10-Q 1 apyx20240930_10q.htm FORM 10-Q apyx20240930_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2024

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number: 001-31885

 

logo01.jpg

 

APYX MEDICAL CORPORATION

 

(Exact name of registrant as specified in its charter)

 

Delaware

11-2644611

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

5115 Ulmerton Road, Clearwater, FL 33760

 

(Address of principal executive offices, zip code)

 

(727) 384-2323

 

(Registrant’s telephone number)

Securities Registered Pursuant to Section 12 (b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock

APYX

Nasdaq Global Select Market

 

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

    

Non-accelerated filer

Smaller reporting company

    
  

Emerging growth company

 

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

 

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

 

As of November 6, 2024, 34,643,886 shares of the registrant’s $0.001 par value common stock were outstanding.

 



 

 

 

APYX MEDICAL CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended September 30, 2024

 

   

Page

Part I.

Financial Information

2

     

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets at September 30, 2024 and December 31, 2023

2

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023

3

 

Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2024 and 2023

4

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023

5

 

Notes to Condensed Consolidated Financial Statements

6

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

24

Item 4.

Controls and Procedures

24

     

Part II.

Other Information

25

     

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3.

Defaults Upon Senior Securities

25

Item 4.

Mine Safety Disclosures

25

Item 5.

Other Information

25

Item 6.

Exhibits

26

 

Signatures

27

 

 

 

PART I.     Financial Information

 

ITEM 1. Condensed Consolidated Financial Statements

 

APYX MEDICAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

  

September 30, 2024

     
  

(Unaudited)

  

December 31, 2023

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $28,013  $43,652 

Trade accounts receivable, net of allowance of $750 and $608

  13,036   14,023 

Inventories, net of provision for obsolescence of $930 and $875

  9,000   9,923 

Prepaid expenses and other current assets

  2,109   2,764 

Total current assets

  52,158   70,362 

Property and equipment, net of accumulated depreciation and amortization of $3,889 and $3,522

  1,905   1,915 

Operating lease right-of-use assets

  4,820   5,162 

Finance lease right-of-use assets

  53   69 

Other assets

  1,785   1,732 

Total assets

 $60,721  $79,240 

LIABILITIES AND EQUITY

        

Current liabilities:

        

Accounts payable

 $1,914  $2,712 

Accrued expenses and other current liabilities

  7,291   9,661 

Current portion of operating lease liabilities

  330   347 

Current portion of finance lease liabilities

  20   20 

Total current liabilities

  9,555   12,740 

Long-term debt, net of debt discounts and issuance costs

  33,853   33,185 

Long-term operating lease liabilities

  4,606   4,896 

Long-term finance lease liabilities

  38   53 

Long-term contract liabilities

  1,271   1,246 

Other liabilities

  201   198 

Total liabilities

  49,524   52,318 

EQUITY

        

Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 issued and outstanding as of September 30, 2024 and December 31, 2023

      

Common stock, $0.001 par value; 75,000,000 shares authorized; 34,643,926 issued and outstanding as of September 30, 2024, and 34,643,888 issued and outstanding as of December 31, 2023

  35   35 

Additional paid-in capital

  84,289   81,114 

Accumulated deficit

  (73,283)  (54,448)

Total stockholders’ equity

  11,041   26,701 

Non-controlling interest

  156   221 

Total equity

  11,197   26,922 

Total liabilities and equity

 $60,721  $79,240 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

APYX MEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2024

   

2023

   

2024

   

2023

 

Sales

  $ 11,487     $ 11,976     $ 33,880     $ 37,687  

Cost of sales

    4,533       3,998       13,484       12,857  

Gross profit

    6,954       7,978       20,396       24,830  

Other costs and expenses:

                               

Research and development

    1,142       1,409       3,963       4,037  

Professional services

    1,648       1,831       5,318       5,165  

Salaries and related costs

    3,508       4,534       12,886       14,329  

Selling, general and administrative

    4,291       4,841       14,026       15,474  

Total other costs and expenses

    10,589       12,615       36,193       39,005  

Gain on sale-leaseback

                      2,692  

Loss from operations

    (3,635 )     (4,637 )     (15,797 )     (11,483 )

Interest income

    378       248       1,312       478  

Interest expense

    (1,431 )     (585 )     (4,254 )     (1,362 )

Other income (expense), net

    24       (19 )     2       622  

Total other expense, net

    (1,029 )     (356 )     (2,940 )     (262 )

Loss before income taxes

    (4,664 )     (4,993 )     (18,737 )     (11,745 )

Income tax expense (benefit)

    60       (318 )     163       (2,519 )

Net loss

    (4,724 )     (4,675 )     (18,900 )     (9,226 )

Net loss attributable to non-controlling interest

    (21 )     (46 )     (65 )     (120 )

Net loss attributable to stockholders

  $ (4,703 )   $ (4,629 )   $ (18,835 )   $ (9,106 )
                                 

Loss per share:

                               

Basic and diluted

  $ (0.14 )   $ (0.13 )   $ (0.54 )   $ (0.26 )

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

APYX MEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(In thousands)

 

                   

Additional

           

Non-

         
   

Common Stock

   

Paid-In

   

Accumulated

   

controlling

   

Total

 
   

Shares

   

Par Value

   

Capital

   

Deficit

   

Interest

   

Equity

 

Balance at December 31, 2022

    34,598     $ 35     $ 73,282     $ (35,735 )   $ 211     $ 37,793  

Stock based compensation

                1,367                   1,367  

Proceeds received from issuance of warrants

                586                   586  

Net loss

                      (3,483 )     (49 )     (3,532 )

