UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q/A

(Amendment No. 1 ~~to Form 10-Q)~~

ýx		Quarterly report pursuant to Section 13 or ~~15()~~15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2008

¨
		~~For the quarterly period ended March 31, 2004~~

		or

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

		~~For the transition period from to~~

For the transition period fromto

Commission file number 000-31923

HARVARD BIOSCIENCE, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware	~~(508) 893-8999~~	04-3306140
(State or Other Jurisdiction of Incorporation or Organization)	~~(Registrant’s telephone number,~~ ~~including area code)~~	(IRS Employer Identification No.)

84 October Hill Road, Holliston, MA	01746
(Address of Principal Executive Offices)	(Zip Code)

(508) 893-8999

(Registrant’s telephone number, including area code)

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. x YES o¨ ~~Yes~~ NOý No

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


Large accelerated filer ¨		Accelerated filer x
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

Indicate by check mark whether the registrant is ~~an accelerated filer~~a shell company (as defined in Rule 12b-2 of the Exchange ~~Act Rule 12b-2)~~Act). ¨ YES ýx ~~Yes~~ NOo No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 7, 2008, there were 31,058,310 shares of Common Stock, par value $0.01 per share, outstanding.

~~As of May 3, 2004~~

~~Common Stock Outstanding 30,231,185~~

This Form 10-Q/A is being filed solely to correct a typographical error in the unaudited pro forma net income (loss) for the three months ended March 31, 2004 reported in the chart in Item 1, Note 3 to the Company’s unaudited consolidated financial statements, which presented pro forma results of operations for the three months ended March 31, 2004 and 2003 giving effect to the Company’s acquisition of KD Scientific, Inc. as if it had occurred as of January 1, 2003. The correct unaudited pro forma net income (loss) for the three months ended March 31, 2004 had the Company’s acquisition of KD Scientific, Inc. had occurred as of January 1, 2003 is a loss of$120,000. The Company’s unaudited consolidated financial statements for the three months ended March 31, 2004, including the Company’s actual net income (loss) and net income (loss) per share, as well as the unaudited pro forma revenues and unaudited pro forma net income (loss) per share in Note 3, are unchanged from those previously reported in the Company’s Form 10-Q for the quarter ended March 31, 2004. None of the other information contained in this Form 10-Q/A has been amended from the original Form 10-Q for the quarter ended March 31, 2004. All other information speaks as of the filing date of the original Form 10-Q filed as of May 10, 2004.

HARVARD BIOSCIENCE, INC.

Form 10-Q

For the Quarter Ended ~~March 31, 2004~~June 30, 2008

INDEX


		Page
PART ~~I FINANCIAL~~I-FINANCIAL INFORMATION		3

Item 1. ~~Unaudited Consolidated~~ Financial Statements		3

~~Unaudited~~ Consolidated Balance Sheets as of ~~March 31, 2004~~June 30, 2008 and December 31, ~~2003~~2007 (unaudited)		3

~~Unaudited~~ Consolidated Statements of Operations for the Three and Six Months Ended ~~March 31, 2004~~June 30, 2008 and ~~2003~~2007 (unaudited)		4

~~Unaudited~~ Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31, 2004~~June 30, 2008 and ~~2003~~2007 (unaudited)		5

Notes to Unaudited Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative and Qualitative Disclosures About Market Risk		33

Item 4. Controls and Procedures		33

PART ~~II OTHER~~II-OTHER INFORMATION		34

Item ~~1. Legal Proceedings~~1A. Risk Factors		34

~~Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities~~

~~Item 3. Defaults Upon Senior Securities~~

Item 4. Submission of Matters to a Vote of Security Holders		34

~~Item 5. Other Information~~

Item 6. Exhibits ~~and Reports on Form 8-K~~		35

SIGNATURES		36

Explanatory Note

Pursuant to Rule 12b-15 of the Securities Exchange Act of 1934, Harvard Bioscience, Inc. hereby amends its Report on Form 10-Q for the quarterly period ended June 30, 2008, by amending and restating Item 6 in order to restore previously redacted portions of Exhibit 10.1 thereto. Except as set forth in Item 6 below, no other changes are made to the Company’s Report on Form 10-Q for the quarterly period ended June 30, 2008.

This Amendment contains the complete text of the original report with the restored information appearing in Item 6 of Part II.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

~~Item 1. Unaudited Consolidated Financial Statements.~~

HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

~~(unaudited) (in~~(unaudited, in thousands, except share and per share amounts)

	3/31/04			12/31/03
							June 30, 2008			December 31, 2007
Assets
Current assets:
Cash and cash equivalents	$	9,773		$	8,223		$	13,800		$	17,889
Trade accounts receivable, net of reserve for uncollectible accounts of $434 and $417 at March 31, 2004 and December 31, 2003, respectively, (note 8)	18,602			19,075
Accounts receivable, net of allowance for doubtful accounts of $297 and $378, respectively								15,440			14,757
Inventories								16,229			14,983
Other receivables and other assets	812			1,279				3,078			2,414
Inventories (note 7)	25,703			24,679
Prepaid expenses	2,704			2,022
Deferred tax asset	500			500
Assets of discontinued operations—held for sale								643			4,268

Total current assets	58,094			55,778				49,190			54,311
Property, plant and equipment, net								4,532			4,465
Deferred income tax assets—non-current								346			346
Amortizable intangible assets, net								9,910			10,640
Goodwill and other indefinite lived intangible assets								29,503			29,028
Other assets								281			63

Property, plant and equipment, net	6,369			6,746

Other assets:
Deferred tax asset	436			400
Amortizable intangible assets, net of accumulated amortization of $6,046 and $5,103 at March 31, 2004 and December 31, 2003, respectively (notes 3 and 4)	31,884			28,212
Goodwill and other indefinite lived intangible assets (notes 3 and 4)	38,611			36,341
Other assets	1,031			952
Total other assets	71,962			65,905
Total assets	$	136,425		$	128,429		$	93,762		$	98,853

Liabilities and Stockholders’ Equity
Current liabilities:
Current installments of long-term debt	$	396		$	398
Trade accounts payable	6,037			6,457
Notes payable							$	2,018		$	2,169
Accounts payable								5,262			5,611
Deferred revenue	2,561			2,080				488			442
Accrued income taxes payable	643			1,218				924			1,091
Accrued expenses	5,711			4,984				5,104			4,129
Other liabilities	362			459
Other liabilities—current								85			1,128
Liabilities of discontinued operations								1,140			1,771

Total current liabilities	15,710			15,596				15,021			16,341

Long-term debt, less current installments	19,387			12,787				88			5,578
Deferred income tax liability	212			207
Other liabilities	993			961
Total long-term liabilities	20,592			13,955
Deferred income tax liabilities—non-current								1,641			1,560
Other liabilities—non-current								1,112			1,237

Total liabilities	36,302			29,551				17,862			24,716

Commitments and contingencies

Stockholders’ equity:
Preferred stock, par value $.01 per share, 5,000,000 shares authorized; 0 shares issued and 0 shares outstanding at March 31, 2004 and December 31, 2003
Common stock, par value $.01 per share, 80,000,000 shares authorized; 34,869,019 and 34,796,463 shares issued and 30,208,235 and 30,132,685 shares outstanding at March 31, 2004 and December 31, 2003, respectively	349			348
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; 35,719,294 and 35,512,680 shares issued and 31,058,510 and 30,851,896 shares outstanding, respectively								357			355
Additional paid-in-capital	172,795			172,448				180,883			179,153
Accumulated deficit	(78,642		)	(78,591		)		(112,882	)		(111,363	)
Accumulated other comprehensive income	6,289			5,341				8,210			6,660
Treasury stock, 4,660,784 common shares, at cost	(668		)	(668		)		(668	)		(668	)

Total stockholders’ equity	100,123			98,878				75,900			74,137

Total liabilities and stockholders’ equity	$	136,425		$	128,429		$	93,762		$	98,853

See accompanying notes to unaudited consolidated financial statements.

HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Revenues	$	23,049		$	20,410		$	45,008		$	39,525
Cost of product revenues		12,286			10,426			23,920			20,120

Gross profit		10,763			9,984			21,088			19,405

Sales and marketing expenses		2,969			2,553			5,810			5,023
General and administrative expenses		3,795			3,544			7,551			6,947
Research and development expenses		1,077			888			2,158			1,732
Restructuring charges		943			—			1,518			—
Amortization of intangible assets		505			444			1,011			886

Total operating expenses		9,289			7,429			18,048			14,588

Operating income		1,474			2,555			3,040			4,817

Other income (expense):
Foreign exchange		(37	)		21			156			45
Interest expense		(89	)		(107	)		(219	)		(168	)
Interest income		126			84			204			140
Other, net		24			(5	)		78			(11	)

Other income (expense), net		24			(7	)		219			6

Income from continuing operations before income taxes		1,498			2,548			3,259			4,823
Income taxes		445			533			989			1,066

Income from continuing operations		1,053			2,015			2,270			3,757
Discontinued operations, net of tax		(3,259	)		(3,781	)		(3,789	)		(5,027	)

Net loss	$	(2,206	)	$	(1,766	)	$	(1,519	)	$	(1,270	)

Income (loss) per share:
Basic earnings per common share from continuing operations	$	0.03		$	0.07		$	0.07		$	0.12
Discontinued operations		(0.11	)		(0.12	)		(0.12	)		(0.16	)

Basic loss per common share	$	(0.07	)	$	(0.06	)	$	(0.05	)	$	(0.04	)

Diluted earnings per common share from continuing operations	$	0.03		$	0.06		$	0.07		$	0.12
Discontinued operations		(0.10	)		(0.12	)		(0.12	)		(0.16	)

Diluted loss per common share	$	(0.07	)	$	(0.06	)	$	(0.05	)	$	(0.04	)

Weighted average common shares:
Basic		30,971			30,588			30,923			30,578

Diluted		31,608			31,437			31,527			31,416

See accompanying notes to unaudited consolidated financial statements.

HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Six Months Ended June 30,
	2008			2007
Cash flows from operating activities:
Net loss	$	(1,519	)	$	(1,270	)
Adjustments to reconcile net income to net cash provided by operating activities:
Stock compensation expense		1,005			1,048
Depreciation		654			672
Impairment of assets		2,886			2,860
Restructuring charges		1,171			—
Amortization of catalog costs		127			82
Loss (gain) on sale of property, plant and equipment		13			(12	)
Provision for allowance for doubtful accounts		(5	)		(199	)
Amortization of intangible assets		1,011			886
Amortization of deferred financing costs		11			11
Deferred income taxes		32			—
Changes in operating assets and liabilities, net of effects of acquisitions:
Decrease in accounts receivable		1,358			2,429
Increase in inventories		(1,397	)		(1,917	)
(Increase) decrease in other receivables and other assets		(112	)		181
Decrease in trade accounts payable		(519	)		(1,051	)
(Decrease) increase in accrued income taxes payable		(523	)		939
Decrease in accrued expenses		(1,879	)		(1,166	)
(Decrease) increase in deferred revenue		(8	)		188
Decrease in other liabilities		(129	)		(60	)

Net cash provided by operating activities		2,177			3,621

Cash flows from investing activities:
Additions to property, plant and equipment		(906	)		(838	)
Additions to catalog costs		(442	)		(4	)

Net cash used in investing activities		(1,348	)		(842	)

Cash flows from financing activities:
Repayments of debt		(5,812	)		(2,800	)
Net proceeds from issuance of common stock		727			181

Net cash used in financing activities		(5,085	)		(2,619	)

Effect of exchange rate changes on cash		257			48

(Decrease) increase in cash and cash equivalents		(3,999	)		208
Cash and cash equivalents at the beginning of period		18,204			9,751

Cash and cash equivalents at the end of period	$	14,205		$	9,959

Supplemental disclosures of cash flow information:
Cash paid for interest	$	381		$	207
Cash paid for income taxes	$	1,629		$	1,023
Income tax refunds received	$	173		$	802

Note: The above statement of cash flows includes both continuing and discontinued operations. Cash and cash equivalents include $13,800 held by continuing operations and $405 held by discontinued operations as of June 30, 2008.

See accompanying notes to unaudited consolidated financial statements.

HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(unaudited) (in thousands, except per share amounts)~~

Three Months Ended
March 31,

2004

2003

Product revenues

$
21,882

$
19,226

Research revenues

283

247

Total revenues

22,165

19,473

Costs and expenses:

Cost of product revenues

11,544

9,635

General and administrative expense

3,522

2,825

Sales and marketing expense

4,297

3,600

Research and development expense

1,669

1,420

Stock compensation expense

47

147

Amortization of goodwill and other intangibles (note 4)

923

625

Operating income

163

1,221

Other income (expense):

Foreign currency gain (loss)

(143
)
114

Interest expense

(186
)
(39
)
Interest income

62

66

Amortization of deferred financing costs

(27
)
—

Other

(20
)
(32
)

Other income (expense), net

(314
)
109

Income (loss) before income taxes

(151
)
1,330

Income tax expense (benefit)

(100
)
554

Net income (loss)

$
(51
)
$
776

Income (loss) per share (note 6):

Basic

$
(0.00
)
$
0.03

Diluted

$
(0.00
)
$
0.03

Weighted average common shares:

Basic

30,164

29,892

Diluted

30,164

30,137

~~See accompanying notes to unaudited consolidated financial statements.~~

~~HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(unaudited) (in thousands)~~

Three Months Ended
March 31,

2004

2003

Cash flows from operating activities:

Net income (loss)

$
(51
)
$
776

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Stock compensation expense

47

147

Depreciation

625

503

Amortization of catalog costs

10

147

Loss on sale of fixed assets

2

—

Provision for bad debts

5

—

Amortization of goodwill and other intangibles

923

625

Amortization of deferred financing costs

27

—

Deferred income taxes

(35
)
(245
)
Changes in operating assets and liabilities, net of effects of business acquisitions:

(Increase) decrease in accounts receivable

1,047

(1,128
)
Decrease in other receivables

121

47

(Increase) decrease in inventories

(356
)
280

(Increase) decrease in prepaid expenses and other assets

(647
)
9

Decrease in other assets

236

240

Decrease in trade accounts payable

(957
)
(213
)
Increase (decrease) in accrued income taxes payable

(594
)
389

Increase (decrease) in accrued expenses

611

(648
)
Increase (decrease) in deferred revenue

476

(102
)
Increase (decrease) in other liabilities

11

(150
)
Net cash provided by operating activities

1,501

677

Cash flows from investing activities:

Additions to property, plant and equipment

(243
)
(323
)
Additions to catalog costs

—

(5
)
Proceeds from sales of fixed assets

2

—

Acquisition of businesses, net of cash acquired

(6,573
)
(12,344
)
Net cash used in investing activities

(6,814
)
(12,672
)
Cash flows from financing activities:

Proceeds from short-term debt

—

6,000

Net proceeds from long-term debt

6,950

—

Repayments of long-term debt

(365
)
(40
)
Net proceeds from issuance of common stock

301

6

Net cash provided by financing activities

6,886

5,966

Effect of exchange rate changes on cash

(23
)
37

Increase (decrease) in cash and cash equivalents

1,550

(5,992
)
Cash and cash equivalents at the beginning of period

8,223

15,313

Cash and cash equivalents at the end of period

$
9,773

$
9,321

Supplemental disclosures of cash flow information:

Cash paid for interest

$
167

$
39

Cash paid for income taxes

$
536

$
263

~~See accompanying notes to unaudited consolidated financial statements.~~

~~HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES~~

Notes to Unaudited Consolidated Financial Statements

1.	*Basis of Presentation and Summary of Significant Accounting Policies*

1.Basis of Presentation ~~and Summary of Significant Accounting Policies~~

~~Basis of Presentation~~

The unaudited consolidated financial statements of ~~the Company~~Harvard Bioscience, Inc. and its ~~wholly-owned~~wholly owned subsidiaries (collectively the “Company”) as of ~~March 31, 2004,~~June 30, 2008 and for the three ~~month periods~~and six months ended ~~March 31, 2004~~June 30, 2008 and ~~March 31, 2003,~~2007 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 have been condensed or omitted pursuant to such rules and regulations. The December 31, 2007 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by U.S. generally accepted inaccounting principles. However, the ~~United States of America and include all adjustments which, in~~Company believes that the ~~opinion of management,~~disclosures are ~~necessary~~adequate to ~~present fairly~~make the ~~results of operations for the periods then ended. All such adjustments are of a normal recurring nature.~~information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements ~~for the year ended December 31, 2003~~ and the notes thereto included in the Company’s Annual Report on Form 10-K ~~filed with~~for the ~~Securities~~fiscal year ended December 31, 2007, as amended.

In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of June 30, 2008, results of operations for the three and ~~Exchange Commission (“SEC”).~~

six months ended June 30, 2008 and 2007 and cash flows for the six months ended June 30, 2008 and 2007, as applicable, have been made. The results of operations for ~~any interim period~~the three and six months ended June 30, 2008 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

As discussed in Note 3, the Company has decided to divest its Capital Equipment Business segment. Accordingly, the results of operations ~~for a full fiscal year.~~of this business segment have been reported as discontinued operations.

Reclassifications

Certain other reclassifications to prior year balances have been made to conform to current year presentations.

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, ~~2003,~~2007, as amended, filed with the SEC.

2.~~Recently Issued Accounting Pronouncements~~

2.	*Recently Issued Accounting Pronouncements*

In ~~December 2003,~~September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting ~~Standards~~Standard (“SFAS”) ~~Interpretation~~ No. ~~46 (revised December 2003) (“FIN 46R”),~~ 157,~~Consolidation of Variable Interest Entities~~Fair Value Measurements, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces SFAS Interpretation No. 46, ~~Consolidation of Variable Interest Entities,~~ which was issued in January 2003. The Company will be required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable,. This statement defines fair value, ~~at the date FIN 46R first applies may be used to measure the assets, liabilities~~establishes a framework for measuring fair value in generally accepted accounting principles, and ~~noncontrolling interest of the VIE.~~expands disclosures about fair value. This statement is effective for financial statements issued for fiscal years and interim periods within those fiscal years, beginning after November 15, 2007. The adoption of ~~this Interpretation~~SFAS No. 157 did not have a material impact on ~~its~~the Company’s consolidated results of operations or financial position.

In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2,Effective Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities that are not remeasured at fair value on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.

In ~~December 2003,~~February, 2007, the FASB issued SFAS No. ~~132 (revised),~~ 159,~~Employers’ Disclosures about Pensions~~The Fair Value Option for Financial Assets and ~~Other Postretirement Benefits~~Liabilities Including an Amendment of FASB Statement No. 115.~~, was issued.~~ SFAS No. ~~132 (revised) prescribes employers’ disclosures about pension plans~~159 permits reporting entities to choose to measure eligible financial assets or liabilities, which include marketable securities available-for-sale and ~~other postretirement benefit plans; it does not change~~equity method investments, at fair value at specified election dates, or according to a preexisting policy for specific types of eligible items. Unrealized gains and losses for which the ~~measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained~~fair value option has been elected are reported in ~~the original~~earnings. SFAS No. 132. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The Statement generally159 is effective for fiscal years ~~ending~~beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007. The adoption of SFAS No. 159 did not have a material impact on the Company’s consolidated results of operations or financial position.

HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations. SFAS No. 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. SFAS No. 141(R) also requires that acquisition-related costs be recognized separately from the acquisition. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, ~~2003, however all~~2008 and may not be applied before that date. The Company is in the process of evaluating the impact the adoption of SFAS No. 141(R) will have its consolidated financial position and results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, An Amendment of ARB No. 51. SFAS No. 160 amends Accounting Research Bulletin (“ARB”) 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of FASB Statement No. 141(R). This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement shall be applied prospectively as of the ~~Company’s pension plans covered by this Statement~~beginning of the fiscal year in which the statement is initially adopted. The Company is currently evaluating SFAS 160 and the impact that it may have on results of operations or financial position.

In April 2008, the FASB issued FSP FAS 142-3,Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,Goodwill and Other Intangible Assetsto improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141,Business Combinations,other U.S. GAAP. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the impact of FSP FAS 142-3 on its financial statements.

In May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are ~~outside of~~presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411,The ~~Company adopted certain interim disclosure requirements~~Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. Based on the Company’s current operations, the adoption of SFAS No. ~~132 (revised) as of January 1, 2004. See Note 10 to the unaudited consolidated Financial Statements. The Company~~162 will ~~be required to adopt the remaining disclosure requirements of the Statement as of December 31, 2004.~~not have a material impact on its financial statements.

3.	*Discontinued Operations*

3.~~Acquisitions~~

~~On September 19, 2003,~~In July 2005, the Company ~~through~~announced plans to divest its ~~Genomic Solutions subsidiary, acquired substantially all~~Capital Equipment Business segment. The decision to divest this business was based on the fact that market conditions for the Capital Equipment Business segment were such that this business had not met expectations and the decision to focus resources on the Apparatus and Instrumentation Business segment. As a result, the Company began reporting its Capital Equipment Business segment as a discontinued operation in the third quarter of 2005.

In November 2007, the Company completed the sale of the assets of ~~BioRobotics, Ltd. (“BioRobotics”), a~~its Genomic Solutions Division and the stock of its Belgian subsidiary, MAIA Scientific, both of ~~Apogent Technologies~~which were part of its Capital Equipment Business Segment, to Digilab, Inc. ~~for approximately $3.6 million payable partly~~The purchase price paid by Digilab under the terms of the Asset Purchase Agreement consisted of $1,000,000 in cash ~~and partly~~plus additional consideration in the ~~assumption~~form of ~~certain limited liabilities (including $0.4~~an earn-out based on 20% of the revenue generated by the acquired business as it is conducted by Digilab over a three-year period post-transaction. Any earn-out amounts will be evidenced by interest bearing promissory notes due on November 30, 2012. During the fourth quarter, the Company recorded a loss on sale of $3.1 million. There was no value ascribed to the contingent consideration from the earn-out agreement, as realization is uncertain. The COPAS flow cytometry product line (held by our Union Biometrica US and German subsidiaries, both of which are still included in discontinued operations), was not included in this sale, and the Company continues to pursue a sale of this product line separately.

During the quarter ended June 30, 2008, we re-evaluated the fair value less costs to sell the remaining assets that comprise the Capital Equipment Business segment. Based on this evaluation, we recorded additional asset impairment charges of $2.9 million.

HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

The loss from discontinued operations, net of tax, was $3.3 million ~~in acquisition related expenses). The~~and $3.8 million for the three and six months ended June 30, 2008, respectively, compared to a loss of $3.8 million and $5.0 million for the for the three and six months ended June 30, 2007, respectively. For the three and six months ended June 30, 2008, the loss from discontinued operations, net of tax, includes the operating results of the Company’s Union Biometrica US and German subsidiaries. For the three and six months ended June 30, 2007, the loss from discontinued operations, ~~have been~~net of tax, included in the consolidated financial statements since the date of acquisition. BioRobotics designs, develops, manufactures and distributes life science instrumentation for DNA microarray manufacturing and colony picking. As of March 31, 2004, the Company has not finalized the purchase price allocation. A preliminary estimateoperating results of the ~~allocation was prepared~~Company’s former Genomic Solutions Division, its former MAIA Scientific subsidiary and ~~included~~its current Union Biometrica US and German subsidiaries

Operating results from the Capital Equipment Business segment were as ~~part of these consolidated financial statements as the final valuation of the assets and liabilities acquired has not yet been completed. The preliminary allocation of the purchase price is as~~ follows: ~~$1.4 million to existing technology, current assets of $2.3 million, $0.3 million to property, plant and~~


	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
	(in thousands)
Total revenues	$	677		$	3,602		$	1,172		$	7,383

Pretax loss		(3,259	)		(3,713	)		(3,789	)		(5,028	)
Income tax expense		—			68			—			(1	)

Net loss	$	(3,259	)	$	(3,781	)	$	(3,789	)	$	(5,027	)

equipment, $0.3 million to goodwill and other indefinite lived intangibles and liabilities assumed of $0.7 million. During the first quarter of 2004, approximately $148,000 of fair value adjustments related to BioRobotics’ acquired backlog and inventory was expensed through cost of product revenues for orders that were sold during the quarter. We anticipate that the final valuation of assets and liabilities acquired will be completed during the third quarter of 2004.

~~On November 24, 2003, the Company acquired certain assets~~Assets and liabilities of the Hoefer one-dimensional gel electrophoresis business of Amersham Biosciences Corp., including the Hoefer brand name for approximately $5.4 million (including acquisition costs of approximately $0.5 million). The results of operations have been included in the consolidated financial statements since the date of acquisition. As of March 31, 2004, the Company has not finalized the purchase price allocation. A preliminary estimate of the allocation was prepared and includedCapital Equipment Business segment were as ~~part of these consolidated financial statements as the final valuation of the assets and liabilities acquired has not yet been completed. The preliminary allocation of the purchase price is as~~ follows: $0.3 million to existing technology, $0.7 to goodwill, current assets of $1.8 million, $0.5 million to property, plant and equipment and $2.0 million to a distribution agreement. During the first quarter of 2004, approximately $123,000 of fair value adjustments related to Hoefer’s backlog and inventory was expensed through cost of product revenues for orders that were sold during the quarter. We anticipate that the fair value valuation of assets and liabilities acquired will be completed during the second quarter of 2004.


	June 30, 2008		December 31, 2007
	(in thousands)
Assets
Cash and cash equivalents	$	405	$	315
Accounts receivable, net		—		1,863
Inventories		—		405
Other assets		238		555
Long-lived assets		—		1,130

Total assets	$	643	$	4,268

Liabilities
Total liabilities	$	1,140	$	1,771

On March 3, 2004, the Company acquired all issued and outstanding stock of KD Scientific, Inc. for approximately $6.86 million (including acquisition costs of approximately $0.2 million). The acquisition was funded by proceeds from the $20 million credit facility entered into in November 2003 with Brown Brothers Harriman. The results of operations of KD Scientific have been included in the consolidated operating results of the Company from the date of acquisition. As of March 31, 2004, the Company has not finalized the purchase price allocation. A preliminary estimate of the allocation was prepared and included as part of these consolidated financial statements as the final valuation of assets and liabilities acquired has not yet been completed. The preliminary allocation of the purchase price is as follows: $4.8 million

4.	*Goodwill and Other Intangible Assets* Intangible assets consist of the following:


	June 30, 2008					December 31, 2007					Weighted Average Life (a)
	(in thousands)
	Gross		Accumulated Amortization			Gross		Accumulated Amortization
Amortizable intangible assets:
Existing technology	$	12,664	$	(6,701	)	$	12,389	$	(6,009	)	6.3 years
Tradename		920		(526	)		920		(496	)	6.6 years
Distribution agreement/customer relationships		6,411		(2,863	)		6,291		(2,460	)	7.7 years
Patents		9		(4	)		9		(4	)	7.8 years

Total amortizable intangible assets	$	20,004	$	(10,094	)	$	19,609	$	(8,969	)

Unamortizable intangible assets:
Goodwill	$	28,088				$	27,646
Other indefinite lived intangible assets		1,415					1,382

Total goodwill and other indefinite lived intangible assets	$	29,503				$	29,028

Total intangible assets	$	49,507				$	48,637

(a)	Weighted average life is as of June 30, 2008.

HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES

Notes to customer relationships acquired, $1.2 million to goodwill, $0.3 million to existing technology, $0.5 million to current assets, $0.1 million to trademarks and liabilities assumed of $0.1 million. During the first quarter of 2004, approximately $31,000 of fair value adjustments related to KD Scientific’s backlog and inventory was expensed through cost of product revenues for orders that were sold since the date of acquisition. We anticipate that the fair valuation of assets and liabilities will be completed during the third quarter of 2004.Unaudited Consolidated Financial Statements (Continued)

The following unaudited pro forma results of operations gives effect to the acquisition of KD Scientific, Inc. as if it had occurred as of January 1, 2003. Such pro forma information reflects certain adjustments including amortization of intangible assets and income tax effect. The pro forma information does not necessarily reflect the results of operations that would have occurred had the acquisitions taken place as described and is not necessarily indicative of results that may be obtainedchange in the ~~future.~~carrying amount of goodwill for the six months ended June 30, 2008 is as follows:

Three Months Ended
March 31,

(Unaudited, in 000’s except per share data)

2004

2003

Pro forma revenues

$
22,566

$
20,377

Pro forma net income (loss)

$
(120
)
$
784

Pro forma net income (loss) per share:

Basic

$
0.00

$
0.03

Diluted

$
0.00

$
0.03

Pro forma weighted average common shares:

Basic

30,164

29,892

Diluted

30,164

30,137

4.~~Goodwill and Other Intangible Assets~~

On January 1, 2002, the Company fully adopted SFAS No. 142. As a result of the adoption, goodwill and other indefinite-lived intangible assets are no longer being amortized, but are subject to annual impairment reviews, or more frequently, if events or circumstances indicate there may be an impairment. The Company has selected December 31 as its annual impairment test date.

~~Intangible assets consist of the following:~~

March 31, 2004

December 31, 2003

(in thousands)

Gross
Carrying
Value

Accumulated
Amortization

Gross
Carrying
Value

Accumulated
Amortization

Amortizable intangible assets:

Existing technology

$
29,274

$
5,499

$
30,981

$
4,710

Tradename

1,770

409

1,704

381

Distribution agreement

6,877

136

621

10

Patents

9

2

9

2

Total Amortizable Intangible Assets

$
37,930

$
6,046

$
33,315

$
5,103

Unamortizable intangible assets:

Goodwill and other indefinite lived intangible assets

$
38,611

—

$
36,341

—

Total Intangible Assets

$
76,541

$
6,046

$
69,656

$
5,103

On March 3, 2004, the Company acquired intangible assets of approximately $6.4 million in connection with the acquisition of KD Scientific consisting of approximately $5.2 million of amortizable assets and $1.2 million of goodwill.


	(in thousands)
Balance at December 31, 2007	$	27,646
Effect of change in foreign currencies		442

Balance at June 30, 2008	$	28,088

Intangible asset amortization expense from continuing operations was ~~approximately $923,000~~$0.5 million and ~~$625,000~~$0.4 million for the three months ended ~~March 31, 2004~~June 30, 2008 and ~~2003,~~2007, respectively. Intangible asset amortization expense from continuing operations was $1.0 million and $0.9 million for the six months ended June 30, 2008 and 2007, respectively. Amortization expense of existing amortizable intangible assets is estimated to be ~~$4.3~~$2.0 million for the year ending December 31, ~~2004, and $4.5~~2008, $1.7 million for the year ending December 31, 2009, $1.5 million for the years ~~ended~~ending December 31, ~~2005, 2006,~~2010 and 2011 and $1.2 million for the year ending December 31, 2012.

5.	*Inventories*

Inventories consist of the following:


	June 30, 2008		December 31, 2007
	(in thousands)
Finished goods	$	5,200	$	5,472
Work in process		1,801		1,665
Raw materials		9,228		7,846

Total	$	16,229	$	14,983

6.	*Restructuring and Other Exit Costs*

During the quarter ended March 31, 2008, the management of Harvard Bioscience committed to an ongoing initiative to consolidate business functions to reduce operating expenses. Our recent actions have been related to the separation of our electrophoresis product lines from our spectrophotometer and plate reader product lines. As part of these initiatives we have made changes in management, completed the consolidation of the Hoefer electrophoresis administrative and marketing operations from San Francisco, California to the headquarters of the Harvard Apparatus subsidiary in Holliston, Massachusetts and consolidated the activities of our Asys Hitech subsidiary in Austria to the Company’s Biochrom subsidiary’s facility located in Cambridge, UK.

During the three months ended March 31, 2008, we recorded charges related to the restructuring of approximately $0.8 million. These charges were comprised of $0.4 million in severance payments, $0.3 million in inventory impairment charges related to the discontinuance of certain product lines (included in cost of product revenues) and $0.2 million in various other costs.

We recorded additional restructuring charges of approximately $0.9 million during the quarter ended June 30, 2008. These charges were comprised of $0.5 million in severance payments, $0.3 million in various other costs and $0.1 million in facility closure costs.

HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Restructuring charges are as follows:


	Severance and Related			Inventory			Facility Closure Costs			Other			Total
	(in thousands)
Restructuring charges	$	415		$	259		$	—		$	165		$	839
Cash payments		(258	)		—			—			(41	)		(299	)
Non-cash charges		—			(259	)		—			(118	)		(377	)

March 31, 2008 accrual balance	$	157		$	—		$	—		$	6		$	163
Restructuring charges		544			(6	)		140			259			937
Cash payments		(122	)		—			(3	)		(181	)		(306	)
Non-cash charges		—			6			—			—			6

June 30, 2008 accrual balance	$	579		$	—		$	137		$	84		$	800

We anticipate the majority of the remaining payments related to the restructuring will occur during 2008.

7.	*Warranties*

Warranties are estimated and accrued for at the time sales are recorded. A roll forward of product warranties is as follows:


	Beginning Balance		Payments		Additions	Ending Balance
	(in thousands)
Year ended December 31, 2007	$	179	(226	)	286	$	239
Six months ended June 30, 2008	$	239	(50	)	57	$	246

8.	*Comprehensive Income*

As of June 30, 2008, accumulated other comprehensive income consisted of cumulative foreign currency translation adjustments of $8.7 million and, in accordance with SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106 and 132(R), $(0.9) million to reflect the under-funded status of the Company’s pension plans net of tax. As of June 30, 2007, accumulated other comprehensive income consisted of cumulative foreign currency translation adjustments of $8.6 million and ~~2008.~~ $(1.6) million to reflect the under-funded status of the Company’s pension plans net of tax.

The ~~change in goodwill~~components of total comprehensive income were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
	(in thousands)
Net loss	$	(2,206	)	$	(1,766	)	$	(1,519	)	$	(1,270	)
Other comprehensive income		409			640			1,550			813

Comprehensive (loss) income	$	(1,797	)	$	(1,126	)	$	31		$	(457	)

Other comprehensive income for the six months ended June 30, 2008 and ~~other intangible assets during 2004 is also the result~~2007 consisted of foreign currency translation ~~adjustments and adjustments resulting from adjustments to preliminary purchase price allocations for certain 2003 acquisitions.~~adjustments.

5.~~Stock-Based Compensation~~
9. Employee Benefit Plans

Certain of the Company’s United Kingdom subsidiaries, Harvard Apparatus Limited and Biochrom Limited, maintain contributory, defined benefit or defined contribution pension plans for substantially all of their employees. The components of the Company’s defined benefit pension expense were as follows:

   Three Months Ended
June 30, Six Months Ended
June 30,
   2008 2007 2008 2007
   (in thousands)
Components of net periodic benefit cost:

Service cost
   $ 100 $ 147 $ 199 $ 289
Interest cost
   230 211 458 414
Expected return on plan assets
   (244 ) (236 ) (486 ) (462 )
Net amortization loss
   16 35 32 68

Net periodic benefit cost
   $ 102 $ 157 203 $ 309

For the three and six months ended June 30, 2008 and 2007, the Company made no contribution to the defined benefit plans. The Company expects to contribute approximately $0.5 million to the defined benefit plans during 2008.
HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
10. Capital Stock
Common Stock
On February 5, 2008, the Company’s Board of Directors adopted a Shareholder Rights Plan and declared a dividend distribution of one preferred stock purchase right for each outstanding share of the Company’s common stock to shareholders of record as of the close of business on February 6, 2008. Initially, these rights will not be exercisable and will trade with the shares of the Company’s common stock. Under the Shareholder Rights Plan, the rights generally will become exercisable if a person becomes an “acquiring person” by acquiring 20% or more of the common stock of the Company or if a person commences a tender offer that could result in that person owning 20% or more of the common stock of the Company. If a person becomes an acquiring person, each holder of a right (other than the acquiring person) would be entitled to purchase, at the then-current exercise price, such number of shares of preferred stock which are equivalent to shares of the Company’s common stock having a value of twice the exercise price of the right. If the Company is acquired in a merger or other business combination transaction after any such event, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company’s common stock having a value of twice the exercise price of the right.
Stock Repurchase Program
On December 6, 2007, the Board of Directors authorized the repurchase by the Company of up to $10 million of its common stock in the open market or through privately negotiated transactions over the next 24 months. Under the program, shares may be repurchased from time to time and in such amounts as market conditions warrant, subject to regulatory considerations and any applicable contractual restrictions. As of June 30, 2008, no shares have been repurchased by the Company pursuant to this repurchase program.
Employee Stock Purchase Plan
In 2000, the Company approved a stock purchase plan. Under this plan, participating employees can authorize the Company to withhold a portion of their base pay during consecutive six-month payment periods for the purchase of shares of the Company’s common stock. At the conclusion of the period, participating employees can purchase shares of the Company’s common stock at 85% of the lower of the fair market value of the Company’s common stock at the beginning or end of the period. Shares are issued under the plan for the six-month periods ending June 30 and December 31. Under this plan, 500,000 shares of common stock are authorized for issuance of which 255,512 shares were issued as of June 30, 2008. During the three and six months ended June 30, 2008, the Company issued 9,650 shares under the Employee Stock Purchase Plan. During the three and six months ended June 30, 2007, the Company issued 13,542 shares under the Employee Stock Purchase Plan.
The Company ~~applies~~accounts for share-based payment awards in accordance with the ~~intrinsic-value-based method~~provisions of ~~accounting prescribed by Accounting Principles Board (APB) Opinion~~SFAS No. ~~25,~~ 123 (revised 2004),~~Accounting~~Share-Based Payment, (“SFAS No.123(R)”), which was adopted as of January 1, 2006 using the modified prospective transition method. Stock-based compensation expense recognized under SFAS No. 123(R) for the three months ended June 30, 2008 and 2007 was $0.6 million, which consisted of stock-based compensation expense related to employee stock options and the employee stock purchase plan. Stock-based compensation expense recognized under SFAS No. 123(R) for the six months ended June 30, 2008 and 2007 was $1.0 million, which consisted of stock-based compensation expense related to employee stock options and the employee stock purchase plan.
HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Stock ~~Issued to Employees,~~Option Plans
1996 Stock Option and ~~related interpretations including FASB Interpretation No. 44,~~ ~~Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25,~~Grant Plan ~~issued in March 2000, to account for its fixed-plan stock options. Under this method,~~
In 1996, the Company ~~records compensation expense using~~adopted the ~~graded method,~~1996 Stock Option and Grant Plan (the “1996 Stock Plan”) pursuant to which the Company’s Board of Directors could grant stock options to employees, directors and consultants. The 1996 Stock Plan authorized grants of options to purchase 4,072,480 shares of authorized but unissued common stock. In 2000, the 1996 Stock Plan was replaced by the 2000 Stock Option and Incentive Plan. As of June 30, 2008, there were options to purchase 125,658 shares outstanding under the 1996 Stock Plan. During the three and six months ended June 30, 2008 and 2007, no shares were issued under the 1996 Stock Plan.
Amended and Restated 2000 Stock Option and Incentive Plan
The Second Amended and Restated 2000 Stock Option and Incentive Plan (the “2000 Plan” and, together with the 1996 Stock Plan, the “Stock Plans”) was amended by the Board of Directors on April 10, 2008. Such amendment to the 2000 Plan, which included an increase in the number of shares available thereunder by 2,500,000, was approved by the stockholders at the Company’s 2008 Annual Meeting. The 2000 Plan permits the Company to make grants of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock awards, unrestricted stock awards, performance shares and dividend equivalent rights. The Company has currently reserved 9,367,675 shares of common stock for the issuance of awards under the 2000 Plan. As of June 30, 2008, there were options to purchase 5,220,911 shares outstanding and 3,277,227 shares available for grant under the 2000 Plan.
As of June 30, 2008 and 2007, incentive stock options to purchase 6,375,484 and 6,285,484 shares and non-qualified stock options to purchase 5,871,061 and 5,511,061 shares, respectively, had been granted to employees and directors under the Stock Plans. Generally, both the incentive stock options and the non-qualified stock options become fully vested over a four-year period, with one-quarter of the options vesting on each of the first four anniversaries of the grant date.
During the three and six months ended June 30, 2008, 255,000 and 375,000 stock options were granted to employees and directors at exercise prices equal to or greater than fair market value of the Company’s common stock on the date of ~~grant only if~~grant. During the ~~current~~three and six months ended June 30, 2007, 1,062,000 stock options were granted to employees and directors at exercise prices equal to or greater than fair market ~~price~~value of the ~~underlying~~Company’s common stock ~~exceeds~~on the ~~exercise price~~date of grant.
Distribution and ~~the number~~Dilutive Effect of ~~stock options is fixed. FASB No. 148,~~ ~~Accounting for Stock-Based Compensation Transition and Disclosure~~Options, ~~an amendment of FASB Statement No. 123, Accounting for Stock-Based Compensation~~, provides alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation plans under FASB No. 123 and amends the disclosure requirements of FASB No. 123. As allowed by FASB No. 148 and 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of FASB No. 148.
The following table illustrates the ~~effect on net income (loss) if~~dilution (accretion) resulting from the ~~fair-value-based method had been applied~~grant of options and exercise of options, which is referred to ~~all outstanding awards in each period:~~as the grant dilution and exercise dilution, respectively, during the periods described below.

Three Months Ended

(in thousands, except per share data)

March 31, 2004

March 31, 2003

Net income (loss) available to common stockholders, as reported

$
(51
)
$
776

Add: stock-based employee compensation expense included in reported net income, net of tax

47

141

Deduct: total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax

(513
)
(974
)
Pro forma net loss

$
(517
)
$
(57
)
Basic net income (loss) per share as reported

$
(0.00
)
$
0.03

Pro forma basic net loss per share

$
(0.02
)
$
(0.00
)
Diluted net income (loss) per share as reported

$
(0.00
)
$
0.03

Pro forma diluted net loss per share

$
(0.02
)
$
(0.00
)
   Three Months Ended
June 30, Six Months Ended
June 30,
   2008 2007 2008 2007
Shares of common stock outstanding
   31,058,510 30,619,897 31,058,510 30,619,897
Granted
   255,000 1,062,000 375,000 1,062,000
Canceled / forfeited
   (388,000 ) (37,000 ) (618,836 ) (77,062 )

Net options granted
   (133,000 ) 1,025,000 (243,836 ) 984,938
Grant dilution (accretion) (1)
   -0.43 % 3.35 % -0.79 % 3.22 %
Exercised
   123,346 35,483 196,964 43,947
Exercise dilution (2)
   0.40 % 0.12 % 0.63 % 0.14 %

8

~~The fair value of each option grant for the Company’s stock option plans is estimated on the date of the grant using the Black-Scholes pricing model.~~
6.~~Income (Loss) Per Share~~
(1) The percentage for grant dilution (accretion) is computed based on net options granted (cancelled/forfeited) as a percentage of shares of common stock outstanding.
(2) The percentage for exercise dilution is computed based on net options exercised as a percentage of shares of common stock outstanding.
Basic income ~~(loss)~~ per share is based upon net income divided by the number of weighted average common shares outstanding during the period. The calculation of diluted net income ~~(loss)~~ per share assumes conversion of stock options 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

(in thousands)

March 31, 2004

March 31, 2003

Weighted average common shares outstanding (basic)

30,164

29,892

Weighted average common equivalent shares due to stock options

—

245

Weighted average common shares outstanding (diluted)

30,164

30,137

   Three Months Ended
June 30,    Six Months Ended
June 30,
   2008    2007    2008    2007
Basic
   30,970,539    30,587,802    30,922,850    30,577,639
Effect of assumed conversion of employee and director stock options
   637,497    849,437    604,216    838,156

Diluted
   31,608,036    31,437,239    31,527,066    31,415,795

HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

~~For~~Excluded from the shares used in calculating the diluted earnings per common share in the above table are options to purchase approximately 3,791,997 and 3,874,707 shares of common stock for the three and six months ended June 30, 2008, respectively, as the impact of these shares would be anti-dilutive. Excluded from the shares used in calculating the diluted earnings per common share in the above table are options to purchase approximately 3,716,049 and 3,451,801 shares of common stock for the three and six months ended June 30, 2007, respectively, as the impact of these shares would be anti-dilutive.
General Option Information
A summary of stock option transactions follows:
   Options
Available
for Grant Options
Outstanding Weighted
Average
Exercise
Price
Balance at December 31, 2005
   354,138 4,281,282 $ 5.29
Approved by shareholders
   2,000,000 —   —
Options granted
   (1,185,000 ) 1,185,000 4.36
Options exercised
   —   (52,192 ) 2.47
Options cancelled / forfeited
   167,691 (167,691 ) 5.81

Balance at December 31, 2006
   1,336,829 5,246,399 $ 5.09
Options granted
   (1,137,000 ) 1,137,000 5.41
Options exercised
   —   (262,468 ) 2.33
Options cancelled / forfeited
   333,562 (333,562 ) 5.71

Balance at December 31, 2007
   533,391 5,787,369 $ 5.24
Approved by shareholders
   2,500,000 —   —
Options granted
   (375,000 ) 375,000 4.82
Options exercised
   —   (196,964 ) 3.51
Options cancelled / forfeited
   618,836 (618,836 ) 5.38

Balance at June 30, 2008
   3,277,227 5,346,569 $ 5.26

The Company has a policy of issuing stock out of its registered but unissued stock pool through its transfer agent to satisfy stock option exercises.
HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The following table summarizes information concerning currently outstanding and exercisable options as of June 30, 2008 (Aggregate Intrinsic Value in thousands):
   Options Outstanding    Options Exercisable
Range of
Exercise
Price    Number
Outstanding at
June 30, 2008    Weighted
Average
Remaining
Contractual Life
in Years    Weighted
Average
Exercise
Price    Aggregate
Intrinsic
Value    Shares
Exercisable at
June 30, 2008    Weighted
Average
Exercise
Price    Aggregate
Intrinsic
Value
$ 0.01-3.15    769,319    5.45    $ 2.67    $ 1,523    673,069    $ 2.63    $ 1,360
$ 3.15-4.23    822,750    5.33    $ 3.51    938    752,003    $ 3.48    880
$ 4.23-4.63    1,036,000    8.02    $ 4.38    280    433,000    $ 4.34    134
$ 4.63-6.47    1,106,500    9.03    $ 5.34    —      221,419    $ 5.49    —
$ 6.47-10.00    1,612,000    4.67    $ 7.89    —      1,612,000    $ 7.89    —

