Apyx Medical Corp 10-K

ITEM 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL INFORMATION Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 49 ) 39 Consolidated Balance Sheets at December 31, 2023 and 2022 41 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 42 Consolidated Statements of Changes in Equity for the years ended December 31, 2023 and 2022 43 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 44 Notes to Consolidated Financial Statements 46 38 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Apyx Medical Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Apyx Medical Corporation and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter 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: 39 Table of Contents • 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. Tampa, Florida March 21, 2024 40 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 43,652 $ 10,192 Trade accounts receivable, net of allowance of $ 608 and $ 668 14,023 10,602 Income tax receivables — 7,545 Other receivables 30 99 Inventories, net of provision for obsolescence of $ 875 and $ 457 9,923 11,797 Prepaid expenses and other current assets 2,734 2,737 Total current assets 70,362 42,972 Property and equipment, net 1,915 6,761 Operating lease right-of-use assets 5,162 710 Finance lease right-of-use assets 69 115 Other assets 1,732 1,217 Total assets $ 79,240 $ 51,775 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 2,712 $ 2,669 Accrued expenses and other current liabilities 9,661 8,928 Current portion of operating lease liabilities 347 216 Current portion of finance lease liabilities 20 37 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 Long-term finance lease liabilities 53 73 Long-term contract liabilities 1,246 1,408 Other liabilities 198 181 Total liabilities 52,318 13,982 Commitments and Contingencies (Note 17) EQUITY Preferred Stock, $ 0.001 par value; 10,000,000 shares authorized; 0 issued and outstanding as of December 31, 2023 and 2022 — — Common stock, $ 0.001 par value; 75,000,000 shares authorized; 34,643,888 issued and outstanding as of December 31, 2023, and 34,597,822 issued and outstanding as of December 31, 2022 35 35 Additional paid-in capital 81,114 73,282 Accumulated deficit ( 54,448 ) ( 35,735 ) Total stockholders' equity 26,701 37,582 Non-controlling interest 221 211 Total equity 26,922 37,793 Total liabilities and equity $ 79,240 $ 51,775 The accompanying notes are an integral part of the consolidated financial statements. 41 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2023 2022 Sales $ 52,349 $ 44,510 Cost of sales 18,590 15,379 Gross profit 33,759 29,131 Other costs and expenses: Research and development 4,844 4,544 Professional services 7,031 9,044 Salaries and related costs 19,637 18,621 Selling, general and administrative 22,198 20,484 Total other costs and expenses 53,710 52,693 Gain on sale-leaseback 2,692 — Loss from operations ( 17,259 ) ( 23,562 ) Interest income 921 157 Interest expense ( 2,478 ) ( 15 ) 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 (benefit) expense ( 2,432 ) 367 Net loss ( 18,850 ) ( 23,278 ) Net loss attributable to non-controlling interest ( 137 ) ( 94 ) Net loss attributable to stockholders $ ( 18,713 ) $ ( 23,184 ) Loss per share - basic and diluted $ ( 0.54 ) $ ( 0.67 ) Weighted average number of shares outstanding - basic and diluted 34,622 34,516 The accompanying notes are an integral part of the consolidated financial statements. 42 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In thousands) 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 Shares issued on stock options exercises for cash 106 1 364 — — 365 Stock based compensation — — 6,697 — — 6,697 Shares issued on net settlement of stock options 82 — — — — — Net loss — — — ( 23,184 ) ( 94 ) ( 23,278 ) 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 Stock based compensation — — 5,114 — — 5,114 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 ) Balance at December 31, 2023 34,644 $ 35 $ 81,114 $ ( 54,448 ) $ 221 $ 26,922 The accompanying notes are an integral part of the consolidated financial statements. 43 Table of Contents APYX MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2023 2022 Cash flows from operating activities Net loss $ ( 18,850 ) $ ( 23,278 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 692 890 Provision for inventory obsolescence 523 240 Provision for product warranties 261 ( 2 ) (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 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 Income tax receivables 7,545 97 Prepaid expenses and other assets ( 188 ) ( 523 ) Inventories 1,459 ( 5,568 ) Accounts payable 25 67 Accrued expenses and other liabilities 276 ( 1,208 ) Net cash used in operating activities ( 5,249 ) ( 20,280 ) Cash flows from investing activities Purchases of property and equipment ( 533 ) ( 1,010 ) 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 — Net cash provided by financing activities 32,166 217 Effect of exchange rates on cash ( 191 ) 395 Net change in cash and cash equivalents 33,460 ( 20,678 ) Cash and cash equivalents, beginning of year 10,192 30,870 Cash and cash equivalents, end of year $ 43,652 $ 10,192 44 APYX MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued Year Ended December 31, 2023 2022 Cash paid for: Interest expense $ 1,935 $ 15 Income taxes $ 329 $ 128 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 Right-of-use assets capitalized and finance lease liabilities recognized upon execution of lease $ — $ 103 Right-of-use assets and finance lease liabilities derecognized upon execution of lease modification $ — $ 28 The accompanying notes are an integral part of the consolidated financial statements. 