Balance at March 31, 2023

    34,598     $ 35     $ 75,235     $ (39,218 )   $ 162     $ 36,214  

Shares issued on stock options exercised for cash

    25             56                   56  

Stock based compensation

                1,482                   1,482  

Shares issued on net settlement of stock options

    6                                

Net loss

                      (994 )     (25 )     (1,019 )

Balance at June 30, 2023

    34,629     $ 35     $ 76,773     $ (40,212 )   $ 137     $ 36,733  

Contributions from non-controlling interest

                            147       147  

Shares issued on stock options exercised for cash

    10             30                   30  

Stock based compensation

                1,351                   1,351  

Shares issued on net settlement of stock options

    5                                

Net loss

                      (4,629 )     (46 )     (4,675 )

Balance at September 30, 2023

    34,644     $ 35     $ 78,154     $ (44,841 )   $ 238     $ 33,586  

 

 

                   

Additional

           

Non-

         
   

Common Stock

   

Paid-In

   

Accumulated

   

controlling

         
   

Shares

   

Par Value

   

Capital

   

Deficit

   

Interest

   

Total

 

Balance at December 31, 2023

    34,644     $ 35     $ 81,114     $ (54,448 )   $ 221     $ 26,922  

Stock based compensation

                1,128                   1,128  

Net loss

                      (7,576 )     (14 )     (7,590 )

Balance at March 31, 2024

    34,644     $ 35     $ 82,242     $ (62,024 )   $ 207     $ 20,460  

Stock based compensation

                1,050                   1,050  

Net loss

                      (6,556 )     (30 )     (6,586 )

Balance at June 30, 2024

    34,644     $ 35     $ 83,292     $ (68,580 )   $ 177     $ 14,924  

Stock based compensation

                997                   997  

Net loss

                      (4,703 )     (21 )     (4,724 )

Balance at September 30, 2024

    34,644     $ 35     $ 84,289     $ (73,283 )   $ 156     $ 11,197  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

APYX MEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   

Nine Months Ended September 30,

 
   

2024

   

2023

 

Cash flows from operating activities

               

Net loss

  $ (18,900 )   $ (9,226 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    457       540  

Provision for inventory obsolescence

    61       229  

Loss (gain) on disposal of property and equipment

    48       (2,656 )

Stock based compensation

    3,175       4,200  

Allowance for credit losses

    146       176  

Non-cash lease expense

    86       56  

Non-cash interest expense

    668       354  

Changes in operating assets and liabilities:

               

Trade receivables

    879       (2,192 )

Prepaid expenses and other assets

    542       (698 )

Income tax receivables

          7,545  

Inventories

    902       401  

Accounts payable

    (819 )     (613 )

Accrued and other liabilities

    (2,355 )     (1,153 )

Net cash used in operating activities

    (15,110 )     (3,037 )

Cash flows from investing activities

               

Purchases of property and equipment

    (477 )     (440 )

Proceeds from sale of property and equipment

          7,267  

Net cash (used in) provided by investing activities

    (477 )     6,827  

Cash flows from financing activities

               

Proceeds from stock option exercises

          86  

Proceeds from long-term debt

          9,289  

Payment of debt issuance costs

          (1,754 )

Proceeds from debt allocated to warrants

          586  

Repayment of finance lease liabilities

    (15 )     (32 )

Contributions from non-controlling interest

          147  

Net cash (used in) provided by financing activities

    (15 )     8,322  

Effect of exchange rates on cash

    (37 )     (170 )

Net change in cash and cash equivalents

    (15,639 )     11,942  

Cash and cash equivalents, beginning of period

    43,652       10,192  

Cash and cash equivalents, end of period

  $ 28,013     $ 22,134  

Cash paid for:

               

Interest

  $ 3,579     $ 834  

Income taxes

  $ 211     $ 261  

Non cash activities:

               

Right-of-use assets capitalized and operating lease liabilities recognized upon execution of lease

  $     $ 4,917  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

APYX MEDICAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1.     BASIS OF PRESENTATION

 

Apyx Medical Corporation (“Company”, “Apyx”, “it” and similar terms) was incorporated in 1982, under the laws of the State of Delaware and has its principal executive office at 5115 Ulmerton Road, Clearwater, FL 33760.

 

The Company is an advanced energy technology company with a passion for elevating people’s lives through innovative products, including its Helium Plasma Platform Technology products marketed and sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market. Renuvion and J-Plasma offer surgeons a unique ability to provide controlled heat to tissue to achieve their desired results. The Company also leverages its deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device manufacturers.

 

The accompanying unaudited condensed consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, please refer to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended  December 31, 2023. In the opinion of management these condensed consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of consolidated operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year.

 

Reclassifications

 

The Company has reclassified certain amounts presented in the prior period to conform to the current period presentation. These amounts primarily relate to management salaries that were previously included within salaries and related costs and are now included within research and development. These reclassifications had no impact on previously reported net loss, accumulated deficit or cash flows for the periods presented.

 

Liquidity

 

The Company has incurred recurring net losses and cash outflows from operations and anticipates that losses will continue, at least, in the near term. The Company plans to continue to fund operations and capital funding needs through existing cash, sales of its products and, if necessary, additional equity and/or debt financing. However, the Company cannot be certain that additional financing will be available when needed or that, if available, financing will be obtained on terms acceptable. The sale of additional equity would result in dilution to its stockholders. Incurring additional debt financing would result in further debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict operations. If the Company is unable to raise additional capital in sufficient amounts or on acceptable terms, it may be required to delay, limit, reduce, or terminate sales, marketing and product development. Any of these actions could harm the business, results of operations and prospects. In November 2024, the Company undertook a cost saving restructuring which included an organizational reduction in force to better focus, optimize and streamline operations. As a result of the organizational change, the Company reduced its US workforce by nearly 25%. The estimated annualized future cost savings from the reduction in force is approximately $4.3 million, which is expected to contribute to the goal of decreasing loss and achieving cash-flow breakeven. The Company will incur pre-tax charges of approximately $0.6 million in the fourth quarter of 2024 representing, for the most part, one-time cash expenditures for severance and other employee termination benefits. In addition to the reduction in force, the Company has eliminated bonuses in 2024, reduced the board of directors from eight to five members and reduced board cash compensation from $0.5 million annually to approximately $0.1 million.

