REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Apyx Medical Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Apyx Medical Corporation’s (formerly Bovie Medical Corporation) and subsidiaries (the “Company”) as of December 31, 2018, based on criteria established in
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ( “COSO”). In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), the consolidated balance sheets as of December 31, 2018 and 2017, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements) of the Company and our report dated March 13, 2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment: (i) an ineffective control environment due to a lack of sufficient qualified accounting personnel with an appropriate level of knowledge and experience with generally accepted accounting principles, (ii) ineffective control activities due to the lack of documentation and timeliness in executing business process controls, and (iii) ineffective monitoring controls to ascertain whether the components of internal control were present and functioning. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2018, of the Company, and this report does not affect our report on such financial statements.
/s/ Frazier & Deeter, LLC
Tampa, Florida
March 13, 2019
APYX MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
16,466
|
|
|
$
|
9,949
|
|
Restricted cash
|
—
|
|
|
719
|
|
Short term investments
|
61,678
|
|
|
—
|
|
Trade accounts receivable, net of allowance of $428 and $204
|
5,015
|
|
|
4,857
|
|
Inventories, net of provision for obsolescence of $439 and $1,913
|
5,212
|
|
|
4,274
|
|
Prepaid expenses and other current assets
|
1,146
|
|
|
433
|
|
Current assets of discontinued operations
|
—
|
|
|
2,315
|
|
Total current assets
|
89,517
|
|
|
22,547
|
|
Property and equipment, net
|
5,788
|
|
|
6,033
|
|
Purchased technology and license rights, net
|
6
|
|
|
67
|
|
Goodwill
|
185
|
|
|
185
|
|
Deposits
|
73
|
|
|
92
|
|
Other assets
|
41
|
|
|
67
|
|
Non-current assets of discontinued operations
|
—
|
|
|
1,997
|
|
Total assets
|
$
|
95,610
|
|
|
$
|
30,988
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
1,423
|
|
|
$
|
1,583
|
|
Accrued severance and related
|
727
|
|
|
1,242
|
|
Accrued payroll
|
418
|
|
|
447
|
|
Current portion of mortgage note payable
|
—
|
|
|
239
|
|
Accrued taxes and other liabilities
|
—
|
|
|
214
|
|
Accrued bonus
|
972
|
|
|
80
|
|
Accrued expenses
|
2,505
|
|
|
861
|
|
Accrued warranty expense
|
348
|
|
|
186
|
|
Other liabilities
|
1,309
|
|
|
100
|
|
Current liabilities of discontinued operations
|
—
|
|
|
1,021
|
|
Total current liabilities
|
7,702
|
|
|
5,973
|
|
Mortgage note payable, net of current portion
|
—
|
|
|
2,455
|
|
Note payable
|
140
|
|
|
140
|
|
Deferred tax liability
|
—
|
|
|
368
|
|
Derivative liabilities
|
—
|
|
|
20
|
|
Total liabilities
|
$
|
7,842
|
|
|
$
|
8,956
|
|
Common stock, $0.001 par value; 75,000,000 shares authorized; 33,847,100 issued and 33,704,525 outstanding as of December 31, 2018 and 75,000,000 shares authorized; 33,021,170 issued and 32,878,091 outstanding as of December 31, 2017, respectively
|
34
|
|
|
33
|
|
Additional paid-in capital
|
52,221
|
|
|
50,495
|
|
Retained Earnings (accumulated deficit)
|
35,513
|
|
|
(28,496
|
)
|
Total stockholders’ equity
|
87,768
|
|
|
22,032
|
|
Total liabilities and stockholders’ equity
|
$
|
95,610
|
|
|
$
|
30,988
|
|
The accompanying notes are an integral part of the consolidated financial statements.
APYX MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Sales
|
$
|
16,686
|
|
|
$
|
10,234
|
|
|
$
|
8,819
|
|
Cost of sales
|
5,893
|
|
|
3,276
|
|
|
3,703
|
|
Gross profit
|
10,793
|
|
|
6,958
|
|
|
5,116
|
|
Other costs and expenses:
|
|
|
|
|
|
Research and development
|
2,469
|
|
|
1,941
|
|
|
1,033
|
|
Professional services
|
3,072
|
|
|
1,769
|
|
|
1,473
|
|
Salaries and related costs
|
8,673
|
|
|
6,920
|
|
|
7,817
|
|
Selling, general and administrative
|
9,438
|
|
|
8,689
|
|
|
6,185
|
|
Severance and related expense
|
741
|
|
|
1,524
|
|
|
—
|
|
Total other costs and expenses
|
24,393
|
|
|
20,843
|
|
|
16,508
|
|
Loss from operations
|
(13,600
|
)
|
|
(13,885
|
)
|
|
(11,392
|
)
|
Interest income
|
616
|
|
|
—
|
|
|
—
|
|
Interest expense
|
(104
|
)
|
|
(136
|
)
|
|
(158
|
)
|
Other losses
|
(203
|
)
|
|
—
|
|
|
—
|
|
Change in fair value of derivative liabilities
|
20
|
|
|
183
|
|
|
64
|
|
Total other income (expense), net
|
329
|
|
|
47
|
|
|
(94
|
)
|
Loss from continuing operations before income taxes
|
(13,271
|
)
|
|
(13,838
|
)
|
|
(11,486
|
)
|
Income tax (benefit) expense
|
(3,777
|
)
|
|
(156
|
)
|
|
64
|
|
Net loss from continuing operations
|
(9,494
|
)
|
|
(13,682
|
)
|
|
(11,550
|
)
|
Income from discontinued operations, net of tax
|
5,099
|
|
|
8,620
|
|
|
7,600
|
|
Gain on sale of the Core Business, net of tax
|
68,404
|
|
|
—
|
|
|
—
|
|
Total income from discontinued operations, net of tax
|
73,503
|
|
|
8,620
|
|
|
7,600
|
|
Net income (loss)
|
$
|
64,009
|
|
|
$
|
(5,062
|
)
|
|
$
|
(3,950
|
)
|
|
|
|
|
|
|
Loss per share from continuing operations
|
|
|
|
|
|
Basic and Diluted
|
$
|
(0.29
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
Income per share from discontinued operations
|
|
|
|
|
|
Basic
|
2.21
|
|
|
0.27
|
|
|
0.28
|
|
Diluted
|
2.14
|
|
|
0.27
|
|
|
0.28
|
|
Income per share from discontinued operations
|
|
|
|
|
|
Income (loss) per share all operations
|
|
|
|
|
|
Diluted
|
1.93
|
|
|
(0.16
|
)
|
|
(0.14
|
)
|
Basic and Diluted
|
1.86
|
|
|
(0.17
|
)
|
|
(0.15
|
)
|
|
|
|
|
|
|
Weighted average number of shares outstanding basic
|
33,185
|
|
|
31,420
|
|
|
27,433
|
|
Weighted average number of shares outstanding dilutive
|
34,366
|
|
|
31,427
|
|
|
27,449
|
|
The accompanying notes are an integral part of the consolidated financial statements.
