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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended
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September 30, 2022 |
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or |
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the transition period from _____ to _____ |
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Commission File Number: |
0-12183 |
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APYX MEDICAL CORPORATION |
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(Exact name of registrant as specified in its charter) |
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Delaware |
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11-2644611 |
(State or other jurisdiction of
incorporation or organization) |
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(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:
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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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:
☒
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.
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| Large
accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
☒ |
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Smaller reporting company |
☒ |
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Emerging growth company |
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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. |
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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 9, 2022,
34,597,822 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, 2022
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Page |
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Part I. |
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Item 1. |
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Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2022 and 2021
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Item 2. |
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Item 3. |
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Item 4. |
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Part II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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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)
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September 30, 2022
(Unaudited)
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December 31, 2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
14,833 |
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$ |
30,870 |
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Trade accounts receivable, net of allowance of
$634 and $430
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9,094 |
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13,038 |
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Income tax receivables |
7,545 |
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7,642 |
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Other receivables |
19 |
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483 |
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Inventories, net of provision for obsolescence of $379 and
$263
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12,042 |
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6,778 |
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Prepaid expenses and other current assets |
2,774 |
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1,926 |
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Total current assets |
46,307 |
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60,737 |
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Property and equipment, net of accumulated depreciation and
amortization of $5,335 and
$5,316
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6,810 |
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6,575 |
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Operating lease right-of-use assets |
774 |
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121 |
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Finance lease right-of-use assets |
124 |
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178 |
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Other assets |
1,253 |
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1,110 |
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Total assets |
$ |
55,268 |
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$ |
68,721 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
2,070 |
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$ |
2,631 |
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Accrued expenses and other current liabilities |
8,842 |
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10,287 |
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Current portion of operating lease liabilities |
240 |
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122 |
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Current portion of finance lease liabilities |
42 |
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165 |
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Total current liabilities |
11,194 |
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13,205 |
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Long-term operating lease liabilities |
454 |
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— |
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Long-term finance lease liabilities |
78 |
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18 |
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Long-term contract liabilities |
1,192 |
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1,323 |
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Other liabilities |
133 |
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166 |
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Total liabilities |
13,051 |
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14,712 |
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EQUITY |
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Common stock, $0.001 par value; 75,000,000 shares authorized;
34,588,398 issued and outstanding as of September 30, 2022,
and 34,409,912 issued and outstanding as of December 31,
2021
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35 |
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34 |
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Additional paid-in capital |
71,641 |
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66,221 |
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Accumulated deficit |
(29,686) |
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(12,551) |
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Total stockholders’ equity
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41,990 |
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53,704 |
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Non-controlling interest |
227 |
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305 |
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Total equity |
42,217 |
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54,009 |
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Total liabilities and equity |
$ |
55,268 |
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$ |
68,721 |
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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)
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Three Months Ended
September 30, |
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Nine Months Ended
September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Sales |
$ |
9,114 |
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$ |
11,831 |
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$ |
31,899 |
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$ |
31,693 |
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Cost of sales |
3,357 |
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3,775 |
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11,009 |
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10,243 |
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Gross profit |
5,757 |
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8,056 |
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20,890 |
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21,450 |
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Other costs and expenses: |
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Research and development |
1,061 |
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1,175 |
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3,289 |
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3,374 |
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Professional services |
1,936 |
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2,032 |
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6,611 |
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5,442 |
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Salaries and related costs |
3,871 |
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4,206 |
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13,944 |
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12,794 |
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Selling, general and administrative |
4,671 |
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4,611 |
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14,675 |
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12,596 |
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Total other costs and expenses |
11,539 |
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12,024 |
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38,519 |
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34,206 |
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Loss from operations |
(5,782) |
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(3,968) |
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(17,629) |
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(12,756) |
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Interest income |
73 |
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2 |
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93 |
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9 |
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Interest expense |
(1) |
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(3) |
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(12) |
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(9) |
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Other (loss) income, net |
(35) |
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(192) |
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551 |
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(188) |
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Total other income (loss), net |
37 |
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(193) |
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632 |
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(188) |
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Loss before income taxes |
(5,745) |
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(4,161) |
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(16,997) |
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(12,944) |
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Income tax expense |
50 |
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73 |
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216 |
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246 |
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Net loss |
(5,795) |
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(4,234) |
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(17,213) |
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(13,190) |
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Net loss attributable to non-controlling
interest |
(31) |
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(12) |
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(78) |
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(21) |
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Net loss attributable to stockholders |
$ |
(5,764) |
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$ |
(4,222) |
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$ |
(17,135) |
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$ |
(13,169) |
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Loss per share: |
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Basic and diluted |
$ |
(0.17) |
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$ |
(0.12) |
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$ |
(0.50) |
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$ |
(0.38) |
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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)
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Three Months Ended September 30, 2022 and 2021 |
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Common Stock |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Non-controlling Interest |
|
Total Equity |
|
|
Shares |
|
Par Value |
|
|
|
|
|
Balance at June 30, 2021 |
34,323 |
|
|
$ |
34 |
|
|
$ |
63,650 |
|
|
$ |
(6,326) |
|
|
$ |
324 |
|
|
$ |
57,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued on stock options exercises for cash |
3 |
|
|
— |
|
|
28 |
|
|
— |
|
|
— |
|
28 |
|
|
Stock based compensation |
— |
|
|
— |
|
|
1,184 |
|
|
— |
|
|
— |
|
1,184 |
|
|
Shares issued on net settlement of stock options |
14 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
(4,222) |
|
|
(12) |
|
(4,234) |
|
|
Balance at September 30, 2021 |
34,340 |
|
|
$ |
34 |
|
|
$ |
64,862 |
|
|
$ |
(10,548) |
|
|
$ |
312 |
|
|
$ |
54,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2022 |
34,493 |
|
|
$ |
34 |
|
|
$ |
69,793 |
|
|
$ |
(23,922) |
|
|
$ |
258 |
|
|
$ |
46,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued on stock options exercises for cash |
62 |
|
|
1 |
|
|
156 |
|
|
— |
|
|
— |
|
157 |
|
|
Stock based compensation |
— |
|
|
— |
|
|
1,692 |
|
|
— |
|
|
— |
|
1,692 |
|
|
Shares issued on net settlement of stock options |
33 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
(5,764) |
|
|
(31) |
|
(5,795) |
|
|
Balance at September 30, 2022 |
34,588 |
|
|
$ |
35 |
|
|
$ |
71,641 |
|
|
$ |
(29,686) |
|
|
$ |
227 |
|
|
$ |
42,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2022 and 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional Paid-In Capital |
|
Retained Earnings (Accumulated Deficit) |
|
Non-controlling Interest |
|
Total |
|
|
Shares |
|
Par Value |
|
|
|
|
|
Balance at December 31, 2020 |
34,289 |
|
|
$ |
34 |
|
|
$ |
61,066 |
|
|
$ |
2,621 |
|
|
$ |
138 |
|
|
$ |
63,859 |
|
|
Contributions from non-controlling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
195 |
|
195 |
|
|
Shares issued on stock options exercises for cash |
11 |
|
|
— |
|
|
49 |
|
|
— |
|
|
— |
|
49 |
|
|
Stock based compensation |
— |
|
|
— |
|
|
3,747 |
|
|
— |
|
|
— |
|
3,747 |
|
|
Shares issued on net settlement of stock options |
40 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
(13,169) |
|
|
(21) |
|
(13,190) |
|
|
Balance at September 30, 2021 |
34,340 |
|
|
$ |
34 |
|
|
$ |
64,862 |
|
|
$ |
(10,548) |
|
|
$ |
312 |
|
|
$ |
54,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2021 |
34,410 |
|
|
$ |
34 |
|
|
$ |
66,221 |
|
|
$ |
(12,551) |
|
|
$ |
305 |
|
|
$ |
54,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued on stock options exercises for cash |
106 |
|
|
1 |
|
|
364 |
|
|
— |
|
|
— |
|
365 |
|
|
Stock based compensation |
— |
|
|
— |
|
|
5,056 |
|
|
— |
|
|
— |
|
5,056 |
|
|
Shares issued on net settlement of stock options |
72 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
(17,135) |
|
|
(78) |
|
(17,213) |
|
|
Balance at September 30, 2022 |
34,588 |
|
|
$ |
35 |
|
|
$ |
71,641 |
|
|
$ |
(29,686) |
|
|
$ |
227 |
|
|
$ |
42,217 |
|
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, |
|
|
2022 |
|
2021 |
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
Net loss |
$ |
(17,213) |
|
|
$ |
(13,190) |
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
Depreciation and amortization |
688 |
|
|
674 |
|
|
|
|
Provision for inventory obsolescence |
158 |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
Loss on disposal of property and equipment |
76 |
|
|
47 |
|
|
|
|
Stock based compensation |
5,056 |
|
|
3,747 |
|
|
|
|
Provision for allowance for doubtful accounts |
283 |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Trade receivables |
3,273 |
|
|
(3,168) |
|
|
|
|
Prepaid expenses and other assets |
(521) |
|
|
(23) |
|
|
|
|
Income tax receivables |
97 |
|
|
— |
|
|
|
|
Inventories |
(5,672) |
|
|
(1,982) |
|
|
|
|
Accounts payable |
(439) |
|
|
1,555 |
|
|
|
|
Accrued and other liabilities |
(1,536) |
|
|
1,605 |
|
|
|
|
Net cash used in operating activities |
(15,750) |
|
|
(10,663) |
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
Purchases of property and equipment |
(868) |
|
|
(391) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
(868) |
|
|
(391) |
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
Proceeds from stock option exercises |
365 |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
Repayment of finance lease liabilities |
(138) |
|
|
(181) |
|
|
|
|
Contributions from non-controlling interests |
— |
|
|
195 |
|
|
|
|
Net cash provided by financing activities |
227 |
|
|
63 |
|
|
|
|
Effect of exchange rates on cash |
354 |
|
|
(26) |
|
|
|
|
Net change in cash and cash equivalents |
(16,037) |
|
|
(11,017) |
|
|
|
|
Cash and cash equivalents, beginning of period |
30,870 |
|
|
41,915 |
|
|
|
|
Cash and cash equivalents, end of period |
$ |
14,833 |
|
|
$ |
30,898 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
Interest |
$ |
12 |
|
|
$ |
8 |
|
|
|
|
Income taxes |
128 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
Non cash activities: |
|
|
|
|
|
|
Right-of-use assets capitalized and operating lease liabilities
recognized upon lease modification |
$ |
769 |
|
|
$ |
— |
|
|
|
|
Right-of-use assets capitalized and finance lease liabilities
recognized upon execution of lease |
$ |
103 |
|
|
$ |
— |
|
|
|
|
Right-of-use assets and finance lease liabilities derecognized upon
execution of lease modification |
$ |
28 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
As part of its plan to accelerate and fully fund the development of
its advanced energy
business, with a focus in the cosmetic
surgery market, the Company sold its Core business in 2018 for
gross proceeds of $97 million.
These proceeds were used to launch broad marketing and sales
initiatives which resulted in rapid sales growth through December
31, 2021 and into the first quarter of 2022.
This planned growth in the business was accompanied by scaled
operations, including procurement of components, expanded
manufacturing capacity to turn those materials into saleable
inventory, additional discretionary expenditures, including
increased global participation at trade shows, additional employee
trainings, user meetings, increased travel and entertainment
expenses, more expansive research and development projects, and
additional headcount to support those activities. Additionally, the
Company had, and still has, some significant non-recurring
discretionary expenditures associated with completing its
multi-year marketing initiatives related to its dermal resurfacing
and skin laxity clearances.
On March 14, 2022, the U.S. Food and Drug Administration (“FDA”)
posted a Safety Communication that warns consumers and health care
providers against the use of the Company’s Advanced Energy products
outside of their FDA-cleared indications for general use in
cutting, coagulation, and ablation of soft tissue during open and
laparoscopic surgical procedures. Following the Safety
Communication, the Company experienced slowed demand for the
adoption of its Helium Plasma Technology.
On May 26, 2022, the Company announced that it had received 510(k)
clearance from the FDA for the use of the Renuvion® Dermal
Handpiece for specific dermal resurfacing procedures. On July 18,
2022, the Company announced that it had received 510(k) clearance
from the FDA for the use of the Renuvion® APR Handpiece for certain
skin contraction procedures.
On June 2, 2022, and July 21, 2022, FDA updated the Medical Device
Safety Communication to recognize the new 510(k) clearances for the
Renuvion® Dermal handpiece, and the expanded indications for the
Renuvion® APR handpieces. The 510(k) clearance for the Renuvion®
Dermal handpiece allows surgeons to perform dermal resurfacing
procedures for the treatment of moderate to severe wrinkles and
rhytides, limited to patients with Fitzpatrick Skin Types I, II or
III. The 510(k) clearance for the Renuvion® APR handpieces now
addresses improving the appearance of lax (loose) skin in the neck
and submental region.
While management expected that receiving these clearances would
materially mitigate the financial effects of the Safety
Communication in future periods, the Company continues to
experience reduced demand for the adoption and utilization of its
technology and management believes that this may have an adverse
effect in future periods.
The accompanying unaudited condensed consolidated financial
statements have been prepared assuming the Company will continue as
a going concern. The going concern basis of presentation assumes
that the Company will continue in operation one year after the date
these financial statements are issued and will be able to realize
its assets and discharge its liabilities and commitments in the
normal course of business.
Pursuant to the requirements of the Financial Accounting Standards
Board’s Accounting Standards Codification (“ASC”) Topic
205-40,
Disclosure of Uncertainties about an Entity’s Ability to Continue
as a Going Concern,
management must evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the
Company’s ability to continue as a going concern for one year from
the date these condensed consolidated financial statements are
issued. This evaluation does not take into consideration the
potential mitigating effect of management’s plans that have not
been fully implemented or are not within control of the Company as
of the date the condensed consolidated financial statements are
issued. When substantial doubt exists under this methodology,
management evaluates whether the mitigating effect of its plans
sufficiently alleviates substantial doubt about the Company’s
ability to continue as a going concern. The mitigating effect of
management’s plans, however, is only considered if both (1) it is
probable that the plans will be effectively implemented within one
year after the date that the financial statements are issued, and
(2) it is probable that the plans, when implemented, will mitigate
the relevant conditions or events that raise substantial doubt
about the entity’s ability to continue as a going
concern
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
within one year after the date that the financial statements are
issued.
While sales were continuing to grow into the first quarter of 2022
prior to the FDA Safety Communication, over the last few years,
exclusive of the Company’s sale of the Core business segment to
Symmetry Surgical during 2018, it has incurred recurring net losses
and cash outflows from operations and the Company anticipates that
losses will continue in the near term. During the nine months ended
September 30, 2022, the Company incurred an operating loss of
$17.6 million and used $15.8 million of cash in
operations. As of September 30, 2022, the Company had cash and cash
equivalents of $14.8 million. These conditions raise
substantial doubt about the Company’s ability to continue as a
going concern for a period of at least one year from the date of
issuance of these unaudited condensed consolidated financial
statements.
In an effort to alleviate these conditions, management is currently
evaluating various funding alternatives to improve liquidity and
may seek to raise additional capital through debt financing, the
sale of equity securities, leveraging its unencumbered real estate,
or any combination thereof. In addition, management is actively
pursuing collection of the Company’s income tax receivable.
