hboi20210331

hboi20210331_10q.htm

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, 2021

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____ to _____

Commission file number 001-33957

HARVARD BIOSCIENCE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	04-3306140
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization)	Identification No.)

84 October Hill Road, Holliston, Massachusetts 01746

(Address of Principal Executive Offices, including zip code)

(508) 893-8999

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	HBIO	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2021, there were 39,956,714 shares of the registrant’s common stock issued and outstanding.

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HARVARD BIOSCIENCE, INC.

FORM 10-Q

INDEX

		Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 (unaudited)	3

	Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited)	4

	Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020 (unaudited)	5

	Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2021 and 2020 (unaudited)	6

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21

Item 4.	Controls and Procedures	21

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	22

Item 3.	Default Upon Senior Securities	22

Item 4.	Mine Safety Disclosures	22

Item 5.	Other Information	22

Item 6.	Exhibits	22

SIGNATURES		23

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PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

HARVARD BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share data)

	March 31,			December 31,
	2021			2020
Assets
Current assets:
Cash and cash equivalents	$	5,815		$	8,317
Accounts receivable, net		17,074			17,766
Inventories		22,676			22,262
Other current assets		3,658			3,355
Total current assets		49,223			51,700

Property, plant and equipment, net		3,699			3,960
Operating lease right-of-use assets		7,408			7,761
Goodwill		58,219			58,590
Intangible assets, net		31,888			33,151
Other long-term assets		812			1,092
Total assets	$	151,249		$	156,254

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	1,970		$	1,721
Current portion of operating lease liabilities		2,060			2,111
Accounts payable		6,416			5,972
Deferred revenue		3,637			3,771
Other current liabilities		6,635			7,478
Total current liabilities		20,718			21,053

Long-term debt		41,600			46,286
Deferred tax liability		1,809			1,899
Operating lease liabilities		7,159			7,481
Other long-term liabilities		2,848			2,854
Total liabilities		74,134			79,573

Commitments and contingencies - Note 13

Stockholders' equity:
Preferred stock, par value $0.01 per share, 5,000,000 shares authorized		-			-
Common stock, par value $0.01 per share, 80,000,000 shares authorized; 47,695,539 and 47,152,587 shares issued and 39,950,032 and 39,407,080 shares outstanding, respectively		448			444
Additional paid-in-capital		234,781			232,357
Accumulated deficit		(133,055	)		(132,386	)
Accumulated other comprehensive loss		(14,391	)		(13,066	)
Treasury stock at cost, 7,745,507 common shares		(10,668	)		(10,668	)
Total stockholders' equity		77,115			76,681
Total liabilities and stockholders' equity	$	151,249		$	156,254

See accompanying notes to consolidated financial statements.

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HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)

	Three Months Ended March 31,
	2021			2020

Revenues	$	26,989		$	23,771
Cost of revenues		11,558			10,789
Gross profit		15,431			12,982

Sales and marketing expenses		5,386			5,579
General and administrative expenses		6,333			6,759
Research and development expenses		2,487			2,490
Amortization of intangible assets		1,464			1,427
Total operating expenses		15,670			16,255

Operating loss		(239	)		(3,273	)

Other expense:
Interest expense		(411	)		(1,299	)
Other (expense) income, net		(34	)		111
Total other expense		(445	)		(1,188	)

Loss before income taxes		(684	)		(4,461	)
Income tax (benefit) expense		(15	)		55
Net loss	$	(669	)	$	(4,516	)

Loss per share:
Basic and diluted loss per common share	$	(0.02	)	$	(0.12	)

Weighted-average common shares:
Basic and diluted		39,787			38,329

See accompanying notes to consolidated financial statements.

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HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands)

	Three Months Ended March 31,
	2021			2020

Net loss	$	(669	)	$	(4,516	)
Other comprehensive loss:
Foreign currency translation adjustments		(1,325	)		(1,576	)
Derivatives qualifying as hedges, net of tax:
Loss on derivative instruments designated and qualifying as cash flow hedges		-			(216	)
Amounts reclassified from accumulated other comprehensive loss to net loss		-			72
Derivatives qualifying as hedges, net of tax		-			(144	)
Other comprehensive loss		(1,325	)		(1,720	)
Comprehensive loss	$	(1,994	)	$	(6,236	)

See accompanying notes to consolidated financial statements.

