Company Quick10K Filing
Bovie Medical
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 34 $205
10-Q 2019-11-15 Quarter: 2019-09-30
10-Q 2019-08-07 Quarter: 2019-06-30
10-Q 2019-05-08 Quarter: 2019-03-31
10-K 2019-03-14 Annual: 2018-12-31
10-Q 2018-11-02 Quarter: 2018-09-30
10-Q 2018-08-01 Quarter: 2018-06-30
10-Q 2018-05-15 Quarter: 2018-03-31
10-K 2018-03-13 Annual: 2017-12-31
10-Q 2017-11-03 Quarter: 2017-09-30
10-Q 2017-08-03 Quarter: 2017-06-30
10-Q 2017-05-15 Quarter: 2017-03-31
10-K 2017-03-10 Annual: 2016-12-31
10-Q 2016-10-27 Quarter: 2016-09-30
10-Q 2016-08-02 Quarter: 2016-06-30
10-Q 2016-05-11 Quarter: 2016-03-31
10-K 2016-03-18 Annual: 2015-12-31
10-Q 2015-11-05 Quarter: 2015-09-30
10-Q 2015-08-07 Quarter: 2015-06-30
10-Q 2015-05-08 Quarter: 2015-03-31
10-K 2015-02-27 Annual: 2014-12-31
10-Q 2014-11-10 Quarter: 2014-09-30
10-Q 2014-08-08 Quarter: 2014-06-30
10-Q 2014-05-15 Quarter: 2014-03-31
10-K 2014-03-31 Annual: 2013-12-31
10-Q 2013-11-14 Quarter: 2013-09-30
10-Q 2013-08-14 Quarter: 2013-06-30
10-Q 2013-05-15 Quarter: 2013-03-31
10-K 2013-04-01 Annual: 2012-12-31
10-Q 2012-11-14 Quarter: 2012-09-30
10-Q 2012-08-14 Quarter: 2012-06-30
10-Q 2012-05-15 Quarter: 2012-03-31
10-K 2012-03-29 Annual: 2011-12-31
10-Q 2011-11-14 Quarter: 2011-09-30
10-Q 2011-08-12 Quarter: 2011-06-30
10-Q 2011-05-12 Quarter: 2011-03-31
10-K 2011-03-31 Annual: 2010-12-31
10-Q 2010-11-09 Quarter: 2010-09-30
10-Q 2010-08-09 Quarter: 2010-06-30
10-Q 2010-05-10 Quarter: 2010-03-31
10-K 2010-03-16 Annual: 2009-12-31
8-K 2019-12-03 Other Events, Exhibits
8-K 2019-11-11 Earnings, Exhibits
8-K 2019-10-14 Other Events, Exhibits
8-K 2019-10-14 Other Events, Exhibits
8-K 2019-08-07 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-06-03 Accountant, Exhibits
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-04-26
8-K 2019-04-01 Earnings, Other Events, Exhibits
8-K 2019-03-13 Earnings, Exhibits
8-K 2019-01-23 Enter Agreement
8-K 2019-01-07 Earnings, Exhibits
8-K 2018-12-28 Amend Bylaw, Exhibits
8-K 2018-12-17 Officers, Other Events, Exhibits
8-K 2018-12-12 Other Events, Exhibits
8-K 2018-11-13 Officers, Other Events, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-09-05 Other Events, Exhibits
8-K 2018-08-30 M&A, Officers, Shareholder Vote, Other Events, Exhibits
8-K 2018-08-01 Earnings, Exhibits
8-K 2018-07-09 Enter Agreement, Earnings, Officers, Other Events, Exhibits
8-K 2018-05-14 Earnings, Exhibits
8-K 2018-05-03 Amend Bylaw, Exhibits
8-K 2018-03-14 Officers, Other Events, Exhibits
8-K 2018-03-12 Earnings, Exhibits
BVX 2019-09-30
Part I. Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. Inventories
Note 3. Accrued Expenses and Other Current Liabilties
Note 4. Recent Accounting Pronouncements
Note 5. Earnings per Share
Note 6. Stock-Based Compensation
Note 7. Income Taxes
Note 8. Commitments and Contingencies
Note 9. Related Party Transactions
Note 10. Financial Instruments
Note 11. Geographic and Segment Information
Note 12. Foreign Currency Transactions
Note 13. Leases
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 a2019q3apyx10-qexhibit311.htm
EX-31.2 a2019q3apyx10-qexhibit312.htm
EX-32.1 a2019q3apyx10-qexhibit321.htm
EX-32.2 a2019q3apyx10-qexhibit322.htm

Bovie Medical Earnings 2019-09-30

BVX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CWGL 218 246 36 69 31 0 9 229 45% 24.9 0%
ISBA 218 1,825 1,616 6 0 15 37 182 0% 5.0 1%
XRM 218 547 698 492 49 -11 34 744 10% 22.1 -2%
AXLA 210 122 32 0 0 -26 -26 119 -4.6 -21%
PCC 210 5 4 14 3 1 1 210 19% 142.3 15%
BVX 205 89 8 22 14 -13 -16 137 65% -8.6 -14%
IDYA 204 133 13 0 0 -11 -10 84 -8.1 -8%
FSNT 200 1 0 1 1 2 2 200 86% 128.6 142%
SBRT 195 13 108 3 -0 -53 -46 194 -11% -4.2 -411%
CORVF 194 10 1 0 0 -11 -11 190 -16.7 -110%

10-Q 1 a2019q310-q.htm 10-Q Document
 
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
 
or
 
o 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: 0-12183
apyxmedicallogotagline.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 Stock Market, LLC

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: ý No o
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: ý No o
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 (Check one):
Large accelerated filer
o
 
Accelerated filer
ý

Non-accelerated filer
o
 
Smaller reporting company
ý
 
 
 
Emerging growth company
o
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.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o No ý

As of November 11, 2019, 34,168,230 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, 2019
(Unaudited)

 
 
 
 
Page
Part I.
 
 
 
 
 
 
 
Item 1.
 
 
 
 
Consolidated Balance Sheets at September 30, 2019 and December 31, 2018
 
 
 
Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018
 
 
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
 
 
Part II.
 
 
 
 
 
 
 
Item 1.
 
 
Item 1A.
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
Item 5.
 
 
Item 6.
 
