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Item 8. Financial Statements and Supplementary Data

2024-03-21 compared with 2023-03-16 · 319 added, 265 removed, 579 unchanged (50% of the section changed)

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Report of Independent Registered Public Accounting Firm

Stockholders and the Board of Directors

Apyx Medical Corporation

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

Opinion on the Financial Statements

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

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

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Going Concern

As described in Note 1 to the consolidated financial statements, the Company disclosed certain adverse conditions that raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of the consolidated financial statements.

The Company further disclosed certain plans identified by management, which involve the use of significant judgment, that management believes it can implement that alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern.

We identified the Company’s ability to continue as a going concern as a critical audit matter because of certain significant assumptions management made in concluding management’s plans alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern, including the reasonableness of the assumptions underlying management’s cash flow forecast for a period of one year from the date of issuance of the consolidated financial statements.

Auditing management’s assumptions involved a high degree of auditor judgment and an increase in audit effort, including the use of an internal specialist, due to the impact these assumptions have on the conclusion that management’s plans alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern.

Our audit procedures related to the Company’s ability to continue as a going concern included the following, among others:

• We obtained management’s going concern assessment and evaluated the reasonableness of the conclusion that management’s plans alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern by considering both the likelihood that management could implement its plans and how the implementation of those plans impacted the identified adverse conditions.

• We evaluated management’s cash flow forecast by performing the following procedures, among others:

◦ We evaluated the reasonableness of the forecasted nature, amount and timing of operating expenditures expected to be reduced or delayed over the course of a year from the date of issuance of the consolidated financial statements based on our understanding of the Company’s operations, cost structure, historical expenditures and actions taken to date by management.

◦ We evaluated the Company’s ability to comply with its debt covenants under the Company’s new credit agreement, which was executed in February 2023.

◦ We obtained and read correspondence between the Internal Revenue Service and the Company evidencing approval of the amount of the Company’s income tax receivable.

◦ We obtained and read the purchase and sale agreement between the Company and a third party for the sale and leaseback of the Company’s building.

◦ We considered the Company’s current shelf registration and the embedded at-the-market facility by evaluating management’s intent and ability to execute on a public offering.

• With the assistance of an internal specialist, we evaluated the accuracy and completeness of the Company’s financial statement disclosure and their compliance with accounting principles generally accepted in the United States of America.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

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

The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Accounting for Credit Agreements

As described in Note 11 to the financial statements, the Company entered into the MidCap credit agreement and the Perceptive credit agreement (collectively, the “Credit Agreements”) during the year ended December 31, 2023 and issued warrants to each of the lenders.

The Company evaluated the accounting treatment for the Credit Agreements to determine the impact the warrants and any embedded derivatives had on the amounts recorded.

As discussed in Note 2, the Company’s evaluation included estimating the fair value of the Credit Agreements, warrants and any embedded derivatives, that were required to be bifurcated and recorded as a separate liability, in order to properly allocate the proceeds to each of these financial instruments.

We identified the Company’s accounting for the Credit Agreements, which included both management’s evaluation of the accounting treatment for the Credit Agreements and management’s estimates of fair value of each financial instrument and any embedded derivatives, as a critical audit matter because of the complexity involved in evaluating management’s interpretation of applicable accounting rules around the accounting for the Credit Agreements and the judgments and assumptions used by management to estimate the fair values of each financial instrument.

Auditing management’s judgments involved a high degree of auditor judgment and an increase in audit effort, including the use of internal accounting and valuation specialists, due to the impact these judgments have on the accounting estimates.

Our audit procedures related to the Company’s accounting for the Credit Agreements included the following, among others:

• To test the accuracy and completeness of the terms of the warrants and embedded derivatives identified by management in the Credit Agreements, we obtained and read the Credit Agreements and the warrant agreements.

• With the assistance of an internal accounting specialist, we obtained management’s technical memoranda and evaluated the reasonableness of the conclusions reached by management of the accounting treatment for the warrants and embedded derivatives in relation to the applicable accounting guidance.

• We utilized valuation specialists to assist in the following procedures to test the fair value of the Credit Agreements and embedded derivatives:

◦ Evaluate the appropriateness of the valuation methods used by management and testing their mathematical accuracy.

◦ Evaluating the reasonableness of certain valuation assumptions utilized by management by comparing the underlying source information to publicly available market data and verifying the accuracy of the calculations.

• We tested management’s estimates of fair value of the warrants by comparing certain underlying assumptions to publicly available market data and testing the mathematical accuracy of the valuation models.

• We recalculated the proceeds management allocated to the Credit Agreements, the warrants, and embedded derivatives based upon the estimates of fair value of each financial instrument.

/s/ RSM US LLP

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

Orlando, Florida

Tampa, Florida

March 21, 2024

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Total current liabilities 12,740 11,850

Long-term debt, net of debt discounts and issuance costs 33,185 —

Long-term operating lease liabilities 4,896 470

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Total other costs and expenses 53,710 52,693

Gain on sale-leaseback 2,692 —

Loss from operations ( 17,259 ) ( 23,562 )

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Interest expense ( 2,478 ) ( 15 )

Other income (losses), net 509 ( 373 )

Total other income (loss), net 651 ( 372 )

Other income, net 622 509

Loss on extinguishment of debt ( 3,088 ) —

Total other (loss) income, net ( 4,023 ) 651

Loss from operations before income taxes ( 21,282 ) ( 22,911 )

Income tax expense 367 380

Income tax (benefit) expense ( 2,432 ) 367

Net loss ( 18,850 ) ( 23,278 )

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(In thousands)

Common Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Non-controlling interest

Common Stock Additional Paid-In Capital Accumulated Deficit Non-controlling interest

Shares Par Value Total Equity

Balance at December 31, 2021 34,410 $ 34 $ 66,221 $ ( 12,551 ) $ 305 $ 54,009

Contributions from non-controlling interest — — — — 195 195

Shares issued on stock options exercises for cash 106 1 364 — — 365

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Balance at December 31, 2022 34,598 $ 35 $ 73,282 $ ( 35,735 ) $ 211 $ 37,793

Contributions from non-controlling interest — — — — 147 147

Shares issued on stock options exercises for cash 35 — 86 — — 86

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Shares issued on net settlement of stock options 11 — — — — —

Proceeds from debt allocated to warrants — — 2,632 — — 2,632

Net loss — — — ( 18,713 ) ( 137 ) ( 18,850 )

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Provision for product warranties 261 ( 2 )

Loss on disposal of property and equipment 75 48

(Gain) loss on disposal of property and equipment ( 2,531 ) 75

Loss on extinguishment of debt 3,088 —

Stock based compensation 5,114 6,697

Provision for allowance for doubtful accounts 315 128

Changes in current assets and liabilities:

Allowance for credit losses 279 315

Non-cash lease expense 87 —

Non-cash interest expense 545 —

Changes in operating assets and liabilities:

Trade receivables ( 3,574 ) 1,918

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Purchases of property and equipment ( 533 ) ( 1,010 )

Net cash used in investing activities ( 1,010 ) ( 723 )

Proceeds from sale of property and equipment 7,267 —

Net cash provided by (used in) investing activities 6,734 ( 1,010 )

Cash flows from financing activities

Proceeds from stock option exercises 86 365

Proceeds from long-term debt 43,474 —

Payment of debt issuance costs ( 3,106 ) —

Proceeds from debt allocated to warrants 2,632 —

Repayment of finance lease liabilities ( 37 ) ( 148 )

Extinguishment of credit agreement ( 11,030 ) —

Contributions from non-controlling interests 147 —

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Cash and cash equivalents, end of year $ 43,652 $ 10,192

APYX MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

Year Ended December 31,

Cash paid for:

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Income taxes $ 329 $ 128

Non cash activities:

Noncash activities:

Right-of-use assets capitalized and operating lease liabilities recognized upon execution of lease $ 4,917 $ —

Transfer of right-of-use assets to property and equipment on exercise of purchase option $ 15 $ —

Right-of-use assets capitalized and operating lease liabilities recognized upon lease modification $ — $ 769

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Right-of-use assets and finance lease liabilities derecognized upon execution of lease modification $ — $ 28

Transfer of right-of-use assets to property and equipment on exercise of purchase option $ — $ 43

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

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

As part of its plan to accelerate and fully fund the development of its advanced energy business, with a focus in the cosmetic surgery market, the Company sold its Core business in 2018 for gross proceeds of $ 97 million.

