APYX MEDICAL CORPORATION

For research and development activities that are partially or completely funded by other parties and when the obligation is incurred solely to perform contractual services, expenses are charged to cost of sales and all revenues resulting from such activities are shown as sales.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Income Taxes

~~We utilize~~The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC ~~740.~~Topic 740, "Income Taxes". Under the liability method, deferred taxes are determined based on ~~the~~ temporary differences between the financial statement and tax ~~basis~~bases of assets and liabilities using tax rates expected to be in effect during the years in which the ~~basis differences~~deferred taxes reverse. ~~Management evaluated the positive~~The Company accounts for interest and ~~negative evidence in determining the realizability of the net deferred~~penalties on income taxes as income tax ~~asset.~~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 ~~allowance, we reviewed historic operating results, updated 2017 actual results, as well as~~allowances the Company considers projected future taxable income, ~~forecasts based~~the timing of reversals of temporary differences, and the availability of tax planning strategies. As of December 31, 2020 and 2019, the Company recorded a valuation allowance on the ~~projections, management concluded that~~net deferred tax asset.

The Company assesses the realizability of deferred tax assets each reporting period and will be able to reduce the valuation allowance to the extent the financial results of continuing operations improve, and it ~~was not~~becomes more likely than not that the deferred tax assets will be realizable. As Management expects the Company ~~should realize its~~to continue to generate losses in the foreseeable future after 2020, the Company will continue to record a full valuation allowance on the net deferred tax assets ~~through future operating results~~as of December 31, 2020. As a result of the CARES ACT, during 2020, the Company released the valuation allowance on the Federal NOLs that can now be carried back to prior taxable years.

The Company assesses the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained.

Foreign Currency Transactions

The functional currency of Apyx Bulgaria is the U.S. dollar. The monetary assets and liabilities that are denominated in a currency other than U.S. dollar are remeasured into U.S. dollars at the ~~reversal~~exchange rate on the balance sheet date, while nonmonetary items are remeasured at historical rates. Revenue and expenses are remeasured at weighted average exchange rates during the period. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in selling, general and administrative expenses in the Consolidated Statements of ~~taxable temporary differences.~~Operations and were not material for the years ended December 31, 2020 and 2019.

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

If in the future we determine that we will be able to realize any of the net deferred tax assets, we will make adjustment to the valuation allowance, which would increase our income in the period that the determination is made.

We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available as of the reporting date. For those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, we have recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.

NOTE 3. ~~ACQUISITION OF BOVIE BULGARIA~~CHANGE IN ACCOUNTING POLICY

~~On October 20, 2015 (the “Effective Date”),~~During 2019, the Company began granting stock option awards deeper within the organization. It does not have sufficient experience with grants to these employees and ~~Nikolay Shilev entered into and consummated a Share Purchase Agreement (the “Purchase Agreement”) whereby~~has experienced challenges in developing reliable forfeiture estimates at the ~~Company acquired all of~~grant date. Accounting for revising the ~~outstanding equity interests of Bovie Bulgaria EOOD, a limited liability company incorporated under Bulgarian law (“Bovie Bulgaria”). Pursuant to~~forfeiture estimates has been burdensome. Accounting Standards Codification 718, Compensation- Stock Compensation, prescribes two methods for accounting for forfeitures on stock option awards, either the terms of the Purchase Agreement, the Company agreed to pay Mr. Shilev approximately $559,000 payable as follows: (i) $419,000 payable within three business days after the effective registration of the Company as the sole shareholder of Bovie Bulgaria and (ii) $140,000 payable on the five year anniversary of the Effective Date.

In conjunction with the execution and consummation of the Purchase Agreement, the Company caused Bovie Bulgaria to enter into a Management Agreement with Mr. Shilev (the “Management Agreement”). Pursuant to the terms of the Management Agreement: (i) Mr. Shilev shall be engagedestimation method utilized by the Company previously, or by accounting for ~~a period of five years; (ii)~~forfeitures as they occur. On January 1, 2020, the Company ~~agreed~~made an accounting policy election change and began accounting for forfeitures on stock option awards using actual forfeitures. This accounting policy election change was made on a retrospective basis. However, the changes to ~~pay Mr. Shilev an annual base salary of $141,250; (iii) Mr. Shilev shall~~the current and prior period were determined to be ~~entitled~~immaterial and there have been no changes to ~~subject to certain limitations, an annual performance based bonus equal to twenty percent of Mr. Shilev’s base salary; (iv)~~previously reported results as ~~an inducement to enter into the Management Agreement, the Company awarded Mr. Shilev~~ a ~~restricted stock grant of 225,922 shares~~result of the Company’s common stock, with such restricted stock vesting ratably over a five year period and subject to forfeiture upon Mr. Shilev’s Management Agreement being terminated for Cause or without “Good Reason” (as each is defined in the Management Agreement); and (v) the Company agreed to provide severance payments in the event of certain termination events as set forth in the Management Agreement.change.

~~The table below summarizes the preliminary purchase price and the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date of October 20, 2015:~~

(In thousands)
Cash and cash equivalents $ 59
Inventories, net 285
Prepaid expenses and other current assets 1
Property and equipment, net 167
Goodwill 185
Deferred income tax assets, net 25
Deposits, net of current portion 8
Accounts payable (150 )
Accrued and other liabilities (21 )
Value of consideration paid $ 559

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~NOTE 4. TRADE ACCOUNTS RECEIVABLE~~

~~Trade accounts receivable consisted of the following:~~

(In thousands) December 31,
2017 December 31,
2016
Trade accounts receivable $ 5,061
$ 4,851
Less: allowance for doubtful accounts (204 ) (118 )
Trade accounts receivable, net 4,857
4,733

~~NOTE 5. PROPERTY, PLANT AND EQUIPMENT~~

~~Property, plant and equipment consisted of the following:~~

(In thousands) December 31,
2017 December 31,
2016
Land $ 1,600
$ 1,600
Machinery and equipment 3,231
3,775
Building and improvements 4,512
4,237
Furniture and fixtures 1,947
2,194
Leasehold improvements —
12
Molds 1,829
1,900
Total property, plant and equipment 13,119
13,718
Less: accumulated depreciation (6,711 ) (7,269 )
Net property, plant and equipment $ 6,408
$ 6,449

Total depreciation expense was $0.6 million, $0.6 million and $0.7 million for the years ended December 31, 2017, 2016 and 2015, respectively. Depreciation expense is included primarily within cost of goods sold in the consolidated statements of operations.

~~NOTE 6. INTANGIBLE ASSETS~~

~~Intangible assets consisted of the following:~~

(In thousands) December 31,
2017 December 31,
2016
Brand name and trademark (life indefinite) $ 1,510
$ 1,510

Purchased technology (5-17 year lives) $ 1,513
$ 1,441
Less: accumulated amortization (1,334 ) (1,226 )
Purchased technology, net $ 179
$ 215

Goodwill $ 185
$ 185

With respect to our trademark and brand name, we continue to market products, release new products and product extensions and maintain and promote these trademarks and brand name in the marketplace through legal registration and such methods as advertising, medical education and trade shows. Based on our annual impairment testing, these trademarks and brand names will generate cash flow for an indefinite period of time. Therefore, we believe our trademarks and brand name intangible assets are not impaired. Goodwill results from our acquisition of Bovie Bulgaria, EOOD.

Amortization of intangible assets was $0.1 million for the years ended December 31, 2017, 2016 and 2015. Amortization expense is classified within selling, general and administration expenses in the consolidated statements of operations.

~~Amortization expense amounts for the next three years are expected to be approximately $0.1 million for 2018 through 2020.~~

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~NOTE 7. EARNINGS PER SHARE~~

We compute basic earnings per share (“basic EPS”) by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. The following table provides the computation of basic and diluted earnings per share.

Year Ended December 31,
(in thousands, except per share data) 2017 2016 2015
Numerator:
Net (loss) income available to common shareholders $ (5,062 ) $ (3,950 ) $ 8,364
Effect of dilutive securities:
Derivative liability - warrants (183 ) (64 ) (1,799 )
Accretion on convertible preferred stock —
—
222
Numerator for dilutive (loss) income per common share (5,245 ) (4,014 ) 6,787

Denominator:
Weighted average shares used to compute basic (loss) income
per common share 31,420
27,433
24,333
Effect of dilutive securities:
Derivative liability - warrants 7
16
28
Convertible preferred stock —
—
3,137
Stock options —
—
249
Denominator for dilutive (loss) income per common share 31,427
27,449
27,747

Basic (loss) income per common share $ (0.16 ) $ (0.14 ) $ 0.34
Diluted (loss) income per common share $ (0.17 ) $ (0.15 ) $ 0.24

~~NOTE 8. CAPITAL STOCK~~

~~Common Stock~~ - We are authorized to issue 75,000,000 shares of common stock. Holders of common stock are entitled to one vote for each share held of record on each matter submitted to a vote of shareholders. Holders of our common stock do not have a cumulative voting right, which means that the holders of more than one half of our outstanding shares of common stock, subject to the rights of the holders of preferred stock, can elect all of our directors, if they choose to do so. In this event, the holders of the remaining shares of common stock would not be able to elect any directors. Subject to the prior rights of any class or series of preferred stock which may from time to time be outstanding, if any, holders of common stock are entitled to receive ratably, dividends when, as and if declared by our Board of Directors out of funds legally available for that purpose and, upon our liquidation, dissolution, or winding up, are entitled to share ratably in all assets remaining after payment of liabilities and payment of accrued dividends and liquidation preferences on the preferred stock, if any. Holders of common stock have no preemptive rights and have no rights to convert their common stock into any other securities. The outstanding common stock is duly authorized and validly issued, fully-paid and non-assessable. Except as otherwise required by Delaware law and subject to the rights of the holders of preferred stock, all stockholder action is taken by the vote of a majority of the outstanding shares of common stock present at a meeting of shareholders at which a quorum consisting of a majority of the outstanding shares of common stock is present in person or by proxy. Shares repurchased are held as treasury shares and used for general corporate purposes including, but not limited to, satisfying obligations under our employee benefit plans. Treasury stock is recorded at cost.