Management also continues to re-assess its operating expenditures
and cost structure to be commensurate with its expected levels of
revenue and has the ability to reduce or delay expenditures to
enhance and preserve liquidity. As the Company seeks additional
sources of financing, there can be no assurance that such financing
would be available to the Company on favorable terms or at all. The
Company’s ability to obtain additional financing in the debt and
equity capital markets is subject to several factors, including
market and economic conditions, the Company’s performance and
investor sentiment with respect to the Company and its
industry.
Management believes that the actions and efforts it can and will
take to manage operating expenditures and, while not assured,
arrange alternative financing sources as described above will
enable the Company to meet its obligations for a period of at least
one year from the date of issuance of these unaudited condensed
consolidated financial statements. As a result, management believes
its plans alleviate substantial doubt about its ability to continue
as a going concern. These unaudited condensed financial statements
do not include any adjustments relating to the carrying amounts and
classification of assets and liabilities that may be necessary
should the Company be unable to continue as a going
concern.
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 our Annual Report on Form 10-K for the year ended
December 31, 2021. 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
We have reclassified certain amounts presented in the prior period
to conform to the current period presentation. These
reclassifications had no impact on previously reported net loss,
accumulated deficit or net cash used in operating activities for
the periods presented.
NOTE 2. RECENT ACCOUNTING
PRONOUNCEMENTS
In June 2016, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2016-13,
Financial Instruments—Credit Losses (Topic 326).
The update changes the impairment model for most financial assets
and certain other instruments, including trade and other
receivables, contract assets, held-to-maturity debt securities and
loans, and requires entities to use a new forward-looking expected
loss model that will result in the earlier recognition of allowance
for losses. This update, as originally issued, was effective for
annual and interim periods beginning after December 15, 2019, with
early adoption permitted. In November 2019, the FASB issued ASU
2019-10,
Financial Instruments - Credit Losses (Topic 326), Derivatives and
Hedging (Topic 815), and Leases (Topic 842) Effective
Dates,
which deferred the effective dates of these standards for Smaller
Reporting Companies until fiscal years beginning after December 15,
2022. The Company currently continues to qualify as a Smaller
Reporting Company, based upon the current SEC definition, and as a
result, will be utilizing the deferred elective date. While we are
in the process of determining the effects of the adoption of the
standard on the condensed consolidated financial statements, we do
not expect the impact to be material.
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
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.
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
NOTE 3. DISPOSAL OF BUSINESS
On August 30, 2018, the Company 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 the Company divested and sold the
Company’s
electrosurgical “Core” business segment and related intellectual
property, including the Bovie® brand and trademarks, to Symmetry
for gross proceeds of $97 million in cash.
In connection with the Asset Purchase Agreement, the Company
entered into an Electro Surgical Disposables and Accessories,
Cauteries and Other Products Supply Agreement with Symmetry for a
four-year term, which expired August 30, 2022, whereby it
manufactured certain Core products
and sold them to Symmetry at agreed upon prices. Any activity
resulting from this agreement was netted and reported in the
Condensed Consolidated Statements of Operations as other income
(loss). There was no significant Core activity for the three months
ended September 30, 2022. Core activity for the three months
ended September 30, 2021, amounted to $1.6 million with
cost of sales equivalents of $1.3 million and related other
expenses of $0.5 million for net other loss of
$0.3 million. Core activity for the
nine months ended September 30, 2022,
amounted to $0.6 million with cost of sales equivalents of
$0.5 million and other related expenses of
$0.1 million for net other loss of $0.1 million.
Core activity for the
nine months ended September 30, 2021,
amounted to $5.2 million with cost of sales equivalents of
$4.4 million and net other related operating expenses of
$1.1 million for net other loss of
$0.3 million.
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
NOTE 4. INVENTORIES
Inventories are stated at the lower of cost or net realizable
value. 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 direct labor
hours.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
September 30,
2022 |
|
December 31,
2021 |
|
Raw materials |
$ |
5,078 |
|
|
$ |
3,603 |
|
|
Work in process |
2,414 |
|
|
1,441 |
|
|
Finished goods |
4,929 |
|
|
1,997 |
|
|
Gross inventories |
12,421 |
|
|
7,041 |
|
|
Less: provision for obsolescence |
(379) |
|
|
(263) |
|
|
Inventories, net |
$ |
12,042 |
|
|
$ |
6,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
NOTE 5. LEASES
Operating Leases
The Company leases its facility in Sofia, Bulgaria and computers
under non-cancelable operating lease agreements. During the three
months ended September 30, 2022, the Company’s leases on the
vehicles in Clearwater, Florida expired and the Company purchased
the vehicles at fair value. During the three months ended September
30, 2022, the Company entered into a one year extension on one of
its leases on computer equipment. This extension resulted in
reclassification of the lease from finance to operating. During the
nine months ended September 30, 2022, the Company entered into a
five year extension of its Sofia, Bulgaria facility. These
operating leases have terms expiring through December
2027.
Finance Leases
The Company has entered into non-cancelable finance leases for
certain computer equipment and a vehicle in Clearwater, Florida.
During the nine months ended September 30, 2022, the Company
entered into a 63 month lease for computer equipment. These finance
leases have terms expiring through July 2027.
Information about the Company’s weighted average remaining lease
terms and discount rate assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
Operating |
Finance |
|
Operating |
Finance |
|
Weighted average remaining lease term (in years) |
4.4 |
4.1 |
|
1.0 |
0.8 |
|
Weighted average discount rate |
2.75% |
2.64% |
|
3.98% |
4.00% |
Maturities of lease liabilities as of September 30, 2022 are as
follows:
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Operating |
Finance |
|
|
|
|
2022 |
$ |
75 |
|
$ |
10 |
|
|
2023 |
218 |
|
40 |
|
|
2024 |
111 |
|
21 |
|
|
2025 |
111 |
|
21 |
|
|
2026 |
111 |
|
21 |
|
|
Thereafter |
111 |
|
12 |
|
|
Total lease payments |
737 |
|
125 |
|
|
Less imputed interest |
(43) |
|
(5) |
|
|
Present value of lease liabilities |
694 |
|
120 |
|
|
Less current portion of lease liabilities |
(240) |
|
(42) |
|
|
Long-term portion of lease liabilities |
$ |
454 |
|
$ |
78 |
|
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
NOTE 6. ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
Accrued expenses and other current liabilities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
September 30,
2022 |
|
December 31,
2021 |
|
Accrued payroll |
$ |
879 |
|
|
$ |
546 |
|
|
Accrued bonuses |
— |
|
|
2,117 |
|
|
Accrued commissions |
877 |
|
|
1,656 |
|
|
Accrued product warranties |
616 |
|
|
593 |
|
|
Accrued product liability claim insurance deductibles |
1,016 |
|
|
610 |
|
|
Accrued professional fees and legal related contingent
liabilities |
1,134 |
|
|
421 |
|
|
Joint and several payroll liability |
399 |
|
|
1,027 |
|
|
Short-term contract liabilities |
1,145 |
|
|
533 |
|
|
Uncertain tax positions |
2,024 |
|
|
1,863 |
|
|
Sales tax payable |
135 |
|
|
428 |
|
|
Other accrued expenses and current liabilities |
617 |
|
|
493 |
|
|
Total accrued expenses and other current liabilities |
$ |
8,842 |
|
|
$ |
10,287 |
|
During April 2022, the Company was relieved of approximately
$650,000 of its joint and several payroll liability due to the
lapse of the statute of limitations on the liability. This
adjustment is included in other income, net for the nine months
ended September 30, 2022.
NOTE 7. 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%
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 had been fully funded as of
December 31, 2021. As of the date of these condensed consolidated
financial statements, the China JV has not commenced principal
operations.
