Apyx Medical Corp 10-Q

ITEM 1. Financial Statements CONSOLIDATED BALANCE SHEETS (In thousands, except share data, Unaudited) June 30, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 46,156 $ 58,812 Trade accounts receivable, net of allowance of $760 and $273 6,306 7,987 Income tax receivables 6,443 426 Other receivables 1,671 1,233 Inventories, net of provision for obsolescence of $685 and $392 5,257 5,068 Prepaid expenses and other current assets 4,008 3,207 Total current assets 69,841 76,733 Property and equipment, net of accumulated depreciation and amortization of $4,702 and $4,403 6,440 6,618 Operating lease right-of-use assets 295 350 Finance lease right-of-use assets 691 653 Other assets 560 391 Total assets $ 77,827 $ 84,745 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,206 $ 2,438 Accrued expenses and other liabilities 6,911 9,396 Current portion of operating lease liabilities 112 108 Current portion of finance lease liabilities 266 229 Related party note payable 140 140 Total current liabilities 9,635 12,311 Long-term operating lease liabilities 177 235 Long-term finance lease liabilities 414 421 Other liabilities 765 519 Total liabilities 10,991 13,486 STOCKHOLDERS’ EQUITY Common stock, $0.001 par value; 75,000,000 shares authorized; 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 34 34 Additional paid-in capital 58,926 56,708 Retained earnings 7,876 14,517 Total stockholders’ equity 66,836 71,259 Total liabilities and stockholders’ equity $ 77,827 $ 84,745 The accompanying notes are an integral part of the consolidated financial statements. 3 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data, Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Sales $ 4,296 $ 6,649 $ 9,293 $ 12,278 Cost of sales 2,202 1,975 4,215 4,041 Gross profit 2,094 4,674 5,078 8,237 Other costs and expenses: Research and development 975 888 1,955 1,618 Professional services 1,658 1,661 4,047 3,779 Salaries and related costs 3,439 3,510 6,750 6,998 Selling, general and administrative 2,189 3,037 5,985 5,994 Total other costs and expenses 8,261 9,096 18,737 18,389 Loss from operations ( 6,167 ) ( 4,422 ) ( 13,659 ) ( 10,152 ) Interest income 7 403 223 826 Interest expense ( 8 ) — ( 14 ) — Other (loss) income, net ( 14 ) ( 200 ) 412 ( 495 ) Total other (loss) income, net ( 15 ) 203 621 331 Loss before income taxes ( 6,182 ) ( 4,219 ) ( 13,038 ) ( 9,821 ) Income tax (benefit) expense ( 1,492 ) 76 ( 6,397 ) 82 Net loss $ ( 4,690 ) $ ( 4,295 ) $ ( 6,641 ) $ ( 9,903 ) Earnings (loss) per Share: Basic and diluted $ ( 0.14 ) $ ( 0.13 ) $ ( 0.19 ) $ ( 0.30 ) The accompanying notes are an integral part of the consolidated financial statements. 4 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands, Unaudited) Three months ended June 30, 2019 and 2020 Common Stock Additional Paid-In Capital Retained Earnings Total Shares Par Value Balance March 31, 2019 33,891 $ 34 $ 54,182 $ 28,615 $ 82,831 Options exercised for cash 11 — 48 — 48 Stock based compensation — — 856 — 856 Shares issued on net settlement of stock options 17 — — — — Net loss — — — ( 4,295 ) ( 4,295 ) Balance June 30, 2019 33,919 34 $ 55,086 $ 24,320 $ 79,440 Balance March 31, 2020 34,184 $ 34 $ 57,829 $ 12,566 $ 70,429 Stock based compensation — — 1,097 — 1,097 Shares issued on net settlement of stock options 18 — — — — Net Loss — — — ( 4,690 ) ( 4,690 ) Balance June 30, 2020 34,202 $ 34 $ 58,926 $ 7,876 $ 66,836 Six months ended June 30, 2019 and 2020 Common Stock Additional Paid-In Capital Retained Earnings Total Shares Par Value Balance December 31, 2018 33,705 $ 34 $ 52,920 $ 34,223 $ 87,177 Options exercised for cash 29 — 115 — 115 Stock based compensation — — 2,051 — 2,051 Shares issued on net settlement of stock options 185 — — — — Net loss — — — ( 9,903 ) ( 9,903 ) Balance June 30, 2019 33,919 $ 34 $ 55,086 $ 24,320 $ 79,440 Balance December 31, 2019 34,170 $ 34 $ 56,708 $ 14,517 $ 71,259 Options exercised for cash 10 — 72 — 72 Stock based compensation — — 2,146 — 2,146 Shares issued on net settlement of stock options 22 — — — — Net loss — — — ( 6,641 ) ( 6,641 ) Balance June 30, 2020 34,202 $ 34 $ 58,926 $ 7,876 $ 66,836 The accompanying notes are an integral part of the consolidated financial statements. 