These proceeds were used to launch broad marketing and sales initiatives which resulted in rapid sales growth through December 31, 2021 and into the first quarter of 2022.

This planned growth in the business was accompanied by scaled operations, including procurement of components, expanded manufacturing capacity to turn those materials into saleable inventory, additional discretionary expenditures, including increased global participation at trade shows, additional employee trainings, user meetings, increased travel and entertainment expenses, more expansive research and development projects, and additional headcount to support those activities.

Additionally, the Company had, and still has, some significant non-recurring discretionary expenditures associated with completing its multi-year marketing initiatives related to its dermal resurfacing and skin laxity clearances.

Recent Business Developments

On March 14, 2022, the U.S.

Food and Drug Administration (“FDA”) posted a Safety Communication that warns consumers and health care providers against the use of the Company’s 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.

Following the Safety Communication, the Company experienced slowed demand for the adoption of its Helium Plasma Technology.

Food and Drug Administration (“FDA”) posted a Safety Communication that warned consumers and health care providers against the use of the Company’s 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.

Following the Safety Communication, the Company experienced reduced demand for the adoption of its Helium Plasma Technology.

On May 26, 2022, the Company announced that it had received 510(k) clearance from the FDA for the use of the Renuvion Dermal handpiece for specific dermal resurfacing procedures.

On July 18, 2022, the Company announced that it had received 510(k) clearance from the FDA for the use of the Renuvion APR handpiece for certain skin contraction procedures.

On June 2, 2022, and July 21, 2022, the FDA updated the Medical Device Safety Communication to recognize the new 510(k) clearances for the Renuvion® Dermal handpiece, and the expanded indications for the Renuvion® APR handpieces.

On June 2, 2022, and July 21, 2022, the FDA updated the Medical Device Safety Communication to recognize the new 510(k) clearances for the Renuvion Dermal handpiece, and the expanded indications for the Renuvion® APR handpiece.

The 510(k) clearance for the Renuvion Dermal handpiece allows surgeons to perform dermal resurfacing procedures for the treatment of moderate to severe wrinkles and rhytides, limited to patients with Fitzpatrick Skin Types I, II or III.

The 510(k) clearance for the Renuvion APR handpieces now addresses improving the appearance of lax (loose) skin in the neck and submental region.

On February 1, 2023, we announced we had submitted a 510(k) premarket notification (“510(k) submission”) for the Renuvion APR Handpiece to the FDA, supported by a clinical study and real-world evidence.

The 510(k) submission is intended to expand Renuvion’s indications for use to include a specific indication for the use of the Renuvion APR Handpiece for the coagulation of subcutaneous soft tissues where needed, following liposuction.

On February 27, 2023, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion APR Handpiece for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed.

On February 27, 2023, the Company announced that it received 510(k) clearance from the FDA for the use of the Renuvion APR handpiece for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed.

Soft tissue includes subcutaneous tissue.

While management expected that receiving these clearances would materially mitigate the financial effects of the Safety Communication in future periods, the Company continues to experience reduced demand for the adoption and utilization of its technology and management believes that this may have an adverse effect in future periods.

On April 28, 2023, the Company announced it had received 510(k) clearance from the FDA for the use of the Renuvion APR handpiece for coagulation of subcutaneous soft tissues following liposuction for aesthetic body contouring.

On May 10, 2023, the FDA updated the Safety Communication to inform consumers and healthcare providers about the clearance for the Renuvion APR handpiece for coagulation of subcutaneous soft tissues following liposuction.

On June 14, 2023, the Company announced that we received 510(k) clearance from the FDA for the Renuvion Micro handpiece, a new addition to the Renuvion production family.

The Renuvion Micro handpiece was cleared with an indication for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed.

Soft tissue includes subcutaneous tissue.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.

The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these consolidated financial statements are issued.

This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the condensed consolidated financial statements are issued.

When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these consolidated financial statements are issued.

When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern.

substantial doubt about the Company’s ability to continue as a going concern.

The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

While sales were continuing to grow into the first quarter of 2022 prior to the FDA Safety Communication, over the last few years, exclusive of the Company’s sale of the Core business segment to Symmetry Surgical during 2018, it has incurred recurring net losses and cash outflows from operations and the Company anticipates that losses will continue in the near term.

During the year ended December 31, 2022, the Company incurred an operating loss of $ 23.6 million and used $ 20.3 million of cash in operations.

As of December 31, 2022, the Company had cash and cash equivalents of $ 10.2 million.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of these consolidated financial statements.

In an effort to alleviate these conditions, the Company pursued various funding solutions in order to improve liquidity.

On November 22, 2022, the Company filed a shelf registration statement providing it the ability to register securities in the aggregate amount up to $ 100 million.

The Company has incurred recurring net losses and cash outflows from operations and it anticipates that losses will continue in the near term.

For the year ended December 31, 2023, the Company incurred a loss from operations of $ 17.3 million and used $ 5.2 million of cash in operations, which is inclusive of the receipt of its tax refund of approximately $ 8.1 million.

As of December 31, 2023, cash and cash equivalents on-hand were $ 43.7 million.

The Company plans to continue to fund its operations and capital funding needs through existing cash, sales of our products and if necessary additional equity and/or debt financing.

However, it cannot be certain that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to the Company or its existing stockholders.

The sale of additional equity would result in dilution to the Company’s stockholders.

Incurring additional debt financing would result in further debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict the Company’s operations.

If the Company is unable to raise additional capital in sufficient amounts or on acceptable terms, it may be required to delay, limit, reduce, or terminate its sales, marketing and product development.

Any of these actions could harm the business, results of operations and prospects.

On November 22, 2022, the Company filed a shelf registration statement providing it the ability to register and sell securities in the aggregate amount up to $ 100 million.

The shelf registration included an embedded ATM facility for up to $ 40 million.

To date the Company has not utilized this facility.

On February 17, 2023, the Company entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”) with MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time.

The Credit Agreement provides for an up to $ 35 million facility, consisting of senior secured term loans and a secured revolving facility.

The Credit Agreement provides for senior secured term loans of up to $ 25 million, comprised of (i) an initial tranche of $ 10 million, (ii) a second tranche of $ 5 million, and (iii) a third tranche of $ 10 million.

The secured revolving facility provides for loans in an aggregate principal amount of up to $ 10 million, subject to a borrowing base equal to certain percentages of the Company’s eligible accounts receivable and inventory, as determined in accordance with the terms of the Credit Agreement.

For a more in depth description of the terms of the Credit Agreement see Note 20.

On February 17, 2023, the Company entered into a Credit, Security and Guaranty Agreement (the “MidCap Credit Agreement”) with MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time.

The MidCap Credit Agreement provided for an up to $ 35 million facility, consisting of senior secured term loans and a secured revolving facility.

The MidCap Credit Agreement provided for senior secured term loans of up to $ 25 million, comprised of (i) an initial tranche of $ 10 million, (ii) a second tranche of $ 5 million, and (iii) a third tranche of $ 10 million.

The secured revolving facility provided for loans in an aggregate principal amount of up to $ 10 million, subject to a borrowing base equal to certain percentages of the Company’s eligible accounts receivable and inventory, as determined in accordance with the terms of the MidCap Credit Agreement.

The MidCap Credit Agreement was extinguished when, on November 8, 2023, when we entered into a Credit and Guaranty Agreement (the “Perceptive Credit Agreement”), by and among Apyx Medical (as borrower), Apyx China Holding Corp.

and Apyx Bulgaria EOOD, our wholly-owned subsidiaries (as subsidiary guarantors), and Perceptive Credit Holdings IV, LP (as initial lender and administrative agent)(“Perceptive”), and the lenders from time to time party thereto.

The Perceptive Credit Agreement provides for a facility of up to $ 45 million, consisting of senior secured term loans.