Changes in the
Company’s
investment in the China JV were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended
September 30, |
|
(In thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Beginning interest in China JV |
|
$ |
269 |
|
|
$ |
338 |
|
|
$ |
317 |
|
|
$ |
144 |
|
|
Contributions |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
203 |
|
|
Net loss attributable to Apyx |
|
$ |
(33) |
|
|
$ |
(13) |
|
|
$ |
(81) |
|
|
$ |
(22) |
|
|
Ending interest in China JV |
|
$ |
236 |
|
|
$ |
325 |
|
|
$ |
236 |
|
|
$ |
325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
NOTE 8. 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
September 30, |
|
Nine Months Ended
September 30, |
|
|
|
(in thousands, except per share data) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to stockholders |
|
$ |
(5,764) |
|
|
$ |
(4,222) |
|
|
$ |
(17,135) |
|
|
$ |
(13,169) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and
diluted
|
|
34,569 |
|
|
34,330 |
|
|
34,488 |
|
|
34,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.17) |
|
|
$ |
(0.12) |
|
|
$ |
(0.50) |
|
|
$ |
(0.38) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive instruments excluded from diluted loss per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
6,635 |
|
|
5,534 |
|
|
6,635 |
|
|
5,534 |
|
|
|
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
NOTE 9. 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 $1,692,000 and $5,056,000,
respectively, in stock-based compensation expense during the three
and nine months ended September 30, 2022, as compared with
$1,184,000 and $3,747,000, respectively, for the three and nine
months ended September 30, 2021.
Stock option activity is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options |
|
Weighted average exercise price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2021
|
5,397,691 |
|
|
$ |
5.95 |
|
|
Granted |
1,692,419 |
|
|
10.64 |
|
|
Exercised |
(299,006) |
|
|
4.57 |
|
|
Canceled and forfeited |
(155,697) |
|
|
9.20 |
|
|
Outstanding at September 30, 2022
|
6,635,409 |
|
|
$ |
7.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. For the three months ended September 30, 2022 and 2021,
respectively, we received 55,853 and 37,049 options as payment in
the exercise of 33,313 and 13,285 options. For the nine months
ended September 30, 2022 and 2021, respectively, we received 92,520
and 59,104 options as payment in the exercise of 72,313 and 39,312
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
2022 (“2022 Grants”) utilizing a Black-Scholes model.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Grants |
|
|
|
|
|
Strike price |
$5.10 |
- |
$10.56 |
|
|
|
|
|
|
|
|
|
Risk-free rate |
1.6% |
- |
3.9% |
|
|
|
|
|
|
|
Expected dividend yield |
— |
|
|
|
|
|
Expected volatility |
69.6% |
- |
78.5% |
|
|
|
|
|
|
|
|
|
Expected term (in years) |
5 |
- |
6 |
|
|
|
|
|
|
NOTE 10. INCOME TAXES
Income tax expense was approximately $50,000 and $73,000 with
effective tax rates of (0.9)% and (1.8)% for the three months ended
September 30, 2022 and 2021, respectively. Income tax expense
was approximately $216,000 and $246,000 with effective tax rates of
(1.3)% and (1.9)% for the nine months ended September 30, 2022 and
2021, respectively. For the three and nine months ended
September 30, 2022 and 2021, the effective rates differ from
the statutory rate primarily due to the full valuation allowance
recorded on the net operating loss (“NOL”) generated during the
period, combined with interest and penalties on uncertain tax
positions.
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
The Company has gross unrecognized tax benefits of approximately
$1,313,000 at September 30, 2022. It recognized accrued
interest and penalties related to unrecognized tax benefits in the
provision for income taxes in the condensed consolidated financial
statements. As of September 30, 2022, the Company had
approximately $711,000 in accrued interest and penalties related to
unrecognized tax benefits. Included in the income tax expense for
the three months ended September 30, 2022 and 2021,
respectively, are approximately $54,000 and $52,000 of interest and
penalties on the Company's uncertain tax positions. Included in the
income tax expense for the nine months ended September 30, 2022 and
2021, respectively, are approximately $160,000 and $152,000 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 $2,024,000 of income tax benefits in the consolidated
statement of operations. During June 2022, the Company was notified
by the Internal Revenue Service (“IRS”) that it is examining the
Company’s 2018, 2019 and 2020 federal income tax returns. The
examination is expected to be completed no later than May 2023. It
is expected that all of the uncertain tax positions should be
resolved with the completion of the IRS examination.
NOTE 11. 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 our products and product liability
claims.
The Company is involved in a number of legal actions relating to
the use of our Helium Plasma technology. The outcomes of these
legal actions are not within the Company’s control and may not be
known for prolonged periods of time. It believes that such claims
are adequately covered by insurance; however, 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.
During December 2021, the Company provided notice of contract
termination to an international distributor of the Company. In
March 2022, the Company received a letter from the former
distributor citing improper contract termination and alleging
damages. While the matter is still in the early stages, management
has determined that a loss is probable and that a range of
estimated losses is approximately $250,000 to $1,000,000. The
Company has recorded an estimated loss of $250,000 in professional
services in the accompanying Condensed Consolidated Statement of
Operations for the nine months ended September 30, 2022. It is at
least 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.
In addition, as previously disclosed with the U.S. Securities and
Exchange Commission on the Company’s Current Report on Form 8-K
filed June 7, 2022, on June 6, 2022, a complaint (the “Complaint”)
was filed in the United States District Court for the Middle
District of Florida by plaintiff William E. Hattaway, individually
and on behalf of all others similarly situated against the Company,
Charles D. Goodwin (“Goodwin”), the Company’s President and Chief
Executive Officer and a member of the Company’s Board of Directors,
and Tara Semb (“Semb”), the Company’s Chief Financial Officer,
Treasurer and Secretary, alleging violations by the Company,
Goodwin and Semb of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder, primarily related
to certain public statements and disclosures concerning the
off-label usage of certain of the Company’s Advanced Energy
products and the impact such usage would have on the Company’s
business, operations and prospects. The Complaint seeks an
unspecified amount of damages.
Although the ultimate outcome of this matter cannot be determined
with certainty, the Company believes that the allegations stated in
the Complaint are without merit. The Company, Goodwin and Semb
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
results of operations, financial
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
position or cash flows. While the matter is still in the early
stages, management has determined that a loss is probable and that
a range of estimated losses is approximately $475,000 to
$2,500,000. The Company has recorded an estimated loss of $475,000
in professional services in the accompanying Condensed Consolidated
Statement of Operations for the nine months ended September 30,
2022. It is at least 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.
The Company accrues a liability in its 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 condensed 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, 2022, the Company had purchase commitments
totaling approximately $3.1 million, substantially all of
which is expected to be purchased within the next fifteen
months.
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
NOTE 12. 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 human resources. Svetoslav
Shilev, Mr. Shilev’s son, is a quality manager in the quality
assurance department.
The partner in the Company's China joint venture is also a supplier
to the Company. For the three months ended September 30, 2022
and 2021, the Company made purchases from this supplier of
approximately $85,000 and $456,000, respectively. For the
nine months ended September 30, 2022
and 2021, the Company made purchases from this supplier of
approximately $455,000 and $1,102,000, respectively. At
September 30, 2022 and December 31, 2021, respectively,
the Company owed this supplier approximately $41,000 and
$1,000.