5 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, Unaudited) Six Months Ended June 30, 2020 2019 Cash flows from operating activities Net loss $ ( 6,641 ) $ ( 9,903 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 439 316 Provision for inventory obsolescence 413 36 Stock based compensation 2,146 2,051 Unrealized gain on short term investments — ( 164 ) Provision (benefit) for allowance for doubtful accounts 486 ( 238 ) Changes in operating assets and liabilities: Trade receivables 1,195 ( 1,333 ) Prepaid expenses and other assets ( 7,427 ) ( 879 ) Inventories ( 571 ) ( 1,015 ) Accounts payable ( 232 ) 218 Accrued and other liabilities ( 2,241 ) 236 Net cash used in operating activities ( 12,433 ) ( 10,675 ) Cash flows from investing activities Purchases of property and equipment ( 184 ) ( 518 ) Purchases of marketable securities — ( 18,884 ) Proceeds from maturities of marketable securities — 80,726 Net cash (used in) provided by investing activities ( 184 ) 61,324 Cash flows from financing activities Proceeds from stock option exercises 72 115 Repayment of finance lease liabilities ( 120 ) — Net cash (used in) provided by financing activities ( 48 ) 115 Effect of exchange rates on cash 9 — Net change in cash, cash equivalents and restricted cash ( 12,656 ) 50,764 Cash, cash equivalents and restricted cash, beginning of period 58,812 16,596 Cash, cash equivalents and restricted cash, end of period $ 46,156 $ 67,360 Cash paid for: Interest $ 8 $ 14 Taxes 54 248 Non cash activities: Cashless exercise of stock options $ 49 $ 757 Right-of-use assets capitalized and lease liabilities recognized upon adoption of Topic 842 — 212 Right-of-use assets capitalized and lease liabilities recognized upon lease remeasurement — 207 Right-of-use assets capitalized and lease liabilities recognized upon execution of lease 150 — Transfer of other assets to fixed assets — 42 Transfer of inventory (to) from fixed assets ( 34 ) 262 The accompanying notes are an integral part of the consolidated financial statements. 6 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. BASIS OF PRESENTATION Unless the context otherwise indicates, the terms “Company,” “we,” “our,” “us,” “Apyx,” and similar terms refer to Apyx Medical Corporation and its consolidated subsidiaries. We are an advanced energy technology company with a passion for elevating people’s lives through innovative products in the cosmetic and surgical markets. Known for our innovative Helium Plasma Technology, Apyx is solely focused on bringing transformative solutions to the physicians and patients it serves. Our Helium Plasma Technology is marketed and sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market. Renuvion® offers plastic surgeons, fascial plastic surgeons and cosmetic physicians a unique ability to provide controlled heat to the tissue to achieve their desired results. The J-Plasma® system allows surgeons to operate with a high level of precision and virtually eliminating unintended tissue trauma. We also leverage our deep expertise and decades of experience in unique waveforms through original equipment manufacturing (OEM) agreements with other medical device manufacturers. In March 2020, the World Health Organization recognized the novel strain of coronavirus ("COVID-19"), as a pandemic. This pandemic has severely restricted the level of economic activity around the world. 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 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. 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. For a more complete discussion of significant accounting policies and certain other information, please refer to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 . These consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of consolidated operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. 7 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) NOTE 2. CHANGE IN ACCOUNTING POLICY During 2019, we began granting stock option awards deeper within the organization. We do not have sufficient experience with grants to these employees and we have experienced challenges in developing reliable forfeiture estimates at the grant date. Accounting for revising the forfeiture estimates has been burdensome. Accounting Standards Codification 718, Compensation-Stock Compensation, prescribes two methods for accounting for forfeitures on stock option awards, either the estimation method utilized by the Company previously, or by accounting for forfeitures as they occur. On January 1, 2020 we made an accounting policy election change and began accounting for forfeitures on stock option awards using actual forfeitures. This accounting policy election change was made on a retrospective basis. However, the changes to the current and prior periods were determined to be immaterial and there have been no changes to previously reported results as a result of the change. NOTE 3 . RECENT ACCOUNTING PRONOUNCEMENTS In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326). The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, contract assets, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update, as originally issued, was effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates , which deferred the effective dates of these standards for Smaller Reporting Companies until fiscal years beginning after December 15, 2022. The Company currently 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. 