APYX MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
|
|
Shares
|
|
Par Value
|
|
Shares
|
|
Par Value
|
|
Additional Paid-In Capital
|
|
Retained Earnings (Accumulated Deficit)
|
|
Total
|
Balance
December 31, 2015
|
1,976
|
|
|
$
|
2
|
|
|
27,052
|
|
|
$
|
27
|
|
|
$
|
42,859
|
|
|
$
|
(19,484
|
)
|
|
$
|
23,404
|
|
Options exercised
|
—
|
|
|
—
|
|
|
36
|
|
|
—
|
|
|
130
|
|
|
—
|
|
|
130
|
|
Warrants exercised
|
—
|
|
|
—
|
|
|
293
|
|
|
—
|
|
|
698
|
|
|
—
|
|
|
698
|
|
Issuance of common stock
|
—
|
|
|
—
|
|
|
1,625
|
|
|
2
|
|
|
5,828
|
|
|
—
|
|
|
5,830
|
|
Conversion of Series B convertible preferred to common stock
|
(1,000
|
)
|
|
(1
|
)
|
|
2,000
|
|
|
2
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
809
|
|
|
—
|
|
|
809
|
|
Stock swap to acquire options and warrants
|
—
|
|
|
—
|
|
|
(146
|
)
|
|
—
|
|
|
(698
|
)
|
|
—
|
|
|
(698
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,950
|
)
|
|
(3,950
|
)
|
Balance
December 31, 2016
|
976
|
|
|
$
|
1
|
|
|
30,860
|
|
|
$
|
31
|
|
|
$
|
49,625
|
|
|
$
|
(23,434
|
)
|
|
$
|
26,223
|
|
Options exercised
|
—
|
|
|
—
|
|
|
177
|
|
|
—
|
|
|
427
|
|
|
—
|
|
|
427
|
|
Warrants exercised
|
—
|
|
|
—
|
|
|
54
|
|
|
—
|
|
|
130
|
|
|
—
|
|
|
130
|
|
Conversion of Series B convertible preferred to common stock
|
(976
|
)
|
|
(1
|
)
|
|
1,951
|
|
|
2
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
871
|
|
|
—
|
|
|
871
|
|
Stock exercise to acquire options and warrants
|
—
|
|
|
—
|
|
|
(164
|
)
|
|
—
|
|
|
(557
|
)
|
|
—
|
|
|
(557
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,062
|
)
|
|
(5,062
|
)
|
Balance
December 31, 2017
|
—
|
|
|
$
|
—
|
|
|
32,878
|
|
|
$
|
33
|
|
|
$
|
50,495
|
|
|
$
|
(28,496
|
)
|
|
$
|
22,032
|
|
Options exercised
|
—
|
|
|
—
|
|
|
1,379
|
|
|
1
|
|
|
3,343
|
|
|
—
|
|
|
3,344
|
|
Warrants exercised
|
—
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
95
|
|
|
—
|
|
|
95
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,525
|
|
|
—
|
|
|
1,525
|
|
Stock exercise to acquire options and warrants
|
—
|
|
|
—
|
|
|
(592
|
)
|
|
—
|
|
|
(3,237
|
)
|
|
—
|
|
|
(3,237
|
)
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
64,009
|
|
|
64,009
|
|
Balance
December 31, 2018
|
—
|
|
|
$
|
—
|
|
|
33,705
|
|
|
$
|
34
|
|
|
$
|
52,221
|
|
|
$
|
35,513
|
|
|
$
|
87,768
|
|
The accompanying notes are an integral part of the consolidated financial statements.
APYX MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Cash flows from operating activities
|
|
|
|
|
|
Net income (loss)
|
$
|
64,009
|
|
|
$
|
(5,062
|
)
|
|
$
|
(3,950
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
Gain on sale of the Core Business, net of tax
|
(68,404
|
)
|
|
—
|
|
|
—
|
|
Depreciation and amortization
|
669
|
|
|
696
|
|
|
734
|
|
Gain on disposal of property and equipment, net
|
—
|
|
|
5
|
|
|
21
|
|
Stock based compensation
|
1,525
|
|
|
871
|
|
|
809
|
|
Change in fair value of derivative liabilities
|
(20
|
)
|
|
(183
|
)
|
|
(64
|
)
|
Unrealized gain on short term investments
|
(247
|
)
|
|
—
|
|
|
—
|
|
Provision for allowance for doubtful accounts
|
224
|
|
|
179
|
|
|
84
|
|
Provision for (benefit from) deferred taxes
|
(368
|
)
|
|
(196
|
)
|
|
25
|
|
Changes in current assets and liabilities, net of effect of disposition:
|
|
|
|
|
|
Trade receivables
|
(382
|
)
|
|
(303
|
)
|
|
(1,894
|
)
|
Prepaid expenses
|
(707
|
)
|
|
(83
|
)
|
|
103
|
|
Inventories
|
(881
|
)
|
|
(368
|
)
|
|
(201
|
)
|
Deposits and other assets
|
45
|
|
|
53
|
|
|
341
|
|
Accounts payable
|
(224
|
)
|
|
(23
|
)
|
|
392
|
|
Accrued severance and related
|
(307
|
)
|
|
1,242
|
|
|
—
|
|
Accrued and other liabilities
|
(15,943
|
)
|
|
(532
|
)
|
|
763
|
|
Net cash used in operating activities
|
(21,011
|
)
|
|
(3,704
|
)
|
|
(2,837
|
)
|
Cash flows (used in) from investing activities
|
|
|
|
|
|
Purchases of property and equipment
|
(363
|
)
|
|
(624
|
)
|
|
(286
|
)
|
Proceeds from the disposition of Core business
|
91,095
|
|
|
—
|
|
|
—
|
|
Purchases of marketable securities
|
(87,189
|
)
|
|
—
|
|
|
—
|
|
Proceeds from marketable securities
|
25,758
|
|
|
—
|
|
|
—
|
|
Net cash (used in) provided by investing activities
|
29,301
|
|
|
(624
|
)
|
|
(286
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
Proceeds from stock options/warrants exercised
|
202
|
|
|
—
|
|
|
124
|
|
Repayment of mortgage note payable
|
(2,694
|
)
|
|
(239
|
)
|
|
(240
|
)
|
Proceeds from issuance of common shares, net
|
—
|
|
|
—
|
|
|
5,830
|
|
Net cash (used in) provided by financing activities
|
(2,492
|
)
|
|
(239
|
)
|
|
5,714
|
|
Net change in cash, cash equivalents and restricted cash
|
5,798
|
|
|
(4,567
|
)
|
|
2,591
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
10,668
|
|
|
15,235
|
|
|
12,644
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
16,466
|
|
|
$
|
10,668
|
|
|
$
|
15,235
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
Interest
|
$
|
104
|
|
|
$
|
136
|
|
|
$
|
158
|
|
Income taxes
|
13,283
|
|
|
32
|
|
|
27
|
|
|
|
|
|
|
|
Non cash investing activities:
|
|
|
|
|
|
Cashless exercise of stock options/warrants
|
$
|
3,237
|
|
|
$
|
557
|
|
|
$
|
698
|
|
The accompanying notes are an integral part of the consolidated financial statements.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
Apyx Medical Corporation (“Apyx”), formerly known as Bovie Medical Corporation, was incorporated in 1982, under the laws of the State of Delaware.
We are a medical technology company and the developer of J-Plasma
®
(marketed and sold under the Renuvion™ Cosmetic Technology brand in the cosmetic surgery market), a patented plasma-based surgical product for cutting, coagulation and ablation of soft tissue. J-Plasma technology utilizes a helium ionization process to produce a stable, focused beam of plasma that provides surgeons with greater precision, and minimal invasiveness. The Company also leverages its expertise through original equipment manufacturing (OEM) agreements with other medical device manufacturers.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Consolidated Financial Statements
The accompanying consolidated financial statements include the accounts of Apyx and its wholly owned subsidiary, Apyx Bulgaria, EOOD, (collectively, the “Company” or “we”, “our” or “us”). All intercompany transactions and balances have been eliminated in consolidation.
The Company concluded that the divestiture of the Core business on August 30
th
, 2018 met the criteria for discontinued operations set forth in FASB ASC Topic No. 205, "
Presentation of Financial Statements.
