What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-17 compared with 2021-03-31 · 94 added, 97 removed, 152 unchanged (56% of the section changed)

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We are an advanced energy technology company with a passion for elevating people’s lives through innovative products in the cosmetic and surgical markets.

Known for our innovative Helium Plasma Technology, Apyx is solely focused on bringing transformative solutions to the physicians and patients it serves.

Known for our innovative Helium Plasma Technology, Apyx is solely focused on bringing transformative solutions to physicians and their patients.

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

Renuvion® offers plastic surgeons, fascial plastic surgeons and cosmetic physicians a unique ability to provide controlled heat toe 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.

Renuvion® offers plastic surgeons, fascial plastic surgeons and cosmetic physicians a unique ability to provide controlled heat to tissue to achieve their desired results.

We also leverage our deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device manufacturers.

On March 14, 2022, the FDA posted a Communication that warns consumers and health care providers against the use of our Advanced Energy products outside of their FDA-cleared indications for general use in cutting, coagulation, and ablation of soft tissue during open and laparoscopic surgical procedures.

We continue to work with the FDA towards securing 510(k) clearance for additional indications.

We are in the process of evaluating what effects, if any, the Communication will have on our results of operations, cash flows and financial position.

Impact of COVID-19, Supply Chain Disruptions and Other Matters

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Form 10-K"), an outbreak of a novel strain of the coronavirus, COVID-19, was identified in China and subsequently recognized as a pandemic by the World Health Organization.

The COVID-19 outbreak continues to severely restrict the level of economic activity around the world.

In response to the COVID-19 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 in some jurisdictions were ordered, and numerous other businesses closed permanently.

Many other businesses continue to be operated at reduced capacity.

Ongoing significant reductions in business-related activities could result in further loss of sales and profits and other material adverse effects.

The extent of the impact of COVID-19 on our business, financial results, liquidity and cash flows will depend largely on future developments, including new information that may emerge concerning actions taken to contain or prevent further spread of the virus, or its newly forming variants, within the U.S.

and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted.

While our revenues were affected by the continued impacts of the COVID-19 pandemic, in the latter half of 2020 we saw strong utilization of our Renuvion® handpieces from existing customers in the U.S., along with shipments to several new customers in our international markets, which helped to offset sluggish global demand for capital equipment.

Throughout the year, we continued our efforts to support our customers during this challenging time.

While we were also pleased to see overall improvements in our Advanced Energy business trends during the third and fourth quarters, demand for handpieces remains uneven across, and within, the primary markets that we serve, and global demand trends for generator adoption remain in the early stages of recovery.

Although the timing of a return to a more normalized environment remains uncertain, we remain cautiously optimistic with respect to the continued recovery of the cosmetic and plastic surgery market.

We source the components used in our products from a variety of suppliers and we have collaborative arrangements with three key foreign suppliers.

At this time our suppliers have experienced no significant disruptions as a result of COVID-19.

We have experienced minor delays in our procurement from these suppliers as a result of the availability of shipping from third party freight carriers.

These delays have not, to date, had a significant impact on our operations.

In response to COVID-19, we took action in these key areas:

The impact of the COVID-19 outbreak has subsided substantially in the U.S.

but continues to result in reduced activity levels outside of the U.S., such as continued restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes or places of business.

Throughout 2021, while our revenues were affected by the continued impacts of the COVID-19 pandemic and its related variants, we saw increased utilization of our Renuvion® handpieces from existing customers in both the U.S.

and outside of the U.S., along with improved demand for capital equipment domestically.

International demand trends for generator adoption are improving but remain in the earlier stages of recovery.

Although the timing of a return to a fully normalized environment remains uncertain, we are cautiously optimistic with respect to the continued recovery of the global cosmetic and plastic surgery markets.

In response to the global supply chain instability and inflationary cost increases, we continue to take action to minimize, as much as possible, any potential adverse impacts by working closely with our suppliers to closely monitor the availability of raw material components (i.e., semiconductors and plastics), lead times, and freight carrier availability.