 

In addition to the organizational changes, the Company has identified other direct cost savings it anticipates achieving in 2025. The identified cost savings include reductions in professional fees, lower research and development costs as we complete the development of Ayon, credit card fees and stock-based compensation. The Company foresees, in totality, these cost savings will reduce our annual operating expenses below $40 million.

 

6

 
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
 

 

NOTE 2.     RECENT ACCOUNTING PRONOUNCEMENTS

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280), to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. Amongst other amendments, the standard requires annual and interim disclosures of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), and interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually. This standard does not change how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) to improve income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this ASU are effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements.

 

No other new accounting pronouncement issued or effective during the fiscal year are expected to have a material impact on the Company’s condensed consolidated financial statements or disclosures.

 

 
 

NOTE 3.     INVENTORIES

 

Inventories consisted of the following:

 

   

September 30,

   

December 31,

 

(In thousands)

 

2024

   

2023

 

Raw materials

  $ 4,078     $ 4,112  

Work in process

    2,434       2,257  

Finished goods

    3,418       4,429  

Gross inventories

    9,930       10,798  

Less: provision for obsolescence

    (930 )     (875 )

Inventories, net

  $ 9,000     $ 9,923  
  
 

NOTE 4.     ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following:

 

   

September 30,

   

December 31,

 

(in thousands)

 

2024

   

2023

 

Accrued payroll

  $ 1,259     $ 829  

Accrued bonuses

          1,545  

Accrued commissions

    641       1,489  

Accrued product warranties

    458       445  

Accrued product liability claim insurance deductibles

    3,036       3,521  

Accrued professional fees

    485       518  

Short-term contract liabilities

    499       488  

Other accrued expenses and current liabilities

    913       826  

Total accrued expenses and other current liabilities

  $ 7,291     $ 9,661  

 

7

APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
 
 

NOTE 5.     DEBT

 

The Company’s outstanding debt with Perceptive Credit Holdings IV, LP (“Perceptive”) (as initial lender and administrative agent) (“Perceptive Credit Agreement”) at  September 30, 2024 and December 31, 2023 bears interest at a floating rate based on one-month SOFR, subject to a floor of 5.0%, plus 7.0% (12.2% at September 30, 2024). Included in interest expense for the three and nine months ended September 30, 2024 are $66,000 and $195,000, respectively, of amortization of the debt issuance costs and $159,000 and $473,000, respectively, of amortization of debt discounts. Included in interest expense for the three and nine months ended September 30, 2023 are $61,000 and $149,000, respectively, of amortization of the debt issuance costs and $84,000 and $205,000, respectively, of amortization of the debt discounts, including accretion of the exit fee on the Company’s prior credit agreement.

 

A $7.5 million delayed draw loan is available until December 31, 2024, conditioned upon, among other things, the achievement of a minimum revenue target. 

 

On November 7, 2024, the Company entered into an amendment to the Perceptive Credit Agreement. The amendment reduced the financial covenant trailing twelve-month revenue targets relating to its Advanced Energy segment (tested quarterly), with amended year-end targets of $34.4 million, $37.0 million, $52.4 million and $60.3 million for 2024, 2025, 2026 and 2027, respectively, and a target of $38.3 million for the quarter ended September 30, 2024. The amendment also introduced a maximum operating expense financial covenant, with full year targets of $40.0 million and $45.0 million for 2025 and 2026, respectively. The Perceptive Credit Agreement, as amended, continues to contain customary affirmative and negative covenants, including covenants limiting the ability of the Company and its subsidiaries, among other things, to incur debt, grant liens, make distributions, enter certain restrictive agreements, pay or modify subordinated debt, dispose of assets, make investments and acquisitions, enter into certain transactions with affiliates, and undergo certain fundamental changes, in each case, subject to limitations and exceptions set forth in the Perceptive Credit Agreement. Additionally, the Company must maintain a balance of $3.0 million in cash and cash equivalents during the term of the Perceptive Credit Agreement. As of September 30, 2024, the Company was in compliance with the financial covenants contained within the Perceptive Credit Agreement, as amended. The Company’s continued compliance with covenants is subject to meeting or exceeding forecasted Advanced Energy revenues, as amended, and reducing operating expenses. 

 

In connection with the amendment to the Perceptive Credit Agreement, the Company issued Perceptive 150,000 shares of its common stock. The Company is in the process of determining the proper accounting treatment for the amendment to the Perceptive Credit Agreement, including the issuance of the shares of common stock. 

 

In connection with the Company’s initial loan under the Perceptive Credit Agreement, the Company issued Perceptive warrants to purchase up to 1,250,000 shares of its common stock, with an exercise price of $2.43 per share.