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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, 2020		47,153		$	444	$	232,357		$	(132,386	)	$	(13,066	)	$	(10,668	)	$	76,681
Vesting of restricted stock units		340			-		-			-			-			-			-
Stock option exercises		311			4		1,920												1,924
Shares withheld for taxes		(108	)		-		(464	)		-			-			-			(464	)
Stock compensation expense		-			-		968			-			-			-			968
Net loss		-			-		-			(669	)		-			-			(669	)
Other comprehensive loss		-			-		-			-			(1,325	)		-			(1,325	)
Balance at March 31, 2021		47,696		$	448	$	234,781		$	(133,055	)	$	(14,391	)	$	(10,668	)	$	77,115

Balance at December 31, 2019		45,934		$	438	$	229,189		$	(124,576	)	$	(12,689	)	$	(10,668	)	$	81,694
Vesting of restricted stock units		268			-		-			-			-			-			-
Shares withheld for taxes		(81	)		-		(242	)		-			-			-			(242	)
Stock compensation expense		-			-		793			-			-			-			793
Net loss		-			-		-			(4,516	)		-			-			(4,516	)
Other comprehensive loss		-			-		-			-			(1,720	)		-			(1,720	)
Balance at March 31, 2020		46,121		$	438	$	229,740		$	(129,092	)	$	(14,409	)	$	(10,668	)	$	76,009

See accompanying notes to consolidated financial statements.

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HARVARD BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net loss	$	(669	)	$	(4,516	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		445			484
Amortization of intangible assets		1,464			1,427
Amortization of deferred financing costs		70			98
Stock-based compensation expense		968			793
Other		(53	)		(162	)
Changes in operating assets and liabilities:
Accounts receivable		584			5,149
Inventories		(602	)		(1,413	)
Other assets		(94	)		(767	)
Accounts payable and accrued expenses		(245	)		2,739
Deferred revenue		(135	)		(256	)
Other liabilities		(696	)		(705	)
Net cash provided by operating activities		1,037			2,871

Cash flows from investing activities:
Additions to property, plant and equipment		(151	)		(241	)
Addition to intangible assets		(150	)		-
Net cash used in investing activities		(301	)		(241	)

Cash flows from financing activities:
Repayments of debt		(4,500	)		(4,829	)
Debt issuance costs		(101	)		-
Proceeds from exercise of stock options		1,924			-
Taxes paid for issuance of stock		(464	)		(242	)
Net cash used in financing activities		(3,141	)		(5,071	)

Effect of exchange rate changes on cash		(97	)		(12	)
Decrease in cash and cash equivalents		(2,502	)		(2,453	)
Cash and cash equivalents at beginning of period		8,317			8,335
Cash and cash equivalents at end of period	$	5,815		$	5,882

Supplemental disclosures of cash flow information:
Cash paid for interest	$	458		$	1,237
Cash paid (received) for income taxes, net of refunds	$	(113	)	$	110

See accompanying notes to consolidated financial statements.

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HARVARD BIOSCIENCE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Basis of Presentation

The unaudited consolidated financial statements of Harvard Bioscience, Inc. and its wholly-owned subsidiaries (collectively, Harvard Bioscience or the Company) as of March 31, 2021 and for the three months ended March 31, 2021 and 2020, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. The December 31, 2020 consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of March 31, 2021, results of operations and comprehensive income (loss) and cash flows for the three months ended March 31, 2021 and 2020, as applicable, have been made. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Summary of Significant Accounting Policies

The accounting policies underlying the accompanying unaudited consolidated financial statements are those set forth in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2021.

Risks and Uncertainties

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The COVID-19 pandemic has had a negative impact on the Company’s operations to date and the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. Since the COVID-19 outbreak in the United States, Europe and elsewhere, many customers, particularly academic research institutions, have been unable to maintain laboratory work which has negatively impacted, and will continue to negatively impact, our sales. Additionally, to ensure business continuity while maintaining a safe environment for employees aligned with guidance from government and health organizations, the Company transitioned the majority of its workforce to work-from-home while implementing social distancing requirements and other measures in factories to allow manufacturing and other personnel essential to production to continue work within our facilities. Business travel was significantly reduced during this period. While the Company has maintained operations under these conditions, these measures represent disruptions which can impact productivity including sales and marketing activities. Accordingly, these conditions in addition to the overall impact on the global economy have negatively impacted our results of operations and cash flows.