" The Company reclassified its discontinued operations for all periods presented and has excluded the results of its discontinued operations from continuing operations and from segment results for all periods presented.
On August 30
th
, 2018, we sold our Core business and discontinued those operations. All the information in the financial statements has been restated to reflect this disposition.
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions we are required to make.
Cash and Cash Equivalents
Holdings of highly liquid investments with original maturities of three months or less are considered to be cash equivalents.
Short-term Investments
Our short-term investments principally consist of US Treasury Bills, which are classified available-for-sale and are carried at their fair value as of the balance sheet date. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. Short-term investments generally mature between three months and three years from the purchase date. Investments with maturities beyond one year are classified as short-term based on their highly liquid nature and because such marketable securities represent investments readily available for current operations. Marketable securities less than or equal to 3 months are identified as cash equivalents while marketable securities with a maturity duration over 3 months are considered short term investments.
The Treasury Bill investments accrue interest monthly, which is treated as interest income. Realized gains or losses are determined on the specific identification method and are reflected in other income. Net unrealized gains and losses are recorded on a quarterly basis.
Fair Values of Financial Instruments and Concentration of Credit Risk
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The carrying amounts of our financial instruments included in current assets and liabilities approximate fair value due to their short term nature.
Financial instruments, which potentially subject us to significant concentrations of credit risk, consists primarily of short term investments and trade accounts receivable. With respect to cash, we frequently maintain cash and cash equivalent balances in excess of federally insured limits. We have not experienced any losses in such accounts.
Derivative Financial Instruments
We generally do not use derivative financial instruments to hedge exposures to cash-flow risks or market risks. However, certain financial instruments, such as warrants, which are indexed to our common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within our control. In such instances, net-cash settlement is assumed for financial accounting and reporting purposes, even if the terms of the underlying contracts do not always provide for net-cash settlement. Such financial instruments are initially recorded and continuously carried, at fair value.
Determining the fair value of these instruments involves judgment and the use of certain relevant assumptions including, but not limited to, interest rate risk, historical volatility and stock price, estimated life of the derivative, anti-dilution provisions and conversion/redemption privileges. The use of different assumptions or changes in those assumptions could have a material effect on the estimated fair value amounts.
Accounts Receivable and Allowance for Doubtful Accounts
Our credit terms for our billings range from net
10
days to net
90
days, depending on the customer agreement. Accounts receivable are determined to be past due if payments are not made in accordance with such agreements and an allowance is generally recorded for accounts that become three months past due, or sooner if there are other indicators that the receivables may not be recovered. Customary collection efforts are initiated, and receivables are written off when we determine they are not collectible and abandon these collection efforts.
We evaluate the allowance for doubtful accounts on a regular basis for adequacy based upon our periodic review of the collectability of the receivables in light of historical experience, adverse situations that may affect our customers’ ability to pay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Management believes that the allowances for doubtful accounts of approximately
$0.4 million
and
$0.2 million
at
December 31, 2018
and
2017
, respectively, are, or were, adequate to provide for possible bad debts.
Inventories and Repair Parts
Inventories are stated at the lower of cost or market. 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 allocated to inventory manufactured in-house based upon labor hours.
We monitor usage reports to determine if the carrying value of any items should be adjusted due to lack of demand for the item and adjust the inventory for estimated obsolescence or unusable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Inventories consisted of the following:
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
|
|
|
|
|
|
|
|
|
(In thousands)
|
December 31,
2018
|
|
December 31,
2017
|
Raw materials
|
$
|
4,521
|
|
|
$
|
5,163
|
|
Finished goods
|
1,130
|
|
|
1,024
|
|
Gross inventories
|
5,651
|
|
|
6,187
|
|
Less: reserve for obsolescence
|
(439
|
)
|
|
(1,913
|
)
|
Net inventories of continuing operations
|
5,212
|
|
|
4,274
|
|
Finished goods of discontinued operations
|
—
|
|
|
2,252
|
|
Net inventories of continuing and discontinued operations
|
$
|
5,212
|
|
|
$
|
6,526
|
|
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the assets. The amortization of leasehold improvements is based on the shorter of the lease term or the life of the improvement. Betterments and large improvements, which extend the life of the asset, are capitalized, whereas maintenance and repairs and small improvements are expensed as incurred. The estimated useful lives are: machinery and equipment,
3
-
10
years; buildings,
39
years; molds,
7
-
15
years and furniture and fixtures,
5
-
10
years.
Intangible Assets
Intangible assets consist of licenses and purchased technology. The licenses and purchased technology are being amortized by the straight-line method over a
5
-
17
year period commencing with the date they were placed in service. Goodwill of
$0.2 million
resulted from our acquisition of Apyx Bulgaria, EOOD.
Valuation of Long-Lived Assets
We review long-lived assets for recoverability if events or changes in circumstances indicate that the assets may have been impaired. This circumstance exists when the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. In those cases an impairment loss is recognized to the extent that the assets’ carrying amount exceeds its fair value. Any impairment losses are not restored in the future if the fair value increases. At
December 31, 2018
, we believe the remaining carrying values of our long-lived assets are recoverable.
Revenue Recognition
Revenue is recognized when title has been transferred to the customer, which is generally at the time of shipment or receipt by customer for FOB destination terms. The following policies apply to our major categories of revenue transactions:
|
|
•
|
The majority of our sales to customers are evidenced by firm purchase orders. Generally, title and the risks and rewards of ownership are transferred to the customer when the product is shipped. Payment by the customer is due under fixed payment terms.
|
|
|
•
|
Product returns are only accepted at our discretion and in accordance with our “Returned Goods Policy”. Historically, the level of product returns has not been significant. We accrue for sales returns, rebates and allowances based upon an analysis of historical customer returns and credits, rebates, discounts and current market conditions.
|
|
|
•
|
Our terms of sale to customers generally do not include any obligations to perform future services. Limited warranties are generally provided for sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data.
|
|
|
•
|
Amounts billed to customers related to shipping and handling charges are included in sales. Shipping and handling costs included in cost of sales were approximately
$0.2 million
,
$0.2 million
and
$0.2 million
in
2018
,
2017
and
2016
, respectively.
|
ASU No. 2014-09 (ASC 606), Revenue from Contracts with Customers became effective for us beginning with the first quarter of 2018, and we adopted the new accounting standard using the modified retrospective transition approach. The modified retrospective transition approach recognized any changes from the beginning of the year of initial application through retained earnings with no restatement of comparative periods. We record revenue under ASC 606
at a single point in time, when control
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
is transferred to the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, systems and controls to support recognition and disclosure under the new standard. Based on the results of the evaluation, we have determined that the adoption of the new standard presents no material impact on our consolidated financial statements. Application of the transition requirements of the new standard did not have a material impact and, as such, no entry was recorded to opening retained earnings. We have disaggregated revenue by segment and geography in Note 16 Geographic and Segment Information. Based on the current state of our business, management does not see a material reason to disaggregate further.
Advertising Costs
All advertising costs are expensed as incurred. The amounts of advertising costs were approximately
$0.4 million
,
$0.6 million
and
$0.7 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB ASC Topic 718,
Compensation-Stock Compensation
. FASB ASC 718 requires recognizing compensation costs for all share-based payment awards made to employees and directors based upon the awards’ grant date fair value. The standard covers employee stock options, restricted stock and other equity awards. For stock options, we use a trinomial lattice option-pricing model to estimate the grant date fair value of stock option awards and recognize compensation cost on a straight-line basis over the awards’ vesting periods.
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.