NOTE 13. 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, 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:
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2022 |
|
(In thousands) |
|
|
Advanced Energy |
|
OEM |
|
Corporate & Other |
|
Total |
|
Sales |
|
|
$ |
7,080 |
|
|
$ |
2,034 |
|
|
$ |
— |
|
|
$ |
9,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(1,174) |
|
|
356 |
|
|
(4,964) |
|
|
(5,782) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
— |
|
|
— |
|
|
73 |
|
|
73 |
|
|
Interest expense |
|
|
— |
|
|
— |
|
|
(1) |
|
|
(1) |
|
|
Other loss, net |
|
|
— |
|
|
— |
|
|
(35) |
|
|
(35) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
— |
|
|
— |
|
|
50 |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021 |
|
(In thousands) |
|
|
Advanced Energy |
|
OEM |
|
Corporate & Other |
|
Total |
|
Sales |
|
|
$ |
10,313 |
|
|
$ |
1,518 |
|
|
$ |
— |
|
|
$ |
11,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
52 |
|
|
328 |
|
|
(4,348) |
|
|
(3,968) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
— |
|
|
— |
|
|
2 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
— |
|
|
— |
|
|
(3) |
|
|
(3) |
|
|
Other loss, net |
|
|
— |
|
|
— |
|
|
(192) |
|
|
(192) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
— |
|
|
— |
|
|
73 |
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2022 |
|
(In thousands) |
|
|
Advanced Energy |
|
OEM |
|
Corporate & Other |
|
Total |
|
Sales |
|
|
$ |
26,258 |
|
|
$ |
5,641 |
|
|
$ |
— |
|
|
$ |
31,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(3,765) |
|
|
1,142 |
|
|
(15,006) |
|
|
(17,629) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
— |
|
|
— |
|
|
93 |
|
|
93 |
|
|
Interest expense |
|
|
— |
|
|
— |
|
|
(12) |
|
|
(12) |
|
|
Other income, net |
|
|
— |
|
|
— |
|
|
551 |
|
|
551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
— |
|
|
— |
|
|
216 |
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021 |
|
(In thousands) |
|
|
Advanced Energy |
|
OEM |
|
Corporate & Other |
|
Total |
|
Sales |
|
|
$ |
27,951 |
|
|
$ |
3,742 |
|
|
$ |
— |
|
|
$ |
31,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(224) |
|
|
588 |
|
|
(13,120) |
|
|
(12,756) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
— |
|
|
— |
|
|
9 |
|
|
9 |
|
|
Interest expense |
|
|
— |
|
|
— |
|
|
(9) |
|
|
(9) |
|
|
Other loss, net |
|
|
— |
|
|
— |
|
|
(188) |
|
|
(188) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
— |
|
|
— |
|
|
246 |
|
|
246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International sales represented approximately 23.2% and 29.5% of
total revenues for the three and nine months ended September 30,
2022, respectively, as compared with approximately 33.1% and 34.2%
of total revenues for the three and nine months ended September 30,
2021, respectively.
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) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Sales by Domestic and International |
|
|
|
|
|
|
|
|
Domestic |
$ |
6,997 |
|
|
$ |
7,911 |
|
|
$ |
22,492 |
|
|
$ |
20,860 |
|
|
International |
2,117 |
|
|
3,920 |
|
|
9,407 |
|
|
10,833 |
|
|
Total |
$ |
9,114 |
|
|
$ |
11,831 |
|
|
$ |
31,899 |
|
|
$ |
31,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS 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 an advanced energy technology company with a passion for
elevating people’s lives through innovative products, including our
Helium Plasma 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.
On March 14, 2022, the U.S. Food and Drug Administration (“FDA”)
posted a Safety Communication that warns consumers and health care
providers against the use of our Advanced Energy products outside
of their FDA-cleared indications for general use in cutting,
coagulation, and ablation of soft tissue during open and
laparoscopic surgical procedures. Following the Safety
Communication, we experienced slowed demand for the adoption of our
Helium Plasma Technology.
As part of our plan to accelerate and fully fund the development of
our advanced energy
business, with a focus in the cosmetic
surgery market, we sold our Core business in 2018 for gross
proceeds of $97 million.
These proceeds were used to launch broad marketing and sales
initiatives which resulted in rapid sales growth through December
31, 2021 and into the first quarter of 2022.
This planned growth in the business was accompanied by scaled
operations, including procurement of components, expanded
manufacturing capacity to turn those materials into saleable
inventory, additional discretionary expenditures, including
increased global participation at trade shows, additional employee
trainings, user meetings, increased travel and entertainment
expenses, more expansive research and development projects, and
additional headcount to support those activities. Additionally, we
had and still have, some significant non-recurring discretionary
expenditures associated with completing our multi-year marketing
initiatives related to our dermal resurfacing and skin laxity
clearances.
On May 26, 2022, we announced that we received 510(k) clearance
from the FDA for the use of the Renuvion Dermal Handpiece for
specific dermal resurfacing procedures. On July 18, 2022, we
announced that we received 510(k) clearance from the FDA for the
use of the Renuvion® APR Handpiece for certain skin contraction
procedures.
On June 2, 2022, and July 21, 2022, FDA updated the Medical Device
Safety Communication to recognize the new 510(k) clearances for the
Renuvion® Dermal handpiece, and the expanded indications for the
Renuvion® APR handpieces. The 510(k) clearance for the Renuvion®
Dermal handpiece allows surgeons to perform dermal resurfacing
procedures for the treatment of moderate to severe wrinkles and
rhytides, limited to patients with Fitzpatrick Skin Types I, II or
III. The 510(k) clearance for the Renuvion® APR handpieces now
addresses improving the appearance of lax (loose) skin in the neck
and submental region.
While we expected that receiving these clearances would materially
mitigate the financial effects of the Safety Communication in
future periods, we continue to experience reduced demand for the
adoption and utilization of our technology and we believe that this
may have an adverse effect in future periods.
While sales were continuing to grow into the first quarter of 2022
prior to the FDA Safety Communication, over the last few years,
exclusive of our sale of the Core business segment to Symmetry
Surgical during 2018, we have incurred recurring net losses and
cash outflows from operations and we anticipate that losses will
continue in the near term. During the nine months ended September
30, 2022, we incurred an operating loss of $17.6 million and used
$15.8 million of cash in operations. As of September 30, 2022, we
had cash and cash equivalents of $14.8 million. These conditions
raise substantial doubt about our ability to continue as a going
concern for a period of at least one year from the date of issuance
of these unaudited condensed consolidated financial
statements.
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
In an effort to alleviate these conditions, we are currently
evaluating various funding alternatives to improve liquidity and
may seek to raise additional capital through debt financing, the
sale of equity securities, leveraging our unencumbered real estate,
or any combination thereof. In addition, we are actively pursuing
collection of our income tax receivable. We also continue to
re-assess our operating expenditures and cost structure to be
commensurate with our expected levels of revenue and we have the
ability to reduce or delay expenditures to enhance and preserve
liquidity. As we seek additional sources of financing, there can be
no assurance that such financing would be available to us on
favorable terms or at all. Our ability to obtain additional
financing in the debt and equity capital markets is subject to
several factors, including market and economic conditions, our
performance and investor sentiment with respect to us and our
industry.
We believe that the actions and efforts we can and will take to
manage operating expenditures and, while not assured, arrange
alternative financing sources as described above will enable us to
meet our obligations for a period of at least one year from the
date of issuance of these unaudited condensed consolidated
financial statements. As a result, we believe our plans alleviate
substantial doubt about our ability to continue as a going concern.
These unaudited condensed financial statements do not include any
adjustments relating to the carrying amounts and classification of
assets and liabilities that may be necessary should we be unable to
continue as a going concern.
We continue to focus our efforts to increase the adoption of our
Advanced Energy technology and utilization of our handpieces by
surgeons in the U.S. and fulfilling demand from distributors in our
international markets. Management estimates that our products have
been sold in more than 60 countries. As of September 30, 2022,
we had a direct sales force of 35 field-based selling professionals
and utilized 3 independent sales agencies. We also had 4 sales
managers. This selling organization is focused on the use of
Renuvion® and J-Plasma® in the cosmetic and hospital surgical
markets, supported by our global medical affairs team. This global
team of clinical support specialists focuses on supporting our
users to ensure optimal outcomes for their patients. In addition,
we have invested in training programs and marketing-related
activities to support accelerated adoption of Renuvion® into
surgeons' practices.