 
 
 
 

1

APYX MEDICAL CORPORATION

PART I.     Financial Information

ITEM 1. Financial Statements

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data, Unaudited)
 
September 30,
2019
 
December 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
62,272

 
$
16,466

Short term investments

 
61,678

Trade accounts receivable, net of allowance of $354 and $428
7,662

 
5,015

Inventories, net of provision for obsolescence of $439 and $439
7,237

 
5,212

Prepaid expenses and other current assets
1,734

 
1,146

Total current assets
78,905

 
89,517

Property and equipment, net
6,645

 
5,788

Operating lease right-of-use assets
368

 

Finance lease right-of-use assets
638

 

Other assets
387

 
305

Total assets
$
86,943

 
$
95,610

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,457

 
$
1,423

Accrued expenses and other liabilities
7,285

 
6,162

Current portion of operating lease liabilities
101

 

Current portion of finance lease liabilities
196

 

Total current liabilities
9,039

 
7,585

Note payable
140

 
140

Long-term operating lease liabilities
248

 

Long-term finance lease liabilities
444

 

Contract liabilities
339

 

Total liabilities
10,210

 
7,725

STOCKHOLDERS’ EQUITY
 
 
 
Common stock, $0.001 par value; 75,000,000 shares authorized; 34,120,065 issued and 33,977,490 outstanding as of September 30, 2019, and 33,847,100 issued and 33,704,525 outstanding as of December 31, 2018
34

 
34

Additional paid-in capital
55,668

 
52,920

Retained earnings
21,031

 
34,931

Total stockholders’ equity
76,733

 
87,885

Total liabilities and stockholders’ equity
$
86,943

 
$
95,610

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

2

APYX MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, Unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Sales
$
7,575

 
$
3,672

 
$
19,772

 
$
10,760

Cost of sales
2,558

 
1,151

 
6,757

 
3,490

Gross profit
5,017

 
2,521

 
13,015

 
7,270

Other costs and expenses:
 
 
 
 
 
 
 
Research and development
936

 
613

 
2,634

 
1,890

Professional services
1,996

 
628

 
5,756

 
1,815

Salaries and related costs
3,020

 
2,119

 
9,691

 
5,734

Selling, general and administrative
3,762

 
1,957

 
9,869

 
6,280

Total other costs and expenses
9,714

 
5,317

 
27,950

 
15,719

Loss from operations
(4,697
)
 
(2,796
)
 
(14,935
)
 
(8,449
)
Interest income
327

 
135

 
1,153


135

Interest expense

 
(30
)
 

 
(102
)
Other income (losses), net
230

 
(155
)
 
5

 
(155
)
Change in value of derivative liabilities

 

 

 
20

Total other income (expense), net
557

 
(50
)
 
1,158

 
(102
)
Loss before income taxes
(4,140
)
 
(2,846
)
 
(13,777
)
 
(8,551
)
Income tax expense (benefit)
171

 
(2,408
)
 
123

 
(2,384
)
Loss from continuing operations
(4,311
)
 
(438
)
 
(13,900
)
 
(6,167
)
Income from discontinued operations, net of tax

 
540

 

 
5,062

Gain on sale of Core Business, net of tax

 
69,072

 

 
69,072

Total income from discontinued operations, net of tax

 
69,612

 

 
74,134

Net income (loss)
$
(4,311
)
 
$
69,174

 
$
(13,900
)

$
67,967

 
 
 
 
 
 
 
 
EPS from continuing operations:
 
 
 
 
 
 
 
Basic and diluted
$
(0.13
)
 
$
(0.01
)
 
$
(0.41
)
 
$
(0.19
)
 
 
 
 
 
 
 
 
EPS from discontinued operations:
 
 
 
 
 
 
 
Basic
$

 
$
2.09

 
$

 
$
2.25

Diluted
$

 
$
1.99

 
$

 
$
2.19

 
 
 
 
 
 
 
 
EPS from total operations:
 
 
 
 
 
 
 
Basic
$
(0.13
)
 
$
2.08

 
$
(0.41
)
 
$
2.06

Diluted
$
(0.13
)
 
$
1.98

 
$
(0.41
)
 
$
2.00


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

3

APYX MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, Unaudited)
Three months ended September 30, 2018 and 2019
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings (Accumulated deficit)
 
Total
 
Shares
 
Par Value
 
 
 
Balance
June 30, 2018
32,913

 
$
33

 
$
51,244

 
$
(29,703
)
 
$
21,574

Options exercised
28

 

 
65

 

 
65

Stock based compensation

 

 
489

 

 
489

Shares issued on net settlement of stock options
679

 

 

 

 

Net income

 

 

 
69,174

 
69,174

Balance
September 30, 2018
33,620

 
33

 
$
51,798

 
$
39,471

 
$
91,302

 
 
 
 
 
 
 
 
 
 
Balance
June 30, 2019
33,921

 
$
34

 
$
55,086

 
$
25,342

 
$
80,462

Options exercised
21

 

 
39

 

 
39

Stock based compensation

 

 
543

 

 
543

Shares issued on net settlement of stock options
35

 

 

 

 

Net Loss

 

 

 
(4,311
)
 
(4,311
)
Balance
September 30, 2019
33,977

 
$
34

 
$
55,668

 
$
21,031

 
$
76,733

 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2018 and 2019
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings (Accumulated deficit)
 
Total
 
Shares
 
Par Value
 
 
 
Balance
December 31, 2017
32,878

 
$
33

 
$
50,495

 
$
(28,496
)
 
$
22,032

Options exercised
28

 

 
65

 

 
65

Stock based compensation

 

 
1,238

 

 
1,238

Shares issued on net settlement of warrants
17

 

 

 

 

Shares issued on net settlement of stock options
697

 

 

 

 

Net income

 

 

 
67,967

 
67,967

Balance
September 30, 2018
33,620

 
$
33

 
$
51,798

 
$
39,471

 
$
91,302

 
 
 
 
 
 
 
 
 
 
Balance
December 31, 2018
33,705

 
$
34

 
$
52,920

 
$
34,931

 
$
87,885

Options exercised
51

 

 
154

 

 
154

Stock based compensation

 

 
2,594

 

 
2,594

Shares issued on net settlement of stock options
221

 

 

 

 

Net loss

 

 

 
(13,900
)
 
