by the Maximum Leverageconsolidated net leverage ratio as defined under the amended Credit Agreement. The
As part of the November 2022 Amendment, the Credit FacilityFacility’s LIBOR rate option was replaced with the Company’s prior credit facility, which was repaidSecured Overnight Financing Rate (SOFR). All references in this footnote to the LIBOR rate were changed to SOFR in connection with borrowingsthe November 2022 Amendment. Borrowings under the Credit Facility.
Borrowings under theamended Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on LIBORSOFR for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the Credit Agreement, as amended (a “LIBOR“SOFR Loan”), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”). LIBORSOFR interest under the Credit Agreement is subject to applicable market rates and a floor of 0.50 %.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 LIBORSOFR 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. The LIBOR index is expected to be phased out over time and the terms of the Credit Agreement allow for a replacement when that occurs. Interest on LIBORSOFR 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 LIBORSOFR Loan breakage and redeployment costs in certain circumstances.
As of March 31, 2022, the weighted average interest rate on the Credit Agreement borrowings was 3.4%. The effective interest rate for the three months ended March 31,September 30, 2022 and 2021, was 3.1%5.8% and 3.2%, respectively, and for the nine months ended September 30, 2022 and 2021, was 4.3% and 3.3%, respectively. As of September 30, 2022, the weighted average interest rate on the Company’s borrowings was 6.4%. 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.
Commencing on March 31, 2021, the outstanding term loans amortizesamortize 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 Company made an excess cash flow sweep payment of $0.2 million during the three months ended March 31, 2022.
The Credit Agreement, as amended in April and November, includes customary affirmative, negative, and financial covenants binding on the Company. The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments, sell assets and pay dividends on its capital stock. The financial covenants include a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio. The Credit Agreement, as amended, also includes customary events of default.
On April 28, 2022, the Company entered into an amendment to the Credit Agreement and Pledge and Security Agreement (the “Amendment”“April 2022 Amendment”), among the Company, the Lenders, and Citizens Bank, N.A., as the administrative agent (the “Administrative Agent”). Pursuantpursuant to the Amendment,which the Lenders and the Administrative Agent have agreed, among other things, (i) to modify the financial covenant relating to the consolidated net leverage ratio, and (ii) to consent to the Settlementsettlement described in Note 13- “Subsequent Events”.Litigation Settlement. In consideration for the April 2022 Amendment, the Company paid a feefees of $0.2 million to the Lenders and Administrative Agent.
On November 8, 2022, the Company entered into the November 2022 Amendment, pursuant to which the Lenders and the Administrative Agent have agreed, among other things, to modify (i) the financial covenant relating to the consolidated net leverage ratio, and (ii) the definition of Consolidated EBITDA used in the calculation of certain financial covenants, including to exclude non-cash inventory charges related to the Company’s decision to discontinue non-strategic products. In consideration for the November 2022 Amendments, the Company paid fees of $0.2 million to the Lenders and the Administrative Agent.
The Company was in compliance with the covenants of the Credit Agreement, as amended byin accordance with the November 2022 Amendment, as of March 31,September 30, 2022.
10. | Revenues |
The following tables represent a disaggregation of revenue from contracts with customers for the three and ninemonths ended March 31,September 30, 2022 and 2021:
Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||
Instruments, equipment, software and accessories | $ | 27,538 | $ | 25,827 | $ | 25,705 | $ | 28,485 | $ | 81,008 | $ | 82,304 | ||||||||||||
Service, maintenance and warranty contracts | 1,240 | 1,162 | 1,217 | 1,178 | 3,900 | 3,545 | ||||||||||||||||||
Total revenues | $ | 28,778 | $ | 26,989 | $ | 26,922 | $ | 29,663 | $ | 84,908 | $ | 85,849 |
The following tables represent a disaggregation of revenue by geographic destination for the three and ninemonths ended March 31,September 30, 2022 and 2021:
Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||
United States | $ | 12,239 | $ | 11,177 | $ | 11,511 | $ | 12,709 | $ | 38,278 | $ | 37,300 | ||||||||||||
Europe | 7,823 | 8,589 | 7,344 | 8,366 | 22,361 | 25,569 | ||||||||||||||||||
Asia | 6,733 | 5,538 | 6,730 | 7,161 | 19,080 | 18,588 | ||||||||||||||||||
Rest of the world | 1,983 | 1,685 | 1,337 | 1,427 | 5,189 | 4,392 | ||||||||||||||||||
Total revenues | $ | 28,778 | $ | 26,989 | $ | 26,922 | $ | 29,663 | $ | 84,908 | $ | 85,849 |
Deferred revenueRevenue
The following tables provide details of deferred revenue as of the periods indicated:
March 31, | December 31, | September 30, | December 31, | |||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Service contracts | $ | 1,995 | $ | 1,976 | $ | 1,642 | $ | 1,976 | ||||||||
Customer advances | 1,961 | 2,290 | 2,000 | 2,290 | ||||||||||||
Total deferred revenue | $ | 3,956 | $ | 4,266 | $ | 3,642 | $ | 4,266 |
During the threenine months ended March 31,September 30, 2022 and 2021 the Company recognized revenue of $0.7$2.1 million and $1.2$1.8 million from contract liabilities existing at December 31, 2021 and 2020, respectively.