2.	Recently Issued Accounting Pronouncements

Accounting Pronouncements Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which enhances and simplifies various aspects of the income tax accounting guidance related to intra-period tax allocation, interim period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim period tax accounting. ASU 2019-12 also amends other aspects of the guidance to reduce complexity in certain areas. The Company adopted the provisions of ASU 2019-12 effective on January 1, 2021. The adoption of this new accounting guidance did not have a material impact on the Company’s consolidated financial statements.

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Accounting Pronouncements to be Adopted

In September 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The FASB issued several ASUs after ASU 2016-13 to clarify implementation guidance and to provide transition relief for certain entities. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the impact that adopting ASU 2016-13 and related amendments will have on its consolidated financial position, results of operations and cash flows.

3.	Goodwill and Intangible Assets

Goodwill

The change in the carrying amount of goodwill for the three months ended March 31, 2021 is as follows:

(in thousands)
Carrying amount at December 31, 2020	$	58,590
Effect of change in currency translation		(371	)
Carrying amount at March 31, 2021	$	58,219

Intangible Assets

			March 31, 2021							December 31, 2020
			(in thousands)
Amortizable intangible assets:	Weighted Average Life*		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Distribution agreements/customer relationships		8.6	$	17,924	$	(7,864	)	$	10,060	$	18,237	$	(7,746	)	$	10,491
Existing technology		4.9		38,931		(21,413	)		17,518		38,761		(20,674	)		18,087
Trade names and patents		5.1		8,576		(4,511	)		4,065		8,681		(4,362	)		4,319
Total amortizable intangible assets			$	65,431	$	(33,788	)	$	31,643	$	65,679	$	(32,782	)	$	32,897
Indefinite-lived intangible assets:									245							254
Total intangible assets								$	31,888						$	33,151

* Weighted average life in years as of March 31, 2021

Intangible asset amortization expense was $1.5 million and $1.4 million for the three months ended March 31, 2021 and 2020, respectively. Estimated amortization expense of existing amortizable intangible assets for each of the five succeeding years and thereafter as of March 31, 2021 is as follows:

	Amortization
Year Ending December 31,	Expense
	(in thousands)
2021 (remainder of year)	$	4,373
2022		5,798
2023		5,690
2024		5,385
2025		4,273
Thereafter		6,124
Total	$	31,643

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4.	Balance Sheet Information

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

*Inventories:*	March 31,		December 31,
(in thousands)	2021		2020
Finished goods	$	5,114	$	4,938
Work in process		3,544		3,513
Raw materials		14,018		13,811
Total	$	22,676	$	22,262

*Current Liabilities:*	March 31,		December 31,
(in thousands)	2021		2020
Compensation	$	2,711		3,715
Professional fees		432		432
Warranty costs		168		185
Customer related costs		1,010		1,093
Accrued income taxes		206		286
Other		2,108		1,767
Total	$	6,635	$	7,478

5.	Restructuring and Other Exit Costs

On an ongoing basis, the Company reviews the global economy, the healthcare industry, and the markets in which it competes to identify operational efficiencies, enhance commercial capabilities and align its cost base and infrastructure with customer needs and its strategic plans. In order to realize these opportunities, the Company undertakes restructuring-type activities from time to time to transform its business.

The following table summarizes the changes in the restructuring liabilities for the three months ended March 31, 2021:

(in thousands)	Severance			Other			Total
Balance at December 31, 2020	$	270		$	18		$	288
Restructuring and other exit costs		553			-			553
Cash payments		(256	)		(18	)		(274	)
Balance at March 31, 2021	$	567		$	-		$	567

The restructuring liability has been included in other current liabilities in the consolidated balance sheet and is substantially payable within the next twelve months. Restructuring costs were $0.6 million and $0.9 million during the three months ended March 31, 2021 and 2020, respectively. Substantially all of these restructuring costs have been included as a component of general and administrative expenses.

6.	Related Party Transactions

In connection with 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 also became an employee of the Company. The MCS agreement expires on December 31, 2024. Pursuant to this lease agreement, the Company made rent payments of approximately $0.1 million for each of the three months ended March 31, 2021 and 2020, respectively.

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7.	Leases

The Company has noncancelable operating leases for offices, manufacturing facilities, warehouse space, automobiles and equipment expiring at various dates through 2024 and thereafter.

The components of lease expense for the three months ended March 31, 2021 and 2020 are as follows:

	Three Months Ended March 31,
(in thousands)	2021			2020
Operating lease cost	$	517		$	535
Short term lease cost		46			42
Sublease income		(25	)		(107	)
Total lease cost	$	538		$	470

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

	Three Months Ended March 31,
(in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:	$	611	$	687

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

(in thousands)	March 31, 2021			December 31, 2020
Operating lease right-of use assets	$	7,408		$	7,761

Current portion, operating lease liabilities	$	2,060		$	2,111
Operating lease liabilities, long term		7,159			7,481
Total operating lease liabilities	$	9,219		$	9,592

Weighted average remaining lease term (in years)		7.3			7.4
Weighted average discount rate		9.3	%		9.3	%

Future minimum lease payments for operating leases, with initial or remaining terms in excess of one year at March 31, 2021, are as follows:

(in thousands)	Operating Leases
2022		2,060
2023		1,981
2024		1,953
2025		1,482
2026		981
Thereafter		4,611
Total lease payments		13,068
Less interest		(3,849	)
Total operating lease liabilities	$	9,219

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8.	Capital Stock and Stock-Based Compensation

Stock-Based Payment Awards

Activity under the Company’s 2000 Stock Option and Incentive Plan, as Amended, for the three months ended March 31, 2021 was as follows:

	Stock Options					Restricted Stock Units					Market Condition RSU's
				Weighted
	*Stock*			*Average*		*Restricted*					*Market*
	*Options*			*Exercise*		*Stock Units*			*Grant Date*		*Condition RSU's*		*Grant Date*
	*Outstanding*			*Price*		*Outstanding*			*Fair Value*		*Outstanding*		*Fair Value*
Balance at December 31, 2020		2,637,339		$	3.51		1,560,461		$	2.44		813,031	$	2.12
Granted		-			-		714,793			4.39		293,509		4.61
Exercised		(310,169	)		4.01		-			-		-		-
Vested (RSUs)		-			-		(340,395	)		2.73		-		-
Cancelled/Forfeited		(474,309	)		4.64		(11,000	)		4.17		-		-
Balance at March 31, 2021		1,852,861		$	3.14		1,923,859		$	3.10		1,106,540	$	2.78

Stock-based compensation expense related to stock options, restricted stock units, Market Condition RSU’s and the ESPP for the three months ended March 31, 2021 and 2020 was allocated as follows:

	Three Months Ended March 31,
(in thousands)	2021		2020
Cost of revenues	$	20	$	10
Sales and marketing expenses		93		51
General and administrative expenses		834		696
Research and development expenses		21		36
Total stock-based compensation expenses	$	968	$	793

As of March 31, 2021, the total compensation costs related to unvested awards not yet recognized is $7.8 million and the weighted average period over which it is expected to be recognized is approximately 2.4 years. The Company did not capitalize any stock-based compensation.

The weighted average estimated fair value of the Market Condition RSUs that were granted during the three months ended March 31, 2021 was $4.61. The following assumptions were used to estimate the fair value of the Market Condition RSUs granted during the three months ended March 31, 2021 using a Monte-Carlo valuation simulation:

	2021
Volatility		65.1	%
Risk-free interest rate		0.3	%
Correlation coefficient		35.7	%
Dividend yield		-	%

Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) by the number of weighted average shares of common stock outstanding during the period. The calculation of diluted earnings per share assumes conversion of stock options, restricted stock units and Market Condition RSUs into common stock using the treasury method. The weighted average number of shares used to compute basic and diluted earnings per share consists of the following:

	Three Months Ended March 31, 2021
	2021		2020
Basic		39,787,281		38,328,791
Dilutive effect of equity awards		-		-
Diluted		39,787,281		38,328,791

The Company has excluded from the shares used in calculating the diluted earnings per common share options, restricted stock units and Market Condition RSUs totaling 4,883,260 and 4,222,425, as of March 31, 2021 and 2020 respectively, as the impact of these shares would be anti-dilutive.