 

The Company’s term loan under the Perceptive Credit Agreement, net consists of the following:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2024

  

2023

 

Term loan

 $37,500  $37,500 

Unamortized debt issuance costs

  (1,045)  (1,240)

Unamortized debt discount

  (2,602)  (3,075)

Term loan, net

 $33,853  $33,185 

 

As of September 30, 2024, principal repayments on the debt are as follows:

 

(In thousands)

    

2024

 $ 

2025

   

2026

   

2027

  2,216 

2028

  35,284 

Total repayments

 $37,500 

 

8

APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
 

NOTE 6.     CHINA JOINT VENTURE

 

In 2019, the Company executed a joint venture agreement with its Chinese supplier (the “China JV”) whereby the Company has a 51% ownership interest. The China JV has been consolidated in these condensed consolidated financial statements. The agreement required the Company to make capital contributions into the newly formed entity of approximately $357,000, which were made in prior years. In June 2023, the Company executed an amendment to the joint venture agreement to increase the amount of its registered capital. The amendment requires the Company to make additional capital contributions to the China JV of $255,000, of which $153,000 has been made as of September 30, 2024

 

Changes in the Company’s ownership investment in the China JV were as follows:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2024

  

2023

  

2024

  

2023

 

Beginning interest in China JV

 $184  $142  $229  $219 

Contributions

     153      153 

Net loss attributable to Apyx

  (22)  (48)  (67)  (125)

Ending interest in China JV

 $162  $247  $162  $247 
  
 

NOTE 7.     EARNINGS (LOSS) PER SHARE

 

Basic earnings (loss) per share (“basic EPS”) is computed by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period. Diluted earnings (loss) per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. As the Company is in a net loss position for all periods presented, all potential shares outstanding are anti-dilutive. The following table provides the computation of basic and diluted loss per share.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(in thousands, except per share data)

 

2024

   

2023

   

2024

   

2023

 

Numerator:

                               

Net loss attributable to stockholders

  $ (4,703 )   $ (4,629 )   $ (18,835 )   $ (9,106 )
                                 

Denominator:

                               

Weighted average shares outstanding - basic and diluted

    34,644       34,642       34,644       34,614  
                                 

Loss per share:

                               

Basic and diluted

  $ (0.14 )   $ (0.13 )   $ (0.54 )   $ (0.26 )
                                 

Anti-dilutive instruments excluded from diluted loss per common share:

                               

Options

    8,257       7,713       8,257       7,713  

Warrants

    1,500       250       1,500       250  

 

9

APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
 

NOTE 8.     STOCK-BASED COMPENSATION

 

Under the Company’s stock option plans, the Board of Directors may grant restricted stock and options to purchase common shares to the Company’s employees, officers, directors and consultants. The Company accounts for stock options in accordance with FASB ASC Topic 718, Compensation - Stock Compensation, with stock-based compensation expense recognized over the vesting period based on the fair value on the grant date utilizing the Black-Scholes model, which includes a number of estimates that affect the grant date fair value and the amount of expense to recognize.

 

The Company recognized approximately $997,000 and $3,175,000, respectively, in stock-based compensation expense during the three and nine months ended September 30, 2024, as compared with $1,351,000 and $4,200,000, respectively, for the three and nine months ended September 30, 2023.

 

Stock option activity is summarized as follows:

      

Weighted average

 
  

Number of options

  

exercise price

 

Outstanding at December 31, 2023

  7,342,883  $6.31 

Granted

  1,587,929   2.26 

Exercised

  (569)  2.50 

Canceled and forfeited

  (673,653)  6.61 

Outstanding at September 30, 2024

  8,256,590  $5.51 

 

The Company allows stock option holders to exercise stock-based awards by surrendering stock-based awards with an intrinsic value equal to the cumulative exercise price of the stock-based awards being exercised, referred to as net settlements. These surrenders are included in stock options exercised in the options rollforward above. There were no such exercises for the three months ended September 30, 2024. For the three months ended September 30, 2023, the Company received 6,662 options as payment in the exercise of 5,338 options. For the nine months ended September 30, 2024 and 2023, respectively, the Company received 531 and 10,967 options as payment in the exercise of 38 and 11,033 options.

 

Common shares required to be issued upon the exercise of stock options would be issued from authorized and unissued shares. The Company calculated the grant date fair value of options granted in 2024 (“2024 Grants”) utilizing a Black-Scholes model.

 

  

2024 Grants

 

Strike price

 

1.02 - 2.42

 

Risk-free rate

 3.9% - 4.2% 

Expected dividend yield

  

Expected volatility

 92.1% - 95.1% 

Expected term (in years)

 6 
  
 

NOTE 9.     INCOME TAXES

 

Income tax expense (benefit) was approximately $60,000 and $(318,000) with effective tax rates of (1.3)% and 6.4% for the three months ended September 30, 2024 and 2023, respectively. For the three months ended  September 30, 2024, the effective rate differs from the statutory rate primarily due to the full valuation allowance recorded on the net operating loss (“NOL”) and net deferred tax assets generated during the period. For the three months ended September 30, 2023, the effective rate differs from the statutory rate primarily due to interest income on the Company's income tax refund that it received during the quarter, partially offset by the full valuation allowance recorded on the NOL generated during the period.

 

Income tax expense (benefit) was approximately $163,000 and $(2,519,000) with effective tax rates of (0.9)% and 21.4% for the nine months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024, the effective rate differs from the statutory rate primarily due to the full valuation allowance recorded on the NOL and net deferred tax assets generated during the period. For the nine months ended September 30, 2023, the effective rate differs from the statutory rate primarily due to the reversal of the Company’s liability for uncertain tax positions, including accrued interest and penalties, of approximately $2.1 million, which were sustained upon the completion in January 2023 of the IRS examination of the Company’s 2018 through 2020 income tax returns and interest income on the Company’s income tax refund, partially offset by the valuation allowance on the NOL and net deferred tax assets generated during the period.

 

10

APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
 
 

NOTE 10.     COMMITMENTS AND CONTINGENCIES

 

Litigation

 

The medical device industry is characterized by frequent claims and litigation, and the Company may become subject to various claims, lawsuits and proceedings in the ordinary course of our business. Such claims may include claims by current or former employees, distributors and competitors, claims concerning the marketing and promotion of the Company’s products and product liability claims.