Allowance for Doubtful Accounts
Allowance for doubtful accounts is based on the Company’s assessment of the collectability of accounts receivable. Activity in the allowance for doubtful accounts is as follows:
Three Months Ended March 31, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Balance, beginning of period | $ | 136 | $ | 227 | $ | 136 | $ | 227 | ||||||||
Bad debt (credit) expense | (6 | ) | 5 | |||||||||||||
Bad debt expense (credit) | 103 | (13 | ) | |||||||||||||
Charge-offs and other | 6 | 22 | (60 | ) | (76 | ) | ||||||||||
Balance, end of period | $ | 136 | $ | 254 | $ | 179 | $ | 138 |
Concentrations
No customer accounted for more than 10% of revenues for the three and ninemonths ended March 31,September 30, 2022 and 2021. At March 31,September 30, 2022 and December 21, 2021, no customer accounted for more than 10% of net accounts receivable.
11. | Income Tax |
Income tax benefit(benefit) expense was $0.1$(1.3) million and $0.2 million for the three months ended March 31,September 30, 2022 and 2021, respectively, and was $(0.4) million and less than $0.1$(0.1) million for the threenine months ended March 31, 2021.September 30, 2022 and 2021, respectively. The effective tax rates for the three months ended March 31,September 30, 2022 and 2021, were 2.0%27.4% and 2.2%477.8%, respectively. The effective tax rates for the nine months ended September 30, 2022 and 2021, were 5.3% and 1.7%, respectively.
The difference between the Company’s effective tax rates in 2022 and 2021 compared to the U.S. statutory tax rate of 21% is primarily due to changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company currently has valuation allowances against substantially all of its net operating loss carryforwards and tax credit carryforwards.
12. | Commitments and Contingent Liabilities |
On April 14, 2017,27, 2022, 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.) (“Biostage”), a former subsidiary of the Company that was spun off in 2013, as well as another third party. The complaint seeks payment for an unspecified amount of damages and alleges that the plaintiff sustained terminal injuries allegedly caused by products, including one synthetic trachea scaffold and two bioreactors, provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013.
On April 28, 2022, the Company and Biostage executed a settlement with the plaintiffs (the “Settlement”)in the Biostage Litigation (as defined below) which resolves all claims relating to the litigation. The settlement islitigation as described in Note 13 – “Subsequent Events –Litigation Settlement”.Settlement.
The Company is involved in various other claims and legal proceedings arising in the ordinary course of business. After consultation with legal counsel, the Company has determined that the ultimate disposition of such proceedings is not likely to have a material adverse effect on its business, financial condition, results of operations or cash flows. Although unfavorable outcomes in the proceedings are possible, the Company has not accrued for loss contingencies relating to any such matters as they are not considered to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to the Company, the impact on the Company’s business, financial condition, results of operations and cash flows could be material.
13. |
|
Litigation SettlementOn 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, a former subsidiary of the Company that was spun off in 2013, as well as another third party (the “Biostage Litigation”). The complaint sought payment for an unspecified amount of damages and alleges that the plaintiff sustained terminal injuries allegedly caused by products, including one synthetic trachea scaffold and two bioreactors, provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013.
On April 27, 2022, the Company and Biostage executed a settlement with the plaintiffs of the Biostage Litigation and Biostage’s products liability insurance carriers (the “Settlement”), which resolvesresolved all claims by and between the parties and Biostage’s product liability insurance carriers and resulted in the dismissal with prejudice of the wrongful death claim and all claims relating tobetween the litigation, including outstanding lawsuits with the plaintiffsCompany, Biostage andone of the insurance carriers. The Settlement was entered into solely by way of compromise and settlement and is not in any way an admission of liability or fault by the Company or Biostage. The CompanyBiostage has accrued $5.2 million of costs related to the legal fees and the Settlement as of March 31, 2022. Biostage is required to indemnifyindemnified the Company for all losses and expenses, including legal expenses that the Company incursincurred in connection with the litigation and the Settlement. The
During the nine months ended September 30, 2022, the Company and Biostage have agreed in principlerecorded Settlement related charges (credits) as follows:
● | During the three months ended March 31, 2022, the Company accrued $5.2 million of costs related to legal fees and the Settlement. Additionally, during the year ended December 31, 2021, the Company had incurred $0.3 million in legal fees in connection with the litigation. Due to the financial condition of Biostage, the Company determined that it was uncertain as to whether Biostage would be able to meet its indemnification obligation and had fully reserved any receivable from Biostage. |
● | During the three months ended June 30, 2022, the Company recorded credit adjustments of $4.9 million to the reserve against the indemnification receivable from Biostage. These adjustments reflected: i) the issuance by Biostage of 4,000 shares of its Series E Convertible Preferred Stock (the “Series E Preferred Stock”) to the Company on June 10, 2022, in satisfaction of $4.0 million of Biostage’s total indemnification obligation, ii) the payment by Biostage of a portion of the legal fees associated with the Settlement, and iii) other accrual adjustments. |
● | During the three months ended September 30, 2022, the Company recorded a credit adjustment of $0.5 million to the reserve against the indemnification receivable from Biostage due to the final payment by Biostage of the legal fees associated with the Settlement. |