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.
In response to the global supply chain instability and inflationary
cost increases, we continue to take action to minimize, as much as
possible, any potential adverse impacts by working closely with our
suppliers to closely monitor the availability of raw material
components (i.e. semiconductors and plastics), lead times, and
freight carrier availability.
We expect global supply chain instability will continue to have an
impact on our business, but to date that has not been material to
our financial performance. The consequences of the pandemic, global
supply chain instability and inflationary cost increases and their
adverse impact to the global economy, continue to evolve.
Accordingly, the significance of the future impact to our business
and financial statements remains subject to significant
uncertainty.
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
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
|
|
Nine Months Ended
September 30, |
|
|
|
|
(In thousands) |
2022 |
|
2021 |
|
Change |
|
2022 |
|
2021 |
|
Change |
|
|
Sales by Reportable Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Energy |
$ |
7,080 |
|
|
$ |
10,313 |
|
|
(31.3) |
% |
|
$ |
26,258 |
|
|
$ |
27,951 |
|
|
(6.1) |
% |
|
|
OEM |
2,034 |
|
|
1,518 |
|
|
34.0 |
% |
|
5,641 |
|
|
3,742 |
|
|
50.7 |
% |
|
|
Total |
$ |
9,114 |
|
|
$ |
11,831 |
|
|
(23.0) |
% |
|
$ |
31,899 |
|
|
$ |
31,693 |
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
(632,000) |
|
|
|
|
Sales by Domestic and International |
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
$ |
6,997 |
|
|
$ |
7,911 |
|
|
(11.6) |
% |
|
$ |
22,492 |
|
|
$ |
20,860 |
|
|
7.8 |
% |
|
|
International |
2,117 |
|
|
3,920 |
|
|
(46.0) |
% |
|
9,407 |
|
|
10,833 |
|
|
(13.2) |
% |
|
|
Total |
$ |
9,114 |
|
|
$ |
11,831 |
|
|
(23.0) |
% |
|
$ |
31,899 |
|
|
$ |
31,693 |
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue decreased by
23.0%,
or approximately $(2.7) million, for the three months ended
September 30, 2022 when compared with the three months ended
September 30, 2021. Advanced Energy segment
sales decreased 31.3%, or approximately
$(3.2) million,
for the three
months ended September 30, 2022
when compared with the three
months ended September 30, 2021.
The Advanced Energy sales decrease is due to global decreases
in
utilization based demand for our handpieces and
the adoption of our generator technology following the FDA Safety
Communication on March 14, 2022. OEM segment
sales increased 34.0%, or approximately
$0.7 million,
for the
three months ended September 30, 2022
when compared with the
three months ended September 30, 2021.
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 increased by
0.6%,
or approximately $0.2 million, for the nine months ended
September 30, 2022 when compared with the nine months ended
September 30, 2021. Advanced Energy segment
sales decreased (6.1)%, or approximately
$(1.7) million,
for the
nine months ended September 30, 2022
when compared with the
nine months ended September 30, 2021.
The Advanced Energy sales decrease is due to global decreases
in
utilization based demand for our handpieces and
the adoption of our generator technology following the FDA Safety
Communication on March 14, 2022. The Advanced Energy sales decrease
was partially offset by an increase in global utilization based
demand for our handpieces and adoption of our generator technology
in international markets for most of the first quarter before the
FDA Safety Communication. OEM segment
sales increased 50.7%, or approximately
$1.9 million,
for the
nine months ended September 30, 2022
when compared with the
nine months ended September 30, 2021.
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, as well as
incremental new sales upon the commencement of the supply
arrangement related to the completion of the development portion of
some of our OEM development agreements.
International sales represented approximately 23.2% and 29.5% of
total revenues for the three and
nine months ended September 30, 2022,
respectively, as compared with 33.1% and 34.2% 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.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
|
|
Nine Months Ended
September 30, |
|
|
|
(In thousands) |
2022 |
|
2021 |
|
Change |
|
2022 |
|
2021 |
|
Change |
|
Cost of sales |
$ |
3,357 |
|
|
$ |
3,775 |
|
|
(11.1) |
% |
|
$ |
11,009 |
|
|
$ |
10,243 |
|
|
7.5 |
% |
|
Percentage of sales |
36.8 |
% |
|
31.9 |
% |
|
|
|
34.5 |
% |
|
32.3 |
% |
|
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Gross profit |
$ |
5,757 |
|
|
$ |
8,056 |
|
|
(28.5) |
% |
|
$ |
20,890 |
|
|
$ |
21,450 |
|
|
(2.6) |
% |
|
Percentage of sales |
63.2 |
% |
|
68.1 |
% |
|
|
|
65.5 |
% |
|
67.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit for the three months ended September 30, 2022,
decreased 28.5% to $5.8 million, compared to $8.1 million for the
same period in the prior year. Gross margin for the three months
ended September 30, 2022, was 63.2%, compared to 68.1%
for
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
the same period in 2021. Gross profit for the
nine months ended September 30, 2022,
decreased (2.6)% to $20.9 million, compared to $21.5 million for
the same period in the prior year. Gross margin for the
nine months ended September 30, 2022,
was 65.5%, compared to 67.7% for the same period in 2021. The
decrease in gross profit margins for the three and nine
months ended September 30, 2022
from the prior year periods is primarily attributable to changes in
the sales mix between our two segments, with our OEM segment
comprising a higher percentage of total sales, product mix within
our Advanced Energy Segment and higher material and inbound
shipping costs to manufacture our inventory. These decreases were
partially offset by geographic mix within our Advanced Energy
segment, with domestic sales comprising a higher percentage of
total sales and the mix of newer product models as we obtain
registrations, allowing these products to be introduced into the
markets we serve.
Other Costs and Expenses
Research and development
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|
Three Months Ended
September 30, |
|
|
|
Nine Months Ended
September 30, |
|
|
|
(In thousands) |
2022 |
|
2021 |
|
Change |
|
2022 |
|
2021 |
|
Change |
|
Research and development expense |
$ |
1,061 |
|
|
$ |
1,175 |
|
|
(9.7) |
% |
|
$ |
3,289 |
|
|
$ |
3,374 |
|
|
(2.5) |
% |
|
Percentage of sales |
11.6 |
% |
|
9.9 |
% |
|
|
|
10.3 |
% |
|
10.6 |
% |
|
|
|
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|
Research and development expenses decreased 9.7% for the
three
months ended September 30, 2022,
primarily due to lower spending on our two investigational device
exemption (IDE) clinical studies and other product development
initiatives ($0.1 million).
Research and development expenses decreased 2.5% for the
nine months ended September 30, 2022,
primarily due to lower spending on our two investigational device
exemption (IDE) clinical studies and other product development
initiatives ($0.3 million). This decrease was partially offset by
increased labor and benefit costs from the same period in the prior
year ($0.2 million).
Professional services
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Three Months Ended
September 30, |
|
|
|
Nine Months Ended
September 30, |
|
|
|
(In thousands) |
2022 |
|
2021 |
|
Change |
|
2022 |
|
2021 |
|
Change |
|
Professional services expense |
$ |
1,936 |
|
|
$ |
2,032 |
|
|
(4.7) |
% |
|
$ |
6,611 |
|
|
$ |
5,442 |
|
|
21.5 |
% |
|
Percentage of sales |
21.2 |
% |
|
17.2 |
% |
|
|
|
20.7 |
% |
|
17.2 |
% |
|
|
|
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|
Professional services
expense decreased (4.7)% for the three months ended
September 30, 2022, primarily attributable to a decrease in
physician consulting fees ($0.2 million). This decrease was
partially offset by an increase in Board of Directors option
expense ($0.1 million) and accounting and auditing fees ($0.1
million).
