HARVARD BIOSCIENCE INC

Basis of Presentation and Summary of Significant Accounting Policies

The unaudited consolidated financial statements of Harvard Bioscience, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) as of* March 31, 2024and for thethree* months ended* March 31, 2024and2023,* 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, 2023consolidated balance sheet was derived from audited financial statements but doesnot* include all disclosures required by U.S. GAAP. However, the Company believes that the disclosures are adequate to make the information presentednot 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 Form10-K for the fiscal year ended* December 31, 2023.*

In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of* March 31, 2024,results of operations and comprehensive income (loss) and cash flows for thethree* months ended* March 31, 2024and2023,* as applicable, have been made. The results of operations for thethree months ended* March 31, 2024,arenot* 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 Note2 to the consolidated financial statements included in the Company’s Annual Report on Form10-K for the year ended* December 31, 2023.There have beenno* material changes in the Company’s significant accounting policies during thethree months ended* March 31, 2024.*

Use of Estimates

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

Other Operating Expenses

Other operating expenses for thethree months ended* March 31, 2024included a fee of $0.5 million in connection with the receipt of employee retention credits (See Note5*) and an estimated loss of $0.5 million related to an unclaimed property audit (See Note13).

Recently Issued Accounting Pronouncements Yet to Be Adopted

In* December 2023,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2023-09, Income Taxes (Topic740): Improvements to Income Tax*, which enhances disclosures related to the effective tax rate reconciliation, income taxes paid, as well as other disclosures. The new standard impacts footnote disclosures and is effective for the Company’s annual financial statements for the year ended* December 31, 2025.The Company is currently evaluating the potential impact of adopting ASUNo.* 2023-09 will have on the disclosures in its consolidated financial statements.

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Basic earnings (loss) per share (EPS) is calculated by dividing net income (loss) by the number of weighted average shares of common stock outstanding during the period. The calculation of diluted earnings per share assumes conversion of stock options and restricted stock units into common stock using the treasury method.

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

The following tables represent a disaggregation of revenue from contracts with customers for thethree months ended* March 31, 2024and2023:*

Revenues by type were as follows:

Revenues by timing of recognition were as follows:

Revenue by geographic destination were as follows:

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Contract Liabilities

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

Changes in the Company’s contract liabilities are primarily due to the timing of receipt of payments under service, maintenance and warranty contracts. During thethree months ended* March 31, 2024and2023,* the Company recognized revenue of $1.6 million and $1.0 million from contract liabilities existing at* December 31, 2023and2022,* respectively.

Provision for Expected Credit Losses on Receivables

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

Concentrations

No customer accounted for more than10% of revenues for thethree months ended* March 31, 2024and2023.* At* March 31, 2024and December 31, 2023,*no customer accounted for more than10% of net accounts receivable.

Warranties

Activity in the product warranty accrual was as follows:

The change in the carrying amount of goodwill for thethree months ended* March 31, 2024*was as follows:

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Intangible assets at* March 31, 2024and December 31, 2023*consisted of the following:

Intangible asset amortization expense for thethree months ended* March 31, 2024and2023* was as follows:

As of* March 31, 2024,*estimated future amortization expense of amortizable intangible assets is as follows:

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

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The Coronavirus Aid, Relief, and Economic Security Act of2020 (“CARES Act”) provided an employee retention credit (“ERC”) that was a refundable tax credit against certain employer taxes. The Company has elected to account for the credit as a government grant. As there isno authoritative guidance under U.S. GAAP on accounting for grants to for-profit business entities from government entities, the Company accounts for government assistance by analogy to International Accounting Standards Topic20, Accounting for Government Grants and Disclosure of Government Assistance (IAS20). Under IAS20, government grants are recognized when there is reasonable assurance that the grant will be received and that all conditions related to the grant will be met.

The Company received an ERC refund of $3.2 million during the quarter ended* March 31, 2024.Due to the subjectivity of the credit, the Company has included the refund received in other current liabilities in the consolidated balance sheet as of March 31, 2024,subject to a determination that the refund is recognizable under IAS20.*

The Company engaged a professional services firm under a commission fee arrangement to assist with determining program eligibility and in accumulating the necessary support that was used as a basis in the filing. During thethree months ended* March 31, 2024,*the Company paid a fee of $0.5 million for these services, which is included in other operating expenses in the consolidated statement of operations.