The Series E Preferred Stock was recorded at an estimated fair value of $4.0 million including dividends, and is included in the September 30, 2022 Consolidated Balance Sheet as a component of Other Long-Term Assets. The Series E Preferred Stock ranks senior to all classes of common stock of Biostage and all classes of preferred stock of Biostage (unless the Company consents to Biostage’s issuance of other preferred stock that is senior to or pari passu with the Series E Preferred Stock) and accrues dividends at a rate of 8% per annum that are payable in additional shares of Series E Preferred Stock. Each share of Series E Preferred Stock is convertible at any time at the option of the Company into such number of shares of Biostage common stock determined by dividing (a) the $1,000 face value of the Series E Preferred Stock plus all accrued and unpaid dividends thereon by (b) the average of the volume weighted average trading prices of Biostage’s common stock, which is currently quoted on the OTCQB Marketplace, for the 60 consecutive trading days prior to the conversion. In the event Biostage has a subsequent qualified offering of its total indemnification obligations,common stock, (which is defined as an offering of Biostage will issue senior convertible preferredcommon stock that coincides with its uplisting onto Nasdaq, the first subsequent public offering by Biostage, or the first subsequent private placement by Biostage resulting in gross proceeds to Biostage of at least $4,000,000), the Company. The issuance of such preferredSeries E Preferred Stock is mandatorily converted into Biostage common stock andat the terms thereof, are subject to the negotiation and execution of definitive documents.applicable qualified offering price. Due to Biostage’s currentlimited operating history, their overall financial condition there is uncertainty as to whetherand the limited trading volume and liquidity of Biostage’s indemnification obligation together withcommon stock, the value if any, of such preferred stock will offset the amounts the Company has incurred in connection with the litigation and Settlement, if at all. Accordingly, as of March 31, 2022, the Company has fully reserved any receivablesSeries E Preferred Stock could fluctuate considerably from Biostage and the financial results only reflect expected lossestime to be paid by the Company.time.
The Company has elected the provisions within ASC 321 Investment Securities to subsequently measure the Series E Preferred Stock at its original cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of Biostage. As of September 30, 2022, there have been no measurement adjustments to the carrying value of the Series E Preferred Stock.
14. | Subsequent Event |
Credit Agreement Amendment
On April 28,November 8, 2022, the Company entered into an amendmentthe November 2022 Amendment to the Credit Agreement and Pledge and Security Agreement (the “Amendment”), among the Company, the Lenders, and Citizens Bank, N.A., as the administrative agent (the “Administrative Agent”). Pursuant to the Amendment, the Lenders and the Administrative Agent have agreed, among other things, (i) to modify the financial covenant relating to the consolidated net leverage ratio and (ii) to consent to the Settlement described above. In consideration for the Amendment, the Company paid a fee of $0.2 million to the Lenders and the Administrative Agent.in detail in Note 9 – Long-Term Debt.
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 Act”). The forward-looking statements are principally, but not exclusively, contained in “Item 2: Management’s Discussion and Analysis of Financial Condition andResultsofOperations.”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’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,”“will,”“should,”“could,”“would,”“seek,”“expects,”“plans,”“aim,”“anticipates,”“believes,”“estimates,”“projects,”“predicts,”“intends,”“think,”“potential,”“objectives,”“optimistic,”“strategy,”“goals,”“sees,”“new,”“guidance,”“future,”“continue,”“drive,”“growth,”“long-term,”“projects,”“develop,”“possible,”“emerging,”“opportunity,”“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. We discuss many of these risks in detail in our Annual Report on Form 10-K for the year ended December 31, 2021.2021 and our other filings with the Securities and Exchange Commission. You should carefully review all of these factors, as well as other risks described in our public filings, and you should be aware that there may be other factors, including factors of which we are not currently aware, that could cause these differences. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information. Harvard Bioscience, Inc. is referred to herein as “we,”“our,”“us,”and “the Company.”
Recent Developments
COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The COVID-19 pandemic has had a negative impact on our operations to date and the future impacts of the pandemic and any resulting economic impact remainare largely unknown and continuously evolving. Since the global outbreak of COVID-19, many customers, particularly academic research institutions, reduced laboratory work which has negatively impacted, and will continue to negatively impact, our sales. Also,Many countries world-wide continue to issue COVID-19 related policies in an attempt to control the pandemic. In particular, during the beginning of 2022, China implemented area-wide shutdowns in order to control the spread of COVID-19. Additionally, to ensure business continuity while maintaining a safe environmentCOVID-19, which have continued for employees aligned with guidance from governmentdifferent parts of China throughout 2022.
Global Supply Chain and health organizations, we transitioned a significant portion of our workforce to work-from-home while implementing social distancing requirements and other measures to allow manufacturing and other personnel essential to production to continue work within our facilities. Business travel was significantly reduced during this period. While a portion of the workforce has returned to in-office work and travel is less restricted, we continue to have restrictions which represent disruptions that can impact productivity including sales and marketing activities.Economic Environment
The global supply chain has experienced significant disruptions due to electronic component and labor shortages and other macroeconomic factors which have emerged since the onset of COVID-19, leading to increased cost of freight, purchased materials and manufacturing labor costs, while also delaying customer shipments. We believe these supply chain trends will continue through the rest of 2022. These conditions, in addition to the overall impact on the global economy, have negatively impacted our results of operations and cash flows.
Additionally, during 2022 the global economy has experienced high levels of inflation, rising interest rates, significant fluctuations in currency values, and increasing economic uncertainty, particularly in Europe. Our results of operations have been negatively impacted by higher costs of raw materials, labor and freight resulting from inflationary pressures. These factors and global events including the ongoing military conflict between Russia and Ukraine, a softening economy in Europe, and rising interest rates on our debt may also have a negative impact on our results.
If business interruptions resulting from COVID-19 or the current macroeconomic conditions described above were to be prolonged or expanded in scope, our business, financial condition, results of operations and cash flows would likely be negatively impacted. We will continue to actively monitor this situation and will implement actions necessary to maintain business continuity.
Selected Results of Operations
Three months ended March 31,September 30, 2022 compared to three months ended March 31,September 30, 2021.
Three Months Ended March 31, | Three Months Ended September 30, | |||||||||||||||||||||||||||||||
(dollars in thousands) | 2022 | % of revenue | 2021 | % of revenue | 2022 | % of revenue | 2021 | % of revenue | ||||||||||||||||||||||||
Revenues | $ | 28,778 | $ | 26,989 | $ | 26,922 | $ | 29,663 | ||||||||||||||||||||||||
Gross profit | 16,177 | 56.2 | % | 15,431 | 57.2 | % | 12,172 | 45.2 | % | 16,308 | 55.0 | % | ||||||||||||||||||||
Sales and marketing expenses | 6,687 | 23.2 | % | 5,386 | 20.0 | % | 5,819 | 21.6 | % | 6,183 | 20.8 | % | ||||||||||||||||||||
General and administrative expenses | 6,325 | 22.0 | % | 6,333 | 23.5 | % | 6,324 | 23.5 | % | 5,458 | 18.4 | % | ||||||||||||||||||||
Research and development expenses | 3,220 | 11.2 | % | 2,487 | 9.2 | % | 2,763 | 10.3 | % | 2,660 | 9.0 | % | ||||||||||||||||||||
Amortization of intangible assets | 1,466 | 5.1 | % | 1,464 | 5.4 | % | 1,572 | 5.8 | % | 1,459 | 4.9 | % | ||||||||||||||||||||
Settlement of litigation | 5,191 | 18.0 | % | - | - | |||||||||||||||||||||||||||
Settlement of litigation, net | (544 | ) | -2.0 | % | - | - | ||||||||||||||||||||||||||
Interest expense | 384 | 1.3 | % | 411 | 1.5 | % | 749 | 2.8 | % | 373 | 1.3 | % | ||||||||||||||||||||
Income tax benefit | (138 | ) | -0.5 | % | (15 | ) | -0.1 | % | ||||||||||||||||||||||||
Income tax (benefit) expense | (1,285 | ) | -4.8 | % | 215 | 0.7 | % |
Revenue
Revenues for the three months ended March 31, 2022, were $28.8 million, an increase of approximately $1.8decreased $2.7 million, or 6.6%9.2%, compared to revenues of $27.0$26.9 million for the three months ended March 31,September 30, 2022, compared to $29.7 million for the three months ended September 30, 2021. Revenues increasedThe decrease in revenues was due primarily to improveda decrease in sales of products from our preclinical product family associated with improved sales processespre-clinical products, as well as improvements in order fulfillment processes which reduce order backlog. These improvements were offset by lower orders from customers in Asia than the prior year due to COVID lockdowns in China in 2022 which delayed orders. We expect sales to China customers to remain at reduced levels until lockdown conditions are removed.unfavorable currency impact.
Gross profit
Gross profit increased $0.7decreased $4.1 million, or 4.8%25.4%, to $16.2$12.2 million for the three months ended March 31,September 30, 2022, compared with $15.4$16.3 million for the three months ended March 31, 2021, due primarily to the increase in revenue noted.September 30, 2021. Gross margin decreased to 56.2%45.2% for the three months ended March 31,September 30, 2022, compared with 57.2%55.0% for the three months ended March 31,September 30, 2021. The decreasereduction in gross margin was due primarily to the decline in revenue noted, and resulting reduction in labor and overhead absorption, as well as higher supply chain, logisticscosts of labor and manufacturing labor costs. materials. Costs of goods sold for the current period also included inventory reserved related to the discontinuation of certain non-strategic products.
The global supply chain has experienced significant disruptions due to electronic componentcomponents and labor shortages and other macroeconomic factors, leading to the increased cost noted.costs. We believe these supply chain trends will continue through the rest of 2022. These costs were partially offset by volume increases and improved product mix and pricing.
Sales and marketing expenses
Sales and marketing expenses increased $1.3decreased $0.4 million, or 24.2%5.9%, to $6.7$5.8 million for the three months ended March 31,September 30, 2022, compared to $5.4$6.2 million during the same period in 2021. The increasedecrease was primarily due to investments in new marketinglower outside service costs and sales support personnel and increases in travel and attendance at in-person trade shows. Travel and tradeshow costs were lower invariable compensation as compared to the prior year quarter due to COVID restrictions.period.