 

The Company is involved in a number of legal actions relating to the use of its Helium Plasma Platform Technology, which actions are being defended by the Company’s insurance carrier-appointed counsel. The outcomes of these legal actions are not within the Company’s control and may not be known for prolonged periods of time. Management has not yet received from carrier-appointed defense counsel the estimates of the net potential range of losses in all of these cases, as would be required to confirm whether all of the claims in total are adequately covered by the varying levels of aggregate insurance coverage available for each relevant insurance policy period; further, in the case of one of the Company’s carriers, the Company is in a dispute regarding the total level of coverage available. Notwithstanding the foregoing, in the opinion of management, the Company has meritorious defenses, and such claims are not expected, individually or in the aggregate, to result in a material, adverse effect on its financial condition, results of operations and cash flows. However, in the event that damages exceed the aggregate coverage limits of the Company’s policies or if its insurance carriers disclaim coverage, management believes it is possible that costs associated with these claims could have a material adverse impact on the consolidated financial condition, results of operations and cash flows.

 

The Company accrues a liability in its condensed consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is recorded. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded, actual results may differ from these estimates.

 

During 2022, the Company was notified of certain procedures alleged to have been performed by the same physician and which are currently the subject of two related products liability cases within the courts. During 2023, the Company was notified by its insurance carriers that all or most of the ten individual plaintiff’s allegations could be subject to separate deductibles notwithstanding the commonality of each underlying occurrence. During March 2024, two of the plaintiffs claims were dismissed by the courts. The Company has determined that a loss, comprised of estimated costs to defend the Company against the lawsuits, is probable and that the range of estimated losses is approximately $1,450,000 to $1,950,000. The Company recorded an estimated loss of $1,450,000 related to the matters during 2022. It is at least reasonably possible that a change in the actual amount of loss will occur in the near term, though management expects the actual amount of loss will be within the estimated range of losses.

 

During March 2024, the Company was named as a defendant in a number of product liability lawsuits filed under the direction of a single plaintiff’s tort firm alleging off-label use of Renuvion products and the Company’s mismarketing of the same. The suits are venued predominantly in Florida and nearly all involve procedures conducted prior to 2023, which was before the Company received FDA 510k clearance for the use of Renuvion in the types of procedures at issue. The Company denies liability and intends to vigorously defend these suits and believes that it has applicable substantive and procedural defenses. The Company has determined that a loss, comprised of estimated costs to defend the Company against the lawsuits, is probable and currently estimates the range of losses in connection with these matters to be between $1,300,000 and $1,500,000. The Company recorded an estimated loss of $1,300,000 related to these matters during 2023. The Company has also determined that there is a reasonable possibility that there will be an additional loss related to the matters, but the Company is unable to provide an estimate of the range of such additional loss at this time.

 

Purchase Commitments

 

At September 30, 2024, the Company had purchase commitments totaling approximately $2.7 million, substantially all of which is expected to be purchased within the next twelve months.

 

11

APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
 
 

NOTE 11.     RELATED PARTY TRANSACTIONS

 

Two relatives of Nikolay Shilev, Apyx Bulgaria’s Managing Director, are considered related parties. Teodora Shileva, Mr. Shilev’s spouse, is an employee of the Company working in the accounting department. Svetoslav Shilev, Mr. Shilev’s son, is a quality manager in the quality assurance department.

 

The partner in the Company’s China JV is also a supplier to the Company. For the three months ended September 30, 2024 and 2023, the Company made purchases from this supplier of approximately $189,000 and $50,000, respectively. For the nine months ended September 30, 2024 and 2023, the Company made purchases from this supplier of approximately $282,000 and $501,000, respectively. At September 30, 2024 and December 31, 2023, respectively, the Company had net payables to this supplier of approximately $30,000 and $82,000, respectively.

 

NOTE 12.     GEOGRAPHIC AND SEGMENT INFORMATION

 

Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, the Company also considers the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to its chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors. Asset information is not reviewed by the chief operating decision maker by segment and is not available by segment, accordingly, the Company has not presented a measure of assets by segment.

 

The Company’s reportable segments are disclosed as principally organized and managed as two operating segments: Advanced Energy and OEM. “Corporate & Other” includes certain unallocated corporate and administrative costs which were not specifically attributed to any reportable segment. The OEM segment is primarily development and manufacturing contract and product driven. As a result, all related expenses are recorded as cost of sales and, therefore, there are no segment specific operating expenses incurred.

 

Summarized financial information with respect to reportable segments is as follows:

 

  

Three Months Ended September 30, 2024

 

(In thousands)

 

Advanced Energy

  

OEM

  

Corporate & Other

  

Total

 

Sales

 

 $9,288  $2,199  $  $11,487 
                 

(Loss) income from operations

  (469)  373   (3,539)  (3,635)
                 

Interest income

        378   378 

Interest expense

        (1,431)  (1,431)

Other income, net

        24   24 

Income tax expense

        60   60 

 

  

Three Months Ended September 30, 2023

 

(In thousands)

 

Advanced Energy

  

OEM

  

Corporate & Other

  

Total

 

Sales

 $9,836  $2,140  $  $11,976 
                 

Income (loss) from operations

  (63)  591   (5,165)  (4,637)
                 

Interest income

        248   248 

Interest expense

        (585)  (585)

Other loss, net

        (19)  (19)

Income tax benefit

        (318)  (318)

 

12

APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
 
  

Nine Months Ended September 30, 2024

 

(In thousands)

 

Advanced Energy

  

OEM

  

Corporate & Other

  

Total

 