(13,900
)
Balance
September 30, 2019
33,977

 
$
34

 
$
55,668

 
$
21,031

 
$
76,733

 



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

4

APYX MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)
 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net (loss) income
$
(13,900
)
 
$
67,967

Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Gain on sale of the Core Business, net of tax

 
(69,072
)
Depreciation and amortization
510

 
429

Provision for inventory obsolescence
115

 

Unrealized gain on foreign currency remeasurement
(12
)
 

Loss on disposal of property and equipment
19

 

Stock based compensation
2,594

 
1,238

Change in fair value of derivative liabilities

 
(20
)
Net, non cash lease expense
2

 

Realized and unrealized gains on short term investments
(164
)
 
(47
)
Provision for allowance for doubtful accounts
(94
)
 
123

Benefit of deferred taxes

 
(368
)
Changes in operating assets and liabilities:
 
 


Trade receivables
(2,580
)
 
654

Prepaid expenses
(596
)
 
(188
)
Inventories
(2,463
)
 
(1,706
)
Deposits and other assets
(131
)
 
(9
)
Accounts payable
50

 
765

Accrued and other liabilities
1,556

 
(2,601
)
Net cash used in operating activities
(15,094
)
 
(2,835
)
Cash flows from investing activities

 


Purchases of property and equipment
(1,076
)
 
(203
)
Purchases of marketable securities
(18,884
)
 
(55,433
)
Proceeds from maturities of marketable securities
80,726

 

Proceeds from the disposition of Core business

 
91,095

Net cash provided by investing activities
60,766

 
35,459

Cash flows from financing activities


 


Proceeds from stock options
154

 
65

Repayment of finance lease liabilities
(2
)
 

Repayment of mortgage note payable

 
(2,694
)
Net cash provided by (used in) financing activities
152

 
(2,629
)
Effect of foreign currency translation on cash
(18
)
 

Net change in cash, cash equivalents and restricted cash
45,806

 
29,995

Cash, cash equivalents and restricted cash, beginning of period
16,466

 
10,668

Cash, cash equivalents and restricted cash, end of period
$
62,272

 
$
40,663

 
 
 
 
Cash paid for:
 
 
 
Interest
$

 
$
102

 
 
 
 
Non cash financing activities:

 


Cashless exercise of stock options/warrants
$
957

 
$
3,133


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

5

APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1.     BASIS OF PRESENTATION

Unless the context otherwise indicates, the terms “Company,” “we,” “our,” “us,” “Apyx,” and similar terms refer to Apyx Medical Corporation and its consolidated subsidiaries.

We are a medical technology company and the developer of J-Plasma® (marketed and sold under the Renuvion® Cosmetic Technology brand in the cosmetic surgery market), a patented plasma-based surgical product for cutting, coagulation and ablation of soft tissue. J-Plasma® technology utilizes a helium ionization process to produce a stable, focused beam of plasma that provides surgeons with greater precision and minimal invasiveness. The Company also leverages its expertise through original equipment manufacturing (OEM) agreements with other medical device manufacturers.

On August 30, 2018, we closed on a definitive Asset Purchase Agreement with Specialty Surgical Instrumentation Inc., a Tennessee Corporation and wholly-owned subsidiary of Symmetry Surgical Inc. (“Symmetry”), pursuant to which we divested and sold our electrosurgical "Core" business segment and related intellectual property, including the Bovie® brand and trademarks, to Symmetry for gross proceeds of $97 million in cash. The divestiture and sale of our Core business segment to Symmetry allows us to further focus on our strategic objective of commercializing our J-Plasma® technology, including the Renuvion® brand in the cosmetic surgery market. We also entered into with Symmetry a Transition Services Agreement, a Patent Licensing Agreement, a Disposables Supply Agreement, and a Generator Manufacturing and Supply Agreement, the latter of which will establish us as an OEM-provider of generators to Symmetry for a period of at least 10 years from the agreement date.

In connection with the Asset Purchase Agreement, we also entered into an Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Symmetry for up to a four-year term, whereby we will manufacture certain Core products and sell them to Symmetry at agreed upon prices. Any revenue, costs and expenses resulting from this agreement are netted and reported in our consolidated statements of operations as other gains or losses. For the three months ended September 30, 2019, Core sales following the divestiture amounted to $2.5 million with cost of sales of $2.1 million and related operating expenses of $0.2 million, which are included in other income (losses) in the consolidated statements of operations.
For the nine months ended September 30, 2019, Core sales following the divestiture amounted to $6.9 million with cost of sales of $6.6 million and related operating expenses of $0.3 million, which are included in other income (losses) in the consolidated statements of operations.

In connection with the Asset Purchase Agreement, we also entered into a Manufacture and Supply Agreement with Symmetry for a ten-year term, whereby we will manufacture certain products and sell them to Symmetry at agreed upon prices. Revenue, costs and expenses resulting from this agreement are reported in our consolidated statements as income or loss from operations of our OEM reporting segment.

We reclassified the financial results of the Core business to discontinued operations and from segment results for all periods presented.

Revisions

Throughout 2019, the Company has been making efforts to remediate its material weakness in internal control as of December 31, 2018, including investing in new personnel that have expertise in a broad array of accounting topics. As a result of these investments, the Company reevaluated its accounting for stock-based compensation expense and during the three months ended September 30, 2019, the Company discovered immaterial errors in its accounting for certain items included in stock-based compensation expense. These errors related to its accounting for forfeitures, the vesting periods over which the expense was recognized, modifications, fair value measurements, and other minor miscellaneous items, all of which relate to the prior year. Additionally, the Company identified an issue relating to grants in the first quarter of 2019, whereby compensation was not recognized over the correct vesting period.

During the three months ended September 30, 2019, the Company re-evaluated its accounting for pre-development activities on certain OEM contracts. In performing the review, the Company determined that the it has not completed its performance obligations on its pre-development activities in these contracts. Accordingly, the Company determined that it had prematurely recognized revenues during the first quarter relating to these activities and did not defer the accompanying costs.