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): 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. The Company adopted the ASU on January 1, 2020. The amendment did not have an impact on our consolidated financial condition or results of operations. 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. 8 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) NOTE 4. INVENTORIES Inventories are stated at the lower of cost or net realizable values. Cost is determined on a first in, first out basis. Finished goods and work-in-process inventories include material, labor and overhead costs. Factory overhead costs are primarily allocated to inventory manufactured in-house based upon labor hours. Inventories consisted of the following: (In thousands) June 30, 2020 December 31, 2019 Raw materials $ 2,441 $ 2,935 Work in process 1,504 1,209 Finished goods 1,997 1,316 Gross inventories 5,942 5,460 Less: provision for obsolescence ( 685 ) ( 392 ) Inventories, net $ 5,257 $ 5,068 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. NOTE 5. ACCRUED EXPENSES AND OTHER CURRENT LIABILTIES Accrued expenses and other current liabilities consisted of the following: (in thousands) June 30, 2020 December 31, 2019 Accrued payroll 726 694 Accrued bonuses — 1,306 Accrued commissions 531 877 Accrued product warranties 439 452 Accrued insurance 626 1,170 Accrued professional fees 1,043 1,383 Joint and several payroll liability 1,045 1,045 Uncertain tax positions 1,573 1,491 Other accrued expenses and current liabilities 928 978 Total accrued expenses and other current liabilities $ 6,911 $ 9,396 9 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) NOTE 6. EARNINGS PER SHARE We compute basic earnings per share (“basic EPS”) by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period adjusted for other units required to be included in basic EPS. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. 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 June 30, Six Months Ended June 30, (in thousands, except per share data) 2020 2019 2020 2019 Numerator: Net loss $ ( 4,690 ) $ ( 4,295 ) $ ( 6,641 ) $ ( 9,903 ) Denominator: Weighted average shares outstanding - basic and diluted 34,186 33,384 34,181 33,363 Earnings (loss) per share: Basic and diluted $ ( 0.14 ) $ ( 0.13 ) $ ( 0.19 ) $ ( 0.30 ) Anti-dilutive instruments excluded from diluted loss per common share: Options 4,986 1,882 4,986 1,882 10 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) NOTE 7. STOCK-BASED COMPENSATION 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 $ 1,097,000 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: Number of options Weighted average exercise price Outstanding at December 31, 2019 3,966,858 $ 4.67 Granted 1,274,900 8.18 Exercised ( 44,381 ) 3.23 Canceled and forfeited ( 211,433 ) 7.51 Outstanding at June 30, 2020 4,985,944 $ 5.46 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 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. We calculated the fair value of issued options utilizing a Black Scholes model with an expected life calculated via the simplified method as we do not have sufficient history to determine actual expected life. 2020 Grants Option value $ 8.18 Risk-free rate 1.7 % Expected dividend yield — Expected volatility 65.9 % Expected term (in years) 6 NOTE 8. INCOME TAXES On March 27, 2020, the U.S. 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 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 income tax benefits of 11 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) 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 June 30, 2020. (in thousands) Gross Unrealized Tax Benefits Balance at January 1, 2020 $ 1,313 Additions of tax positions related to the current year — Additions of tax positions related to the prior year — Decreases for tax positions related to the prior year — Balance at June 30, 2020 $ 1,313 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. It is expected that all of the uncertain tax positions should be resolved by October 2022. NOTE 9. COMMITMENTS AND CONTINGENCIES Litigation The medical device industry is characterized by frequent claims and litigation, and we are and may become subject to various claims, lawsuits and proceedings in the ordinary course of our business. Such claims 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. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. We believe that such claims are adequately covered by insurance; however, in the case of one of our carriers, we are in a dispute regarding the total level of coverage available. Notwithstanding the foregoing, in the opinion of management, the Company has meritorious defenses and such claims are not expected, individually or in the aggregate, to result in a material, adverse effect on our financial condition. However, in the event that damages exceed the aggregate coverage limits of our policies or if our insurance carriers disclaim coverage, we believe it is possible that costs associated with these claims could have a material adverse impact on our consolidated results of operations, financial position or cash flows. 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) 12 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) 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. 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. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is recorded. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded, actual results may differ from these estimates. Purchase Commitments At 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 $ 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. 13 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) NOTE 10. RELATED PARTY TRANSACTIONS Several relatives of Nikolay Shilev, Apyx Bulgaria’s Managing Director, are considered related parties. Teodora Shileva, Mr. Shilev’s spouse, is an employee of the Company working in the accounting department. Antoaneta Dimitrova Shileva-Toromanova, Mr. Shilev’s sister, is the Manager of Production and Human Resources. Svetoslav Shilev, Mr. Shilev’s son, is an engineer in the quality assurance department. In addition, as part of the purchase of the Bulgaria manufacturing facility, Mr. Shilev was issued a note payable for $ 140,000 to be paid 5 years after the original purchase date, which is in October 2020. 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 . NOTE 11. GEOGRAPHIC AND SEGMENT INFORMATION Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors. Asset information is not reviewed by the chief operating decision maker by segment and is not available by segment, accordingly, we have not presented a measure of assets by segment. Our reportable segments are disclosed as principally organized and managed as two operating segments: Advanced Energy and OEM. "Corporate & Other" includes certain unallocated corporate and administrative costs which were not specifically attributed to any reportable segment. The OEM segment is primarily development and manufacturing contract and product driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred. 14 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Summarized financial information with respect to reportable segments is as follows: Three Months Ended June 30, 2020 (In thousands) Advanced Energy OEM Corporate & Other Total Sales $ 2,867 $ 1,429 $ — $ 4,296 Income (loss) from operations ( 3,292 ) 584 ( 3,459 ) ( 6,167 ) Interest income — — 7 7 Interest expense — — ( 8 ) ( 8 ) Other losses, net — — ( 14 ) ( 14 ) Income tax benefit — — ( 1,492 ) ( 1,492 ) Three Months Ended June 30, 2019 (In thousands) Advanced Energy OEM Corporate & Other Total Sales $ 5,350 $ 1,299 $ — $ 6,649 Income (loss) from operations ( 968 ) 136 ( 3,590 ) ( 4,422 ) Interest income — — 403 403 Other losses, net — — ( 200 ) ( 200 ) Income tax expense — — 76 76 Six Months Ended June 30, 2020 (In thousands) Advanced Energy OEM Corporate & Other Total Sales $ 6,853 $ 2,440 $ — $ 9,293 Income (loss) from operations ( 7,276 ) 831 ( 7,214 ) ( 13,659 ) Interest income — — 223 223 Interest expense — — ( 14 ) ( 14 ) Other income, net — — 412 412 Income tax benefit — — ( 6,397 ) ( 6,397 ) 15 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Six Months Ended June 30, 2019 (In thousands) Advanced Energy OEM Corporate & Other Total Sales $ 9,721 $ 2,557 $ — $ 12,278 Income (loss) from operations ( 4,296 ) 727 ( 6,583 ) ( 10,152 ) Interest income — — 826 826 Other losses, net — — ( 495 ) ( 495 ) Income tax expense — — 82 82 16 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) 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. dollars. Revenue by geographic region, based on the customer's “ship to” location on the invoice, are as follows: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 Sales by Domestic and International Domestic $ 3,393 $ 4,540 $ 7,011 $ 8,450 International 903 2,109 2,282 3,828 Total $ 4,296 $ 6,649 $ 9,293 $ 12,278 17 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited)