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, 2025 and for the three months ended March 31, 2025 and 2024, 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, 2024 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, 2024.

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, 2025, results of operations and comprehensive loss for the three months ended March 31, 2025 and 2024, and cash flows for the three months ended March 31, 2025 and 2024, as applicable, have been made. The results of operations for the three months ended March 31, 2025, are not necessarily indicative of the anticipated operating results for the full year ending December 31, 2025, 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, 2024. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2025.

Going Concern

The unaudited consolidated financial statements for the quarter ended March 31, 2025, have been prepared assuming that the Company will continue as a going concern. A going-concern basis assumes that the Company will continue its operations for the foreseeable future and contemplates the realization of assets and the settlement of liabilities in the normal course of business. As noted below, there is substantial doubt about the Company’s ability to continue as a going concern.

As of March 31, 2025, there was indebtedness of $36.4 million outstanding under the Company's term loan and senior revolving credit facility (collectively, the “Credit Agreement”). On March 10, 2025, the Company entered into an amendment to the Credit Agreement (the “March 2025 Amendment”). The March 2025 Amendment provides, among other things, that the Company's failure to achieve certain refinancing milestones (individually and collectively, the “Refinancing Milestones”), including receipt of a term sheet or commitment letter from one or more potential lenders, by the dates provided in the March 2025 Amendment or the Company's failure to consummate a refinancing of the debt underlying the Credit Agreement (the “Refinancing”) by June 30, 2025, would, in either case, constitute an event of default under the Credit Agreement. In such event, in addition to other actions the lenders may require, the amounts outstanding under the Credit Agreement may become immediately due and payable. As of May 12, 2025, the Company was in compliance with the Refinancing Milestones applicable as of such date.

The Company is exploring alternative sources of capital that would allow it to refinance the outstanding indebtedness by June 30, 2025, in order to avoid default under the Credit Agreement, but its ability to access such other sources of capital is uncertain. There is no assurance that such capital will be available, be obtainable on commercially acceptable terms, or provide the Company with sufficient funds to meet its objectives. Based on its anticipated cash flows from operations, unless the Company is able to access other sources of capital or extend the date for repayment under the Credit Agreement, the Company will be unable to pay its debt obligations and fund its operations for at least twelve months from the date of issuance of the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q. As a result, there is substantial doubt about the Company's ability to continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the use of management estimates. Such estimates include the determination and establishment of certain accruals and provisions, including those for income taxes, credit losses on receivables, and defined benefit pension obligations. Estimates are also required to assess 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 assesses its previous estimates based upon currently available information. Actual results could differ materially from those estimates.

Other Operating Expenses

The components of other operating expenses for the three months ended March 31, 2025 and 2024 were as follows:

Recently Issued Accounting Pronouncements Yet to Be Adopted

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

In November 2024, the FASB issued ASU No. 2024-03,Income Statement (Subtopic 220-40): Reporting Comprehensive Income—Expense Disaggregation Disclosures, which requires enhanced disclosure of income statement expense categories to improve transparency and provide financial statement users with more detailed information about the nature, amount and timing of expenses impacting financial performance. This new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact that adopting ASU No. 2024-03 will have on the footnote disclosures in its consolidated financial statements.

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods presented. The computation of diluted earnings (loss) per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and other potentially dilutive securities using the treasury stock method unless the effect is antidilutive. The following table summarizes the calculation of basic and diluted net loss per share of common stock:

The following tables represent a disaggregation of revenues from contracts with customers for the three months ended March 31, 2025 and 2024:

Revenues by type were as follows:

Revenues by timing of recognition were as follows:

Revenues by geographic destination were as follows:

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 and lower sales volumes. Additionally, customer advances have decreased due to the recognition of amounts under the exchange program. During the three months ended March 31, 2025 and 2024, the Company recognized revenues of $1.7 million and $1.6 million from contract liabilities existing at December 31, 2024 and 2023, respectively.

The following table represents the Company's remaining performance obligations from contracts that are recognized over time as of March 31, 2025:

*remainder of the year

Provision for Expected Credit Losses on Receivables

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

Concentrations

No customer accounted for more than 10% of revenues for the three months ended March 31, 2025 and 2024. At March 31, 2025 and December 31, 2024, no customer accounted for more than 10% of net accounts receivable.

Warranties

Activity in the product warranties accrual was as follows:

The Company determined that a sustained decrease in its stock price that occurred during the three months ended March 31, 2025 indicated that the carrying values of its goodwill and other long-lived assets may not be recoverable. Additional factors that contributed to this conclusion are the Company’s recent operating results, liquidity risk and the current macroeconomic conditions impacting the life science industries. Based on this determination, the Company performed interim quantitative impairment tests on its goodwill and other long-lived assets as of March 31, 2025.

The recoverability of assets or an asset group to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or the asset group. Based on its recoverability assessment, the Company determined that there was no impairment of its other long-lived assets as of March 31, 2025.

For the purpose of its goodwill impairment analysis, the Company has one reporting unit. The Company estimated the fair value of the reporting unit using an income-based valuation approach by means of a discounted cash flow (“DCF”) model. Under this model, the fair value of the reporting unit is determined based on the present value of estimated future cash flows, discounted at a risk-adjusted rate of return. The Company used internal forecasts and strategic long-term plans to estimate future cash flows, including projections of revenue and EBITDA, capital expenditure and working capital requirements, terminal growth rates, statutory tax rates and a market-participant discount rate. The goodwill impairment analysis also includes a reconciliation of the aggregate estimated fair value of the reporting unit to the Company’s total market capitalization. Based on this quantitative impairment analysis, the Company determined that the carrying value of the reporting unit exceeded its fair value by $48.0 million. Accordingly, the Company recorded such amount as a goodwill impairment charge for the three months ended March 31, 2025.

The inputs and assumptions used in determining the fair value of the reporting unit are subjective and require management’s use of significant judgment. Certain future events and circumstances, including further deterioration of the Company’s stock price, operating results, and macroeconomic conditions, and a higher cost of capital, among others, could result in changes to these inputs and assumptions. A revision of these inputs and assumptions could cause the fair value of the reporting unit to fall further below its carrying value, resulting in additional impairment charges, which could have a material adverse effect on the Company’s results of operations.

The change in the carrying amount of goodwill for the three months ended March 31, 2025 was as follows:

Intangible assets, net at March 31, 2025 and December 31, 2024 consisted of the following:

Intangible asset amortization expense for the three months ended March 31, 2025 and 2024 was as follows:

As of March 31, 2025, 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:

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

The Company received ERTC refunds of $1.1 million and $3.2 million during the three months ended March 31, 2025 and 2024, respectively. Due to the subjectivity of the credit, the Company has included the refunds received in other current liabilities in the consolidated balance sheets as of March 31, 2025 and 2024, subject to a determination that the refunds are recognizable.

The Company engaged a professional services firm under a commission fee arrangement to assist with determining the Company’s eligibility to claim the ERTC refunds and accumulating the necessary support that was used as a basis in the filing. The Company paid fees of $0.2 million and $0.5 million during the three months March 31, 2025 and 2024, respectively, for these services, which are included in other operating expenses in the consolidated statement of operations.

In April 2023, the Company received shares of common stock of Harvard Apparatus Regenerative Technology, Inc. (“HRGN”, formerly known as Biostage, Inc.) in connection with settlement of indemnification obligations related to litigation which was resolved during the year ended December 31, 2022.

The Company received cash proceeds of $0.5 million from the sale of HRGN shares sold during the three months ended March 31, 2024, which resulted in a realized loss of $0.3 million. The Company incurred an unrealized loss of $1.0 million on HRGN shares held during the three months ended March 31, 2024. The Company determined the fair value of its HRGN common stock based on the closing price as quoted on the OTCQB Marketplace at the reporting date. The Company did not hold any shares of HRGN stock during the three months ended March 31, 2025.

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 months ended March 31, 2025 and 2024, were as follows:

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

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 of one year at March 31, 2025, are as follows:

The Company’s debt, which was included within current liabilities as of March 31, 2025 and December 31, 2024, was as follows:

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 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 secured by substantially all of the assets of Harvard Bioscience, Inc., including all or a portion of the equity interests in certain of the Company’s domestic and foreign subsidiaries. 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. Issuance costs of $1.7 million are amortized over the contractual term to maturity date on a straight-line basis, which approximates the effective interest method. Total revolver borrowing capacity is limited by the consolidated net leverage ratio as defined under the amended Credit Agreement. As of the date of this report, the Company is unable to make additional borrowings under its revolving credit facility due to net leverage ratio requirements set forth in the August 6, 2024 amendment to the Credit Agreement (the “August 2024 Amendment”) and the terms of the March 10, 2025 amendment to the Credit Agreement (the “March 2025 Amendment”), as described below.

Borrowings under the Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on the Secured Overnight Financing Rate (“SOFR”) for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the Credit Agreement (a “SOFR Loan”), subject to a floor of 0.50%, or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”). The alternative base rate is based on the Citizens Bank prime rate or the federal funds effective rate of the Federal Reserve Bank of New York and is subject to a floor of 1.0%. Pursuant to the March 2025 Amendment, the applicable interest rate margin was increased such that interest rate is equal to a rate per annum based on the Secured Overnight Financing Rate (“SOFR”) plus 400 bps effective as of March 10, 2025 . There are no prepayment penalties in the event the Company elects to prepay and terminate the Credit Facility prior to its scheduled maturity date, subject to SOFR Loan breakage and redeployment costs in certain circumstances.

The effective interest rate on the Company’s borrowings for the three months ended March 31, 2025 and 2024, was 8.6% and 7.7%, respectively. The weighted average interest rate as of March 31, 2025, net of the effect of the Company’s interest rate swap agreement, was 8.6%. 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.

The term loan required quarterly installment payments of $1.0 million with a balloon payment at maturity on December 22, 2025. Pursuant to the March 2025 Amendment, amortization payments were revised so that a proportionate payment must be made on a monthly rather than a quarterly basis.

The Credit Agreement includes various customary financial covenants and other affirmative and negative covenants binding on the Company. The negative covenants limit the ability of the Company, among other things, to incur debt, permit liens, make investments, sell assets, or 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.

The March 2025 Amendment provides, among other things, that the lenders’ commitment under the revolving credit facility is capped at the amount outstanding thereunder as of the date thereof and thus we are unable to make additional borrowings under our revolving credit facility. The March 2025 Amendment also establishes certain Refinancing Milestones in connection with the Refinancing.

The Refinancing Milestones include: (1) continuing to retain an investment banker for the purpose of assisting with the consummation of the Refinancing; (2) by March 14, 2025, the engagement of a financial advisor acceptable to the administrative agent; (3) by April 30, 2025, the delivery to the administrative agent of an executed bona fide indication of interest from one or more potential lenders with respect to the Refinancing on terms and conditions acceptable to the administrative agent; (4) by May 23, 2025, the delivery to the administrative agent of a term sheet or commitment letter from one or more potential lenders that provides for the Refinancing on terms and conditions acceptable to the administrative agent; (5) by June 13, 2025, delivery to the administrative agent of: (i) a statement of sources and uses of transaction proceeds; and (ii) evidence that the potential lender’s conditions to closing (other than customary closing deliveries) of the Refinancing, such as business commitments, are satisfied; and (6) by June 30, 2025, the closing of the Refinancing. The lenders also agreed not to assert the financial covenants included in the Credit Agreement for the first quarter of fiscal year 2025 provided that the Company continues to comply with its payment obligations, achieves the Refinancing Milestones, maintain minimum liquidity (the “Minimum Liquidity Requirement”) (defined as the sum of (a) unrestricted cash and cash equivalents and (b) the amount by which the aggregate amount committed under the Company’s revolving credit facility exceeds the total amount drawn under the credit facility) of $3.5 million and provide the administrative agent with certain financial reports. As of May 12, 2025, the Company was in compliance with the Refinancing Milestones applicable as of such date and the Minimum Liquidity Requirement.

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 $20.3 million as of March 31, 2025 and matures on December 22, 2025. This swap contract effectively converts the SOFR-based variable portion of the interest payable under the Credit Agreement into fixed-rate debt at an annual rate of 4.75%. The swap contract does not impact the additional interest related to the applicable interest rate margin as discussed above in Note 8, Debt.

