What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-31 compared with 2020-03-31 · 343 added, 824 removed, 364 unchanged (76% of the section changed)

1 unchanged sentence

INDEX TO FINANCIAL INFORMATION

Reports of Independent Registered Certified Public Accounting Firms

Report of Independent Registered Public Accounting Firm 30

Consolidated Balance Sheets at December 31, 2020 and 2019

Consolidated Statements of Operations for the years ended December 31, 2020 and 2019

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Changes in Equity for the years ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Apyx Medical Corporation

Clearwater, Florida

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Apyx Medical Corporation (the “Company”) as of December 31, 2019, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for year ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for year ended December 31, 2019 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 31, 2020 expressed an adverse opinion thereon.

Change in Accounting Principle

As discussed in Notes 3 and 9 to the consolidated financial statements, effective January 1, 2019, the Company adopted Accounting Standards Codification Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements 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 the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2019.

Tampa, Florida

March 31, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Apyx Medical Corporation

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Apyx Medical Corporation (formerly Bovie Medical Corporation) and subsidiaries (the "Company") as of December 31, 2018, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ended December 31, 2018 and 2017, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of their operations and cash flows for the years ended December 31, 2018 and 2017, in conformity with accounting principles generally accepted in the United States of America.

Restatement to Correct 2018 Misstatements

As discussed in Note 4 to the consolidated financial statements, the 2018 financial statements have been restated to correct misstatements.

To the Stockholders and the Board of Directors of Apyx Medical Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Apyx Medical Corporation and its subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Frazier & Deeter, LLC

Tampa, Florida

March 13, 2019 (March 31, 2020 as to the effects of the restatement discussed in Note 4)

We served as the Company's auditor from 2007 to 2018.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

Apyx Medical Corporation

Clearwater, Florida

Opinion on Internal Control over Financial Reporting

We have audited Apyx Medical Corporation’s (the “Company’s”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2019, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as “the financial statements”)” and our report dated March 31, 2020 expressed an unqualified opinion thereon.

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 Item 9A, Controls and Procedures.

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 U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting 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, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

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 described in management’s assessment:

1) an ineffective control environment requiring additional qualified accounting personnel with an appropriate level of knowledge and experience with generally accepted accounting principles;

2) ineffective control activities due to the lack of documentation and timeliness in executing certain business process controls, specifically related to procure to pay and inventory processes and footnote reporting disclosures related to income tax accounts, primarily related to the Company’s United States Operations;

and 3) ineffective control environment and control activities in the Company’s Bulgarian subsidiary relating to the purchasing of goods and services, including the processing and payment of vendor invoices.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 financial statements, and this report does not affect our report dated March 31, 2020 on those financial statements.

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 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 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.

/s/ BDO USA, LLP

Tampa, Florida

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ RSM US LLP

We have served as the Company's auditor since 2020.

Orlando, Florida

March 31, 2021

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(In thousands, except share and per share data)

December 31, 2018 as Restated

2020 December 31, 2019

Current assets:

Cash and cash equivalents $ 41,915 $ 58,812

Short term investments

Trade accounts receivable, net of allowance of $ 300 and $ 273

Income tax receivables 7,654 426

Other receivables 1,275 1,233

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Finance lease right-of-use assets 437 653

LIABILITIES AND STOCKHOLDERS’ EQUITY

Other assets 807 391

Total assets $ 74,111 $ 84,745

LIABILITIES AND EQUITY

Current liabilities:

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Total current liabilities 9,153 12,311

Related party note payable

Long-term operating lease liabilities 129 235

Long-term finance lease liabilities 183 421

Contract liabilities 621 405

Other liabilities 166 114

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COMMITMENTS AND CONTINGENCIES (NOTE 18)

STOCKHOLDERS' EQUITY

Common stock, $ 0.001 par value;

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Total stockholders’ equity 63,721 71,259

Total liabilities and stockholders’ equity

Non-controlling interest 138 —

Total equity 63,859 71,259

Total liabilities and equity $ 74,111 $ 84,745

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

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Year Ended December 31,

2018 as Restated

Sales $ 27,711 $ 28,235

Cost of sales 10,207 9,141

Gross profit 17,504 19,094

Other costs and expenses:

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Selling, general and administrative 11,687 13,700

Severance and related expense

Total other costs and expenses 37,587 39,963

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Interest expense ( 46 ) ( 8 )

Other losses, net

Change in fair value of derivative liabilities

Other income (loss), net 479 ( 351 )

Total other income, net 674 1,033

Loss from continuing operations before income taxes

Loss from operations before income taxes ( 19,409 ) ( 19,836 )

Income tax benefit ( 7,503 ) ( 130 )

Net loss from continuing operations

Income from discontinued operations, net of tax

Gain on sale of the Core Business, net of tax

Total income from discontinued operations, net of tax

Net income (loss)

Loss per share from continuing operations

Net loss ( 11,906 ) ( 19,706 )

Net loss attributable to non-controlling interest ( 10 ) —

Net loss attributable to stockholders $ ( 11,896 ) $ ( 19,706 )

Loss per share

Basic and Diluted $ ( 0.35 ) $ ( 0.58 )

Income per share from discontinued operations

Income (loss) per share from all operations

Weighted average number of shares outstanding basic

Weighted average number of shares outstanding diluted

Weighted average number of shares outstanding - basic and diluted 34,212 34,069

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

APYX MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands)

Preferred Stock

Additional Paid-In Capital

Retained Earnings (Accumulated Deficit)

Total Stockholders' Equity

Shares Par Value Additional Paid-In Capital Retained Earnings Non-controlling interest equity Total Equity

December 31, 2018 33,705 $ 34 $ 52,920 $ 34,223 $ — $ 87,177

Conversion of Series B convertible preferred to common stock

Shares issued on stock options exercised for cash 61 — 207 — — 207

Stock based compensation — — 3,581 — — 3,581

Shares issued on net settlement of stock options 223 — — — — —

Shares issued on net settlement of warrants

Vested restricted stock issued 181 — — — —

Net loss — — — ( 19,706 ) — ( 19,706 )

December 31, 2019 34,170 $ 34 $ 56,708 $ 14,517 $ — $ 71,259

Options exercised for cash

Stock based compensation - as Restated

Shares issued on net settlement of stock options

Shares issued on net settlement of warrants

Net income - as Restated

December 31, 2018 - as Restated

Options exercised for cash

Contributions from non-controlling interest — — — — 148 148

Shares issued on stock options exercised for cash 27 — 148 — — 148

Stock based compensation — — 4,210 — — 4,210

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Vested restricted stock issued 45 — — — — —

Net loss — — — ( 11,896 ) ( 10 ) ( 11,906 )

December 31, 2020 34,289 $ 34 $ 61,066 $ 2,621 $ 138 $ 63,859

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Year Ended December 31,

2018 as Restated

Cash flows from operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Gain on sale of the Core Business, net of tax

Net loss $ ( 11,906 ) $ ( 19,706 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 887 754

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Stock based compensation 4,210 3,581

Change in fair value of derivative liabilities

Realized and unrealized gains on short term investments — ( 164 )

Provision (benefit) for allowance for doubtful accounts 262 ( 163 )

Benefit of deferred taxes

Changes in current assets and liabilities, net of effect of disposition:

Changes in current assets and liabilities:

Trade receivables ( 558 ) ( 3,970 )

Income tax receivables ( 7,228 ) 180

Prepaid expenses and other assets ( 27 ) ( 586 )

Inventories 615 ( 2,367 )

Accounts payable ( 965 ) 1,054

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Purchases of property and equipment ( 581 ) ( 1,301 )

Proceeds from the disposition of Core business

Purchases of marketable securities — ( 18,884 )

Proceeds of marketable securities — 80,726

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities ( 581 ) 60,541

Cash flows from financing activities

Proceeds from stock option exercises 148 207

Repayment of related party note payable ( 140 ) —

Repayment of finance lease liabilities ( 229 ) ( 60 )

Repayment of mortgage note payable

Net cash provided by (used in) financing activities

Contributions from non-controlling interests 148 —

Net cash (used in) provided by financing activities ( 73 ) 147

Effect of exchange rates on cash ( 177 ) 3

Net change in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Net change in cash and cash equivalents ( 16,897 ) 42,216

Cash and cash equivalents, beginning of year 58,812 16,596

Cash and cash equivalents, end of year $ 41,915 $ 58,812

Cash paid for:

Interest expense $ 46 $ 8

Non cash operating activities:

Income taxes 82 325

Non cash operating and investing activities:

Transfer of other assets to fixed assets $ — $ 42

Transfer of inventory to fixed assets 23 277

Non cash financing activities:

APYX MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cashless exercise of stock options/warrants

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

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DESCRIPTION OF BUSINESS

Apyx Medical Corporation (“Company”, “Apyx Medical”, “we”, “us”, or “our”), formerly known as Bovie Medical Corporation, 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.