General and administrative expenses
General and administrative expenses wereincreased $0.9 million, or 15.9%, to $6.3 million for both the three months ended March 31, 2022, and March 31, 2021. General and administrative expenses for the three months ended March 31,September 30, 2022, experienced lower restructuring expensescompared to $5.5 million during the same period in 2021. The increase was primarily due to higher severance costs related to our product portfolio review and variable compensation which wereother improvement initiatives, partially offset by higher consulting costs associated with enterprise-level operational improvement planning.lower variable compensation.
Research and development expenses
Research and development expenses were $3.2increased $0.1 million, or 3.9%, to $2.8 million for the three months ended March 31,September 30, 2022, an increase of $0.7 million, or 29.5%, compared with $2.5$2.7 million for the three months ended March 31,September 30, 2021. The increase was primarily due to higher costs involving investmentsassociated with new product development in our preclinical product lines.
Amortization of intangible assets
Amortization of intangible asset expenses were $1.5$1.6 million for both the three months ended March 31,September 30, 2022, and March 31,compared with $1.5 million for the three months ended September 30, 2021. Amortization expense was higher due to a change in the estimated remaining economic life of certain intangible assets.
Settlement of litigation
On April 27,During the three months ended September 30, 2022, we recorded a credit of $0.5 million as an adjustment to the Company andreserve against the indemnification receivable from Biostage executed a settlementto reflect the final payment by Biostage of the legal fees associated with the plaintiffs and Biostage’s products liability insurance carriers (the “Settlement”), which resolves with prejudice all claims relating to the litigation, including outstanding lawsuits with the plaintiffs and one of the insurance carriers (see “Subsequent Events” – Litigation Settlement ” included in Note 13 to our Condensed Consolidated Financial Statements included in “Part I, Item 1. Financial Statement” of this report). We have accrued approximately $5.2 million of costs as of March 31, 2022, and expect to incur an additional $0.8 million of expenses as a result of legal fees and the Settlement. Biostage is required to indemnify us for all losses and expenses, including legal expenses, we incur in connection with the Settlement. We and Biostage have agreed in principle that, in satisfaction of $4.0 million of its total indemnification obligations, Biostage will issue senior convertible preferred stock to the Company. The issuance of such preferred stock, and the terms thereof, are subject to the negotiation and execution of definitive documents. Due to Biostage’s current financial condition, there is uncertainty as to whether Biostage’s indemnification obligation together with the value, if any, of such preferred stock will offset the amounts the Company has incurred in connection with the litigation and Settlement, if at all. Accordingly, as of March 31, 2022, we have fully reserved any receivables from Biostage and the financial results only reflect expected losses to be paid by us.
Interest expense
Interest expense was $0.4increased $0.3 million, for both the three months ended March 31, 2022, and March 31, 2021.
Income tax benefit
Income tax benefit for the three months ended March 31, 2022 was $0.1 million and was less than $0.1or 100.8%, to $0.7 million for the three months ended March 31,September 30, 2022, compared with $0.4 million for the three months ended September 30, 2021. The increase was the result of higher interest rates under our Credit Agreement as well as higher average borrowing balances.
Income tax
Income tax (benefit) expense for the three months ended September 30, 2022 was $(1.3) million and was $0.2 million for the three months ended September 30, 2021. The effective tax rates for the three months ended March 31,September 30, 2022 and 2021 were 2.0%27.4% and 2.2%477.8%, respectivelyrespectively. The difference between our effective tax rates in 2022 and 2021 compared to the U.S. statutory tax rate of 21% is primarily due to changes in valuation 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 carryforwards and tax credit carryforwards.
Nine months ended September 30, 2022 compared to nine months ended September 30, 2021.
Nine Months Ended September 30, | ||||||||||||||||
(dollars in thousands) | 2022 | % of revenue | 2021 | % of revenue | ||||||||||||
Revenues | $ | 84,908 | $ | 85,849 | ||||||||||||
Gross profit | 44,986 | 53.0 | % | 48,092 | 56.0 | % | ||||||||||
Sales and marketing expenses | 19,093 | 22.5 | % | 17,299 | 20.2 | % | ||||||||||
General and administrative expenses | 18,630 | 21.9 | % | 18,190 | 21.2 | % | ||||||||||
Research and development expenses | 9,480 | 11.2 | % | 7,848 | 9.1 | % | ||||||||||
Amortization of intangible assets | 4,492 | 5.3 | % | 4,388 | 5.1 | % | ||||||||||
Settlement of litigation, net | (233 | ) | -0.3 | % | - | - | ||||||||||
Interest expense | 1,648 | 1.9 | % | 1,161 | 1.4 | % | ||||||||||
Income tax (benefit) expense | (437 | ) | -0.5 | % | (22 | ) | 0.0 | % |
Revenue
Revenues decreased $0.9 million, or 1.1%, to $84.9 million for the nine months ended September 30, 2022, compared to revenues of $85.8 million for the nine months ended September 30, 2021. The decrease in revenues was due primarily to a decrease in sales of our pre-clinical products, lower revenue in Europe and unfavorable currency impacts.
Gross profit
Gross profit decreased $3.1 million, or 6.5%, to $45.0 million for the nine months ended September 30, 2022, compared with $48.1 million for the nine months ended September 30, 2021 due primarily to the decrease in revenue and increases in the cost of goods noted above. Gross margin was 53% for the nine months ended September 30, 2022 and was 56% for the nine months ended September 30, 2021. The reduction in gross margin was due primarily to higher costs of labor and materials and inventory reserves related to the discontinuation of certain non-strategic products, as well as the impact of lower revenue on overhead absorption. Pricing increases positively impacted gross margin during 2022.
The global supply chain has experienced significant disruptions due to electronic components and labor shortages and other macroeconomic factors, leading to increased costs. We believe these supply chain trends will continue through the rest of 2022.
Sales and marketing expenses
Sales and marketing expenses increased $1.8 million, or 10.4%, to $19.1 million for the nine months ended September 30, 2022, compared to $17.3 million during the same period in 2021. The increase was primarily due to new marketing and sales support personnel and increases in travel and attendance at in-person trade shows offset by lower variable compensation. Travel and tradeshow costs were lower in the prior year due to COVID-19 related restrictions and efforts to mitigate the spread of COVID-19.
General and administrative expenses
General and administrative expenses increased $0.4 million, or 2.4%, to $18.6 million for the nine months ended September 30, 2022, compared to $18.2 million during the same period in 2021. The increase was primarily due to operational improvement initiative costs partially offset by lower variable compensation.
Research and development expenses
Research and development expenses increased $1.6 million, or 20.8%, to $9.4 million for the nine months ended September 30, 2022, compared with $7.8 million for the nine months ended September 30, 2021. The increase was primarily due to higher costs associated with new product development in our preclinical product lines.
Amortization of intangible assets
Amortization of intangible asset expenses were $4.5 million for the nine months ended September 30, 2022, compared to $4.4 million for the nine months ended September 30, 2021. Amortization expense was higher due to a change in the estimated remaining economic life of certain intangible assets.
Settlement of litigation
During the nine months ended September 30, 2022, we recorded a net credit of $0.2 million related to the Settlement consisting of $5.2 million in settlement and legal expenses accrued during the three months ended March 31, 2022, offset by credits of $4.9 million and $0.5 million during the three months ended June 30, 2022 and September 30, 2022, respectively. The credits consisted of adjustments to the reserve against the indemnification receivable from Biostage to reflect: i) the issuance by Biostage of Series E Convertible Preferred Stock to us on June 10, 2022, in satisfaction of $4.0 million of Biostage’s total indemnification obligations, ii) the payment by Biostage of legal fees associated with the Settlement, and iii) other accrual adjustments.
Interest expense
Interest expense increased $0.5 million, or 41.9%, to $1.7 million for the nine months ended September 30, 2022, compared to $1.2 million for the nine months ended September 30, 2021. The increase was the result of both higher interest rates under our Credit Agreement as well as higher average borrowing balances.
Income tax
Income tax expense (benefit) for the nine months ended September 30, 2022 was $(0.4) million and was less than $(0.1) million for the nine months ended September 30, 2021. The effective tax rates for the nine months ended September 30, 2022 and 2021 were 5.3% and 1.7%, respectively. The difference between our effective tax rates in 2022 and 2021 compared to the U.S. statutory tax rate of 21% is primarily due to changes in valuation 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 carryforwards and tax credit carryforwards.
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 capital expenditures and payments associated with ongoing business improvement initiatives and the litigation settlement.initiatives.
As of March 31,September 30, 2022, we held cash and cash equivalents of $5.4$5.1 million, compared with $7.8 million at December 31, 2021. Borrowings outstanding was $50.0were $50.2 million and $49.4$49.5 million as of March 31,September 30, 2022 and December 31, 2021, respectively.
On December 22, 2020, we entered into a Credit Agreement which provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility and maturesboth maturing on December 22, 2025 (See Note 9 to theour Condensed Consolidated Financial Statements included in “Part I, Item 1. Financial Statement” of this report). As of March 31,2022,September 30, 2022, the weighted average interest rate on our borrowings was 3.4%. Available6.4%, and the available and unused borrowing capacity under the revolving line of creditCredit Agreement, as amended, was $6.8 million as of March 31, 2022.$3.0 million. Total revolver borrowing capacity is limited by our Maximum Leverageconsolidated net leverage ratio as defined under the Credit Agreement.Agreement, as amended.
On April 28, 2022, and November 8, 2022, we entered into an amendmentamendments to the Credit Agreement and Pledge and Security Agreement (the “Amendment”), among the Company, the Lenders,(see Notes 9 and Citizens Bank, N.A., as the administrative agent (see Note 13- “Subsequent Events”14 to our Condensed Consolidated Financial Statements)Statements included in “Part I, Item 1. Financial Statements” of this report). WeThe amendment we entered into on November 8, 2022 (the “November 2022 Amendment”), among other things, modified the financial covenant relating to the consolidated net leverage ratio and the definition of Consolidated EBITDA used in the calculation of certain financial covenants. As a result of the November 2022 Amendment, we are in compliance with thethese financial covenants of the Credit Agreement, as amended by the Amendment, as of March 31, 2022.amended.
Based on our current operating plans, we expect that our available cash, cash generated from current operations and debt capacity will be sufficient to finance current operations, any costs associated with restructuring activities and capital expenditures for at least the next 12 months. This assessment includes consideration of our best estimates of the impact of the COVID-19 pandemic and other macroeconomic conditions on our financial results described above. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary as a result of a number of factors.
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
Three Months Ended March 31, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Cash (used in) provided by operating activities | $ | (1,986 | ) | $ | 1,037 | $ | (1,527 | ) | $ | 1,145 | ||||||
Cash used in investing activities | (471 | ) | (301 | ) | (1,355 | ) | (987 | ) | ||||||||
Cash provided by (used in) financing activities | 94 | (3,141 | ) | |||||||||||||
Cash used in financing activities | (107 | ) | (2,846 | ) | ||||||||||||
Effect of exchange rate changes on cash | (25 | ) | (97 | ) | 312 | (81 | ) | |||||||||
Decrease in cash and cash equivalents | $ | (2,388 | ) | $ | (2,502 | ) | $ | (2,677 | ) | $ | (2,769 | ) |
Cash (used in) provided by operating activities was $(2.0)$(1.5) million and $1.0$1.1 million for the threenine months ended March 31,September 30, 2022 and 2021, respectively. Cash flow from operations for the threenine months ended March 31,September 30, 2022 was lower than the samecomparable period in the prior year period due to higher variable compensationincreased operating losses as noted, payments as well as increasesrelated to the Biostage Litigation, offset by the positive impact of improved accounts receivable collections. During the nine months ended September 30, 2022, we paid approximately $4.0 million in marketing and R&D investments as discussed above.connection with the Settlement.
Cash used in investing activities was $0.5$1.4 million and $0.3$1.0 million for the threenine months ended March 31,September 30, 2022 and 2021, respectively, and primarily consistingconsisted of capital expenditures in manufacturing and information technology infrastructure.
Cash provided by (used in)used in financing activities was $0.1 million and $(3.1)$2.8 million for the threenine months ended March 31,September 30, 2022 and 2021, respectively. During the threenine months ended March 31,September 30, 2022, we increased total debt outstanding under our credit facility increased by $0.6 million. This increase included $0.9$0.7 million, paid underconsisting of net drawings against our revolver of $3.1 million, offset by payments of $2.4 million against the term loan and an increase in revolver borrowings of $1.5 million.loan. We also paid $0.5$1.2 million for taxes related to net share settlement of equity awards. During the threenine months ended March 31,September 30, 2021, we repaid $4.5reduced total debt outstanding under our credit facility by $3.0 million. This reduction included $1.5 million of debt, which included apaid under term loan installment paymentinstallments and a net reduction in revolver borrowings of $0.5$1.5 million. We also received proceeds of $2.9 million and paydown of debt under our revolving facility of $4.0 million. Net cash proceeds from the issuanceexercise of common stock associated with stock option exercises were $1.5options and we paid $2.7 million during the three months ended March 31, 2021.for taxes related to net share settlements of equity awards.
Impact of Foreign Currencies
Our international operations in some instances operate in a natural hedge, as we sell our products in many countries and a substantial portion of our revenues, costs and expenses are denominated in foreign currencies, especially the British pound,primarily the euro the Canadian dollar, and the Swedish krona.British pound.
During the three months ended March 31,September 30, 2022, changes in foreign currency exchange rates resulted in an unfavorable translation effect on our consolidated revenues of approximately $0.5$1.1 million and a favorable effect on expense of approximately $1.0 million. During the nine months ended September 30, 2022, changes in foreign currency exchange rates resulted in an unfavorable translation effect on our consolidated revenues of approximately $2.4 million and a favorable effect on expenses of approximately $0.4$2.3 million.
The loss associated with the translation of foreign equity into U.S. dollars included as a component of comprehensive loss was $0.7 million and $1.3 million during each of the three months ended March 31,September 30, 2022 and 2021, respectively.was $2.9 million, compared to a loss of approximately $1.1 million for the three months ended September 30, 2021. The loss 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, 2022 was $6.2 million, compared to a loss of $1.9 million for the nine months ended September 30, 2021.
In addition, currency exchange rate fluctuations included as a component of net incomeloss resulted in currency (losses) gainsa loss of $(0.1)$0.3 million during the three months ended September 30, 2022, and losses of $0.6 million and $0.1 million during each ofthe nine months ended September 30, 2022 and 2021, respectively. Currency gains for the three months ended March 31, 2022 andSeptember 30, 2021 respectively.were not significant.
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, 2021.
Recently Issued Accounting Pronouncements
For information on recent accounting pronouncements impacting our business, see “Recently Issued Accounting Pronouncements” included in Note 2 to our Condensed Consolidated Financial Statements included in “Part I, Item 1. Financial Statement”Statements” of this report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.Risk
Most 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. In addition, we are subject to the broad market risk that is created by the global market disruptions and uncertainties resulting from the COVID-19 pandemic.Not Applicable.
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 (see “Impact of Foreign Currencies” included in “Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report). For example, we estimate that a 10% increase in foreign currency exchange rates during the three months ended March 31, 2022 as compared to the actual rates incurred, would have resulted in a favorable translation effect on our consolidated revenues of approximately $0.9 million and an unfavorable effect on expenses of approximately $0.8 million.
We are exposed to market risk from changes in interest rates primarily through our financing activities. Our Credit Facility provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility. Borrowings under the Credit Facility bear interest at variable rates (see Note 9 to our Condensed Consolidated Financial Statements included in “Part I, Item 1. Financial Statement” of this report). As of March 31, 2022, we had $50.0 million outstanding under our Credit Facility with a weighted average interest rate of 3.4%.
Assuming no other changes which would affect the margin of the interest rate, the estimated effect of interest rate fluctuations on outstanding borrowings under our Credit Facility over the next twelve months from March 31, 2022, is as follows:
(in thousands) | Interest expense increase | |||
Interest rates increase by 1% | $ | 500 | ||
Interest rates increase by 2% | $ | 1,000 |
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of March 31,September 30, 2022, the end of the period covered by this report, our management, including our Chief Executive Officer and our Chief Financial Officer, reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based upon management's review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the firstthird quarter of fiscal 2022 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.
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.
The information included in Note 12 and Note 13 to the Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this quarterly report is incorporated herein by reference.
You should carefully consider the risk factors set forth below together with the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which could materially affect our business, financial position, or future results of operations. The risks described below and in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial position, or future results of operations.
Rising inflation and interest rates could negatively impact our revenues, profitability and borrowing costs. In addition, if our costs increase and we are not able to correspondingly adjust our commercial relationships to account for this increase, our net income would be adversely affected, and the adverse impact may be material.
Inflation rates, particularly in the U.S., have increased recently to levels not seen in years. Increased inflation may result in decreased demand for our products, increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation. Increases in interest rates have had, and could continue to have, a material impact on our borrowing costs. In an inflationary environment, we may be unable to raise the sales prices of our products at or above the rate at which our costs increase, which could reduce our profit margins and have a material adverse effect on our financial results and net income. We also may experience lower than expected sales if there is a decrease in spending on products in our industry in general or a negative reaction to our pricing. A reduction in our revenue would be detrimental to our profitability and financial condition and could also have an adverse impact on our future growth.
We have substantial debt and other financial obligations, and we may incur even more debt. Any failure to meet our debt and other financial obligations or maintain compliance with related covenants could harm our business, financial condition and results of operations.
Our credit agreement provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility (collectively, the “Credit Agreement”) and will mature on December 22, 2025. As of September 30, 2022, we had outstanding borrowings of $50.2 million under the Credit Agreement.
Pursuant to the terms of the Credit Agreement, we are subject to various covenants, including negative covenants that restrict our ability to engage in certain transactions, which may limit our ability to respond to changing business and economic conditions. Such negative covenants include, among other things, limitations on our ability and the ability of our subsidiaries to:
● | incur debt, |
● | incur liens, |
● | make investments (including acquisitions), |
● | sell assets, and |
● | pay dividends on our capital stock. |
In addition, the Credit Agreement contains certain financial covenants, including a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio, each of which will be tested at the end of each fiscal quarter of the Company.
We were not in compliance with certain financial covenants under the Credit Agreement as of September 30, 2022 but we were able to cure such noncompliance with the November 2022 Amendment. If we are not able to maintain compliance with the covenants under the Credit Agreement, as amended, or are unsuccessful in obtaining waivers or amendments for any covenant defaults in the future, in addition to other actions our lenders may require, the amounts outstanding under the Credit Agreement may become immediately due and payable. This immediate payment may negatively impact our financial condition. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely harm our ability to incur additional indebtedness on acceptable terms. Our cash flow and capital resources may be insufficient to pay interest and principal on our debt in the future. If that should occur, our capital raising or debt restructuring measures may be unsuccessful or inadequate to meet our scheduled debt service obligations, which could cause us to default on our obligations and further impair our liquidity.
Further, based upon our actual performance levels, our covenants relating to leverage and fixed charges could limit our ability to incur additional debt, which could hinder our ability to execute our current business strategy.
Our ability to make scheduled payments on our debt and other financial obligations and comply with financial covenants depends on our financial and operating performance. Our financial and operating performance will continue to be subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. Failure within any applicable grace or cure periods to make such payments, comply with the financial covenants, or any other non-financial or restrictive covenant, would create a default under our Credit Agreement. Our cash flow and existing capital resources may be insufficient to repay our debt at maturity, in which such case prior thereto we would have to extend such maturity date, or otherwise repay, refinance and or restructure the obligations under the Credit Agreement, including with proceeds from the sale of assets, and additional equity or debt capital. If we are unsuccessful in obtaining such extension, or entering into such repayment, refinance or restructure prior to maturity, or any other default existed under the Credit Agreement, our lenders could accelerate the indebtedness under the Credit Agreement, foreclose against their collateral or seek other remedies, which would jeopardize our ability to continue our current operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of equity securities during the period covered by this report.
Item 3. Defaults Upon Senior Securities.
None.See the discussion regarding the Credit Agreement, as amended by the November 2022 Amendment, in Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Item 4. Mine Safety Disclosures.Disclosures.
Not applicable.
None.
101.INS | |
| Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
| |
* | This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by undersigned thereunto duly authorized.
HARVARD BIOSCIENCE, INC. | |||
Date: | |||
By: | /s/ JAMES GREEN | ||
James Green | |||
Chief Executive Officer | |||
By: | /s/ MICHAEL A. ROSSI | ||
Michael A. Rossi | |||
Chief Financial Officer |