We expect global supply chain instability will continue to have an impact on our business, but to date that has not been material to our financial performance.

The consequences of the pandemic, global supply chain instability and inflationary cost increases and their adverse impact to the global economy, continue to evolve.

Accordingly, the significance of the future impact to our business and financial statements remains subject to significant uncertainty.

Since the onset of the COVID-19 pandemic, we have taken action in these key areas:

• Protecting the Health and Safety of our Employees:

To reduce the risk to our employees and their families to potential exposure to COVID-19, we required that all non-essential employees work remotely until further notice.

We also split the shifts of our manufacturing personnel to allow for adequate social distancing, and require all personnel to utilize

APYX MEDICAL CORPORATION

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

• Protecting the Health and Safety of our Employees:

To reduce the risk to our employees and their families to potential exposure to COVID-19, we required that all non-essential employees work remotely until further notice.

We also split the shifts of our manufacturing personnel to allow for adequate social distancing, and require all personnel to utilize personal protective equipment while on site at our facilities.

personal protective equipment while on site at our facilities.

We also significantly reduced business travel and outside access to our facilities.

• Maintaining Engagement of or Sales Team and Our Customers:

In addition to the initiatives we put in place to protect health and safety for all employees, we focused our direct sales team on remaining in close contact with their existing surgeon customers to do everything they can to provide them with support during this difficult time.

With this goal in mind, we implemented additional training for our sales reps in order to sharpen their ability to engage with our customers virtually.

• Maintaining Engagement of Our Sales Team and Customers:

In addition to engaging with existing customers via virtual methods, our reps also continued to target and reach out to prospective customers, and outside the U.S., we continued to monitor the activities of our distributor partners and helped them navigate the challenges they faced as a result of the slower demand they have seen in their respective countries.

• Operating Expenses:

We continued to take preemptive steps to curtail spending, including implementing hiring restrictions, reducing most discretionary spending, reducing capital expenditures, and delaying certain R&D projects and clinical research studies.

We continued to manage spending, including reducing some discretionary spending, and re-prioritizing certain R&D projects and clinical research studies.

• Governmental Policy:

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We expect that utilizing these provisions will significantly help mitigate the working capital impact COVID-19 has had on our sales and operations.

During the first two months of 2020, our plans to host new Physician Mentor Programs, or “PMPs,” and expand our presence and educational programming at industry conferences and trade shows proceeded as expected.

Our events planned for March, through the present time, however, were canceled or postponed due to COVID-19.

In lieu of this in-person programming, our sales, marketing and field clinical teams have been very active in engaging with our customers - and prospects - around the world.

We have hosted educational events virtually where we featured some of our leading clinician customers speaking on a wide range of topics, including side-by-side results comparing Renuvion® to a leading competitor's technology.

During 2021, we hosted over 15 Physician Mentor Programs, or “PMPs,” and our efforts to expand our presence and educational programming at industry conferences and trade shows proceeded as expected.

In April 2021 we hosted our first virtual Users’ Meeting and had over 300 people in attendance.

This program consisted of presentations from key Renuvion® users around the world on various applications for the product.

All of the content was recorded and made available on our website portal for reference by all of our users around the world.

Our virtual educational events have also included case studies to illustrate how our leading clinician customers have adopted Renuvion®, their strategies for marketing and selling to new patients, and their thoughts on pricing and return on investment.

We hosted the first installment of a planned series of webinars designed to assist our customers and prospects with opening their practices post-COVID 19.

We also engaged with clinician customers outside the U.S.

including hosting multiple continuing education training sessions on J-Plasma® and Renuvion® with our current international distributors and conducting multiple calls with groups of international prospects interested in learning about our Renuvion® technology.

including hosting multiple continuing education training sessions on Renuvion® with our current international distributors and conducting multiple calls with groups of international prospects interested in learning about our Renuvion® technology.