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 we serve.

Our Helium Plasma Technology is marketed and sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market.

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 in the cosmetic and surgical markets.

Known for its innovative Helium Plasma Technology, Apyx is solely focused on bringing transformative solutions to the physicians and patients they serve.

It's 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.

The J-Plasma® system allows surgeons to operate with a high level of precision, virtually eliminating unintended tissue trauma.

The Company also leverages its deep expertise and decades of experience in unique waveforms through original equipment manufacturing (OEM) agreements with other medical device manufacturers.

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.

On August 30 th , 2018, we sold our Core business and discontinued those operations.

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.

The accompanying consolidated financial statements include the accounts of Apyx, its wholly owned subsidiary, Apyx Bulgaria, EOOD, and its 51 % owned subsidiary, Apyx SY Medical Devices (Ningbo) Co., Ltd.

(collectively, "Apyx," or the “Company”).

All significant intercompany transactions and balances have been eliminated in consolidation.

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.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company 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 the Company is required to make.

Cash and Cash Equivalents

Holdings of highly liquid investments with original maturities of three months or less from the date of purchase are considered to be cash equivalents.

Short-term Investments

Our short-term investments principally consisted 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 one year from the purchase date.

Marketable securities less than or equal to three months are identified as cash equivalents while marketable securities with a maturity duration over three months are considered short term investments.

Currently all of our US Treasury Bills have original maturities of three months or less and are included in cash and cash equivalents.

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 in interest income.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Fair Values of Financial Instruments and Concentration of Credit Risk

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.

Accounts Receivable and Allowance for Doubtful Accounts

Our standard credit terms for our billings range from net 10 days to net 90 days , depending on the customer agreement.

As of December 31, 2020 and 2019, all of the Company’s U.S.

Treasury Bills have original maturities of three months or less and are included in cash and cash equivalents.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of trade accounts receivable.

With respect to cash, the Company frequently maintains cash and cash equivalent balances in excess of federally insured limits;

it has not experienced any losses in such accounts.

Trade Accounts Receivable and Allowance for Doubtful Accounts

The Company's standard credit terms for 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 and prevailing economic conditions.

Customary collection efforts are initiated, and receivables are written off when the Company determines they are not collectible and abandons these collection efforts.

The Company evaluates the allowance for doubtful accounts on a regular basis for adequacy based upon its periodic review of the collectability of the receivables in light of historical experience, adverse situations that may affect its customers’ ability to pay 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 $0.3 million and $0.4 million at December 31, 2019 and 2018 , respectively, are, or were, adequate to provide for possible bad debts.

Management believes that the allowances for doubtful accounts of approximately $ 0.3 million at December 31, 2020 and 2019, are adequate to provide for possible bad debts.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Inventories are stated at the lower of cost or net realizable value.

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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.

Factory overhead costs are allocated to manufactured inventory based upon labor hours.

The Company monitors inventory usage to determine if the carrying value of any items should be adjusted due to lack of demand for the item and adjusts inventory for estimated obsolescence or unusable inventory equal to the difference between the cost of inventory and the estimated net realizable 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.

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The estimated useful lives are:

buildings and improvements, 39 years;

machinery and equipment, 3 - 10 years;

buildings, 39 years ;

molds, 7 - 15 years ;

furniture and fixtures, 5 - 10 years;

and computer equipment and software, 3 - 5 years .

Goodwill of $0.2 million resulted from our acquisition of Apyx Bulgaria, EOOD and is included in other assets in the Company's consolidated balance sheets.

computer equipment and software, 3 - 5 years;

and molds, 7 - 15 years.

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.

The Company reviews 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.

1 unchanged sentence

Any impairment losses are not restored in the future if the fair value increases.

At December 31, 2019 , we believe the remaining carrying values of our long-lived assets are recoverable.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

At December 31, 2020, the Company believes the remaining carrying values of its long-lived assets are recoverable.

Product Warranties

We provide a four years limited warranty on end-user sales of our Renuvion®/J-Plasma® generators, a two years warranty on mounting fixtures, and a one year warranty on some accessories.

We estimate and provide for future costs for product warranties in cost of sales at the time revenue is recognized.

We base product warranty costs on related material costs, repair labor costs and shipping costs.

We estimate the future cost of product warranties by considering historical material, repair labor, and shipping costs, and applying the experience rates to the outstanding warranty period for products sold.

The Company provides a four year limited warranty on end-user sales of its Renuvion®/J-Plasma® generators, a two year warranty on mounting fixtures, and a one-year warranty on certain accessories.

The Company estimates and provides for future costs for product warranties in cost of sales at the time revenue is recognized.

The Company bases its product warranty costs on related material costs, repair labor costs and shipping costs.

The Company estimates the future cost of product warranties by considering historical material, repair labor, and shipping costs, and applying the experience rates to the outstanding warranty period for products sold.

It is reasonably possible that actual results could differ from those estimates.

Revenue Recognition

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.

Management performed an evaluation to determine the effects of adopting ASC 606 and we determined that the adoption and the application of the transition requirements of the new standard presented no material impact on our consolidated financial statements, and no entry was recorded to opening retained earnings.

We have disaggregated revenue by segment and geography in Note 20 Geographic and Segment Information.

Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that we expect to receive for those goods or services.

To recognize revenue, we (i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when, or as, we satisfy the performance obligation(s).

For sales of our Advanced Energy products (Renuvion®/J-Plasma®), this is at a point in time when title has been transferred to the customer, which is generally at the time of shipment or receipt by customer for FOB destination terms.

For sales of products under our OEM agreements, the Company recognizes revenue over time when no alternative use exists for the manufactured goods and the Company has rights to payment.

Presently, the Company does not stock any significant completed goods under our OEM agreements, accordingly, the recognition of revenue under these agreements approximates point in time recognition.

The following policies apply to our major categories of revenue transactions:

The majority of our sales to customers are evidenced by firm purchase orders.

Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that the Company expects to receive for those goods or services.

To recognize revenue, the Company (i) identifies the contract(s) with a customer;

(ii) identifies the performance obligations in the contract;

(iii) determines the transaction price;

(iv) allocates the transaction price to the performance obligations in the contract;

and (v) recognizes revenue when, or as, it satisfies the performance obligation(s).

For sales of the Company's Advanced Energy products (Renuvion®/J-Plasma®), this is at a point in time when title has been transferred to the customer, which is generally at the time of shipment or receipt by customer for FOB destination terms.

For sales of products under its OEM agreements, the Company recognizes revenue over time when no alternative use exists for the manufactured goods and the Company has rights to payment.

Presently, the Company does not stock any significant completed goods under its OEM agreements, accordingly, the recognition of revenue under these agreements approximates point in time recognition.