Net (Loss) Earnings Per Common Share
We compute basic (loss) earnings attributable to common shareholders per share by dividing net (loss) income attributable to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted (loss) earnings per share attributable to common shareholders gives effect to all potential dilutive shares outstanding during the period. The number of dilutive shares is calculated using the treasury method which reduces the effective number of shares by the amount of shares we could purchase with the proceeds of assumed exercises.
Research and Development Costs
With the exception of development costs that are purchased from another enterprise and have alternative future use, research and development expenses are charged to operations as incurred. We have expended approximately
$2.5 million
and
$1.9 million
and
$1.0 million
for the years ended
2018
,
2017
and
2016
respectively.
Research and Development Costs for Others
For research and development activities that are partially or completely funded by other parties and when the obligation is incurred solely to perform contractual services, expenses are charged to cost of sales and all revenues resulting from such activities are shown as sales.
Income Taxes
The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC Topic 740, "Income Taxes". Under the liability method, deferred taxes are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using tax rates expected to be in effect during the years in which the basis difference. A valuation allowances is recorded when it is more likely than not that a tax benefit will not be realized. In determining the need for valuation
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
allowances the Company considers projected future taxable income and the availability of tax planning strategies. As of December 31, 2017, the Company recorded a valuation allowance on the net deferred tax asset with finite lives.
As a result of historical losses, exclusive of discontinued operations, the Company recorded a valuation allowance on the net deferred tax asset and does not anticipate recording an income tax benefit related to these deferred tax assets beyond the 2018 tax year. The Company will reassess the realization of deferred tax assets each reporting period and will be able to reduce the valuation allowance to the extent the financial results of continuing operations improve and it becomes more likely than not that the deferred tax assets will be realizable. As Management expects the Company to continue to generate losses in the foreseeable future after 2018, the Company will continue to record a valuation allowance on the remaining deferred tax assets balance as of December 31, 2018.
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. As of December 31, 2018, we have reserved
$1.3 million
of potential tax benefits in accrued expenses.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 3. DISPOSITION OF THE CORE BUSINESS
On August 30, 2018, we closed on a definitive asset purchase agreement (the "Asset Purchase Agreement") with Specialty Surgical Instrumentation Inc., a Tennessee Corporation and wholly-owned subsidiary of Symmetry Surgical Inc. (“Symmetry”), pursuant to which 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, we entered into an Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Symmetry for a
four
-year term, whereby we will manufacture certain Core products and sell them to Symmetry at agreed upon prices. Any revenue, costs and expenses resulting from this agreement are netted and reported in our Consolidated Statements of Operations as Other gains or (losses) in the amount of
$(0.2) million
for 2018. Core sales following the divestiture amounted to
$1.5 million
with cost of sales of
$1.5 million
and related operating expenses of
$0.2 million
.
Additionally, in connection with the Asset Purchase Agreement, we entered into a Manufacture and Supply Agreement with Symmetry for a
ten
-year term, whereby we will manufacture certain products and sell them to Symmetry at agreed upon prices. Revenue, costs and expenses resulting from this agreement are reported as a component in our Consolidated Statements as income or loss from operations of our OEM reporting segment.
We concluded that the divestiture of the Core business met the criteria for discontinued operations set forth in FASB ASC Topic No. 205, "
Presentation of Financial Statements"
. Gross sales of the Core business prior to the divestiture during 2018 amounted to
$19.6 million
with a cost of sales of
$10.5 million
and related operating expenses of
$2.8 million
. The table below summarizes the cash consideration and the carrying values of disposed assets at the disposition date of August 30, 2018 included as part of discontinued operations:
|
|
|
|
|
(In thousands)
|
|
Gross consideration from the sale of the Core Business
|
$
|
97,000
|
|
Closing and transaction costs
|
5,905
|
|
Net proceeds from sale of the Core Business before taxes
|
$
|
91,095
|
|
|
|
Non-cash commitment to provide inventory
|
$
|
2,305
|
|
|
|
Book value of the Core Business
|
|
Current assets:
|
|
Inventories, net
|
$
|
2,195
|
|
Prepaid expenses and other current assets
|
57
|
|
Total current assets
|
2,252
|
|
Property and equipment, net of depreciation
|
375
|
|
Brand name and trademark
|
1,510
|
|
Purchased technology and license rights, net of depreciation
|
112
|
|
Total non-current assets
|
1,997
|
|
Total assets
|
$
|
4,249
|
|
|
|
Net gain on sale of the Core Business before taxes
|
84,541
|
|
Income tax expense
|
16,137
|
|
Net gain on sale of the Core Business after income taxes
|
$
|
68,404
|
|
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cash flows associated with discontinued operations are shown in the table below:
|
|
|
|
|
|
|
|
(in thousands)
|
2018
|
2017
|
2016
|
Net Income from discontinued operations
|
73,503
|
|
8,620
|
|
7,600
|
|
Depreciation and amortization
|
126
|
|
529
|
|
563
|
|
Change in current assets from discontinued operations
|
(2,378
|
)
|
362
|
|
(139
|
)
|
Change in non current assets from discontinued liabilities
|
(1,997
|
)
|
(632
|
)
|
(583
|
)
|
Change in current liabilities from discontinued operations
|
(1,021
|
)
|
(1,451
|
)
|
1,007
|
|
Net cash provided by operating activities
|
68,233
|
|
7,428
|
|
8,448
|
|
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
(In thousands)
|
December 31,
2018
|
|
December 31,
2017
|
Trade accounts receivable
|
$
|
5,443
|
|
|
$
|
5,061
|
|
Less: allowance for doubtful accounts
|
(428
|
)
|
|
(204
|
)
|
Trade accounts receivable, net
|
$
|
5,015
|
|
|
$
|
4,857
|
|
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
(In thousands)
|
December 31,
2018
|
|
December 31,
2017
|
Land
|
$
|
1,600
|
|
|
$
|
1,600
|
|
Machinery and equipment
|
2,831
|
|
|
2,815
|
|
Building and improvements
|
4,338
|
|
|
4,415
|
|
Furniture and fixtures
|
2,252
|
|
|
2,085
|
|
Leasehold improvements
|
108
|
|
|
181
|
|
Molds
|
1,017
|
|
|
878
|
|
Total property, plant and equipment of continuing operations
|
12,146
|
|
|
11,974
|
|
Less: accumulated depreciation
|
(6,358
|
)
|
|
(5,941
|
)
|
Net property, plant and equipment of continuing operations
|
5,788
|
|
|
6,033
|
|
Net property, plant and equipment of discontinued operations
|
—
|
|
|
375
|
|
Net property, plant and equipment of continuing and discontinued operations
|
$
|
5,788
|
|
|
$
|
6,408
|
|
Total depreciation expense from continuing operations was
$0.4 million
,
$0.6 million
and
$0.6 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Depreciation expense is included primarily within cost of goods sold in the consolidated statements of operations.
NOTE 6. INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
(In thousands)
|
December 31,
2018
|
|
December 31,
2017
|
Brand name and trademark (life indefinite) of discontinued operations
|
$
|
—
|
|
|
$
|
1,510
|
|
|
|
|
|
Purchased technology (5-17 year lives)
|
$
|
1,448
|
|
|
$
|
1,401
|
|
Purchased technology (5-17 year lives) of discontinued operations, net
|
—
|
|
|
112
|
|
Less: accumulated amortization
|
(1,442
|
)
|
|
(1,334
|
)
|
Purchased technology, net
|
$
|
6
|
|
|
$
|
179
|
|
|
|
|
|
Goodwill
|
$
|
185
|
|
|
$
|
185
|
|
Goodwill resulted from our acquisition of Apyx Bulgaria, EOOD.