45 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS Apyx Medical Corporation (“Company”, “Apyx”, “it” and similar terms) was incorporated in 1982, under the laws of the State of Delaware and has its principal executive office at 5115 Ulmerton Road, Clearwater, FL 33760. The Company is an advanced energy technology company with a passion for elevating people’s lives through innovative products, including its Helium Plasma Technology products marketed and sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market. Renuvion and J-Plasma offer surgeons a unique ability to provide controlled heat to tissue to achieve their desired results. The Company also leverages its deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device manufacturers. Recent Business Developments On March 14, 2022, the U.S. 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 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 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. 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. Liquidity 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 46 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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. 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 “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 . 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 47 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES Consolidated Financial Statements The accompanying consolidated financial statements include the accounts of Apyx, its wholly owned subsidiary, Apyx Bulgaria, EOOD, and its 51 % owned subsidiary, Apyx SY Medical Devices (Ningbo) Co., Ltd. (collectively, “Apyx,” or the “Company”). All significant intercompany transactions and balances have been eliminated in consolidation. Use of Estimates in the Preparation of Financial Statements The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions the Company is required to make. Cash and Cash Equivalents Holdings of highly liquid investments with original maturities of three months or less from the date of purchase are considered to be cash equivalents. As of December 31, 2023 and 2022, all of the Company’s investments are in money market funds or in Treasury Bills with original maturities of three months or less and are included in cash and cash equivalents. Concentration of Credit Risk Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of trade accounts receivable. With respect to cash, the Company frequently maintains cash and cash equivalent balances in excess of federally insured limits. 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. 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 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 Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first in, first out basis. Finished goods and work-in-process inventories include material, labor and overhead costs. Factory overhead costs are allocated to manufactured inventory based upon labor hours. The Company monitors inventory usage to determine if the carrying value of any items should be adjusted due to lack of demand for the item and adjusts inventory for estimated obsolescence or unusable inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. 48 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the assets. The amortization of leasehold improvements is based on the shorter of the lease term or the life of the improvement. Betterments and major improvements, which extend the life of the asset, are capitalized, whereas maintenance and repairs and routine improvements are expensed as incurred. The estimated useful lives are: buildings and improvements, 39 years; machinery and equipment, 3 - 10 years; furniture and fixtures, 5 - 10 years; computer equipment and software, 3 - 5 years; and molds, 7 - 15 years. Valuation of Long-Lived Assets The Company reviews long-lived assets for recoverability if events or changes in circumstances indicate that the assets may have been impaired. This circumstance exists when the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. In those cases, an impairment loss is recognized to the extent that the assets’ carrying amount exceeds its fair value. Any impairment losses are not restored in the future if the fair value increases. At December 31, 2023 and 2022, the Company believes the remaining carrying values of its long-lived assets are recoverable. Leases The Company does not recognize leases with terms less than twelve months in duration, or that have variable only payments, in its Consolidated Balance 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 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. The Company bases its product warranty costs on related material costs, repair labor costs and shipping costs. The Company estimates the future cost of product warranties by considering historical material, repair labor, and shipping costs, and applying the experience rates to the outstanding warranty period for products sold. It is reasonably possible that actual results could differ from those estimates. 