6

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




The Company has determined that the effects of the corrections are not material to the consolidated financial statements as of December 31, 2018, March 31, 2019 or June 30, 2019, but has elected to correct the consolidated financial statements for the three and nine months ended September 30, 2019. Accordingly, the Company has corrected the errors in the periods to which they relate. There were no adjustments to the results of operations for the three months ended June 30, 2019. A summary of the revisions as of each reporting period affected is as follows:

As of and for the year ended December 31, 2018:
(In thousands)
As Reported
 
Adjustments
 
As Revised
 
 
Balance Sheet
 
 
 
 
 
 
 
Accrued severance and related
$
727

 
$
(117
)
 
$
610

 
[1], [3]
Additional paid-in capital
52,221

 
699

 
52,920

 
[1]
Retained earnings
35,513

 
(582
)
 
34,931

 
[1]
 
 
 
 
 
 
 
 
Statement of Operations
 
 
 
 
 
 
 
Professional services
$
3,072

 
$
34

 
$
3,106

 
[1]
Salaries and related costs
8,673

 
548

 
9,221

 
[1]
 
 
 
 
 
 
 
 
Loss per share from continuing operations
 
 
 
 
 
 
 
Basic and Diluted
$
(0.29
)
 
$
(0.01
)
 
$
(0.30
)
 
 
 
 
 
 
 
 
 
 
Income per share from discontinued operations
 
 
 
 
 
 
 
Basic
$
2.21

 
$

 
$
2.21

 
 
Diluted
$
2.14

 
$

 
$
2.14

 
 
 
 
 
 
 
 
 
 
Income per share all operations
 
 

 
 
 
 
Basic
$
1.93

 
$
(0.02
)
 
$
1.91

 
 
Diluted
$
1.86

 
$
(0.01
)
 
$
1.85

 
 
 
[1] Adjustments relate to stock-based compensation corrections
[2] Adjustments relate to OEM revenue correction
[3] Financial statement caption has been condensed in accrued expenses and other liabilities in the current interim period


7

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



As of and for the three months ended March 31, 2019:
(In thousands)
As Reported
 
Adjustments
 
As Revised
 
 
Balance Sheet
 
 
 
 
 
 
 
Other assets
$
162

 
$
77

 
$
239

 
[1]
 
 
 
 
 
 
 
 
Contract liabilities

 
194

 
194

 
[1]
Additional paid-in capital
53,147

 
1,035

 
54,182

 
[1]
Retained earnings
30,832

 
(1,152
)
 
29,680

 
[1]
 
 
 
 
 
 
 
 
Statement of Operations
 
 
 
 
 
 
 
Sales
$
5,823

 
$
(194
)
 
$
5,629

 
[2]
Professional services
1,791

 
336

 
2,127

 
[1]
Salaries and related costs
3,221

 
117

 
3,338

 
[1]
Selling, general and administrative
3,101

 
(77
)
 
3,024

 
[2]
 
 
 
 
 
 
 
 
Loss per share - basic and diluted
$
(0.14
)
 
$
(0.02
)
 
$
(0.16
)
 
 
 
[1] Adjustments relate to stock-based compensation corrections
[2] Adjustments relate to OEM revenue correction

As of and for the six months ended June 30, 2019:
(In thousands)
As Reported
 
Adjustments
 
As Revised
 
 
Balance Sheet
 
 
 
 
 
 
 
Other assets
$
368

 
$
77

 
$
445

 
[1]
 
 
 
 
 
 
 
 
Contract liabilities

 
194

 
194

 
[1]
Additional paid-in capital
54,051

 
1,035

 
55,086

 
[1]
Retained earnings
26,494

 
(1,152
)
 
25,342

 
[1]
 
 
 
 
 
 
 
 
Statement of Operations
 
 
 
 
 
 
 
Sales
$
12,391

 
$
(194
)
 
$
12,197

 
[2]
Professional services
3,424

 
336

 
3,760

 
[1]
Salaries and related costs
6,554

 
117

 
6,671

 
[1]
Selling, general and administrative
6,184

 
(77
)
 
6,107

 
[2]
 
 
 
 
 
 
 
 
Loss per share - basic and diluted
$
(0.27
)
 
$
(0.02
)
 
$
(0.29
)
 
 
 
[1] Adjustments relate to stock-based compensation corrections
[2] Adjustments relate to OEM revenue correction

The accompanying unaudited 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 our Annual Report on Form 10-K for the year ended December 31, 2018. These 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.


8

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



NOTE 2.     INVENTORIES

Inventories are stated at the lower of cost or net realizable values. Cost is determined on a first in, first out basis. Finished goods and work-in-process inventories include material, labor and overhead costs. Factory overhead costs are primarily allocated to inventory manufactured in-house based upon labor hours.

Inventories consisted of the following:
(In thousands)
September 30,
2019
 
December 31,
2018
Raw materials
$
6,126

 
$
4,521

Finished goods and work-in-process
1,550

 
1,130

Gross inventories
7,676

 
5,651

Less: reserve for obsolescence
(439
)
 
(439
)
Net inventories
$
7,237

 
$
5,212


NOTE 3.     ACCRUED EXPENSES AND OTHER CURRENT LIABILTIES

Accrued expenses and other current liabilities consisted of the following:

(in thousands)
September 30, 2019
 
December 31, 2018
Accrued severance and related
$
235

 
$
610

Accrued payroll
289

 
418

Accrued bonuses
936

 
972

Accrued commissions
784

 
379

Accrued legal and insurance
1,649

 
725

Other accrued expenses and current liabilities
3,392

 
3,058

Total accrued expenses and other current liabilities
$
7,285

 
$
6,162



NOTE 4.     RECENT ACCOUNTING PRONOUNCEMENTS

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The purpose of this ASU is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under this ASU, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, however we have chosen not to do so. The amendment will not have a material impact on our consolidated financial condition or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Topic 842 establishes a new lease model, referred to as the right-of-use model that brings substantially all leases on the balance sheet. This standard requires lessees to recognize leased assets and lease liabilities on the balance sheet and disclose key information about the leasing arrangements in their financial statements. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The Company adopted Topic 842 effective January 1, 2019 using the modified retrospective transition approach that allows a reporting entity to use the effective date as its date of initial application and not restate the comparative periods in the period of adoption when transitioning to the new standard. Consequently, the requisite financial information and disclosures under the new standard are excluded for dates and periods prior to January 1, 2019. In addition, the Company elected to use a number of optional simplification and practical expedients permitted under the transition guidance within the new standard, including allowing the Company to combine fixed lease and non-lease components, apply the short-term lease exception to all

9

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



leases of one year or less, and utilize the ‘package of practical expedients’, which permits the Company to not reassess prior accounting conclusions with respect to lease identification, lease classification and initial direct costs under Topic 842. Adoption of this new standard resulted in the recognition of approximately $212,000 of operating lease liabilities and right-of-user assets, which represents the present value of the remaining lease payments at the adoption date of approximately $221,000, discounted using the Company’s incremental borrowing rate of 4.00%. Please see Note 13 for a full discussion of the impacts of adoption on the current year consolidated financial statements.