On November 10, 2016, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with certain selling stockholders of the Company (the “Selling Stockholders”) and Piper Jaffray & Co. (the “Underwriter”) relating to public offerings of the Company's common stock, par value $0.001 per share at a public offering price of $4.00 per share. The Company made a primary offering of 1,625,000 shares and a secondary offering of 1,625,000 shares by the Selling Stockholders.

The net proceeds from the sale of the shares, after deducting the Underwriter’s discounts and commissions and estimated offering expenses payable, were approximately $5.8 million. The offerings closed on November 16, 2016.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

The shares were offered and sold by the Company pursuant to a prospectus dated December 16, 2014 and a prospectus supplement filed with the Securities and Exchange Commission (the “SEC”) on November 10, 2016, which are part of the effective shelf registration statement on Form S-3 (File No. 333-200986) filed with the SEC on December 15, 2014. The shares were offered and sold by the Selling Stockholders pursuant to a prospectus dated April 24, 2015 and a prospectus supplement filed with the SEC on November 10, 2016, which are part of the effective registration statement on Form S-3 (File No. 333-203422) filed with the SEC on April 15, 2015.

~~Preferred Stock~~ - We are authorized to issue 10,000,000 shares of preferred stock, par value $0.001 per share. We may issue preferred stock in one or more series and having the rights, privileges and limitations, including voting rights, conversion rights, liquidation preferences, dividend rights and preferences and redemption rights, as may from time to time be determined by our Board of Directors. Preferred stock may be issued in the future in connection with acquisitions, financings, or other matters, as our Board of Directors deems appropriate. In the event that we determine to issue any shares of preferred stock, a certificate of designation containing the rights, privileges and limitations of this series of preferred stock will be filed with the Secretary of State of the State of Delaware. The effect of this preferred stock designation power is that our Board of Directors alone, subject to Federal securities laws, applicable blue sky laws and Delaware law, may be able to authorize the issuance of preferred stock which could have the effect of delaying, deferring, or preventing a change in control of our company without further action by our shareholders and may adversely affect the voting and other rights of the holders of our common stock. The issuance of preferred stock with voting and conversion rights may also adversely affect the voting power of the holders of our common stock, including the loss of voting control to others.

~~Series B Convertible Preferred Stock –~~ On March 16, 2015, the Company filed a Certificate to Set Forth Designations, Voting Powers, Preferences, Limitations, Restrictions and Relative Rights (the “Certificate of Designations”) of its Series B Convertible Preferred Stock with the Secretary of State of the State of Delaware to amend our articles of incorporation. The Certificate of Designations sets forth the rights, preferences and privileges of the Series B Preferred Stock. As provided in our articles of incorporation, the filing of the Certificate of Designations was approved by our Board of Directors. As of December 31, 2017, there are no shares of Series B Preferred Stock outstanding.

~~The following is a summary of the rights, privileges and preferences of the Series B Preferred Stock:~~

~~Number of Shares:~~ ~~The number of shares of Preferred Stock designated as Series B Preferred Stock are 3,588,139.~~

~~Conversion:~~ The Series B Preferred Stock were convertible at the option of the holder, into common stock at a conversion ratio of one (1) share of Series B Preferred to two (2) shares of Common Stock, subject to adjustments for stock dividends, splits, combinations and similar events as described in the form of Certificate of Designations.

~~Dividends:~~ ~~The Series B Preferred Stock was not entitled to receive any special dividend.~~

~~Voting Rights:~~ Except as described in the Certificate of Designations, holders of the Series B Preferred Stock would have voted together with holders of the Company common stock on all matters, on an as-converted to common stock basis and not as a separate class or series (subject to limited exceptions).

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~NOTE 9. CONVERTIBLE PREFFERED STOCK AND WARRANTS~~

~~2013 Financing~~

On December 13, 2013, the Company entered into a securities purchase agreement with certain investors for the private placement, for aggregate gross proceeds of $7.0 million, of 3,500,000 shares of the Company’s newly-designated Series A 6% Convertible Preferred Stock (the “Series A Preferred Stock” – see Note 6) and warrants to purchase 5,250,000 shares of our common stock at an exercise price of $2.387 per share.

In connection with the placement of the Series A Preferred Stock and warrants, we also issued warrants to purchase 525,000 shares of our common stock, with the same terms as the investor warrants, to the placement agent.

Because the holders of the Series A Preferred Stock could have requested redemption on or after December 13, 2017, the preferred stock had conditions for its redemption that were not within the control of the Company. Accordingly, the carrying amount of the Series A Preferred Stock of $2.6 million, net of the expenses allocated to the preferred stock of $0.4 million, was recorded outside of stockholders’ equity, as mezzanine equity, in accordance with FASB ASC 480-10-S99. The net carrying amount of the Series A Preferred Stock was accreted to its redemption value over the four year period to when the holders may request redemption, using an effective interest method. For the year ended December 31, 2015, additional accretion of $221,902 was recognized. During 2015, the Series A Preferred Stock and certain related common warrants were exchanged for Series B Preferred Stock. As a result the net carrying amount of the Series A Preferred Stock at December 31, 2017 and 2016 was $0.

~~Reconciliation of changes in fair value~~

~~Certain assets and liabilities that are measured at fair value on a recurring basis are measured in accordance with FASB ASC Topic 820-10-05,~~ ~~Fair Value Measurements~~. FASB ASC Topic 820-10-05 defines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurements for financial assets and liabilities as well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial statements.

~~The statement requires fair value measurement be classified and disclosed in one of the following three categories:~~

~~Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;~~

~~Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and~~

~~Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).~~

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Our derivative financial instruments that are measured at fair value on a recurring basis are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~The following represents a reconciliation of the changes in fair value of warrants measured at fair value using Level 3 inputs during the year ended December 31, 2017:~~

(in thousands)
2013
Placement Agent Warrants
Balance, December 31, 2015 $ 267
Exercise of warrants (698 )
Change in fair value 634
Balance, December 31, 2016 203
Exercise of warrants (130 )
Change in fair value (53 )
Balance, December 31, 2017 $ 20

The warrants are valued using a trinomial lattice model. Significant assumptions used in the model at December 31, 2017 and 2016, include the market price of our common stock, an expected dividend yield of zero, remaining life of 2.0 years and 2.5 years, historical volatility of 24.359% and 82.470% and risk-free rates of return of 1.798% and 1.470%, respectively.

~~At December 31, 2017 and December 31, 2016, the fair value of the remaining 40,000 placement agent warrants was approximately $20,000 and $203,000, respectively.~~

NOTE ~~10.~~4. RECENT ACCOUNTING PRONOUNCEMENTS

In ~~January 2017,~~June 2016, the FASB issued ASU 2016-13, Financial ~~Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04,~~ ~~Intangibles-Goodwill and Other~~Instruments—Credit Losses (Topic ~~350):~~ ~~Simplifying the Test for Goodwill Impairment~~326). The ~~purpose of this ASU is to reduce~~update changes the ~~cost~~impairment model for most financial assets and ~~complexity of evaluating goodwill for impairment. It eliminates the need for~~certain other instruments, including trade and other receivables, contract assets, held-to-maturity debt securities and loans, and requires entities to ~~calculate~~use a new forward-looking expected loss model that will result in the ~~implied fair value~~earlier recognition of ~~goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities~~allowance for losses. This update, as if that reporting unit had been acquired in a business combination. Under this ASU, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit's fair value. The new standard isoriginally issued, was effective for ~~fiscal years,~~annual and interim periods ~~within those~~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, ~~2019. Early adoption~~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 ~~permitted, however we have chosen not to do so. The amendment is not expected to have a material impact on our financial condition or results of operations.~~

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments. The new guidance clarifies the classification of certain cash receipts and cash payments~~ in the ~~statement~~process of ~~cash flows, including debt prepayment or extinguishment costs, settlement~~determining the effects of contingent consideration arising from a business combination, insurance settlement proceeds, and distributions from certain equity method investees. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, however we have chosen not to do so. The amendment is not expected to have a material impact on our financial condition or results of operations.

~~In March 2016, FASB issued ASU No. 2016-09~~ ~~Compensation-Stock Compensation - (Topic 718)~~ Improvements to employee share-based payments accounting as part of simplicity initiatives. This update involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. For us, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The amendment has not made a material impact on our financial condition or results of operations.

~~In February 2016, FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively and early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on its consolidated financial statements.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~In May 2014, the FASB issued ASU No. 2014-09 (ASC 606),~~ ~~Revenue from Contracts with Customers~~, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for us on January 1, 2018. Early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We performed an analysis and concluded that the amendment will not have a material impact on our financial condition or results of operations.

~~ASU No. 2014-09 (ASC 606),~~ ~~Revenue from Contracts with Customers~~ will become effective for us beginning with the first quarter of 2018, and we plan to adopt the new accounting standard using the modified retrospective transition approach. The modified retrospective transition approach will recognize any changes from the beginning of the year of initial application through retained earnings with no restatement of comparative periods. We will record revenue under ASC 606 at a single point in time, when control is transferred to the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, systems and controls to support recognition and disclosure under the new standard. Based on the results of the evaluation, we have determined that the adoption of the ~~new~~ standard ~~will have a material impact~~ on ~~our~~the consolidated financial ~~statements. Application of~~statements, it does not expect the ~~transition requirements of the new standard will not have a material~~ impact ~~on opening retained earnings.~~to be material.

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

NOTE ~~11. LONG TERM DEBT~~5. DISPOSITION OF THE CORE BUSINESS

On ~~June 28, 2016,~~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 ~~a transaction~~an Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Bank of Tampa, a Florida banking corporation (“Lender”) wherein Lender amended the terms of a mortgage loan (“the Loan”) originally executed on March 20, 2014 with a principal amount of $3,592,000. The Initial Maturity Date of the Loan was extended to July 20, 2019 from March 19, 2017, and the Extended Maturity Date was amended to July 20, 2024 from March 20, 2022. In addition, the Lender released as collateral to the Loan, the Company’s working capital accounts in exchangeSymmetry for a ~~negative covenant limited~~four-year term, whereby it will manufacture certain Core products and sell them to ~~$2,000,000 of the aggregate indebtedness secured by these accounts.~~

~~The obligations under the Loan are secured by a first mortgage~~Symmetry at agreed upon prices. Any activity resulting from this agreement is netted and ~~security interest~~reported in the ~~Company’s Clearwater, Florida facility. In addition, the Company has pledged an interest~~Consolidated Statements of Operations as other income (loss). Core activity for 2020 amounted to $9.4 million with cost of sales equivalents of $8.1 million and other related expenses of $0.8 million for net other income of $0.5 million. Core activity in ~~a certificate~~2019 amounted to $9.4 million with cost of ~~deposit in the amount~~sales equivalents of ~~$719,000 as additional collateral. The amount~~$8.8 million and related operating expenses of ~~the additional collateral required declines on a pro rata basis as principal is paid.~~$0.5 million for net other income of $0.1 million.

~~Borrowings under the Loan bear interest at LIBOR plus 3.5%, with a fixed monthly principal payment of $19,956. The interest rate at December 31, 2017 was 5.640%.~~

The Loan documents contain customary financial covenants, including a covenant that the Company maintains a minimum liquidity of $750,000. Should we desire to extend the Loan beyond July 20, 2019, we must maintain a Debt Service Coverage Ratio for each of the preceding four quarters of not less than 1.0 to 1.0.

~~Our future contractual obligations for agreements with initial terms greater than one year are as follows:~~

(In thousands) Long-term debt
2018 $ 239
2019 2,455
Total $ 2,694

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 6. INTEREST IN JOINT VENTURE INVESTMENT

In 2019, the Company executed a joint venture agreement with its Chinese supplier ("China JV"). The agreement requires the Company to make a capital contribution into the newly formed entity of approximately $357,000, of which approximately $154,000 was contributed during the year ended December 31, 2020. As of the date of these consolidated financial statements, the joint venture has not commenced principal operations.

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


(In thousands)	Year Ended December 31, 2020

Beginning interest in China JV	$	0
Contributions	154
Net loss attributable to Apyx	(10)
Ending interest in China JV	$	144

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 7. INVENTORIES

Inventories consisted of the following:


(In thousands)	December 31, 2020		December 31, 2019
Raw materials	$	2,243	$	2,935
Work in process	1,109		1,209
Finished goods	1,087		1,316
Gross inventories	4,439		5,460
Less: provision for obsolescence	(388)		(392)
Inventories, net	$	4,051	$	5,068

During 2020, the Company reassessed its forecasted product mix due to COVID-19, increased availability of newer handpiece designs, and improved timing of product registrations in some of our foreign markets. As a result, certain products were reduced to a lower carrying value, and some components were also written down as the Company determined to cease further production on these older models. The total impairment was approximately $400,000 and is included in cost of sales in the accompanying Consolidated Statement of Operations for 2020. Later in 2020, the Company's forecasts were revised, and it subsequently utilized a portion of the written down components and approximately $100,000 of the impairment was recovered through the sale of the corresponding manufactured handpieces.

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 8. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:


(In thousands)	December 31, 2020		December 31, 2019
Land	$	1,600	$	1,600
Building and improvements	4,454		4,423
Machinery and equipment	2,113		2,187
Furniture and fixtures	290		292
Computer equipment and software	1,505		1,409
Leasehold improvements	156		156
Molds	813		805
Total property, plant and equipment	10,931		10,872
Less: accumulated depreciation and amortization	(4,813)		(4,403)
Property and equipment in service	6,118		6,469
Construction in progress	423		149
Property and equipment, net	$	6,541	$	6,618

Total depreciation expense was $0.7 million for the years ended December 31, 2020 and 2019. Depreciation expense is included within cost of goods sold and selling, general and administrative expense in the Consolidated Statements of Operations.

NOTE 9. LEASES

The Company does not recognize leases with terms less than twelve months in duration, or that have variable only payments, in its Consolidated Balance Sheet as right-of-use assets and lease liabilities. The Company has adopted the practical expedient which allows for the Company to not separate lease and non-lease components of contracts. Accordingly, non-lease components are included in the measurement of the Company's lease liabilities and right-of-use assets. If the Company is aware of the implicit rate in leases, the Company determines the operating lease liability using the implicit rate. For those leases where the Company is not aware of the implicit rate in the lease, the Company utilizes an incremental borrowing rate of 4.00%, which is indicative of its collateralized borrowing rate.

Operating Leases

The Company leases its facility in Sofia, Bulgaria and vehicles in Clearwater, Florida under non-cancelable operating lease agreements. The Company's lease on the Bulgaria facility includes rent escalation over the term of the lease. Rent expense on the lease is accounted for on a straight-line basis over the lease term. During 2019, the Bulgaria facility lease was extended for an additional 2 years. In accordance with operating lease guidance under Topic 842, the extension was accounted for as a lease modification and the right-of-use asset and lease liability were remeasured at the modification date. These operating leases have terms expiring through December 2022.

Finance Leases

During 2019, the Company entered into non-cancelable finance leases for certain computer equipment and a vehicle in Clearwater, Florida. These finance leases have terms expiring through August 2023.

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


	Year Ended December 31,
Lease costs (in thousands):	2020		2019
Operating lease costs	$	124	$	115
Finance lease costs:
Amortization of right-of-use assets	$	216	$	57
Interest on lease liabilities	$	22	$	8
Variable lease costs	$	13	$	16
Total lease costs	$	375	$	196

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


	Year Ended December 31, 2020				Year Ended December 31, 2019
(in thousands)	Operating		Finance		Operating		Finance
Non cash information:
Right-of-use assets capitalized and lease liabilities recognized upon adoption of Topic 842	$	0	$	0	$	212	$	0
Right-of-use assets capitalized and lease liabilities recognized upon lease remeasurement	$	0	$	0	$	207	$	0
Right-of-use assets capitalized and lease liabilities recognized upon execution of lease	$	0	$	0	$	28	$	710

Cash information:
Cash paid for lease liabilities	$	110	$	251	$	106	$	68

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


	Year Ended December 31, 2020		Year Ended December 31, 2019
	Operating	Finance	Operating	Finance
Weighted average remaining lease term (in years)	2.0	1.7	3.0	2.7
Weighted average discount rate	4.03%	4.00%	4.04%	4.00%

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


(In thousands)	Operating		Finance

2021	$	134	$	236
2022	131		183
2023	0		18


Total lease payments	265		437
Less imputed interest	(10)		(16)
Present value of lease liabilities	255		421
Less current portion of lease liabilities	(126)		(238)
Long-term portion of lease liabilities	$	129	$	183

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:


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

Accrued payroll	$	808	$	694
Accrued bonus	811		1,306
Accrued commissions	1,001		877
Accrued product warranties	498		452
Accrued product liability claim insurance deductibles	435		1,170
Accrued professional fees	222		1,383
Joint and several payroll liability	1,027		1,045
Uncertain tax positions	1,658		1,491
Sales tax payable	591		492
Other accrued expenses and current liabilities	227		486
Total accrued expenses and other current liabilities	$	7,278	$	9,396

NOTE 11. PRODUCT WARRANTIES

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


(In thousands)	December 31, 2020		December 31, 2019
Beginning balance	$	452	$	348
Provision for product warranties	215		321
Product warranty expenses incurred	(169)		(217)
Accrued product warranties	$	498	$	452

NOTE 12. ~~TAXES~~JOINT AND ~~NET OPERATING LOSS CARRYFORWARDS~~SEVERAL PAYROLL LIABILITY

During 2017, 2018 and 2019, the Company improperly calculated and reported the amount of income to certain employees, and did not collect and remit the correct amount of its employees' portion of income and payroll taxes, related to stock option exercises as required by the IRS. Due to IRS statutory requirements, the Company has joint and several liability for the full amount that was not withheld and remitted to the proper taxing authorities. This amount of the liability was approximately $1.0 million at December 31, 2020 and 2019. Included in other income (loss), net in the accompanying Consolidated Statements of Operations for 2019 is approximately $0.3 million related to the liability. If the Company can establish that its employees have in fact paid these obligations, either presently or in the future, it will be relieved of its liability.

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 13. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“basic EPS”) is computed by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. As the Company is in a net loss position for all periods presented, all potential shares outstanding are anti-dilutive. The following table provides the computation of basic and diluted earnings (loss) per share.


	Year Ended December 31,
(in thousands, except per share data)	2020		2019
Numerators:


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














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
















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














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


Options	4,939		3,967

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 14. FINANCIAL INSTRUMENTS

Cash and Cash Equivalents at December 31, 2020 and 2019, respectively, consisted of approximately $2,250,000 and $2,237,000 in cash and $39,665,000 and $56,575,000 in U.S. Treasury Securities with maturities of 3 months or less.

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 15. INCOME TAXES

Components of the provision for income taxes are as follows:


(In thousands)	December 31, 2020		December 31, 2019
Current:
Federal	$	(3,682)	$	(12)
State	(120)		(205)
Foreign	(37)		87
	(3,839)		(130)

Release of valuation allowance due to CARES Act	(3,664)		0
	(7,503)		(130)

Deferred:
Federal	(25)		(3,989)
State	(1,004)		(741)

	(1,029)		(4,730)

Valuation allowance	1,029		4,730



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

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


	Year Ended December 31,
	2020		2019
Federal tax provision	21.0	%	21.0	%
State taxes (net of federal benefit)	5.1	%	4.3	%

Valuation allowance	(5.3)	%	(23.8)	%

NOL carryback from CARES Act	18.9	%	0	%
Other	(1.0)	%	(0.8)	%
Total	38.7	%	0.7	%

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

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


(In thousands)	December 31, 2020		December 31, 2019
Deferred tax assets:
Loss and credit carryforwards	$	1,888	$	4,779
Stock-based compensation	1,603		1,004


Other	745		1,133
Total deferred tax assets	4,236		6,916
Valuation allowance	(3,837)		(6,472)
Total deferred tax assets, net of valuation allowance	399		444
Deferred tax liabilities:

Property and equipment	(278)		(245)

Other	(121)		(199)
Total deferred tax liabilities	(399)		(444)
Net deferred tax assets	$	0	$	0

On ~~December 22, 2017,~~March 27, 2020, the U.S. government enacted ~~comprehensive tax legislation commonly referred~~the CARES Act to ~~as the Tax Cuts and Jobs~~provide relief from COVID-19. The CARES Act ~~(the “Tax Act”). The Tax Act makes broad and complex changes~~includes a provision that allows companies to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) bonus depreciation that will allow for full expensing of qualified property; (3) creating a new limitation on deductible interest expense; (4) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (5) changing rules related to uses and limitations ofcarryback net operating loss carryforwards created in tax years beginning after December 31, 2017; and (6) limitations on the deductibility of certain executive compensation. The SEC issued guidance on accounting for the tax effects of the Tax Act. The Company must reflect the income tax effects of those aspects of the Tax Act for which the accounting is known. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements and the Tax Act provides a measurement period that should not extend beyond one year from the Tax Act enactment date. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the tax laws that were in effect immediately before the enactment of the Tax Act.

~~The corporate tax rate reduction was applied to our inventory of deferred tax liabilities, which resulted in the net tax benefit~~losses (NOL’s) generated in the period ~~ending December 31, 2017,~~2018 through 2020 to prior years. In conjunction with the disposition of ~~approximately $196,000.~~

~~Deferred income taxes reflect~~ the ~~impact of temporary differences between~~Core business in 2018, the Company generated a significant amount of ~~assets~~taxable income in 2018. Subsequent to this, the Company generated NOLs in 2019 and ~~liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. The tax effects of these temporary differences representing~~2020. For the ~~components of~~NOLs generated in 2019, the Company previously recorded a full valuation allowance on the deferred tax assets ~~(liabilities) were~~associated with the NOL due to realization not being probable under then existing tax law. The CARES Act makes these assets realizable and, as ~~follows:~~of the date of the CARES Act, the Company has recognized an income tax benefit of approximately $3.7 million associated with the release of the valuation allowance on its Federal NOL deferred tax asset from 2019. Additionally, using the provisions of the CARES Act, the Company is carrying back its 2020 Federal NOL of approximately $3.7 million.

(In thousands) December 31,
2017 December 31,
2016
Deferred tax assets:
Loss and credit carry-forwards $ 7,722
$ 9,169
Stock-based compensation 549
519
Inventory Reserve 494
534
Other 178
263
Total deferred tax assets 8,943
10,485
Valuation allowance (8,756 ) (10,185 )
Total deferred tax assets, net of valuation allowance 187
300
Deferred tax liabilities:
State taxes (capital) (17 ) (19 )
Property and equipment (294 ) (459 )
Intangibles (244 ) (386 )
Total deferred tax liabilities (555 ) (864 )
Net deferred tax liabilities $ (368 ) $ (564 )

~~We consider~~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. ~~net operating losses~~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 ~~begin~~need to ~~expire~~adjust its income tax provision in ~~years beginning in 2019.~~the period it determines that the earnings will no longer be indefinitely invested outside the United States.

~~We assess~~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. ~~All~~As of ~~our~~December 31, 2020 and 2019, the Company has recorded a liability of approximately $1.3 million related to uncertain tax positions ~~arise from taxable temporary differences~~ and ~~as such,~~accrued approximately $0.4 million and $0.2 million, respectively, of interest and penalties on these positions. It is expected that the ~~liability has been recognized~~change in unrecognized tax benefits within the ~~net deferred~~next 12 months will not be significant.

The following is a roll-forward of the Company's total gross unrecognized tax ~~asset, current~~benefits, not including interest and ~~non-current items to which they relate.~~penalties, for the years ended December 31:


(in thousands)	Gross Unrealized Tax Benefits
	2020		2019
Beginning of year balance	$	1,313	$	1,313
Additions of tax positions related to the current year	0		0
Additions of tax positions related to the prior year	0		0
Decreases for tax positions related to prior year	0		0
End of year balance	$	1,313	$	1,313

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~Below~~The Company is ~~a reconciliation of the statutory~~subject to U.S. federal and state income tax examination. The Company’s 2017 through 2019 U.S. federal income tax ~~rate~~returns are subject to ~~our effective~~examination by the Internal Revenue Service. The Company’s state income tax ~~rate:~~returns are subject to examination for the 2016 through 2019 tax years.

Year Ended December 31,
2017 2016 2015
Federal tax provision 34.0 % 34.0 % 34.0 %
State taxes (net of federal benefit) 4.8 % 3.7 % 2.4 %
Warrant gains 0.4 % 31.4 % (11.1 )%
Valuation allowance 28.9 % (71.8 )% (26.3 )%
Change in federal tax rate (71.2 )% — % — %
Other 6.2 % 1.5 % 0.6 %
3.1 % (1.2 )% (0.4 )%

NOTE ~~13.~~16. RETIREMENT PLAN

The Company provides a tax-qualified profit-sharing retirement plan under section 401(k) of the Internal Revenue Code for the benefit of eligible employees with an accumulation of funds for retirement on a tax-deferred basis and provides for annual discretionary contribution to individual trust funds.

All employees are eligible to ~~participate.~~participate upon completing three months of service. The employees may make voluntary contributions to the plan up to the maximum percentage allowed by the Internal Revenue Code. Vesting in employee matching contributions is graded and depends on the years of service. After three years from their date of hire, the employees are 100% vested. The Company makes matching contributions of 50% of the employee contributions up to a total of 3% of participant payroll. Matching contributions made by the Company totaled approximately $0.3 million ~~$0.3 million and $0.2 million~~ for each of the years ended December 31, ~~2017, 2016~~2020 and ~~2015,~~2019, respectively.

NOTE ~~14.~~17. RELATED PARTY TRANSACTIONS

~~Research and Development Consulting Services~~

Our policy is that employees, non-employees and third parties must obtain authorization from the appropriate department executive manager, for any business relationship or proposed business transaction in which they or an immediate family member has a direct or indirect interest, or from which they or an immediate family member may derive a personal benefit (a “related party transaction”). The maximum dollar amount of related party transactions that may be approved as described above in this paragraph in any calendar year is $120,000. Any related party transactions that would bring the total value of such transactions to greater than $120,000 must be referred to the Audit Committee to determine the procedure for approval and then have the recommendations presented to the Board of Directors for approval.

Several relatives of Nikolay Shilev, ~~Bovie~~Apyx Bulgaria’s Managing Director, are considered related parties. Teodora Shileva, Mr. Shilev’s spouse, is an employee of the ~~company~~Company working in the ~~Accounting~~accounting department. Antoaneta Dimitrova ~~Shileva-Toromanova,~~Shileva-Toromanova, Mr. Shilev’s sister, is the ~~Manager~~manager of ~~Production and Human Resources.~~human resources. Svetoslav Shilev, Mr. Shilev’s son, is ~~an Engineer~~a quality manager in the ~~Quality Assurance~~quality assurance department.

~~A relative of Moshe Citronowicz, Bovie’s Senior Vice President, is considered a related party. Arik Zoran is a consultant~~In addition, as part of the ~~Company doing business as AR Logic, Inc.,~~purchase of the Apyx Bulgaria manufacturing facility, Mr. Shilev was issued a ~~consulting firm owned by Arik Zoran, Mr. Citronowicz’s brother.~~ note payable for $0.1 million, which was paid in full on October 20, 2020.

The ~~Company has been working with AR Logic since 2011~~partner in the Company's China joint venture is also a supplier of the Company. For the years ended December 31, 2020 and ~~as of April 14, 2017,~~2019, the Company ~~agreed to a renewal contract~~made purchases from this supplier of approximately $1,441,000 and ~~terms to continue the consulting arrangement, expiring~~$2,643,000, respectively. At December 31, ~~2017. AR Logic was paid consulting fees of~~2020 and 2019, respectively, the Company owed this supplier approximately ~~$0.2 million, $0.2 million~~$38,000 and ~~$0.3 million during 2017, 2016 and 2015, respectively.~~$29,000, respectively.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

NOTE ~~15. OTHER~~18. COMMITMENTS AND CONTINGENCIES

~~Property and Rental Agreements~~

In March 2014, we signed a lease for offices located in Purchase, New York. The lease is for 3,650 square feet of office space with a monthly cost of approximately $9,277 per month. We decided to consolidate operations in the Purchase, NY office with the facility in Clearwater. Based on this, we determined the office in Purchase, NY was no longer necessary and decided to cease all activity at the location. The remaining lease of approximately $175,000, has been expensed in 2017, included as part of severance and related expense and will be operational cash outflows during 2018 and 2019.

In October 2015, pursuant to our acquisition of Bovie Bulgaria, we are obligated to pay a lease of $5,424 per month, expiring in December 2021, for 18,745 square feet of office, research and manufacturing space in Sofia, Bulgaria.

~~The following is a schedule of approximate future minimum lease payments under operating leases as of December 31, 2017:~~

(In thousands)
2018 $ 74
2019 74
2020 74
2021 74
Total $ 296

Litigation

The medical device industry is characterized by frequent claims and litigation, and ~~we are and~~the Company may become subject to various claims, lawsuits and proceedings in the ordinary course of our ~~business, including~~business. Such claims may include claims by current or former employees, distributors and competitors, claims concerning the marketing and ~~with respect to~~promotion of our products and product liability ~~claims, lawsuits and proceedings.~~claims.

~~We are~~The Company is involved in a number of legal actions relating to the use of our ~~J-Plasma~~Helium Plasma technology. The outcomes of these legal actions are not within ~~our~~the Company’s complete control and may not be known for prolonged periods of time. InIt 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 adequately covered by insurance, or~~ are not expected, individually or in the aggregate, to result in a material, adverse effect on ~~our~~its financial ~~condition.~~condition, results of operations and cash flows. However, in the event that damages exceed the aggregate coverage limits of ~~our policy~~the Company’s policies or if ~~our~~its insurance carriers disclaim coverage, ~~we believe~~management believes it is possible that costs associated with these claims could have a material adverse impact on the consolidated financial condition, results of operations and cash flows.

On April 17, 2019, a complaint (the “Complaint”) was filed in the United States District Court for the Middle District of Florida, against the Company and Charles D. Goodwin, the Company’s President and Chief Executive Officer and a member of the Company’s Board of Directors, alleging certain violations of the Securities Exchange Act of 1934, as amended. On July 16, 2019, the Court appointed lead plaintiff for the putative class and approved the lead plaintiff’s selection of counsel. On September 3, 2019, lead plaintiff filed an amended complaint (the “Amended Complaint”) with the Court.

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Amended Complaint seeks class action status on behalf of all persons and entities that acquired the Company’s securities between December 21, 2018 and April 1, 2019, and alleges violations by the Company and Goodwin of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended and Rule 10b-5 thereunder, primarily related to certain public statements concerning the Premarket Notification 510(k) submission made to the US Food and Drug Administration for a new indication for the Company’s J-Plasma® technology for use in dermal resurfacing procedures. On October 3, 2019, defendants filed a motion to dismiss the Amended Complaint, and on March 11, 2020, the Court denied that motion. On July 10, 2020, the parties executed a settlement agreement, which was subject to Court approval. The Court preliminarily approved the settlement on July 21, 2020. The settlement agreement provides for the dismissal of the action with prejudice. On November 6, 2020, the Court issued its final order approving the settlement and dismissing the action and all claims contained in the Amended Complaint with prejudice. At December 31, 2020, the Company has settled and fully paid all obligations related to this matter. Included in selling, general and administrative expenses for the year ended December 31, 2019 is $1,000,000 for the matter. At December 31, 2019, the Company had accrued $820,000 for the matter.

The Company accrues a liability in our consolidated ~~earnings,~~ financial ~~position~~statements for these actions when a loss is known or ~~cash flows.~~considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is recorded. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded, actual results may differ from these estimates.

Purchase Commitments

At December 31, ~~2017, we had~~2020, the Company has purchase commitments for inventories totaling approximately ~~$4.3~~$1.9 million, substantially all of which is expected to be purchased by the end of ~~2018.~~2021.

~~Severance~~China Joint Venture

~~Jack McCarthy,~~The Company's agreement in the ~~Chief Commercialization Officer, was terminated without cause from his position with~~China joint venture requires it to make a capital contribution into the ~~Company effective November 6, 2017. Severance costs incurred included salary, option expense~~newly formed entity of $357,000. As of the date of these consolidated financial statements, approximately $203,000 of its capital commitment remains to be funded.

Concentrations

Sales to one customer within the OEM segment represented 10% and ~~other benefits~~11% of ~~approximately $582,000, of which approximately $397,000 will be operational cash outflows during 2018.~~total sales for the year ended December 31, 2020 and 2019, respectively.

Robert L. Gershon, the Chief Executive Officer and a director, resigned from all of his positions with the Company effective December 15, 2017. In connection with this departure, the Company and Mr. Gershon entered into a separation agreement, dated December 15, 2017. Severance costs incurred included salary, option expense and other benefits of approximately $767,000, of which approximately $670,000 will be operational cash outflows during 2018.

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE ~~16.~~19. STOCK OPTIONS

On October 30, 2007, ~~our~~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 aperiods between one and seven ~~year period.~~years.

In July of 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, ~~2017~~2020 approximately ~~37,000 remain~~60,000 are available to be issued in this plan.

In July of 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, ~~2017~~2020 approximately ~~343,578 remain~~230,000 are available to be issued in this plan.

In August of 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, ~~2017~~2020 approximately ~~1,900,000 remain~~70,000 are available to be issued in this plan.

In August 2019, the Company's stockholders approved the 2019 Share Incentive Plan covering a total of 2,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2020, all 2,000,000 are available to be issued in this plan.

On January 29, 2021, the Company granted employees approximately 700,000 options to purchase common shares of the Company's stock. All options granted were pursuant to the plans noted above. The options vest over a period of three years.

The status of ~~our~~the Company's stock options ~~and stock awards are~~is summarized as follows:


	Number of options	Weighted average exercise price












Outstanding at December 31, 2018	3,254,779	$	3.18
Granted	1,379,500	7.70
Exercised	(410,635)	2.99
Canceled and forfeited	(256,785)	4.76
Outstanding at December 31, 2019	3,966,858	$	4.67
Granted	1,376,900	7.94
Exercised	(112,965)	3.37
Canceled and forfeited	(291,850)	7.19
Outstanding at December 31, 2020	4,938,943	$	5.46


	Number of options	Weighted average grant date fair value
Non-vested at December 31, 2019	1,484,929	$	4.11
Granted	1,376,900	4.78
Vested	(665,510)	3.77
Forfeited	(151,850)	4.53
Non-vested at December 31, 2020	2,044,469	$	4.61

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Number of options Weighted average exercise price
Outstanding at December 31, 2015 3,131,447
$ 3.38
Granted 810,762
1.87
Exercised (36,250 ) 3.62
Canceled and forfeited (153,750 ) 3.69
Outstanding at December 31, 2016 3,752,209
$ 3.04
Granted 1,728,000
3.09
Exercised (176,750 ) 2.41
Canceled and forfeited (443,302 ) 3.95
Outstanding at December 31, 2017 4,860,157
$ 3.00