Amortization of intangible assets was
$0.1 million
for the years ended
December 31, 2018
,
2017
and
2016
. Amortization expense is classified within selling, general and administration expenses in the consolidated statements of operations.
NOTE 7. EARNINGS PER SHARE
We compute basic earnings per share (“basic EPS”) by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. The following table provides the computation of basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands, except per share data)
|
2018
|
|
2017
|
|
2016
|
Numerators:
|
|
|
|
|
|
Net (loss) from continuing operations
|
$
|
(9,494
|
)
|
|
$
|
(13,682
|
)
|
|
$
|
(11,550
|
)
|
Effective of dilutive securities - Derivative liability - warrants
|
—
|
|
|
—
|
|
|
(64
|
)
|
Numerator for dilutive (loss) per share - continuing operations
|
(9,494
|
)
|
|
(13,682
|
)
|
|
(11,614
|
)
|
|
|
|
|
|
|
Net income from discontinued operations, net of tax
|
73,503
|
|
|
8,620
|
|
|
7,600
|
|
Effect of dilutive securities - Derivative liability warrants
|
—
|
|
|
—
|
|
|
(64
|
)
|
Numerator for dilutive income per share - discontinued operations
|
73,503
|
|
|
8,620
|
|
|
7,536
|
|
|
|
|
|
|
|
Net income (loss) from all operations
|
64,009
|
|
|
(5,062
|
)
|
|
(3,950
|
)
|
Derivative liability warrants
|
—
|
|
|
(183
|
)
|
|
(64
|
)
|
Numerator for full dilutive (loss) income per share - all
|
64,009
|
|
|
(5,245
|
)
|
|
(4,014
|
)
|
|
|
|
|
|
|
Denominator - continuing operations:
|
|
|
|
|
|
Weighted average shares used to compute basic (loss)
|
33,185
|
|
|
31,420
|
|
|
27,433
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Derivative liability warrants
|
—
|
|
|
—
|
|
|
16
|
|
Denominator for dilutive income (loss) per common share - continuing operations
|
33,185
|
|
|
31,420
|
|
|
27,449
|
|
|
|
|
|
|
|
Denominator - discontinued operations:
|
|
|
|
|
|
Weighted average shares used to compute basic (loss)
|
33,185
|
|
|
31,420
|
|
|
27,433
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Derivative liability warrants
|
—
|
|
|
—
|
|
—
|
|
16
|
|
Stock options
|
1,181
|
|
|
—
|
|
|
—
|
|
Denominator for dilutive income (loss) per common share - discontinued operations
|
34,366
|
|
|
31,420
|
|
|
27,449
|
|
|
|
|
|
|
|
Denominator - all operations:
|
|
|
|
|
|
Weighted average shares used to compute basic income (loss)
|
33,185
|
|
|
31,420
|
|
|
27,433
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Derivative liability warrants
|
—
|
|
|
7
|
|
|
16
|
|
Stock options
|
1,181
|
|
|
—
|
|
|
—
|
|
Denominator for dilutive income (loss) per common share
|
34,366
|
|
|
31,427
|
|
|
27,449
|
|
|
|
|
|
|
|
Loss per share from continuing operations
|
|
|
|
|
|
Basic and diluted
|
$
|
(0.29
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
Income per share from discontinued operations
|
|
|
|
|
|
Basic
|
$
|
2.21
|
|
|
$
|
0.27
|
|
|
$
|
0.28
|
|
Diluted
|
$
|
2.14
|
|
|
$
|
0.27
|
|
|
$
|
0.28
|
|
Income (loss) per share from all operations
|
|
|
|
|
|
Basic
|
$
|
1.93
|
|
|
$
|
(0.16
|
)
|
|
$
|
(0.14
|
)
|
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
$
|
1.86
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
Anti-dilutive instruments excluded from diluted (loss) per common share - continuing operations:
|
|
|
|
|
|
Warrants
|
—
|
|
|
7
|
|
|
—
|
|
Preferred stock
|
—
|
|
|
—
|
|
|
1,951
|
|
Options
|
1,181
|
|
|
646
|
|
|
580
|
|
|
|
|
|
|
|
Anti-dilutive instruments excluded from diluted income per common share - discontinued operations:
|
|
|
|
|
|
Warrants
|
—
|
|
|
7
|
|
|
—
|
|
Preferred stock
|
—
|
|
|
—
|
|
|
1,951
|
|
Options
|
—
|
|
|
646
|
|
|
580
|
|
|
|
|
|
|
|
Anti-dilutive instruments excluded from diluted income (loss) per common share - all operations:
|
|
|
|
|
|
Preferred stock
|
—
|
|
|
—
|
|
|
1,951
|
|
Options
|
—
|
|
|
646
|
|
|
580
|
|
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 8
. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04,
Intangibles-Goodwill and Other
(Topic 350):
Simplifying the Test for Goodwill Impairment
. The purpose of this ASU is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under this ASU, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, however we have chosen not to do so. The amendment is not expected to have a material impact on our financial condition or results of operations.
ASU No. 2016-18,
Restricted Cash Flows
provides guidance on the presentation of restricted cash and restricted cash equivalents, which are now included with cash and cash equivalents when reconciling the beginning and ending cash amounts shown on the statements of cash flows. Using the retrospective transition method required under the standard, the Company has adjusted the presentation of its Condensed Consolidated Statements of Cash Flows for all periods presented. The adoption of ASU No. 2016-18 did not have any other impact on the Company’s Consolidated Financial Statements.
The following table provides additional detail by financial statement line item of the ASU 2016-18 impact in our Consolidated Statement of Cash Flows for the
twelve months ended December 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
As Reported
(Pre-Adoption)
|
|
ASU 2016-18
Impact
|
|
Reported
(Post Adoption)
|
Twelve Months Ended December 31, 2018
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash
|
$
|
5,798
|
|
|
$
|
—
|
|
|
$
|
5,798
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
9,949
|
|
|
719
|
|
|
10,668
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
15,747
|
|
|
$
|
719
|
|
|
$
|
16,466
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2017
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash
|
$
|
(4,507
|
)
|
|
$
|
(60
|
)
|
|
$
|
(4,567
|
)
|
Cash, cash equivalents and restricted cash, beginning of period
|
14,456
|
|
|
779
|
|
|
15,235
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
9,949
|
|
|
$
|
719
|
|
|
$
|
10,668
|
|
ASU No. 2014-09 (ASC 606),
Revenue from Contracts with Customers
became effective for us beginning with the first quarter of 2018, and we adopted the new accounting standard using the modified retrospective transition approach. The modified retrospective transition approach recognized any changes from the beginning of the year of initial application through retained earnings with no restatement of comparative periods. We record revenue under ASC 606 at a single point in time, when control is transferred to the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, systems and controls to support recognition and disclosure under the new standard. Based on the results of the evaluation, we have determined that the adoption of the new standard presents no material impact on our consolidated financial statements and thus no cumulative effect adjustment was recorded. We have disaggregated revenue by segment and geography in Note 13 Geographic and Segment Information. Based on the current state of our business, management does not see a material reason to disaggregate further.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02),
Leases
(Topic 842). ASU 2016-02 requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company has evaluated the impact of the adoption of ASU 2016-02 and does not believe it will have a material impact on the financial statement presentation.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 9. FINANCIAL INSTRUMENTS
Cash, Cash Equivalents and Marketable Securities, as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Adjusted Cost
|
|
Unrealized Gains
(3)
|
|
Fair Value
(3)
|
|
Cash and Cash Equivalents
(1)
|
|
Short-term Marketable Securities
|
Cash
|
$
|
6,337
|
|
|
|
|
$
|
6,337
|
|
|
$
|
6,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
(2)
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities, maturities less than three months
|
10,129
|
|
|
|
|
10,129
|
|
|
10,129
|
|
|
|
U.S. Treasury Securities, maturities greater than three months
|
61,431
|
|
|
247
|
|
|
61,678
|
|
|
|
|
61,678
|
|
Total
|
$
|
77,897
|
|
|
$
|
247
|
|
|
$
|
78,144
|
|
|
$
|
16,466
|
|
|
$
|
61,678
|
|
(1)
The company considers all highly liquid instruments with maturities of three months or less at the time of purchase to be cash equivalents.