Sales

 $26,507  $7,373  $  $33,880 
                 

(Loss) income from operations

  (5,105)  1,566   (12,258)  (15,797)
                 

Interest income

        1,312   1,312 

Interest expense

        (4,254)  (4,254)

Other income, net

        2   2 

Income tax expense

        163   163 

 

  

Nine Months Ended September 30, 2023

 

(In thousands)

 

Advanced Energy

  

OEM

  

Corporate & Other

  

Total

 

Sales

 $31,248  $6,439  $  $37,687 
                 

(Loss) income from operations

  (950)  1,795   (12,328)  (11,483)
                 

Interest income

        478   478 

Interest expense

        (1,362)  (1,362)

Other income, net

        622   622 

Income tax benefit

        (2,519)  (2,519)

 

International sales represented approximately 32.2% and 30.8% of total revenues for the three and nine months ended September 30, 2024, respectively, as compared with approximately 27.8% and 26.6% of total revenues for the three and nine months ended September 30, 2023, respectively.

 

Sales by geographic region, based on the customer's “ship to” location on the invoice, are as follows:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2024

  

2023

  

2024

  

2023

 

Sales by Domestic and International

                

Domestic

 $7,793  $8,652  $23,459  $27,660 

International

  3,694   3,324   10,421   10,027 

Total

 $11,487  $11,976  $33,880  $37,687 
 

 

 

NOTE 13.     SUBSEQUENT EVENTS

 

On November 7, 2024, the Company closed a $7.0 million registered direct offering with a healthcare-focused fund and issued 3,000,000 shares of common stock and 2,934,690 of prefunded warrants to purchase shares of common stock with an exercise price of $.001 per share.

 

On November 7, 2024, the Company executed an amendment to the Perceptive Credit Agreement. See Note 5.

 

During November 2024, the Company reduced its US workforce by nearly 25%, reduced the board of directors from eight to five members and reduced board cash compensation. See Note 1.

 

13

 

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis in conjunction with our financial statements and related notes contained elsewhere in this report and with the audited consolidated financial statements and footnotes as of and for the year ended December 31, 2023 contained within our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 21, 2024. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors discussed in this report and those discussed in other documents we file with the SEC. In light of these risks, uncertainties and assumptions, readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements represent beliefs and assumptions as of the date of this report. While we may elect to update forward-looking statements and at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Past performance does not guarantee future results.

 

Executive Level Overview

 

We are an advanced energy technology company with a passion for elevating people’s lives through innovative products, including our Helium Plasma Platform Technology products marketed and sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market. Renuvion and J-Plasma offer surgeons a unique ability to provide controlled heat to tissue to achieve their desired results. We also leverage our deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device manufacturers.

 

We operate in two business segments: OEM and Advanced Energy. The OEM segment is primarily development and manufacturing contract and product driven. The Advanced Energy segment sells both capital equipment and consumables in the form of a single use handpiece. Sales of handpiece units are a substantial portion of our business and for the nine months ended September 30, 2024 and 2023, we sold approximately 64,000 and 59,000 units, respectively. In the third quarter, our handpiece revenue grew 9% overall and 15% in the United States and handpiece revenue now accounts for more than 60% of our total Advanced Energy revenue.

 

Recent activities:

 

Glucagon- like peptide -1 peptide receptor agonists (GLP-1’s), such as Mounjaro®, Wegovy® and Ozempic®, are prescribed for the treatment of diabetes and or weight loss in combination with exercise to improve glycemic control. GLP-1’s have also been found to mimic the GLP-1 satiety hormone in our bodies. When one eats, GLP-1 is released in the small intestines regulating blood sugar and sending signals to the brain centers that control appetite. Studies have shown patients taking GLP-1’s have experienced a loss of body weight. Currently, two GLP-1’s are cleared by the FDA for weight loss, but we anticipate a number of additional drug candidates will be cleared as well as, oral versions of these injectable medications.

 

We believe the increased use of GLP-1’s may have had an initial negative impact on the number of liposuction procedures and created uncertainty in the aesthetic space.  However, we believe, as these drugs will have a ripple effect that will eventually drive people towards plastic surgery and will provide a tailwind for sales of our Renuvion products. Rapid weight loss caused by these drugs can contribute to loose skin, particularly in the curvier areas of the body. To address this, the cosmetic surgery market is focusing on body contouring. Body contouring is a customizable treatment for patients to target specific fat deposits, engage in fat transfer, and treatments to address loose or lax skin. Renuvion is the only FDA approved device for the treatment of this issue post liposuction. Additionally, Renuvion may be used to treat skin laxity without the use of liposuction, potentially increasing the total available market for our products.

 

APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

 

Liquidity:

 

We have incurred recurring net losses and cash outflows from operations and we anticipate that losses will continue in the near term. We plan to continue to fund our operations and capital funding needs through existing cash, sales of our products and, if necessary, additional equity and/or debt financing.  However, we cannot be certain that additional financing will be available when needed or that, if available, financing will be obtained on terms acceptable to us. The sale of additional equity would result in dilution to our stockholders. Incurring additional debt financing would result in further debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, we may be required to delay, limit, reduce, or terminate our sales, marketing and product development. Any of these actions could harm our business, results of operations and prospects. In November 2024, we undertook a cost saving restructuring which included an organizational reduction in force to better focus, optimize and streamline operations. As a result of the organizational changes, we reduced our workforce by nearly 25%. We estimate the annualized future cost savings from the reduction in force to be approximately $4.3 million which we expect to contribute to our goal of decreasing loss and achieving cash-flow breakeven. We will incur pre-tax charges of approximately $0.6 million in the fourth quarter of 2024 representing, for the most part, one-time cash expenditures for severance and other employee termination benefits. In addition, to the reduction in force, we have eliminated bonuses in 2024, reduced the board of directors from eight to five members and reduced board cash compensation from $0.5 million annually to $0.1 million.