$ 0.01-10.00    5,346,569    6.44    $ 5.26    $ 2,741    3,691,491    $ 5.47    $ 2,374

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $4.65 as of June 30, 2008, 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 for the three months ended ~~March 31, 2004, common~~June 30, 2008 and 2007, respectively, was approximately $0.1 million and $0.08 million, respectively. The aggregate intrinsic value of options exercised for the six months ended June 30, 2008 and 2007, respectively, was approximately $0.2 million and $0.1 million, respectively. The total number of in-the-money options that were exercisable as of June 30, 2008 was 1,858,072.
Valuation and Expense Information under SFAS No. 123(R)
Stock-based compensation expense related to employee stock ~~equivalent shares~~options and the employee stock purchase plan under SFAS No. 123(R) for the three and six months ended June 30, 2008 and 2007, respectively, was allocated as follows:
   Three Months Ended
June 30,    Six Months Ended
June 30,
   2008    2007    2008    2007
   (in thousands)
Cost of sales
   $ 11    $ 11    $ 21    $ 20
Sales and marketing
   26    30    61    56
General and administrative
   533    533    917    939
Research and development
   —      2    1    3
Discontinued operations
   1    16    5    30

Total stock-based compensation
   $ 571    $ 592    $ 1,005    $ 1,048

The Company did not capitalize any stock-based compensation. No significant tax benefit on the stock-based compensation was recorded in the three and six months ended June 30, 2008 and 2007 since the Company has established a valuation allowance against net deferred tax assets.
The weighted-average estimated value of ~~1,530,871~~employee stock options granted during the three and six months ended June 30, 2008 was $2.65 per share and $2.62 per share, respectively, and the weighted-average estimated value of employee stock options granted during the three and six months ended June 30, 2007 was $3.68 per share using the Black Scholes option-pricing model with the following weighted-average assumptions:
   Three and Six Months Ended
June 30,
   2008 2007
Volatility
   55.36 % 70.56 %
Risk-free interest rate
   3.25 % 4.61 %
Expected holding period
   5.84 Years 6.25 Years
Dividend yield
   0.00 % 0.00 %
HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The Company used historical volatility to calculate its expected volatility as of June 30, 2008. Historical volatility was determined by calculating the mean reversion of the daily adjusted closing stock price. The risk-free interest rate assumption is based upon observed Treasury bill interest rates (risk free) appropriate for the term of the Company’s employee stock options. The expected life of employee stock options represents the period of time options are expected to be outstanding and were based on historical experience.
Stock-based compensation expense recognized in the Consolidated Statement of Operations for the three and six months ended June 30, 2008 and 2007, is based on awards ultimately expected to vest and has been reduced for annualized estimated forfeitures of 6.24% and 2.84%, respectively. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.
11. Segment and Related Information
During the quarter ended June 30, 2005, the Company realigned its lines of business into two business segments, the Apparatus and Instrumentation Business segment and the Capital Equipment Business segment. Corporate costs of $1.6 million and $3.3 million, respectively, and $1.5 million and $2.8 million for the three and six months ended June 30, 2008 and 2007, respectively, are all included in general and administrative expenses from continuing operations and are not allocated for purposes of segment reporting. Included in corporate costs are $0.4 million and $0.9 million for the three and six months ended June 30, 2008, respectively, and $0.4 million and $0.7 million for the three and six months ended June 30, 2007, respectively, of stock compensation expense related to the adoption of SFAS No. 123(R). See Note 10-Capital Stock.
During the quarter ended September 30, 2005, the Company announced plans to divest its Capital Equipment Business segment. The decision to divest this business segment was based on the fact that market conditions for the Capital Equipment Business were such that this business had not met the Company’s expectations and the decision to focus Company resources on the Apparatus and Instrumentation Business segment. As a result, the Company began reporting the Capital Equipment Business segment as a discontinued operation in the third quarter of 2005. In November 2007, the Company completed the sale of the assets of its Genomic Solutions Division and the stock of its Belgian subsidiary, Maia Scientific, both of which were part of its Capital Equipment Business Segment, to Digilab, Inc. The COPAS flow cytometry product line (held by our Union Biometrica US and German subsidiaries), was not included in this sale, and the ~~computation~~Company continues to pursue a sale of ~~diluted earnings per share because to do so would have been antidilutive. For~~this product line in a separate transaction. See Note 3-Discontinued Operations.
12. Revolving Credit Facility
During 2003, the ~~three months ended March 31, 2003, options to purchase 1,077,058 shares of common stock were outstanding but were not included in~~Company entered into a $20.0 million credit facility with Brown Brothers Harriman & Co. On December 1, 2006, the ~~calculation of diluted earnings per share because~~Company amended the ~~options’ exercise prices were greater than the average market price~~terms of the ~~common shares and, therefore,~~credit facility. This amendment changed the ~~effect would have been antidilutive.~~
7.~~Inventories~~
~~Inventories consist of the following:~~
(in thousands)

March 31, 2004

December 31, 2003

Finished goods

$
7,891

$
8,160

Work in process

4,312

4,327

Raw materials

13,500

12,192

$
25,703

$
24,679

8.~~Accounts Receivable~~
~~Accounts receivable consists of the following:~~
(in thousands)

March 31, 2004

December 31, 2003

Trade accounts receivable

$
19,036

$
19,492

Allowance for doubtful accounts

(434
)
(417
)

$
18,602

$
19,075

9.~~Comprehensive Income~~
Accumulated other comprehensive income, a component of stockholders’ equity, as of March 31, 2004 and December 31, 2003, consists of cumulative foreign currency translation adjustments of $6.8 million and $5.8 million, respectively and a minimum additional pension liability of $(0.5) million. The components of total comprehensive income were as follows:

Three Months Ended

(in thousands)

March 31, 2004

March 31, 2003

Net income (loss)

$
(51
)
$
776

Other comprehensive income (loss)

948

(190
)
Comprehensive income

$
897

$
586

9

~~Other comprehensive income (loss) for the periods ended March 31, 2004 and 2003 consists of foreign currency translation adjustments.~~
~~10.~~~~Employee Benefit Plans~~
~~Certain~~terms of the Company’s ~~United Kingdom subsidiaries, Harvard Apparatus Limited~~current $20.0 million credit facility, by allowing borrowing of up to $10.0 million in British Pound Sterling or Eurocurrency and ~~Biochrom Limited, maintain contributory, defined benefit or defined contributory pension plans for substantially all of their employees.~~extending the maturity date from January 1, 2007 to December 1, 2009. The ~~components of~~amended credit facility bears interest at either (1) the ~~Company’s pension expense follows:~~

Three Months Ended

(in thousands)

March 31, 2004

March 31, 2003

Components of net periodic benefit cost:

Service cost

$
101

$
85

Interest cost

156

122

Expected return on plan assets

(170
)
(135
)
Net amortization loss

31

35

Net periodic benefit cost

$
118

$
107

~~For the quarter ended March 31, 2004, the Company has contributed approximately $123,000 to the pension plans.~~
~~11.~~~~Legal Proceedings~~
On February 4, 2002, Paul D. Grindle, the former owner of Harvard Apparatus, Inc., initiated an arbitration proceeding against us and certain directors before JAMS in Boston, Massachusetts. Mr. Grindle’s claims arise out of post-closing purchase price adjustments related to our purchase of the assets and business of Harvard Apparatusbase rate announced by virtue of an Asset Purchase Agreement dated March 15, 1996 and certain related agreements. In the arbitration demand, Mr. Grindle sought the return of 1,563,851 shares of common stock in Harvard Bioscience, or the disgorgement of the profits of our sale of the stock, as well as compensatory damages and multiple damages and attorney’s fees under Mass. Gen. Laws, chapter 93A. In a demand letter that was attached to the arbitration demand, Mr. Grindle asserted losses in the amount of $15 million, representing the value of the 1,563,851 shares of Harvard Bioscience’s common stock as of January 2, 2002. On October 30, 2002, we received a decision from the arbitrator that we have prevailed on all claims asserted against us and certain of our directors in the arbitration action. Specifically, we received a written decision from the arbitrator granting our motion for summary disposition with respect to all claims brought against all parties in the action. The Company filed a complaint in the Massachusetts Superior Court seeking to confirm the arbitrator’s decision. Mr. Grindle filed a complaint in the Massachusetts Superior Court seeking to vacate the arbitrator’s decision. These two matters were consolidated. On or about July 30, 2003, the Massachusetts Superior Court granted our motion to confirm the arbitrator’s decision and to deny Mr. Grindle’s motion to vacate. Mr. Grindle has filed a notice of appeal with the Massachusetts Appeals Court. Both Mr. Grindle and the Company have filed briefs with the Massachusetts Appeals Court. The matter is pending. Mr. Grindle also filed an application for direct appellate review with the Massachusetts Supreme Judicial Court, which was denied.
~~In addition,~~BBH from time to time, ~~we may be involved in various claims and legal proceedings arising~~(2) the London Interbank Offered Rate (“LIBOR”) or (3) the Eurocurrency base rate, plus, in the ~~ordinary course~~case of ~~business. Except~~LIBOR or the Eurocurrency base rate, a margin of 2.5% or 2.75% depending on the Company’s debt service leverage ratio. As of June 30, 2008, we had no debt outstanding under our revolving credit facility.
As of June 30, 2008, the Company is in compliance with financial covenants contained in the credit facility involving income, debt coverage and cash flow, as ~~disclosed above, we are~~well as minimum working capital requirements. Additionally, the credit facility also contains limitations on the Company’s ability to incur additional indebtedness and requires creditor approval for acquisitions funded with cash, promissory notes and/or other consideration in excess of $6.0 million and for acquisitions funded solely with equity in excess of $10.0 million. The Company does not ~~currently~~believe that these requirements will be a ~~party~~significant constraint on its operations or on the acquisition portion of its growth strategy. As of June 30, 2008, there was no debt outstanding under the credit facility compared to $5.5 million as of December 31, 2007. As of June 30, 2008, the Company was not subject to any ~~such claims or proceedings, which, if decided adversely~~borrowing restrictions under the covenants and had available borrowing capacity under its revolving credit facility of $20.0 million.
HARVARD BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to ~~us, would either individually or in the aggregate have material adverse effect on our business, financial condition or results of operations.~~Unaudited Consolidated Financial Statements (Continued)

10Under the terms of its credit facility, the Company will be required to obtain consent from its lenders upon the sale of the remaining portion of its Capital Equipment Business segment. If the Company is unable to obtain this consent, the sale of the remaining portion of the Capital Equipment Business segment will trigger a default under the credit facility whereby its lenders could accelerate all of the outstanding indebtedness and terminate the credit facility.

In connection with the Company’s acquisition of Panlab, the Company assumed several working capital lines of credit totaling $2.3 million. As of June 30, 2008, Panlab held notes payable of $2.1 million denominated in Euros. The payment terms of the lines of credit are generally one year; however, the lines have historically renewed annually. The interest rates, which include bank commissions and other fees, range between 5.5% and 8.0%. There are no material financial covenants associated with these lines of credit.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
~~Item 2~~~~. Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~
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 forward-looking statements are principally, but not exclusively, contained in “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about our expected research and development spending, the impact of acquisitions on future earnings, the effect of our technology on the drug development process, our intention to strengthen our market position, management’s confidence or expectations, our business strategy, our positioning for revenue and other growth, our ability to successfully implement an action plan for our genomics, proteomics and high throughput screening product lines, our ability to reduce the risk of being dependent on a single technology, our ability to avoid competition with major instrument companies, our acquisition strategy (including our ability to accelerate the growth of acquired products through our established brands and distribution channels, our ability to raise capital or borrow funds to consummate acquisitions and the availability of attractive acquisition candidates), our plans and intentions regarding the distribution of our catalog and supplements to our catalog, our expectations regarding future costs of product revenues, the market demand and opportunity for our products, our beliefs regarding our position in comparison to our competitors, our estimates regarding our capital requirements, the timing of future product introductions, or the ability of our patent strategy to protect our current and future products, our expectations in connection with current litigation (including inferences about the finality of the arbitrator’s decision in the Grindle matter and potential appeal of or other challenge to that decision), 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,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “potential” 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~~Factors that may cause the Company’s actual results to differ materially from those in the forward-looking statements include the Company’s failure to successfully integrate acquired businesses or technologies, complete planned consolidations of ~~these~~business functions, expand its product offerings, introduce new products or commercialize new technologies, including our new micro liter spectrophotometer and electrophoresis products, unanticipated costs relating to acquisitions, unanticipated costs arising in connection with the Company’s planned consolidation of business functions, decreased demand for the Company’s products due to changes in its customers’ needs, financial position, general economic outlook, or other circumstances, overall economic trends, the timing of our customers’ capital equipment purchases and the seasonal nature of purchasing in Europe, our potential misinterpretation of trends of our capital equipment product lines due to the cyclical nature of this market, economic, political and other risks associated with international revenues and operations, additional costs of complying with recent changes in ~~detail~~regulatory rules applicable to public companies, our ability to manage our growth, our ability to retain key personnel, competition from our competitors, technological changes resulting in our products becoming obsolete, future changes to the operations or the activities of our Asys Hitech subsidiary that are being consolidated, our ability to meet the financial covenants contained in our credit facility, our ability to protect our intellectual property and operate without infringing on others’ intellectual property, potential costs of any lawsuits to protect or enforce our intellectual property, economic and political conditions generally and those affecting pharmaceutical and biotechnology industries, the Company’s inability to complete the divestiture of its remaining portion of its Capital Equipment Business segment on attractive terms, the potential loss of business at the Company’s Capital Equipment Business segment relating to the Company’s decision to divest this business, unanticipated costs or expenses related to the divestiture of the Capital Equipment Business segment, completion of the purchase price allocation for Panlab s.l., impact of any impairment of our goodwill or intangible assets, and our acquisition of Genomic Solutions failing to qualify as a tax-free reorganization for federal tax purposes, the amount of earn-out consideration that the Company receives in connection with the recent disposition of a portion of the Company’s Capital Equipment Business segment and factors that may impact the receipt of this consideration, such as the revenues of the businesses disposed of, plus factors described under the heading ~~“Important Factors That May Affect Future Operating Results” beginning on page 18 of this Quarterly~~“Item 1A. Risk Factors” in the Company’s Annual Report on Form ~~10-Q. You should carefully review all of these factors,~~10-K, for the fiscal year ended December 31, 2007, as ~~well as other risks described in our public filings, and you should~~amended. Our results may also be ~~aware that there may be other factors, including~~affected by factors of which we are not currently ~~aware, that could cause these differences.~~aware. 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~~federal securities laws to update and disclose material developments related to previously disclosed information.
~~Overview~~General
From 1997 to ~~2003~~2007, the revenues from our ~~revenues~~continuing operations grew atfrom $11.5 million to $83.4 million, an annual compounded growth rate of approximately ~~40%~~22.0%. ~~This was achieved by implementing~~Since the second half of 2005, when we made the decision to divest the Capital Equipment Business segment, we refocused our ~~three-part growth strategy~~resources on our core apparatus and instrumentation business, which has been the cornerstone to our success over the last decade.
In March 2008, we outlined five major initiatives that we expect will have a positive impact on our performance in 2008. These initiatives include:
the launch of a new major Harvard Apparatus catalog during February 2008;
the launch of Panlab products into US markets;
the signing of a new contract with GE Healthcare and the full launch of our new microliter spectrophotometer;
the launch of new 2-D electrophoresis products through our Hoefer subsidiary; and
the consolidation of business functions to reduce operating expenses.
During the first half of 2008, we made significant progress on most of these five initiatives. We launched our new major catalog in February with a second mailing tranche in April. We entered into a new distributor contract with GE Healthcare in April, which led to healthy sales of our new microliter spectrophotometer. We made significant progress consolidating certain business functions; in particular, we consolidated the marketing and administrative functions of Hoefer into the Harvard Apparatus business and consolidated the complete operations of Asys into our Biochrom business. While we did launch the new Hoefer 2-D electrophoresis products in the second quarter, the uptake of this product ~~development, strategic partnerships~~has been slower than expected.
Accordingly, we remain committed to our goal of high revenue and ~~acquisitions. This strategy has provided us with strong~~profit growth through a combination of organic growth ~~in good economic times~~ and ~~in tough economic times, such as we experienced in 2002 and 2003, it has provided us with strong acquisition growth. For 2004~~tuck under acquisitions. While we expect ~~revenue growth without further acquisitions~~the initiatives discussed above will positively impact our business, the success of these initiatives is subject to ~~be below~~a number of factors including the competitiveness of our ~~historic levels. During 2003~~new products, the strength of our intellectual property underlying these products, the success of our marketing efforts and those of our distributors and the other factors described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the first quarter of 2004, although we continued with new product development and strategic partnerships which did contribute to revenues, our revenue growth was primarily due to acquisitions we made in 2002, 2003 and 2004. Our recent acquisition activity history is listed in Note 3 to our unaudited Consolidated Financial Statements.
With the acquisitions of Union Biometrica in May 2001, Genomic Solutions in October 2002, GeneMachines in March 2003 and BioRobotics in September 2003, an increasing portion of our revenues is the result of sales of relatively high-priced products, considered to be capital equipment. Approximately 40% of our revenues for thefiscal year ended December 31, 2003 and 31% of our revenues for the three months ended March 31, 2004 was derived from capital equipment products. The capital equipment market is very seasonal compared to our traditional catalog business and2007, as such, we believe we have experienced, and we believe we will continue to experience, substantial fluctuations in our quarterly revenues. Delays in purchase orders, receipt, manufacture or shipment of products or receivables collection of these relatively high-priced products have lead to substantial variability in our revenues, operating results and working capital requirements from quarter-to-quarter as evidenced in our first quarter 2004 results.
Additionally, the cyclical buying pattern of the capital equipment purchasing market could mask or exaggerate the economic trends underlying the market for our capital equipment product lines. Specifically, a decline in any quarter that is typically a quarter that we would expect to contribute less than one-quarter of projected revenue for the year, could be misinterpreted if the decline was due instead to a negative trend in the market and/or in the demand for our products. Conversely, an increase in any quarter that is typically a quarter which we would expect to contribute less than one-quarter of projected revenue for the year, could be misinterpreted as a favorable trend in the market and/or in the demand for our products. This could have a material adverse effect on our operations.
11

In general, we believe that we have seen, particularly in the last half of 2003 and in the first quarter of 2004, a strengthening in the economy. However, we do believe that the economy is still uncertain, with the outlook for the genomics, proteomics and high-throughput screening markets looking particularly uncertain. It is in these product markets that the majority of our capital equipment business is. While we are optimistic that we can return to solid organic growth in addition to growth from acquisitions, we are unable to determine if the strength we saw in the second half of 2003 and first quarter of 2004 is a trend that is likely to continue, or is even a trend. We are continuing to monitor the market, as well as our internal resources, as we pursue our goal of maintaining and/or improving the operating metrics of the Company, and accordingly during the second quarter of 2004, we expect to implement an action plan, to enable us to bring our genomics, proteomics and high-throughput screening product lines back in line with our goals of solid operating metrics and profitability across all product lines and operations. Any costs associated with this action plan will likely have an adverse impact on second quarter 2004 earnings results.
amended.
Generally, management evaluates the financial performance of its operations before the effects of stock compensation expense and before the effects of purchase accounting and amortization of intangible assets related to our acquisitions. Our goal is to develop and sell products that ~~profitably accelerate drug discovery~~improve life science research and as such, we monitor ~~the~~our operating metrics ~~of the Company~~ and when appropriate, effect organizational changes to leverage infrastructure and distribution channels. These changes may be effected as a result of various events, including acquisitions, ~~weakened~~the worldwide economy, ~~soft~~general market conditions and personnel changes. ~~In the table below, we provide an overview of the operating metrics commonly reviewed by our management.~~
Financing
During 2003, we entered into a ~~$20~~$20.0 million credit facility with Brown Brothers Harriman & ~~Co,~~Co. On December 1, 2006, we amended the terms of the credit facility. The amended credit facility expires on December 1, 2009. Under the terms of our credit facility, we will be required to obtain consent from our lenders upon the sale of the remaining portion of our Capital Equipment Business segment. If we are unable to obtain this consent, the sale of the remaining portion of our Capital Equipment Business segment will trigger a default under ~~which~~the credit facility whereby our lenders could accelerate all of our outstanding indebtedness and terminate our credit facility.
As of June 30, 2008, we ~~have drawn down approximately $19.4 million as of May 7, 2004. We believe that~~were in compliance with the financial covenants contained in the credit facility involving income, debt coverage and cash flow, as well as minimum working capital ~~requirements are covenants that we will be in compliance with under current operating plans. The~~requirements. Additionally, the credit facility also contains limitations on our ability to incur additional ~~indebtedness. Additionally, the facility~~indebtedness and requires creditor approval for acquisitions funded with cash, promissory notes and/or other consideration in excess of $6$6.0 million and for ~~those which may be~~acquisitions funded solely with equity in excess of ~~$10~~$10.0 million. We do not believe that these requirements will be a significant constraint ~~in operating the Company and continuing with~~on our operations or on the acquisition portion of our growth strategy.
As of June 30, 2008, there was no debt outstanding under the credit facility compared to $5.5 million outstanding as of December 31, 2007. As of June 30, 2008, we were not subject to any borrowing restrictions under the covenants and we had available borrowing capacity under our revolving credit facility of $20.0 million.
Historically, we have funded acquisitions with debt, capital raised by issuing equity and cash flow from operations. In order to continue the acquisition portion of our ~~three part~~ growth strategy beyond what our current cash balances and cash flow from operations can support, we will need to raise more capital, either by incurring additional debt, issuing equity or a combination. ~~Currently,~~
To the extent we ~~are unable to access~~receive some or all of the ~~public equity markets due to an outstanding amendment to a Current Report on Form 8-K~~proceeds in ~~connection with a previous acquisition. In addition, we are not currently eligible to use Form S-3 to effect a registration~~cash from the planned divestiture of our ~~equity as a result~~Capital Equipment Business segment, we intend to apply any cash proceeds to the repayment of ~~this delinquent filing. We are in the process~~debt, to continue our tuck-under acquisition strategy within our Apparatus and Instrumentation Business segment or to other general corporate purposes.
Components of seeking to complete this outstanding filing and anticipate that we will become current with our required filings under Form 8-K. Once we become current with our SEC filing, we will immediately be eligible to register equity and will be eligible to use Form S-3 twelve months after the initial due date of the outstanding Form 8-K amendment. However, until this matter is resolved, our ability to raise capital may be limited to private equity transactions and/or additional borrowing and may result in entering into an agreement on less than favorable terms.Operating Income from Continuing Operations

Selected Operating Metrics for the three months ended March 31,

(in thousands, unaudited)