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures.



10

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



NOTE 5.     EARNINGS PER SHARE

We compute basic earnings per share (“basic EPS”) by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period adjusted for other units required to be included in basic EPS. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. The following table provides the computation of basic and diluted earnings per share.
 
Three Months Ended September, 30
 
Nine Months Ended
September 30,
(in thousands, except per share data)
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net loss from continuing operations
$
(4,311
)
 
$
(438
)
 
$
(13,900
)
 
$
(6,167
)
Net income from discontinued operations, net of tax
$

 
$
69,612

 
$

 
$
74,134

Net income (loss) from all operations
$
(4,311
)
 
$
69,174

 
$
(13,900
)
 
$
67,967

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Denominator - basic
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
33,942

 
33,275

 
33,903

 
33,014

Contingently issuable shares - basic
136

 

 
136

 

Denominator - basic and diluted from continuing operations

34,078

 
33,275

 
34,039

 
33,014

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options

 
1,659

 

 
938

Denominator - diluted discontinued and all operations :
34,078

 
34,934

 
34,039

 
33,952

 
 
 
 
 
 
 
 
Loss per share from continuing operations:
 
 
 
 
 
 
 
Basic and diluted
$
(0.13
)
 
$
(0.01
)
 
$
(0.41
)
 
$
(0.19
)
 
 
 
 
 
 
 
 
Income per share from discontinued operations
 
 
 
 
 
 
 
Basic
$

 
$
2.09

 
$

 
$
2.25

Diluted
$

 
$
1.99

 
$

 
$
2.19

 
 
 
 
 
 
 
 
Income (loss) per share from all operations
 
 
 
 
 
 
 
Basic
$
(0.13
)
 
$
2.08

 
$
(0.41
)
 
$
2.06

Diluted
$
(0.13
)
 
$
1.98

 
$
(0.41
)
 
$
2.00

 
 
 
 
 
 
 
 
Anti-dilutive instruments excluded from diluted loss per common share:
 
 
 
 
 
 
 
Restricted stock
90

 

 
90

 

Options
4,060

 

 
4,060

 



11

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



NOTE 6.     STOCK-BASED COMPENSATION

Under our stock option plans, our board of directors may grant restricted stock and options to purchase common shares to our key employees, officers, directors and consultants. We account for stock options in accordance with FASB ASC Topic 718, Compensation - Stock Compensation, with stock-based compensation expense amortized over the vesting period based on the trinomial lattice option-pricing model fair value on the grant date, which includes a number of estimates that affect the amount of our expense. In September 2019, the Company registered 2,000,000 shares under our shareholder approved 2019 Share Incentive Plan.

We recognized approximately $543,000 and $2,594,000 in stock-based compensation expense during the three and nine months ended September 30, 2019, respectively, as compared with $489,000 and $1,238,000 for the three and nine months ended September 30, 2018, respectively.

The status of our stock options are summarized as follows:
 
Number of options
 
Weighted average exercise price
Outstanding at December 31, 2018
3,254,779

 
$
3.18

Granted
1,379,500

 
7.70

Exercised
(391,135
)
 
2.84

Canceled and forfeited
(183,500
)
 
3.41

Outstanding at September 30, 2019
4,059,643

 
$
4.73


The Company allows employees to exercise stock-based awards by surrendering stock-based awards with a fair value of the stock-based awards exercised, referred to as net settlements. These surrenders are included in stock options exercised in the options rollforward above. For the three months ended September 30, 2019 and 2018, respectively, the Company received 26,572 and 532,477 options as payment in the exercise of 34,928 and 680,388 options. For the nine months ended September 30, 2019 and 2018, respectively, the Company received 118,170 and 576,135 options and warrants as payment in the exercise of 220,879 and 713,980 options and warrants.

Common shares required to be issued upon the exercise of stock options would be issued from our authorized and unissued shares. We calculated the fair value of issued options utilizing a trinomial lattice with an expected life calculated via the simplified method as we do not have sufficient history to determine actual expected life.
 
2019 Grants
Option value
$
7.15

-
$
7.91

Risk-free rate
1.7%
-
2.6
%
Expected dividend yield
Expected volatility
67.6%
-
69.1
%
Expected term (in years)
6

During September 2019, the Company determined that it had classified grants of 225,922 in restricted stock as stock options in the consolidated financial statements since the grant date. At September 30, 2019, 135,555 of the shares had vested, with the remaining shares vesting through October 2021. At September 30, 2019, the Company has approximately $94,000 of stock-based compensation expense to be recognized through October 2021.


NOTE 7.     INCOME TAXES


12

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



The Company’s income tax expense from continuing operations was approximately $171,000 and $123,000 with an effective tax rate of (4.1)% and (0.9)% for the three and nine months ended September 30, 2019, respectively, as compared to a benefit of approximately $2,400,000, and $2,400,000 with an effective tax rate of 84.6% and 27.9%, for the three and nine months ended September 30, 2018, respectively.

The following is a roll-forward of the Company's total gross unrecognized tax benefits, not including interest and penalties, for the period ended September 30, 2019.

(in thousands)
Gross Unrealized Tax Benefits
Balance at January 1, 2019
$
1,313

Additions of tax positions related to the current year

Additions of tax positions related to the prior year

Decreases for tax positions related to the prior year

Balance at September 30, 2019
$
1,313


The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s condensed consolidated financial statements. As of September 30, 2019, the Company had approximately $197,000 in accrued interest and penalties related to unrecognized tax benefits. Included in the income tax expense for the three and nine months ended September 30, 2019 are approximately $146,000 and $197,000, respectively, of interest and penalties on the Company's uncertain tax positions. If the Company were to prevail on all uncertain tax positions, the resulting impact will be material as the Company will recognize approximately $1,510,000 of tax benefits in the provision of income taxes. It is expected that all of the uncertain tax positions should be resolved by October 2022.