Professional services
expense increased 21.5% for the
nine months ended September 30, 2022,
primarily attributable to increases in legal expenses ($0.7
million), primarily associated with the estimated loss recorded for
the class action lawsuit, Board of Directors option expense ($0.3
million), accounting and auditing fees ($0.2 million), physician
consulting fees ($0.1 million), and employee recruitment expense
($0.1 million). These increases were partially offset by a decrease
in option expense for our partner physicians ($0.2
million).
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
Salaries and related costs
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Three Months Ended
September 30, |
|
|
|
Nine Months Ended
September 30, |
|
|
|
(In thousands) |
2022 |
|
2021 |
|
Change |
|
2022 |
|
2021 |
|
Change |
|
Salaries and related expenses |
$ |
3,871 |
|
|
$ |
4,206 |
|
|
(8.0) |
% |
|
$ |
13,944 |
|
|
$ |
12,794 |
|
|
9.0 |
% |
|
Percentage of sales |
42.5 |
% |
|
35.6 |
% |
|
|
|
43.7 |
% |
|
40.4 |
% |
|
|
|
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During the three months ended September 30, 2022, salaries and
related expenses decreased (8.0)%, primarily driven by a decrease
in bonus expense ($1.1 million) as we determined we would not meet
our 2022 bonus plan and reversed our entire bonus accrual during
the quarter. This decrease is partially offset by higher
compensation and benefits ($0.4 million) and stock compensation
expense ($0.4 million) as compared to the same period in the prior
year.
During the
nine months ended September 30, 2022,
salaries and related expenses increased 9.0%, primarily driven by
higher compensation and benefits ($1.4 million) and stock
compensation expense ($1.0 million) as compared to the same period
in the prior year. These increases are partially offset by a
decrease in bonus expense ($1.3 million) as we determined we would
not meet our 2022 bonus plan, accordingly we have recorded no bonus
expense in 2022.
Selling, general and administrative expenses
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|
Three Months Ended
September 30, |
|
|
|
Nine Months Ended
September 30, |
|
|
|
(In thousands) |
2022 |
|
2021 |
|
Change |
|
2022 |
|
2021 |
|
Change |
|
SG&A expense |
$ |
4,671 |
|
|
$ |
4,611 |
|
|
1.3 |
% |
|
$ |
14,675 |
|
|
$ |
12,596 |
|
|
16.5 |
% |
|
Percentage of sales |
51.3 |
% |
|
39.0 |
% |
|
|
|
46.0 |
% |
|
39.7 |
% |
|
|
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|
During the three months ended September 30, 2022, selling,
general and administrative expense increased 1.3%, primarily driven
by higher insurance expense, including product liability claims on
our policies ($0.7 million), travel and entertainment expense ($0.2
million), exchange rate losses ($0.2 million) and other public
company related costs ($0.1 million). These increases were
partially offset by lower commissions on Advanced Energy sales
($0.8 million), advertising expense, including trade show fees and
related costs ($0.3 million) and employee training and other
meeting expenses ($0.1 million).
During the
nine months ended September 30, 2022,
selling, general and administrative expense increased 16.5%,
primarily driven by higher travel and entertainment expense ($0.9
million), employee training and other meeting expenses ($0.7
million), advertising expense, including trade show fees and
related costs ($0.6 million), insurance expense, including product
liability claims on our policies ($0.7 million), bad debt expense
($0.2 million), exchange rate losses ($0.1 million), and other
public company related costs ($0.1 million). These increases were
partially offset by decreases in commissions on Advanced Energy
sales ($0.9 million), OEM product recall costs ($0.2 million) as we
experienced no product recalls in 2022, and lower regulatory
registration expenses ($0.1 million).
Other income (loss)
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|
|
Three Months Ended
September 30, |
|
|
|
Nine Months Ended
September 30, |
|
|
|
(In thousands) |
2022 |
|
2021 |
|
Change |
|
2022 |
|
2021 |
|
Change |
|
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|
Other (loss) income, net |
(35) |
|
|
$ |
(192) |
|
|
(81.8) |
% |
|
551 |
|
|
$ |
(188) |
|
|
(393.1) |
% |
|
Percentage of sales |
(0.4) |
% |
|
(1.6) |
% |
|
|
|
1.7 |
% |
|
(0.6) |
% |
|
|
|
|
|
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|
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|
|
|
Other (loss) income, net decreased
81.8%
and
393.1%
for the three and nine months ended September 30, 2022, as
compared with the same periods in the prior year.
For the three month period, this decrease was primarily driven by
the wind down of the supply arrangement with Symmetry in the Core
business segment. For the nine month period, this decrease was
primarily attributable to the release of a portion of our
joint and several payroll liability due to the lapse of the statute
of limitations on a portion of the liability ($0.6
million).
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Three Months Ended
September 30, |
|
|
|
Nine Months Ended
September 30, |
|
|
|
(In thousands) |
2022 |
|
2021 |
|
Change |
|
2022 |
|
2021 |
|
Change |
|
Income tax expense (benefit) |
$ |
50 |
|
|
$ |
73 |
|
|
31.5 |
% |
|
$ |
216 |
|
|
$ |
246 |
|
|
12.2 |
% |
|
Effective tax rate |
(0.9) |
% |
|
(1.8) |
% |
|
|
|
(1.3) |
% |
|
(1.9) |
% |
|
|
|
|
|
|
|
|
|
|
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|
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|
|
Our income tax expense was approximately $50,000 and $73,000 with
effective tax rates of (0.9)% and (1.8)% for the three months ended
September 30, 2022 and 2021, respectively. Our income tax
expense was approximately $216,000 and $246,000 with effective tax
rates of (1.3)% and (1.9)% for the nine months ended September 30,
2022 and 2021, respectively. For the three and nine months ended
September 30, 2022 and 2021, the effective rates differ from
statutory rates primarily due to the full valuation allowance
recorded on our NOL generated during the periods, combined with
interest and penalties on our uncertain tax positions.
Liquidity and Capital Resources
Our working capital at September 30, 2022 was approximately
$35.1 million compared with $47.5 million at December 31,
2021. The decrease in working capital from December 31, 2021
was primarily due to the net loss incurred by the Company during
the first nine months of 2022, excluding non-cash activity,
comprised primarily of stock-based compensation
expense.
For the
nine months ended September 30, 2022,
net cash used in operating activities was approximately $15.8
million, which principally funded our loss from operations of $17.6
million, compared with net cash used in operating activities of
approximately $10.7 million
in the same period for 2021. As discussed in the Executive Level
Overview, our operating loss, cash used in operations and current
cash and cash equivalents balance of $14.8 million raise
substantial doubt about our ability to continue as a going concern
for a period of at least one year from the date of issuance of
these unaudited condensed consolidated financial
statements.
Net cash used in investing activities for the nine months ended
September 30, 2022 and 2021, was
$0.9 million and $0.4 million,
respectively, related to investments in property and
equipment.
At September 30, 2022, we had purchase commitments totaling
approximately
$3.1 million,
substantially all of which is expected to be purchased within the
next fifteen months.
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
Critical Accounting Estimates
In preparing the consolidated financial statements in accordance
with accounting principles generally accepted in the United States
of America (U.S. GAAP), we have adopted various accounting
policies. Our most significant accounting policies are disclosed in
Note 2 to the consolidated financial statements included in our
2021
Form 10-K,
filed with the SEC on March 17, 2022.