The following policies apply to its major categories of revenue transactions:

• The majority of 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”.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

• Product returns are only accepted at the Company's discretion and in accordance with its “Returned Goods Policy”.

Historically, the level of product returns has not been significant.

We accrue for sales returns, rebates and allowances as a reduction of revenue 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.

Accruals for sales returns, rebates and allowances are made as a reduction of revenue based upon an analysis of historical customer returns and credits, rebates, discounts and current market conditions.

• The 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.

In connection with the execution of our OEM supply agreements, the Company may enter into an accompanying product development agreement.

• In connection with the execution of OEM supply agreements, the Company may enter into an accompanying product development agreement.

If the Company enters into a product development agreement, and development of the goods does not represent a performance obligation on a standalone basis, the Company defers the development fees billed to customers and the associated costs.

Recognition of the revenues and cost of sales occurs as revenue is recognized on the accompanying supply agreement.

At December 31, 2019, the Company had recorded approximately $0.4 million of contract liabilities and $0.1 million of contract assets related to the deferral of revenues and expenses under these agreements.

At December 31, 2020 and 2019, respectively, the Company had recorded approximately $ 0.6 million and $ 0.4 million of contract liabilities and $ 0.2 million and $ 0.1 million of contract assets related to the deferral of revenues and expenses under these agreements.

Recognition of the deferred billings and costs will occur as the Company performs on the accompanying supply arrangements.

Advertising Costs

All advertising costs are expensed as incurred.

The amounts of advertising costs, including trade shows, were approximately $1.5 million , $0.8 million and $1.1 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Advertising costs are expensed as incurred.

The amounts of advertising costs, including trade shows, were approximately $ 0.8 million and $ 1.5 million for the years ended December 31, 2020 and 2019, 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, directors and non-employees based upon the awards’ grant date fair value.

The Company currently accounts for forfeitures using the estimate method.

The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation .

FASB ASC 718 requires recognizing compensation expense for all share-based payment awards made to employees, directors and non-employees based upon the awards’ grant date fair value.

It accounts for forfeitures as they occur.

The standard covers employee stock options, restricted stock and other equity awards.

We currently utilize a Black-Scholes model and in prior years utilized a trinomial lattice option-pricing model to estimate the grant date fair value of stock option awards.

For employee and director awards compensation cost is recognized on a straight-line basis over the awards’ vesting periods.

For non-employee awards, compensation cost is recorded for non-forfeitable fully vested awards at the grant date.

The Company utilizes a Black-Scholes model to estimate the grant date fair value of stock option awards.

For employee and director awards, compensation expense is recognized on a straight-line basis over the vesting periods.

For non-employee awards, compensation expense is recorded for non-forfeitable, fully vested awards at the grant date.

For other awards granted to non-employees, compensation cost is recognized as services are provided, which approximates a straight-line basis over the vesting period.

Litigation Contingencies

In accordance with authoritative guidance, 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.

In accordance with authoritative guidance, the Company accrues a liability in its consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated.

If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued.

3 unchanged sentences

Income (Loss) Per 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 stock method which reduces the effective number of shares by the amount of shares we could purchase with the proceeds of assumed exercises.

The Company computes basic (loss) earnings attributable to common stockholders per share by dividing net (loss) income attributable to common stockholders by the weighted average number of common shares outstanding for the reporting period.

Diluted (loss) earnings per share attributable to common stockholders gives effect to all potential dilutive shares outstanding during the period.

The number of dilutive shares is calculated using the treasury stock method which reduces the effective number of shares by the amount of shares the Company could purchase with the proceeds of assumed exercises.

Anti-dilutive units are excluded from the calculation of diluted shares.

In periods of loss, all potentially dilutive units are anti-dilutive and are excluded from the calculation of diluted income (loss) per share.

Research and Development Costs

Research and development expenses are charged to operations as incurred.

We have expended approximately $3.7 million and $2.5 million and $1.9 million for the years ended 2019 , 2018 and 2017 respectively.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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.

The Company accounts for interest and penalties on income taxes as income tax expense.

2 unchanged sentences

As of December 31, 2020 and 2019, the Company recorded a valuation allowance on the net deferred tax asset.

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 2019, the Company will continue to record a valuation allowance on the remaining deferred tax assets balance as of December 31, 2019.

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.

The Company assesses the realizability 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 2020, the Company will continue to record a full valuation allowance on the net deferred tax assets as of December 31, 2020.

As a result of the CARES ACT, during 2020, the Company released the valuation allowance on the Federal NOLs that can now be carried back to prior taxable years.

The Company assesses 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.

Foreign Currency Transactions

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The functional currency of Apyx Bulgaria is the U.S.

4 unchanged sentences

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in selling, general and administrative expenses in the Consolidated Statements of Operations and were not material for the years ended December 31, 2020 and 2019.

Reclassifications

We have reclassified certain amounts presented in prior years to conform to the current year presentation.

These reclassifications had no impact on previously reported net income, retained earnings or operating cash flows for the periods presented.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).

Topic 842 establishes a new lease model, referred to as the right-of-use model that brings substantially all leases on the balance sheet.

This standard requires lessees to recognize leased assets and lease liabilities on the balance sheet and disclose key information about the leasing arrangements in their financial statements.

Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.

The Company adopted Topic 842 effective January 1, 2019 using the modified retrospective transition approach that allows a reporting entity to use the effective date as its date of initial application and not restate the comparative periods in the period of adoption when transitioning to the new standard.

Consequently, the requisite financial information and disclosures under the new standard are excluded for dates and periods prior to January 1, 2019.

In addition, the Company elected to use a number of optional simplification and practical expedients permitted under the transition guidance within the new standard, including allowing the Company to combine fixed lease and non-lease components, apply the short-term lease exception to all leases of one year or less, and utilize the ‘package of practical expedients’, which permits the Company to not reassess prior accounting conclusions with respect to lease identification, lease classification and initial direct costs under Topic 842.

Adoption of this new standard resulted in the recognition of approximately $212,000 of operating lease liabilities and right-of-user assets, which represents the present value of the remaining lease payments at the adoption date of approximately $221,000 , discounted using the Company’s incremental borrowing rate of 4.00% .

Please see Note 9 for a full discussion of the impacts of adoption on the current year consolidated financial statements.

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

Throughout 2019, the Company has been making efforts to remediate its material weaknesses in internal control as of December 31, 2018, including investing in new personnel that have expertise in a broad array of accounting topics.

As a result of these investments and remediation efforts, the Company reevaluated the accounting for a broad array of items and discovered numerous immaterial errors.

On March 12, 2020, our Management and the Audit Committee of the Board of Directors, following discussion with our predecessor independent registered public accounting firm, concluded that the Company's previously filed financial statements for the twelve months ended December, 31 2018 and the quarterly statements for the three and nine months ended September 30, 2018 and three months ended March 31, 2019, were no longer able to be relied upon as the result of the aggregation of errors identified by Management and the Company’s new accounting personnel during 2019 related to the following:

As identified during preparation of the fiscal year 2019 Form 10-K:

The Company reevaluated its subsidiary consolidation process and discovered an inaccuracy in its accounting for the elimination of markup on intercompany sales.

This resulted in the Company incorrectly including the markup in US inventory purchased from Apyx Bulgaria and resulted in an overstatement of cost of sales and a corresponding understatement of other costs and expenses when the inventory was sold, which did not have any impact on net income (loss) or financial position.

For the three months ended March 31, 2019, the total impact included increases to both gross profit and to operating expenses of approximately $113,000 .

During the first quarter of 2020, while reconciling the 2019 income tax provision back to the corresponding records, we determined that when employees exercised non-qualified stock options, we did not collect and remit the employee’s income and payroll taxes on the exercises and did not accrue and remit the employer portion of payroll taxes.