(2)
The fair value of the debt securities consisting of U.S. Treasury bills is based on their quoted market prices. The fair value of these financial instruments are classified as Level 1 in the fair value hierarchy. The original purchase of U.S. Treasury bills occurred in 2018 utilizing the proceeds from the sale of our Core business.
(3)
ASC 825-10 Financial Instruments, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings within interest income at each subsequent reporting date. At the date of purchase, the Company elected the fair value option for all investments with maturities of three months or greater at the time of purchase.
NOTE 10. LONG TERM DEBT
On August 30, 2018, the Company paid the remaining mortgage balance related to the Clearwater, FL, facility , releasing us from any and all obligations to the Bank of Tampa.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 11. INCOME TAXES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) bonus depreciation that will allow for full expensing of qualified property; (3) creating a new limitation on deductible interest expense; (4) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (5) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (6) limitations on the deductibility of certain executive compensation. The SEC issued guidance on accounting for the tax effects of the Tax Act. The Company must reflect the income tax effects of those aspects of the Tax Act for which the accounting is known.
As a result of the reduction act in the U.S. corporate income tax rate from
35%
to
21%
under the Tax Reform Act, the Company revalued its net deferred tax liabilities at December 31, 2017, resulting in an income tax benefits of
$0.196 million
included in the provision for income taxes for the year ended December 31, 2017. The Company has not made additional measurement window adjustments during the year ended December 31, 2018.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Components of the provision for income taxes from 2018 continuing operations and 2017 and 2016 all operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(3,073
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
(754
|
)
|
|
22
|
|
|
38
|
|
Foreign
|
20
|
|
|
17
|
|
|
26
|
|
|
(3,807
|
)
|
|
39
|
|
|
64
|
|
Deferred:
|
|
|
|
|
|
Federal
|
24
|
|
|
1,581
|
|
|
(2,505
|
)
|
State
|
63
|
|
|
(401
|
)
|
|
(277
|
)
|
Foreign
|
—
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|
1,180
|
|
|
(2,782
|
)
|
|
|
|
|
|
|
Valuation Allowance
|
(57
|
)
|
|
(1,375
|
)
|
|
2,782
|
|
|
|
|
|
|
|
Total Provision for Income Tax from continuing operations
|
$
|
(3,777
|
)
|
|
$
|
(156
|
)
|
|
$
|
64
|
|
The Company recognized tax expense of
$1.20 million
attributable to income from discontinued operations and
$16.14 million
attributable to the gain on sales of the Core business in the Income Statement in the year ended December 31, 2018.
Below is a reconciliation of the statutory federal income tax rate to our effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Federal tax provision
|
21.0
|
%
|
|
34.0
|
%
|
|
34.0
|
%
|
State taxes (net of federal benefit)
|
5.6
|
%
|
|
4.8
|
%
|
|
3.7
|
%
|
Warrant gains
|
—
|
%
|
|
0.4
|
%
|
|
31.4
|
%
|
Valuation allowance
|
0.4
|
%
|
|
28.9
|
%
|
|
(71.8
|
)%
|
Change in federal tax rate
|
—
|
%
|
|
(71.2
|
)%
|
|
—
|
%
|
Other
|
1.9
|
%
|
|
6.2
|
%
|
|
1.5
|
%
|
Total
|
28.9
|
%
|
|
3.1
|
%
|
|
(1.2
|
)%
|
Major components of the Company’s deferred tax assets (liabilities) at December 31, 2018, 2017, and 2016, are as follows:
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
Deferred tax assets:
|
|
|
|
|
|
Loss and credit carry-forwards
|
$
|
—
|
|
|
$
|
7,722
|
|
|
$
|
9,169
|
|
Stock-based compensation
|
636
|
|
|
549
|
|
|
519
|
|
Inventory Reserve
|
115
|
|
|
494
|
|
|
534
|
|
Intangibles
|
146
|
|
|
—
|
|
|
—
|
|
Other
|
744
|
|
|
178
|
|
|
263
|
|
Total deferred tax assets
|
1,641
|
|
|
8,943
|
|
|
10,485
|
|
Valuation allowance
|
(1,491
|
)
|
|
(8,756
|
)
|
|
(10,185
|
)
|
Total deferred tax assets, net of valuation allowance
|
150
|
|
|
187
|
|
|
300
|
|
Deferred tax liabilities:
|
|
|
|
|
|
State taxes (capital)
|
—
|
|
|
(17
|
)
|
|
(19
|
)
|
Property and equipment
|
(150
|
)
|
|
(294
|
)
|
|
(459
|
)
|
Intangibles
|
—
|
|
|
(244
|
)
|
|
(386
|
)
|
Total deferred tax liabilities
|
(150
|
)
|
|
(555
|
)
|
|
(864
|
)
|
Net deferred tax liabilities
|
$
|
—
|
|
|
$
|
(368
|
)
|
|
$
|
(564
|
)
|
We consider all positive and negative evidence regarding the realization of deferred tax assets, including past operating results and future sources of taxable income.
For the period ended December 31, 2018, it is expected that the gain from the sale of the Core business segment to Symmetry will substantially utilize all of the historical Federal net operating loss carryover of
$23.8 million
and state(s) net operating loss carryover of
$19.1 million
. As a result, the valuation allowance on these deferred tax assets as well as other deferred tax assets was released during the year ended December 31, 2018 and the Company recorded a tax benefit from discontinued operations of
$7.32 million
from the release of the valuation allowance.
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. As of December 31, 2018, we have reserved
$1.3 million
of potential tax benefits.
The following is a roll-forward of the Company's total gross unrecognized tax benefits, not including interest and penalties, for the year ended December 31, 2018.
|
|
|
|
|
|
(in thousands)
|
|
Gross Unrealized Tax Benefits
|
Balance at January 1, 2018
|
|
$
|
—
|
|
Additions of tax positions related to the current year
|
|
—
|
|
Additions of tax positions related to the prior year
|
|
1,313
|
|
Decreases for tax positions related to prior year
|
|
—
|
|
Balance at December 31, 2018
|
|
$
|
1,313
|
|
The Company is subject to U.S. federal and state income tax examination. The Company’s 2015 through 2017 U.S. federal income tax returns are subject to examination by the Internal Revenue Service. The Company’s state income tax returns are subject to examination for the 2014 through 2017 tax years.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 12. RETIREMENT PLAN
The Company provides a tax-qualified profit-sharing retirement plan under section 401(k) of the Internal Revenue Code for the benefit of eligible employees with an accumulation of funds for retirement on a tax-deferred basis and provides for annual discretionary contribution to individual trust funds.