NOTE 8.     COMMITMENTS AND CONTINGENCIES
Litigation

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

We are involved in a number of legal actions relating to the use of our J-Plasma® technology. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. We believe that such claims are adequately covered by insurance; however, in the case of one of our carriers, we are 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 our financial condition. However, in the event that damages exceed the aggregate coverage limits of our policies or if our insurance carriers disclaim coverage, we believe it is possible that costs associated with these claims could have a material adverse impact on our consolidated results of operations, financial position or cash flows.

In addition, as previously disclosed with the U.S. Securities and Exchange Commission on the Company’s Report on Form 8-K filed April 26, 2019, on April 17, 2019, a complaint (the “Complaint”) was filed in the United States District Court for the Middle District of Florida by plaintiff Kyle Pritchard, individually and on behalf of all others similarly situated against the Company and Charles D. Goodwin (“Goodwin”), the Company’s President and Chief Executive Officer and a member of the Company’s Board of Directors, alleging certain violations of the Securities Exchange Act of 1934, as amended. On July 16, 2019, the Court appointed a lead plaintiff for the putative class and approved the lead plaintiff’s selection of counsel. On or about September 3, 2019, Plaintiff filed an amended complaint (the “Amended Complaint”) with the Court.

The Amended Complaint seeks class action status on behalf of all persons and entities that acquired the Company’s securities between December 21, 2018 and April 1, 2019 and alleges violations by the Company and Goodwin of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended and Rule 10b-5 thereunder, primarily related to certain public statements concerning the Premarket Notification 510(k) submission made to the US Food and Drug Administration for a new indication for the Company’s J-Plasma® technology for use in dermal resurfacing procedures. The Amended Complaint seeks an unspecified

13

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



amount of compensatory damages, an award of interest, reasonable attorneys’ fees, expert fees and other costs, and equitable relief as the court may deem just and proper. On October 3, 2019, the Company and Goodwin filed a Motion to Dismiss the Amended Complaint. Plaintiff’s opposition to the motion to dismiss was served on November 4, 2019.
Although the ultimate outcome of this matter cannot be determined with certainty, the Company believes that the allegations stated in the Amended Complaint are entirely without merit. The Company and Goodwin intend to defend themselves vigorously in the suit. In the opinion of management, such claims are adequately covered by insurance, however, in the event that damages exceed the aggregate coverage limits of our policy or if our insurance carriers disclaim coverage, we believe it is possible that costs associated with this claim could have a material adverse impact on our consolidated earnings, financial position or cash flows. Under the deductible portion of our insurance coverage, we have accrued $500,000 for initial defense costs.

We accrue a liability in our 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.


Purchase Commitments

At September 30, 2019, we had purchase commitments totaling approximately $4,600,000, substantially all of which is expected to be purchased within the next six months.

In response to the current worldwide helium shortage, to support our current and near term customer requirements, we issued purchase orders with two international companies to supply us with helium cylinders and have entered into agreements to purchase additional helium as needed. We also currently maintain our own supply of helium in the United States, which can be utilized for our customer requirements.




14

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



NOTE 9.     RELATED PARTY TRANSACTIONS

Several 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. Antoaneta Dimitrova Shileva-Toromanova, Mr. Shilev’s sister, is the manager of production and human resources. Svetoslav Shilev, Mr. Shilev’s son, is an engineer in the quality assurance department.

In addition, as part of the purchase of the Bulgaria manufacturing facility, Mr. Shilev was issued a note payable for $140,000 to be paid 5 years after the original purchase date, which is in October 2020.

NOTE 10.    FINANCIAL INSTRUMENTS

Cash, Cash Equivalents and Marketable Securities at September 30, 2019, consists of approximately $1,300,000 in cash and $61,000,000 in US Treasury Securities with maturities of 3 months or less.

Cash, Cash Equivalents and Marketable Securities at December 31, 2018:

(In thousands)
Adjusted Cost
 
Unrealized Gains
 
Fair Value(3)
 
Cash and Cash Equivalents (1)
 
Short-term Marketable Securities
Cash
$
6,337

 
$

 
$
6,337

 
$
6,337

 
$

 
 
 
 
 
 
 
 
 
 
Level 1 (2)
 
 
 
 
 
 
 
 
 
U.S. Treasury Securities, maturities less than three months
10,129

 

 
10,129

 
10,129

 

U.S. Treasury Securities, maturities greater than three months
61,431

 
247

 
61,678

 

 
61,678

Total
$
77,897

 
$
247

 
$
78,144

 
$
16,466

 
$
61,678


(1) The Company considers all highly liquid instruments with maturities of three months or less at the time of purchase to be cash equivalents.

(2) The fair value of the debt securities consisting of U.S. Treasury bills is based on their quoted market prices. The fair value of these financial instruments are classified as Level 1 in the fair value hierarchy. The original purchase of U.S. Treasury bills occurred in September 2018, utilizing the proceeds from the sale of our Core business.

(3) ASC 825-10, Financial Instruments, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings within interest income at each subsequent reporting date. At the date of purchase, the Company elected the fair value option for all investments with maturities of three months or greater at the time of purchase.


15

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



NOTE 11.     GEOGRAPHIC AND SEGMENT INFORMATION

Operating segments 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.

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 were not specifically attributed to any reportable segment. Net assets are shared, therefore, not allocated to the reportable segments. The OEM segment is primarily development and manufacturing contract and product driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.