Due to statutory requirements, we have joint and several liability on the amounts that we did not withhold from employees and remit to the proper taxing authorities.

While further investigating the issue, we determined that during 2018 we did not report the correct amount of income to employees on their form W-2 for both non-qualified and incentive stock option exercises and misclassified some non-qualified stock option exercises as incentive stock option exercises.

For the three and nine months ended September 30, 2018 and year ended December 31, 2018, the total aggregated impact included an increase of approximately $51,000 to operating expenses, an increase of approximately $713,000 to other losses and an increase to net loss of approximately $764,000 .

For the three months ended March 31, 2019, the total aggregated impact included an increase to operating expenses of $16,000 , an increase of approximately $301,000 to other losses and an increase to net loss of approximately $317,000 .

Other minor items primarily related to the appropriate cutoff of transactions at the balance sheet date and the duplicate recording of a State income tax payment.

For the three and nine months ended September 30, 2018, the total aggregated impact included an increase of approximately $59,000 to operating expenses, operating loss and net loss.

For the year ended December 31, 2018, the total aggregated impact included a decrease to sales of $81,000 , an increase to gross profit of $33,000 , a decrease to operating income from continuing operations of $74,000 and a decrease to net loss from continuing operations of $56,000 .

For the three months ended March 31, 2019, the total aggregated impact included a decrease to operating loss of $90,000 and an increase to net loss of $40,000 .

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

As previously disclosed and adjusted in Form 10-Q for the three and nine months ended September 2019 filed on November 11, 2019:

The Company reevaluated its accounting for stock-based compensation expense and during the three months ended September 30, 2019, the Company discovered errors in its accounting for certain items included in stock-based compensation expense.

These errors related to its accounting for forfeitures, the vesting periods over which the expense was recognized, modifications, fair value measurements, and other minor miscellaneous items, all of which relate to the prior year.

Additionally, the Company identified an issue relating to grants in the first quarter of 2019, whereby compensation was not recognized over the correct vesting period.

For the year ended December 31, 2018, the total impact included increases to operating expenses, operating loss and net loss of approximately $582,000 each.

For the three months ended March 31, 2019, the total impact included increases to operating expenses, operating loss and net loss of approximately $453,000 each.

During the three months ended September 30, 2019, the Company reevaluated its accounting for pre-development activities on certain OEM contracts.

In performing the review, the Company determined that the it has not completed its performance obligations on its pre-development activities in these contracts.

Accordingly, the Company determined that it had prematurely recognized revenues during the first quarter relating to these activities and did not defer the accompanying costs.

For the three months ended March 31, 2019, the total impact included decreases to sales of approximately $194,000 , decreases to operating expenses of approximately $77,000 and increases to both operating loss and net loss of approximately $117,000 .

The Company has made all of the restatement adjustments as of and for the year ending December 31, 2018 in the accompanying consolidated financial statements presented here.

The Company will file 10-Q/A's for the three and nine months ended September 30, 2018 and the three months ended March 31, 2019 as soon as practicable.

A reconciliation of the originally reported amounts to the restated amounts for the adjustments noted above for each of the affected periods is presented below.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Consolidated Balance Sheet as of September 30, 2018:

(In thousands)

As Originally Reported

Current assets:

Cash and cash equivalents

Short term investments

Trade accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Other assets*

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Total current liabilities

Related party note payable

Total liabilities

STOCKHOLDERS' EQUITY

Common stock, $0.001 par value;

75,000,000 shares authorized;

33,763,019 issued and 33,620,444 outstanding

Additional paid-in capital

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

* The Company has condensed the presentation of amounts presented in the balance sheet to conform to presentation guidelines.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Consolidated Statement of Operations for the three months ended September 30, 2018:

(In thousands)

As Originally Reported

Cost of sales

Other costs and expenses:

Research and development

Professional services

Salaries and related costs

Selling, general and administrative

Total other costs and expenses

Loss from operations

Interest income (expense), net

Total other losses, net

Loss from continuing operations before income taxes

Income tax benefit

Net loss from continuing operations

Income from discontinued operations, net of tax

Gain on sale of the Core Business, net of tax

Total income from discontinued operations, net of tax

Net income (loss)

Loss per share from continuing operations

Basic and Diluted

Income per share from discontinued operations

Income (loss) per share from all operations

Weighted average number of shares outstanding basic

Weighted average number of shares outstanding diluted

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Consolidated Statement of Operations for the nine months ended September 30, 2018:

(In thousands)

As Originally Reported

Cost of sales

Other costs and expenses:

Research and development

Professional services

Salaries and related costs

Selling, general and administrative

Total other costs and expenses

Loss from operations

Interest income (expense), net

Change in fair value of derivative liabilities

Total other losses, net

Loss from continuing operations before income taxes

Income tax benefit

Net loss from continuing operations

Income from discontinued operations, net of tax

Gain on sale of the Core Business, net of tax

Total income from discontinued operations, net of tax

Net income (loss)

Loss per share from continuing operations

Basic and Diluted

Income per share from discontinued operations

Income (loss) per share from all operations

Weighted average number of shares outstanding basic

Weighted average number of shares outstanding diluted

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Consolidated Balance Sheet as of December 31, 2018:

(In thousands)

As Originally Reported

Current assets:

Cash and cash equivalents

Short term investments

Trade accounts receivable, net**

Other receivables**

Inventories, net**

Prepaid expenses and other current assets**

Total current assets

Property and equipment, net

Other assets*

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities*

Total current liabilities

Related party note payable

Total liabilities

STOCKHOLDERS' EQUITY

Common stock, $0.001 par value;

75,000,000 shares authorized;

33,847,100 issued and 33,704,525 outstanding

Additional paid-in capital

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

* The Company has condensed the presentation of amounts presented in the balance sheet to conform to presentation guidelines.

** The Company has reclassified balances to conform to current presentation.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Consolidated Statement of Operations for the year ended December 31, 2018:

(In thousands)

As Originally Reported

Cost of sales

Other costs and expenses:

Research and development

Professional services

Salaries and related costs

Selling, general and administrative

Severance and related expense

Total other costs and expenses

Loss from operations

Interest income

Interest expense

Change in fair value of derivative liabilities

Total other income (losses), net

Loss from continuing operations before income taxes

Income tax benefit

Net loss from continuing operations

Income from discontinued operations, net of tax

Gain on sale of the Core Business, net of tax

Total income from discontinued operations, net of tax

Net income (loss)

Loss per share from continuing operations

Basic and Diluted

Income per share from discontinued operations

Income (loss) per share from all operations

Weighted average number of shares outstanding basic

Weighted average number of shares outstanding diluted

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Consolidated Balance Sheet as of March 31, 2019:

(In thousands)

As Originally Reported

Current assets:

Cash and cash equivalents

Short term investments

Trade accounts receivable, net**

Other receivables**

Inventories, net**

Prepaid expenses and other current assets**

Total current assets

Property and equipment, net**

Operating lease right-of-use assets**

Other assets*

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities*

Current portion of operating lease liabilities**

Total current liabilities

Related party note payable

Long-term portion of operating lease liabilities

Other long-term liabilities

Total liabilities

STOCKHOLDERS' EQUITY

Common stock, $0.001 par value;

75,000,000 shares authorized;

34,033,255 issued and 33,891,255 outstanding

Additional paid-in capital

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

* The Company has condensed the presentation of amounts presented in the balance sheet to conform to presentation guidelines.

** The Company has reclassified balances to conform to current presentation.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Consolidated Statement of Operations for the three months ended March 31, 2019:

(In thousands)

As Originally Reported

Cost of sales

Other costs and expenses:

Research and development

Professional services

Salaries and related costs

Selling, general and administrative

Total other costs and expenses

Loss from operations

Interest income

Total other losses, net

Loss from continuing operations before income taxes

Income tax (benefit) expense

Loss per share

Basic and Diluted

Weighted average number of shares outstanding basic and diluted

As a part of the efforts discussed in Note 4, the Company discovered additional errors in the consolidated financial statements for the three and six months ended June 30, 2019 and the three and nine months ended September 30, 2019.