The Perceptive Credit Agreement provides for (i) an initial loan of $ 37.5 million and (ii) a delayed draw loan of $ 7.5 million.

For a more in-depth description of the terms of the MidCap Credit Agreement and the Perceptive Credit Agreement, see Note 11.

On February 27, 2023, the Company’s Board of Directors approved a plan to sell and leaseback the Company’s real property located in Clearwater, FL.

On March 14, 2023, the Company entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with VK Acquisitions VI, LLC (the “Purchaser”), for the sale of the Company’s facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price of $ 7,650,000 .

The Purchase Agreement is subject to the satisfactory completion of due diligence by the Purchaser.

Upon the closing of the sale of the Property, the Company will enter into a lease agreement with the Purchaser, pursuant to which the Property will be leased back to the Company.

For a more in depth description of the terms of the Purchase Agreement see Note 20.

During January 2023, the Company was notified that the IRS examination process of our 2018, 2019 and 2020 tax returns was complete and that the Company's tax refunds were approved for substantially the amount recorded in the Company's Consolidated Balance Sheet at December 31, 2022.

As of the date of this report, the Company is awaiting receipt of the tax refunds.

The Company also continues to re-assess its operating expenditures and cost structure to be commensurate with expected levels of revenue and management has the ability to reduce or delay expenditures to enhance and preserve liquidity.

Management has already reduced some operating expenditures, including a reduction-in-force on January 9, 2023, that reduced the Company's U.S.

headcount by 14 %.

On May 8, 2023, the Company closed on the Purchase Agreement and concurrently executed a 10 -year agreement to leaseback the underlying Property from the Purchaser.

For a more in-depth description of the terms of the Purchase Agreement, see Notes 6 and 7.

During January 2023, the Company was notified that the IRS examination process of our 2018, 2019 and 2020 tax returns was complete and that the Company’s tax refunds were approved for approximately $ 0.2 million more than the amount recorded in the Company’s Consolidated Balance Sheet at December 31, 2022.

On August 10, 2023, the Company received $ 8.1 million from the IRS, which included approximately $ 0.4 million of interest on the $ 7.7 million income tax refunds.

Management believes that the actions already taken, including replacing the MidCap Credit Agreement with the Perceptive

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Management believes that the actions already taken, and additional actions that it intends to take to manage operating expenditures, will enable the Company to meet its obligations for a period of at least one year from the date of issuance of these audited consolidated financial statements.

As a result, management believes its plans alleviate substantial doubt about the Company's ability to continue as a going concern.

These audited financial statements do not include any adjustments relating to the carrying amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

Credit Agreement, alleviated the conditions that previously raised substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of its Consolidated Financial Statements.

SIGNIFICANT ACCOUNTING POLICIES

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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

However, it has not experienced any losses in such accounts.

Trade Accounts Receivable and Allowance for Credit Losses

The Company’s standard credit terms for billings range from net 30 days to net 120 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.

However, management is able to use discretion in actual terms granted to customers.

Accounts receivable are determined to be past due if payments are not made in accordance with such agreements.

When evaluating the adequacy of the allowance for credit losses, we analyze historical bad debt experience, the composition of outstanding receivables by customer class, and the age of outstanding balances, and we make estimates in connection with establishing the allowance for credit losses, including the expected impacts of changes in the operating environment and other trends.

Changes in estimates are reflected in the period they are made.

If the financial condition of our customers deteriorates, resulting in an inability to make payments, additional allowances may be required.

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 $ 0.7 million and $ 0.4 million at December 31, 2022 and 2021, respectively, are adequate to provide for probable bad debts.

Management believes that the allowances for credit losses of approximately $ 0.6 million and $ 0.7 million at December 31, 2023 and 2022, respectively, are adequate to provide for probable credit losses.

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

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

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Property and Equipment

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At December 31, 2023 and 2022, the Company believes the remaining carrying values of its long-lived assets are recoverable.

The Company does not recognize leases with terms less than twelve months in duration, or that have variable only payments, in its Consolidated Balance Sheets 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, which is indicative of its collateralized borrowing rate.

Rates utilized were 1.83 % to 9.09 % for our outstanding leases at December 31, 2023.

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 provides a four-year limited warranty on end-user sales of its Renuvion and 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.

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

Debt and Debt Issuance Costs

Proceeds allocated to debt instruments are recorded net of discounts, such as those resulting from other financial instruments issued in a debt transaction or bifurcated embedded derivative features within the debt agreement, and debt issuance costs.

Debt issuance costs are allocated to issued and unissued financial instruments based on costs incurred and the underlying commitments in the debt agreement.

At the inception of the debt instrument, the Company determined the fair value of the debt and other financial instruments, including warrants and bifurcated embedded derivatives, and allocated the proceeds to each financial instrument based upon these estimated fair values.

Debt issuance costs allocated to unissued financial instruments are deferred as an asset until the financial instrument is issued.

Debt discounts and issuance costs are amortized over the estimated life of issued debt using the effective interest method and are presented as reduction of the related debt.

Revenue Recognition

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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 the Company's Advanced Energy products (Renuvion and J-Plasma), this is

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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.

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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.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

• The terms of sale to customers generally do not include any obligations to perform future services.

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Advertising costs are expensed as incurred.

The amounts of advertising costs, including trade shows, were approximately $ 2.3 million and $ 1.3 million for the years ended December 31, 2022 and 2021, respectively.

The amounts of advertising costs, including trade shows, direct to consumer advertising and other related costs, were approximately $ 1.8 million and $ 2.3 million for the years ended December 31, 2023, and 2022, respectively.

Stock-Based Compensation

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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.

In accordance with authoritative guidance, the Company accrues a liability in its consolidated financial statements 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.

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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.

Anti-dilutive

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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.

1 unchanged sentence

Research and development expenses are charged to operations as incurred.

The amounts of research and development costs were approximately $ 4.8 million and $ 4.5 million for the years ended December 31, 2023 and 2022, respectively.

The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC Topic 740, Income Taxes .

1 unchanged sentence

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

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

planning strategies.

As of December 31, 2022 and 2021, the Company recorded a valuation allowance on the net deferred tax assets.

A valuation allowance 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, 2023 and 2022, the Company recorded a valuation allowance on its net deferred tax assets.

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 realized.

6 unchanged sentences

dollar are remeasured into U.S.

dollars at the exchange rate on the balance sheet date, while nonmonetary items are remeasured at historical rates.

dollars at the exchange rate on the balance sheet date, while non-monetary items are remeasured at historical rates.

Revenue and expenses are remeasured at weighted average exchange rates during the period.

1 unchanged sentence

Reclassifications

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

The Company has reclassified certain amounts presented in the prior year to conform to the current year presentation.

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

6 unchanged sentences

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.

The Company adopted ASU 2016-13 on January 1, 2023, and its impact was not material to the Company.

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

DISPOSITION OF THE CORE BUSINESS

On August 30, 2018, 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, which expired August 30, 2022, whereby it manufactured certain Core pro ducts and sold 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 2022 amounted to $ 0.6 million with cost of sales equivalents of $ 0.6 million and other related expenses of $ 0.1 million for net other loss of $ 0.1 million.

Core activity for 2021 amounted to $ 6.5 million with cost of sales equivalents of $ 5.5 million and other related expenses of $ 1.5 million for net other loss of $ 0.4 million.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

INTEREST IN JOINT VENTURE INVESTMENT

In 2019, the Company executed a joint venture agreement with its Chinese supplier (the “China JV”) whereby the Company has a 51 % interest.

CHINA JOINT VENTURE

In 2019, the Company executed a joint venture agreement with its Chinese supplier (the “China JV”) whereby the Company has a 51 % ownership interest.

The China JV has been consolidated in these consolidated financial statements.

The agreement required the Company to make capital contributions into the newly formed entity of approximately $ 357,000 , of which approximately $ 203,000 and $ 154,000 , respectively, were contributed during the years ended December 31, 2021 and 2020.

The agreement required the Company to make capital contributions of approximately $ 357,000 into the newly formed entity, which were made in prior years.

In June 2023, the Company executed an amendment to the joint venture agreement to increase the amount of its registered capital.