Summarized financial information with respect to reportable segments is as follows:
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2019
(In thousands)
Advanced Energy
 
OEM
 
Corporate & Other
 
Total
Sales
$
6,094

 
$
1,481

 
$

 
$
7,575

 
 
 
 
 
 
 
 
Income (loss) from continuing operations
(1,357
)
 
268

 
(3,608
)
 
(4,697
)
 
 
 
 
 
 
 
 
Interest income

 

 
327

 
327

Other income, net

 

 
230

 
230

Income tax expense

 

 
(171
)
 
(171
)
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
(In thousands)
Advanced Energy
 
OEM
 
Corporate & Other
 
Total
Sales
$
2,985

 
$
687

 
$

 
$
3,672

 
 
 
 
 
 
 
 
Income (loss) from continuing operations
(1,155
)
 
368

 
(2,009
)
 
(2,796
)
 
 
 
 
 
 
 
 
Interest income, net

 

 
105

 
105

Income tax benefit

 

 
2,408

 
2,408

 
Nine Months Ended September 30, 2019
(In thousands)
Advanced Energy
 
OEM
 
Corporate & Other
 
Total
Sales
$
15,734

 
$
4,038

 
$

 
$
19,772

 
 
 
 
 
 
 
 
Income (loss) from continuing operations
(5,756
)
 
995

 
(10,174
)
 
(14,935
)
 
 
 
 
 
 
 
 
Interest income

 

 
1,153

 
1,153

Other income, net

 

 
5

 
5

Income tax expense


 

 
(123
)
 
(123
)

16

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



 
Nine Months Ended September 30, 2018
(In thousands)
Advanced Energy
 
OEM
 
Corporate & Other
 
Total
Sales
$
8,727

 
$
2,033

 
$

 
$
10,760

 
 
 
 
 
 
 
 
Income (loss) from continuing operations
(2,525
)
 
1,076

 
(7,000
)
 
(8,449
)
 
 
 
 
 
 
 
 
Interest income, net

 

 
33

 
33

Change in value of derivative liabilities

 

 
20

 
20

Income tax benefit


 

 
2,384

 
2,384


International sales represented approximately 26.7% of total revenues for the three months ended September 30, 2019, as compared with 24.8% of total revenues for the same prior year period. International sales represented approximately 29.2% of total revenues for the nine months ended September 30, 2019, as compared with 21.2% of total revenues for the same prior year period.

Substantially all of these sales are denominated in U.S. dollars. Revenue by geographic region, based on the customer's “ship to” location on the invoice, are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In thousands)
2019
 
2018
 
2019
 
2018
Sales by Domestic and International
 
 
 
 
 
 
 
Domestic
$
5,552

 
$
2,763

 
$
14,002

 
$
8,481

International
2,023

 
909

 
5,770

 
2,279

Total
$
7,575

 
$
3,672

 
$
19,772

 
$
10,760


NOTE 12.     FOREIGN CURRENCY TRANSACTIONS

The functional currency of Apyx Bulgaria is the U.S. dollar. The monetary assets and liabilities that are denominated in a currency other than U.S. dollar of Apyx Bulgaria are remeasured into U.S. dollars at the exchange rate on the balance sheet date, while nonmonetary items are remeasured at historical rates. Revenue and expenses are remeasured at weighted average exchange rates during the period. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in selling, general and administrative expenses in the consolidated statements of operations and were not material for the three and nine months ended September 30, 2019.



17

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




NOTE 13.     LEASES

The Company does not recognize leases with terms less than twelve months in duration in our consolidated balance sheet as right-of-use assets and lease liabilities. Leases with an initial term of 12 months or less or that have variable only payments are not recorded on the balance sheet. The Company has adopted the practical expedient which allows for the Company to not separate lease and non-lease components of contracts. Accordingly, non-lease components are included in the measurement of the Company's leases and right-of-use assets. If the Company is aware of the implicit rate in leases, the Company determines the operating lease liability using the implicit rate. For those leases where the Company is not aware of the implicit rate in the lease, the Company utilizes a incremental borrowing rate of 4.00%, which is indicative of our collateralized borrowing rate.

Operating Leases

The Company leases its facility in Sofia, Bulgaria and vehicles in Clearwater, Florida under non-cancelable operating lease agreements. The Company's lease on the Bulgaria facility includes rent escalation over the term of the lease. Rent expense on the lease is accounted for on a straight-line basis over the lease term. During Q2 2019, the Bulgaria facility lease was extended for an additional 2 years. In accordance with operating lease guidance under Topic 842, the extension was accounted for as a lease modification and the right-of-use asset and lease liability were remeasured at the modification date. The Company's operating leases have terms expiring through December 2022.

Finance Leases

During August 2019, the Company entered into a non-cancelable finance leases for certain computer equipment and a vehicle in Clearwater, Florida. The Company's finance leases have terms expiring through August 2023.

Information about the Company’s lease costs are as follows:

 
Three Months Ended September 30, 2019
Nine Months Ended September 30, 2019
Lease costs (in thousands):
 
 
Operating lease costs
$
30

$
85

Finance lease costs:
 
 
Amortization of right-of-use assets
4

4

Interest on lease liabilities


Variable lease costs
5

11

Total lease costs
$
39

$
100


Cash and non cash information related to our leases are as follows:
 
Nine Months Ended
September 30, 2019

(in thousands)
Operating
Finance
Non cash information:
 
 
Right-of-use assets capitalized and lease liabilities recognized upon adoption of Topic 842
$
212

$

Right-of-use assets capitalized and lease liabilities recognized upon lease remeasurement
$
207

$

Right-of-use assets capitalized and lease liabilities recognized upon execution of lease
$
20

$
642

 
 
 
Cash information:
 
 
Cash paid for lease liabilities
$
85

$
12




18

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



Net, non cash lease expense of $2,000 for the nine months ended September 30, 2019 is comprised of reductions of operating right-of-use assets of $78,000 partially offset by reductions of operating lease liabilities of $90,000, $14,000 of which relates to unrealized gains on foreign currency remeasurement associated with the operating lease liabilities.

Information about the Company’s weighted average remaining lease terms and discount rate assumptions are as follows:

 
Nine Months Ended
September 30, 2019

 
Operating
Finance
Weighted average remaining lease term (in years)
3.2
3.0
Weighted average discount rate
4.04%
4.00%


Maturities of lease liabilities as of September 30, 2019 are as follows:
(In thousands)
Operating
Finance
2019 (remaining 3 months)
$
28

$
55

2020
113

220

2021
117

220

2022
114

170

2023

18

Total lease payments
372

683

Less imputed interest
(23
)
(43
)
Present value of lease liabilities
349

640

Less current portion of lease liabilities
(101
)
(196
)
Long-term portion of lease liabilities
$
248

$
444









19

APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


ITEM 2. Management’s 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. 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 a medical technology company and the developer of J-Plasma® (marketed and sold under the Renuvion® Cosmetic Technology brand in the cosmetic surgery market), a patented plasma-based surgical product for cutting, coagulation and ablation of soft tissue. J-Plasma technology utilizes a helium ionization process to produce a stable, focused beam of plasma that provides surgeons with greater precision and minimal invasiveness. We also leverage our expertise through original equipment manufacturing (OEM) agreements with other medical device manufacturers.