During 2021, we continued to drive sales in our Advanced Energy business by increasing the adoption and utilization of our handpieces in the U.S.

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We also had 5 sales managers.

This selling organization is focused on the use of Renuvion® in the cosmetic surgery market.

This selling organization is focused on the use of Renuvion® in the cosmetic surgery market, supported by our global medical affairs team.

This global team of clinical support specialists focuses on supporting our users to ensure optimal outcomes for their patients.

In addition, we have invested in training programs and marketing-related activities to support accelerated adoption of Renuvion® into physicians' practices.

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• To improve our manufacturing capabilities and efficiencies

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

In regards to our operating segments, our results are aggregated into reportable segments only if they exhibit similar economic characteristics.

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The OEM segment is primarily development and manufacturing contract and product driven, and all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

We strongly encourage investors to visit our website:

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Total $ 48,517 $ 27,711 75.1 %

Total revenue decreased by 1.9% or approximately $(0.5) million for the year ended December 31, 2020 when compared with 2019.

Advanced Energy segment sales decreased 2.0% or approximately $(0.5) million for the year ended December 31, 2020 when compared with 2019.

The impact of COVID-19 resulted in decreased demand for our products, both domestically and internationally throughout 2020, although sales began to recover late in the second quarter, and through the end of the year, as many of our customers resumed operations in a limited capacity.

We continue to see improved demand domestically for our products from pre-COVID-19 levels and have experienced improvements internationally, driven primarily by entry into new markets, the largest of which was Brazil.

Total revenue increased by 75.1% or approximately $20.8 million for the year ended December 31, 2021 when compared with 2020.

Advanced Energy segment sales increased 93.5% or approximately $20.8 million for the year ended December 31, 2021 when compared with 2020.

During 2021, we experienced increased global utilization based demand for our handpieces and adoption of our generator technology despite the continued headwinds of the COVID-19 pandemic in certain geographic regions outside of the U.S., while overall 2020 demand was more severely impacted on a global basis.

The OEM product line consists of proprietary products designed specifically for third party equipment manufacturers.

Revenue for this product line decreased (1.1)% or approximately $(0.1) million when compared to 2019.

Revenue for this product line increased 0.6% when compared to 2020.

International sales represented approximately 32.0% and 32.1% of total revenues for the years ended December 31, 2021 and 2020, respectively.

Management estimates our products have been sold in more than 60 countries through local dealers coordinated by sales and marketing personnel through our facilities in Clearwater, Florida and Sofia, Bulgaria.

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

(In thousands) 2021 2020 Change

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Percentage of sales 69.3 % 63.2 %

Our gross profit margin as a percentage of sales decreased by 4.4% during the year ended December 31, 2020 compared with 2019.

During the second quarter, we reassessed our forecasted product mix due to COVID-19, increased availability of our 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 off as it was determined to cease further production on these models.

This resulted in a decrease in gross profit of approximately $0.3 million which is reflective of small recoveries on the impairments later in the year through the manufacture and sale of handpieces utilizing the impaired components.

The remaining decrease in gross profit margin is driven by product mix within our Advanced Energy segment , offset by improved product margins in our Advanced Energy segment as a result of our continued manufacturing efficiency initiatives and introduction of newer product models.

Our gross profit margin as a percentage of sales increased by 6.1% during the year ended December 31, 2021 compared with 2020.

The increase in gross profit margin from the prior year is primarily attributable to sales mix between our two segments, with our Advanced Energy segment comprising a higher percentage of total sales, as well as product mix within our Advanced Energy segment.

Our continued manufacturing efficiency initiatives and the introduction of newer product models have continued to result in improved margins as we obtain registration, allowing these products to be introduced into the markets we serve.

Additionally, the strong sales during the year resulted in reduced product costs as our fixed costs were spread across higher production volumes.