2004

% of Revenue

2003

% of Revenue

Total Revenues

$
22,165

$
19,473

Cost of Product Revenues

11,544

52.1
%
9,635

49.5
%
Sales and Marketing Expense

4,297

19.4
%
3,600

18.5
%
Research and Development Expense

1,669

7.5
%
1,420

7.3
%
General & Administrative Expense

3,522

15.9
%
2,825

14.5
%
Revenues.We generate revenues by selling apparatus, instruments, devices and consumables through our catalog, our direct sales force, our distributors and our website.
For products primarily priced under $10,000, every one to three years, we ~~intend to~~typically distribute a new, comprehensive catalog initially in a series of bulk mailings, first to our existing customers, followed by mailings to targeted markets of potential customers. Over the life of the catalog, distribution will also be made periodically to potential and existing customers through direct mail and trade shows and in response to e-mail and telephone inquiries. From time to time, we also intend to distribute catalog supplements that promote selected areas of our catalog or new products to targeted subsets of our customer base. Future distributions of our comprehensive catalog and our catalog supplements will be determined primarily by the incidence of new product introductions, which cannot be predicted. Our end user customers are research scientists at pharmaceutical and biotechnology companies, universities and government laboratories. Revenue from catalog sales in any period is ~~a function~~influenced by the amount of time elapsed since the last mailing of the catalog, the number of catalogs mailed and the number
12

of new items included in the catalog. We launched our latest comprehensive catalog in ~~March 2004,~~February 2008, with approximately ~~1,100~~900 pages and approximately ~~70,000~~60,000 copies printed. Revenues from direct sales to end users, derived through our catalog and the electronic version of our catalog on our website, ~~and~~ represented approximately ~~25%~~29% and 31%, respectively, of our revenues for the six months ended June 30, 2008 and for the year ended December 31, ~~2003 and approximately 24% for the three months ended March 31, 2004. We do not currently have the capability to accept purchase orders through our website.~~
2007.
Products ~~typically in the $5,000 -$15,000 price range are primarily~~ sold under brand names of distributors including ~~Amersham Biosciences.~~GE Healthcare, are typically priced in the range of $5,000-$15,000. They are mainly scientific instruments like spectrophotometers and plate readers that analyze light to detect and quantify a very wide range of molecular and cellular processes or apparatus like gel electrophoresis units. We also use distributors for both our catalog products and our higher priced products, for sales in locations where we do not have subsidiaries or where we have distributors in place for acquired businesses. For the six months ended June 30, 2008 and for the year ended December 31, ~~2003~~2007, approximately ~~45% of our revenues were derived from sales to distributors. For the three months ended March 31, 2004, approximately~~ 53% and 59%, respectively, of our revenues were derived from sales to distributors.
For ~~our higher priced products, generally those priced over $25,000, we have direct sales organizations which consist of sales~~the six months ended June 30, 2008 and marketing personnel, customer support, technical support and field application service support. These organizations have been structured to attend to the specific needs associated with the promotion and support of higher priced capital equipment customers. The combined expertise of both our sales and technical support staff provide a balanced skill set when promoting the relevant products at seminars, on-site demonstrations and exhibitions which are done routinely. The expertise of our field service personnel provides complete post-sale customer support for ~~instrument specific service, repair and maintenance, and applications support. For~~ the year ended December 31, ~~2003~~2007, approximately 85% and ~~for the three months ended March 31, 2004, approximately 30% and 23%, respectively, of our revenues were derived from sales by our direct sales force.~~
~~For the year ended December 31, 2003 and for the three months ended March 31,2004, approximately 91% and 92%~~87%, respectively, of our revenues were derived from products we ~~manufacture or from collaboration and research grant projects.~~manufacture. The remaining 9%15% and 8%13%, respectively, of our revenues for the six months ended June 30, 2008 and for the year ended December 31, 2007, were derived from complementary products we distribute in order to provide the researcher with a single source for all equipment needed to conduct a particular experiment. For the six months ended June 30, 2008 and for the year ended December 31, ~~2003~~2007, approximately 62% and ~~the three months ended March 31, 2004, approximately 50% and 48%~~58%, respectively, of our revenues were derived from sales made by our non-U.S. operations. A large portion of our international sales during this period consisted of sales to ~~Amersham Biosciences,~~GE Healthcare, the distributor for our spectrophotometers and plate ~~readers and 1-D gel electrophoresis products. Amersham Biosciences~~readers. GE Healthcare distributes these products to customers around the world, including to many customers in the United States, from its distribution center in Upsalla, Sweden. As a result, we believe our international sales would have been a lower percentage of our revenues if we had shipped our products directly to our ~~end users.~~end-users. Changes in the relative proportion of our revenue sources between catalog sales, direct sales, and distribution sales are primarily the result of a different sales proportion of acquired companies.
Cost of product revenues.Cost of product revenues includes material, labor and manufacturing overhead costs, obsolescence charges, packaging costs, warranty costs, shipping costs and royalties. Our ~~costs~~cost of product revenues may vary over time based on the mix of products sold. We sell products that we manufacture and products that we purchase from third parties. The products that we purchase from third parties have higher cost of ~~goods sold~~product revenues because the profit is effectively shared with the original manufacturer. We anticipate that our manufactured products will continue to have a lower cost of ~~goods sold~~product revenues as a percentage of revenues as compared with the cost of non-manufactured products for the foreseeable future. Additionally, our cost of product revenues as a percent of product revenues will vary based on mix of direct to end user sales and distributor ~~sales.~~sales, mix by product line and mix by geography.
~~General and administrative expense.~~ General and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance, accounting, information technology and human relations functions. Other costs include facility costs, professional fees for legal and accounting services, investor relations, insurances and provision for doubtful accounts.
Sales and marketing ~~expense.~~expenses. Sales and marketing expense consists primarily of salaries and related expenses for personnel in sales, marketing and customer support functions. We also incur costs for travel, trade shows, demonstration equipment, public relations and marketing materials, consisting primarily of the printing and distribution of our approximately ~~1,100~~900 page catalog, supplements and various other specialty catalogs, and the maintenance of our websites. We may from time to time expand our marketing efforts by employing additional technical marketing specialists in an effort to increase sales of selected categories of products in our catalog. We may also from time to time expand our direct sales organizations in an effort to increase and/or support sales of our higher priced capital equipment instruments or to concentrate on key accounts or promote certain product lines.
General and administrative expenses. General and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance, accounting, information technology and human relations functions. Other costs include professional fees for legal and accounting services, restructuring charges, facility costs, investor relations, insurance and provision for doubtful accounts.
Research and development ~~expense.~~expenses. Research and development expense consists primarily of salaries and related expenses for personnel and capital resources used to develop and enhance our products and to support collaboration agreements. Other research and development expense includes fees for consultants and outside service providers, and material costs for prototype and test units. We expense research and development costs as incurred. We believe that ~~significant~~ investment in product development is a competitive necessity and plan to continue to make these investments in order to realize the potential of new technologies that we develop, license or acquire.
Stock compensation expenses. On January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),Share-Based Payment, which requires the Company to recognize compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”). We adopted SFAS No. 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of our fiscal year 2006. Stock-based compensation expense recognized under SFAS No. 123(R) was $0.6 million and $1,000 for the three months ended June 30, 2008 in our continuing operations and discontinued operations, respectively, and $1.0 million and $5,000 for the six months ended June 30, 2008 in our continuing operations and discontinued operations, respectively. Stock-based compensation expense recognized under SFAS No. 123(R) was $0.6 million and $16,000 for the three months ended June 30, 2007 in our continuing operations and discontinued operations, respectively, and $1.0 million and $30,000 for the six months ended June 30, 2007 in our continuing operations and discontinued operations, respectively. This stock-based compensation expense was related to employee stock options and the employee stock purchase plan and was recorded as a component of cost of product revenues, sales and marketing expenses, general and administrative expenses, research and development expenses and discontinued operations.
Selected Results of Operations
Three months ended June 30, 2008 compared to three months ended June 30, 2007:

   Three Months Ended June 30,
   2008 2007 Dollar
Change    %
Change
   (dollars in thousands, unaudited)
Revenues
   $ 23,049 $ 20,410 $ 2,639    12.9 %
Cost of product revenues
   12,286 10,426 1,860    17.8 %
Gross margin percentage
   46.7 % 48.9 %
Sales and marketing expenses
   2,969 2,553 416    16.3 %
General and administrative expenses
   3,795 3,544 251    7.1 %
Research and development expenses
   1,077 888 189    21.3 %
~~Stock compensation expense.~~Revenues. ~~Stock compensation expense resulting~~
Revenues increased $2.6 million, or 12.9%, to $23.0 million for the three months ended June 30, 2008 compared to $20.4 million for the same period in 2007. The increase in revenue is primarily due to revenues from ~~stock option grants~~our recently acquired Panlab subsidiary of $2.8 million, an increase in sales at our Biochrom UK subsidiary of $0.5 million, primarily of our new microliter spectrophotometer, and favorable foreign exchange rate impact on sales denominated in foreign currencies of $0.3 million during the second quarter of 2008. This revenue growth was offset by a decrease of $0.4 million in revenue of our electrophoresis products to GE Healthcare and a decrease of $0.4 million in our Asys plate reader business compared to a particularly strong second quarter in 2007.
Cost of product revenues.
Cost of product revenues increased $1.9 million, or 17.8%, to $12.3 million for the three months ended June 30, 2008 from $10.4 million for the three months ended June 30, 2007. The increase in cost of product revenues is primarily due to increases of $1.8 million attributable to our ~~employees represents~~recently acquired Panlab subsidiary and $0.2 million attributable to changes in foreign exchange rates. Gross profit as a percentage of revenues decreased to 46.7% for the three months ended June 30, 2008 compared with 48.9% for the same period in 2007. The decrease in gross profit as a percentage of revenues was primarily due to sales from our Panlab subsidiary, which sells at lower gross margins than our historical consolidated gross margins, as a result of Panlab’s mix of distributed products compared to manufactured products. The impact of Panlab on gross margin percentage was 1.6%.
Sales and marketing expense.
Sales and marketing expenses increased $0.4 million, or 16.3%, to $3.0 million for the three months ended June 30, 2008 compared to $2.6 million for the three months ended June 30, 2007. This increase was primarily due to expenses from our recently acquired Panlab subsidiary of $0.3 million and changes in foreign exchange rates of $0.1 million.
General and administrative expense.
General and administrative expenses increased $0.3 million, or 7.1%, to $3.8 million for the three months ended June 30, 2008 compared to $3.5 million for the three months ended June 30, 2007. General and administrative expenses increased $0.2 million due to our recent acquisition of Panlab.
Research and development expense.
Research and development expenses were $1.1 million, an increase of $0.2 million, or 21.3%, for the three months ended June 30, 2008 compared to $0.9 million for the three months ended June 30, 2007. The increase in research and development expenses was primarily due to our recent acquisition of Panlab.
Amortization of intangible assets.
Amortization of intangibles was $0.5 million and $0.4 million for the three months ended June 30, 2008 and 2007, respectively.
Other income (expense), net.
Other income (expense), net, was $24,000 income for the three months ended June 30, 2008 and $7,000 expense for the three months ended June 30, 2007. Net interest income was $37,000 for the three months ended June 30, 2008 compared to net interest expense of $23,000 for the three months ended June 30, 2007. The shift between interest income from interest expense was due to lower average long-term debt balances in the second quarter of 2008 compared to the second quarter of 2007. Other income (expense), net, also included foreign exchange losses $37,000 for the three months ended June 30, 2008 compared to foreign exchange gains of $21,000 for the same period in 2007. These exchange losses and gains were primarily the result of currency fluctuations on intercompany transactions between our subsidiaries.
Income taxes.
Income tax expense from continuing operations was approximately $0.4 million and $0.5 million for the three months ended June 30, 2008 and 2007, respectively. The effective income tax rate for continuing operations was 29.7% for the three months ended June 30, 2008, compared with 20.9% for the same period of 2007. The difference between our effective tax rate and the US statutory tax rate is principally attributable to foreign tax rate differential and changes in our valuation allowance and a benefit recorded in the second quarter of 2007 due to a change in German tax law.
Restructuring
During the quarter ended March 31, 2008, the management of Harvard Bioscience committed to an ongoing initiative to consolidate business functions to reduce operating expenses. Our recent actions have been related to the separation of our electrophoresis product lines from our spectrophotometer and plate reader product lines. As part of these initiatives we have made changes in management, completed the consolidation of the Hoefer electrophoresis administrative and marketing operations from San Francisco, California to the headquarters of the Harvard Apparatus subsidiary in Holliston, Massachusetts and consolidated the activities of our Asys Hitech subsidiary in Austria to the Company’s Biochrom subsidiary’s facility located in Cambridge UK. The combined costs of these activities recorded in the first half of 2008, are $1.8 million.
During the quarter ended March 31, 2008, we recorded charges relating to the restructuring of approximately $0.8 million. These charges were comprised of $0.4 million in severance payments, $0.3 million in inventory impairment charges related to the discontinuance of certain product lines (included in cost of product revenues) and $0.2 million in various other costs.
During the quarter ended June 30, 2008, we recorded charges relating to the restructuring of approximately $0.9 million. These charges were comprised of $0.5 million in severance payments, $0.3 million in various other costs and. $0.1 million in facility closure costs.
Discontinued Operations
During the quarter ended September 30, 2005, the Company announced plans to divest its Capital Equipment Business segment. The decision to divest this business segment was based on the fact that market conditions for the Capital Equipment Business had been such that this business did not meet the Company’s expectations and the decision to focus Company resources on the Apparatus and Instrumentation Business segment. As a result, we began reporting the Capital Equipment Business segment as a discontinued operation in the third quarter of 2005.
In November 2007, the Company completed the sale of the assets of its Genomic Solutions Division and the stock of its Belgian subsidiary, MAIA Scientific, both of which were part of its Capital Equipment Business Segment, to Digilab, Inc. The purchase price paid by Digilab under the terms of the Asset Purchase Agreement consisted of $1,000,000 in cash plus additional consideration in the form of an earn-out based on 20% of the revenue generated by the acquired business as it is conducted by Digilab over a three-year period post-transaction. Any earn-out amounts will be evidenced by interest bearing promissory notes due on November 30, 2012. During the fourth quarter of 2007, we recorded a loss on sale of $3.1 million. There was no value ascribed to the contingent consideration from the earn-out agreement, as realization is uncertain.
During the quarter ended June 30, 2008, we re-evaluated the fair value less costs to sell the remaining assets that comprise the Capital Equipment Business segment. Based on this evaluation, we recorded additional asset impairment charges of $2.9 million.
The loss from discontinued operations, net of tax, was approximately $3.3 million for the three months ended June 30, 2008 compared to a loss of $3.8 million for the same period in 2007. For the three months ended June 30, 2008, the loss from discontinued operations, net of tax, includes the operating results of the Company’s Union Biometrica US and German subsidiaries. For the three months ended June 30, 2007, the loss from discontinued operations, net of tax, included the operating results of the Company’s former Genomic Solutions Division, its former MAIA Scientific subsidiary, and its current Union Biometrica US and German subsidiaries.
Six months ended June 30, 2008 compared to six months ended June 30, 2007:

   Six Months Ended June 30,
   2008 2007 Dollar
Change    %
Change
   (dollars in thousands, unaudited)
Revenues
   $ 45,008 $ 39,525 $ 5,483    13.9 %
Cost of product revenues
   23,920 20,120 3,800    18.9 %
Gross margin percentage
   46.9 % 49.1 %
Sales and marketing expenses
   5,810 5,023 787    15.7 %
General and administrative expenses
   7,551 6,947 604    8.7 %
Research and development expenses
   2,158 1,732 426    24.6 %
13

Revenues.
Revenues increased $5.5 million, or 13.9%, to $45.0 million for the six months ended June 30, 2008 compared to $39.5 million for the same period in 2007. The increase in revenue is primarily due to revenues from our recently acquired Panlab subsidiary of $5.2 million, an increase in sales at our Biochrom UK subsidiary of $2.4 million, primarily of our new microliter spectrophotometer, and favorable foreign exchange rate impact on sales denominated in foreign currencies of $0.7 million during the first half of 2008. This revenue growth was offset by large one-off orders in the first half of 2007, which were not repeated in 2008, including a large tender order for our Anthos plate readers from China of approximately $0.9 million and a decrease of approximately $0.6 million in revenues of our electrophoresis products to GE Healthcare.
Cost of product revenues.
Cost of product revenues increased $3.8 million, or 18.9%, to $23.9 million for the six months ended June 30, 2008 from $20.1 million for the six months ended June 30, 2007. The increase in cost of product revenues is primarily due to increases of $3.4 million attributable to our recently acquired Panlab subsidiary, $0.3 million of inventory write-downs associated with our decision to consolidate our Asys subsidiary into our Biochrom UK subsidiary and $0.4 million attributable to changes in foreign exchange rates. Gross profit as a percentage of revenues decreased to 46.9% for the six months ended June 30, 2008 compared with 49.1% for the same period in 2007. The decrease in gross profit as a percentage of revenues was primarily due to sales from our Panlab subsidiary, which sells at lower gross margins than our historical consolidated gross margins, as a result of Panlab’s mix of distributed products compared to manufactured products and certain inventory write-downs related to our consolidation plan (see “Restructuring” on the following page). The impact of Panlab and the inventory write-downs on gross margin percentage was 2.1%.
Sales and marketing expense.
Sales and marketing expenses increased $0.8 million, or 15.7%, to $5.8 million for the six months ended June 30, 2008 compared to $5.0 million for the six months ended June 30, 2007. This increase was primarily due to expenses from our recently acquired Panlab subsidiary of $0.5 million and, to a lesser extent, to increases in salary related expenses of $0.1 million and changes in foreign exchange rates of $0.2 million.
General and administrative expense.
General and administrative expenses increased $0.6 million, or 8.7%, to $7.6 million for the six months ended June 30, 2008 compared to $6.9 million for the six months ended June 30, 2007. General and administrative expenses increased $0.4 million due to expenses from our recent acquisition of Panlab and $0.1 million due to our implementation of our shareholder rights plan.
Research and development expense.
Research and development expenses were $2.2 million, an increase of $0.4 million for the six months ended June 30, 2008 compared to $1.7 million for the six months ended June 30, 2007. The increase in research and development expenses was primarily due to expenses from our recent acquisition of Panlab of $0.3 million.
Amortization of intangible assets.
Amortization of intangibles was $1.0 million and $0.9 million for the six months ended June 30, 2008 and 2007, respectively.
Other income, net.
Other income, net, was $0.2 million and $6,000 for the six months ended June 30, 2008 and 2007, respectively. Net interest expense was $15,000 for the six months ended June 30, 2008 compared to net interest expense of $28,000 for the six months ended June 30, 2007. The decrease in net interest expense was primarily due to lower average long-term debt balances in the first half of 2008 compared to the first half of 2007. Other income, net, also included foreign exchange gains of $0.2 million and $45,000 for the six months ended June 30, 2008 and 2007, respectively. These exchange gains were primarily the result of currency fluctuations on intercompany transactions between our subsidiaries.
Income taxes.
Income tax expense from continuing operations was approximately $1.0 million and $1.1 million for the six months ended June 30, 2008 and 2007, respectively. The effective income tax rate for continuing operations was 30.3% for the six months ended June 30, 2008, compared with 22.1% for the same period of 2007. The difference between our effective tax rate and the US statutory tax rate is principally attributable to foreign tax rate differential and changes in our valuation allowance and a benefit recorded in the second quarter of 2007 due to a change in German tax law.
Restructuring
During the quarter ended March 31, 2008, the management of Harvard Bioscience committed to an ongoing initiative to consolidate business functions to reduce operating expenses. Our recent actions have been related to the separation of our electrophoresis product lines from our spectrophotometer and plate reader product lines. As part of these initiatives we have made changes in management, completed the consolidation of the Hoefer electrophoresis administrative and marketing operations from San Francisco, California to the headquarters of the Harvard Apparatus subsidiary in Holliston, Massachusetts and consolidated the activities of our Asys Hitech subsidiary in Austria to the Company’s Biochrom subsidiary’s facility located in Cambridge UK. The combined costs of these activities recorded in the first half of 2008 are and $1.8 million.
During the quarter ended March 31, 2008, we recorded charges relating to the restructuring of approximately $0.8 million. These charges were comprised of $0.4 million in severance payments, $0.3 million in inventory impairment charges related to the discontinuance of certain product lines (included in cost of product revenues) and $0.2 million in various other costs.
During the quarter ended June 30, 2008, we recorded charges relating to the restructuring of approximately $0.9 million. These charges were comprised of $0.5 million in severance payments, $0.3 million in various other costs and $0.1 million in facility closure costs.
Discontinued Operations
During the quarter ended September 30, 2005, the Company announced plans to divest its Capital Equipment Business segment. The decision to divest this business segment was based on the fact that market conditions for the Capital Equipment Business had been such that this business did not meet the Company’s expectations and the decision to focus Company resources on the Apparatus and Instrumentation Business segment. As a result, we began reporting the Capital Equipment Business segment as a discontinued operation in the third quarter of 2005.
In November 2007, the Company completed the sale of the assets of its Genomic Solutions Division and the stock of its Belgian subsidiary, MAIA Scientific, both of which were part of its Capital Equipment Business Segment, to Digilab, Inc. The purchase price paid by Digilab under the terms of the Asset Purchase Agreement consisted of $1,000,000 in cash plus additional consideration in the form of an earn-out based on 20% of the revenue generated by the acquired business as it is conducted by Digilab over a three-year period post-transaction. Any earn-out amounts will be evidenced by interest bearing promissory notes due on November 30, 2012. During the fourth quarter of 2007, we recorded a loss on sale of $3.1 million. There was no value ascribed to the contingent consideration from the earn-out agreement, as realization is uncertain.
During the six months ended June 30, 2008, we re-evaluated the fair ~~market~~ value less costs to sell the remaining assets that comprise the Capital Equipment Business segment. Based on this evaluation, we recorded additional asset impairment charges of $2.9 million.
The loss from discontinued operations, net of tax, was approximately $3.8 million for the six months ended June 30, 2008 compared to a loss of $5.0 million for the same period in 2007. For the six months ended June 30, 2008, the loss from discontinued operations, net of tax, includes the operating results of the Company’s Union Biometrica US and German subsidiaries. For the six months ended June 30, 2007, the loss from discontinued operations, net of tax, included the operating results of the Company’s former Genomic Solutions Division, its former MAIA Scientific subsidiary, and its current Union Biometrica US and German subsidiaries.
Liquidity and Capital Resources
Historically, we have financed our business through cash provided by operating activities, the issuance of common stock and preferred stock, and bank borrowings. Our liquidity requirements have arisen primarily from investing activities, including funding of acquisitions and capital expenditures.
In our consolidated statements of cash flows, we have elected to combine the cash flows from both continuing and discontinued operations within each category, as allowed by SFAS No. 95,Statement of Cash Flows. Unless specifically noted otherwise, our discussion of our cash flows below refers to combined cash flows from both continuing and discontinued operations.
We ended the second quarter of 2008 with cash and cash equivalents of $14.2 million compared to cash and cash equivalents of $18.2 million at December 31, 2007. As of June 30, 2008, $13.8 million was held by our continuing operations and $0.4 million was held by our discontinued operations. As of June 30, 2008, we had no debt outstanding on our revolving credit facility compared to $5.5 million at December 31, 2007. Additionally, our Panlab subsidiary had $2.1 million in debt remaining at June 30, 2008 compared to $2.3 million in debt remaining at December 31, 2007.
Overview of Cash Flows
(Cash flow information includes cash flows for both continuing and discontinued operations)
(in thousands, unaudited)
   Six Months Ended
June 30,
   2008 2007
Cash flows from operations:

Net income (loss)
   $ (1,519 ) $ (1,270 )
Changes in assets and liabilities
   (3,119 ) (384 )
Other adjustments to operating cash flows
   6,815 5,275

Net cash provided by operating activities
   2,177 3,621
Investing activities:

Other investing activities
   (1,348 ) (842 )

Net cash used in investing activities
   (1,348 ) (842 )
Financing activities:

Other financing activities
   (5,085 ) (2,619 )

Net cash used in financing activities
   (5,085 ) (2,619 )
Effect of exchange rate changes on cash
   257 48

Increase (decrease) in cash and cash equivalents
   $ (3,999 ) $ 208

Our operating activities generated cash of $2.2 million for the six months ended June 30, 2008 compared to $3.6 million for the six months ended June 30, 2007. The decrease in cash flows from operations was primarily due to a $0.6 million decrease in income tax refunds and a $0.6 million increase in income taxes paid.
Our investing activities used cash of $1.3 million in the six months ended June 30, 2008 compared to $0.8 million for the same period in 2007. The caption “Other investing activities” includes purchases of property, plant and equipment and expenditures for our recently printed 900-page Harvard Apparatus catalog. Catalog costs related to the new Harvard Apparatus catalog were $0.4 million for the six months ended June 30, 2008 compared to $4,000 for the six months ended June 30, 2007. We spent $0.9 million on capital expenditures in the six months ended June 30, 2008 compared to $0.8 million for the three months ended June 30, 2007. During the next twelve months, we expect to spend approximately $2.0 million on capital expenditures.
Our financing activities have historically consisted of borrowings and repayments under a revolving credit facility with Brown Brothers Harriman & Co., long-term debt and the ~~exercise price~~issuance of preferred stock and common stock, including the common stock issued in our initial public offering. As of June 30, 2008, we had no debt outstanding on our revolving credit facility compared to $5.5 million at December 31, 2007.
During 2003, we entered into a $20.0 million credit facility with Brown Brothers Harriman & Co. On December 1, 2006, we amended the terms of the ~~stock options~~credit facility. This amendment changed the terms of our current $20.0 million credit facility, by allowing borrowing of up to $10.0 million in British Pound Sterling or Eurocurrency and extending the maturity date from January 1, 2007 to December 1, 2009. The amended credit facility bears interest at either (1) the base rate announced by BBH from time to time, (2) the London Interbank Offered Rate (“LIBOR”) or (3) the Eurocurrency base rate, plus, in the case of LIBOR or the Eurocurrency base rate, a margin of 2.5% or 2.75% depending on our debt service leverage ratio. As of June 30, 2008, there was no debt outstanding under the credit facility. As of June 30, 2008, we were in compliance with the financial covenants contained in the credit facility involving income, debt coverage and cash flow, as well as minimum working capital requirements. Additionally, the credit facility also contains limitations on our ability to incur additional indebtedness and requires creditor approval for acquisitions funded with cash, promissory notes and/or other consideration in excess of $6.0 million and for acquisitions funded solely with equity in excess of $10.0 million. We do not believe that these requirements will be a significant constraint on our operations or on the ~~grant date for those options considered fixed awards. Stock compensation~~acquisition portion of our growth strategy. As of June 30, 2008, there was no debt outstanding under the credit facility compared to $5.5 million outstanding as of December 31, 2007. As of June 30, 2008, we were not subject to any borrowing restrictions under the covenants and we had available borrowing capacity under our revolving credit facility of $20.0 million.
Under the terms of our credit facility, we will be required to obtain consent from our lenders upon the sale of the remaining portion of our Capital Equipment Business segment. If we are unable to obtain this consent, the sale of the remaining portion of our Capital Equipment Business segment will trigger a default under the credit facility whereby our lenders could accelerate all of our outstanding indebtedness and terminate our credit facility.
Our forecast of the period of time through which our financial resources will be adequate to support our operations is ~~amortized~~a forward-looking statement that involves risks and uncertainties, and actual results could vary as a ~~charge~~result of a number of factors. Based on our current operations and current operating plans, we expect that our available cash, cash generated from current operations and debt capacity will be sufficient to finance current operations ~~over~~and capital expenditures for 12 months and beyond. However, we may use substantial amounts of capital to accelerate product development or expand our sales and marketing activities. We may need to raise additional capital in order to make significant acquisitions. Additional capital raising activities will dilute the ~~vesting period~~ownership interests of existing stockholders to the ~~options.~~extent we raise capital by issuing equity securities and we cannot assure you that we will be successful in raising additional capital on favorable terms or at all. In addition, we believe that the absence of cash inflows from our discontinued businesses will not have an impact on our ability to support our current operations or operating plans.
Impact of Foreign Currencies
We sell our products in many countries and a substantial portion of our revenues, costs and expenses are denominated in foreign currencies, especially the United Kingdom pound sterling and the Euro. During the six months ended June 30, 2008 and 2007, the U.S. dollar weakened against these currencies resulting in increased consolidated revenue and earnings growth. Changes in foreign currency exchange rates resulted in an increase in revenues of $0.7 million and expenses of $0.9 million (net unfavorable $0.2 million) during the six months ended June 30, 2008.
Our exchange gains and losses were primarily the result of currency fluctuations on net payables and receivables among our subsidiaries. The gain associated with the translation of foreign equity into U.S. dollars was approximately $1.5 million and $0.8 million during the six months ended June 30, 2008 and 2007, respectively. In addition, currency fluctuations resulted in approximately $0.2 million and $45,000 in foreign currency gains during the six months ended June 30, 2008 and 2007, respectively. Under the current terms of our credit facility, we have the ability to borrow in US dollars, Euros or British pounds sterling. As of June 30, 2008, there was no debt outstanding under the credit facility. In addition, as of June 30, 2008, our recently acquired Panlab subsidiary held notes payable of $2.1 million denominated in Euros. These Eurocurrency borrowings are sensitive to changes in currency exchange rates.
Historically, we have not hedged our foreign currency position. Currently, we attempt to manage foreign currency risk through the matching of assets and liabilities. However, as our sales expand internationally, we will continue to evaluate our currency risks and we may enter into foreign exchange contracts from time to time to mitigate foreign currency exposure.
Critical Accounting Policies
We believe that our critical accounting policies are as follows:

•revenue recognition;
accounting for income taxes;
inventory;
valuation of identifiable intangible assets and in-process research and development in business combinations;

•valuation of long-lived and intangible assets and goodwill; and

stock-based compensation.
•Revenue recognition. We recognize revenue of products when persuasive evidence of a sales arrangement exists, the price to the buyer is fixed or determinable, delivery has occurred, and collectibility of the sales price is reasonably assured. Sales of some of our products include provisions to provide additional services such as installation and training. We evaluate all sales with multiple deliverables, including our collaboration agreements, to determine if more than one unit of accounting exists, in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. When we determine that there is more than one unit of accounting, and there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on their relative fair values. In situations where there is objective and reliable evidence of the fair value(s) of the undelivered item(s) in an arrangement but no such evidence for the delivered item(s), we apply the residual method to allocate fair value. Under the residual method, the amount of consideration allocated to the delivered item(s) equals the total arrangement consideration less the aggregate fair value of the undelivered item(s). Revenue for each unit of accounting is recorded once all applicable revenue recognition criteria have been met.Service agreements on our equipment are typically sold separately from the sale of the equipment. Revenues on these service agreements are recognized ratably over the life of the agreement, typically one year, in accordance FASB Technical Bulletin (FTB) 90-1,Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts.
We account for shipping and handling fees and costs in accordance with EITF Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs, which requires all amounts charged to customers for shipping and handling to be classified as revenues. Our costs incurred related to shipping and handling are classified as cost of product revenues. Warranties and product returns are estimated and accrued for at the time sales are recorded. We have no obligations to customers after the date products are shipped or installed, if applicable, other than pursuant to warranty obligations and service or maintenance contracts. We provide for the estimated amount of future returns upon shipment of products or installation, if applicable, based on historical experience. Historically, product returns and warranty costs have not been significant, and they have been within our expectations and the provisions established, however, there is no assurance that we will continue to experience the same return rates and warranty repair costs that we have in the past. Any significant increase in product return rates or a significant increase in the cost to repair our products could have a material adverse impact on our operating results for the period or periods in which such returns or increased costs materialize.
We make estimates evaluating our allowance for doubtful accounts. On an ongoing basis, we monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. Historically, such credit losses have not been significant, and they have been within our expectations and the provisions established, however, there is no assurance that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectibility of our accounts receivable and our future operating results.
Accounting for income taxes. We determine our annual income tax provision in each of the jurisdictions in which we operate. This involves determining our current and deferred income tax expense as well as accounting for differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The future tax consequences attributable to these differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We assess the recoverability of the deferred tax assets by considering whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. To the extent we believe that recovery does not meet this “more likely than not” standard as required in SFAS No. 109, Accounting for Income Taxes, we must establish a valuation allowance. If a valuation allowance is established or increased in a period, generally we allocate the related income ~~taxes;~~tax expense to income from continuing operations in the consolidated statement of operations.
Management’s judgment and estimates are required in determining our income tax provision, deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. We have established a valuation allowance attributable to certain deferred tax assets as of December 31, 2007 that do not meet the “more likely than not” standard of realization based on our ability to generate sufficient future taxable income in the carryback and carryforward periods based on the criteria set forth in SFAS No. 109. We review the recoverability of deferred tax assets during each reporting period by reviewing estimates of future taxable income, future reversals of existing taxable temporary differences, and tax planning strategies that would, if necessary, be implemented to realize the benefit of a deferred tax asset before expiration.
•We assess tax positions taken on tax returns, including recognition of potential interest and penalties, in accordance with the recognition thresholds and measurement attributes outlined in FASB Interpretation (FIN) No. 48 ,Accounting for Uncertainty in Income Taxes—an interpretation of FAS 109. Interest and penalties recognized, if any, would be classified as a component of income tax expense.                                          ~~revenue recognition; and~~
•Inventory. We value our inventory at the lower of the actual cost to purchase (first-in, first-out method) and/or manufacture the inventory or the current estimated market value of the inventory. We regularly review inventory quantities on hand and record a provision to write down excess and obsolete inventory to its estimated net realizable value if less than cost, based primarily on its estimated forecast of product demand. Since forecasted product demand quite often is a function of previous and current demand, a significant decrease in demand could result in an increase in the charges for excess inventory quantities on hand. In addition, our industry is subject to technological change and new product development, and technological advances could result in an increase in the amount of obsolete inventory quantities on hand. Therefore, any significant unanticipated changes in demand or technological developments could have a significant adverse impact on the value of our inventory and our reported operating results.                                          ~~inventory.~~
Valuation of identifiable intangible assets acquired in business ~~combinations.~~combinations. Identifiable intangible assets consist primarily of trademarks and acquired technology. Such intangible assets arise from the allocation of the purchase price of businesses acquired to identifiable intangible assets based on their respective fair market values. Amounts assigned to such identifiable intangible assets are primarily based on independent appraisals using established valuation techniques and management estimates. The value assigned to trademarks was determined by estimating the royalty income that would be negotiated at an arm’s-length transaction if the asset were licensed from a third party. A discount factor, ranging from ~~25%~~20% to ~~31.5%~~40%, which represents both the business and financial risks of such investments, was used to determine the present value of the future streams of income attributable to trademarks. The specific approach used to value trademarks was the Relief from Royalty (“RFR”) method. The RFR method assumes that an intangible asset is valuable because the owner of the asset avoids the cost of licensing that asset. The royalty savings are then calculated by multiplying a royalty rate times a determined royalty base, i.e., the applicable level of future revenues. In determining an appropriate royalty rate, a sample of guideline, arm’s length royalty and licensing agreements are analyzed. In determining the royalty base, forecasts are used based on management’s judgments of expected conditions and expected courses of actions. The value assigned to acquired technology was determined by using a discounted cash flow model, which measures what a buyer would be willing to pay currently for the future cash stream potential of existing technology. The specific method used to value the
technologies involved estimating future cash flows to be derived as a direct result of those technologies, and discounting those future streams to their present value. The discount factors used, ranging from ~~25%~~20% to ~~36%~~40%, ~~reflects~~reflect the business and financial risks of an investment in technologies. Forecasts of future cash flows are based on ~~managements’~~management’s judgment of expected conditions and expected courses of action.
Valuation of in-process research and development acquired in business ~~combinations.~~combinations. Purchase price allocation to in-process research and development represents the estimated fair value of research and development projects that are reasonably believed to have no alternative future use. The value assigned to in-process research and development was determined by independent appraisals by estimating the cost to develop the purchased in-process research and development into commercially feasible products, estimating the percentage of completion at the acquisition date, estimating the resulting net risk-adjusted cash flows from the projects and discounting the net cash flows to their present value. The discount rates used in determining the in-process research and development expenditures reflects a higher risk of investment because of the higher level of uncertainty due in part to the nature of ~~the Company~~our business and the industry to constantly develop new technology for future product releases and ranged from 25% to 43.5%. The forecasts used by ~~the Company~~us in valuing in-process research and development were based on assumptions ~~the Company~~we believed at the time to be reasonable, but which are inherently uncertain and unpredictable. Given the uncertainties of the development process, no assurance can be given that deviations from ~~the Company’s~~our estimates will not occur and no assurance can be given that the in-process research and development projects identified will ever reach either technological or commercial success.
Valuation of long-lived and intangible assets and ~~goodwill.~~goodwill. In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we assess the ~~impairment~~value of identifiable intangibles with finite lives and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of our use of the acquired assets or the strategy for our overall business; significant negative industry or economic trends; significant changes in who our competitors are and what they do; significant changes in our relationship with ~~Amersham Biosciences;~~GE Healthcare; significant decline in our stock price for a sustained period; and our market capitalization relative to net book value.
If we were to determine that the value of long-lived assets and identifiable intangible assets with finite lives was not recoverable
14

based on the existence of one or more of the aforementioned factors, then the recoverability of those assets to be held and used would be measured by a comparison of the carrying amount of those assets to undiscounted future net cash flows before tax effects expected to be generated by those assets. If such assets are considered to be impaired, the impairment to be recognized would be measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. ~~Assets to be disposed of are reported~~
A long-lived asset classified as “held for sale” is initially measured at the lower of ~~the~~ carrying amount or fair value less costs to ~~dispose.~~
sell. In the period the “held for sale” criteria are met, we recognize an impairment charge for any initial adjustment of the long-lived assets. During each reporting period after the initial measurement, gains or losses resulting from fluctuations in the fair value less costs to sell are recognized. Gains and losses not previously recognized resulting from the sale of a long-lived asset are recognized on the date of sale. Assets to be disposed of are separately presented in the consolidated balance sheet and long-lived assets are no longer depreciated or amortized. The assets and liabilities of a disposal group, which are classified as held for sale, are presented separately in the appropriate asset and liability sections of the balance sheet. Operating results for all periods presented are presented as discontinued operations, net of tax. In accordance with Emerging Issues Task Force Issue No. 87-24,Allocation of Interest to Discontinued Operations, we have elected not to allocate interest of our consolidated debt to discontinued operations.
In June 2001, SFAS No. 142,Goodwill and Other Intangible Assets was issued. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Among other things, SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but rather tested annually for impairment or more frequently if events or circumstances indicate that there may be impairment. The goodwill impairment test consists of a comparison of the fair value of ~~the Company’s~~our reporting units with their carrying amount. If the carrying amount exceeds its fair value, ~~the Company is~~we are required to perform the second step of the impairment test, as this is an indication that goodwill may be impaired. The impairment loss is measured by comparing the implied fair value of the reporting unit’s goodwill with its carrying amount. If the carrying amount exceeds the implied fair value, an impairment loss shall be recognized in an amount equal to the excess. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Subsequent reversal of a previously recognized impairment loss is prohibited. InFor unamortizable intangible assets if the carrying amount exceeds the fair value of the asset, we would write-down the unamortizable intangible asset to fair value.
During the second quarter of 2005, the asset groups that comprise our Capital Equipment Business segment experienced a significant decrease in revenues and operating profit margins. We believed the decrease in revenues was caused by a general market decrease in demand for capital equipment, excess capacity of certain genomics equipment in the market place, and new applications for certain products had not developed as previously anticipated. These factors led us to revise our expectations of future revenues and operating profit margins for the Capital Equipment Business segment. As a result, with the assistance of third party independent appraisers, we re-evaluated the long-lived assets associated with these asset groups in accordance with SFAS No. 144 and determined that certain intangible assets within these asset groups were impaired as of June 30, 2005. We used an income approach to determine the fair values of the long-lived assets tested for impairment and recorded abandonment and impairment charges within the Capital Equipment Business segment totaling approximately $8.1 million for long-lived assets during the second quarter of 2005. These abandonment and impairment charges have been classified within discontinued operations for the year ended December 31, 2005. Also, as a result of the factors described above, in accordance with SFAS No. 142, we, with the ~~Company performed its annual~~assistance of third-party independent appraisers, re-evaluated the goodwill associated with the Genomic Solutions and Union Biometrica reporting units for impairment ~~test on~~as of June 30, 2005. As a result of this goodwill impairment testing, we recorded impairment charges within the Capital Equipment Business segment of approximately $9.3 million for goodwill during the second quarter of 2005. We used a combination of an income approach and a market approach to determine the fair value of our Genomic Solutions and Union Biometrica reporting units. These impairment charges have been classified within discontinued operations for the year ended December 31, ~~2003, which~~2005.
During the fourth quarter of 2005, certain product lines in the Capital Equipment Business segment did not ~~indicate any impairment.~~
~~Accounting for income taxes.~~meet our revenue forecasts and expectations. We ~~are required~~believe that the further decline in revenues was due to ~~determine our annual income tax provision in each~~the relative high price and nature of the ~~jurisdictions~~products sold by Capital Equipment Business segment which customers, particularly distributors, may not be promoting and purchasing due to the uncertain future of the business. This led to a further reduction in ~~which~~our expectation of future revenues in the Capital Equipment Business segment. As a result, we ~~operate. This involves determining our current and deferred income tax expense~~re-evaluated the goodwill included in this segment in accordance with SFAS No. 142, as well as ~~accounting for differences between~~ the ~~financial statement carrying~~fair value of the disposal group in accordance with SFAS No. 144. As a result, an additional goodwill impairment charge of approximately $7.9 million and a write-down of long-lived assets of approximately $3.4 million were recorded during the fourth quarter of 2005. We used a combination of income and market approaches to determine the fair value of the disposal group.
During the year ended December 31, 2006, we utilized a market approach and re-evaluated the fair value less costs to sell of the assets that comprise the Capital Equipment Business segment. Based on this evaluation, we recorded additional asset impairment charges of approximately $3.9 million.
During the year ended December 31, 2007, we utilized a market approach and re-evaluated the fair value less costs to sell of the assets that comprise the Capital Equipment Business segment. Based on management’s evaluation, additional asset impairment charges of approximately $2.9 million were recorded during 2007.
In November 2007, we completed the sale of the assets of our Genomic Solutions Division and the stock of our Belgian subsidiary, MAIA Scientific, both of which were part of our Capital Equipment Business Segment, to Digilab, Inc. The purchase price paid by Digilab under the terms of the Asset Purchase Agreement consisted of $1,000,000 in cash plus additional consideration in the form of an earn-out based on 20% of the revenue generated by the acquired business as it is conducted by Digilab over a three-year period post-transaction. Any earn-out amounts will be evidenced by interest bearing promissory notes due on November 30, 2012. During the fourth quarter, we recorded a loss on sale of ~~existing assets~~$3.1 million. There was no value ascribed to the contingent consideration from the earn-out agreement, as realization is uncertain. The COPAS flow cytometry product line (held by our Union Biometrica US and ~~liabilities and their respective tax bases. The future tax consequences attributable to these differences result in deferred tax assets and liabilities,~~German subsidiaries, both of which are still included in discontinued operations), was not included in this sale, and we continue to pursue a sale of this product line separately.
During the quarter ended June 30, 2008, we re-evaluated the fair value less costs to sell the remaining assets that comprise the Capital Equipment Business segment. Based on this evaluation, we recorded additional asset impairment charges of $2.9 million.
Stock-based compensation. We account for share-based payment awards in accordance with the provisions of SFAS No. 123(R), which was adopted as of January 1, 2006 using the modified prospective transition method. In accordance with the modified prospective transition method, our consolidated financial statements for periods prior to January 1, 2006 have not been restated to reflect, and do not include, the impact of SFAS No. 123(R).
SFAS No. 123(R) requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated ~~balance sheets. We must assess~~statement of operations. Prior to the ~~recoverability~~adoption of the deferred tax assets by considering whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. To the extent we believe that recovery does not meet this “more likely than not” standard as required in SFAS No. ~~109,~~ 123(R), we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25,Accounting for ~~Income Taxes~~Stock Issued to Employees, ~~we must establish a valuation allowance. If a valuation allowance is established or increased~~as allowed under SFAS No. 123,Accounting for Stock-Based Compensation. Under the intrinsic value method, no stock-based compensation expense was recognized in ~~a period, we must allocate the related income tax expense to income from continuing operations in the~~our consolidated statement of operations towhen the extent those deferred tax assets originated from continuing operations. To the extent income tax benefits are allocated to stockholders’ equity, the related valuation allowance also must be allocated to stockholders’ equity.
Management judgment and estimates are required in determining our income tax provision, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. We have established a valuation allowance attributable to certain acquisition-related temporary differences as we believe that a portion of the deferred tax assets at March 31, 2004 will not meet the “more likely than not” standard for realization in the carryback and carryforward periods based on the criteria set forth in SFAS No. 109. ~~We review the recoverability of deferred tax assets during each reporting period.~~
~~Revenue recognition.~~ The Company generally recognizes revenue upon shipment of product and/or performance of a service, such as installation or training. Revenue is recognized if persuasive evidence of an arrangement exists, the salesexercise price is fixed or determinable, customer acceptance has occurred, collectibility is reasonably assured and title and risk of loss have passed to the customer. The Company has no obligations to customers after the date products are shipped or installed, if applicable, other than pursuant to warranty obligations and service or maintenance contracts. The Company provides for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue. The Company provides for the estimated amount of future returns upon shipment of products or installation, if applicable, based on historical experience. While product returns and warranty costs have historically not been significant, they have been within our expectations and the provisions established, however, there is no assurance that we will continue to experience the same return rates and warranty repair costs that we have in the past. Any significant increase in product return rates or a significant increase in the cost to repair our products could have a material adverse impact on our operating results for the period or periods in which such returns or increased costs materialize. The Company makes estimates evaluating its allowance for doubtful accounts. On an ongoing basis, the Company monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically not been significant, they have been within our expectations and the provisions established, however, there is no assurance that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of our ~~customers could have a material adverse impact on~~stock options granted to employees and directors equaled or exceeded the ~~collectibility of our accounts receivable and our future operating results.~~
~~Inventory.~~ ~~The Company values its inventory at the lower of the actual cost to purchase (first-in, first-out method) and/or manufacture the inventory or the current estimated~~fair market value of the ~~inventory. The Company regularly reviews inventory quantities on hand~~underlying stock at the date of grant.
Stock-based compensation expense recognized under SFAS No. 123(R) for the three months ended June 30, 2008 and ~~records a provision~~2007 was $0.6 million, which consisted of stock-based compensation expense related to ~~write down excess~~employee stock options and ~~obsolete inventory~~the employee stock purchase plan. Stock-based compensation expense recognized under SFAS No. 123(R) for the six months ended June 30, 2008 and 2007 was $1.0 million, which consisted of stock-based compensation expense related to ~~its estimated net realizable value if less than cost,~~employee stock options and the employee stock purchase plan. There was no stock-based compensation expense related to employee stock options or the employee stock purchase plan during the year ended December 31, 2005 because we had not adopted the recognition provisions under SFAS No. 123 and there was no such expense under APB Opinion No. 25.
Stock-based compensation expense recognized is based primarily on its estimated forecast of product demand. Since forecasted product demand quite often is a function of previous and current demand, a significant decrease in demand could result in an increase in the charges for excess inventory quantities on hand. In addition, the Company’s industry is subject to technological change and new product development, and technological advances could result in an
15

~~increase in the amount of obsolete inventory quantities on hand. Therefore, any significant unanticipated changes in demand or technological developments could have a significant adverse impact~~ on the value of the ~~Company’s inventory and its reported operating results.~~
~~Results~~portion of ~~Operations~~
~~Three months ended March 31, 2004 compared~~stock-based payment awards that is ultimately expected to ~~three months ended March 31, 2003:~~
~~Revenues.~~ ~~Revenues increased $2.7 million, or 14%,~~vest. Stock-based compensation expense recognized includes compensation expense for stock-based payment awards granted prior to, ~~$22.2 million in~~but not yet vested as of January 1, 2006, based on the first quarter of 2004 from $19.5 million in the first quarter of 2003. This increase is primarily due to the effects of acquisitions made since March 31, 2003. Revenues for the first quarter of 2004 would have been approximately $21.3 million if our sales denominated in foreign currencies were translated into U.S. dollars using 2003 exchange rates, an increase of 9% over the first quarter of 2003. The favorable foreign exchange effects for the year is due primarily to the strengthening of the British pound sterling and the Euro against the U.S. dollar.
~~Cost of product revenues.~~ Cost of product revenues increased $1.9 million or 20%, to $11.5 million in the first quarter of 2004 from $9.6 million in the first quarter of 2003. As a percentage of product revenues, cost of product revenues for the first three months of 2004 was 53% compared to 50% for the same period in 2003. For the first quarter of 2004, approximately $302,000 of the cost of product sales was related togrant date fair value ~~adjustments~~estimated in accordance with the pro forma provisions of ~~inventory~~SFAS No. 123, and backlog acquired from BioRobotics, Hoefer and KD Scientific for products which were shipped in the first quarter of 2004. For the first quarter of 2003, approximately $333,000 of the cost of product sales was related to fair value adjustments of inventory and backlog acquired from Genomic Solutions, BTX and GeneMachines for products which were shipped in the first quarter of 2003. For the first quarter of 2004 and 2003, excluding fair value adjustments related to acquisitions of $302,000 and $333,000, respectively, in cost of product sales, gross margin as a percent of total revenues was 49% and 52%, respectively. Approximately $87,000 of estimated fair value adjustments related to the acquisition of Hoefer remain on the balance sheet as of March 31, 2004. While gross margin percentages will fluctuate depending upon both the mix of product sold and the mix of customers the decrease in gross margin in the first quarter this year compared to the first quarter last year is largely due to an 11% gross margin drop at Genomic Solutions due to lower sales and production volumes and a higher percentage of revenues through distributors.
~~General and administrative expense.~~ General and administrative expense increased $0.7 million, or 25%, to $3.5 million in the first quarter of 2004 compared to $2.8 million for the same period in 2003, Approximately $0.4 million is due to restructuring costs at our Biochrom and Genomic Solutions’ Japan facilities and approximately $0.3 million is attributable to acquisitions made since the first quarter of 2003 and additional costs for Sarbanes-Oxley compliance. As a percentage of revenues, general and administrativecompensation expense for the ~~quarter ended March~~stock-based payment awards granted subsequent to December 31, ~~2004~~2005 based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). Stock-based compensation expense has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and ~~2003~~revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Upon adoption of SFAS No. 123(R), we elected to retain its method of valuation for stock-based payment awards granted beginning in 2006 using the Black-Scholes option-pricing model (“Black-Scholes model”) which was ~~approximately 16%~~also previously used for our pro forma information required under SFAS No. 123. Our determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and ~~15%, respectively.~~
subjective variables. These variables include, but are not limited to our expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors.
~~Sales and marketing expense.~~ Sales and marketing expense increased $0.7 million, or 19%, to $4.3 million in the first quarter of 2004 from $3.6 million in the first quarter of 2003 due primarily to acquisitions made since March 31, 2003. As a percentage of revenues, sales and marketing expense was 19% in the first quarter of 2004 compared to 18% for the same period in 2003.
~~Research and development expense.~~ Research and development spending, which includes expenses related to research revenues, was $1.7 million in the first three months of 2004 compared to $1.4 million for the same period in 2003. This increase is primarily due to acquisitions made since March 31, 2003. As a percentage of revenues, research and development was 8% and 7% for the three months ended March 31, 2004 and 2003 respectively.
~~Stock compensation expense.~~ ~~In the first quarter of 2004 we recorded approximately $46,500 compared to $147,000 for the first quarter of 2003 of stock compensation expense.~~ For ~~2004, this expense is related to options~~awards granted prior to ~~our initial public offering~~January 1, 2006, we use the accelerated expense recognition method in FIN No. 28,Accounting for Stock Appreciation Rights and to options granted to certain employees of Warner instruments whose vesting was accelerated pursuant to separation agreements entered into as part of the restructuring of operations at Warner Instruments. For the first quarter of 2003, thisOther Variable Stock Option or Award Plans. We record expense is related to options granted prior to our initial public offering and to options issued in exchange for the outstanding options of Union Biometrica in connection with the acquisition of Union Biometrica. Stock compensation expense has decreased as the Company uses the graded method, which results in decreasing compensation expense from the date of the stock option grant until the vesting dates. We will recognize approximately $15,680 of stock compensation expenseon a straight-line basis over the ~~remaining vesting life~~requisite service period for all awards granted since the adoption of ~~the options.~~SFAS No. 123(R) on January 1, 2006.
~~Amortization of goodwill and other intangibles.~~ Amortization of intangibles, including amortization of acquired technologies, was $0.9 million in the first three months of 2004 compared to $0.6 million for the same period in 2003. This increase is directly attributed to acquisitions made in 2003 and during the first quarter of 2004.
~~Other income (expense), net.~~ Other expense, net for the first quarter of 2004 of $314,000 included approximately $124,000 net interest expense compared to net interest income of $27,000 for the same period in 2003. This shift from interest income to interest expense is due to cash and interest-bearing debt being increasingly used to fund acquisitions since 2003. Other expense, net for the first quarter of 2004
16

also included a $143,000 foreign exchange loss compared to a $114,000 gain for the same period last year. Other than debt that is treated as a long-term investment, these exchange gains and losses are primarily related to debt between our subsidiaries.
~~Income taxes.~~ The Company’s effective income tax rates were 66.42% for the first quarter of 2004 and 41.64% for the first quarter of 2003 notwithstanding the effects of certain stock compensation expense. The increase in the effective income tax rate is principally due to the Company earning a larger percentage of its total operating loss in jurisdictions that have greater effective income tax rates, principally the United States.
~~Liquidity and Capital Resources~~
Historically, we have financed our business through cash provided by operating activities, the issuance of common stock, and preferred stock, and bank borrowings. Our liquidity requirements have arisen primarily from investing activities, including funding of acquisitions and capital expenditures. As of March 31, 2004, we had cash and cash equivalents of $9.8 million which represents an increase of approximately $1.6 million from December 31, 2003. In connection with our March 2004 acquisition of KD Scientific, we borrowed an additional $6.65 million under the credit facility and currently have approximately $19.4 million outstanding thereunder.
Our operating activities generated cash of $1.5 million in the first quarter of 2004 and $0.7 million for the first quarter of 2003. For all periods presented, operating cash flows were primarily due to operating results, including the full-year effect of acquisitions prior to non-cash charges, partially offset by working capital requirements.
Our investing activities used cash of $6.8 million in the first quarter of 2004 compared to $12.7 million for the same period in 2003 primarily for funding acquisitions which are more fully described in Note 3 to our unaudited Consolidated Financial Statements.
Our financing activities have historically consisted of borrowings under a revolving credit facility, long-term debt and the issuance of preferred stock and common stock, including the common stock issued in our initial public offering. Financing activities provided cash of $6.9 million in the first quarter of 2004 and $6.0 million in the first quarter of 2003. In the first quarter of 2004, we borrowed an additional $6.65 million under the $20 million credit facility with Brown Brothers Harriman & Co. to fund the acquisition of KD Scientific. In the first quarter of 2003, we entered into a $6.0 million bridge loan with Brown Brothers Harriman & Co. in anticipation of closing the $20 million credit facility. The bridge loan was repaid with proceeds of the credit facility.
~~Overview of Cash Flows for the three months ended March 31,~~
~~(in thousands, unaudited)~~

2004

2003

Cash flows from operations:

Net Income (loss)

$
(51
)
$
776

Adjust non cash items

1,604

1,177

Changes in assets and liabilities

(52
)
(1,276
)
Cash provided by operations

1,501

677

Investing activities:

Acquisition of businesses

(6,573
)
(12,344
)
Other Investing activities

(241
)
(328
)
Cash used by investing activities

(6,814
)
(12,672
)
Financing activities:

Cash provided by debt

6,950

6,000

Other financing activities

(64
)
(34
)
Cash provided by financing activities

6,886

5,966

Exchange effect on cash

(23
)
37

Increase (decrease) in cash

$
1,550

$
(5,992
)
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. Based on our current operations and current operating plans, we expect that our available cash, cash generated from current operations and debt capacity will be sufficient to finance current operations and capital expenditures for at least 12 months. However, we may use substantial amounts of capital to accelerate product development or expand our sales and marketing activities. We may need to raise additional capital in order to make significant acquisitions. Additional capital raising activities will dilute the ownership interests of existing stockholders to the extent we raise capital by issuing equity securities. Currently, we are unable to access the public equity markets due to an outstanding
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amendment to a Current Report on Form 8-K in connection with a previous acquisition. In addition, we are not currently eligible to use Form S-3 to effect a registration of our equity as a result of this delinquent filing. We are in the process of seeking to complete this outstanding filing and anticipate that we will become current with our required filings under Form 8-K. Once we become current with our SEC filings we will immediately be eligible to register equity and will be eligible to use Form S-3 twelve months after the initial due date of the outstanding Form 8-K amendment. However, until this matter is resolved, our ability to raise capital may be limited to private equity transactions and/or additional borrowing and may result in entering into an agreement on less than favorable terms. In addition, our credit facility with Brown Brothers Harriman contains limitations on our ability to incur additional indebtedness and requires creditor approval for acquisitions funded with cash in excess of $6 million and for those which may be funded with equity in excess of $10 million. Accordingly, there can be no assurance that we will be successful in raising additional capital on favorable terms or at all.
~~Impact of Foreign Currencies~~
We sell our products in many countries and a substantial portion of our sales, costs and expenses are denominated in foreign currencies, especially the United Kingdom pound sterling and the Euro. During the first quarter of 2004 and 2003 the U.S. dollar weakened against these currencies resulting in increased consolidated revenue and earnings growth. The gain associated with the translation of foreign equity into U.S. dollars was approximately $0.9 million for the first quarter of 2004 and approximately $0.2 million loss for the first quarter of 2003. In addition, the currency fluctuations resulted in approximately $143,000 in foreign currency loss and $114,000 in foreign currency gain in the first quarter of 2004 and 2003, respectively.
Historically, we have not hedged our foreign currency position. Currently, we attempt to manage foreign currency risk through the matching of assets and liabilities. However, as our sales expand internationally, we plan to evaluate our currency risks and we may enter into foreign exchange contracts from time to time to mitigate foreign currency exposure.
Recent Accounting Pronouncements
In ~~December 2003,~~September 2006, the ~~FASB~~Financial Accounting Standards Board (FASB) issued SFAS ~~Interpretation~~ No. ~~46 (revised December 2003) (“FIN 46R”),~~ 157,~~Consolidation of Variable Interest Entities~~Fair Value Measurements, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces SFAS Interpretation No. 46, ~~Consolidation of Variable Interest Entities,~~ which was issued in January 2003. The Company will be required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect on an accounting change. If determining the carrying amounts is not practicable,. This statement defines fair value, ~~at the date FIN 46R first applies may be used to measure the assets, liabilities~~establishes a framework for measuring fair value in generally accepted accounting principles, and ~~noncontrolling interest of the VIE.~~expands disclosures about fair value. This statement is effective for financial statements issued for fiscal years and interim periods within those fiscal years, beginning after November 15, 2007. The adoption of ~~this Interpretation~~SFAS No. 157 did not have a material impact on ~~its~~the Company’s consolidated results of operations or financial position.
In ~~December 2003,~~February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2,Effective Date of FASB Statement No. ~~132 (revised),~~ ~~Employers’ Disclosures about Pensions and Other Postretirement Benefits~~157, ~~was issued.~~which delays the effective date of SFAS No. ~~132 (revised) prescribes employers’ disclosures about pension plans~~157 for nonfinancial assets and ~~other postretirement benefit plans; it does~~nonfinancial liabilities that are not ~~change~~remeasured at fair value on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.
In February 2007, the ~~measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original~~FASB issued SFAS No. ~~132. It also requires additional disclosures about~~159,The Fair Value Option for Financial Assets and Liabilities Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits reporting entities to choose to measure eligible financial assets or liabilities, which include marketable securities available-for-sale and equity method investments, at fair value at specified election dates, or according to a preexisting policy for specific types of eligible items. Unrealized gains and losses for which the ~~assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The Statement generally~~fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years ~~ending~~beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007. The adoption of SFAS No. 159 did not have a material impact on the Company’s consolidated results of operations or financial position.
In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations. SFAS No. 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. SFAS No. 141(R) also requires that acquisition-related costs be recognized separately from the acquisition. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2003, however all of the Company’s pension plans covered by this Statement are outside of the United States. The Company adopted certain interim disclosure requirements of SFAS 132 (revised) as of January 1, 2004. See Note 10 to the unaudited Consolidated Financial Statements. The Company will be required to adopt the disclosure requirements of the Statement as of December 31, 2004.
~~Important Factors That May Affect Future Operating Results~~
~~Our operating results may vary significantly from quarter to quarter and year to year depending on a number of factors, including:~~
~~If we engage in any acquisition, we will incur a variety of costs, and may never realize the anticipated benefits of the acquisition.~~
Our business strategy includes the future acquisition of businesses, technologies, services or products that we believe are a strategic fit with our business. If we undertake any acquisition, the process of integrating an acquired business, technology, service or product may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of our business. Moreover, we may fail to realize the anticipated benefits of any acquisition as rapidly as expected or at all. Future acquisitions could reduce stockholders’ ownership, cause us to incur debt, expose us to future liabilities and result in amortization expenses related to intangible assets with definite lives.
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~~Uncertain economic trends may adversely impact our business.~~
We have experienced and may continue to experience reduced demand for our products as a result of the downturn and uncertainty in the general economic environment in which we and our customers operate. We cannot project the extent of the impact of the economic downturn and the environment specific to our industry. If economic conditions worsen or if a wider economic slowdown occurs, we may experience a material adverse effect on our business, operating results, and financial condition.
~~Our quarterly revenues will likely be affected by various factors, including the timing of capital equipment purchases by customers and the seasonal nature of purchasing in Europe.~~
Our quarterly revenues will likely be affected by various factors, including the seasonal timing of capital equipment purchases by customers and the seasonal nature of purchasing in Europe. Our revenues may vary from quarter to quarter due to a number of factors, including the seasonal nature of the capital equipment market, the timing of catalog mailings and new product introductions, future acquisitions and our substantial sales to European customers, who in summer months often defer purchases. With the acquisitions of Union Biometrica in May 2001, Genomic Solutions in October 2002, GeneMachines in March 2003 and BioRobotics in September 2003, an increasing portion of our revenues are the result of sales of relatively high-priced products, considered to be capital equipment. The capital equipment market is very seasonal and as such, we will experience substantial fluctuations in our quarterly revenues. Additionally, delays in purchase orders, receipt, manufacture, shipment or receivables collection of these relatively high-priced products could lead to substantial variability in revenues, operating results and working capital requirements from quarter-to-quarter, which could adversely affect our stock price. In particular, delays or reduction in purchase orders from the pharmaceutical and biotechnology industries could have a material adverse effect on us.
~~We may misinterpret trends of our capital equipment product lines due to the cyclical nature of the capital equipment purchasing market.~~
The cyclical buying pattern of the capital equipment purchasing market could mask or exaggerate the economic trends underlying the market for our capital equipment product lines. Specifically, a decline in any quarter that is typically a quarter that we would expect to contribute less than one-quarter projected revenue for the year, could be misinterpreted if the decline was due instead to a negative trend in the market or in the demand for our products. Conversely, an increase in any quarter that is typically a quarter that we would expect to contribute less than one-quarter of projected revenue for the year, could be misinterpreted as a favorable trend in the market and in the demand for our products. This could have a material adverse effect on our operations.
We may not realize the expected benefits of our recent acquisitions of BTX, GeneMachines, BioRobotics, Hoefer and KD Scientific due to difficulties integrating the businesses, operations and product lines.
Our ability to achieve the benefits of our recent acquisitions of BTX, GeneMachines, BioRobotics, Hoefer and KD Scientific will depend in part on the integration and leveraging of technology, operations, sales and marketing channels and personnel. The integration process is a complex, time-consuming and expensive process and may disrupt our business if not completed in a timely and efficient manner. The challenges involved in this integration include the following:
•                  ~~demonstrating to customers and suppliers that the acquisitions will not result in adverse changes in client service standards or business focus and~~
•                  ~~addressing any perceived adverse changes in business focus.~~
We may have difficulty successfully integrating the acquired businesses, the domestic and foreign operations or the product lines, and as a result, we may not realize any of the anticipated benefits of the acquisitions. Additionally, we cannot assure that our growth rate will equal the growth rates that have been experienced by us and the acquired companies, respectively, operating as separate companies in the past.
~~Genomic Solutions, our subsidiary acquired in October 2002, has a history of losses~~2008 and may not be ~~able to sustain profitability.~~
Genomic Solutions incurred net losses of $4.0 million for the six months ended June 30, 2002, $26.1 million for the year ended December 31, 2001, $8.9 million for the year ended December 31, 2000 and $11.1 million for the year ended December 31, 1999. As of June 30, 2002, Genomic Solutions had an accumulated deficit of $72.0 million. In September 2001, Genomic Solutions instituted a restructuring plan designed to reduce its operating expenses. In July 2002, Genomic Solutions announced a further restructuring of its operations. However, even with these restructurings, Genomic Solutions needs to generate significant revenues to achieve and maintain profitability.
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Genomic Solutions’ revenue growth depends on many factors, many of which are beyond its control, including factors discussed in this risk factors section. Genomic Solutions may not sustain revenue growth, as evidencedapplied before that date. The Company is in the ~~first quarter~~process of ~~2004. Even though Genomic Solutions did achieve profitability in 2003, it may not sustain or increase profitability on a quarterly or annual basis, as evidence in~~evaluating the ~~first quarter~~impact the adoption of ~~2004.~~
~~As an acquisitive company, we may be the subject of lawsuits from either an acquired company’s previous stockholders or our current stockholders.~~
As an acquisitive company, we may be the subject of lawsuits from either an acquired company’s previous stockholders or our current stockholders. These lawsuits could result from the actions of the acquisition target prior to the date of the acquisition, from the acquisition transaction itself or from actions after the acquisition. Defending potential lawsuits could cost us significant expense and detract management’s attention from the operation of the business. Additionally, these lawsuits could result in the cancellation of or the inability to renew, certain insurance coverage that would be necessary to protect our assets.
~~Our business is subject to economic, political and other risks associated with international revenues and operations.~~
Since we manufacture and sell our products worldwide, our business is subject to risks associated with doing business internationally. Our revenues from our non-U.S. operations represented approximately 48% of total revenues for the three months ended March 31, 2004. We anticipate that revenue from international operationsSFAS No. 141(R) will continue to represent a substantial portion of total revenues. In addition, a number of our manufacturing facilities and suppliers are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:
•                                          changes in foreign currency exchange rates, which resulted in a foreign currency loss of approximately $143,000 for the quarter ended March 31, 2004 and an increase of foreign equity of approximately $948,000 for the quarter ended March 31, 2004.
•                                          ~~changes in a specific country’s or region’s political or economic conditions, including western Europe and Japan, in particular,~~
•                                          ~~potentially negative consequences from changes in tax laws affecting the ability to expatriate profits,~~
•                                          ~~difficulty in staffing and managing widespread operations, and~~
•                                          ~~unfavorable labor regulations applicable to European operations, such as severance and the unenforceability of non-competition agreements in the European Union.~~
~~We may lose money when we exchange foreign currency received from international revenues into U.S. dollars.~~
For the three months ended March 31, 2004, approximately 45% of our business was conducted in functional currencies other than the U.S. dollar, which is our reporting currency. As a result, currency fluctuations among the U.S. dollar and the currencies in which we do business have caused and will continue to cause foreign currency transaction gains and losses. Currently, we attempt to manage foreign currency risk through the matching of assets and liabilities. In the future, we may undertake to manage foreign currency risk through additional hedging methods. We recognize foreign currency gains or losses arising from our operations in the period incurred. We cannot guarantee that we will be successful in managing foreign currency risk or in predicting the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposure and the potential volatility of currency exchange rates.
~~Additional costs for complying with recent changes in Securities and Exchange Commission, Nasdaq Stock Market and accounting rules could adversely affect our profits.~~
Recent changes in the Securities and Exchange Commission and Nasdaq rules, as well as changes in accounting rules, will cause us to incur significant additional costs including professional fees, as well as additional personnel costs, in order to keep informed of the changes and operate in a compliant manner. These additional costs may be significant enough to cause our growth targets to be reduced, and consequently, ourits consolidated financial position and results of ~~operations may~~operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, An Amendment of ARB No. 51. SFAS No. 160 amends Accounting Research Bulletin (“ARB”) 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of FASB Statement No. 141(R). This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement shall be ~~negatively impacted.~~
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~~With new rules, including~~applied prospectively as of the ~~Sarbanes-Oxley Act~~beginning of ~~2002, we~~the fiscal year in which the statement is initially adopted. The Company is currently evaluating SFAS 160 and the impact that it may have ~~difficulty in retaining or attracting officers, directors for the board and various sub-committees thereof.~~
The recent changes in SEC and Nasdaq rules, including those resulting from the Sarbanes-Oxley Act of 2002, may result in us being unable to attract and retain the necessary officers, board directors and members of sub-committees thereof, to effectively manage. The perceived increased personal risk associated with these recent changes, may deter qualified individuals from wanting to participate in these roles.
~~We may have difficulty obtaining adequate directors and officers insurance and the cost for coverage may significantly increase.~~
As an acquisitive company, we may have difficulty in obtaining adequate directors’ and officers’ insurance to protect us and our directors and officers from claims made against them. Additionally, even if adequate coverage is available, the costs for such coverage may be significantly greater than current costs. This additional cost may have a significant effect on ~~our profits and as a result our~~ results of operations ~~may be adversely affected.~~or financial position.
~~We plan significant growth, and there is a risk that we will not be able to manage this growth.~~
~~Our success will depend on~~In April 2008, the expansion of our operations both through organic growth and acquisitions. Effective growth management will place increased demands on management, operational and financial resources and expertise. To manage growth, we must expand our facilities, augment our operational, financial and management systems, and hire and train additional qualified personnel. Failure to manage this growth effectively could impair our ability to generate revenue or could cause our expenses to increase more rapidly than revenue, resulting in operating losses or reduced profitability.
FASB issued FSP FAS 142-3,~~If we fail to retain key personnel and hire, train and retain qualified employees, we may not be able to compete effectively, which could result in reduced revenue or increased costs.~~
Our success is highly dependent on the continued services of key management, technical and scientific personnel. Our management and other employees may voluntarily terminate their employment at any time upon short notice. The lossDetermination of the ~~services~~Useful Life of ~~any member~~Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,Goodwill and Other Intangible Assetsto improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the ~~senior management team, including~~asset under SFAS No. 141,Business Combinations,other U.S. GAAP. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the ~~Chief Executive Officer, Chane Graziano,~~impact of FSP FAS 142-3 on its financial statements.
In May 2008, the ~~President, David Green,~~FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the ~~Chief Financial Officer, Susan Luscinski, or any~~sources of accounting principles and the ~~managerial, technical or scientific staff may significantly delay or prevent~~framework for selecting the ~~achievement of product development and other business objectives. We maintain key person life insurance on Messrs. Graziano and Green. Our future success will also depend on our ability~~principles to ~~identify, recruit and retain additional qualified scientific, technical and managerial personnel. Competition for qualified personnel~~be used in the technology area is intense, and we operate in several geographic locations where labor markets are particularly competitive, including Boston, Massachusetts and London and Cambridge, England, and where demand for personnel with these skills is extremely high and is likely to remain high. As a result, competition for qualified personnel is intense, particularly in the areaspreparation of general management, finance, information technology, engineering and science, and the process of hiring suitably qualified personnel is often lengthy and expensive, and may become more expensive in the future. If we are unable to hire and retain a sufficient number of qualified employees, our ability to conduct and expand our business could be seriously reduced.
~~Our competitors and potential competitors may develop products and technologies~~financial statements that are ~~more effective or commercially attractive than our products.~~
~~We expect to encounter increased competition from both established and development-stage companies that continually enter the market. We anticipate that these competitors will include:~~
•                                          ~~companies developing and marketing life sciences research tools,~~
•                                          ~~health care companies that manufacture laboratory-based tests and analyzers,~~
•                                          ~~diagnostic and pharmaceutical companies,~~
•                                          ~~analytical instrument companies and~~
•                                          ~~companies developing drug discovery technologies.~~
Currently, our principal competition comes from established companies that provide products that perform many of the same functions for which we market our products. Our competitors may develop or market products that are more effective or commercially attractive than our current or future products. Many of our competitors have substantially greater financial, operational, marketing and technical resources than we do. Moreover, these competitors may offer broader product lines and tactical discounts, and may have greater name recognition. In addition, we may face competition from new entrants into the field. We may not have the financial resources, technical expertise or
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~~marketing, distribution or support capabilities to compete successfully~~presented in ~~the future.~~
~~Our products compete~~conformity with generally accepted accounting principles in ~~markets that are subject to rapid technological change, and therefore one or more of our products could be made obsolete by new technologies.~~
Because the market for drug discovery tools is characterized by rapid technological change and frequent new product introductions, our product lines may be made obsolete unless we are able to continually improve existing products and develop new products. To meet the evolving needs of its customers, we must continually enhance our current and planned products and develop and introduce new products. However, we may experience difficulties that may delay or prevent the successful development, introduction and marketing of new products or product enhancements. In addition, our product lines are based on complex technologies that are subject to rapid change as new technologies are developed and introduced in the marketplace. We may have difficulty in keeping abreast of the rapid changes affecting each of the different markets we serve or intend to serve. Our failure to develop and introduce products in a timely manner in response to changing technology, market demands or the requirements of our customers could cause our product sales to decline, and we could experience significant losses.
We offer and plan to offer a broad product line and have incurred and expect to continue to incur substantial expenses for development of new products and enhanced versions of our existing products. The speed of technological change in our market may prevent us from being able to successfully market some or all of our products for the length of time required to recover development costs. Failure to recover the development costs of one or more products or product lines could decrease our profitability or cause us to experience significant losses.
~~We entered into a $20 million credit facility in November 2003 which contains certain financial and negative covenants the breach of which may adversely affect our financial condition.~~
We anticipate that our operations will support the covenants required as part of the $20 million revolving credit facility with Brown Brothers Harriman. However, if we are not in compliance with certain of these covenants, in addition to other actions the creditor may require, the amounts drawn on the $20 million facility may become immediately due and payable. This immediate payment may negatively impact our financial condition and we may be forced by our creditor into actions which may not be in our best interests.
Failure to raise additional capital or generate the significant capital necessary to implement our acquisition strategy, expand our operations and invest in new products could reduce our ability to compete and result in lower revenue.
We anticipate that our financial resources which include available cash, cash generated from operations, and debt and equity capacity, will be sufficient to finance operations and capital expenditures for at least twelve months. However, this expectation is premised on the current operating plan, which may change as a result of many factors, including market acceptance of new products and future opportunities with collaborators. Consequently, we may need additional funding sooner than anticipated. Our inability to raise capital could seriously harm our business and product development and acquisition efforts.
If we raise additional funds through the sale of equity or convertible debt or equity-linked securities, existing percentages of ownership in our common stock will be reduced. In addition, these transactions may dilute the value of our outstanding common stock. We may issue securities that have rights, preferences and privileges senior to our common stock. If we raise additional funds through collaborations or licensing arrangements, we may relinquish rights to certain of our technologies or products, or grant licenses to third parties on terms that are unfavorable. We may be unable to raise additional funds on acceptable terms or at all. In addition, our credit facility with Brown Brothers Harriman contains limitations on our ability to incur additional indebtedness and requires creditor approval for acquisitions funded with cash in excess of $6 million and for those which may be funded with equity in excess of $10 million. Currently, we are unable to access the public equity markets due to an outstanding amendment to a Current Report on Form 8-K in connection with a previous acquisition. In addition, we are not currently eligible to use Form S-3 to effect a registration of our equity as a result of this delinquent filing. We are in the process of seeking to complete this outstanding filing and anticipate that we will become current with our required filings under Form 8-K. Once we become current with our SEC filings, we will immediately be eligible to register equity and will be eligible to use Form S-3 twelve months after the initial due date of the outstanding Form 8-K amendment. However, until this matter is resolved, our ability to raise capital may be limited to private equity transactions and/or additional borrowing and may result in entering into an agreement on less than favorable terms. If future financing is not available or is not available on acceptable terms, we may have to curtail operations or change our business strategy.
~~If we are unable to effectively protect our intellectual property, third parties may use our technology, which would impair our ability to compete in our markets.~~
Our continued success will depend in significant part on our ability to obtain and maintain meaningful patent protection for certain of our products throughout the world. Patent law relating to the scope of claims in the technology fields in which we operate is still evolving. The
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degree of future protection for our proprietary rights is uncertain. We own 27 U.S. patents and have 26 patent applications pending in the U.S. We also own numerous U.S. registered trademarks and trade names and have applications for the registration of trademarks and trade names pending. We rely on patents to protect a significant part of our intellectual property and to enhance our competitive position. However, our presently pending or future patent applications may not issue as patents, and any patent previously issued to us may be challenged, invalidated, held unenforceable or circumvented. Furthermore, the claims in patents which have been issued or which may be issued to us in the future may not be sufficiently broad to prevent third parties from producing competing products similar to our products. In addition, the laws of various foreign countries in which we compete may not protect our intellectual property to the same extent as do the laws of the United States. ~~If we fail to obtain adequate patent protection for our proprietary technology, our ability to be commercially competitive will be materially impaired.~~
~~In addition to patent protection, we also rely on protection of trade secrets, know-how and confidential and proprietary information. To maintain~~SFAS No. 162 is effective 60 days following the confidentiality of trade-secrets and proprietary information, we generally seek to enter into confidentiality agreements with our employees, consultants and strategic partners upon the commencement of a relationship. However, we may not obtain these agreements in all circumstances. In the event of unauthorized use or disclosure of this information, these agreements, even if obtained, may not provide meaningful protection for our trade-secrets or other confidential information. In addition, adequate remedies may not exist in the event of unauthorized use or disclosure of this information. The loss or exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects.
~~We may be involved in lawsuits to protect or enforce our patents that would be expensive and time-consuming.~~
In order to protect or enforce our patent rights, we may initiate patent litigation against third parties. We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions. Several of our products are based on patents that are closely surrounded by patents held by competitors or potential competitors. As a result, we believe there is a greater likelihood of a patent dispute than would be expected if our patents were not closely surrounded by other patents. The defense and prosecution, if necessary, of intellectual property suits, interference proceedings and related legal and administrative proceedings would be costly and divert our technical and management personnel from their normal responsibilities. We may not prevail in any of these suits. An adverse determination of any litigation or defense proceedings could put our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
~~Furthermore, because~~SEC’s approval of the ~~substantial amount~~Public Company Accounting Oversight Board amendments to AU Section 411,The Meaning of ~~discovery required~~Present Fairly in ~~connection~~Conformity with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. For example, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. Securities analysts or investors may perceive these announcements to be negative, which could cause the market price of our stock to decline.
~~Our success will depend partly on our ability to operate without infringing on or misappropriating the intellectual property rights of others.~~Generally Accepted Accounting Principles
~~We may be sued for infringing~~. Based on the intellectual property rights of others, including the patent rights, trademarks and trade names of third parties. Intellectual property litigation is costly and the outcome is uncertain. If we do not prevail in any intellectual property litigation, in addition to any damages we might have to pay, we could be required to stop the infringing activity, or obtain a license to or design around the intellectual property in question. If we are unable to obtain a required license on acceptable terms, or is unable to design around any third party patent, we may be unable to sell some of our products and services, which could result in reduced revenue.
~~We are dependent upon our licensed technologies and may need to obtain additional licenses in the future to offer our products and remain competitive.~~
We have licensed key components of our technologies from third parties. While we do not currently derive a material portion of our revenue from products that depend on these licensed technologies, we may in the future. If our license agreements were to terminate prematurely or if we breach the terms of any licenses or otherwise fail to maintain our rights to these technologies, we may lose the right to manufacture or sell our products that use these licensed technologies. In addition, we may need to obtain licenses to additional technologies in the future in order to keep our products competitive. If we fail to license or otherwise acquire necessary technologies, we may not be able to develop new products that we need to remain competitive.
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~~Many of our~~Company’s current ~~and potential customers are from the pharmaceutical and biotechnology industries and are subject to risks faced by those industries.~~
We derive a substantial portion of our revenues from pharmaceutical and biotechnology companies. We expect that pharmaceutical and biotechnology companies will continue to be our major source of revenues for the foreseeable future. As a result, we are subject to risks and uncertainties that affect the pharmaceutical and biotechnology industries, such as pricing pressures as third-party payers continue challenging the pricing of medical products and services, government regulation, ongoing consolidation and uncertainty of technological change, and to reductions and delays in research and development expenditures by companies in these industries. In particular, several proposals are being contemplated by lawmakers in the United States to extend the Federal Medicare program to include reimbursement for prescription drugs. Many of these proposals involve negotiating decreases in prescription drug prices or imposing price controls on prescription drugs. If appropriate reimbursement cannot be obtained, it could result in customers purchasing fewer products from us as they reduce their research and development expenditures.
In particular, the biotechnology industry has been faced with declining market capitalization and a difficult capital-raising and financing environment. If biotechnology companies are unable to obtain the financing necessary to purchase our products, our business and results of operations, could be materially adversely affected. As it relates to the pharmaceutical industry, several companies have significant patents that have expired or are about to expire, which could result in reduced revenues for those companies. If pharmaceutical companies suffer reduced revenues as a result of these patent expirations, they may be unable to purchase our products, and our business and results of operations could be materially adversely affected.
In addition, we are dependent, both directly and indirectly, upon general health care spending patterns, particularly in the research and development budgets of the pharmaceutical and biotechnology industries, as well as upon the financial condition and purchasing patterns of various governments and government agencies. Many of our customers, including universities, government research laboratories, private foundations and other institutions, obtain funding for the purchase of products from grants by governments or government agencies. There exists the risk of a potential decrease in the level of governmental spending allocated to scientific and medical research which could substantially reduce or even eliminate these grants. If government funding necessary to purchase our products were to decrease, our business and results of operations could be materially adversely affected.
If we are unable to achieve and sustain market acceptance of our target validation, high-throughput screening, assay development and ADMET screening products across their broad intended range of applications, we will not generate expected revenue growth and could adversely affect profits.
Our business strategy depends, in part, on successfully developing and commercializing our ADMET screening, molecular biology, high-throughput/high-content screening, and genomics, proteomics and high-throughput screening to meet customers’ expanding needs and demands, an example of which is the COPAS technology obtained from the 2001 acquisition of Union Biometrica. Market acceptance of this and other new products will depend on many factors, including the extent of our marketing efforts and our ability to demonstrate to existing and potential customers that our technologies are superior to other technologies or techniques and products that are available now or may become available in the future. If our new products do not gain market acceptance, or if market acceptance occurs at a slower rate than anticipated, it could materially adversely affect our business and future growth prospects and could result in a goodwill and /or intangible impairment loss.
~~If Amersham Biosciences terminates its distribution agreements with us or fails to perform its obligations under the distribution~~ ~~agreements, it could impair the marketing and distribution efforts for some of our products and result in lost revenues.~~
For the three months ended March 31, 2004, approximately 19% of our revenues were generated through two distribution agreements with Amersham Biosciences. The first distribution agreement was renegotiated in August 2001. Under this agreement, Amersham Biosciences acts as the primary marketing and distribution channel for the products of our Biochrom subsidiary and, as a result, we are restricted from allowing another person or entity to distribute, market and sell the majority of the products of our Biochrom subsidiary. We are also restricted from making or promoting sales of the majority of the products of our Biochrom subsidiary to any person or entity other than Amersham Biosciences or its authorized sub-distributors. We have little or no control over Amersham Biosciences’ marketing and sales activities or the use of its resources. Amersham Biosciences may fail to purchase sufficient quantities of products from us or perform appropriate marketing and sales activities. The failure by Amersham Biosciences to perform these activities could materially adversely affect our business and growth prospects during the term of this agreement. In addition, our inability to maintain our arrangement with Amersham Biosciences for product distribution could materially impede the growth of our business and our ability to generate sufficient revenue. Our agreement with Amersham Biosciences may be terminated with 30 days notice under certain circumstances. This agreement has an initial term of three years, commencing August 1, 2001, after which it will automatically renew for an additional two years, unless terminated earlier by either party. In addition, the agreement may be terminated in accordance with its terms by either party upon 18 months prior written notice.
~~The second distribution agreement, between Hoefer, Inc., our subsidiary, and Amersham Biosciences was entered into in November 2003~~
24

in connection with our acquisition of certain assets of Amersham Biosciences, including the Hoefer name. The agreement provides that Hoefer will be the exclusive supplier of 1-D gel electrophoresis products to Amersham Biosciences. Hoefer also has the right to develop, manufacture and market 2-D gel electrophoresis products, which would be offered to Amersham Biosciences for sale under the Amersham Biosciences brand name. Hoefer has the right to sell any of its products, under the Hoefer brand name or any other non-Amersham Biosciences brand name, through other distribution channels, both direct and indirect. The initial term of the agreement is five years with an automatic five year renewal period. Amersham Biosciences may terminate the agreement during the renewal period if they decide to cease all activities in 1-D gel electrophoresis or if Hoefer fails to deliver new 1-D gel electrophoresis products.
General Electric recently acquired Amersham plc, the parent of Amersham Biosciences. While General Electric has indicated its intention to continue Amersham’s presence in the life science market, and we believe our relationship with Amersham Biosciences is good, we cannot guarantee that the distribution agreements will be renewed, that Amersham Biosciences will aggressively market our products in the future or that General Electric will continue the partnership.
~~Accounting for goodwill may have a material adverse effect on us.~~
~~We have historically amortized goodwill purchased in our acquisitions on a straight-line basis ranging from five to 15 years. Upon~~ the adoption of SFAS No. 142, goodwill and intangible assets with indefinite lives from acquisitions after June 30, 2001 and existing goodwill and intangible assets with indefinite lives from acquisitions prior to July 1, 2001 that remain as of December 31, 2001 are no longer amortized, but instead are evaluated annually to determine whether any portion of the remaining balance of goodwill and indefinite lived intangibles may not be recoverable, or more frequently, if events or circumstances indicate there may be an impairment. If it is determined in the future that a portion of our goodwill and intangible assets with indefinite lives is impaired, we162 will be required to write off that portion of the asset which could have an adverse effect on net income for the period in which the write off occurs. At March 31, 2004, we had goodwill and intangible assets with indefinite lives of $38.6 million, or 28% of our total assets. If our accounting estimates are not correct, our financial results could be adversely affected. Management judgment and estimates are necessarily required in the application of our Critical Accounting Policies. We discuss these estimates in the subsection entitled Critical Accounting Policies beginning on page 14. If our estimates are incorrect, our future financial operating results and financial condition could be adversely affected.
Specifically, as we review the operations of our genomics, proteomics and high-throughput high-screening product lines we may determine that our estimates for any related definite lived intangibles may be incorrect and as a result we may incur charges for impairment which may adversely impact our results of operation.
~~We may be adversely affected by litigation or arbitration involving Paul D. Grindle.~~
On February 4, 2002, Paul D. Grindle, the former owner of Harvard Apparatus, Inc., initiated an arbitration proceeding against us and certain directors before JAMS in Boston, Massachusetts. Mr. Grindle’s claims arise out of post-closing purchase price adjustments related to our purchase of the assets and business of Harvard Apparatus by virtue of an Asset Purchase Agreement dated March 15, 1996 and certain related agreements. In the arbitration demand, Mr. Grindle sought the return of 1,563,851 shares of our common stock, or the disgorgement of the profits of our sale of the stock, as well as compensatory damages and multiple damages and attorney’s fees under Mass. Gen. Laws, chapter 93A. In a demand letter that was attached to the arbitration demand, Mr. Grindle asserted losses in the amount of $15 million, representing the value of the 1,563,851 shares of our common stock as of January 2, 2002. On October 30, 2002, we received a decision from the arbitrator that we had prevailed on all claims asserted against us and certain of our directors in the arbitration action. Specifically, we received a written decision from the arbitrator granting our motion for summary disposition with respect to all claims brought against all parties in the action. We filed a complaint in the Massachusetts Superior Court seeking to confirm the arbitrator’s decision. Mr. Grindle filed a complaint in the Massachusetts Superior Court seeking to vacate the arbitrator’s decision. These two matters were consolidated. On or about July 30, 2003, the Massachusetts Superior Court granted our motion to confirm the arbitrator’s decision and to deny Mr. Grindle’s motion to vacate. Mr. Grindle has filed a notice of appeal with the Massachusetts Appeals Court. Both Mr. Grindle and the Company have filed briefs with the Massachusetts Appeals Court. The matter is pending. Mr. Grindle also filed an application for direct appelate review with the Massachusetts Supreme Judical Court, which was denied.
~~Customer, vendor and employee uncertainty about the effects of any of our acquisitions could harm us.~~
We and the acquired companies’ customers may, in response to the consummation of the acquisitions, delay or defer purchasing decisions. Any delay or deferral in purchasing decisions by customers could adversely affect our business. Similarly, employees of acquired companies may experience uncertainty about their future role until or after we execute our strategies with regard to employees of acquired companies. This may adversely affect our ability to attract and retain key management, sales, marketing and technical personnel following an acquisition.
25

~~A significant portion of the sales cycle for ours products is lengthy and we may spend significant time on sales opportunities with no assurance of success.~~
Our ability to obtain customers for our products, specifically for products made by Union Biometrica and Genomic Solutions, depends in significant part upon the perception that our products can help accelerate drug discovery and development efforts. The sales cycle for these systems is typically between three and six months due to the education effort that is required. Our sales efforts often require sales presentations to various departments within a single customer, including research and development personnel and key management. In addition, we may be required to negotiate agreements containing terms unique to each customer. We may expend substantial funds and management effort with no assurance that we will successfully sell our systems or products to the customer.
~~Ethical concerns surrounding the use of our products and misunderstanding of the nature of our business could adversely affect our ability to develop and sell our existing products and new products.~~
Genetic screening of humans is used to determine individual predisposition to medical conditions. Genetic screening has raised ethical issues regarding the confidentiality and appropriate uses of the resulting information. Government authorities may regulate or prohibit the use of genetic screening to determine genetic predispositions to medical conditions. Additionally, the public may disfavor and reject the use of genetic screening.
Genomic and proteomic research is used to determine the role of genes and proteins in living organisms. Our products are designed and used for genomic and proteomic research and drug discovery and cannot be used for genetic screening without significant modification. However, it is possible that government authorities and the public may fail to distinguish between the genetic screening of humans and genomic and proteomic research. If this occurs, our products and the processes for which our products are used may be subjected to government regulations intended to affect genetic screening. Further, if the public fails to distinguish between the two fields, it may pressure our customers to discontinue the research and development initiatives for which our products are used.
Additionally, some of our products may be used in areas of research involving cloning, stem cell use, organ transplants and other techniques presently being explored in the drug discovery industry. These techniques have drawn much negative attention recently in the public forum and could face similar risks to those identified above surrounding products for genomic and proteomic research.
~~Our stock price has fluctuated in the past and could experience substantial declines in the future and, as a result, management’s attention may be diverted from more productive tasks.~~
The market price of our common stock has experienced significant fluctuations since its initial public offering in December 2000 and may become volatile and could decline in the future, perhaps substantially, in response to various factors, many of which are beyond our control, including:
•                                          ~~technological innovations by competitors or in competing technologies,~~
•                                          ~~revenues and operating results fluctuating or failing to meet the expectations of securities analysts or investors in any quarter,~~
•                                          ~~termination or suspension of equity research coverage by securities’ analysts,~~
•                                          ~~comments of securities analysts and mistakes by or misinterpretation of comments from analysts,~~
•                                          ~~downward revisions in, or failure to achieve, securities analysts’ estimates or management guidance,~~
•                                          ~~investment banks and securities analysts may themselves be subject to suits that may adversely affect the perception of the market,~~
•                                          ~~conditions or trends in the biotechnology and pharmaceutical industries,~~
•                                          ~~announcements of significant acquisitions or financings or changes in strategic partnerships, and~~
•                                          ~~a decrease in the demand for our common stock.~~
In addition, the stock market and the Nasdaq National Market in general, and the biotechnology industry and small cap markets in particular, have experienced significant price and volume fluctuations that at times may have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common
26

stock, regardless of our operating performance. In the past, securities class action litigation has often been instituted following periods of volatility in the market price of a company’s securities. A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of management’s attention and resources.
~~Provisions of Delaware law and of our charter and bylaws may make a takeover more difficult which could cause our stock price to decline.~~
Provisions in our certificate of incorporation and bylaws and in the Delaware corporate law may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt which is opposed by management and the board of directors. Public stockholders who might desire to participate in such a transaction may not have ~~an opportunity to do so. We also have~~ a staggered board of directors that makes it difficult for stockholders to change the composition of the board of directors in any one year. These anti-takeover provisions could substantially impede the ability of public stockholders to change our management and board of directors. Such provisions may also limit the price that investors might be willing to pay for shares of our common stock in the future.material impact on its financial statements.
~~An active trading market for our common stock may not be sustained.~~
~~Although our common stock is quoted on the Nasdaq National Market, an active trading market for the shares may not be sustained.~~
~~Future issuance of preferred stock may dilute the rights of our common stockholders.~~
Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, privileges and other terms of these shares. The board of directors may exercise this authority without any further approval of stockholders. The rights of the holders of common stock may be adversely affected by the rights of future holders of preferred stock.
~~Cash dividends will not be paid on our common stock.~~
We intend to retain all of our earnings to finance the expansion and development of our business and do not anticipate paying any cash dividends in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be a stockholder’s sole source of gain for the foreseeable future.
The merger with Genomic Solutions may fail to qualify as a reorganization for federal income tax purposes, resulting in the recognition of taxable gain or loss in respect of our treatment of the merger as a taxable sale.
Both us and Genomic Solutions intended the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. Although the Internal Revenue Service, or IRS, will not provide a ruling on the matter, Genomic Solutions obtained a legal opinion from its tax counsel that the merger constitutes a reorganization for federal income tax purposes. This opinion does not bind the IRS or prevent the IRS from adopting a contrary position. If the merger fails to qualify as a reorganization, the merger would be treated as a deemed taxable sale of assets by Genomic Solutions for an amount equal to the merger consideration received by Genomic Solutions’ stockholders plus any liabilities assumed by us. As successor to Genomic Solutions, we would be liable for any tax incurred by Genomic Solutions as a result of this deemed asset sale.
~~Item 3~~~~. Quantitative and Qualitative Disclosures About Market Risk.~~
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We manufacture and test the majority of products in ~~locations throughout~~research centers in the United States, the United Kingdom, Germany and ~~Germany.~~Spain. We sell our products globally through our direct catalog sales, direct sales force and indirect distributor ~~channel.~~channels. As a result, our financial results are affected by factors such as changes in foreign currency exchange rates and weak economic conditions in foreign markets.
We collect amounts representing a substantial portion of our revenues and pay amounts representing a substantial portion of our operating expenses in foreign currencies. As a result, changes in currency exchange rates from time to time may affect our operating results. Historically, we have not hedged our foreign currency position. Currently, we attempt to manage foreign currency risk through the matching of assets and liabilities. However, as our sales expand internationally, we plan to ~~continue to~~ evaluate currency risks and we may enter into foreign exchange contracts from time to time to mitigate foreign currency exposure.
We are exposed to market risk from changes in interest rates primarily through our financing activities. As of ~~March 31, 2004,~~June 30, 2008, we had ~~$19.4 million in long term~~no debt ~~for amounts drawn against~~outstanding under our revolving credit facility.
Under the current terms of our credit facility, we have the ability to borrow in US dollars, Euros, or British pounds sterling. On June 30, 2008, we had no borrowings on our credit facility. As of June 30, 2008, our recently acquired Panlab subsidiary held notes payable of $2.1 million denominated in Euros. These Eurocurrency borrowings are sensitive to changes in currency exchange rates. A 10% ~~change~~appreciation in ~~interest~~quarter-ended June 30, 2008 currency exchange rates ~~from 4%~~related to ~~4.4%,~~these Eurocurrency borrowings would ~~change~~have resulted in an increase in the ~~annual interest expense~~cumulative translation adjustments on ~~this long term debt~~our balance sheet of $0.2 million relating to the notes held by ~~approximately $77,000.~~our Panlab subsidiary.

27

~~Item 4~~~~. Controls and Procedures.~~
Item 4. Controls and Procedures.
As required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, we have evaluated, with the participation of our management, including our Chief Executive Officer and ~~Chief Financial~~Principal Accounting Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that they believe that ourOur disclosure controls and procedures are ~~reasonably effective~~designed to ~~ensure~~provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~Securities and Exchange Commission’s~~SEC’s rules and ~~forms. We intend~~forms, and our management necessarily was required to ~~continue to review~~apply its judgment in evaluating and ~~document~~implementing our disclosure controls and procedures. Based upon the evaluation described above, our Chief Executive Officer and Principal Accounting Officer have concluded that they believe that our disclosure controls and procedures were effective, as of the end of the period covered by this report, in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
We continue to review our internal ~~control~~controls over financial reporting, ~~on an ongoing basis,~~ and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. These efforts have led to various changes in our internal controls over financial reporting. There were no changes in our internal ~~control~~controls over financial reporting that occurred during the quarter ended ~~March 31, 2004~~June 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION

Item 1A. Risk Factors
~~Item 1.~~ ~~Legal Proceedings.~~
On February 4, 2002, Paul D. Grindle, the former owner of Harvard Apparatus, Inc., initiated an arbitration proceeding against us and certain directors before JAMS in Boston, Massachusetts. Mr. Grindle’s claims arise out of post-closing purchase price adjustments related to our purchase of the assets and business of Harvard Apparatus by virtue of an Asset Purchase Agreement dated March 15, 1996 and certain related agreements. In the arbitration demand, Mr. Grindle sought the return of 1,563,851 shares of common stock in Harvard Bioscience, or the disgorgement of the profits of our sale of the stock, as well as compensatory damages and multiple damages and attorney’s fees under Mass. Gen. Laws, chapter 93A. In a demand letter that was attached to the arbitration demand, Mr. Grindle asserted losses in the amount of $15 million, representing the value of the 1,563,851 shares of Harvard Bioscience’s common stock as of January 2, 2002. On October 30, 2002, we received a decision from the arbitrator that weThere have prevailed on all claims asserted against us and certain of our directors in the arbitration action. Specifically, we received a written decision from the arbitrator granting our motion for summary disposition with respect to all claims brought against all parties in the action. The Company filed a complaint in the Massachusetts Superior Court seeking to confirm the arbitrator’s decision. Mr. Grindle filed a complaint in the Massachusetts Superior Court seeking to vacate the arbitrator’s decision. These two matters were consolidated. On or about July 30, 2003, the Massachusetts Superior Court granted our motion to confirm the arbitrator’s decision and to deny Mr. Grindle’s motion to vacate. Mr. Grindle filed a notice of appeal with the Massachusetts Appeals Court. Both Mr. Grindle and the Company have filed briefs with the Massachusetts Appeals Court. The matter is pending. Mr. Grindle also filed an application for direct appellate review with the Massachusetts Supreme Judicial Court, which was denied.
In addition, from time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business. Except as disclosed above, we are not currently a party to any such claims or proceedings, which, if decided adversely to us, would either individually or in the aggregate have material adverse effect on our business, financial condition or results of operations.
~~Item 2.~~ ~~Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.~~
On November 12, 2002, the Board of Directors authorized the Company to repurchase up to $5 million of its outstanding common stock. To date, the Company has not made any purchases of its common stock.
~~Item 3.~~ ~~Defaults Upon Senior Securities~~ ~~- None.~~
~~Item 4.~~ ~~Submission of Matters to a Vote of Security~~ ~~Holders - None.~~
~~Item 5.~~ ~~Other Information~~ ~~- None.~~
~~There were~~been no material changes ~~to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the disclosure provided~~ in the ~~Company’s Proxy Statement filed April 26, 2004.~~
28

~~Item 6~~~~. Exhibits and Reports~~risk factors described in “Item 1A—Risk Factors” of our Annual Report on Form ~~8-K.~~10-K for the year ended December 31, 2007, as amended, with the exception of the risk factor titled “If GE Healthcare (formerly Amersham Biosciences) terminates its distribution agreements with us, fails to renew them on favorable terms or fails to perform its obligations under the distribution agreements, it could impair the marketing and distribution efforts for some of our products and result in lost revenues.”
We note that on April 10, 2008, Biochrom Limited (“Biochrom”), a wholly owned subsidiary of Harvard Bioscience, Inc., and General Electric Company, acting through its GE Healthcare Bio-Sciences business (“GE Healthcare”), entered into a distribution agreement. Under the terms of the agreement, GE Healthcare will serve as the exclusive, worldwide (except Canada) distributor, marketer and seller of a significant portion of the spectrophotometer and DNA/RNA calculator product lines sold by Biochrom, including the recently launched microliter spectrophotomer to which GE Healthcare has exclusive access to on a worldwide basis including Canada.
~~(a)~~                                  ~~Exhibit Index~~The term of the agreement expires December 31, 2012, may be extended by GE Healthcare for additional one-year periods and may be terminated by either party upon one year advance written notice after March 27, 2009. Additionally, upon breach of certain terms of the agreement by either party, the agreement may be terminated with a 60-day notice period.

Item 4. Submission of Matters to a Vote of Security Holders
On May 15, 2008, the Company held its Annual Meeting of Stockholders. At the meeting, the following matters were voted on by our stockholders, either in person or by proxy, and approved by the following votes:
   Shares
Voted For    Votes
Withheld
Election of two Class II Directors until the 2011 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until their earlier resignation.

David Green
   17,985,344    9,473,426
John F. Kennedy
   16,998,590    10,460,180
Following the Annual Meeting of Stockholders, the composition of the Board of Directors is as follows:
Class I Directors (to serve until 2010 Annual Meeting)
Robert Dishman
Neil J. Harte

Class II Directors (to serve until 2011 Annual Meeting)
David Green
John F. Kennedy

Class III Directors (to serve until 2009 Annual Meeting)
Chane Graziano
Earl R. Lewis
George Uveges

   Shares
Voted For    Shares
Voted Against    Abstentions    Broker
Non-Votes
Proposal to approve the Harvard Bioscience, Inc. Second Amended and Restated 2000 Stock Option and Incentive Plan to, among other things, increase the number of shares available for issuance thereunder by 2,500,000.
   16,782,848    6,358,508    40,728    4,276,686
2.1**
Item 6. Exhibits
Exhibit Index
10.1++
~~Stock Purchase~~
Distribution Agreement, dated ~~as of March 3, 2004,~~April 10, 2008, by and ~~among Harvard Bioscience, Inc.~~between Biochrom Limited and GE Healthcare Biosciences, Corp. (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been separately filed with the Securities and Exchange Commission under Rule 24b-2), ~~KD Scientific, Inc., and Ken Dunne.~~
as amended
~~31.1~~31.1+
Certification of ~~Chief Financial~~Principal Accounting Officer of Harvard Bioscience, Inc., pursuant to Rules ~~13a-15(e)~~13a-14(a) and ~~15d-15(e)~~15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~31.2~~31.2+
Certification of Chief Executive Officer of Harvard Bioscience, Inc., pursuant to Rules ~~13a-15(e)~~13a-14(a) and ~~15d-15(e)~~15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of ~~Chief Financial~~Principal Accounting Officer of Harvard Bioscience, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Chief Executive Officer of Harvard Bioscience, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*                                         This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
**                                  ~~Previously filed as an exhibit to the Company’s Current Report on Form 8-K (filed March 18, 2004) and incorporated by reference thereto.~~
~~(b)~~                                 ~~Reports on Form 8-K~~
1.
+
~~Form 8-K filed March 3, 2004 furnishing the press release of Harvard Bioscience issued on March 2, 2004, announcing its financial results for the year and quarter ended December 31, 2003.~~
2.
~~Form 8-K filed March 18, 2004 announcing the acquisition of KD Scientific, Inc. on March 3, 2004.~~
3.
~~Form 8-K filed May 6, 2004 furnishing the press release of Harvard Bioscience issued on May 6, 2004 announcing its financial results for the quarter ended March 31, 2004.~~
Filed herewith.
++ Filed herewith. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
* This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
29

SIGNATURES
~~SIGNATURES~~
Pursuant to the requirements of Section 13 and 15(d) 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.
By:
~~By:~~
~~Chane Graziano~~
~~Chief Executive Officer~~
~~By:~~
~~Susan Luscinski~~
~~Chief Financial Officer~~
~~Date:~~
~~July 8, 2004~~
/s/ CHANE GRAZIANO
Chane Graziano
Chief Executive Officer
By:
/s/ THOMAS MCNAUGHTON
Thomas McNaughton
Chief Financial Officer & Principal Accounting Officer
Date: February 19, 2009

3036

	Three Months Ended March 31,
	2004			2003

Product revenues	$	21,882		$	19,226
Research revenues	283			247
Total revenues	22,165			19,473
Costs and expenses:
Cost of product revenues	11,544			9,635
General and administrative expense	3,522			2,825
Sales and marketing expense	4,297			3,600
Research and development expense	1,669			1,420
Stock compensation expense	47			147
Amortization of goodwill and other intangibles (note 4)	923			625

Operating income	163			1,221

Other income (expense):
Foreign currency gain (loss)	(143		)	114
Interest expense	(186		)	(39		)
Interest income	62			66
Amortization of deferred financing costs	(27		)	—
Other	(20		)	(32		)

Other income (expense), net	(314		)	109

Income (loss) before income taxes	(151		)	1,330
Income tax expense (benefit)	(100		)	554

Net income (loss)	$	(51	)	$	776

Income (loss) per share (note 6):
Basic	$	(0.00	)	$	0.03
Diluted	$	(0.00	)	$	0.03

Weighted average common shares:
Basic	30,164			29,892
Diluted	30,164			30,137

	Three Months Ended March 31,
(Unaudited, in 000’s except per share data)	2004			2003

Pro forma revenues	$	22,566		$	20,377

Pro forma net income (loss)	$	(120	)	$	784
Pro forma net income (loss) per share:
Basic	$	0.00		$	0.03
Diluted	$	0.00		$	0.03
Pro forma weighted average common shares:
Basic	30,164			29,892

Diluted	30,164			30,137

	March 31, 2004				December 31, 2003
(in thousands)	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization

Amortizable intangible assets:
Existing technology	$	29,274	$	5,499	$	30,981	$	4,710
Tradename	1,770		409		1,704		381
Distribution agreement	6,877		136		621		10
Patents	9		2		9		2
Total Amortizable Intangible Assets	$	37,930	$	6,046	$	33,315	$	5,103

Unamortizable intangible assets:
Goodwill and other indefinite lived intangible assets	$	38,611	—		$	36,341	—

Total Intangible Assets	$	76,541	$	6,046	$	69,656	$	5,103

	Three Months Ended
(in thousands, except per share data)	March 31, 2004			March 31, 2003

Net income (loss) available to common stockholders, as reported	$	(51	)	$	776
Add: stock-based employee compensation expense included in reported net income, net of tax	47			141
Deduct: total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax	(513		)	(974		)
Pro forma net loss	$	(517	)	$	(57	)
Basic net income (loss) per share as reported	$	(0.00	)	$	0.03
Pro forma basic net loss per share	$	(0.02	)	$	(0.00	)
Diluted net income (loss) per share as reported	$	(0.00	)	$	0.03
Pro forma diluted net loss per share	$	(0.02	)	$	(0.00	)


	Options Available for Grant		Options Outstanding		Weighted Average Exercise Price
Balance at December 31, 2005	354,138		4,281,282		$	5.29
Approved by shareholders	2,000,000		—			—
Options granted	(1,185,000	)	1,185,000			4.36
Options exercised	—		(52,192	)		2.47
Options cancelled / forfeited	167,691		(167,691	)		5.81

Balance at December 31, 2006	1,336,829		5,246,399		$	5.09
Options granted	(1,137,000	)	1,137,000			5.41
Options exercised	—		(262,468	)		2.33
Options cancelled / forfeited	333,562		(333,562	)		5.71

Balance at December 31, 2007	533,391		5,787,369		$	5.24
Approved by shareholders	2,500,000		—			—
Options granted	(375,000	)	375,000			4.82
Options exercised	—		(196,964	)		3.51
Options cancelled / forfeited	618,836		(618,836	)		5.38

Balance at June 30, 2008	3,277,227		5,346,569		$	5.26


		Options Outstanding						Options Exercisable
Range of Exercise Price		Number Outstanding at June 30, 2008	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Aggregate Intrinsic Value		Shares Exercisable at June 30, 2008	Weighted Average Exercise Price		Aggregate Intrinsic Value
$	0.01-3.15	769,319	5.45	$	2.67	$	1,523	673,069	$	2.63	$	1,360
$	3.15-4.23	822,750	5.33	$	3.51		938	752,003	$	3.48		880
$	4.23-4.63	1,036,000	8.02	$	4.38		280	433,000	$	4.34		134
$	4.63-6.47	1,106,500	9.03	$	5.34		—	221,419	$	5.49		—
$	6.47-10.00	1,612,000	4.67	$	7.89		—	1,612,000	$	7.89		—

$	0.01-10.00	5,346,569	6.44	$	5.26	$	2,741	3,691,491	$	5.47	$	2,374


	Three and Six Months Ended June 30,
	2008		2007
Volatility	55.36	%	70.56	%
Risk-free interest rate	3.25	%	4.61	%
Expected holding period	5.84 Years		6.25 Years
Dividend yield	0.00	%	0.00	%

	Selected Operating Metrics for the three months ended March 31,
(in thousands, unaudited)	2004		% of Revenue		2003		% of Revenue

Total Revenues	$	22,165			$	19,473
Cost of Product Revenues	11,544		52.1	%	9,635		49.5	%
Sales and Marketing Expense	4,297		19.4	%	3,600		18.5	%
Research and Development Expense	1,669		7.5	%	1,420		7.3	%
General & Administrative Expense	3,522		15.9	%	2,825		14.5	%


	Three Months Ended June 30,
	2008			2007			Dollar Change		% Change
	(dollars in thousands, unaudited)
Revenues	$	23,049		$	20,410		$	2,639	12.9	%
Cost of product revenues		12,286			10,426			1,860	17.8	%
Gross margin percentage		46.7	%		48.9	%
Sales and marketing expenses		2,969			2,553			416	16.3	%
General and administrative expenses		3,795			3,544			251	7.1	%
Research and development expenses		1,077			888			189	21.3	%


	Six Months Ended June 30,
	2008			2007			Dollar Change		% Change
	(dollars in thousands, unaudited)
Revenues	$	45,008		$	39,525		$	5,483	13.9	%
Cost of product revenues		23,920			20,120			3,800	18.9	%
Gross margin percentage		46.9	%		49.1	%
Sales and marketing expenses		5,810			5,023			787	15.7	%
General and administrative expenses		7,551			6,947			604	8.7	%
Research and development expenses		2,158			1,732			426	24.6	%

	2004			2003

Cash flows from operations:
Net Income (loss)	$	(51	)	$	776
Adjust non cash items	1,604			1,177
Changes in assets and liabilities	(52		)	(1,276		)
Cash provided by operations	1,501			677
Investing activities:
Acquisition of businesses	(6,573		)	(12,344		)
Other Investing activities	(241		)	(328		)
Cash used by investing activities	(6,814		)	(12,672		)
Financing activities:
Cash provided by debt	6,950			6,000
Other financing activities	(64		)	(34		)
Cash provided by financing activities	6,886			5,966
Exchange effect on cash	(23		)	37
Increase (decrease) in cash	$	1,550		$	(5,992	)


	Shares Voted For	Votes Withheld
Election of two Class II Directors until the 2011 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until their earlier resignation.
David Green	17,985,344	9,473,426
John F. Kennedy	16,998,590	10,460,180

Following the Annual Meeting of Stockholders, the composition of the Board of Directors is as follows:

Class I Directors (to serve until 2010 Annual Meeting) Robert Dishman Neil J. Harte Class II Directors (to serve until 2011 Annual Meeting) David Green John F. Kennedy Class III Directors (to serve until 2009 Annual Meeting) Chane Graziano Earl R. Lewis George Uveges


	Shares Voted For	Shares Voted Against	Abstentions	Broker Non-Votes
Proposal to approve the Harvard Bioscience, Inc. Second Amended and Restated 2000 Stock Option and Incentive Plan to, among other things, increase the number of shares available for issuance thereunder by 2,500,000.	16,782,848	6,358,508	40,728	4,276,686


Exhibit Index
10.1++	~~Stock Purchase~~	Distribution Agreement, dated ~~as of March 3, 2004,~~April 10, 2008, by and ~~among Harvard Bioscience, Inc.~~between Biochrom Limited and GE Healthcare Biosciences, Corp. (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been separately filed with the Securities and Exchange Commission under Rule 24b-2), ~~KD Scientific, Inc., and Ken Dunne.~~ as amended

~~31.1~~31.1+		Certification of ~~Chief Financial~~Principal Accounting Officer of Harvard Bioscience, Inc., pursuant to Rules ~~13a-15(e)~~13a-14(a) and ~~15d-15(e)~~15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2~~31.2+		Certification of Chief Executive Officer of Harvard Bioscience, Inc., pursuant to Rules ~~13a-15(e)~~13a-14(a) and ~~15d-15(e)~~15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of ~~Chief Financial~~Principal Accounting Officer of Harvard Bioscience, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Executive Officer of Harvard Bioscience, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

1. +	~~Form 8-K filed March 3, 2004 furnishing the press release of Harvard Bioscience issued on March 2, 2004, announcing its financial results for the year and quarter ended December 31, 2003.~~
2.	~~Form 8-K filed March 18, 2004 announcing the acquisition of KD Scientific, Inc. on March 3, 2004.~~
3.	~~Form 8-K filed May 6, 2004 furnishing the press release of Harvard Bioscience issued on May 6, 2004 announcing its financial results for the quarter ended March 31, 2004.~~ Filed herewith.


HARVARD BIOSCIENCE, INC.

By:		~~By:~~		~~Chane Graziano~~
					~~Chief Executive Officer~~

			~~By:~~			~~Susan Luscinski~~
					~~Chief Financial Officer~~

~~Date:~~	~~July 8, 2004~~						/s/ CHANE GRAZIANO
		Chane Graziano
		Chief Executive Officer

By:		/s/ THOMAS MCNAUGHTON
		Thomas McNaughton
		Chief Financial Officer & Principal Accounting Officer