Apyx Medical Corp 10-K

ITEM 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL INFORMATION Page Report of Independent Registered Public Accounting Firm 30 Consolidated Balance Sheets at December 31, 2020 and 2019 31 Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 32 Consolidated Statements of Changes in Equity for the years ended December 31, 2020 and 2019 33 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 34 Notes to Consolidated Financial Statements 35 29 Table of Contents Report of Independent Registered Public Accounting Firm 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 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. 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. 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 30 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 41,915 $ 58,812 Trade accounts receivable, net of allowance of $ 300 and $ 273 8,399 7,987 Income tax receivables 7,654 426 Other receivables 1,275 1,233 Inventories, net of provision for obsolescence of $ 388 and $ 392 4,051 5,068 Prepaid expenses and other current assets 2,795 3,207 Total current assets 66,089 76,733 Property and equipment, net 6,541 6,618 Operating lease right-of-use assets 237 350 Finance lease right-of-use assets 437 653 Other assets 807 391 Total assets $ 74,111 $ 84,745 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 1,511 $ 2,438 Accrued expenses and other current liabilities 7,278 9,396 Current portion of operating lease liabilities 126 108 Current portion of finance lease liabilities 238 229 Related party note payable — 140 Total current liabilities 9,153 12,311 Long-term operating lease liabilities 129 235 Long-term finance lease liabilities 183 421 Contract liabilities 621 405 Other liabilities 166 114 Total liabilities 10,252 13,486 COMMITMENTS AND CONTINGENCIES (NOTE 18) EQUITY Common stock, $ 0.001 par value; 75,000,000 shares authorized; 34,289,222 issued and outstanding as of December 31, 2020, and 34,312,527 issued and 34,169,952 outstanding as of December 31, 2019 34 34 Additional paid-in capital 61,066 56,708 Retained earnings 2,621 14,517 Total stockholders’ equity 63,721 71,259 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. 31 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2020 2019 Sales $ 27,711 $ 28,235 Cost of sales 10,207 9,141 Gross profit 17,504 19,094 Other costs and expenses: Research and development 3,920 3,731 Professional services 7,350 8,507 Salaries and related costs 14,630 14,025 Selling, general and administrative 11,687 13,700 Total other costs and expenses 37,587 39,963 Loss from operations ( 20,083 ) ( 20,869 ) Interest income 241 1,392 Interest expense ( 46 ) ( 8 ) Other income (loss), net 479 ( 351 ) Total other income, net 674 1,033 Loss from operations before income taxes ( 19,409 ) ( 19,836 ) Income tax benefit ( 7,503 ) ( 130 ) 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 ) 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. 32 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In thousands) Common Stock Shares Par Value Additional Paid-In Capital Retained Earnings Non-controlling interest equity Total Equity Balance December 31, 2018 33,705 $ 34 $ 52,920 $ 34,223 $ — $ 87,177 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 — — — — — Vested restricted stock issued 181 — — — — Net loss — — — ( 19,706 ) — ( 19,706 ) Balance December 31, 2019 34,170 $ 34 $ 56,708 $ 14,517 $ — $ 71,259 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 Shares issued on net settlement of stock options 47 — — — — — Vested restricted stock issued 45 — — — — — Net loss — — — ( 11,896 ) ( 10 ) ( 11,906 ) Balance December 31, 2020 34,289 $ 34 $ 61,066 $ 2,621 $ 138 $ 63,859 The accompanying notes are an integral part of the consolidated financial statements. 33 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2020 2019 Cash flows from operating activities Net loss $ ( 11,906 ) $ ( 19,706 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 887 754 Provision for inventory obsolescence 506 132 Provision for product warranties 215 321 Loss on disposal of property and equipment 13 89 Stock based compensation 4,210 3,581 Realized and unrealized gains on short term investments — ( 164 ) Provision (benefit) for allowance for doubtful accounts 262 ( 163 ) 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 Accrued expenses and other liabilities ( 2,090 ) 2,370 Net cash used in operating activities ( 16,066 ) ( 18,475 ) Cash flows from investing activities Purchases of property and equipment ( 581 ) ( 1,301 ) Purchases of marketable securities — ( 18,884 ) Proceeds of marketable securities — 80,726 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 ) 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 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 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 The accompanying notes are an integral part of the consolidated financial statements. 34 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS 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, 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. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES Consolidated Financial Statements 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 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. 