Exercisable at December 31, 2017 2,627,722
$ 3.46

Number of options Weighted average grant date fair value
Non-vested at December 31, 2016 1,745,506
$ 1.25
Granted 1,728,000
1.82
Vested (797,769 ) 1.01
Forfeited (443,302 ) 1.95
Non-vested at December 31, 2017 2,232,435
1.40

Common shares required to be issued upon the exercise of stock options ~~and warrants~~ would be issued from ~~our~~ authorized and unissued shares. ~~We calculated~~Options are valued using the ~~fair value of issued options utilizing a trinomial lattice with an~~Black-Scholes model. For employee grants, the Company calculates expected life ~~calculated~~ via the simplified method as ~~we do~~it does not have sufficient history to determine actual expected life. For non-employee grants, the Company calculates expected life using a combination of past exercise behavior, the contractual term and expected remaining exercise behavior. Inputs used in the valuation models are as follows:


	2020 Grants			2019 Grants
Option value	$4.98	—	$8.18	$7.15	—	$7.91
Risk-free rate	0.3%	-	1.7%	1.7%	—	2.6%
Expected dividend yield	0%			0%
Expected volatility	65.9%	-	70.1%	64.9%	—	66.4%
Expected term (in years)	6			4.5	-	6

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

2017 Grants 2016 Grants 2015 Grants
Option value $1.73 - $2.34 $0.80 - $0.91 $0.90 - $1.84
Risk-free rate 1.5% - 1.9% 1.5% - 1.8% 0.2% 1.6%
Expected dividend yield —% —% —%
Expected volatility 62.1% - 68.0% 49.5% - 50.3% 53.0% - 54.0%
Expected term (in years) 6 6 6

~~As of~~The Company recognized approximately $4,210,000 and $3,581,000 in stock-based compensation expense during the years ended December 31, ~~2017, the aggregate intrinsic value of all stock options outstanding~~2020 and ~~expected to vest was approximately $1,306,791 and the aggregate intrinsic value of currently exercisable stock options was approximately $768,706.~~ 2019, respectively.

The intrinsic value of each option share is the difference between the fair ~~market~~ value of our common stock and the exercise price of such option share to the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation at December 31, 2020 is based on the ~~$2.60~~$7.20 closing stock price of ~~our~~the Company's common stock on December 31, ~~2017,~~2020, the last trading day of ~~2017. The total number of in-the-money options outstanding and exercisable as of December 31, 2017 was approximately 2,318,887.~~2020.

As of December 31, ~~2016, the aggregate intrinsic value of all~~2020, there were 4,530,049 stock options outstanding and expected to vest ~~was approximately $4,150,334 and the~~with an aggregate intrinsic value of ~~currently exercisable stock~~approximately $10,250,000. These options ~~was approximately $1,574,318. The intrinsic value calculation is based on the $3.59 closing stock~~have a weighted average exercise price of ~~our common stock on~~$5.26 and a weighted average remaining contractual term of approximately 7 years.

As of December 31, ~~2016, the last trading day of 2016. The total number of in-the-money~~2020, there were 2,894,474 stock options outstanding and exercisable aswith an aggregate intrinsic value of ~~December 31, 2016 was~~ approximately ~~1,211,014.~~$9,800,000. These options have a weighted average exercise price of $3.89 and a weighted average remaining contractual term of approximately 6 years.

The total intrinsic value of in the money options exercised during the years ended December 31, ~~2017, 2016~~2020 and ~~2015~~2019, was approximately ~~$223,340, $119,026~~$200,000 and ~~$51,575,~~$1,420,000, respectively. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option holder to exercise the ~~options. The total cash proceeds received from the exercise of stock~~ options ~~was approximately $0 and $12,300 and $209,250 for the years ended December 31, 2017, 2016 and 2015, respectively.~~or other consideration paid.

The total fair value of options granted during the years ended December 31, ~~2017, 2016~~2020 and ~~2015~~2019, was approximately ~~$3,144,960, $1,516,125~~$6,580,000 and ~~$932,771,~~$6,300,000, respectively. The weighted average fair value of options granted during the years ended December 31, 2020 and 2019, was $4.78 and $4.57, respectively. The total fair value of option shares vested during the years ended December 31, ~~2017, 2016~~2020 and ~~2015,~~2019, was approximately ~~$805,748, $612,464~~$2,510,000 and ~~$412,638,~~$2,130,000, respectively.

The Company allows employees to exercise stock-based awards by surrendering stock-based awards with an intrinsic value equal to the cumulative exercise price of the stock-based awards being exercised, referred to as net settlements. These surrenders are included in stock options exercised in the options rollforward above. During the ~~year~~years ended December 31, ~~2017, we issued 47,372 common shares in exchange for 176,750 non-employee stock~~2020 and 2019, the Company received 39,448 and 125,948 options ~~and 129,378 common shares (via stock swaps).~~

During the year ended December 31, 2016, we issued 9,614 common shares in exchange for 36,250 non-employee stock options and 26,636 common shares (via stock swaps). Net proceeds from the issuance of common shares along with the shares receivedas payment in the ~~stock swap exercises were approximately $12,300 for the year ended December 31, 2016.~~exercise of 47,088 and 222,601 options, respectively.

~~During the year ended December 31, 2015, we issued 33,520 common shares in exchange for 114,500 employee and non-employee stock options and 80,980 common shares (via stock swaps).~~

As of December 31, ~~2017,~~2020, there was approximately ~~$3.0 million~~$5,910,000 of total unrecognized stock-based compensation ~~cost,~~expense, related to unvested stock options granted under the ~~Amended Plan.~~plans above. This ~~cost~~expense is expected to be recognized over a weighted-average period of approximately 41 year.

During October 2015, the Company granted 225,922 restricted stock units that vest ratably over a period of 5 years. As of December 31, 2020, all of the restricted stock units had vested.

~~Allocation of stock based compensation expense was as follows:~~

Year Ended December 31,
(In thousands) 2017 2016 2015
Cost of sales $ —
$ 2
$ 3
Research and development 27
27
39
Salaries and related costs 844
780
526
Total $ 871
$ 809
$ 568

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE ~~17.~~20. GEOGRAPHIC AND SEGMENT INFORMATION

Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, wethe Company also ~~consider~~considers the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to ~~our~~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.

~~Prior to the first quarter of 2017, we disclosed only one reporting segment. Beginning in 2017, our~~The Company's reportable segments are disclosed as principally organized and managed as ~~three~~2 operating segments: ~~Core, OEM and Advanced Energy. We adopted reportable segments to align with changes in how we manage our business, review operating performance and allocate resources as a result of the growth in~~ Advanced Energy and ~~the differing behavior of the Core and OEM product lines. The Corporate~~OEM. "Corporate & ~~Other category~~Other" includes certain unallocated corporate ~~operational, research~~ and ~~development and marketing~~administrative costs which were not specifically attributed to any reportable segment. ~~Net assets are shared, therefore, not allocated to the reportable segments.~~ The OEM segment is primarily development and manufacturing contract and product driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.

Summarized financial information with respect to reportable segments is as follows:


	Year ended December 31, 2020
(In thousands)	Advanced Energy		OEM		Corporate (Other)		Total
Sales	$	22,214	$	5,497	$	0	27,711












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


Interest income	0		0		241		241
Interest expense	0		0		(46)		(46)
Other income, net	0		0		479		479




Income tax benefit	0		0		7,503		7,503


	Year ended December 31, 2017														Year ended December 31, 2019
(In thousands)	Core		OEM		Advanced Energy			Corporate (Other)			Total			(In thousands)	Advanced Energy		OEM		Corporate (Other)		Total
Sales	$	28,649	$	2,598	$	7,636		$	—		$	38,883		Sales	$	22,676	$	5,559	$	0	$	28,235


Income (loss) from operations	8,620		1,353		(3,957		)	(11,281		)	(5,265		)	Income (loss) from operations	(8,045)		2,136		(14,960)		(20,869)

Severance and related expense	—		—		—			1,524			1,524
Interest expense, net	—		—		—			(136		)	(136		)
Change in fair value of derivative liabilities	—		—		—			183			183

Interest income														Interest income	0		0		1,392		1,392
Interest expense														Interest expense	0		0		(8)		(8)
Other losses, net														Other losses, net	0		0		(351)		(351)

Income tax benefit	—		—		—			(156		)	(156		)	Income tax benefit	0		0		130		130
Depreciation and amortization	—		—		—			696			696


☒
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended	December 31, ~~2017~~2020

		or

o ☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from _____ to _____
		Commission File Number:	0-12183



Delaware						11-2644611
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



	2017				2016
	High		Low		High		Low
4th Quarter	$	4.29	$	2.54	$	5.55	$	3.50
3rd Quarter	3.48		2.17		5.21		1.68
2nd Quarter	2.83		1.87		1.97		1.56
1st Quarter	3.95		2.53		2.44		1.60


	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	4,872,800	$	5.48	2,351,369
Equity compensation plans not approved by security holders (1)	66,143	$	4.05	—
Total	4,938,943	$	5.46	2,351,369



	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	2,129,674	$	2.86	2,280,578
Equity compensation plans not approved by security holders ⁽¹⁾	2,730,482	$	3.11	—
Total	4,860,157	$	3.00	2,280,578