This manufacturing efficiency was partially offset by higher inbound shipping costs, as we needed to expedite the sourcing of key component raw material inventories and experienced higher market rates for these services.

APYX MEDICAL CORPORATION

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

The prior year margins were also hindered as we reassessed our forecasted product mix due to COVID-19, increased availability of our newer handpiece designs, and earlier than expected completion of product registrations in certain international markets.

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

This resulted in a decrease in gross profit of approximately $0.3 million during the prior year.

Other Costs and Expenses

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(In thousands) 2021 2020 Change

Research and development expense $ 3,920 $ 3,731 5.1 %

Research and development $ 4,321 $ 3,920 10.2 %

Percentage of sales 8.9 % 14.1 %

Our expenditures for R&D related activities increased by 5.1% or approximately $0.2 million for the year ended December 31, 2020, compared with 2019.

This increase was primarily due to continued spending on our two investigational device exemption (IDE) clinical studies, which had applications submitted to the FDA in late 2019.

Our expenditures for research and development related activities increased by 10.2% or approximately $0.4 million for the year ended December 31, 2021, compared with 2020.

This increase was primarily due to increases in payroll and related benefits of R&D personnel ($0.2 million) and continued spending on our two investigational device exemption (IDE) clinical studies and other research and development projects ($0.2 million).

Professional services

(In thousands) 2021 2020 Change

Professional services expense $ 7,350 $ 8,507 (13.6) %

Professional services $ 7,589 $ 7,350 3.3 %

Percentage of sales 15.6 % 26.5 %

Professional services expenses decreased 13.6% for the year ended December 31, 2020, compared with 2019.

The change was primarily attributable to decreases in legal expense ($0.7 million) associated with our now settled class action lawsuit, a decrease in Medical Advisory Board consulting fees ($0.5 million), and a decrease in option expense related to options granted to our Medical Advisory Board physicians ($0.3 million), as additional grants did not occur in 2020.

These decreases were partially offset by an increase in accounting and auditing fees ($0.5 million) related to recent financial statement restatements, the change in our independent accountants and reaudit of the 2019 consolidated financial statements, and continued efforts to remediate our internal control deficiencies and material weaknesses.

Professional services expenses increased 3.3% for the year ended December 31, 2021, compared with 2020.

This increase was primarily due to increases in physician consulting expense associated with the increased sales activity in 2021 ($0.3 million), professional services for continued consulting expense associated with our implementation of SAP ($0.2 million), employee acquisition fees as the labor market has been highly competitive ($0.2 million) and Board of Directors option expense ($0.1 million).

The increases were partially offset by a decrease in accounting and auditing fees ($0.6 million).

In the prior year, we incurred significant fees related to our change in independent auditors and the associated reaudit of the 2019 financial statements.

Salaries and related costs

(In thousands) 2021 2020 Change

Salaries and related expenses $ 14,630 $ 14,025 4.3 %

Percentage of sales 52.8 % 49.7 %

During 2020, salaries and related expenses increased approximately 4.3% or approximately $0.6 million compared to 2019.

The increase was primarily attributable to additional employee stock option grants in 2020, which drove an increase in employee stock option expense of $1.2 million in 2020.

This increase was partially offset by lower bonus expense during 2020 of approximately $0.6 million.

Selling, general and administrative expenses

(In thousands) 2020 2019 Change

SG&A expenses $ 11,687 $ 13,700 (14.7) %

Salaries and related costs $ 17,522 $ 14,630 19.8 %

Percentage of sales 36.1 % 52.8 %

Selling, general and administrative expense decreased by 14.7% or approximately $2.0 million for the year ended December 31, 2020, compared with 2019.

The decrease is primarily related to decreases in travel and entertainment expense ($1.2 million), advertising including show fees and related costs ($0.6 million), regulatory registration and related quality audit expenses ($0.4

During 2021, salaries and related expenses increased 19.8% or approximately $2.9 million compared to 2020.

The increase was primarily driven by increases in bonus expense ($1.2 million), higher headcount ($0.6 million), higher compensation and benefits ($0.5 million), stock compensation expense ($0.4 million) and temporary labor ($0.2 million) as compared to 2020.

APYX MEDICAL CORPORATION

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

million), and commissions on Advanced Energy sales ($0.2 million), all of which are associated with restricted travel, decreased sales activity, or delayed regulatory activity as a result of COVID-19.

These decreases were partially offset by higher bad debt expense ($0.4 million).

Selling, general and administrative expenses

(In thousands) 2021 2020 Change

Selling, general and administrative $ 18,617 $ 11,687 59.3 %

Percentage of sales 38.4 % 42.2 %

Selling, general and administrative expense increased by 59.3% or approximately $6.9 million for the year ended December 31, 2021, compared with 2020.

The change is primarily related to higher commissions on Advanced Energy sales ($4.0 million), travel and entertainment expense ($0.8 million), advertising expense, including trade show fees and related costs ($0.5 million), insurance expense associated with higher premiums and increased claims activity ($0.6 million), higher credit card processing fees ($0.3 million), OEM product recall costs ($0.2 million), higher employee training and meeting expenses ($0.2 million), increased Board of Directors compensation including compensation to an additional member ($0.1 million), higher computer supplies and related technology expenses ($0.1 million) and increased office supplies ($0.1 million).

These increases were partially offset by lower bad debt expenses ($0.1 million).

Interest Income

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Interest income decreased 95.4% for the year ended December 31, 2021 as compared with the prior year.

This decrease is due to a lower yield, as well as a lower average balance, on our investments in U.S.

This decrease is due to a lower yield, as well as a lower average balance, on our investments in money market funds and U.S.

Treasury securities included in cash and cash equivalents.

Other Income (Loss), net

Other (Loss) Income, net

(In thousands) 2021 2020 Change

Other income (loss), net $ 479 $ (351) 236.5 %

Other (losses) income, net $ (373) $ 479 (177.9) %

Percentage of sales (0.8) % 1.7 %

Other income (loss), net increased 236.5% for the year ended December 31, 2020, as compared with the prior year.

This increase is primarily due to the receipt of refunds on tariffs paid in the prior year during the first quarter of 2020, combined with the recognition of a joint and several liability for not collecting and remitting payroll taxes related to stock option exercises in the prior year.

The income tax benefit was approximately $7.5 million, with an effective tax rate of 38.7%, for the year ended December 31, 2020 as compared to an income tax benefit of approximately $0.1 million, with an effective tax rate of 0.7%, in 2019.

For the year ended December 31, 2020, the effective tax rate differs from the statutory rate primarily due to the release of the valuation allowance on our Federal NOL from 2019 as a result of the CARES Act, partially offset by a valuation allowance on our State NOL for 2020 and accrued interest and penalties on our uncertain tax positions.

For the year ended December 31, 2019, the effective tax rate differs from the statutory rate primarily due to the valuation allowance on our Federal and State NOL for 2019 and accrued interest and penalties on our uncertain tax positions.

Other (losses) income, net decreased 177.9% for the year ended December 31, 2021 as compared with the prior year.

This decrease is primarily due to the receipt of refunds in the first quarter 2020 on tariffs paid in 2019 ($0.3 million), severance expense for employees of the former Core business segment ($0.2 million), anticipated Core business segment inventory losses at the conclusion of our supply agreement with Symmetry Surgical ($0.2 million), and reduced volume under the supply agreement to cover other business expenses associated with the Core business segment ($0.1 million).

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

The income tax expense was approximately $0.4 million, with an effective tax rate of (2.6)%, for the year ended December 31, 2021 as compared to an income tax benefit of approximately $7.5 million, with an effective tax rate of 38.7%, for the year ended December 31, 2020.

For the year ended December 31, 2021, the effective tax rate differs from the statutory rate primarily due to the valuation allowance on our Federal and State net operating losses (NOLs) for 2021.

On March 27, 2020, the U.S.

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In 2020, our income tax benefit is composed primarily of a benefit of $3.7 million associated with the current year net loss and $3.7 million associated with the release of the valuation allowance on the net operating loss from 2019 from the CARES Act.

In 2019, our income tax benefit is composed primarily of return to provision adjustments related to the 2018 tax year (benefit of approximately $0.3 million), partially offset by the accrual of interest and penalties on our uncertain tax positions (expense of approximately $0.2 million).

We expect to receive refunds of approximately $7.5 million during 2021 related to the carryback of our 2020 and 2019 pre-tax losses.

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Liquidity and Capital Resources

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The decrease in working capital at December 31, 2021 was primarily due to the net loss incurred by the Company in 2021, excluding non-cash activity, comprised primarily of stock-based compensation expense.

For the year ended December 31, 2020, net cash used in operating activities was approximately $16.0 million compared with net cash used in operating activities of approximately $18.5 million in 2019.

Net cash used in investing activities for the year ended December 31, 2020, was $0.6 million, related to purchases of capital equipment.

Net cash from investing activities for the year ended December 31, 2019 was $60.5 million, primarily related to the maturity of short-term investments and reinvestment in cash equivalents, as well as approximately $1.3 million in purchases of capital equipment.

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

For the year ended December 31, 2021, net cash used in operating activities was approximately $10.4 million, which principally funded our loss from operations of $14.4 million, compared with net cash used in operating activities of approximately $16.1 million in 2020.

We believe that we have adequate cash to support our operations for the next twelve to eighteen months.

Net cash used in investing activities for the years ended December 31, 2021 and 2020, were $0.7 million and $0.6 million, respectively, related to purchases of property and equipment.

At December 31, 2021, we had purchase commitments for inventories totaling approximately $4.9 million, all of which is expected to be purchased by the end of 2022.

Critical Accounting Estimates

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Our critical accounting estimates include the following:

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Stock-Based Compensation

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For awards granted to non-employees, we calculate expected life using a combination of past exercise behavior, the contractual term and expected remaining exercise behavior.

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

We determine the volatility by utilizing the historical volatility of our stock over the period of the awards expected life.

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The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities.

Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using enacted marginal tax rates.

Deferred tax assets or

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using enacted marginal tax rates.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period.

As a result of historical losses exclusive of discontinued operations, and our expectation to continue to generate losses in the near future, we recorded a valuation allowance on the our deferred tax asset.

Exclusive of the carryback provisions of the CARES ACT and the associated income tax benefit recognized in 2020, we do not anticipate recording an income tax benefit related to these deferred tax assets.

We 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 2020, we will continue to record a valuation allowance on the net deferred tax assets balance as of December 31, 2020.

As a result of historical losses and our expectation to continue to generate losses in the near future, we recorded a valuation allowance on our net deferred tax assets.

Exclusive of the carryback provisions of the CARES Act and the associated income tax benefit recognized in 2020, we do not anticipate recording an income tax benefit related to our deferred tax assets.

We will reassess the realization of deferred tax assets each reporting period and will be able to reduce the valuation allowance to the extent our results of operations improve, and it becomes more likely than not that the deferred tax assets will be realized.

As Management has not fully determined the timing of when it will generate taxable income in the U.S., we continued to record a valuation allowance on the net deferred tax assets balance as of December 31, 2021.

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.

An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained.

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Inflation has not materially impacted the operations of our Company.

The consequences of the pandemic, global supply chain instability and inflationary cost increases and their adverse impact to the global economy, continue to evolve.

Accordingly, the significance of the future impact to our business and financial statements remains subject to significant uncertainty.

Inflation has not, to date, materially impacted our operations or financial performance.

However, as these trends continue for raw materials, freight, and labor costs, our future financial performance could be adversely impacted.

Off-Balance Sheet Arrangements

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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 7. Management’s Discussion and Analysis