What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-10 compared with 2020-05-11 · 108 added, 61 removed, 275 unchanged (38% of the section changed)

29 unchanged sentences

75,000,000 shares authorized;

34,184,230 issued and outstanding as of March 31, 2020, and 34,312,527 issued and 34,169,952 outstanding as of December 31, 2019

34,201,895 issued and outstanding as of June 30, 2020, and 34,312,527 issued and 34,169,952 outstanding as of December 31, 2019

Additional paid-in capital

7 unchanged sentences

Three Months Ended

Six Months Ended

Cost of sales

8 unchanged sentences

Interest expense

Other income (losses), net

Total other income, net

Other (loss) income, net

Total other (loss) income, net

Loss before income taxes

Income tax expense (benefit)

Earnings per Share:

Income tax (benefit) expense

Earnings (loss) per Share:

Basic and diluted

3 unchanged sentences

(In thousands, Unaudited)

Three months ended March 31, 2019 and 2020

Three months ended June 30, 2019 and 2020

Additional Paid-In Capital

Retained Earnings

December 31, 2018

March 31, 2019

Options exercised for cash

1 unchanged sentence

Shares issued on net settlement of stock options

June 30, 2019

March 31, 2020

Stock based compensation

Shares issued on net settlement of stock options

June 30, 2020

Six months ended June 30, 2019 and 2020

Additional Paid-In Capital

Retained Earnings

December 31, 2018

2 unchanged sentences

Shares issued on net settlement of stock options

March 31, 2020

June 30, 2019

December 31, 2019

Options exercised for cash

Stock based compensation

Shares issued on net settlement of stock options

June 30, 2020

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

2 unchanged sentences

(In thousands, Unaudited)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities

19 unchanged sentences

Repayment of finance lease liabilities

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Effect of exchange rates on cash

3 unchanged sentences

Cash paid for:

Non cash financing activities:

Cashless exercise of stock options/warrants

Lease adoption

Non cash activities:

Cashless exercise of stock options

Right-of-use assets capitalized and lease liabilities recognized upon adoption of Topic 842

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

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

Transfer of other assets to fixed assets

Transfer of inventory (to) from fixed assets

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

12 unchanged sentences

In response, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes.

The long-term impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict as the environment created by the pandemic is rapidly changing, however, during the last couple of months, the effects of the pandemic has been material and adverse on our business.

We currently expect that the severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the our customers and suppliers, all of which are uncertain and cannot be predicted.

The long-term impact of the COVID-19 pandemic on our business continues to be highly uncertain and difficult to predict as the environment created by the pandemic is rapidly changing.

Starting in late February, the effects of the pandemic have been material and adverse on our business.

While we experienced positive indications in our business late in the second quarter, we continue to expect that the severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our customers and suppliers, all of which are uncertain and cannot be predicted.

Most of the procedures performed using our Helium Plasma Technology are elective, and as a result many of our customers have been affected by the actions taken by various governmental authorities requiring non-essential businesses to shut down temporarily.

There is a significant amount of uncertainty as to when these actions will be lifted and when patients will choose to undergo elective cosmetic procedures once our customers’ practices are allowed to re-open.

Substantially all of these procedures are performed outside of hospitals in the US, and it is possible that patients will be responsive to scheduling appointments sooner.

In international markets, a greater portion of these procedures are performed in a hospital, and it is less certain when elective procedures will return to normal.

Policymakers have also responded to COVID-19 with fiscal policy actions to support companies effected by the pandemic.

While we have started to experience a significant decline in sales towards the end of our first fiscal quarter, as of the date of issuance of these consolidated financial statements, the full extent to which the COVID-19 pandemic may materially and adversely impact the Company's financial position, liquidity, or results of operations remains uncertain.

We are experiencing a significant decline in sales domestically and internationally, and we expect the decline to continue into the second quarter and possibly beyond.

As these shut-downs have begun to be reversed, we have started to see an increase in demand for elective cosmetic and plastic surgery procedures, resulting in higher than expected revenues in our Advanced Energy segment.

In international markets, a greater portion of these procedures are performed in a hospital, and it is less certain when elective procedures will fully return to normal..

While we started to experience a significant decline in sales towards the end of our first fiscal quarter, we began to see an increase in sales towards the end of our second fiscal quarter as local jurisdictions started to re-open.

However, the full extent to which the COVID-19 pandemic may materially and adversely impact the Company's future financial position, liquidity, or results of operations remains uncertain.

While we began to experience an improvement in sales, domestically and internationally, towards the end of our second fiscal quarter, the pace at which this continues into the third quarter and beyond is still highly uncertain.