The Company has determined that the aggregated effects of correcting these errors are immaterial to the financial statements for the three and six month periods ending June 30, 2019 and the three and nine months ended September 30, 2019 but would materially misstate the three month period ended December 31, 2019 if recorded then, and has accordingly corrected the errors by revising the previously reported amounts for the three and six month periods ended June 30, 2019 and the three and nine month period ended September 30, 2019 in the following tables.

The revised amounts below will be disclosed in the next filing discussing the periods that were subject to the revision.

A summary of the revisions as of each reporting period affected is as follows:

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three months ended June 30, 2019:

(In thousands)

Balance Sheet

Trade accounts receivable, net

Accrued and other liabilities

Retained earnings

Statement of Operations

Cost of sales

Professional services

Salaries and related costs

Selling, general and administrative

Loss per share - all

Gross profit %

[1] Adjustments relate to payroll tax corrections

[2] Adjustments relate to intercompany gross profit

[3] Other corrections primarily related to balance sheet cutoff

For the six months ended June 30, 2019:

(In thousands)

Balance Sheet

Trade accounts receivable, net

Accrued and other liabilities

Retained earnings

Statement of Operations

Cost of sales

Research and development

Professional services

Salaries and related costs

Selling, general and administrative

Other income (losses), net

Loss per share - all

Gross profit %

[1] Adjustments relate to payroll tax corrections

[2] Adjustments relate to intercompany gross profit

[3] Other corrections primarily related to balance sheet cutoff

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three months ended September 30, 2019:

(In thousands)

Balance Sheet

Accrued expenses and other liabilities

Retained earnings

Statement of Operations

Cost of sales

Research and development

Professional services

Salaries and related costs

Selling, general and administrative

Loss per share - all

Gross profit %

[1] Adjustments relate to payroll tax corrections

[2] Adjustments relate to intercompany gross profit

[3] Other corrections primarily related to balance sheet cutoff

For the nine months ended September 30, 2019:

(In thousands)

Balance Sheet

Accrued expenses and other liabilities

Retained earnings

Statement of Operations

Cost of sales

Research and development

Professional services

Salaries and related costs

Selling, general and administrative

Other income (losses), net

Loss per share - all

Gross profit %

[1] Adjustments relate to payroll tax corrections

[2] Adjustments relate to intercompany gross profit

[3] Other corrections primarily related to balance sheet cutoff

CHANGE IN ACCOUNTING POLICY

During 2019, the Company began granting stock option awards deeper within the organization.

It does not have sufficient experience with grants to these employees and has 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, the Company 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 period were determined to be immaterial and there have been no changes to previously reported results as a result of the change.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued 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 the Company is in the process of determining the effects of the adoption of the standard on the consolidated financial statements, it does not expect the impact to be material.

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on the Company's consolidated financial statements or disclosures.

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.

On August 30, 2018, the Company closed on a definitive asset purchase agreement (the "Asset Purchase Agreement") with Specialty Surgical Instrumentation Inc., a Tennessee Corporation and wholly owned subsidiary of Symmetry Surgical Inc.

(“Symmetry”), pursuant to which the Company divested and sold the Company's electrosurgical "Core" business segment and related intellectual property, including the Bovie ® brand and trademarks, to Symmetry for gross proceeds of $ 97 million in cash.

In connection with the Asset Purchase Agreement, 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 $0.1 million and $(0.2) million for 2019 and 2018, respectively.

Core activity in 2019 amounted to $9.4 million with cost of sales of $8.8 million and related operating expenses of $0.5 million .

Core activity in 2018 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

Closing and transaction costs

Net proceeds from sale of the Core Business before taxes

Non-cash commitment to provide inventory

Book value of the Core Business

Current assets:

Inventories, net

Prepaid expenses and other current assets

Total current assets

Property and equipment, net of depreciation

Brand name and trademark

Purchased technology and license rights, net of depreciation

Total non-current assets

Net gain on sale of the Core Business before taxes

Income tax expense

Net gain on sale of the Core Business after income taxes

Cash flows associated with discontinued operations are shown in the table below:

In connection with the Asset Purchase Agreement, the Company entered into an Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Symmetry for a four-year term, whereby it will manufacture certain Core products and sell them to Symmetry at agreed upon prices.

Any activity resulting from this agreement is netted and reported in the Consolidated Statements of Operations as other income (loss).

Core activity for 2020 amounted to $ 9.4 million with cost of sales equivalents of $ 8.1 million and other related expenses of $ 0.8 million for net other income of $ 0.5 million.

Core activity in 2019 amounted to $ 9.4 million with cost of sales equivalents of $ 8.8 million and related operating expenses of $ 0.5 million for net other income of $ 0.1 million.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(in thousands)

Net Income from discontinued operations

Depreciation and amortization

Change in current assets from discontinued operations

Change in non current assets from discontinued liabilities

Change in current liabilities from discontinued operations

Net cash provided by operating activities

INTEREST IN JOINT VENTURE INVESTMENT

In 2019, the Company executed a joint venture agreement with its Chinese supplier ("China JV").

The agreement requires the Company to make a capital contribution into the newly formed entity of approximately $ 357,000 , of which approximately $ 154,000 was contributed during the year ended December 31, 2020.

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

Changes in the Company's ownership interest in its 51 % owned China JV were as follows:

(In thousands) Year Ended

December 31, 2020

Beginning interest in China JV $ —

Contributions 154

Net loss attributable to Apyx ( 10 )

Ending interest in China JV $ 144

APYX MEDICAL CORPORATION

1 unchanged sentence

Inventories consisted of the following:

(In thousands)

December 31, 2018 as Restated

(In thousands) December 31,

2020 December 31, 2019

Raw materials $ 2,243 $ 2,935

4 unchanged sentences

Inventories, net $ 4,051 $ 5,068

During 2020, the Company reassessed its forecasted product mix due to COVID-19, increased availability of newer handpiece designs, and improved timing 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 down as the Company determined to cease further production on these older models.

The total impairment was approximately $ 400,000 and is included in cost of sales in the accompanying Consolidated Statement of Operations for 2020.

Later in 2020, the Company's forecasts were revised, and it subsequently utilized a portion of the written down components and approximately $ 100,000 of the impairment was recovered through the sale of the corresponding manufactured handpieces.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

(In thousands)

(In thousands) December 31,

2020 December 31,

Land $ 1,600 $ 1,600

Building and improvements 4,454 4,423

3 unchanged sentences

Leasehold improvements 156 156

Molds 813 805

Total property, plant and equipment 10,931 10,872

1 unchanged sentence

Property and equipment in service 6,118 6,469

Construction in process

Construction in progress 423 149

Property and equipment, net $ 6,541 $ 6,618

Total depreciation expense from continuing operations was $0.7 million , $0.4 million and $0.6 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Depreciation expense is included primarily within cost of goods sold in the consolidated statements of operations.

The Company does not recognize leases with terms less than twelve months in duration in our consolidated balance sheet as right-of-use assets and lease liabilities.

Leases with an initial term of 12 months or less or that have variable only payments are not recorded on the balance sheet.

Total depreciation expense was $ 0.7 million for the years ended December 31, 2020 and 2019.

Depreciation expense is included within cost of goods sold and selling, general and administrative expense in the Consolidated Statements of Operations.

The Company does not recognize leases with terms less than twelve months in duration, or that have variable only payments, in its Consolidated Balance Sheet as right-of-use assets and lease liabilities.

The Company has adopted the practical expedient which allows for the Company to not separate lease and non-lease components of contracts.

Accordingly, non-lease components are included in the measurement of the Company's leases and right-of-use assets.

Accordingly, non-lease components are included in the measurement of the Company's lease liabilities and right-of-use assets.

If the Company is aware of the implicit rate in leases, the Company determines the operating lease liability using the implicit rate.

For those leases where the Company is not aware of the implicit rate in the lease, the Company utilizes an incremental borrowing rate of 4.00% , which is indicative of our collateralized borrowing rate.

For those leases where the Company is not aware of the implicit rate in the lease, the Company utilizes an incremental borrowing rate of 4.00 %, which is indicative of its collateralized borrowing rate.

Operating Leases

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In accordance with operating lease guidance under Topic 842, the extension was accounted for as a lease modification and the right-of-use asset and lease liability were remeasured at the modification date.

The Company's operating leases have terms expiring through December 2022.

These operating leases have terms expiring through December 2022.

Finance Leases

During 2019, the Company entered into non-cancelable finance leases for certain computer equipment and a vehicle in Clearwater, Florida.

The Company's finance leases have terms expiring through August 2023.

These finance leases have terms expiring through August 2023.

Information about the Company’s lease costs are as follows:

Year Ended December 31, 2019

Lease costs (in thousands) :

6 unchanged sentences

Cash and non-cash information related to our leases are as follows:

December 31, 2020 Year Ended

December 31, 2019

(in thousands)

(in thousands) Operating Finance Operating Finance

Non cash information:

5 unchanged sentences

Information about the Company’s weighted average remaining lease terms and discount rate assumptions are as follows:

December 31, 2020 Year Ended

December 31, 2019

Operating Finance Operating Finance

Weighted average remaining lease term (in years) 2.0 1.7 3.0 2.7

1 unchanged sentence

Maturities of lease liabilities as of December 31, 2020 are as follows:

(In thousands)

(In thousands) Operating Finance

2021 $ 134 $ 236

Total lease payments 265 437

3 unchanged sentences

Long-term portion of lease liabilities $ 129 $ 183

ACCRUED EXPENSES AND OTHER CURRENT LIABILTIES

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

(in thousands)

December 31, 2019

December 31, 2018 as Restated

Accrued severance and related

(in thousands) December 31, 2020 December 31, 2019

Accrued payroll $ 808 $ 694

2 unchanged sentences

Accrued product warranties 498 452

Accrued insurance

Accrued product liability claim insurance deductibles 435 1,170

Accrued professional fees 222 1,383

1 unchanged sentence

Uncertain tax positions 1,658 1,491

Sales tax payable 591 492

Other accrued expenses and current liabilities 227 486

1 unchanged sentence

PRODUCT WARRANTIES

Our product warranty activity consisted of the following for the years ended:

(In thousands)

Product warranty activity consisted of the following for the years ended:

(In thousands) December 31,

2020 December 31,

Beginning balance $ 452 $ 348

3 unchanged sentences

JOINT AND SEVERAL PAYROLL LIABILITY

As discussed in Restatements (Note 4) and Revisions (Note 5), the Company did not report the correct amount of income to employees, nor did we collect and remit the employees' portion of income and payroll taxes, related to stock option exercises as required by the IRS.

Due to IRS statutory requirements, we have joint and several liability for the full amount that was not withheld and remitted to the proper taxing authorities.

This amount of the liability was approximately $1.0 million and $0.7 million at December 31, 2019 and 2018 respectively.

The Company has recognized these amounts in other income (losses), net in the accompanying Consolidated Statements of Operations.

If we can establish that our employees have in fact paid these obligations, either presently or in the future, we will be relieved of our liability.

During 2017, 2018 and 2019, the Company improperly calculated and reported the amount of income to certain employees, and did not collect and remit the correct amount of its employees' portion of income and payroll taxes, related to stock option exercises as required by the IRS.

Due to IRS statutory requirements, the Company has joint and several liability for the full amount that was not withheld and remitted to the proper taxing authorities.

This amount of the liability was approximately $ 1.0 million at December 31, 2020 and 2019.

Included in other income (loss), net in the accompanying Consolidated Statements of Operations for 2019 is approximately $ 0.3 million related to the liability.

If the Company can establish that its employees have in fact paid these obligations, either presently or in the future, it will be relieved of its liability.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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.

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“basic EPS”) is computed by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period.

Diluted earnings 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.

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

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

Year Ended December 31,

(in thousands, except per share data) 2020 2019

2018 as Restated

Net (loss) and numerator for dilutive (loss) per share - continuing operations

Numerator for dilutive income per share - discontinued operations

Net income (loss) from all operations

Derivative liability warrants

Numerator for full dilutive (loss) income per share - all

Denominator for dilutive income (loss) per common share - continuing operations

Denominator - discontinued operations:

Weighted average shares used to compute basic (loss)

Effect of dilutive securities:

Stock options

Denominator for dilutive income (loss) per common share - discontinued operations

Denominator - all operations:

Weighted average shares used to compute basic income (loss)

Effect of dilutive securities:

Derivative liability warrants

Stock options

Denominator for dilutive income (loss) per common share

Loss per share from continuing operations

Basic and diluted

Income per share from discontinued operations

Income (loss) per share from all operations

Anti-dilutive instruments excluded from diluted (loss) per common share - continuing operations:

Anti-dilutive instruments excluded from diluted income per common share - discontinued operations:

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Anti-dilutive instruments excluded from diluted income (loss) per common share - all operations:

Net loss attributable to stockholders $ ( 11,896 ) $ ( 19,706 )

Weighted average shares outstanding - basic and diluted 34,212 34,069

Loss per share - basic and diluted $ ( 0.35 ) $ ( 0.58 )

Anti-dilutive instruments excluded from diluted loss per common share:

Options 4,939 3,967

APYX MEDICAL CORPORATION

1 unchanged sentence

FINANCIAL INSTRUMENTS

Cash and Cash Equivalents at December 31, 2019, consists of approximately $2,237,000 in cash and $56,575,000 in US Treasury Securities with maturities of 3 months or less.

Cash, Cash Equivalents and Marketable Securities, as of December 31, 2018 consists of the following:

(In thousands)

Adjusted Cost

Unrealized Gains (3)

Fair Value (3)

Cash and Cash Equivalents (1)

Short-term Marketable Securities

Cash - As Restated

Treasury Securities, maturities less than three months

Treasury Securities, maturities greater than three months

(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.

Cash and Cash Equivalents at December 31, 2020 and 2019, respectively, consisted of approximately $ 2,250,000 and $ 2,237,000 in cash and $ 39,665,000 and $ 56,575,000 in U.S.

Treasury Securities with maturities of 3 months or less.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Components of the provision for income taxes from continuing operations are as follows:

(In thousands)

Components of the provision for income taxes are as follows:

(In thousands) December 31,

2020 December 31, 2019

Federal $ ( 3,682 ) $ ( 12 )

State ( 120 ) ( 205 )

Foreign ( 37 ) 87

( 3,839 ) ( 130 )

Release of valuation allowance due to CARES Act ( 3,664 ) —

( 7,503 ) ( 130 )

Federal ( 25 ) ( 3,989 )

State ( 1,004 ) ( 741 )

( 1,029 ) ( 4,730 )

Valuation allowance 1,029 4,730

Total provision for income tax from continuing operations

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:

Total provision for income tax $ ( 7,503 ) $ ( 130 )

Below is a reconciliation of the statutory federal income tax rate to the Company's effective tax rate:

Year Ended December 31,

1 unchanged sentence

State taxes (net of federal benefit) 5.1 % 4.3 %

Warrant gains

Valuation allowance ( 5.3 ) % ( 23.8 ) %

Change in federal tax rate

NOL carryback from CARES Act 18.9 % — %

Other ( 1.0 ) % ( 0.8 ) %

Total 38.7 % 0.7 %

Major components of the Company’s deferred tax assets (liabilities) are as follows:

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(In thousands)

(In thousands) December 31,

2020 December 31, 2019

Deferred tax assets:

Loss and credit carry-forwards

Loss and credit carryforwards $ 1,888 $ 4,779

Stock-based compensation 1,603 1,004

Inventory Reserve

Other 745 1,133

Total deferred tax assets 4,236 6,916

2 unchanged sentences

Deferred tax liabilities:

State taxes (capital)

Property and equipment ( 278 ) ( 245 )

Lease right-of-use assets

Other ( 121 ) ( 199 )

Total deferred tax liabilities ( 399 ) ( 444 )

Net deferred tax liabilities

We consider all positive and negative evidence regarding the realization of deferred tax assets, including past operating results and future sources of taxable income.