During 2019, we continue our full-scale commercialization efforts for Renuvion®. As of September 30, 2019, we had a direct sales force of 29 field-based selling professionals and a network of 6 independent sales agencies.  We also had 4 sales managers.  This selling organization is focused on the use of Renuvion in the cosmetic surgery market. In addition, we have invested in training programs and marketing-related activities to support accelerated adoption of Renuvion.

International sales represented approximately 26.7% of total revenues for the three months ended September 30, 2019, as compared with 24.8% of total revenues in the prior year. International sales represented approximately 29.2% of total revenues for the nine months ended September 30, 2019, as compared with 21.2% of total revenues in the prior year. Management estimates our products have been sold in more than 40 countries through local dealers coordinated by sales and marketing personnel at the Clearwater, Florida facility.

As previously disclosed with the Commission on Form 8-K filed on April 4, 2019, we announced on April 1, 2019, that we voluntarily withdrew our application for premarket notification 510(k) regulatory clearance of our J-Plasma®/Renuvion® technology for use in dermal resurfacing procedures. While this is a delay in our commercialization efforts, we remain committed to working with the U.S. Food and Drug Administration relative to the development of a new 510(k) submission for use in dermal resurfacing procedures.

During October 2019, the Company initiated subject enrollment in an FDA approved U.S. Investigational Device Exemption clinical study evaluating the use of its Renuvion technology in skin laxity procedures in the neck and submental region. Also during October 2019, the Company received U.S. Food and Drug Administration 510(k) clearance to market and sell the Apyx Plasma/RF Handpiece, a new addition to the Renuvion product family.

On August 30, 2018, we closed on a definitive asset purchase agreement ("the Asset Purchase Agreement") with Specialty Surgical Instrumentation Inc., a Tennessee Corporation and wholly-owned subsidiary of Symmetry Surgical Inc. (“Symmetry”), pursuant to which we divested and sold our electrosurgical "Core" business segment and related intellectual property, including the Bovie® brand and trademarks, to Symmetry for gross proceeds of $97 million in cash. The divestiture and sale of our Core business segment to Symmetry allows us to further focus on our strategic objective of commercializing our J-Plasma technology, including the Renuvion® brand in the cosmetic surgery market. We also entered into a Transition Services Agreement, Patent Licensing Agreement, a Disposables Supply Agreement, and a Generator Manufacturing and Supply Agreement, the latter of which will establish us as an OEM-provider of generators to Symmetry for a period of at least 10 years.

In connection with the Asset Purchase Agreement, we entered into an Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Symmetry for up to a four-year term, whereby we will manufacture certain Core products and sell them to Symmetry at agreed upon prices. Any revenue, costs and expenses resulting from this agreement are netted and reported in our Consolidated Statements of Operations as Other gains or losses.


20

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


In connection with the Asset Purchase Agreement, we entered into a Manufacture and Supply Agreement with Symmetry for a ten-year term, whereby we will manufacture certain products and sell them to Symmetry at agreed upon prices. Revenue, costs and expenses resulting from this agreement are reported in our Consolidated Statements as income or loss from operations of our OEM reporting segment.

Operating segments 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.

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. Net assets are shared, therefore, not allocated to the reportable segments. The OEM segment is primarily development and manufacturing contract and product driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.

We reclassified the financial results of the Core business to discontinued operations and from segment results for all periods presented. 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.

Results of Operations

Sales
 
Three Months Ended
September 30,
 
 
 
Nine Months Ended
September 30,
 
 
(In thousands)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Sales by Reportable Segment
 
 
 
 
 
 
 
 
 
 
 
Advanced Energy
$
6,094

 
$
2,985

 
104.2
%
 
$
15,734

 
$
8,727

7,007,000

80.3
%
OEM
1,481

 
687

 
115.6
%
 
4,038

 
2,033

2,005,000

98.6
%
Total
$
7,575

 
$
3,672

 
106.3
%
 
$
19,772

 
$
10,760

 
83.8
%
 
 
 
 
 
 
 
 
 
9,012,000
 
 
Sales by Domestic and International
 
 
 
 
 
 
 
 
 
 
 
Domestic
$
5,552

 
$
2,763

 
100.9
%
 
$
14,002

 
$
8,481

 
65.1
%
International
2,023

 
909

 
122.6
%
 
5,770

 
2,279

 
153.2
%
Total
$
7,575

 
$
3,672

 
106.3
%
 
$
19,772

 
$
10,760

 
83.8
%

Total revenue from continuing operations for the three months ended September 30, 2019, increased $3.9 million, or 106.3%, to $7.6 million, compared to $3.7 million in the prior year. Sales of the Company’s Advanced Energy generators and handpieces drove the increase in total revenue in the third quarter of 2019, with OEM segment sales contributing modestly to the year-over-year increase in total revenue from continuing operations during the third quarter 2019 period. Advanced Energy segment sales increased approximately $3.1 million, or 104.2% year-over-year, to $6.1 million, compared to approximately $3.0 million last year, as a result of additional sales force in the U.S. and new international distributors. This increase in selling infrastructure has resulted in increases of generator and handpiece sales, both domestically and in international markets. OEM segment sales increased $0.8 million, or 115.6% year-over-year, to $1.5 million, compared to $0.7 million last year, primarily attributable to sales to Symmetry under our Manufacture and Supply Agreement.

Total revenue from continuing operations for the nine months ended September 30, 2019, increased $9.0 million, or 83.8%, to $19.8 million, compared to $10.8 million in the prior year. Advanced Energy segment sales increased approximately $7.0 million, or 80.3% year-over-year, to $15.7 million, compared to approximately $8.7 million last year, as a result of additional sales force in the U.S. and new international distributors. This increase in selling infrastructure has resulted in increases of generator and handpiece sales, both domestically and in international markets. OEM segment sales increased $2.0 million, or 98.6% year-over-year, to $4.0 mil

21

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


lion, compared to $2.0 million last year, resulting mainly from sales to Symmetry under our Manufacture and Supply Agreement.

Gross Profit
 
Three Months Ended
September 30,
 
 
 
Nine Months Ended
September 30,
 
 
(In thousands)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Cost of sales
$
2,558

 
$
1,151

 
122.2
%
 
$
6,757