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 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 at December 31, 2020 and 2019, are adequate to provide for possible bad debts. 35 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first in, first out basis. Finished goods and work-in-process inventories include material, labor and overhead costs. Factory overhead costs are 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. Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the assets. The amortization of leasehold improvements is based on the shorter of the lease term or the life of the improvement. Betterments and major improvements, which extend the life of the asset, are capitalized, whereas maintenance and repairs and routine improvements are expensed as incurred. The estimated useful lives are: buildings and improvements, 39 years; machinery and equipment, 3 - 10 years; furniture and fixtures, 5 - 10 years; computer equipment and software, 3 - 5 years; and molds, 7 - 15 years. Valuation of Long-Lived Assets 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. In those cases, an impairment loss is recognized to the extent that the assets’ carrying amount exceeds its fair value. Any impairment losses are not restored in the future if the fair value increases. At December 31, 2020, the Company believes the remaining carrying values of its long-lived assets are recoverable. Product Warranties 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 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. 36 Table of Contents 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. 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 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. 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 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 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. 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, 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. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded; actual results may differ from those estimates. Income (Loss) Per Share 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. 37 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Income Taxes The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC Topic 740, "Income Taxes". Under the liability method, deferred taxes are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using tax rates expected to be in effect during the years in which the deferred taxes reverse. The Company accounts for interest and penalties on income taxes as income tax expense. A valuation allowances is recorded when it is more likely than not that a tax benefit will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income, the timing of reversals of temporary differences, and the availability of tax planning strategies. As of December 31, 2020 and 2019, the Company recorded a valuation allowance on the net deferred tax asset. 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 The functional currency of Apyx Bulgaria is the U.S. dollar. The monetary assets and liabilities that are denominated in a currency other than U.S. dollar are remeasured into U.S. dollars at the exchange rate on the balance sheet date, while nonmonetary items are remeasured at historical rates. Revenue and expenses are remeasured at weighted average exchange rates during the period. 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. 38 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 3. 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. 39 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 4. 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. NOTE 5. DISPOSITION OF THE CORE BUSINESS 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, 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. 40 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 6. 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 41 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 7. INVENTORIES Inventories consisted of the following: (In thousands) December 31, 2020 December 31, 2019 Raw materials $ 2,243 $ 2,935 Work in process 1,109 1,209 Finished goods 1,087 1,316 Gross inventories 4,439 5,460 Less: provision for obsolescence ( 388 ) ( 392 ) 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. 42 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 8. PROPERTY AND EQUIPMENT Property and equipment consisted of the following: (In thousands) December 31, 2020 December 31, 2019 Land $ 1,600 $ 1,600 Building and improvements 4,454 4,423 Machinery and equipment 2,113 2,187 Furniture and fixtures 290 292 Computer equipment and software 1,505 1,409 Leasehold improvements 156 156 Molds 813 805 Total property, plant and equipment 10,931 10,872 Less: accumulated depreciation and amortization ( 4,813 ) ( 4,403 ) Property and equipment in service 6,118 6,469 Construction in progress 423 149 Property and equipment, net $ 6,541 $ 6,618 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. NOTE 9. LEASES 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 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 its collateralized borrowing rate. Operating Leases The Company leases its facility in Sofia, Bulgaria and vehicles in Clearwater, Florida under non-cancelable operating lease agreements. The Company's lease on the Bulgaria facility includes rent escalation over the term of the lease. Rent expense on the lease is accounted for on a straight-line basis over the lease term. During 2019, the Bulgaria facility lease was extended for an additional 2 years. 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. 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. These finance leases have terms expiring through August 2023. Information about the Company’s lease costs are as follows: 43 Year Ended December 31, Lease costs (in thousands) : 2020 2019 Operating lease costs $ 124 $ 115 Finance lease costs: Amortization of right-of-use assets $ 216 $ 57 Interest on lease liabilities $ 22 $ 8 Variable lease costs $ 13 $ 16 Total lease costs $ 375 $ 196 Cash and non-cash information related to our leases are as follows: Year Ended December 31, 2020 Year Ended December 31, 2019 (in thousands) Operating Finance Operating Finance Non cash information: Right-of-use assets capitalized and lease liabilities recognized upon adoption of Topic 842 $ — $ — $ 212 $ — Right-of-use assets capitalized and lease liabilities recognized upon lease remeasurement $ — $ — $ 207 $ — Right-of-use assets capitalized and lease liabilities recognized upon execution of lease $ — $ — $ 28 $ 710 Cash information: Cash paid for lease liabilities $ 110 $ 251 $ 106 $ 68 Information about the Company’s weighted average remaining lease terms and discount rate assumptions are as follows: Year Ended 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 Weighted average discount rate 4.03 % 4.00 % 4.04 % 4.00 % Maturities of lease liabilities as of December 31, 2020 are as follows: (In thousands) Operating Finance 2021 $ 134 $ 236 2022 131 183 2023 — 18 Total lease payments 265 437 Less imputed interest ( 10 ) ( 16 ) Present value of lease liabilities 255 421 Less current portion of lease liabilities ( 126 ) ( 238 ) Long-term portion of lease liabilities $ 129 $ 183 44 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following: (in thousands) December 31, 2020 December 31, 2019 Accrued payroll $ 808 $ 694 Accrued bonus 811 1,306 Accrued commissions 1,001 877 Accrued product warranties 498 452 Accrued product liability claim insurance deductibles 435 1,170 Accrued professional fees 222 1,383 Joint and several payroll liability 1,027 1,045 Uncertain tax positions 1,658 1,491 Sales tax payable 591 492 Other accrued expenses and current liabilities 227 486 Total accrued expenses and other current liabilities $ 7,278 $ 9,396 NOTE 11. PRODUCT WARRANTIES Product warranty activity consisted of the following for the years ended: (In thousands) December 31, 2020 December 31, 2019 Beginning balance $ 452 $ 348 Provision for product warranties 215 321 Product warranty expenses incurred ( 169 ) ( 217 ) Accrued product warranties $ 498 $ 452 NOTE 12. JOINT AND SEVERAL PAYROLL 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. 45 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 13. 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. 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 Numerators: 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 46 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 14. FINANCIAL INSTRUMENTS 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. 47 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 15. INCOME TAXES Components of the provision for income taxes are as follows: (In thousands) December 31, 2020 December 31, 2019 Current: 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 ) Deferred: Federal ( 25 ) ( 3,989 ) State ( 1,004 ) ( 741 ) ( 1,029 ) ( 4,730 ) Valuation allowance 1,029 4,730 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, 2020 2019 Federal tax provision 21.0 % 21.0 % State taxes (net of federal benefit) 5.1 % 4.3 % Valuation allowance ( 5.3 ) % ( 23.8 ) % 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: 48 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (In thousands) December 31, 2020 December 31, 2019 Deferred tax assets: Loss and credit carryforwards $ 1,888 $ 4,779 Stock-based compensation 1,603 1,004 Other 745 1,133 Total deferred tax assets 4,236 6,916 Valuation allowance ( 3,837 ) ( 6,472 ) Total deferred tax assets, net of valuation allowance 399 444 Deferred tax liabilities: Property and equipment ( 278 ) ( 245 ) Other ( 121 ) ( 199 ) Total deferred tax liabilities ( 399 ) ( 444 ) 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 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. 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. 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 2020 2019 Beginning of year balance $ 1,313 $ 1,313 Additions of tax positions related to the current year — — Additions of tax positions related to the prior year — — Decreases for tax positions related to prior year — — End of year balance $ 1,313 $ 1,313 49 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company is subject to U.S. federal and state income tax examination. The Company’s 2017 through 2019 U.S. federal income tax returns are subject to examination by the Internal Revenue Service. The Company’s state income tax returns are subject to examination for the 2016 through 2019 tax years. NOTE 16. RETIREMENT PLAN The Company provides a tax-qualified profit-sharing retirement plan under section 401(k) of the Internal Revenue Code for the benefit of eligible employees with an accumulation of funds for retirement on a tax-deferred