We consider the earnings of Apyx Bulgaria, EOOD to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings.

We have not recorded a deferred tax liability related to the U.S.

Net deferred tax assets $ — $ —

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, the Company generated a significant amount of taxable income in 2018.

Subsequent to this, the Company generated NOLs in 2019 and 2020.

For the NOLs generated in 2019, the Company previously recorded a full valuation allowance on the deferred tax assets associated with the NOL due to realization not being probable under then existing tax law.

The CARES Act makes these assets realizable and, as of the date of the CARES Act, the Company has recognized an income tax benefit of approximately $ 3.7 million associated with the release of the valuation allowance on its Federal NOL deferred tax asset from 2019.

Additionally, using the provisions of the CARES Act, the Company is carrying back its 2020 Federal NOL of approximately $ 3.7 million.

The Company considers all positive and negative evidence regarding the realization of deferred tax assets, including past operating results and future sources of taxable income.

The Company considers the earnings of Apyx Bulgaria, EOOD to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings.

It has not recorded a deferred tax liability related to the U.S.

Federal and State income taxes and foreign withholding taxes on the undistributed earnings of Apyx Bulgaria, EOOD indefinitely invested outside the United States.

If we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside the United States.

If it decides to repatriate the foreign earnings, the Company will need to adjust its income tax provision in the period it determines that the earnings will no longer be indefinitely invested outside the United States.

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, 2019 and 2018, we have reserved approximately $1.3 million of potential tax benefits and accrued approximately $0.2 million of interest and penalties on these positions.

It is expected that the amount of unrecognized tax benefit change within the next 12 months will not be significant.

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, 2019.

(in thousands)

Gross Unrealized Tax Benefits

Balance at January 1, 2019

As of December 31, 2020 and 2019, the Company has recorded a liability of approximately $ 1.3 million related to uncertain tax positions and accrued approximately $ 0.4 million and $ 0.2 million, respectively, of interest and penalties on these positions.

It is expected that the change in unrecognized tax benefits within the next 12 months will not be significant.

The following is a roll-forward of the Company's total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31:

(in thousands) Gross Unrealized Tax Benefits

Beginning of year balance $ 1,313 $ 1,313

Additions of tax positions related to the current year — —

1 unchanged sentence

Decreases for tax positions related to prior year — —

Balance at December 31, 2019

End of year balance $ 1,313 $ 1,313

APYX MEDICAL CORPORATION

12 unchanged sentences

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 for each of the years ended December 31, 2019 , 2018 and 2017 , respectively.

Matching contributions made by the Company totaled approximately $ 0.3 million for each of the years ended December 31, 2020 and 2019, respectively.

RELATED PARTY TRANSACTIONS

2 unchanged sentences

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.

Antoaneta Dimitrova Shileva-Tor omanova, Mr.

Shilev’s sister, is the manager of 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 $0.1 million to be paid 5 years after the original purchase date, which is in October 2020.

Shilev’s son, is a quality manager in the quality assurance department.

In addition, as part of the purchase of the Apyx Bulgaria manufacturing facility, Mr.

Shilev was issued a note payable for $ 0.1 million, which was paid in full on October 20, 2020.

The partner in the Company's China joint venture is also a supplie r of the Company.

For the years ended December 31, 2020 and 2019, the Company made purchases from this supplier of approximately $ 1,441,000 and $ 2,643,000 , respectively.

At December 31, 2020 and 2019, respectively, the Company owed this supplier approximately $ 38,000 and $ 29,000 , respective ly.

COMMITMENTS AND CONTINGENCIES

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.

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.

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.

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

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

The Company is involved in a number of legal actions relating to the use of our Helium Plasma technology.

The outcomes of these legal actions are not within the Company’s complete control and may not be known for prolonged periods of time.

It believes that such claims are adequately covered by insurance;

however, in the case of one of the Company’s carriers, the Company is in a dispute regarding the total level of coverage available.

Notwithstanding the foregoing, in the opinion of management, the Company has meritorious defenses, and such claims are not expected, individually or in the aggregate, to result in a material, adverse effect on its financial condition, results of operations and cash flows.

However, in the event that damages exceed the aggregate coverage limits of the Company’s policies or if its insurance carriers disclaim coverage, management believes it is possible that costs associated with these claims could have a material adverse impact on the consolidated financial condition, results of operations and cash flows.

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.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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 December 31, 2019.

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.

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) 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 was 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.

On November 6, 2020, the Court issued its final order approving the settlement and dismissing the action and all claims contained in the Amended Complaint with prejudice.

At December 31, 2020, the Company has settled and fully paid all obligations related to this matter.

Included in selling, general and administrative expenses for the year ended December 31, 2019 is $ 1,000,000 for the matter.

At December 31, 2019, the Company had accrued $ 820,000 for the matter.

The Company accrues 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.

2 unchanged sentences

Purchase Commitments

At December 31, 2019 , we had purchase commitments for inventories totaling approximately $2 million , substantially all of which is expected to be purchased by the end of 2020 .

At December 31, 2020, the Company has purchase commitments for inventories totaling approximately $ 1.9 million, substantially all of which is expected to be purchased by the end of 2021.

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 this capital contribution will be made in the first quarter of 2020.

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 $624,000 , approximately $532,000 is included in operational cash outflows during 2019, the remainder will be included in operational cash outflows during 2020.

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.

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.

The Company's agreement in the China joint venture requires it to make a capital contribution into the newly formed entity of $ 357,000 .

As of the date of these consolidated financial statements, approximately $ 203,000 of its capital commitment remains to be funded.

Concentrations

Sales to one customer within the OEM segment represented 11% of sales for the year ended December 31, 2019.

The Company had no customers who comprised 10% or more of sales for the years ended December 31, 2018 and 2017.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Sales to one customer within the OEM segment represented 10 % and 11 % of total sales for the year ended December 31, 2020 and 2019, respectively.

APYX MEDICAL CORPORATION

1 unchanged sentence

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.

On October 30, 2007, the Company's 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.

1 unchanged sentence

Stock options to employees typically have a ten-year life and currently vest over periods between one and seven years .

In July of 2012, our 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.

In July 2012, the Company's 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, 2020 approximately 60,000 are available to be issued in this plan.

In July of 2015, our 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.

In July 2015, the Company's 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, 2020 approximately 230,000 are available to be issued in this plan.

In August of 2017, our 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.

In August 2017, the Company's 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, 2020 approximately 70,000 are available to be issued in this plan.

In August of 2019, our stockholders approved the 2019 Share Incentive Plan covering a total of 2,000,000 shares of common stock issuable upon exercise of options to be granted under the plan.

In August 2019, the Company's stockholders approved the 2019 Share Incentive 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, 2020, all 2,000,000 are available to be issued in this plan.

On January 15, 2020, the Company granted employees approximately 1,300,000 options to purchase common shares of the Company's stock.

On January 29, 2021, the Company granted employees appro ximately 700,000 options to purchase common shares of the Company's stock.