The amendment requires the Company to make additional capital contributions to the China JV of $ 255,000 , of which $ 153,000 has been made as of December 31, 2023.

As of the date of these Consolidated Financial Statements, the joint venture has not commenced principal operations.

6 unchanged sentences

Ending interest in China JV $ 229 $ 219

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Inventories consisted of the following:

25 unchanged sentences

Property and equipment, net $ 1,915 $ 6,761

Total depreciation expense was $ 0.7 million for the years ended December 31, 2022 and 2021.

Total depreciation expense was $ 0.7 million for each of the years ended December 31, 2023 and 2022, respectively.

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

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

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

Accordingly, non-lease components are included in the measurement of the Company’s 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, which is indicative of its collateralized borrowing rate.

We utilized rates of 1.83 % to 6.49 % for our outstanding leases at December 31, 2022.

On February 27, 2023, the Company’s Board of Directors approved a plan to sell and leaseback the Company's real property located in Clearwater, FL.

On May 8, 2023, the Company closed on the Purchase Agreement and concurrently executed a 10 -year agreement to leaseback the underlying Property from the Purchaser (see Note 7).

The Company received net cash proceeds of approximately $ 6.6 million after withholding the security deposit of approximately $ 0.6 million, equal to one year's rent, taxes, first month's rent, expenses, and fees.

The $ 2.7 million gain on this transaction is presented in gain on sale-leaseback in the accompanying Consolidated Statement of Operations for the year ended December 31, 2023.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Operating Leases

The Company leases its facility in Sofia, Bulgaria and computers under non-cancelable operating lease agreements.

The Company leases its facilities in Clearwater, Florida and Sofia, Bulgaria under non-cancelable operating lease agreements.

In connection with the terms of the Purchase Agreement (see Note 6), during May 2023, the Company entered into a Single Tenant Industrial Building Lease (the “Lease”), pursuant to which the Property was leased back to the Company.

The Lease has an initial term of ten ( 10 ) years commencing from the closing (the “Initial Term”), and a renewal term of five ( 5 ) years, exercisable at the Company’s option.

The annual fixed rent is $ 619,500 for the first year of the Initial Term, and is subject to a 4 % escalation every year thereafter through the Initial Term.

Rent will be reset to the current market rate should the Company exercise the renewal option.

The Lease provides for a 3 % management fee on rent payments throughout the Initial Term and optional renewal term.

During the year ended December 31, 2022, the Company’s leases on the vehicles in Clearwater, Florida expired and the Company purchased the vehicles at fair value.

1 unchanged sentence

This extension resulted in reclassification of the lease from finance to operating.

This lease expired during the year ended December 31, 2023 and the Company continued to rent the equipment on a month-to-month basis.

During the year ended December 31, 2022, the Company entered into a five-year extension of its Sofia, Bulgaria facility.

These operating leases have terms expiring through December 2027.

These operating leases have terms expiring through May 2033.

Finance Leases

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

During the year ended December 31, 2023, the Company’s lease on the vehicle in Clearwater, Florida expired and the Company purchased the vehicle for the purchase price specified in the lease agreement.

Upon termination of the lease, the vehicle was transferred to fixed assets.

During the year ended December 31, 2022, the Company entered into a 63-month lease for computer equipment.

These finance leases have terms expiring through July 2027.

The computer equipment lease expires in July 2027.

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

Lease costs (in thousands) :

(in thousands) 2023 2022

Operating lease costs $ 732 $ 213

15 unchanged sentences

Weighted average discount rate 8.42 % 2.32 % 2.54 % 2.60 %

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Maturities of lease liabilities as of December 31, 2023 are as follows:

1 unchanged sentence

2024 $ 778 $ 21

Thereafter 3,752 —

Total lease payments 7,791 75

3 unchanged sentences

Long-term portion of lease liabilities $ 4,896 $ 53

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

1 unchanged sentence

(in thousands) December 31, 2023 December 31, 2022

Accrued payroll $ 563 $ 546

Accrued bonus — 2,117

Accrued payroll and related costs $ 829 $ 563

Accrued bonuses 1,545 —

Accrued commissions 1,489 847

5 unchanged sentences

Uncertain tax positions — 2,079

Sales tax payable 245 428

Other accrued expenses and current liabilities 826 1,124

Total accrued expenses and other current liabilities $ 9,661 $ 8,928

Included in accrued payroll and related costs at December 31, 2023 is approximately $ 0.3 million of accrued severance costs for the Company’s former Chief Financial Officer.

PRODUCT WARRANTIES

7 unchanged sentences

Accrued product warranties $ 445 $ 391

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

JOINT AND SEVERAL PAYROLL LIABILITY

During 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.

During 2022, the Company was relieved of approximately $ 650,000 of its joint and several payroll liability due to the lapse of the statute of limitations on the liability.

This adjustment is included in other income (losses), net in the accompany Consolidated Statement of Operations for the year ended December 31, 2022.

This amount of the liability was approximately $ 0.3 million and $ 1.0 million at December 31, 2022 and 2021, respectively.

The Company will be relieved of the remainder of the liability as the statute of limitations on the liability expires, which the Company expects to occur during April 2023, or once the Company can establish that its employees have in fact paid these obligations.

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

During the years ended December 31, 2023 and 2022, the Company was relieved of $ 0.3 million and $ 0.7 million, respectively, of its joint and several payroll liability due to the lapse of the statute of limitations on the liability.

These adjustments are included in other income, net in the accompanyng Consolidated Statements of Operations for the years ended December 31, 2023 and 2022.

This amount of the liability was approximately $ 0.3 million at December 31, 2022.

MIDCAP CREDIT AGREEMENT

On February 17, 2023, the Company entered into a Credit, Security and Guaranty Agreement (the “MidCap Credit Agreement”), by and among the Company (as borrower) and Apyx China Holding Corp., the Company’s wholly-owned subsidiary (as guarantor), and MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time (collectively “MidCap”).

The MidCap Credit Agreement provided for an up to $ 35 million facility, consisting of senior secured term loans and a secured revolving facility.

The secured revolving facility provided for loans in an aggregate principal amount of up to $ 10 million, subject to a borrowing base equal to percentages of eligible accounts receivable and inventory determined in accordance with the MidCap Credit Agreement.

The MidCap Credit Agreement was to mature on February 1, 2028.

The outstanding borrowings under the MidCap Credit Agreement were repaid in full using proceeds from the execution of the Perceptive Credit Agreement.

Issuance of MidCap Warrants

In connection with the Company’s obligations under the MidCap Credit Agreement, the Company issued to a statutory trust of MidCap Financial warrants to purchase up to 250,000 shares of its common stock, par value $ 0.001 , with an exercise price of $ 3.40 per share.

These warrants remain outstanding as of December 31, 2023.

The warrants have a 10 year term and can be exercised by issuing payment to the Company for the number of warrants exercised or exercised net by surrendering warrants with an intrinsic value equal to the cumulative exercise price of the warrants being exercised.

The Company determined that these warrants meet the criteria for equity classification and included the proceeds allocated to the warrants, on a relative fair value basis, as a debt discount and additional paid-in capital in the accompanying consolidated financial statements.

MidCap Debt Issuance Costs

In connection with entering into the MidCap Credit Agreement, the Company incurred debt issuance costs of approximately $ 1.6 million, comprised primarily of commissions paid to the financial advisor.

These costs were allocated to the issued and unissued term loans and the revolving facility.

The costs allocated to the issued term loan were being amortized using the effective interest method over the life of the loan.

The costs allocated to the unissued term loans were deferred and were being amortized over the life of the term loans starting at the issuance date.

The Company recognized the deferred costs at the point that the Company’s rights to borrow on the term loans expired.

The costs allocated to the revolving facility were being recognized on a straight-line basis over the term of the MidCap Credit Agreement.

Together with unamortized debt discounts and prepayment penalties incurred in the extinguishment, the Company recognized all unamortized debt issuance costs in loss on extinguishment of debt in the accompanying Consolidated Statement of Operations for the year ended December 31, 2023.

PERCEPTIVE CREDIT AGREEMENT

On November 8, 2023, the Company entered into a Credit and Guaranty Agreement (the “Perceptive Credit Agreement”), by and among the Company (as borrower), Apyx China Holding Corp.

and Apyx Bulgaria EOOD, the Company’s wholly-owned subsidiaries (as subsidiary guarantors), and Perceptive Credit Holdings IV, LP (as initial lender and administrative agent)(“Perceptive”), and the lenders from time to time party thereto.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Perceptive Credit Agreement provides for a facility of up to $ 45 million, consisting of senior secured term loans.

The Perceptive Credit Agreement provides for (i) an initial loan of $ 37.5 million and (ii) a delayed draw loan of $ 7.5 million.

The Credit Agreement matures on November 8, 2028.

The initial loan of $ 37.5 million was fully funded on November 8, 2023, with approximately $ 11.0 million of the proceeds used to payoff the obligations under the MidCap Credit Agreement, including approximately $ 1.0 million of related prepayment penalties and exit fees, and $ 2.7 million for transaction fees and other expenses incurred in connection with the Perceptive Credit Agreement, which included a 2 % fee of the total facility payable to Perceptive at closing.

The delayed draw loan is available until December 31, 2024, conditioned upon, among other things, the achievement of a minimum revenue target.

After repayment of the MidCap Credit Agreement and payment of transaction fees and other expenses in connection with the Perceptive Credit Agreement, the net proceeds of these loans will be used for working capital and general corporate purposes.

The initial loan and delayed draw loan bear interest at a floating rate based on one-month SOFR, subject to a floor of 5.0 %, plus 7.0 % ( 12.4 % at December 31, 2023).

The first forty-eight ( 48 ) months of the loans constitute an interest-only period, with interest payable monthly on the last day of each month.

Subsequent to the interest-only period, the outstanding principal amount of the loans is repayable in monthly payments of 3 % of the outstanding balance on the payment date.

All remaining outstanding principal, together with all accrued and unpaid interest, is due at maturity.

The loans may be voluntarily prepaid in full, or in part, at any time, subject to terms and conditions set forth in the Perceptive Credit Agreement.

Additionally, the loans are subject to mandatory prepayment obligations, pursuant to the terms of the Perceptive Credit Agreement.

Prepayments of the loans are subject to fees of 10 %, 9 %, 6 %, 4 % and 2 % of the prepayment amounts made during the first year, second year, third year, fourth year, and thereafter, respectively.

The obligations of the Company under the Perceptive Credit Agreement are secured by first priority liens on substantially all of its assets.

The Perceptive Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its subsidiaries, among other things, to incur debt, grant liens, make distributions, enter certain restrictive agreements, pay or modify subordinated debt, dispose of assets, make investments and acquisitions, enter into certain transactions with affiliates, and undergo certain fundamental changes, in each case, subject to limitations and exceptions set forth in the Perceptive Credit Agreement.

The Perceptive Credit Agreement also requires the Company to satisfy certain financial covenants, including minimum trailing twelve month net revenue targets relating to its Advanced Energy segment (tested quarterly), with year-end targets of $ 41.6 million, $ 57.0 million, $ 70.2 million, and $ 87.8 million for 2024, 2025, 2026, and 2027, respectively.

Additionally, the Company must maintain a balance of $ 3 million in cash and cash equivalents during the duration of the Perceptive Credit Agreement’s term.

As of December 31, 2023, the Company was in compliance with the financial covenants contained within the Perceptive Credit Agreement.

Events of Default

The Perceptive Credit Agreement also contains customary Events of Default (as defined in the Perceptive Credit Agreement) that include, among other things, certain payment defaults, cross defaults to certain other contracts and indebtedness, covenant defaults, inaccuracy of representations and warranties, bankruptcy and insolvency defaults, judgment defaults, change of control defaults, defaults related to the failure to remain registered with the Securities and Exchange Commission and listed for trading on the Nasdaq Stock Market, and any material adverse change.

Upon the occurrence and during the continuance of an Event of Default under the Perceptive Credit Agreement, the administrative agent, if requested by the respective lenders, may, among other things, (i) terminate commitments, (ii) declare all outstanding obligations under the agreement (including principal and accrued and unpaid interest) immediately due and payable, and (iii) exercise the other rights and remedies provided for under the agreement.

The Perceptive Credit Agreement provides that, under certain circumstances, a default interest rate will apply on all obligations upon the occurrence and during the existence of an Event of Default, at a per annum rate equal to 3 % in excess of the applicable interest rate.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company bifurcated a derivative liability related to the potential acceleration triggered upon an event of default (contingent put option) and the supplemental interest upon an event of default features of the Perceptive Credit Agreement.

The fair value of the bifurcated derivative is de minimis to the Company’s consolidated financial statements.

Issuance of Warrants

In connection with the Company’s initial loan under the Perceptive Credit Agreement, the Company issued Perceptive warrants to purchase up to 1,250,000 shares of its common stock, par value $ 0.001 , with an exercise price of $ 2.43 per share.

Upon the issuance of the delayed draw loan, if applicable, the Company will issue Perceptive warrants to purchase up to 250,000 shares of its common stock, par value $ 0.001 , with an exercise price of equal to the 10-day volume weighted average sale price from the preceding business day.

Debt Issuance Costs

In connection with entering into the Perceptive Credit Agreement, the Company incurred debt issuance costs of approximately $ 1.5 million, comprised primarily of commissions paid to the financial advisor.

These costs were allocated to the initial term loan and the currently unissued delayed draw term loan.

The costs allocated to the issued term loan are being amortized using the effective interest method over the life of the loan.

The costs allocated to the unissued delayed draw term loan have been deferred and will be amortized over the life of the delayed draw term loan starting at the issuance date.

If the delayed draw term loan is not issued, the Company will recognize the deferred costs at the point that the Company's rights to borrow on the term loan expires.

Other Debt Information

Included in interest expense for the year ended December 31, 2023, is $ 140,000 of amortization of the debt issuance costs and $ 324,000 of amortization of the debt discounts including accretion of the exit fee on the MidCap term loan.

Included in interest expense for the year ended December 31, 2023, is $ 74,000 of amortization of the debt issuance costs and $ 7,000 of amortization of the debt discount on the MidCap revolving facility.

The Company’s term loan, net consists of the following at December 31, 2023:

(In thousands)

Term loan $ 37,500

Unamortized debt issuance costs ( 1,240 )

Unamortized debt discount ( 3,075 )

Term loan, net $ 33,185

As of December 31, 2023, principal repayments on the term loan are as follows:

(In thousands)

Total repayments $ 37,500

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

CONTRACT ASSETS AND LIABILITIES

2 unchanged sentences

The Company defers the development fees billed to customers, and the associated costs, and recognizes them as it completes performance obligations on the supply portion of the agreement.

Other contract liabilities may be recognized when a customer prepays for goods or services.

Other contract liabilities may be recognized when a customer prepays for goods or services or if the Company has an unfulfilled performance obligation that a customer has been invoiced for.

At December 31, 2023 and 2022, respectively, the Company had recorded approximately $ 1.7 million and $ 2.3 million of contract liabilities and $ 0.5 million and $ 0.6 million of contract assets related to customer prepayments and the deferral of revenues and expenses under these agreements.

At December 31, 2022, $ 0.9 million of the contract liabilities and $ 0.1 million of the contract assets are presented as current in the accompanying Consolidated Balance Sheet within accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively.

At December 31, 2021, $ 0.5 million of the contract liabilities and $ 0.1 million of the contract assets are presented as current in the accompanying Consolidated Balance Sheet within accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively.

During 2022, the Company recognized approximately $ 0.2 million of contract liabilities and $ 0.1 million of contract assets that existed as of December 31, 2021 in sales and cost of sales, respectively, in the accompanying Consolidated Statement of Operations for the year ended December 31, 2022.

During 2021, the Company did not recognize any significant contract liabilities or contract assets that existed as of December 31, 2020 in sales or cost of sales in the accompanying Consolidated Statement of Operations for the year ended December 31, 2021.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

At December 31, 2023, $ 0.5 million of the contract liabilities and $ 0.1 million of the contract assets are presented as current in the accompanying Consolidated Balance Sheets within accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively.