The accompanying unaudited consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods.

18 unchanged sentences

The Company currently expects to continue to qualify as a Smaller Reporting Company, based upon the current SEC definition, and as a result, will be utilizing the deferred elective date.

The Company is in the process of determining the effects of the adoption of the standard on the consolidated financial statements.

While we are in the process of determining the effects of the adoption of the standard on the consolidated financial statements, we do not expect the impact to be material.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350):

22 unchanged sentences

Inventories, net

During the second fiscal quarter, we reassessed our forecasted product mix due to COVID-19, increased availability of our newer handpiece designs and earlier than expected completion of product registrations in some of our foreign markets.

As a result, certain products were reduced to a lower carrying value, and some components were also written off as it was determined to cease further production on these models.

The total associated impairment was approximately $ 400,000 and is included in cost of sales in the accompanying consolidated statements of income for the three and six months ended June 30, 2020.

ACCRUED EXPENSES AND OTHER CURRENT LIABILTIES

17 unchanged sentences

Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding.

As we are in a net loss position for all periods presented, all potential shares outstanding are anti-dilutive.

The following table provides the computation of basic and diluted earnings per share.

Three Months Ended

Six Months Ended

(in thousands, except per share data)

Weighted average shares outstanding - basic and diluted

Earnings per share:

Earnings (loss) per share:

Basic and diluted

3 unchanged sentences

STOCK-BASED COMPENSATION

Under our stock option plans, our board of directors may grant restricted stock andoptions to purchase common shares to our key employees, officers, directors and consultants.

Under our stock option plans, our board of directors may grant restricted stock and options to purchase common shares to our employees, officers, directors and consultants.

We account for stock options in accordance with FASB ASC Topic 718, Compensation - Stock Compensation , with stock-based compensation expense amortized over the vesting period based on the fair value on the grant date utilizing a trinomial lattice model through 2018 and the Black Scholes model for grants in 2019 and 2020, both of which include a number of estimates that affect the amount of our expense.

We recognized approximately $1,049,000 in stock-based compensation expense during the three months ended March 31, 2020 , as compared with $1,195,000 for the three months ended March 31, 2019 .

We recognized approximately $ 1,097,000 and $ 2,146,000 , respectively, in stock-based compensation expense during the three and six months ended June 30, 2020 , as compared with $ 856,000 and $ 2,051,000 , respectively, for the three and six months ended June 30, 2019 .

The status of our stock options are summarized as follows:

3 unchanged sentences

Canceled and forfeited

Outstanding at March 31, 2020

We allow employees to exercise stock-based awards by surrendering stock-based awards with a fair value of the stock-based awards exercised, referred to as net settlements.

Outstanding at June 30, 2020

We allow stock option holders to exercise stock-based awards by surrendering stock-based awards with a fair value of the stock-based awards exercised, referred to as net settlements.

These surrenders are included in stock options exercised in the options rollforward above.

For the three months ended March 31, 2020 and 2019, respectively, we received 1,924 and 83,819 options as payment in the exercise of 4,362 and 168,730 options.

For the three months ended June 30, 2020 and 2019, respectively, we received 11,085 and 7,779 options as payment in the exercise of 17,665 and 17,221 options.

For the six months ended June 30, 2020 and 2019, respectively, we received 13,009 and 91,598 options as payment in the exercise of 22,027 and 185,951 options.

Common shares required to be issued upon the exercise of stock options would be issued from our authorized and unissued shares.

5 unchanged sentences

On March 27, 2020, the U.S.

government enacted the CARES Act to provide relief from the coronavirus pandemic.

government enacted the CARES Act to provide relief from COVID-19.

The CARES Act includes a provision that allows companies to carryback net operating losses (NOL’s) generated in the period 2018 through 2020 to prior years.

In conjunction with the disposition of the Core business in 2018, we generated a significant amount of taxable income in 2018.

Subsequent to this, we generated net losses in 2019 and through the first quarter of 2020.

For the net losses generated in 2019, we previously recorded a valuation allowance to the full value of the deferred tax asset associated with our NOL carryforwards due to realization of the deferred tax assets being improbable.

Subsequent to this, we generated net losses in 2019 and through the first half of 2020.

For the net losses generated in 2019, we previously recorded a valuation allowance on the full value of the deferred tax assets associated with our NOL carryforwards due to realization of the NOL being improbable under then existing tax law.

The CARES Act makes these assets realizable, and as of the date of the CARES Act, we have recognized an income tax benefit of approximately $ 3.7 million associated with the release of the valuation allowance on our Federal NOL carryforward related to 2019.

We also recognized an income tax benefit of approximately $1.2 million related to our net loss before income taxes for the three months ended March 31, 2020.

There are approximately an additional $4.4 million of 2018 Federal income tax payments available to offset against any other 2020 losses that may be incurred.

We also recognized income tax benefits of

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company’s income tax expense (benefit) was approximately $(4,905,000) and $6,000 with an effective tax rate of 71.5% and (0.1)% for the three months ended March 31, 2020 and 2019, respectively.

approximately $ 1.5 million and $ 1.2 million , related to our net loss before income taxes for the three and six months ended June 30, 2020, respectively.

There are approximately an additional $ 3.2 million of 2018 Federal income tax payments available to offset against any other 2020 losses that may be incurred.

Our income tax (benefit) expense was approximately $( 1,492,000 ) and $ 76,000 with an effective tax rate of 24.1 % and ( 1.8 )% for the three months ended June 30, 2020 and 2019, respectively.

Our income tax (benefit) expense was approximately $( 6,397,000 ) and $ 82,000 with an effective tax rate of 49.1 % and ( 0.8 )% for the six months ended June 30, 2020 and 2019, respectively.

The effective rate differs from the statutory rate primarily due to the release of the valuation allowance on our net operating loss carryforward from 2019.

The following is a roll-forward of the Company's total gross unrecognized tax benefits, not including interest and penalties, for the period ended March 31, 2020.

The following is a roll-forward of the Company's total gross unrecognized tax benefits, not including interest and penalties, for the period ended June 30, 2020.

(in thousands)

4 unchanged sentences

Decreases for tax positions related to the prior year

Balance at March 31, 2020

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s condensed consolidated financial statements.

As of March 31, 2020, the Company had approximately $217,000 in accrued interest and penalties related to unrecognized tax benefits.

Included in the income tax expense for the three months ended March 31, 2020 is approximately $39,000 of interest and penalties on the Company's uncertain tax positions.

Balance at June 30, 2020

We recognize accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in our condensed consolidated financial statements.

As of June 30, 2020, we had approximately $ 260,000 in accrued interest and penalties related to unrecognized tax benefits.

Included in the income tax benefit for the three months and six ended June 30, 2020, respectively are approximately $ 43,000 and $ 82,000 of interest and penalties on the Company's uncertain tax positions.

If the Company were to prevail on all uncertain tax positions, the resulting impact will be material as the Company will recognize approximately $ 1,573,000 of tax benefits in the provision of income taxes.

2 unchanged sentences

The medical device industry is characterized by frequent claims and litigation, and we are and may become subject to various claims, lawsuits and proceedings in the ordinary course of our business.

Such claims include claims by current or former employees, distributors and competitors, claims concerning the marketing and promotion of our products and product liability claims.

Such claims may include claims by current or former employees, distributors and competitors, claims concerning the marketing and promotion of our products and product liability claims.

We are involved in a number of legal actions relating to the use of our Helium Plasma technology.

4 unchanged sentences

However, in the event that damages exceed the aggregate coverage limits of our policies or if our insurance carriers disclaim coverage, we believe it is possible that costs associated with these claims could have a material adverse impact on our consolidated results of operations, financial position or cash flows.

In addition, as previously disclosed with the U.S.

Securities and Exchange Commission on the Company’s Report on Form 8-K filed April 26, 2019, on April 17, 2019, a complaint (the “Complaint”) was filed in the United States District Court for the Middle District of Florida by plaintiff Kyle Pritchard, individually and on behalf of all others similarly situated against the Company and Charles D.

Goodwin (“Goodwin”), the Company’s President and Chief Executive Officer and a member of the Company’s Board of Directors, alleging certain violations of the Securities Exchange Act of 1934, as amended.

On July 16, 2019, the Court appointed a lead plaintiff for the putative class and approved the lead plaintiff’s selection of counsel.

On or about September 3, 2019, Plaintiff filed an amended complaint (the “Amended Complaint”) with the Court.

On April 17, 2019, a complaint (the “Complaint”) was filed in the United States District Court for the Middle District of Florida, against the Company and Charles D.

Goodwin, the Company’s President and Chief Executive Officer and a member of the Company’s Board of Directors, alleging certain violations of the Securities Exchange Act of 1934, as amended.

On July 16, 2019, the Court appointed lead plaintiff for the putative class and approved the lead plaintiff’s selection of counsel.

On September 3, 2019, lead plaintiff filed an amended complaint (the “Amended Complaint”) with the Court.

The Amended Complaint seeks class action status on behalf of all persons and entities that acquired the Company’s securities between December 21, 2018 and April 1, 2019, and alleges violations by the Company and Goodwin of Sections 10(b) and 20(a)

2 unchanged sentences

of the Securities Exchange Act of 1934, as amended and Rule 10b-5 thereunder, primarily related to certain public statements concerning the Premarket Notification 510(k) submission made to the US Food and Drug Administration for a new indication for the Company’s J-Plasma® technology for use in dermal resurfacing procedures.

The Amended Complaint seeks an unspecified amount of compensatory damages, an award of interest, reasonable attorneys’ fees, expert fees and other costs, and equitable relief as the court may deem just and proper.

On October 3, 2019, the Company and Goodwin filed a Motion to Dismiss the Amended Complaint.

Plaintiff’s opposition to the motion to dismiss was served on November 4, 2019.

On March 11, 2020, the Court issued an order denying the Company’s motion to dismiss.

The Company intends to vigorously defend its interests against the allegations contained in the complaint.

Although the ultimate outcome of this matter cannot be determined with certainty, the Company believes that the allegations stated in the Amended Complaint are entirely without merit.

The Company and Goodwin intend to defend themselves vigorously in the suit.

In the opinion of management, such claims are adequately covered by insurance, however, in the event that damages exceed the aggregate coverage limits of our policy or if our insurance carriers disclaim coverage, we believe it is possible that costs associated with this claim could have a material adverse impact on our consolidated earnings, financial position or cash flows.

We initially accrued $500,000 for defense costs and upon the denial of the motion to dismiss, we accrued an additional $500,000 , which is our insurance deductible related to the matter.

$820,000 of the $1,000,000 is still accrued as of March 31, 2020.

On October 3, 2019, defendants filed a motion to dismiss the Amended Complaint, and on March 11, 2020, the Court denied that motion.

On July 10, 2020, the parties executed a settlement agreement, which is subject to Court approval.

The Court preliminarily approved the settlement on July 21, 2020.

The settlement agreement provides for the dismissal of the action with prejudice.

At June 30, 2020, approximately $ 670,000 of the $ 1,000,000 insurance deductible is unpaid and is included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

During July 2020, substantially all of the unpaid deductible was paid.

We accrue a liability in our consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated.

3 unchanged sentences

Purchase Commitments

At March 31, 2020 , we had purchase commitments totaling approximately $700,000 substantially all of which is expected to be purchased within the next six months.

At June 30, 2020 , we had purchase commitments totaling approximately $ 500,000 substantially all of which is expected to be purchased within the next six months.

China Joint Venture

In late 2019, we executed a joint venture agreement with our Chinese supplier.

The agreement requires the Company to make a capital contribution into the newly formed entity of approximately $0.4M .

We expect a portion of this capital contribution will be made by the end of 2020.

The agreement requires the Company to make a capital contribution into the newly formed entity of approximately $ 360,000 .

During July 2020, we funded approximately $ 150,000 of the commitment.

As of the date of these consolidated financial statements, the joint venture has not commenced principal operations.

APYX MEDICAL CORPORATION

10 unchanged sentences

Shilev was issued a note payable for $ 140,000 to be paid 5 years after the original purchase date, which is in October 2020.

The partner in our China joint venture is also a supplier of the Company.

During the six months ended June 30, 2020, we made purchases from this supplier of approximately $ 850,000 .

At June 30, 2020, we owed this supplier approximately $ 4,000 .

GEOGRAPHIC AND SEGMENT INFORMATION

7 unchanged sentences

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.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

(In thousands)

4 unchanged sentences

Interest expense

Other losses, net

Income tax benefit

Three Months Ended June 30, 2019

(In thousands)

Advanced Energy

Corporate & Other

Income (loss) from operations

Interest income

Other losses, net

Income tax expense

Six Months Ended June 30, 2020

(In thousands)

Advanced Energy

Corporate & Other

Income (loss) from operations

Interest income

Interest expense

Other income, net

Income tax benefit

Three Months Ended March 31, 2019

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Six Months Ended June 30, 2019

(In thousands)

3 unchanged sentences

Interest income

Other losses, net

Income tax expense

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

International sales represented approximately 27.6% of total revenues for the three months ended March 31, 2020, as compared with 30.5% of total revenues for the same prior year period.

International sales represented approximately 21.0 % and 24.6 % of total revenues for the three and six months ended June 30, 2020, respectively, as compared with 31.7 % and 31.2 % of total revenues for the same prior year period.

Substantially all of these sales are denominated in U.S.

1 unchanged sentence

Three Months Ended

Six Months Ended

(In thousands)

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements