apyx-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended

March 31, 2023

☐

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

For the transition period from _____ to _____

Commission File Number:

0-12183



APYX MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)


Delaware						11-2644611
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

5115 Ulmerton Road, Clearwater, FL 33760

(Address of principal executive offices, zip code)

(727) 384-2323

(Registrant’s telephone number)

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


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock	APYX	Nasdaq Global Select Market

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

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

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

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

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

☐

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

As of May 10, 2023, 34,597,822 shares of the registrant’s $0.001 par value common stock were outstanding.

Table of Contents

APYX MEDICAL CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended March 31, 2023

Page

Part I.

Financial Information

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022

Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022

Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2023 and 2022

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

Notes to Condensed Consolidated Financial Statements

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Part II.

Other Information

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

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)


	March 31, 2023 (Unaudited)		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	16,255	$	10,192

Trade accounts receivable, net of allowance of $359 and $668	9,966		10,602
Income tax receivables	7,752		7,545
Other receivables	417		99
Inventories, net of provision for obsolescence of $428 and $457	10,946		11,797
Assets held for sale	4,569		—
Prepaid expenses and other current assets	2,779		2,737
Total current assets	52,684		42,972
Property and equipment, net	2,109		6,761
Operating lease right-of-use assets	646		710
Finance lease right-of-use assets	106		115

Other assets	1,239		1,217
Total assets	$	56,784	$	51,775



LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,905	$	2,669
Accrued expenses and other current liabilities	7,626		8,928
Current portion of operating lease liabilities	184		216
Current portion of finance lease liabilities	33		37
Term loan, net	8,778		—
Total current liabilities	18,526		11,850
Long-term operating lease liabilities	448		470
Long-term finance lease liabilities	68		73
Long-term contract liabilities	1,343		1,408
Other liabilities	185		181
Total liabilities	20,570		13,982
EQUITY
Preferred Stock, $0.001 par value; 10,000,000 shares authorized; 0 issued and outstanding as of March 31, 2023 and December 31, 2022	—		—
Common stock, $0.001 par value; 75,000,000 shares authorized; 34,597,822 issued and outstanding as of March 31, 2023 and December 31, 2022	35		35
Additional paid-in capital	75,235		73,282
Accumulated deficit	(39,218)		(35,735)
Total stockholders' equity	36,052		37,582
Non-controlling interest	162		211
Total equity	36,214		37,793
Total liabilities and equity	$	56,784	$	51,775

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

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APYX MEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)


	Three Months Ended March 31,
	2023		2022
Sales	$	12,142	$	12,493
Cost of sales	4,569		4,274
Gross profit	7,573		8,219
Other costs and expenses:
Research and development	1,121		1,158
Professional services	1,740		2,286
Salaries and related costs	5,068		5,181
Selling, general and administrative	5,255		5,465
Total other costs and expenses	13,184		14,090
Loss from operations	(5,611)		(5,871)
Interest income	51		2
Interest expense	(234)		(8)
Other loss, net	(5)		(21)
Total other loss, net	(188)		(27)
Loss before income taxes	(5,799)		(5,898)
Income tax (benefit) expense	(2,267)		70
Net loss	(3,532)		(5,968)
Net loss attributable to non-controlling interest	(49)		(23)
Net loss attributable to stockholders	$	(3,483)	$	(5,945)

Loss per share:

Basic and diluted	$	(0.10)	$	(0.17)

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

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APYX MEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(In thousands)


Three Months Ended March 31, 2023 and 2022
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Non-controlling Interest		Total Equity
	Shares	Par Value
Balance at December 31, 2021	34,410	$	34	$	66,221	$	(12,551)	$	305	$	54,009

Shares issued on stock options exercises for cash	24	—		152		—		—		152
Stock based compensation	—	—		1,650		—		—		1,650
Shares issued on net settlement of stock options	19	—		—		—		—		—

Net loss	—	—		—		(5,945)		(23)		(5,968)
Balance at March 31, 2022	34,453	$	34	$	68,023	$	(18,496)	$	282	$	49,843

Balance at December 31, 2022	34,598	$	35	$	73,282	$	(35,735)	$	211	$	37,793


Stock based compensation	—	—		1,367		—		—		1,367

Proceeds received from issuance of warrants	—	—		586		—		—		586

Net loss	—	—		—		(3,483)		(49)		(3,532)
Balance at March 31, 2023	34,598	$	35	$	75,235	$	(39,218)	$	162	$	36,214

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

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APYX MEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net loss	$	(3,532)	$	(5,968)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	203		225
Provision for inventory obsolescence	—		85

Loss on disposal of property and equipment	—		26
Stock based compensation	1,367		1,650
Provision for allowance for doubtful accounts	(142)		140
Non-cash interest expense	67		—
Changes in operating assets and liabilities:
Trade receivables	837		475
Prepaid expenses and other assets	858		649
Income tax receivables	(207)		—
Inventories	879		(371)
Accounts payable	(776)		(51)
Accrued expenses and other liabilities	(1,435)		(1,378)
Net cash used in operating activities	(1,881)		(4,518)
Cash flows from investing activities
Purchases of property and equipment	(110)		(279)


Net cash used in investing activities	(110)		(279)
Cash flows from financing activities
Proceeds from stock option exercises	—		152
Proceeds from term loan	9,289		—
Payment of debt issuance costs	(1,754)		—
Proceeds from issuance of warrants	586		—
Repayment of finance lease liabilities	(9)		(54)

Net cash provided by financing activities	8,112		98
Effect of exchange rates on cash	(58)		63
Net change in cash and cash equivalents	6,063		(4,636)
Cash and cash equivalents, beginning of period	10,192		30,870
Cash and cash equivalents, end of period	$	16,255	$	26,234





Cash paid for:
Interest	$	1	$	8
Income taxes	125		—

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

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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 Medical Device Safety Communication (“Safety Communication”). The FDA warned against the use of Renuvion/J-Plasma for procedures intended to improve the appearance of the skin through dermal resurfacing (a procedure on the skin to treat wrinkles) or skin contraction (a procedure under the skin that can be performed either alone or in combination with liposuction to achieve skin effects, such as “tightening”). At that time, the Renuvion/J-Plasma device system was FDA cleared for general use of cutting, coagulation, and ablation of soft tissue during open and laparoscopic surgical procedures. The use of the device had not been determined to be safe or effective for any aesthetic skin procedures (procedures intended to improve the appearance of the skin). 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 received 510(k) clearance from the FDA for the use of the Renuvion® Dermal Handpiece for certain dermal resurfacing procedures, specifically, for the treatment of moderate to severe wrinkles and rhytides, limited to patients with Fitzpatrick Skin Types I, II or III.

On June 2, 2022, the FDA updated the Safety Communication to inform consumers and healthcare providers about the new 510(k) clearance for the Renuvion® device system for certain dermal resurfacing procedures.

On July 18, 2022, the Company announced that it received 510(k) clearance from the FDA for the use of the Renuvion® APR Handpiece for use in subcutaneous dermatological and aesthetic procedures to improve the appearance of lax (loose) skin in the neck and submental (under the chin) region.

On July 21, 2022, the FDA updated the Safety Communication to inform consumers and healthcare providers about the clearance for the Renuvion® APR handpieces for use under the skin in certain procedures intended to improve the appearance of loose skin.

On February 27, 2023, the Company announced that it received 510(k) clearance from the FDA for the use of the Renuvion® APR Handpiece for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed. Soft tissue includes subcutaneous tissue.

On April 28, 2023, the Company announced that it received 510(k) clearance from the FDA for the use of the Renuvion® APR Handpiece for coagulation of subcutaneous soft tissues following liposuction for aesthetic body contouring.

On May 10, 2023, the FDA updated the Safety Communication to inform consumers and healthcare providers about the clearance for the Renuvion® APR handpiece for use under the skin in certain procedures intended to improve the appearance of the skin, including for coagulation of subcutaneous soft tissues following liposuction for aesthetic body contouring.

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APYX MEDICAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Management believes that the May 10, 2023 FDA update to the Safety Communication addresses the issues set forth in the original Safety Communication from March 14, 2022. While no assurances can be provided, management believes that receiving these additional clearances and the corresponding updates to the Safety Communication since March 14, 2022 should mitigate the financial effects of the Safety Communication 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 unaudited 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 unaudited 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 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, the Company has incurred recurring net losses and cash outflows from operations and the Company anticipates that losses will continue in the near term. During the year ended December 31, 2022, the Company incurred an operating loss of $23.6 million and used $20.3 million of cash in operations. During the three months ended March 31, 2023, the Company incurred an operating loss of $5.6 million and used $1.9 million of cash in operations. As of March 31, 2023, the Company had cash and cash equivalents of $16.3 million, of which the Company must maintain $10.0 million under its Credit Agreement. 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, the Company pursued various funding solutions in order to improve liquidity.

On November 22, 2022, the Company filed a shelf registration statement providing it the ability to register securities in the aggregate amount up to $100 million. The shelf registration included an embedded ATM facility for up to $40 million. To date, the Company has not utilized this facility.

On February 17, 2023, the Company entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”) with MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time.

The Credit Agreement provides for an up to $35 million facility, consisting of senior secured term loans and a secured revolving facility. The Credit Agreement provides for senior secured term loans of up to $25 million, comprised of (i) an initial tranche of $10 million, (ii) a second tranche of $5 million, and (iii) a third tranche of $10 million. The secured revolving facility provides for loans in an aggregate principal amount of up to $10 million, subject to a borrowing base equal to certain percentages of the Company’s eligible accounts receivable and inventory, as determined in accordance with the terms of the Credit Agreement.

For a more in depth description of the terms of the Credit Agreement, see Note 6.

On February 27, 2023, the Company’s Board of Directors approved a plan to sell and leaseback the Company’s real property located in Clearwater, FL. On March 14, 2023, the Company entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with VK Acquisitions VI, LLC (the “Purchaser”), for the sale of the Company’s facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price

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APYX MEDICAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

of $7,650,000. On May 8, 2023, the Company closed on the Purchase Agreement and concurrently executed a 10-year agreement to leaseback the underlying Property from the Purchaser.

For a more in depth description of the terms of the Purchase Agreement, see Note 4.

During January 2023, the Company was notified that the IRS examination process of our 2018, 2019 and 2020 tax returns was complete and that the Company’s tax refunds were approved for approximately $0.2 million more than the amount recorded in the Company’s Consolidated Balance Sheet at December 31, 2022. As of the date of this report, the Company is awaiting receipt of the tax refunds.

The Company also continues to re-assess its operating expenditures and cost structure to be commensurate with expected levels of revenue and management has the ability to reduce or delay expenditures to enhance and preserve liquidity. Management has already reduced some operating expenditures, including a reduction-in-force on January 9, 2023, that reduced the Company’s U.S. headcount by 14%.

Management believes that the actions already taken, and additional actions that it intends to take to manage operating expenditures, will enable the Company to meet its obligations and its debt covenants 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 the Company’s ability to continue as a going concern. These unaudited condensed consolidated 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.

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 adopted the new standard on January 1, 2023 and its impact was not material to the Company.

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.

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APYX MEDICAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

NOTE 3. 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)	March 31, 2023		December 31, 2022
Raw materials	$	4,388	$	4,979
Work in process	2,331		2,160
Finished goods	4,655		5,115
Gross inventories	11,374		12,254
Less: provision for obsolescence	(428)		(457)
Inventories, net	$	10,946	$	11,797

NOTE 4. ASSETS HELD FOR SALE AND PROPERTY AND EQUIPMENT