At December 31, 2022, $ 0.9 million of the contract liabilities and $ 0.1 million of the contract assets are presented as current in the accompanying Consolidated Balance Sheets within accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively.

During each of the years ended December 31, 2023 and 2022, the Company recognized approximately $ 0.2 million of contract liabilities and $ 0.1 million of contract assets that existed as of December 31, 2022 and 2021, in sales and cost of sales, respectively, in the accompanying Consolidated Statement of Operations for the year ended December 31, 2023 and 2022.

EARNINGS (LOSS) PER SHARE

9 unchanged sentences

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

Warrants 1,500 —

Options 7,343 6,520

Components of income tax expense are as follows:

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Components of income tax (benefit) expense are as follows:

(In thousands) December 31,

2 unchanged sentences

Foreign 185 124

( 2,432 ) 367

Federal ( 3,386 ) ( 4,096 )

2 unchanged sentences

Valuation allowance 4,375 5,100

Total income tax expense $ 367 $ 380

Total income tax (benefit) expense $ ( 2,432 ) $ 367

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

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Year Ended December 31,

5 unchanged sentences

GILTI ( 1.9 ) % ( 0.9 ) %

Uncertain tax positions 9.8 % ( 0.9 ) %

Other 1.7 % 0.4 %

Total 11.4 % ( 1.6 ) %

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

5 unchanged sentences

Research and development capitalization 2,178 982

Lease liabilities 1,276 —

Accrued insurance deductibles 798 400

Inventory 263A adjustment 394 —

Interest expense limitation 599 —

Accrued bonuses 408 —

Deferred revenue 325 339

Accrued bonus — 555

Inventory 263A adjustment 231 394

Other 556 553

3 unchanged sentences

Deferred tax liabilities:

Lease right-of-use assets ( 1,253 ) —

Property and equipment ( 165 ) ( 205 )

9 unchanged sentences

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, 2022 and 2021, the Company has recorded a liability of approximately $ 1.3 million related to uncertain tax positions and accrued approximately $ 0.8 million and $ 0.6 million, respectively, of interest and penalties on these positions.

As of December 31, 2023, the Company has no uncertain tax positions.

As of December 31, 2022, the Company had recorded a liability of approximately $ 1.3 million related to uncertain tax positions and accrued approximately $ 0.8 million and of interest and penalties on these positions.

APYX MEDICAL CORPORATION

7 unchanged sentences

End of year balance $ — $ 1,313

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company is subject to U.S.

3 unchanged sentences

The Company’s state income tax returns are subject to examination for the 2019 through 2022 tax years.

During 2022, the Company was notified by the IRS that it is examining the Company’s 2018, 2019 and 2020 federal income tax returns.

During 2022, the Company was notified by the IRS that it was examining the Company’s 2018, 2019 and 2020 federal income tax returns.

During January 2023, the Company was notified that the examination process was complete and that the Company's tax refunds were approved for substantially the amount recorded in the Company's Consolidated Balance Sheet at December 31, 2022.

In the examination, the Company's uncertain tax positions were accepted by the IRS as submitted on our income tax returns and the Company reversed its uncertain tax position in January 2023.

On August 10, 2023, the Company received $ 8.1 million from the IRS, which included approximately $ 0.4 million of interest on the $ 7.7 million of income tax refunds.

In the examination, the Company's uncertain tax positions were accepted by the IRS as submitted on our income tax returns and the Company reversed its uncertain tax positions in January 2023.

RETIREMENT PLAN

7 unchanged sentences

RELATED PARTY TRANSACTIONS

Several relatives of Nikolay Shilev, Apyx Bulgaria’s Managing Director, are considered related parties.

Some 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.

1 unchanged sentence

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

For the years ended December 31, 2022 and 2021, the Company made purchases from this supplier of approximately $ 0.6 million and $ 1.3 million, respectively.

At December 31, 2022 and 2021, the Company had net receivables from and payables to this supplier of approximately $ 8,000 and $ 1,000 , respective ly.

For each of the years ended December 31, 2023 and 2022, the Company made purchases from this supplier of approximately $ 0.6 million.

At December 31, 2023 and 2022, the Company had payables to and receivables from this supplier of approximately $ 82,000 and $ 8,000 , respective ly.

COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

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.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

6 unchanged sentences

In March 2022, the Company received a letter from the former distributor citing improper contract termination and alleging damages.

While the matter is still in the early stages, management has determined that a loss is probable and that a range of estimated losses is approximately $ 250,000 to $ 1,000,000 .

The Company has recorded an estimated loss of $ 250,000 in professional services in the accompanying Consolidated Statement of Operations for the year ended December 31, 2022.

It is at least possible that a change in the actual amount of loss will occur in the near term, though management expects the actual amount of loss will be within the estimated range of losses.

During 2022, the Company recorded an estimated loss of $ 250,000 in professional services in the Consolidated Statement of Operations for the year ended December 31, 2022.

The Company has not experienced any movement on the

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

matter since our response to the distributor in the fourth quarter of 2022.

Accordingly, management revised its estimated loss on the matter to $ 0 as it is no longer probable that a loss has been incurred.

The reduction in estimated loss of $ 250,000 is included in professional services in the accompanying Consolidated Statement of Operations for the year ended December 31, 2023.

As previously disclosed with the U.S.

Securities and Exchange Commission on the Company’s Current Report on Form 8-K filed June 7, 2022, on June 6, 2022, a complaint (the “Complaint”) was filed in the United States District Court for the Middle District of Florida by plaintiff William E.

Securities and Exchange Commission on the Company’s Current Report on Form 8-K filed June 7, 2022, on June 6, 2022, a complaint (the “Hattaway Complaint”) was filed in the United States District Court for the Middle District of Florida (the “U.S.

District Court”) by plaintiff William E.

Hattaway, individually and on behalf of all others similarly situated against the Company, Charles D.

Goodwin (“Goodwin”), the Company’s President and Chief Executive Officer and a member of the Company’s Board of Directors, and Tara Semb (“Semb”), the Company’s Chief Financial Officer, Treasurer and Secretary, alleging violations by the Company, Goodwin and Semb of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, primarily related to certain public statements and disclosures concerning the off-label usage of certain of the Company’s Advanced Energy products and the impact such usage would have on the Company’s business, operations and prospects.

The Complaint seeks an unspecified amount of damages.

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

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

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

While the matter is still in the early stages, management has determined that a loss is probable and that a range of estimated losses is approximately $ 475,000 to $ 2,500,000 .

The Company has recorded an estimated loss of $ 475,000 in professional services in the accompanying Consolidated Statement of Operations for the year ended December 31, 2022.

It is at least possible that a change in the actual amount of loss will occur in the near term, though management expects the actual amount of loss will be within the estimated range of losses.

The Hattaway Complaint sought an unspecified amount of damages.

While the matter was in the early stages, management had determined that a loss was probable in the estimated range of $ 475,000 to $ 2,500,000 .

The Company recorded an estimated loss of $ 475,000 in professional services in the accompanying Consolidated Statement of Operations for the year ended December 31, 2022.

On June 15, 2023, the U.S.

District Court issued an Order dismissing the Hattaway Complaint and granting plaintiff until July 3, 2023 to file a second amended complaint, failing which the U.S.

District Court would close the case.

On June 27, 2023, the Plaintiff formally notified the Court that a Second Amended Complaint will not be filed and on July 17, 2023, the case was marked closed based on the Court’s June 15, 2023 dismissal order.

This closed the matter for the estimated loss recorded by the Company.

During 2022, the Company was notified of certain procedures alleged to have been performed by the same physician and which are currently the subject of two related products liability cases within the courts.

Subsequent to year end, the Company was notified by its insurance carriers that all or most of the ten individual plaintiff’s allegations could be subject to separate deductibles notwithstanding the commonality of each underlying occurrence.

The Company has determined that a loss is probable and that a range of estimated losses is approximately $ 1,450,000 to $ 2,400,000 .

The Company has recorded an estimated loss of $ 1,450,000 in selling, general and administrative expenses associated with the insurance deductibles in the accompanying Consolidated Statement of Operations for the year ended December 31, 2022.

During 2023, the Company was notified by its insurance carriers that all or most of the ten individual plaintiff’s allegations could be subject to separate deductibles notwithstanding the commonality of each underlying occurrence.

During March 2024, two of the plaintiffs claims were dismissed by the courts.

The Company has determined that a loss, comprised of estimated costs to defend the Company against the lawsuits, is probable and that the range of estimated losses is approximately $ 1,450,000 to $ 1,950,000 .

The Company recorded an estimated loss of $ 1,450,000 related to the matters during 2022.

It is at least possible that a change in the actual amount of loss will occur in the near term, though management expects the actual amount of loss will be within the estimated range of losses.

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 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 condensed 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.

On March 1, 2023, Shiva Stein as plaintiff filed a derivative complaint in the Court of Chancery of the State of Delaware, captioned Stein v.

Makrides, et al., C.A.

2023-0239-MTZ (the “Stein Suit”) against individual members of the Company’s board of directors and naming the Company as a nominal defendant, primarily concerning the facts at issue in a previously disclosed federal securities class action lawsuit filed in 2019 and settled in 2020, captioned Pritchard v.

Apyx Medical Corporation, et al., Case No.

8:19-cv-00919 (M.D.

Fla.) (the “Pritchard Case”).

The Stein Suit sought unspecified damages alleged to have resulted from purported breaches of fiduciary duty, unjust enrichment and related claims based on the same set of allegedly misleading statements and material omissions described in the settled Pritchard Case, which concerned the 2018-2019 clinical study conducted by the Company to evaluate the safety and efficacy of its J-Plasma technology for dermal resurfacing.

On April 3, 2023, the Company formally moved to dismiss the case as time-barred and on other legal grounds, which triggered the plaintiff’s right to file an amended complaint.

On July 12, 2023, plaintiff’s counsel informed the Company’s counsel that plaintiff Stein did not intend to file an amended complaint, and on July 17, 2023 plaintiff’s counsel filed a notice of voluntary dismissal.

An order of the Court dismissing the Stein Suit, with prejudice, was entered on July 20, 2023.

During March 2024, the Company was named as a defendant in a number of product liability lawsuits filed under the direction of a single plaintiff’s tort firm in connection with off-label use of Renuvion products and the Company’s alleged mismarketing of the same.

The suits are based predominantly in Florida and nearly all involve procedures conducted prior to 2023, which was before the Company received FDA 510k clearance for the use of Renuvion in the types of procedures at issue.

The Company denies liability and intends vigorously to defend these suits, many of which appear to be stale under relevant statutes of limitations, in addition to what other substantive defenses may be determined to apply.

The Company has determined that a loss, comprised of estimated costs to defend the Company against the lawsuits, is probable and currently estimates the range of losses in connection with these matters to be between $ 1,300,000 and $ 1,500,000 .

The Company recorded an estimated loss of $ 1,300,000 related to these matters in the accompanying Consolidated Statement of Operations for the year ended December

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company has also determined that there is a reasonable possibility that there will be an additional loss related to the matters, but the Company is unable to provide an estimate of the range of such additional loss at this time.

Purchase Commitments

1 unchanged sentence

Concentrations

There were no significant sales concentrations for the year ended December 31, 2022.

Sales to one customer within the Advanced Energy segment represented 11 % of total sales for the year ended December 31, 2021.

Receivables from one customer and two customers within the Advanced Energy segment represented 13 % and 22 %, respectively, of trade accounts receivable at December 31, 2022 and December 31, 2021.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

There were no significant sales concentrations for the years ended December 31, 2023 and 2022.

Receivables from two customers and one customer within the Advanced Energy segment represented 22 % and 13 %, respectively, of trade accounts receivable at December 31, 2023 and 2022.

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, 2022 approximately 170,000 are available to be issued in this plan.

At December 31, 2023, options are no longer able to be granted from of 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.

3 unchanged sentences

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, 2022, all 200,000 are available to be issued in this plan.

At December 31, 2023, approximately 360,000 are available to be issued in this plan.

In August 2021, the Company’s stockholders approved the 2021 Share Incentive Plan covering a total of 1,375,000 shares of common stock issuable upon exercise of options to be granted under the plan.

At December 31, 2023, approximately 250,000 are available to be issued in this plan.

In August 2023, the Company’s stockholders approved the 2023 Share Incentive Plan covering a total of 1,600,000 shares of common stock issuable upon exercise of options to be granted under the plan.

At December 31, 2023, all 1,600,000 are available to be issued in this plan.

On January 11, 2023, the Company granted employees appro ximately 1,400,000 options to purchase common shares of the Company's stock.

On January 10, 2024, the Company granted employees appro ximately 1,400,000 options to purchase common shares of the Company's stock at an exercise price of $ 2.42 .

All options granted were pursuant to the plans noted above.

The options ves t over a period of three years .

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

9 unchanged sentences

Outstanding at December 31, 2023 7,342,883 $ 6.31

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Number of options Weighted average grant date fair value

10 unchanged sentences

2023 Grants 2022 Grants

Option value $ 5.10 - $ 10.96 $ 9.29 - $ 11.51

Exercise price $ 2.50 - $ 4.21 $ 5.10 - $ 10.96

Risk-free rate 3.6 % - 4.3 % 1.6 % - 3.9 %

8 unchanged sentences

These options have a weighted average exercise price of $ 6.33 and a weighted average remaining contractual term of approximately 6 years.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

As of December 31, 2023, there were 5,287,102 stock options outstanding and exercisable with an aggregate intrinsic value of approximately $ 140,000 .

1 unchanged sentence

The total intrinsic value of in the money options exercised during the years ended December 31, 2023 and 2022, was approximately $ 210,000 and $ 900,000 , 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.

Intrinsic value of exercised shares is the fair value of such shares on the date of exercise less the exercise price of the option on the exercise date.

The total fair value of options granted during the years ended December 31, 2023 and 2022, was approximately $ 2,980,000 and $ 11,350,000 , respectively.

4 unchanged sentences

During the years ended December 31, 2023 and 2022, the Company received 10,967 and 125,596 options as payment in the exercise of 11,033 and 81,737 options, respectively.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

As of December 31, 2023, there was approximately $ 4,280,000 of total unrecognized stock-based compensation expense, related to unvested stock options granted under the plans above.

19 unchanged sentences

Other income, net — — 622 622

Income tax expense — — 367 367

Loss on extinguishment of debt — — ( 3,088 ) ( 3,088 )

Income tax benefit — — ( 2,432 ) ( 2,432 )

Year ended December 31, 2022

1 unchanged sentence

Sales $ 36,803 $ 7,707 $ — $ 44,510

Income (loss) from operations 2,784 1,033 ( 18,265 ) ( 14,448 )

(Loss) income from operations ( 4,103 ) 1,641 ( 21,100 ) ( 23,562 )

Interest income — — 157 157

Interest expense — — ( 15 ) ( 15 )

Other losses, net — — ( 373 ) ( 373 )

Income tax benefit — — 380 380

Other income, net — — 509 509

Income tax expense — — 367 367

International sales in 2023 and 2022, were 26.8 % and 29.9 % of sales, respectively.

7 unchanged sentences

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

SUBSEQUENT EVENTS

Execution of Credit Agreement

On February 17, 2023, the Company entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”), by and among the Company (as borrower) and Apyx China Holding Corp., the Company’s wholly-owned subsidiary (as guarantor), and MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time.

The Credit Agreement provides for an up to $ 35 million facility, consisting of senior secured term loans and a secured revolving facility.

The Credit Agreement matures on February 1, 2028.

The initial tranche of $ 10 million was fully funded on February 17, 2023, with approximately $ 2 million of the proceeds used to pay for transaction fees and other costs incurred in connection with the Credit Agreement.

Subject to certain terms and conditions of the Credit Agreement, the second tranche would be available between June 30, 2023 and December 31, 2023 and the third tranche would be available between January 1, 2024 and September 30, 2024, respectively.

The Company’s ability to access these additional tranches is conditioned upon, among other things, the achievement of certain minimum revenue targets.