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 Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that the Company expects to receive for those goods or services. To recognize revenue, the Company (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when, or as, it satisfies the performance obligation(s). For sales of the Company's Advanced Energy products (Renuvion and J-Plasma), this is 49 Table of Contents 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. Presently, the Company does not stock any significant completed goods under its OEM agreements, accordingly, the recognition of revenue under these agreements approximates point in time recognition. The following policies apply to its major categories of revenue transactions: • The majority of sales to customers are evidenced by firm purchase orders. Generally, title and the risks and rewards of ownership are transferred to the customer when the product is shipped. Payment by the customer is due under fixed payment terms. • Product returns are only accepted at the Company's discretion and in accordance with its “Returned Goods Policy”. Historically, the level of product returns has not been significant. Accruals for sales returns, rebates and allowances are made as a reduction of revenue based upon an analysis of historical customer returns and credits, rebates, discounts and current market conditions. • The terms of sale to customers generally do not include any obligations to perform future services. Limited warranties are generally provided for sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data. • In connection with the execution of OEM supply agreements, the Company may enter into an accompanying product development agreement. If the Company enters into a product development agreement, and development of the goods does not represent a performance obligation on a standalone basis, the Company defers the development fees billed to customers and the associated costs. Recognition of the deferred billings and costs occurs as the Company performs on the accompanying supply arrangements. Advertising Costs Advertising costs are expensed as incurred. The amounts of advertising costs, including trade shows, 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 The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation . FASB ASC 718 requires recognizing compensation expense for all share-based payment awards made to employees, directors and non-employees based upon the grant date fair value of such awards. It accounts for forfeitures as they occur. The standard covers employee stock options, restricted stock and other equity awards. The Company utilizes a Black-Scholes model to estimate the grant date fair value of stock option awards. For employee and director awards, compensation expense is recognized on a straight-line basis over the vesting periods. For non-employee awards, compensation expense is recorded for non-forfeitable, fully vested awards at the grant date. For other awards granted to non-employees, compensation cost is recognized as services are provided, which approximates a straight-line basis over the vesting period. Litigation Contingencies In accordance with authoritative guidance, the Company accrues a liability in its consolidated financial statements when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded; actual results may differ from those estimates. Earnings (Loss) Per Share The Company computes basic (loss) earnings attributable to common stockholders per share by dividing net (loss) income attributable to common stockholders by the weighted average number of common shares outstanding for the reporting period. Diluted (loss) earnings per share attributable to common stockholders gives effect to all potential dilutive shares outstanding during the period. The number of dilutive shares is calculated using the treasury stock method which reduces the effective number of shares by the amount of shares the Company could purchase with the proceeds of assumed exercises. Anti-dilutive 50 Table of Contents 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. Research and Development Costs 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. Income Taxes The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC Topic 740, Income Taxes . Under the liability method, deferred taxes are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using tax rates expected to be in effect during the years in which the deferred taxes reverse. The Company accounts for interest and penalties on income taxes as income tax expense. A valuation 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. As Management has not fully determined the timing of when it will generate taxable income in the U.S., the Company will continue to record a full valuation allowance on the net deferred tax assets as of December 31, 2023. The Company assesses the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained. Foreign Currency Transactions The functional currency of Apyx Bulgaria is the U.S. dollar. The monetary assets and liabilities that are denominated in a currency other than U.S. dollar are remeasured into U.S. dollars at the exchange rate on the balance sheet date, while non-monetary items are remeasured at historical rates. Revenue and expenses are remeasured at weighted average exchange rates during the period. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in selling, general and administrative expenses in the Consolidated Statements of Operations and were not material for the years ended December 31, 2023 and 2022. Reclassifications 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. 51 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, contract assets, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update, as originally issued, was effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates , which deferred the effective dates of these standards for Smaller Reporting Companies until fiscal years beginning after December 15, 2022. The Company 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. NOTE 4. 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 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. Changes in the Company’s ownership investment in the China JV were as follows: Year Ended December 31, (In thousands) 2023 2022 Beginning interest in China JV $ 219 $ 317 Contributions 153 — Net loss attributable to Apyx ( 143 ) ( 98 ) Ending interest in China JV $ 229 $ 219 NOTE 5. INVENTORIES Inventories consisted of the following: (In thousands) December 31, 2023 December 31, 2022 Raw materials $ 4,112 $ 4,979 Work in process 2,257 2,160 Finished goods 4,429 5,115 Gross inventories 10,798 12,254 Less: provision for obsolescence ( 875 ) ( 457 ) Inventories, net $ 9,923 $ 11,797 52 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 6. PROPERTY AND EQUIPMENT Property and equipment consisted of the following: (In thousands) December 31, 2023 December 31, 2022 Land $ — $ 1,600 Building and improvements — 4,426 Machinery and equipment 2,651 2,613 Furniture and fixtures 233 211 Computer equipment and software 1,018 1,420 Leasehold improvements 212 178 Molds 923 847 Total property, plant and equipment 5,037 11,295 Less: accumulated depreciation and amortization ( 3,522 ) ( 5,041 ) Property and equipment in service 1,515 6,254 Construction in progress 400 507 Property and equipment, net $ 1,915 $ 6,761 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. 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 . 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. 53 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 7. LEASES Operating Leases 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. During the year ended December 31, 2022, the Company entered into a one year extension on one of its leases on computer equipment. 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 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. The computer equipment lease expires in July 2027. Information about the Company’s lease costs are as follows: Year Ended December 31, (in thousands) 2023 2022 Operating lease costs $ 732 $ 213 Finance lease costs: Amortization of right-of-use assets 31 138 Interest on lease liabilities 2 5 Variable lease costs 44 16 Total lease costs $ 809 $ 372 Cash information related to our leases are as follows: Year Ended December 31, 2023 Year Ended December 31, 2022 (in thousands) Operating Finance Operating Finance Cash paid for lease liabilities $ 643 $ 40 $ 219 $ 153 Information about the Company’s weighted average remaining lease terms and discount rate assumptions are as follows: Year Ended December 31, 2023 Year Ended December 31, 2022 Operating Finance Operating Finance Weighted average remaining lease term (in years) 8.9 3.6 4.4 3.9 Weighted average discount rate 8.42 % 2.32 % 2.54 % 2.60 % 54 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Maturities of lease liabilities as of December 31, 2023 are as follows: (In thousands) Operating Finance 2024 $ 778 $ 21 2025 805 21 2026 832 21 2027 860 12 2028 764 — Thereafter 3,752 — Total lease payments 7,791 75 Less imputed interest ( 2,548 ) ( 2 ) Present value of lease liabilities 5,243 73 Less current portion of lease liabilities ( 347 ) ( 20 ) Long-term portion of lease liabilities $ 4,896 $ 53 NOTE 8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following: (in thousands) December 31, 2023 December 31, 2022 Accrued payroll and related costs $ 829 $ 563 Accrued bonuses 1,545 — Accrued commissions 1,489 847 Accrued product warranties 445 391 Accrued product liability claim insurance deductibles 3,521 1,825 Accrued professional fees and legal related contingent liabilities 518 901 Joint and several payroll liability — 345 Short-term contract liabilities 488 853 Uncertain tax positions — 2,079 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. NOTE 9. PRODUCT WARRANTIES Product warranty activity consisted of the following for the years ended: (In thousands) December 31, 2023 December 31, 2022 Beginning balance $ 391 $ 593 Provision for product warranties 261 196 Change in estimate to fulfill prior-year warranty obligations — ( 198 ) Product warranty costs incurred ( 207 ) ( 200 ) Accrued product warranties $ 445 $ 391 55 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 10. 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 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. NOTE 11. DEBT 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 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 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. 56 Table of Contents 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. Loans 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. Collateral The obligations of the Company under the Perceptive Credit Agreement are secured by first priority liens on substantially all of its assets. Covenants 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. 57 Table of Contents 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. 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. 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) 2024 $ — 2025 — 2026 — 2027 2,216 2028 35,284 Total repayments $ 37,500 58 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 12. CONTRACT ASSETS AND LIABILITIES The Company’s contracts with customers may result in the Company having contract assets and liabilities. These contract assets and liabilities arise primarily from OEM development and supply agreements where the development of the goods does not represent a performance obligation on a standalone basis. The Company defers the development fees billed to customers, and the associated costs, 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 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, 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. NOTE 13. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share (“basic EPS”) is computed by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. As the Company is in a net loss position for all periods presented, all potential shares outstanding are anti-dilutive. The following table provides the computation of basic and diluted earnings (loss) per share. Year Ended December 31, (in thousands, except per share data) 2023 2022 Numerators: Net loss attributable to stockholders $ ( 18,713 ) $ ( 23,184 ) Weighted average shares outstanding - basic and diluted 34,622 34,516 Loss per share - basic and diluted $ ( 0.54 ) $ ( 0.67 ) Anti-dilutive instruments excluded from diluted loss per common share: Warrants 1,500 — Options 7,343 6,520 59 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 14. INCOME TAXES Components of income tax (benefit) expense are as follows: (In thousands) December 31, 2023 December 31, 2022 Current: Federal $ ( 2,646 ) $ 214 State 29 29 Foreign 185 124 ( 2,432 ) 367 Deferred: Federal ( 3,386 ) ( 4,096 ) State ( 989 ) ( 1,004 ) ( 4,375 ) ( 5,100 ) Valuation allowance 4,375 5,100 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: Year Ended December 31, 2023 2022 Federal tax provision 21.0 % 21.0 % State taxes (net of federal benefit) 4.6 % 4.4 % Valuation allowance ( 20.6 ) % ( 22.3 ) % Incentive stock compensation expense ( 1.8 ) % ( 2.2 ) % Section 162(m) compensation ( 1.4 ) % ( 1.1 ) % GILTI ( 1.9 ) % ( 0.9 ) % Uncertain tax positions 9.8 % ( 0.9 ) % Other 1.7 % 0.4 % Total 11.4 % ( 1.6 ) % 60 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Major components of the Company’s deferred tax assets (liabilities) are as follows: (In thousands) December 31, 2023 December 31, 2022 Deferred tax assets: Loss and credit carryforwards $ 8,771 $ 7,476 Stock-based compensation 2,890 2,381 Research and development capitalization 2,178 982 Lease liabilities 1,276 — Accrued insurance deductibles 798 400 Interest expense limitation 599 — Accrued bonuses 408 — Deferred revenue 325 339 Inventory 263A adjustment 231 394 Other 556 553 Total deferred tax assets 18,032 12,525 Valuation allowance ( 16,443 ) ( 12,068 ) Total deferred tax assets, net of valuation allowance 1,589 457 Deferred tax liabilities: Lease right-of-use assets ( 1,253 ) — Property and equipment ( 165 ) ( 205 ) Other ( 171 ) ( 252 ) Total deferred tax liabilities ( 1,589 ) ( 457 ) Net deferred tax assets $ — $ — The Company considers all positive and negative evidence regarding the realization of deferred tax assets, including past operating results and future sources of taxable income. The Company considers the earnings of Apyx Bulgaria, EOOD to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. It has not recorded a deferred tax liability related to the U.S. Federal and State income taxes and foreign withholding taxes on the undistributed earnings of Apyx Bulgaria, EOOD indefinitely invested outside the United States. If it decides to repatriate the foreign earnings, the Company will need to adjust its income tax provision in the period it determines that the earnings will no longer be indefinitely invested outside the United States. The Company assesses the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained. As of December 31, 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. 61 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The following is a roll-forward of the Company's total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31: (in thousands) Gross Unrealized Tax Benefits 2023 2022 Beginning of year balance $ 1,313 $ 1,313 Additions of tax positions related to the current year — — Additions of tax positions related to the prior year — — Decreases for tax positions related to prior year ( 1,313 ) — End of year balance $ — $ 1,313 62 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company is subject to U.S. federal and state income tax examination. The Company’s 2021 through 2022 U.S. federal income tax returns are subject to examination by the Internal Revenue Service (“IRS”). 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 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. 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. NOTE 15. RETIREMENT PLAN The Company provides a tax-qualified profit-sharing retirement plan under section 401(k) of the Internal Revenue Code for the benefit of eligible employees with an accumulation of funds for retirement on a tax-deferred basis and provides for annual discretionary contribution to individual trust funds. All employees are eligible to participate upon completing three months of service. The employees may make voluntary contributions to the plan up to the maximum percentage allowed by the Internal Revenue Code. Vesting in employee matching contributions is graded and depends on the years of service. After three years from their date of hire, the employees are 100 % vested. The Company makes matching contributions of 50 % of the employee contributions up to a total of 3 % of participant payroll. Matching contributions made by the Company totaled approximately $ 0.4 million for each of the years ended December 31, 2023 and 2022. NOTE 16. RELATED PARTY TRANSACTIONS 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. Svetoslav Shilev, Mr. Shilev’s son, is a quality manager in the quality assurance department. The partner in the Company’s China joint venture is also a supplie r of the Company. 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. NOTE 17. COMMITMENTS AND CONTINGENCIES Litigation The medical device industry is characterized by frequent claims and litigation, and the Company may become subject to various claims, lawsuits and proceedings in the ordinary course of our business. Such claims may include claims by current or former employees, distributors and competitors, claims concerning the marketing and promotion of our products and product liability claims. The Company is involved in a number of legal actions relating to the use of our Helium Plasma technology. The outcomes of these legal actions are not within the Company’s control and may not be known for prolonged periods of time. It believes that such claims are adequately covered by insurance; however, in the case of one of the Company’s carriers, the Company is in a dispute regarding the total level of coverage available. Notwithstanding the foregoing, in the opinion of management, the Company has meritorious defenses, and such claims are not expected, individually or in the aggregate, to result in a material, adverse effect on its financial condition, results of operations and cash flows. However, in the event that damages exceed the aggregate coverage limits of the Company’s policies or if its insurance carriers disclaim coverage, management believes it is possible that costs associated with these claims could have a material adverse impact on the consolidated financial condition, results of operations and cash flows. During December 2021, the Company provided notice of contract termination to an international distributor of the Company. In March 2022, the Company received a letter from the former distributor citing improper contract termination and alleging damages. 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 63 Table of Contents 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 “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 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. 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. 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. No. 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 64 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 31, 2023. 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 At December 31, 2023, the Company has purchase commitments for inventories totaling approximately $ 3.8 million, all of which is expected to be purchased by the end of 2024. Concentrations 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. NOTE 18. STOCK OPTIONS 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, 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. At December 31, 2023, approximately 70,000 are available to be issued in this plan. In August 2017, the Company’s stockholders approved the 2017 Executive and Employee Stock Option Plan covering a total of 3,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2023, approximately 10,000 are available to be issued in this plan. In August 2019, the Company’s stockholders approved the 2019 Share Incentive Plan covering a total of 2,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 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 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 . 