In* April 2023,the Company obtained shares of common stock of Harvard Apparatus Regenerative Technologies, Inc. (“HRGN” formerly known as Biostage, Inc.) in connection with settlement of indemnification obligations related to litigation which occurred during the year ended December 31, 2022.These shares had an estimated fair value of $1.7 million and $3.5 million, as of March 31, 2024,and December 31, 2023,*respectively, and are included in the consolidated balance sheets as a component of other long-term assets.

The Company received cash proceeds of $0.5 million from the sale of HRGN shares sold during thethree months ended* March 31, 2024,which resulted in a realized loss on sale of $0.3 million. The Company incurred an unrealized loss of $1.0 million on HRGN shares held during thethree* months ended* March 31, 2024.*The Company determines the fair value of its HRGN common stock based on the closing price as quoted on the OTCQB Marketplace at the reporting date. Due to HRGN’s limited operating history, its overall financial condition and the limited trading volumes and liquidity of its common stock, the value of the Company’s investment in this common stock could fluctuate considerably or become worthless.

The Company has noncancelable operating leases for offices, manufacturing facilities, warehouse space, automobiles and equipment expiring at various dates through2030.

The components of lease expense for thethree months ended* March 31, 2024and2023,* were as follows:

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

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

Future minimum lease payments for operating leases, with initial terms in excess ofone year at* March 31, 2024,*are as follows:

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

The aggregate amounts of debt maturities are as follows:

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The Company maintains a Credit Agreement (as amended, the “Credit Agreement”) with Citizens Bank, N.A., Wells Fargo Bank, National Association, and First Citizens Bank & Trust Company (together, the “Lenders”). The Credit Agreement provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility (including a $10.0 million sub-facility for the issuance of letters of credit and a $10.0 million swingline loan sub facility) (collectively, the “Credit Facility”). The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s direct, domestic wholly-owned subsidiaries;none of the Company’s direct or indirect foreign subsidiaries has guaranteed the Credit Facility. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of Harvard Bioscience, Inc., and each guarantor (including all or a portion of the equity interests in certain of the Company’s domestic and foreign subsidiaries). 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 $4.4 million as of March 31, 2024based on the Credit Agreement, as amended pursuant to the March 2024*Amendment as described below. Total revolver borrowing capacity is limited by the consolidated net leverage ratio as defined under the amended Credit Agreement.

Borrowings under the Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on the Secured Overnight Financing Rate (“SOFR”) for an interest period of one, two,three orsix months, plus an applicable interest rate margin determined as provided in the Credit Agreement, (a “SOFR Loan”), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”). SOFR interest under the Credit Agreement is subject to applicable market rates and a floor of 0.50%. The alternative base rate is based on the Citizens Bank prime rate or the federal funds effective rate of the Federal Reserve Bank of New York and is subject to a floor of 1.0%. The applicable interest rate margin varies from 2.0% per annum to 3.25% per annum for SOFR Loans, and from 1.5% per annum to 3.0% per annum for ABR Loans, in each case depending on the Company’s consolidated net leverage ratio and is determined in accordance with a pricing grid set forth in the Credit Agreement. There areno prepayment penalties in the event the Company elects to prepay and terminate the Credit Facility prior to its scheduled maturity date, subject to SOFR Loan breakage and redeployment costs in certain circumstances.

The effective interest rate on the Company borrowings for thethree months ended* March 31, 2024and2023,* was 7.7% and 7.9%, respectively, and the weighted average interest rate as of* March 31, 2024,*net of the effect of the Company’s interest rate swaps, was 7.4%. 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.

As of* March 31, 2024,the term loan requires quarterly installments of $1.0 million with a balloon payment at maturity. Furthermore, withinninety* days after the end of the Company’s fiscal year, the term loan* maybe permanently reduced pursuant to certain mandatory prepayment events including an annual “excess cash flow sweep”, as defined in the agreement; provided that, in any fiscal year, any voluntary prepayments of the term loan shall be credited against the Company’s “excess cash flow” prepayment obligations on a dollar-for-dollar basis for such fiscal year. As of December 31, 2023,the current portion of long-term debt included amounts due under the excess cash flow sweep of $2.0 million which was paid on March 29, 2024.*Amounts outstanding under the revolving credit facility can be repaid at any time but are due in full at maturity.