All employees are eligible to participate. The employees may make voluntary contributions to the plan up to the maximum percentage allowed by the Internal Revenue Code. Vesting in employee matching contributions is graded and depends on the years of service. After
three
years from their date of hire, the employees are
100%
vested. The Company makes matching contributions of
50%
of the employee contributions up to a total of
3%
of participant payroll. Matching contributions made by the Company totaled
$0.3 million
,
$0.3 million
and $0.3 million for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
NOTE 13. RELATED PARTY TRANSACTIONS
Several relatives of Nikolay Shilev, Apyx Bulgaria’s Managing Director, are considered related parties. Teodora Shileva, Mr. Shilev’s spouse, is an employee of the Company working in the Accounting department. Antoaneta Dimitrova Shileva-Toromanova, Mr. Shilev’s sister, is the Manager of Production and Human Resources. Svetoslav Shilev, Mr. Shilev’s son, is an Engineer in the Quality Assurance department.
NOTE 14. OTHER COMMITMENTS AND CONTINGENCIES
Property and Rental Agreements
In March 2014, we signed a lease for offices located in Purchase, New York. In December 2017, we decided to consolidate operations in the Purchase, NY office with the facility in Clearwater, Florida. Based on this, we determined the office in Purchase, NY was no longer necessary and decided to cease all activity at the location. In August 2018, we negotiated a termination of the remainder of the lease, releasing us from any future obligation.
In October 2015, pursuant to our acquisition of Apyx Bulgaria, we are obligated to pay a lease of approximately
$6,000
per month, expiring in December 2021, for approximately
20,000
square feet of office, research and manufacturing space in Sofia, Bulgaria.
The following is a schedule of approximate future minimum lease payments under operating leases as of
December 31, 2018
:
|
|
|
|
|
(In thousands)
|
|
2019
|
$
|
70
|
|
2020
|
70
|
|
2021
|
70
|
|
Total
|
$
|
210
|
|
On August 30, 2018, the Company paid the remaining mortgage balance related to the Clearwater, FL, facility, releasing us from any and all obligations to the Bank of Tampa.
Litigation
The medical device industry is characterized by frequent claims and litigation, and we are and may become subject to various claims, lawsuits and proceedings in the ordinary course of our business, including claims by current or former employees, distributors and competitors, and with respect to our products and product liability claims, lawsuits and proceedings.
We are involved in a number of legal actions relating to the use of our J-Plasma technology. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. In the opinion of management, the Company has meritorious defenses, and such claims are adequately covered by insurance, or are not expected, individually or in the aggregate, to result in a material, adverse effect on our financial condition. However, in the event that damages exceed the aggregate coverage limits of our policy or if our insurance carriers disclaim coverage, we believe it is possible that costs associated with these claims could have a material adverse impact on our consolidated earnings, financial position or cash flows.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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.
Purchase Commitments
At
December 31, 2018
, we had purchase commitments for inventories totaling approximately
$3.0 million
, substantially all of which is expected to be purchased by the end of
2019
.
Severance
Jay D. Ewers, the Chief Financial Officer, resigned as an officer of the Company effective December 31, 2018, although he continued on as an employee during the first quarter of 2019. In connection with this departure, the Company and Mr. Ewers entered into a separation agreement, dated November 12, 2018. Severance costs incurred included salary, option expense and other benefits of approximately
$741,000
and will be included in operational cash outflows during 2019.
Jack McCarthy, the Chief Commercialization Officer, was terminated without cause from his position with the Company effective November 6, 2017. Severance costs incurred included salary, option expense and other benefits of approximately
$582,000
, of which approximately
$397,000
was included in operational cash outflows during 2018.
Robert L. Gershon, the Chief Executive Officer and a director, resigned from all of his positions with the Company effective
December 15, 2017. In connection with this departure, the Company and Mr. Gershon entered into a separation agreement, dated December 15, 2017. Severance costs incurred included salary, option expense and other benefits of approximately
$767,000
, of which approximately
$670,000
was included in operational cash outflows during 2018.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 15. STOCK OPTIONS
On October 30, 2007, our stockholders approved and the Board of Directors adopted an amendment to the 2003 Executive and Employee Stock Option Plan (the “Plan”) to increase the maximum aggregate number of shares of common stock reserved for issuance under the Plan from
1.2 million
shares (already reserved against outstanding options) to
1.7 million
shares. Except for the increase in the number of shares covered by the Plan, the Plan remained otherwise unchanged. In 2001, the Board of Directors adopted the 2001 Executive and Employee Stock Option Plan which reserved for issuance
1.2 million
stock options. Stock options typically have a
ten
-year life and currently vest over a
seven
year period.
In July of 2012, the stockholders approved the 2012 Share Incentive Plan covering a total of
750,000
shares of common stock issuable upon exercise of options to be granted under the plan. At
December 31, 2018
approximately
70,000
remain to be issued in this plan.
In July of 2015, the stockholders approved the 2015 Executive and Employee Stock Option Plan covering a total of
2,000,000
shares of common stock issuable upon exercise of options to be granted under the plan. At
December 31, 2018
approximately
326,000
remain to be issued in this plan.
In August of 2017, the stockholders approved the 2017 Executive and Employee Stock Option Plan covering a total of
3,000,000
shares of common stock issuable upon exercise of options to be granted under the plan. At
December 31, 2018
approximately
1,783,000
remain to be issued in this plan.
The status of our stock options and stock awards are summarized as follows:
|
|
|
|
|
|
|
|
|
Number of options
|
|
Weighted average exercise price
|
Outstanding at December 31, 2015
|
3,131,447
|
|
|
$
|
3.38
|
|
Granted
|
810,762
|
|
|
1.87
|
|
Exercised
|
(36,250
|
)
|
|
3.62
|
|
Canceled and forfeited
|
(153,750
|
)
|
|
3.69
|
|
Outstanding at December 31, 2016
|
3,752,209
|
|
|
$
|
3.04
|
|
Granted
|
1,728,000
|
|
|
3.09
|
|
Exercised
|
(176,750
|
)
|
|
2.41
|
|
Canceled and forfeited
|
(443,302
|
)
|
|
3.95
|
|
Outstanding at December 31, 2017
|
4,860,157
|
|
|
$
|
3.00
|
|
Granted
|
225,000
|
|
|
2.40
|
|
Exercised
|
(1,378,615
|
)
|
|
2.43
|
|
Canceled and forfeited
|
(225,841
|
)
|
|
2.10
|
|
Outstanding at December 31, 2018
|
3,480,701
|
|
|
$
|
3.10
|
|
|
|
|
|
Exercisable at December 31, 2018
|
2,129,581
|
|
|
$
|
3.20
|
|
|
|
|
|
|
|
|
|
|
Number of options
|
|
Weighted average grant date fair value
|
Non-vested at December 31, 2017
|
2,232,435
|
|
|
$
|
1.40
|
|
Granted
|
225,000
|
|
|
2.40
|
|
Vested
|
(880,474
|
)
|
|
1.63
|
|
Forfeited
|
(225,841
|
)
|
|
2.10
|
|
Non-vested at December 31, 2018
|
1,351,120
|
|
|
$
|
1.48
|
|
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Common shares required to be issued upon the exercise of stock options and warrants would be issued from our authorized and unissued shares. We calculated the fair value of issued options utilizing a trinomial lattice with an expected life calculated via the simplified method as we do not have sufficient history to determine actual expected life.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Grants
|
|
2017 Grants
|
|
2016 Grants
|
Option value
|
$1.46
|
-
|
$3.04
|
|
$1.73
|
-
|
$2.34
|
|
$0.80
|
-
|
$0.91
|
Risk-free rate
|
1.9%
|
-
|
2.5%
|
|
1.5%
|
-
|
1.9%
|
|
1.5%
|
|
1.8%
|
Expected dividend yield
|
—%
|
|
—%
|
|
—%
|
Expected volatility
|
60.9%
|
-
|
68.8%
|
|
62.1%
|
-
|
68.0%
|
|
49.5%
|
-
|
50.3%
|
Expected term (in years)
|
6
|
|
6
|
|
6
|
As of
December 31, 2018
, the aggregate intrinsic value of all stock options outstanding and expected to vest was approximately
$11,954,354
and the aggregate intrinsic value of currently exercisable stock options was approximately
$6,976,636
. The intrinsic value of each option share is the difference between the fair market value of our common stock and the exercise price of such option share to the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the
$6.48
closing stock price of our common stock on
December 31, 2018
, the last trading day of
2018
. The total number of in-the-money options outstanding and exercisable as of
December 31, 2018
,was approximately
5,310,711
.