65 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The status of the Company’s stock options is summarized as follows: Number of options Weighted average exercise price Outstanding at December 31, 2021 5,397,691 $ 5.95 Granted 1,692,417 10.64 Exercised ( 316,506 ) 3.96 Canceled and forfeited ( 253,158 ) 9.59 Outstanding at December 31, 2022 6,520,444 $ 7.12 Granted 1,527,865 2.63 Exercised ( 57,000 ) 2.65 Canceled and forfeited ( 648,426 ) 6.18 Outstanding at December 31, 2023 7,342,883 $ 6.31 Number of options Weighted average grant date fair value Non-vested at December 31, 2022 2,227,608 $ 6.27 Granted 1,527,865 1.95 Vested ( 1,195,115 ) 5.78 Forfeited ( 504,577 ) 4.00 Non-vested at December 31, 2023 2,055,781 $ 3.90 Common shares required to be issued upon the exercise of stock options would be issued from authorized and unissued shares. Options are valued using the Black-Scholes model. For employee grants, the Company calculates expected life via the simplified method as it does not have sufficient history to determine actual expected life. For non-employee grants, the Company calculates expected life using a combination of past exercise behavior, the contractual term and expected remaining exercise behavior. Inputs used in the valuation models are as follows: 2023 Grants 2022 Grants Exercise price $ 2.50 - $ 4.21 $ 5.10 - $ 10.96 Risk-free rate 3.6 % - 4.3 % 1.6 % - 3.9 % Expected dividend yield — % — % Expected volatility 85.8 % - 88.4 % 69.6 % - 78.5 % Expected term (in years) 6 5 - 6 The Company recognized approximately $ 5,114,000 and $ 6,697,000 in stock-based compensation expense during the years ended December 31, 2023 and 2022, respectively. The intrinsic value of each option share is the difference between the fair value of our common stock and the exercise price of such option share to the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation at December 31, 2023 is based on the $ 2.62 closing stock price of the Company's common stock on December 29, 2023, the last trading day of 2023. As of December 31, 2023, there were 6,931,726 stock options outstanding and expected to vest with an aggregate intrinsic value of approximately $ 140,000 . These options have a weighted average exercise price of $ 6.33 and a weighted average remaining contractual term of approximately 6 years. 66 Table of Contents 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 . These options have a weighted average exercise price of $ 6.43 and a weighted average remaining contractual term of approximately 6 years. The total intrinsic value of in the money options exercised during the years ended December 31, 2023 and 2022, was approximately $ 210,000 and $ 900,000 , respectively. 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. The weighted average fair value of options granted during the years ended December 31, 2023 and 2022, was $ 1.95 and $ 6.71 , respectively. The total fair value of options vested during the years ended December 31, 2023 and 2022, was approximately $ 6,900,000 and $ 5,260,000 , respectively. The Company allows employees to exercise stock-based awards by surrendering stock-based awards with an intrinsic value equal to the cumulative exercise price of the stock-based awards being exercised, referred to as net settlements. These surrenders are included in stock options exercised in the options rollforward above. During the years ended December 31, 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. 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. This expense is expected to be recognized over a weighted-average period of approximately 1 year. 67 Table of Contents APYX MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 19. GEOGRAPHIC AND SEGMENT INFORMATION Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, the Company also considers the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to its chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors. Asset information is not reviewed by the chief operating decision maker by segment and is not available by segment, accordingly, the Company has not presented a measure of assets by segment. The Company’s reportable segments are disclosed as principally organized and managed as two operating segments: Advanced Energy and OEM. "Corporate & Other" includes certain unallocated corporate and administrative costs which were not specifically attributed to any reportable segment. The OEM segment is primarily development and manufacturing contract and product driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred. Summarized financial information with respect to reportable segments is as follows: Year Ended December 31, 2023 (In thousands) Advanced Energy OEM Corporate (Other) Total Sales $ 43,382 $ 8,967 $ — 52,349 (Loss) income from operations ( 360 ) 2,524 ( 19,423 ) ( 17,259 ) Interest income — — 921 921 Interest expense — — ( 2,478 ) ( 2,478 ) Other income, net — — 622 622 Loss on extinguishment of debt — — ( 3,088 ) ( 3,088 ) Income tax benefit — — ( 2,432 ) ( 2,432 ) Year ended December 31, 2022 (In thousands) Advanced Energy OEM Corporate (Other) Total Sales $ 36,803 $ 7,707 $ — $ 44,510 (Loss) income from operations ( 4,103 ) 1,641 ( 21,100 ) ( 23,562 ) Interest income — — 157 157 Interest expense — — ( 15 ) ( 15 ) 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. Revenue by geographic region, based on the "ship to" location on the invoice are as follows: Year Ended December 31, (In thousands) 2023 2022 Sales by Domestic and International Domestic $ 38,345 $ 31,208 International 14,004 13,302 Total $ 52,349 $ 44,510 68 Table of Contents APYX MEDICAL CORPORATION ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.