 

In addition to the organizational changes, we have identified other direct cost savings we anticipate achieving in 2025. The identified cost savings include reductions in professional fees, lower research and development costs as we complete the development of Ayon, credit card fees and stock-based compensation. We foresee, in totality, these cost savings will reduce our annual operating expenses below $40 million in 2025.

 

In regards to our operating segments, our results are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, availability of discrete financial information, and information presented to the Board of Directors and investors. Asset information is not reviewed by the chief operating decision maker by segment and is not available by segment and, accordingly, we have not presented a measure of assets by reportable segment.

 

Our reportable segments are disclosed as principally organized and managed as two operating segments: Advanced Energy and OEM. “Corporate & Other” includes certain unallocated corporate and administrative costs which are not specifically attributed to any reportable segment. The OEM segment is primarily development and manufacturing contract and product driven, and all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.

 

We strongly encourage investors to visit our website: www.apyxmedical.com to view the most current news and to review our filings with the Securities and Exchange Commission.

 

15

APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

 

Results of Operations

 

Sales

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         

(In thousands)

 

2024

   

2023

   

Change

   

2024

   

2023

   

Change

 

Sales by Reportable Segment

                                               

Advanced Energy

  $ 9,288     $ 9,836       (5.6 )%   $ 26,507     $ 31,248       (15.2 )%

OEM

    2,199       2,140       2.8 %     7,373       6,439       14.5 %

Total

  $ 11,487     $ 11,976       (4.1 )%   $ 33,880     $ 37,687       (10.1 )%
                                                 

Sales by Domestic and International

                                               

Domestic

  $ 7,793     $ 8,652       (9.9 )%   $ 23,459     $ 27,660       (15.2 )%

International

    3,694       3,324       11.1 %     10,421       10,027       3.9 %

Total

  $ 11,487     $ 11,976       (4.1 )%   $ 33,880     $ 37,687       (10.1 )%

 

Total revenue decreased by 4.1%, or approximately $0.5 million, for the three months ended September 30, 2024 when compared with the three months ended September 30, 2023. Advanced Energy segment sales decreased 5.6%, or approximately $0.5 million, for the three months ended September 30, 2024 when compared with the three months ended September 30, 2023. The Advanced Energy sales decrease was driven by a lower average selling price of generators to domestic customers, fewer domestic customer upgrades to the Apyx One Console and a decrease in international sales of new generators. These decreases were partially offset by an increased volume of single-use handpieces domestically and sales of upgrades to the Apyx One Console internationally. OEM segment sales increased 2.8%, or approximately $0.1 million, for the three months ended September 30, 2024 when compared with the three months ended September 30, 2023. The increase in OEM sales was due to increases in sales volume to existing customers, including Symmetry Surgical under our 10-year generator manufacturing and supply agreement.

 

Total revenue decreased by 10.1%, or approximately $3.8 million, for the nine months ended September 30, 2024 when compared with the nine months ended September 30, 2023. Advanced Energy segment sales decreased 15.2%, or approximately $4.7 million, for the nine months ended September 30, 2024 when compared with the nine months ended September 30, 2023. The Advanced Energy sales decrease was driven by lower sales of our generators in both domestic and some international markets as a result of economic uncertainty in the capital equipment market that is being experienced in the aesthetic space and a lower average selling price of generators to domestic customers as a result of this market. These decreases were partially offset by increased volume of single-use handpieces globally and sales of Apyx One Console upgrades internationally. OEM segment sales increased 14.5%, or approximately $0.9 million, for the nine months ended September 30, 2024 when compared with the nine months ended September 30, 2023. The increase in OEM sales was due to increases in sales volume to existing customers, including Symmetry Surgical under our 10-year generator manufacturing and supply agreement.

 

International sales represented approximately 32.2% and 30.8% of total revenues for the three and nine months ended September 30, 2024, respectively, as compared with 27.8% and 26.6% of total revenues for the same period in the prior year. Management estimates our products have been sold in more than 60 countries through local dealers coordinated by sales and marketing personnel through our facilities in Clearwater, Florida and Sofia, Bulgaria.

 

16

APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

 

Gross Profit

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         

(In thousands)

 

2024

   

2023

   

Change

   

2024

   

2023

   

Change

 

Cost of sales

  $ 4,533     $ 3,998       13.4 %   $ 13,484     $ 12,857       4.9 %

Percentage of sales

    39.5 %     33.4 %             39.8 %     34.1 %        

Gross profit

  $ 6,954     $ 7,978       (12.8 )%   $ 20,396     $ 24,830       (17.9 )%

Percentage of sales

    60.5 %     66.6 %             60.2 %     65.9 %        

 

Gross profit for the three months ended September 30, 2024, decreased 12.8% to $7.0 million, compared to $8.0 million for the same period in the prior year. Gross margin for the three months ended September 30, 2024, was 60.5%, compared to 66.6% for the same period in 2023. The decrease in gross profit margins for the three months ended September 30, 2024 from the prior year period is primarily attributable to a decrease in the average selling price of generators to domestic customers, changes in the sales mix between our two segments, with our OEM segment comprising a higher percentage of total sales and geographic mix within our Advanced Energy segment, with international sales comprising a higher percentage of total sales.

 

Gross profit for the nine months ended September 30, 2024, decreased 17.9% to $20.4 million, compared to $24.8 million for the same period in the prior year. Gross margin for the nine months ended September 30, 2024, was 60.2%, compared to 65.9% for the same period in 2023. The decrease in gross profit margins for the nine months ended September 30, 2024 from the prior year period is primarily attributable to a decrease in the average selling price of generators to domestic customers, changes in the sales mix between our two segments, with our OEM segment comprising a higher percentage of total sales and geographic mix within our Advanced Energy segment, with international sales comprising a higher percentage of total sales.