basis and provides for annual discretionary contribution to individual trust funds. All employees are eligible to participate upon completing three months of service. The employees may make voluntary contributions to the plan up to the maximum percentage allowed by the Internal Revenue Code. Vesting in employee matching contributions is graded and depends on the years of service. After three years from their date of hire, the employees are 100 % vested. The Company makes matching contributions of 50 % of the employee contributions up to a total of 3 % of participant payroll. Matching contributions made by the Company totaled approximately $ 0.3 million for each of the years ended December 31, 2020 and 2019, respectively. NOTE 17. RELATED PARTY TRANSACTIONS Several relatives of Nikolay Shilev, Apyx Bulgaria’s Managing Director, are considered related parties. Teodora Shileva, Mr. Shilev’s spouse, is an employee of the Company working in the accounting department. Antoaneta Dimitrova Shileva-Tor omanova, Mr. Shilev’s sister, is the manager of human resources. Svetoslav Shilev, Mr. 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. NOTE 18. COMMITMENTS AND CONTINGENCIES Litigation 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. 50 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded, actual results may differ from these estimates. Purchase Commitments At 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 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 10 % and 11 % of total sales for the year ended December 31, 2020 and 2019, respectively. 51 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 19. STOCK OPTIONS 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. In 2001, the Board of Directors adopted the 2001 Executive and Employee Stock Option Plan which reserved for issuance 1.2 million stock options. Stock options to employees typically have a ten-year life and currently vest over periods between one and seven years . 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 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 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 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 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 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 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 52 Table of Contents 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 % Expected dividend yield — % — % Expected volatility 65.9 % - 70.1 % 64.9 % — 66.4 % Expected term (in years) 6 4.5 - 6 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, 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 . These options have a weighted average exercise price of $ 5.26 and a weighted average remaining contractual term of approximately 7 years. As of December 31, 2020, there were 2,894,474 stock options outstanding and exercisable with an aggregate intrinsic value of approximately $ 9,800,000 . These options have a weighted average exercise price of $ 3.89 and a weighted average remaining contractual term of approximately 6 years. The total intrinsic value of in the money options exercised during the years ended December 31, 2020 and 2019, was approximately $ 200,000 and $ 1,420,000 , respectively. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option holder to exercise the options or other consideration paid. The total fair value of options granted during the years ended December 31, 2020 and 2019, was approximately $ 6,580,000 and $ 6,300,000 , respectively. The weighted average fair value of options granted during the years ended December 31, 2020 and 2019, was $ 4.78 and $ 4.57 , respectively. 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 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, 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, 2020, all of the restricted stock units had vested. 53 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 20. GEOGRAPHIC AND SEGMENT INFORMATION Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. 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. "Corporate & Other" includes certain unallocated corporate and administrative costs which were not specifically attributed to any reportable segment. The OEM segment is primarily development and manufacturing contract and product driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred. Summarized financial information with respect to reportable segments is as follows: Year ended December 31, 2020 (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 ) Interest income — — 241 241 Interest expense — — ( 46 ) ( 46 ) Other income, net — — 479 479 Income tax benefit — — 7,503 7,503 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 ) Interest income — — 1,392 1,392 Interest expense — — ( 8 ) ( 8 ) Other losses, net — — ( 351 ) ( 351 ) Income tax benefit — — 130 130 International sales in 2020 and 2019, were 32.1 % and 30.6 % of sales, respectively. Substantially all of these sales are denominated in U.S. dollars. Revenue by geographic region, based on the "ship to" location on the invoice are as follows: Year Ended December 31, (In thousands) 2020 2019 Sales by Domestic and International Domestic $ 18,812 $ 19,584 International 8,899 8,651 Total $ 27,711 $ 28,235 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 54 Table of Contents APYX MEDICAL CORPORATION None.