All options granted were pursuant to the plans noted above.

The options vest over a period of three years .

The status of our stock options and warrants are summarized as follows:

Number of options and warrants

Weighted average exercise price

Outstanding at December 31, 2016

Canceled and forfeited

The options ves t over a period of three years .

The status of the Company's stock options is summarized as follows:

Number of options Weighted average exercise price

Outstanding at December 31, 2018 3,254,779 $ 3.18

Granted 1,379,500 7.70

Exercised ( 410,635 ) 2.99

Canceled and forfeited ( 256,785 ) 4.76

Outstanding at December 31, 2019 3,966,858 $ 4.67

Granted 1,376,900 7.94

Exercised ( 112,965 ) 3.37

Canceled and forfeited ( 291,850 ) 7.19

Outstanding at December 31, 2020 4,938,943 $ 5.46

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Number of options

Weighted average grant date fair value

Number of options Weighted average grant date fair value

Non-vested at December 31, 2019 1,484,929 $ 4.11

Granted 1,376,900 4.78

Vested ( 665,510 ) 3.77

Forfeited ( 151,850 ) 4.53

Non-vested at December 31, 2020 2,044,469 $ 4.61

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

Prior to 2019, options issued were valued utilizing a trinomial lattice model.

During the current year, the Company began granting stock option awards deeper within the Company.

The Company does not have the relevant history with grants to these employees to support the inputs required in a trinomial valuation model.

Accordingly, the Company adopted the use of the Black-Scholes model in 2019.

For employee grants, we calculate expected life via the simplified method as we do not have sufficient history to determine actual expected life.

For, non-employee grants, we calculate expected life using a combination of past exercise behavior, the contractual term and expected remaining exercise behavior.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Options are valued using the Black-Scholes model.

For employee grants, the Company calculates expected life via the simplified method as it does not have sufficient history to determine actual expected life.

For non-employee grants, the Company calculates expected life using a combination of past exercise behavior, the contractual term and expected remaining exercise behavior.

Inputs used in the valuation models are as follows:

2020 Grants 2019 Grants

Option value $ 4.98 — $ 8.18 $ 7.15 — $ 7.91

Risk-free rate 0.3 % - 1.7 % 1.7 % — 2.6 %

2 unchanged sentences

Expected term (in years) 6 4.5 - 6

We recognized approximately $3,581,000 , $2,224,000 and $871,000 in stock-based compensation expense during the years ended December 31, 2019, 2018 and 2017, respectively.

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”.

The Company recognized approximately $ 4,210,000 and $ 3,581,000 in stock-based compensation expense during the years ended December 31, 2020 and 2019, respectively.

The intrinsic value of each option share is the difference between the fair 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 at December 31, 2019 is based on the $8.46 closing stock price of our common stock on December 31, 2019, the last trading day of 2019.

The intrinsic value calculation at December 31, 2020 is based on the $ 7.20 closing stock price of the Company's common stock on December 31, 2020, the last trading day of 2020.

As of December 31, 2020, there were 4,530,049 stock options outstanding and expected to vest with an aggregate intrinsic value of approximately $ 10,250,000 .

7 unchanged sentences

The total fair value of option shares vested during the years ended December 31, 2020 and 2019, was approximately $ 2,510,000 and $ 2,130,000 , respectively.

The Company allows 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.

The Company allows employees to exercise stock-based awards by surrendering stock-based awards with an intrinsic value equal to the cumulative exercise price of the stock-based awards being exercised, referred to as net settlements.

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

During the years ended December 31, 2019, 2018 and 2017, the Company received 125,948 , 570,343 , and

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

129,378 options as payment in the exercise of 222,601 , 720,772 and 47,372 options, respectively.

During the years ended December 31, 2018 and 2017, the Company received 22,711 and 34,687 warrants as payment in the exercise of 17,289 and 19,688 warrants, respectively.

During the year ended December 31, 2018, the Company modified the terms of awards granted to two employees by immediately vesting the remaining unvested options at the modification dates.

The modifications resulted in the recognition of approximately an additional $190,000 in compensation cost due to the revaluation of the stock options.

As of December 31, 2019, there was approximately $3,520,000 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 1 year .

During the years ended December 31, 2020 and 2019, the Company received 39,448 and 125,948 options as payment in the exercise of 47,088 and 222,601 options, respectively.

As of December 31, 2020, there was approximately $ 5,910,000 of total unrecognized stock-based compensation expense, related to unvested stock options granted under the plans above.

This expense is expected to be recognized over a weighted-average period of approximately 1 year.

During October 2015, the Company granted 225,922 restricted stock units that vest ratably over a period of 5 years.

As of December 31, 2019, 180,740 of the shares had vested, with the remaining shares vesting in October 2020.

At December 31, 2019, the Company has approximately $70,000 of stock-based compensation expense to be recognized through October 2020.

As of December 31, 2020, all of the restricted stock units had vested.

APYX MEDICAL CORPORATION

2 unchanged sentences

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:

In addition to similar economic characteristics, the Company also considers the following factors in determining the reportable segments:

the nature of business activities, the management structure directly accountable to its chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors.

Asset information is not reviewed by the chief operating decision maker by segment and is not available by segment, accordingly, the Company has not presented a measure of assets by segment.

The Company's reportable segments are disclosed as principally organized and managed as two operating segments:

Advanced Energy and OEM.

3 unchanged sentences

Year ended December 31, 2020

(In thousands)

Advanced Energy

Corporate (Other)

(In thousands) Advanced Energy OEM Corporate (Other) Total

Sales $ 22,214 $ 5,497 $ — 27,711

Income (loss) from operations ( 7,128 ) 1,838 ( 14,793 ) ( 20,083 )

1 unchanged sentence

Interest expense — — ( 46 ) ( 46 )

Other losses, net

Other income, net — — 479 479

Income tax benefit — — 7,503 7,503

Year ended December 31, 2018 as Restated

(In thousands)

Advanced Energy

Corporate (Other)

Year ended December 31, 2019

(In thousands) Advanced Energy OEM Corporate (Other) Total

Sales $ 22,676 $ 5,559 $ — $ 28,235

Income (loss) from operations ( 8,045 ) 2,136 ( 14,960 ) ( 20,869 )

2 unchanged sentences

Other losses, net — — ( 351 ) ( 351 )

Change in fair value of derivative liabilities

Income tax benefit — — 130 130

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Year ended December 31, 2017

(In thousands)

Advanced Energy

Corporate (Other)

Income (loss) from operations

Interest expense

Change in fair value of derivative liabilities

Income tax benefit

International sales in 2020 and 2019, were 32.1 % and 30.6 % of sales, respectively.

4 unchanged sentences

Sales by Domestic and International

Domestic $ 18,812 $ 19,584

International 8,899 8,651

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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, 2019, and 2018 , 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.

The results presented have been updated for restatements and revisions as discussed in Notes 4 and 5.

(In thousands, except per share data)

Year ended December 31, 2019

Basic loss per common share

Year ended December 31, 2018

Basic loss per common share

*Fourth quarter 2018 period includes approximately $0.7 million of non-recurring severance and expenses related to former members of the Company’s executive management team.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

SUBSEQUENT EVENTS

In March 2020, the World Health Organization recognized the novel strain of coronavirus, COVID-19, as a pandemic.

This coronavirus outbreak has severely restricted the level of economic activity around the world.

In response to this coronavirus outbreak, 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.

Temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily.

This coronavirus outbreak has started to have a significant decline on the Company's sales results to date in fiscal 2020.

Given the uncertainty regarding the spread of this coronavirus, the related financial impact cannot be reasonably estimated at this time.

Total $ 27,711 $ 28,235

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

APYX MEDICAL CORPORATION

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-K

Item 8. Financial Statements and Supplementary Data