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9.	Long-Term Debt

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

	March 31,			December 31,
(in thousands)	2021			2020
Long-term debt:
Term loan	$	39,500		$	40,000
Revolving line		5,400			9,400
Less: unamortized deferred financing costs		(1,330	)		(1,393	)
Total debt		43,570			48,007
Less: current installments		(2,250	)		(2,000	)
Current unamortized deferred financing costs		280			279
Long-term debt	$	41,600		$	46,286

On December 22, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) with Citizens Bank, N.A., Wells Fargo Bank, National Association, and Silicon Valley Bank (together, the “Lenders”). The Credit Agreement provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility (including a $10.0 million sub-facility for the issuance of letters of credit and a $ 10.0 million swingline loan sub facility) (collectively, the “Credit Facility”). The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s direct, domestic wholly-owned subsidiaries; none of the Company’s direct or indirect foreign subsidiaries has guaranteed the Credit Facility. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of Harvard Bioscience, Inc. and each guarantor (including all or a portion of the equity interests in certain of the Company’s domestic and foreign subsidiaries). The Credit Facility matures on December 22, 2025. Issuance costs of $1.4 million are amortized over the contractual term to maturity date on a straight-line basis, which approximates the effective interest method. As of March 31, 2021, available borrowing capacity under the revolving line of credit was $19.6 million. The Credit Facility replaced the Company’s prior credit facility with Cerberus Business Finance, LLC (the “Prior Credit Facility”), which was repaid with borrowings under the Credit Facility.

Borrowings under the Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the Credit Agreement (a “LIBOR Loan”), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”). LIBOR interest under the Credit Agreement is subject to applicable market rates and a floor of 0.50 %. The alternative base rate is based on the Citizens Bank prime rate or the federal funds effective rate of the Federal Reserve Bank of New York and is subject to a floor of 1.0%. The applicable interest rate margin varies from 2.0% per annum to 3.25% per annum for LIBOR Loans, and from 1.5% per annum to 3.0% per annum for ABR Loans, in each case depending on the Company’s consolidated leverage ratio and is determined in accordance with a pricing grid set forth in the Credit Agreement. Interest on LIBOR Loans is payable in arrears on the last day of each applicable interest period, and interest on ABR Loans is payable in arrears at the end of each calendar quarter. There are no prepayment penalties in the event the Company elects to prepay and terminate the Credit Facility prior to its scheduled maturity date, subject to LIBOR breakage and redeployment costs in certain circumstances. As of March 31, 2021, the weighted average interest rate on the Credit Agreement borrowings was 3.25%. The effective interest rate for the three months ended March 31, 2021 and 2020 was 3.3% and 9.4%, respectively.

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

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

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

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10.

Derivatives

The Company maintains risk management control systems to monitor interest rate risk attributable to both the Company’s outstanding and forecasted debt obligations. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the Company’s future cash flows.

The Company may enter into interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on its variable-rate debt instruments. Under the terms of interest rate swaps, the Company receives LIBOR based variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the notional amount of its debt hedged. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. The Company does not speculate using derivative instruments.

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

The following table summarizes the effect of derivatives designated as cash flow hedging instruments and their classification within comprehensive loss for the three months ended March 31, 2020:

	Three Months Ended
(in thousands)	March 31, 2020
Amount of loss recognized in OCI on derivatives (effective portion)	$	(216	)
Amounts reclassified from accumulated other comprehensive loss to interest expense		72
Total	$	(144	)

11.

Revenues

The following tables represent a disaggregation of revenue from contracts with customers for the three months ended March 31, 2021 and 2020:

	Three Months Ended March 31,
(in thousands)	2021		2020
Instruments, equipment, software and accessories	$	25,827	$	22,937
Service, maintenance and warranty contracts		1,162		834
Total revenues	$	26,989	$	23,771

The following tables represent a disaggregation of revenue by geographic destination for the three months ended March 31, 2021 and 2020:

	Three Months Ended March 31,
(in thousands)	2021		2020
United States	$	11,177	$	9,930
Europe		8,589		7,643
Asia		5,538		4,422
Rest of the world		1,685		1,776
Total revenues	$	26,989	$	23,771

No customer accounted for more than 10% of revenues for the three months ended March 31, 2021 and 2020.

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Deferred revenue

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

	Three Months Ended March 31, 2021
	Service			Customer
(in thousands)	Contracts			Advances			Total
Balance, beginning of period	$	1,629		$	2,142		$	3,771
Deferral of revenue		1,251			341			1,592
Recognition of deferred revenue		(1,165	)		(558	)		(1,723	)
Effect of foreign currency translation		(3	)		-			(3	)
Balance, end of period	$	1,712		$	1,925		$	3,637

	Three Months Ended March 31, 2020
	Service		Customer
(in thousands)	Contracts		Advances		Total
Balance, beginning of period	$	1,587	$	2,362	$	3,949
Deferral of revenue		308

SEC Form 10-Q filed by Harvard Bioscience, Inc.