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

In* March, 2024,the Company entered into an amendment to the Credit Agreement (the “March 2024Amendment”) pursuant to which the Lenders and administrative agent modified the definition of Consolidated EBITDA used in the calculation of certain financial covenants to adjust for charges related to the ongoing abandoned property audit (See Note13*) and commission fees expected to be paid in connection with the employee retention credit filings (See Note5). The Company was in compliance with the covenants of the Credit Agreement, as amended, as of* March 31, 2024.*

In* February 2023,the Company entered into an interest rate swap contract to improve the predictability of cash flows from interest payments related to its variable, SOFR-based debt. The swap contract had a notional amount of $25.9 million as of March 31, 2024and matures on December 22, 2025.This swap contract effectively converts the SOFR-based variable portion of the interest payable under the Credit Agreement into fixed-rate debt at an annual rate of 4.75%. The swap contract doesnot* impact the additional interest related to the applicable interest rate margin as discussed above in Note8, Long-Term Debt. The swap contract is considered an effective cash flow hedge, and as a result, net gains or losses are reported as a component of other comprehensive income (“OCI”) in the consolidated financial statements and are reclassified as net income when the underlying hedged interest impacts earnings. An assessment is performed quarterly to evaluate the ongoing hedge effectiveness.

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

• Amountnot significant.

(a) See Note10 for the fair value measurements related to these financial instruments.

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

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

• Amountnot significant.

The Company uses the market approach technique to value its financial liabilities. The Company’s financial assets and liabilities carried at fair value include, when applicable, investments in common stock and derivative instruments used to hedge the Company’s interest rate risks. The fair value of the Company’s investment in HRGN common stock (See Note6) was based on the closing price per the OTCQB Marketplace at the reporting date. The fair value of the Company’s interest rate swap agreements was based on SOFR yield curves at the reporting date.

Stock-based compensation expense for thethree months ended* March 31, 2024and2023* was allocated as follows:

As of* March 31, 2024,the total compensation costs related to unvested awardsnot* yet recognized was $8.4 million and the weighted average period over which it is expected to be recognized is approximately 2.3 years. The Company didnot capitalize any stock-based compensation.

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Restricted stock unit (“RSU”) activity for thethree months ended* March 31, 2024*was as follows:

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

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

Stock option activity for thethree months ended* March 31, 2024*was as follows:

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $4.24 as of the end of the reporting period, which would have been received by the option holders had all option holders exercised their options as of that date. The aggregate intrinsic value of options exercised during thethree months ended* March 31, 2024,*wasnot significant.

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

Income tax expense was $0.2 million and $0.6 million for thethree months ended* March 31, 2024and2023,* respectively. The Company’s effective tax rate of (4.7%) for thethree months ended* March 31, 2024was lower than the U.S. statutory rate primarily due to the inclusion of non-deductible executive compensation and changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company’s effective tax rate of 48.5% for thethree* months ended* March 31, 2023*was higher than the U.S. statutory rate primarily due to a Global Intangible Low-Taxed Income (“GILTI”) inclusion to taxable income and changes in valuation allowances. The Company has valuation allowances against substantially all of its tax credit carryforwards.

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The Company is involved in various claims and legal proceedings arising in the ordinary course of business. After consultation with legal counsel, the Company has determined that the ultimate disposition of such proceedings isnot 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 hasnot accrued loss contingencies relating to any such matters as they arenot considered to be probable and reasonably estimable. Ifone or more of these matters are resolved in a manner adverse to the Company, the impact on the Company’s business, financial condition, results of operations and cash flows could be material.

In addition, the Company has entered into indemnification agreements with its directors and officers. It isnot possible to determine the maximum potential liability amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. The Company hasnot recorded any liability for costs related to contingent indemnification obligations as of* March 31, 2024.*

The Company is subject to unclaimed property laws in the ordinary course of its business. State escheat laws generally require entities to report and remit abandoned and unclaimed property to the state. Failure to timely report and remit the property can result in assessments that could include interest and penalties, in addition to the payment of the escheat liability itself. The Company is currently undergoing an unclaimed property audit. Based on the Company’s evaluation of the current stage of the audit, the Company accrued $0.5 million of loss contingencies during thethree months ended* March 31, 2024,*which has been included in other operating expenses in the consolidated statement of operations.

In* February 2023,the Company sold its Hoefer product line for $0.5 million. The carrying value of assets sold was $0.1 million resulting in a gain on disposition of $0.4 million which was recorded in Other income, net in the consolidated statement of operations for thethree* months ended* March 31, 2023.Revenue and gross profit of this disposed product line included in the condensed consolidated statement of operations for thethree* months ended* March 31, 2023werenot* significant.