As of
December 31, 2017
, the aggregate intrinsic value of all stock options outstanding and expected to vest was approximately
$1,306,791
and the aggregate intrinsic value of currently exercisable stock options was approximately
$768,706
. The intrinsic value calculation is based on the
$2.60
closing stock price of our common stock on
December 31, 2017
, the last trading day of
2017
. The total number of in-the-money options outstanding and exercisable as of
December 31, 2017
, was approximately
2,318,887
.
The total intrinsic value of options exercised during the years ended December 31,
2018
,
2017
and
2016
,was approximately
$4,460,842
,
$223,340
and
$119,026
, respectively. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option holder to exercise the options. The total cash proceeds received from the exercise of stock options was approximately
$202,575
,
$0
, and
$12,300
for the years ended December 31,
2018
,
2017
and
2016
, respectively.
The total fair value of options granted during the years ended December 31,
2018
,
2017
and
2016
, was approximately
$540,000
,
$3,144,960
and
$1,516,125
, respectively. The total fair value of option shares vested during the years ended December 31,
2018
,
2017
, and
2016
, was approximately
$1,435,173
,
$805,747
and
$612,464
, respectively.
During the year ended
December 31, 2018
, we issued
808,272
common shares in exchange for
1,378,615
non-employee stock options and
570,343
common shares (via stock swaps).
During the year ended
December 31, 2017
, we issued
47,372
common shares in exchange for
176,750
non-employee stock options and
129,378
common shares (via stock swaps).
During the year ended
December 31, 2016
, we issued
9,614
common shares in exchange for
36,250
employee and non-employee stock options and
26,636
common shares (via stock swaps).
As of
December 31, 2018
, there was approximately
$1.9 million
of total unrecognized stock-based compensation cost, related to unvested stock options granted under the Amended Plan. This cost is expected to be recognized over a weighted-average period of approximately
4
years.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Allocation of stock based compensation from continuing operations expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Cost of sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Research and development
|
25
|
|
|
27
|
|
|
27
|
|
Salaries and related costs
|
1,500
|
|
|
844
|
|
|
780
|
|
Total
|
$
|
1,525
|
|
|
$
|
871
|
|
|
$
|
809
|
|
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 16. GEOGRAPHIC AND SEGMENT INFORMATION
Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors.
Our reportable segments are disclosed as principally organized and managed as
two
operating segments: Advanced Energy and OEM. "Corporate & Other" includes certain unallocated corporate and administrative costs which were not specifically attributed to any reportable segment. Net assets are shared, therefore, not allocated to the reportable segments. The OEM segment is primarily development and manufacturing contract and product driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.
Summarized financial information with respect to reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
(In thousands)
|
Advanced Energy
|
|
OEM
|
|
Corporate (Other)
|
|
Total
|
Sales
|
$
|
13,068
|
|
|
$
|
3,618
|
|
|
$
|
—
|
|
|
16,686
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
(6,326
|
)
|
|
1,795
|
|
|
(9,069
|
)
|
|
(13,600
|
)
|
|
|
|
|
|
|
|
|
Severance and related expense
|
—
|
|
|
—
|
|
|
741
|
|
|
741
|
|
Interest income
|
—
|
|
|
—
|
|
|
616
|
|
|
616
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(104
|
)
|
|
(104
|
)
|
Income tax benefit
|
—
|
|
|
—
|
|
|
(3,777
|
)
|
|
(3,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
(In thousands)
|
Advanced Energy
|
|
OEM
|
|
Corporate (Other)
|
|
Total
|
Sales
|
$
|
7,636
|
|
|
$
|
2,598
|
|
|
$
|
—
|
|
|
$
|
10,234
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
(3,957
|
)
|
|
1,353
|
|
|
(11,281
|
)
|
|
(13,885
|
)
|
|
|
|
|
|
|
|
|
Severance and related expense
|
—
|
|
|
—
|
|
|
1,524
|
|
|
1,524
|
|
Interest income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(136
|
)
|
|
(136
|
)
|
Income tax benefit
|
—
|
|
|
—
|
|
|
(156
|
)
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
(In thousands)
|
Advanced Energy
|
|
OEM
|
|
Corporate (Other)
|
|
Total
|
Sales
|
$
|
3,491
|
|
|
$
|
5,328
|
|
|
$
|
—
|
|
|
$
|
8,819
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
(4,812
|
)
|
|
3,045
|
|
|
(9,625
|
)
|
|
(11,392
|
)
|
|
|
|
|
|
|
|
|
Severance and related expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(158
|
)
|
|
(158
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
64
|
|
|
64
|
|
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
International sales in 2018,
2017
and
2016
were
22.9%
,
13.2%
and
3.9%
of sales, respectively. Substantially all of these sales are denominated in U.S. dollars. Revenue by geographic region, based on the "ship to" location on the invoice are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Sales by Domestic and International
|
|
|
|
|
|
Domestic
|
$
|
12,858
|
|
|
$
|
8,887
|
|
|
8,475
|
|
International
|
3,828
|
|
|
1,347
|
|
|
344
|
|
Total
|
$
|
16,686
|
|
|
$
|
10,234
|
|
|
$
|
8,819
|
|
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 17. SUPPLEMENTAL UNAUDITED QUARTERLY FINANCIAL INFORMATION OF CONTINUING OPERATIONS
The following table sets forth certain unaudited quarterly data of continuing operations for each of the four quarters in the years ended December 31, 2018, and
2017
, respectively. The data has been derived from the Company’s unaudited consolidated financial statements that, in management’s opinion, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of such information when read in conjunction with the Consolidated Financial Statements and Notes thereto. The results of operations for any quarter are not necessarily indicative of the results of operations for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
Sales
|
$
|
3,397
|
|
|
$
|
3,691
|
|
|
$
|
3,672
|
|
|
$
|
5,926
|
|
Gross profit
|
2,212
|
|
|
2,537
|
|
|
2,521
|
|
|
3,523
|
|
Net income (loss)
|
(2,791
|
)
|
|
(2,938
|
)
|
|
(438
|
)
|
|
(3,327
|
)
|
Basic income (loss) per common share
|
(0.08
|
)
|
|
(0.09
|
)
|
|
(0.01
|
)
|
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
Sales
|
$
|
1,614
|
|
|
$
|
2,311
|
|
|
$
|
2,651
|
|
|
$
|
3,658
|
|
Gross profit
|
777
|
|
|
1,572
|
|
|
1,913
|
|
|
2,696
|
|
Net income (loss)
|
(3,898
|
)
|
|
(3,867
|
)
|
|
(2,944
|
)
|
|
(2,973
|
)
|
Basic income (loss) per common share
|
(0.13
|
)
|
|
(0.13
|
)
|
|
(0.09
|
)
|
|
(0.09
|
)
|
*Fourth quarter 2018 and
2017
period includes approximately
$0.7 million
and
$1.5 million
, respectively, of non-recurring severance and expenses related to former members of the Company’s executive management team and related closure of the corporate office in Purchase, New York.