~~BOVIE~~APYX MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)


	December 31,
	2016	2017	2018	2019	2020
Apyx Medical Corporation	100.00	72.42	180.49	235.64	200.54
Russell 2000 Index	100.00	113.14	99.37	122.94	145.52
Russell 3000 Index	100.00	118.85	110.54	142.09	168.03



	December 31,
	2013	2014	2015	2016	2017
Bovie Medical Corporation	100.00	171.16	97.67	166.97	120.93
S&P 500 Index	100.00	111.39	110.58	121.12	144.64
S&P 500 Health Care Index	100.00	123.3	129.72	124.07	148.89




Gross profit	$	17,504		$	19,094		(8.3)	%
Percentage of sales	63.2		%	67.6		%	(4.4)	%



Gross profit	$	19,761		$	17,915		10.3	%	$	17,915		$	12,557		42.7	%
Percentage of sales	50.8		%	48.9		%	1.9	%	48.9		%	42.5		%	6.4	%


		Page
		~~Page~~
Report of Independent Registered ~~Certified~~ Public Accounting Firm	2930
Consolidated Balance Sheets at December 31, ~~2017~~2020 and ~~2016~~2019		3031
Consolidated Statements of Operations for the years ended December 31, ~~2017, 2016~~2020 and ~~2015~~2019		3132
Consolidated ~~Statement~~Statements of Changes in ~~Stockholders’~~ Equity for the years ended December 31, ~~2017, 2016~~2020 and ~~2015~~2019		3233
Consolidated Statements of Cash Flows for the years ended December 31, ~~2017, 2016~~2020 and ~~2015~~2019		3334
Notes to Consolidated Financial Statements		3435


	December 31, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	41,915	$	58,812


Trade accounts receivable, net of allowance of $300 and $273	8,399		7,987
Income tax receivables	7,654		426
Other receivables	1,275		1,233
Inventories, net of provision for obsolescence of $388 and $392	4,051		5,068

Prepaid expenses and other current assets	2,795		3,207

Total current assets	66,089		76,733
Property and equipment, net	6,541		6,618
Operating lease right-of-use assets	237		350



Finance lease right-of-use assets	437		653
Other assets	807		391

Total assets	$	74,111	$	84,745


LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,511	$	2,438
Accrued expenses and other current liabilities	7,278		9,396



Current portion of operating lease liabilities	126		108
Current portion of finance lease liabilities	238		229
Related party note payable	0		140






Total current liabilities	9,153		12,311

Long-term operating lease liabilities	129		235
Long-term finance lease liabilities	183		421
Contract liabilities	621		405
Other liabilities	166		114

Total liabilities	10,252		13,486

COMMITMENTS AND CONTINGENCIES (NOTE 18)	0		0
EQUITY
Common stock, $0.001 par value; 75,000,000 shares authorized; 34,289,222 issued and outstanding as of December 31, 2020, and 34,312,527 issued and 34,169,952 outstanding as of December 31, 2019	34		34
Additional paid-in capital	61,066		56,708
Retained earnings	2,621		14,517
Total stockholders’ equity	63,721		71,259
Non-controlling interest	138		0
Total equity	63,859		71,259
Total liabilities and equity	$	74,111	$	84,745



	December 31, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	9,949		$	14,456
Restricted cash	719			779
Trade accounts receivable, net of allowance of $204 and $118	4,857			4,733
Inventories, net	6,526			6,158
Prepaid expenses and other current assets	496			413
Total current assets	22,547			26,539
Property and equipment, net	6,408			6,449
Brand name and trademark	1,510			1,510
Purchased technology and license rights, net	179			215
Goodwill	185			185
Deposits	92			109
Other assets	67			103
Total assets	$	30,988		$	35,110

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,583		$	1,606
Accrued severance and related	1,242			—
Accrued payroll	447			419
Accrued vacation	74			404
Current portion of mortgage note payable	239			239
Accrued and other liabilities	2,388			2,604
Total current liabilities	5,973			5,272
Mortgage note payable, net of current portion	2,455			2,694
Note payable	140			140
Deferred rents	—			14
Deferred tax liability	368			564
Derivative liabilities	20			203
Total liabilities	8,956			8,887
Commitments and Contingencies (see Notes 9 and 11)

STOCKHOLDERS' EQUITY
Series B convertible preferred stock, $0.001 par value; 3,588,139 authorized and zero issued and outstanding as of December 31, 2017 and 3,588,139 authorized and 975,639 issued and outstanding as of December 31, 2016, respectively	—			1
Common stock, $0.001 par value; 75,000,000 shares authorized; 33,021,170 issued and 32,878,091 outstanding as of December 31, 2017 and 40,000,000 shares authorized; 31,002,832 issued and 30,859,753 outstanding as of December 31, 2016, respectively	33			31
Additional paid-in capital	50,495			49,625
Accumulated deficit	(28,496		)	(23,434		)
Total stockholders' equity	22,032			26,223
Total liabilities and stockholders' equity	$	30,988		$	35,110



	Preferred Stock					Common Stock
	Shares		Par Value			Shares		Par Value		Additional Paid-In Capital			Accumulated Deficit			Total
Balance December 31, 2014	—		$	—		17,852		$	18	$	29,334		$	(27,848	)	$	1,504
Options exercised	—		—			98		—		220			—			220
Warrants exercised	—		—			739		—		1,519			—			1,519
Issuance of common stock	—		—			5,219		5		11,526			—			11,531
Conversion of Series A preferred stock and common warrants to Series B preferred stock	3,588		4			—		—		(40		)	13,956			13,920
Conversion of Series B convertible preferred to common stock	(1,612	)	(2		)	3,225		4		(2		)	—			—
Stock based compensation	—		—			—		—		575			—			575
Stock swap to acquire options and warrants	—		—			(81	)	—		(273		)	—			(273		)
Accretion on convertible preferred stock	—		—			—		—		—			(222		)	(222		)
Net loss	—		—			—		—		—			(5,370		)	(5,370		)
Balance December 31, 2015	1,976		$	2		27,052		$	27	$	42,859		$	(19,484	)	$	23,404
Options exercised	—		—			36		—		130			—			130
Warrants exercised	—		—			293		—		698			—			698
Issuance of common stock	—		—			1,625		2		5,828			—			5,830
Conversion of Series B convertible preferred to common stock	(1,000	)	(1		)	2,000		2		(1		)	—			—
Stock based compensation	—		—			—		—		809			—			809
Stock swap to acquire options and warrants	—		—			(146	)	—		(698		)	—			(698		)
Net loss	—		—			—		—		—			(3,950		)	(3,950		)
Balance December 31, 2016	976		$	1		30,860		$	31	$	49,625		$	(23,434	)	$	26,223
Options exercised	—		—			177		—		427			—			427
Warrants exercised	—		—			54		—		130			—			130
Conversion of Series B convertible preferred to common stock	(976	)	(1		)	1,951		2		(1		)	—			—
Stock based compensation	—		—			—		—		871			—			871
Stock swap to acquire options and warrants	—		—			(164	)	—		(557		)	—			(557		)
Net loss	—		—			—		—		—			(5,062		)	(5,062		)
Balance December 31, 2017	—		$	—		32,878		$	33	$	50,495		$	(28,496	)	$	22,032



(in thousands)	2013 Placement Agent Warrants
Balance, December 31, 2015	$	267
Exercise of warrants	(698		)
Change in fair value	634
Balance, December 31, 2016	203
Exercise of warrants	(130		)
Change in fair value	(53		)
Balance, December 31, 2017	$	20



	Year Ended December 31,						Year Ended December 31,
(In thousands)	2017		2016		Change		2016		2015		Change
Sales by Reportable Segment
Core	$	28,649	$	27,808	3.0	%	$	27,808	$	26,098	6.6	%
OEM	2,598		5,328		(51.2	)%	5,328		2,116		151.8	%
Advanced Energy	7,636		3,491		118.7	%	3,491		1,306		167.3	%
Total	$	38,883	$	36,627	6.2	%	$	36,627	$	29,520	24.1	%

Sales by Product Line
Electrosurgical	$	25,727	$	20,901	23.1	%	$	20,901	$	17,558	19.0	%
Cauteries	7,141		7,101		0.6	%	7,101		6,886		3.1	%
Lighting	2,435		2,710		(10.1	)%	2,710		2,477		9.4	%
Other	3,580		5,915		(39.5	)%	5,915		2,599		127.6	%
Total	$	38,883	$	36,627	6.2	%	$	36,627	$	29,520	24.1	%

Sales by Domestic and International
Domestic	$	33,147	$	32,050	3.4	%	$	32,050	$	24,540	30.6	%
International	5,736		4,577		25.3	%	4,577		4,980		(8.1	)%
Total	$	38,883	$	36,627	6.2	%	$	36,627	$	29,520	24.1	%



	Number of options		Weighted average exercise price
Outstanding at December 31, 2015	3,131,447		$	3.38
Granted	810,762		1.87
Exercised	(36,250	)	3.62
Canceled and forfeited	(153,750	)	3.69
Outstanding at December 31, 2016	3,752,209		$	3.04
Granted	1,728,000		3.09
Exercised	(176,750	)	2.41
Canceled and forfeited	(443,302	)	3.95
Outstanding at December 31, 2017	4,860,157		$	3.00

Exercisable at December 31, 2017	2,627,722		$	3.46



	Number of options		Weighted average grant date fair value
Non-vested at December 31, 2016	1,745,506		$	1.25
Granted	1,728,000		1.82
Vested	(797,769	)	1.01
Forfeited	(443,302	)	1.95
Non-vested at December 31, 2017	2,232,435		1.40



	2017 Grants			2016 Grants			2015 Grants
Option value	$1.73	-	$2.34	$0.80	-	$0.91	$0.90	-	$1.84
Risk-free rate	1.5%	-	1.9%	1.5%	-	1.8%	0.2%		1.6%
Expected dividend yield	—%			—%			—%
Expected volatility	62.1%	-	68.0%	49.5%	-	50.3%	53.0%	-	54.0%
Expected term (in years)	6			6			6



	Year ended December 31, 2016
(In thousands)	Core		OEM		Advanced Energy			Corporate (Other)			Total
Sales	$	27,808	$	5,328	$	3,491		$	—		$	36,627

Income (loss) from operations	7,600		3,045		(4,812		)	(9,625		)	(3,792		)

Severance and related expense	—		—		—			—			—
Interest expense, net	—		—		—			(158		)	(158		)
Change in fair value of derivative liabilities	—		—		—			64			64
Income tax expense	—		—		—			64			64
Depreciation and amortization	—		—		—			734			734



	Year ended December 31, 2015
(In thousands)	Core		OEM		Advanced Energy			Corporate (Other)			Total
Sales	$	26,098	$	2,116	$	1,306		$	—		$	29,520

Income (loss) from operations	5,690		1,524		(4,688		)	(9,512		)	(6,986		)

Severance and related expense	—		—		—			—			—
Interest expense, net	—		—		—			(158		)	(158		)
Change in fair value of derivative liabilities	—		—		—			1,799			1,799
Income tax expense	—		—		—			25			25
Depreciation and amortization	—		—		—			812			812



(In thousands, except per share data)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Year ended December 31, 2017
Sales	$	8,389		$	9,799		$	9,347		$	11,348
Gross profit	4,226			5,042			4,594			5,899
Net loss attributable to common shareholders	(1,685		)	(1,308		)	(1,245		)	(824		)*
Basic loss per common share	$	(0.05	)	$	(0.04	)	$	(0.04	)	$	(0.03	)

Year ended December 31, 2016
Sales	$	7,775		$	9,295		$	10,063		$	9,494
Gross profit	3,323			4,700			5,062			4,830
Net loss attributable to common shareholders	(1,944		)	(519		)	(964		)	(523		)
Basic loss per common share	$	(0.07	)	$	(0.02	)	$	(0.04	)	$	(0.02	)


Corindus Vascular Robotics, Inc.		IRIDEX Corporation	Restoration Robotics, Inc.
Cutera, Inc.		Misonix, Inc.	Sensus Healthcare, Inc.
Ekso Bionics Holdings, Inc.		Neuronetics, Inc.	Utah Medical Products Inc.
iCAD, Inc.		Nuvectra Corporation	Viveve Medical, Inc.
IRadimed Corporation		OrthoPediatrics Corp.

~~Avinger, Inc.~~		~~Esko Bionics Holdings, Inc.~~	~~IRIDEX Corporation~~
~~AxoGen, Inc.~~		~~Fonar Corporation~~	~~Misonix, Inc.~~
~~BIOLASE, Inc~~		~~iCAD, Inc.~~	~~Retractable Technologies, Inc.~~
~~Cogentix Medical, Inc.~~		~~Invuity, Inc.~~	~~Utah Medical Products Inc.~~
~~Cutera, Inc.~~	~~IRadimed Corporation~~



(In millions)	Threshold		Target		Achievement		Overall Weight		Achievement		Calculation
Advanced Energy Revenue	5.1		6.8		7.6		30	%	125	%	37.5	%
Core Revenue	27.0		30.0		28.6		10	%	75	%	7.5	%
OEM Revenue	3.7		4.1		2.6		10	%	—	%	—	%
Operating Loss	(3.1	)	(2.75	)	(5.2	)	25	%	—	%	—	%
Total Cash Balance	7.2		9.6		9.9		10	%	110	%	11.0	%
MBO	1		1		1		15	%	100	%	15.0	%
Total							100	%			71.0	%


Name	Bonus
Charles D. Goodwin	$	168,750

Moshe Citronowicz	44,850
Todd Hornsby	86,750
Tara Semb	73,800
Total	$	374,150




Name and Principal Position	Year	Salary		Bonus ($)			Stock Awards ($)		Option Awards ($) (1)		Non-Equity Incentive Plan Compensation Earnings ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($) (7)		Total ($)
Charles D. Goodwin	2017	$	15,385	$	—		$	—	—		$	—	$	—	$	—	$	15,385
CEO and Director	2016	$	—	$	—		$	—	—		$	—	$	—	$	—	$	—
	2015	$	—	$	—		$	—	—		$	—	$	—	$	—	$	—

Jay D. Ewers*	2017	$	271,000	$	300	(2)	$	—	137,340		$	—	$	—	$	8,491	$	417,131
Chief Financial Officer,	2016	$	235,000	$	109,892		$	—	—		$	—	$	—	$	10,608	$	355,500
Treasurer and Secretary	2015	$	171,456	$	65,255		$	—	70,655		$	—	$	—	$	32,185	$	339,551

J. Robert Saron	2017	$	334,485	$	300	(3)	$	—	137,340		$	—	$	—	$	19,769	$	491,894
President, Chief Sales &	2016	$	318,917	$	148,956		$	—	32,375		$	—	$	—	$	24,383	$	524,631
Marketing Officer & Director	2015	$	305,184	$	79,543		$	—	—		$	—	$	—	$	24,383	$	409,110

Moshe Citronowicz	2017	$	226,410	$	300	(4)	$	—	137,340		$	—	$	—	$	18,968	$	383,018
Senior Vice President	2016	$	213,990	$	100,112		$	—	32,375		$	—	$	—	$	22,066	$	368,543
	2015	$	204,775	$	53,537		$	—	—		$	—	$	—	$	22,066	$	280,378

Robert L. Gershon	2017	$	436,000	$	122,080		$	—	196,200	(5)	$	—	$	—	$	29,367	$	783,647
CEO and Director	2016	$	365,750	$	293,724		$	—	65,625		$	—	$	—	$	30,201	$	755,300
	2015	$	350,000	$	180,000		$	—	—		$	—	$	—	$	30,201	$	560,201

Jack McCarthy	2017	$	287,375	$	59,191		$	—	137,340	(6)	$	—	$	—	$	27,242	$	511,148
Chief Commercialization	2016	$	287,375	$	134,273		$	—	32,375		$	—	$	—	$	29,922	$	483,945
Officer	2015	$	275,000	$	74,500		$	—	—		$	—	$	—	$	29,922	$	379,422


~~(2)~~	~~The Company and Mr. Ewers voluntarily agreed to waive his bonus payment for 2017 of $67,344.~~


~~(3)~~	~~The Company and Mr. Saron voluntarily agreed to waive his bonus payment for 20177 of $83,119.~~


~~(4)~~	~~The Company and Mr. Citronowicz voluntarily agreed to waive his bonus payment for 2017 of $56,263.~~


~~(5)~~	Mr. Gershon resigned from all of his positions with the Company effective December 15, 2017. In connection with this departure, unvested options were forfeited in accordance with the terms of the Separation Agreement.


~~(6)~~	Mr. McCarthy was terminated without cause from his position with the Company effective November 6, 2017. In connection with this departure, unvested options were forfeited pursuant to the terms of his employment contract and the option agreements.


~~(7)~~	~~The amounts for 2017 include compensation under the following plans and programs:~~


	C.D. Goodwin		M. Citronowicz		T. Hornsby		T. Semb


Long-term disability premiums	186		186		186		186
Health insurance premiums	10,320		13,931		19,925		—
Employer 401(k) contribution	8,550		8,285		8,611		9,071

Total	$	19,056	$	22,402	$	28,722	$	9,257



	C.D. Goodwin		J.D. Ewers		J.R. Saron		M. Citronowicz		R.L. Gershon		J.J. McCarthy
Life insurance premiums	—		425		499		464		502		502
Health insurance premiums	—		—		11,170		11,775		20,765		21,927
Employer 401(k) contribution	—		8,066		8,100		6,729		8,100		4,813

Total	$	—	$	8,491	$	19,769	$	18,968	$	29,367	$	27,242



Name		Contract Expiration Date
Charles D. Goodwin		N/A⁽¹⁾
~~Jay D. Ewers~~Tara Semb		N/A⁽¹⁾
~~J. Robert Saron~~Todd Hornsby		N/A(1)
Moshe Citronowicz		December 31, ~~2018~~
~~Moshe Citronowicz~~	~~December 31, 2018~~2021


~~(1)~~	~~Employment contracts provide for the Executives to remain employed by the Company until such time as their employment is terminated pursuant to the terms of their Employment Agreement.~~