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires us to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Our estimates and
assumptions, including those related to inventories, intangible
assets, property, plant and equipment, legal proceedings, research
and development, warranty obligations, product liability, sales
returns and discounts, stock-based compensation and income taxes
are updated as appropriate, which in most cases is at least
quarterly. We base our estimates on historical experience, or
various assumptions that are believed to be reasonable under the
circumstances and the results form the basis for making judgments
about the reported values of assets, liabilities, revenues and
expenses. Actual results may materially differ from these
estimates.
Estimates are considered to be critical if they meet both of the
following criteria: (1) the estimate requires assumptions about
material matters that are uncertain at the time the accounting
estimates are made and (2) other materially different estimates
could have been reasonably made or material changes in the
estimates are reasonably likely to occur from period to period. Our
critical accounting estimates include the following:
Stock-based Compensation
Under our stock option plans, options to purchase common shares of
the Company may be granted to employees, officers and directors of
the Company by the Board of Directors. We account for stock options
in accordance with FASB ASC Topic 718-10,
Compensation-Stock Compensation,
with compensation expense recognized over the vesting period.
Options are valued using the Black-Scholes model, which includes a
number of estimates that affect the amount of our expense. We have
determined that the most critical of these estimates are the
estimates of expected life and volatility used in the
calculations.
Expected life
For employee stock-based compensation awards, we estimate the
expected life of awards utilizing the SEC's simplified method. We
utilize this method, as we have not historically granted
stock-based compensation awards to employees in sufficient volumes
to determine a reasonable estimate of the life of awards. For
awards granted to non-employees, we calculate expected life using a
combination of past exercise behavior, the contractual term and
expected remaining exercise behavior.
Volatility
We determine the volatility by utilizing the historical volatility
of our stock over the period of the awards expected life. The SEC
allows us to include periods in excess of the useful life if we
determine that they provide a more reasonable basis for the
volatility of our stock. Additionally, ASC 718-10 allows us to
exclude periods from the volatility if they pertain to events or
circumstances that in our judgment are specific to us and if the
event or transaction is not reasonably expected to occur again
during the expected term of the awards. We have not included any
additional periods, nor disregarded any periods, in calculating our
volatility.
Accounts Receivable Allowance
We maintain a reserve for uncollectible accounts receivable. When
evaluating the adequacy of the allowance for doubtful accounts, we
analyze specific unremitted customer balances for known
collectability issues, review historical bad debt experience,
customer credit worthiness and economic trends, and we make
estimates in connection with establishing the allowance for
doubtful accounts, including the future impacts of current trends.
Changes in estimates are reflected in the period they are made. If
the financial condition of our customers deteriorates, resulting in
an inability to make payments, additional allowances may be
required.
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
Inventory Obsolescence Allowance
We maintain a reserve for excess and obsolete inventory resulting
from the potential inability to sell our products at prices in
excess of current carrying costs. The markets in which we operate
are highly competitive, with new products and surgical procedures
introduced on an ongoing basis. Such marketplace changes may cause
our products to become obsolete. We make estimates regarding the
future recoverability of the costs of these products and record a
provision for excess and obsolete inventories based on historical
experience and expected future trends. If actual product life
cycles, product demand or acceptance of new product introductions
are less favorable than projected by management, additional
inventory write-downs may be required, which would unfavorably
affect future operating results.
Litigation Contingencies
In accordance with authoritative guidance, we record 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 accrued. 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.
Income Taxes
The provision for income taxes includes federal, foreign, state and
local income taxes currently payable and those deferred because of
temporary differences between the financial statement and tax bases
of assets and liabilities. Deferred tax assets or liabilities are
computed based on the difference between the financial statement
and income tax bases of assets and liabilities using enacted
marginal tax rates. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not that a tax
benefit will not be realized. Deferred income tax expenses or
credits are based on the changes in the asset or liability from
period to period.
As a result of historical losses and our expectation to continue to
generate losses in the near future, we recorded a valuation
allowance on our net deferred tax assets. Exclusive of the
carryback provisions of the CARES Act and the associated income tax
benefit recognized in 2020, we do not anticipate recording an
income tax benefit related to our deferred tax assets. We will
reassess the realization of deferred tax assets each reporting
period and will be able to reduce the valuation allowance to the
extent our results of operations improve, and it becomes more
likely than not that the deferred tax assets will be realized. As
Management has not fully determined the timing of when it will
generate taxable income in the U.S., we continued to record a
valuation allowance on the net deferred tax assets balance as of
September 30, 2022.
We assess the financial statement impact of an uncertain tax
position taken or expected to be taken on an income tax return at
the largest amount that is more-likely-than-not to be sustained
upon audit by the relevant taxing authority. An uncertain income
tax position will not be recognized in the financial statements
unless it is more likely than not of being sustained.
Inflation
The consequences of the pandemic, global supply chain instability
and inflationary cost increases and their adverse impact to the
global economy, continue to evolve. Accordingly, the significance
of the future impact to our business and financial statements
remains subject to significant uncertainty. Inflation has not, to
date, materially impacted our operations or financial performance.
However, as these trends continue for raw materials, freight, and
labor costs, our future financial performance could be adversely
impacted.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements at this
time.
Recent Accounting Pronouncements
ITEM 3.
Quantitative and Qualitative Disclosures about Market
Risk
Not applicable.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure Controls and Procedures
Our management has established and maintains disclosure controls
and procedures that are designed to ensure that the information
required to be disclosed by us in reports that we file or submit
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is
accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. Management
carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period
covered by this report. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that
as of September 30, 2022, the Company’s disclosure controls
and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended September 30, 2022, that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II. Other Information
ITEM 1. Legal Proceedings
ITEM 1A. Risk factors
There have been no material changes to the risk factors described
under Item 1A of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2021, except for the
following:
We have had a history of operating losses that have impacted our
overall cash flows and may impact our ability to continue as a
going concern. We anticipate that we may need to adjust our
operating expenditures to be commensurate with our expected levels
of revenue and/or raise additional capital to finance
operations.
Due to our recurring net losses and the continued impact of the FDA
Safety Communication on demand for the adoption and utilization of
our technology, we may need to raise additional capital to fund our
future operations. Our cash needs will depend on numerous factors,
including our revenues, successful completion of our FDA product
clearance activities, our continued ability to commercialize our
advanced energy products, and our ability to reduce and control
costs. If we are unable to secure such additional financing on
terms that are acceptable to us, it will have a material adverse
effect on our business and we may have to limit operations in a
manner inconsistent with our growth strategy. If additional funds
are raised through the issuance of equity securities, it will be
dilutive to our stockholders and could result in a decrease in our
stock price. If we are unable to obtain the requisite amount of
financing needed to fund our planned operations, it would have a
material adverse effect on our business and ability to continue as
a going concern.
ITEM 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not Applicable.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
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3.1 |
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3.2 |
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3.3 |
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3.4 |
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3.5 |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS** |
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XBRL Instance Document |
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101.SCH** |
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XBRL Taxonomy Extension Schema Document |
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101.CAL** |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF** |
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB** |
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XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE** |
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XBRL Taxonomy Extension Label Presentation Document |
* Filed herewith.
** XBRL (Extensible Business Reporting Language) information is
furnished and not filed or a part of registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended is deemed not filed for purposes of Section 18
of the Securities Exchange Act of 1934, as amended and otherwise is
not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
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Apyx Medical Corporation |
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Date: November 10, 2022 |
By: |
/s/ Charles D. Goodwin II |
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Charles D. Goodwin II |
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President, Chief Executive Officer and Director |
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(Principal Executive Officer) |
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Date: November 10, 2022 |
By: |
/s/ Tara Semb |
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Tara Semb |
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Chief Financial Officer, |
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Treasurer and Secretary |
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(Principal Financial Officer) |
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Apyx Medical (NASDAQ:APYX)
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From May 2023 to Jun 2023
Apyx Medical (NASDAQ:APYX)
Historical Stock Chart
From Jun 2022 to Jun 2023