 

Other Costs and Expenses

 

Research and development

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         

(In thousands)

 

2024

   

2023

   

Change

   

2024

   

2023

   

Change

 

Research and development expense

  $ 1,142     $ 1,409       (18.9 )%   $ 3,963     $ 4,037       (1.8 )%

Percentage of sales

    9.9 %     11.8 %             11.7 %     10.7 %        

 

Research and development expenses decreased 18.9% for the three months ended September 30, 2024, primarily due to lower compensation and benefits costs ($0.2 million) and lower spending on our product development initiatives and clinical studies ($0.1 million). 

 

Research and development expenses decreased 1.8% for the nine months ended September 30, 2024, primarily due to lower compensation and benefits costs ($0.1 million).

 

Professional services

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         

(In thousands)

 

2024

   

2023

   

Change

   

2024

   

2023

   

Change

 

Professional services expense

  $ 1,648     $ 1,831       (10.0 )%   $ 5,318     $ 5,165       3.0 %

Percentage of sales

    14.3 %     15.3 %             15.7 %     13.7 %        

 

Professional services expense decreased 10.0% for the three months ended September 30, 2024, primarily due to decreases in accounting and audit fees ($0.1 million), board of director’s stock-based compensation expense ($0.1 million) and recruiting expenses ($0.2 million). These decreases were partially offset by an increase in physician and marketing consulting ($0.2 million). 

 

17

APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

 

Professional services expense increased 3.0% for the nine months ended September 30, 2024, primarily due to increases in physician and marketing consulting ($0.4 million) and legal expenses ($0.4 million), as a result of the reversal of a legal loss contingency in the prior year period. These decreases were partially offset by decreases in board of director’s stock-based compensation expense ($0.4 million), accounting and audit fees ($0.2 million) and recruiting expenses ($0.1 million).

 

Salaries and related costs

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         

(In thousands)

 

2024

   

2023

   

Change

   

2024

   

2023

   

Change

 

Salaries and related expenses

  $ 3,508     $ 4,534       (22.6 )%   $ 12,886     $ 14,329       (10.1 )%

Percentage of sales

    30.5 %     37.9 %             38.0 %     38.0 %        

 

During the three months ended September 30, 2024, salaries and related expenses decreased 22.6%, primarily due to a decrease in bonus expense ($0.8 million) as we, based on the continued impact to the business as a result of economic uncertainty in the capital equipment market that is being experienced in the aesthetic space, reversed our entire annual bonus accrual during the quarter and lower stock based compensation expense ($0.2 million).

 

During the nine months ended September 30, 2024, salaries and related expenses decreased 10.1%, primarily due to a decrease in bonus expense ($0.7 million) as we, based on the continued impact to the business as a result of economic uncertainty in the capital equipment market that is being experienced in the aesthetic space, reversed our entire annual bonus accrual during the third quarter, lower stock based compensation expense ($0.6 million) and temporary labor expenses ($0.2 million). These decreases were partially offset by an increase in salaries and related taxes and benefits ($0.1 million).

 

Selling, general and administrative expenses

 

   

Three Months Ended

           

Nine Months Ended

         
   

September 30,

           

September 30,

         

(In thousands)

 

2024

   

2023

   

Change

   

2024

   

2023

   

Change

 

SG&A expense

  $ 4,291     $ 4,841       (11.4 )%   $ 14,026     $ 15,474       (9.4 )%

Percentage of sales

    37.4 %     40.4 %             41.4 %     41.1 %        

 

During the three months ended September 30, 2024, selling, general and administrative expense decreased 11.4%, primarily due to decreases in commissions ($0.3 million), advertising expense, including trade show fees and related costs ($0.1 million), insurance expense, including claims on our policies ($0.1 million) and foreign currency gains and losses ($0.1 million). These decreases were partially offset by higher meeting and training costs ($0.1 million).

 

During the nine months ended September 30, 2024, selling, general and administrative expense decreased 9.4%, primarily due to decreases in commissions ($1.6 million), advertising expense, including trade show fees and related costs ($0.3 million), insurance expense, including claims on our policies ($0.2 million), travel expense ($0.1 million) and payment processing fees ($0.1 million). These decreases were partially offset by higher meeting and training costs ($0.7 million) and building lease expense ($0.2 million).

 

Gain on sale-leaseback

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In thousands)

 

2024

   

2023

   

2024

   

2023

 

Gain on sale-leaseback

  $     $     $     $ 2,692  

Percentage of sales

    %     %     %     7.1 %

 

Gain on sale-leaseback for the nine months ended September 30, 2023 was approximately $2.7 million as a result of the gain on the sale and leaseback of our Clearwater, FL facility in May 2023.

 

18

APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

 

Interest Income (Expense)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(In thousands)

 

2024

   

2023

   

2024

   

2023

 

Interest income

  $ 378     $ 248     $ 1,312     $ 478  

Percentage of sales

    3.3 %     2.1 %     3.9 %     1.3 %

Interest expense

  $ (1,431 )   $ (585 )   $ (4,254 )   $ (1,362 )

Percentage of sales

    (12.5 )%     (4.9 )%     (12.6 )%     (3.6 )%

 

Interest income increased approximately $0.1 million and $0.8 million, respectively, for the three and nine months ended September 30, 2024, when compared with the same periods the prior year. These increases are due to a higher average balance in our investments in money market funds and U.S. Treasury securities included in cash and cash equivalents.

 

I