The net proceeds of these term loans are to be used for working capital and general corporate purposes.

Each term loan bears interest at a floating rate based on an Adjusted Term SOFR (as defined in the Credit Agreement), subject to a floor of 2.5 %, plus 7.35 %.

The first twenty-four ( 24 ) months of the term loans constitute an interest-only period (with a possible twelve ( 12 ) month extension), with interest payable monthly on the first day of each month.

Subsequent to the interest-only period, the outstanding principal amount of the term loans is repayable in thirty-six ( 36 ) equal monthly payments (or twenty-four ( 24 ) with the extension of the interest-only period).

All remaining outstanding principal, together with all accrued and unpaid interest, is due at maturity.

The term loans may be voluntarily prepaid in full, or in part, at any time, subject to terms and conditions set forth in the Credit Agreement.

Additionally, the term loans are subject to mandatory prepayment obligations, pursuant to the terms of the Credit Agreement.

Prepayments of the term loans are subject to fees of 3 %, 2 %, and 1 % of the prepayment amounts made during the first year, second year, and thereafter, respectively.

At the time of the final payment of the term loans, the Company is also obligated to pay an exit fee of 4 % of the total amount funded thereunder.

Revolving Facility

The Company may borrow, repay and reborrow under the revolving facility until February 1, 2028, at which time the facility will terminate and all outstanding amounts thereunder, including all accrued and unpaid interest, must be repaid.

The proceeds of the revolving facility may be used for working capital needs and general corporate purposes.

Loans made under the revolving facility bear interest at a floating rate based on an Adjusted Term SOFR (as defined in the Credit Agreement), subject to a floor of 2.5 %, plus 4 %.

The Company is obligated to pay a fee equal to 0.5 % per annum on the outstanding balance of the revolving loans and the average unused portion of the available revolving commitments, respectively.

Additionally, if the revolving facility is terminated or reduced before maturity, the Company is subject to a deferred origination fee pursuant to the terms of the Credit Agreement.

Terminations and reductions of the commitments are subject to fees of 3 %, 2 %, and 1 % of the terminated or reduced commitments during the first year, second year, and thereafter, respectively.

The Company is required to maintain a minimum balance of 30 % of the lesser of the borrowing base or $ 10 million under the revolving facility.

If the average outstanding balance for a month is less than the minimum balance, the Company will pay a minimum balance fee for the difference between the minimum balance and the average outstanding balance for the month at the highest rate for the revolving loans during the month.

For such loans, interest and fees are payable monthly on the first day of each month.

The obligations of the Company under the Credit Agreement are secured by first priority liens on substantially all of its assets.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its subsidiaries, among other things, to incur debt, grant liens, make distributions, enter certain restrictive agreements, pay or modify subordinated debt, dispose of assets, make investments and acquisitions, enter into certain transactions with affiliates, and undergo certain fundamental changes, in each case, subject to limitations and exceptions set forth in the Credit Agreement.

The Credit Agreement also requires the Company to satisfy certain financial covenants, including minimum trailing twelve (12) month net revenue targets relating to its Advanced Energy segment (tested quarterly), with year-end targets of $ 49 million, $ 60 million and $ 70 million for 2023, 2024, and 2025, respectively.

Additionally, the Company must maintain a balance of $ 10 million in cash and cash equivalents during the duration of the Credit Agreement’s term.

Events of Default

The Credit Agreement also contains customary Events of Default (as defined in the Credit Agreement) that include, among other things, certain payment defaults, cross defaults to certain other contracts and indebtedness, covenant defaults, inaccuracy of representations and warranties, bankruptcy and insolvency defaults, judgment defaults, change of control defaults, defaults related to the failure to remain registered with the Securities and Exchange Commission and listed for trading on the Nasdaq Stock Market, and any material adverse change.

Upon the occurrence and during the continuance of an Event of Default under the Credit Agreement, the respective administrative agent, if requested by the respective lenders, may, among other things, (i) suspend or terminate commitments, as well as obligations of the relevant administrative agent and lenders, (ii) declare all outstanding obligations under the agreement (including principal and accrued and unpaid interest) immediately due and payable, and (iii) exercise the other rights and remedies provided for under the agreement.

The Credit Agreement provides that, under certain circumstances, a default interest rate will apply on all obligations under such agreement during the existence of an Event of Default, at a per annum rate equal to 2 % in excess of the applicable interest rate.

Issuance of Warrants

In connection with the Company’s obligations under the Credit Agreement, the Company issued to a statutory trust of MidCap Financial warrants to purchase up to 250,000 shares of its common stock, par value $ 0.001 , with an exercise price of $ 3.40 per share.

Sale Leaseback of Clearwater, FL Real Property

In an effort to improve liquidity and the balance sheet condition of the Company, management has been exploring options to leverage the Company's unencumbered real property.

On February 27, 2023 the Company’s Board of Directors approved a plan to sell and leaseback the Company's real property located in Clearwater, FL.

On March 14, 2023, Apyx Medical Corporation (the “Company”) entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with VK Acquisitions VI, LLC (the “Purchaser”), for the sale of the Company’s facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price of $ 7,650,000 .

The Purchase Agreement is subject to the satisfactory completion of due diligence by the Purchaser within thirty ( 30 ) days from the date of execution, during which time the Purchaser retains the right to cancel the Purchase Agreement.

The closing shall occur five ( 5 ) days following the expiration of the due diligence period.

Upon execution of the Purchase Agreement, the Purchaser paid a down payment of $ 400,000 into escrow, which shall be held in accordance with the Purchase Agreement.

Pursuant to the terms of the Purchase Agreement, the transaction is not conditioned upon Purchaser obtaining any form of financing.

The Purchase Agreement contains customary representations, warranties and covenants.

In accordance with the terms of the Purchase Agreement, upon the closing of the sale of the Property, the Company will enter into a Single Tenant Industrial Building Lease (the “Lease”) with the Purchaser, pursuant to which the Property will be leased back to the Company.

The Lease will have an initial term of ten ( 10 ) years commencing from the closing (the “Initial Term”), and a renewal term of five ( 5 ) years, exercisable at the Company’s option.

The annual fixed rent will be $ 619,500 for the first year of the Initial Term, and will be subject to a 4 % escalation every year thereafter through the Initial Term.

Rent will be reset to the current market rate should the Company exercise the renewal option.

The Lease provides for a 3 % management fee on rent payments throughout the Initial Term and optional renewal term.

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Lease is a triple net lease, pursuant to which all costs, expenses, and obligations relating to the Property, including, repair and maintenance charges, utility charges, real estate taxes or other taxes that may be imposed that relate to the Property, shall be paid by the Company.

In addition, the Lease contains other customary terms and provisions generally contained within leases of this type.

The net cash proceeds the Company expects to receive following closing is approximately $ 6,700,000 after taxes, expenses, and fees.

This estimate is subject to the consummation of the transaction and the finalization of the Company’s obligations associated with the sale.

The Company anticipates that the net cash proceeds will be used to strengthen its balance sheet and provide working capital

On March 1, 2023, Shiva Stein as plaintiff filed a derivative complaint in the Court of Chancery of the State of Delaware, captioned Stein v.

Makrides, et al., C.A.

Apyx Medical Corporation, et al., Case No.

8:19-cv-00919 (M.D.

Fla.) (the “Pritchard Case”).

The Stein Suit seeks unspecified damages alleged to have resulted from purported breaches of fiduciary duty, unjust enrichment and related claims based on the same set of allegedly misleading statements and material omissions described in the settled Pritchard Case, which concerned the 2018-2019 clinical study conducted by the Company to evaluate the safety and efficacy of its J-Plasma technology for dermal resurfacing.

The Company believes that the claims are subject to procedural and substantive defenses, anticipates defense and indemnity coverage to be made available by the relevant insurer, and expects the individual defendants to defend all of the allegations vigorously.

The outcome of the action is not within the Company’s control and may not be known for a prolonged period of time.

In the opinion of management, neither the alleged claims against the individual defendants nor the defense thereof are expected to result in a material, adverse effect on the Company’s financial condition, results of operations and cash flows.

APYX MEDICAL CORPORATION

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data