The swap contract is considered an effective cash flow hedge, and as a result, net gains or losses are reported as a component of other comprehensive income (“OCI”) in the consolidated financial statements and are reclassified when the underlying hedged interest impacts earnings. An assessment is performed quarterly to evaluate the ongoing hedge effectiveness.

The following table presents the notional amount and fair value of the Company’s derivative instruments as of March 31, 2025 and December 31, 2024:

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

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

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

The Company uses the market approach technique to value its financial liabilities. The fair value of the Company’s interest rate swap agreement was based on SOFR yield curves at the reporting date and is included within other current liabilities on the consolidated balance sheets at both March 31, 2025 and December 31, 2024.

Stock-based compensation expense for the three months ended March 31, 2025 and 2024 was allocated as follows:

As of March 31, 2025, the total compensation costs related to unvested awards not yet recognized was $3.1 million and the weighted average period over which it is expected to be recognized is approximately 1.5 years. The Company did not capitalize any stock-based compensation.

Restricted stock unit (“RSU”) activity for the three months ended March 31, 2025 was as follows:

The aggregate fair value of RSUs that vested during the three months ended March 31, 2025, and 2024 was $0.2 million and $0.1 million, respectively. 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 to 150% of their target amounts.

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

Stock option activity for the three months ended March 31, 2025 was as follows:

There isno aggregate intrinsic value at March 31, 2025 because the Company’s closing stock price of $0.57 is below the exercise price of the outstanding options.

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 (benefit) expense was $(0.5) million and $0.2 million for the three months ended March 31, 2025 and 2024, respectively. The Company’s effective tax rate of 0.9% for the three months ended March 31, 2025, was lower than the U.S statutory rate due to the tax effect of goodwill impairment. The Company’s effective tax rate of (4.7)% for the three months ended March 31, 2024, was lower than the U.S statutory rate due to non-deductible executive compensation. The effective tax rate for both periods was also impacted by changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets.

The Company is involved in various claims and legal proceedings arising in the ordinary course of business. After consultation with legal counsel, the Company has determined that the ultimate disposition of such proceedings is not likely to have a material adverse effect on its business, financial condition, results of operations or cash flows. Although unfavorable outcomes in the proceedings are possible, the Company has not accrued loss contingencies relating to any such matters as they are not considered to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to the Company, the impact on the Company’s business, financial condition, results of operations and cash flows could be material.

In addition, the Company has entered into indemnification agreements with its directors and officers. It is not possible to determine the maximum potential liability amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. The Company hasnot recorded any liability for costs related to contingent indemnification obligations as of March 31, 2025.

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. During the three months ended March 31, 2024, the Company accrued $0.5 million of loss contingencies related to an unclaimed property audit, which has been included in other operating expenses in the consolidated statement of operations. The unclaimed property audit was completed during the second quarter of fiscal 2024.

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

During the three months ended March 31, 2025, the Company initiated additional restructurings for which it expects to incur $0.1 million of costs, primarily consisting of severance incurred in connection with headcount reductions in North America and Europe. The Company expects the restructuring to be completed during the year ended December 31, 2025. There wereno restructuring costs incurred during the three months ended March 31, 2024. Severance and other costs have been included as a component of other operating expenses (see Note 1). The changes in the accrued liability for restructuring and other charges for the three months ended March 31, 2025 were as follows:

The Company conducts business as asingle operating segment, which is based upon the Company’s organizational and management structure, as well as information used by the chief operating decision maker (“CODM”) to allocate resources and other factors. The key measure of segment profitability that the CODM uses to allocate resources and assess performance is consolidated net income (loss), as reported on the consolidated statements of operations. The CODM utilizes consolidated net loss by comparing actual results against budgeted amounts on a quarterly basis. The following table presents the significant revenue and expense categories of the Company’s single operating segment:

Asset information provided to the CODM is consistent with that reported on the consolidated balance sheets with particular emphasis on the Company’s available liquidity, including its cash, accounts receivable, and inventory, reduced by current liabilities. Information relating to the Company’s products and services and geographical distribution of revenues is disclosed in Note 3.