UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2022
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
bovielogo2017a02.jpgapyx-20220331_g1.jpg
BOVIEAPYX MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware11-2644611
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
4 Manhattanville5115 Ulmerton Road, Suite 106, Purchase, NY 10577Clearwater, FL 33760
(Address of principal executive offices, zip code)
(914) 468-4009(727) 384-2323
(Registrant’s telephone number)
Securities Registered Pursuant to Section 12 (b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common StockAPYXNasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes: ý☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: ý☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act (Check one):
Act.
Large accelerated filero☐Accelerated filero☐
Non-accelerated filero☒(Do not check if a smaller reporting company)Smaller reporting companyý☒
Emerging growth companyo☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o☐ No ý☒
As
As of October 30, 2017, 32,860,785May 10, 2022, 34,453,098 shares of the registrant’s $0.001 par value common stock were outstanding.


Table of Contents
BOVIEAPYX MEDICAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended September 30, 2017March 31, 2022
(Unaudited)


Page
Part I.
Financial Information
2
Item 1.Page
Part I.
Condensed Consolidated Financial InformationStatements (Unaudited)
2
Item 1.
Financial Statements
2
Condensed Consolidated Balance Sheets at September 30, 2017March 31, 2022 and December 31, 20162021
2
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2022 and 20162021
3
Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity for the nine three months ended September 30, 2017March 31, 2022 and 20162021
4
Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2022 and 2016
2021
5
Notes to Condensed Consolidated Financial Statements
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1614
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
2620
Item 4.
Controls and Procedures
2621
Part II.
Other Information
2722
Item 1.
Legal Proceedings
2722
Item 1A.
Risk Factors
2723
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
2724
Item 3.
Defaults Upon Senior Securities
2724
Item 4.
Mine Safety Disclosures
2724
Item 5.
Other Information
2724
Item 6.
Exhibits
2825
Signatures
2926

1
Table of Contents
BOVIE MEDICAL CORPORATION

PART I.     Financial Information


ITEM 1. Condensed Consolidated Financial Statements


APYX MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data, Unaudited)
data)
 September 30,
2017		 December 31,
2016
ASSETS   
Current assets:   
Cash and cash equivalents$9,411
 $14,456
Restricted cash779
 779
Trade accounts receivable, net of allowance of $154 and $1184,077
 4,733
Inventories, net7,335
 6,158
Prepaid expenses and other current assets634
 413
Total current assets22,236
 26,539
Property and equipment, net6,376
 6,449
Brand name and trademark1,510
 1,510
Purchased technology and license rights, net189
 215
Goodwill185
 185
Deposits84
 109
Other assets119
 103
Total assets$30,699
 $35,110
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$1,387
 $1,606
Accrued payroll193
 419
Accrued vacation330
 404
Current portion of mortgage note payable239
 239
Accrued and other liabilities2,657
 2,604
Total current liabilities4,806
 5,272
Mortgage note payable, net of current portion2,515
 2,694
Note payable140
 140
Deferred rents11
 14
Deferred tax liability564
 564
Derivative liabilities146
 203
Total liabilities8,182
 8,887
STOCKHOLDERS' EQUITY   
Series B convertible preferred stock, $0.001 par value; 3,588,139 authorized and zero issued and outstanding as of September 30, 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; 32,975,174 issued and 32,832,095 outstanding as of September 30, 2017 and 40,000,000 shares authorized; 31,002,832 issued and 30,859,753 outstanding as of December 31, 2016, respectively33
 31
Additional paid-in capital50,156
 49,625
Accumulated deficit(27,672) (23,434)
Total stockholders' equity22,517
 26,223
Total liabilities and stockholders' equity$30,699
 $35,110
March 31, 2022
(Unaudited)
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$26,234 $30,870 
   Trade accounts receivable, net of allowance of $560 and $43012,363 13,038 
Income tax receivables7,642 7,642 
Other receivables112 483 
Inventories, net of provision for obsolescence of $348 and $2637,019 6,778 
Prepaid expenses and other current assets1,441 1,926 
Total current assets54,811 60,737 
Property and equipment, net of accumulated depreciation and amortization of $5,378 and
   $5,316
6,655 6,575 
Operating lease right-of-use assets90 121 
Finance lease right-of-use assets127 178 
Other assets1,314 1,110 
Total assets$62,997 $68,721 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$2,562 $2,631 
Accrued expenses and other current liabilities8,837 10,287 
Current portion of operating lease liabilities89 122 
Current portion of finance lease liabilities116 165 
Total current liabilities11,604 13,205 
Long-term finance lease liabilities13 18 
Long-term contract liabilities1,386 1,323 
Other liabilities151 166 
Total liabilities13,154 14,712 
EQUITY
Common stock, $0.001 par value; 75,000,000 shares authorized; 34,453,098 issued and outstanding as of March 31, 2022, and 34,409,912 issued and outstanding as of December 31, 202134 34 
Additional paid-in capital68,023 66,221 
Accumulated deficit(18,496)(12,551)
Total stockholders' equity49,56153,704
Non-controlling interest282 305 
Total equity49,843 54,009 
Total liabilities and equity$62,997 $68,721 

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

2
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
(In thousands, except per share data, Unaudited)data)
Three Months Ended
March 31,
20222021
Sales$12,493 $8,638 
Cost of sales4,274 2,778 
Gross profit8,219 5,860 
Other costs and expenses:
Research and development1,158 1,115 
Professional services2,286 1,521 
Salaries and related costs5,181 4,245 
Selling, general and administrative5,465 3,724 
Total other costs and expenses14,090 10,605 
Loss from operations(5,871)(4,745)
Interest income2 3 
Interest expense(8)(4)
Other loss, net(21)(93)
Total other loss, net(27)(94)
Loss before income taxes(5,898)(4,839)
Income tax expense70 66 
Net loss(5,968)(4,905)
   Net loss attributable to non-controlling interest(23)(4)
Net loss attributable to stockholders$(5,945)$(4,901)
Loss per share:
Basic and diluted$(0.17)$(0.14)
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Sales$9,347
 $10,063
 $27,535
 $27,133
Cost of sales4,753
 5,002
 13,673
 14,049
Gross profit4,594
 5,061
 13,862
 13,084
Other costs and expenses:       
Research and development610
 681
 2,015
 1,941
Professional services421
 292
 1,291
 1,045
Salaries and related costs2,080
 2,192
 6,783
 6,492
Selling, general and administrative2,617
 2,141
 7,950
 6,354
Total other costs and expenses5,728
 5,306
 18,039
 15,832
Loss from operations(1,134) (245) (4,177) (2,748)
Interest expense, net(36) (37) (103) (125)
Change in fair value of derivative liabilities(69) (683) 57
 (555)
Total other loss, net(105) (720) (46) (680)
Loss before income taxes(1,239) (965) (4,223) (3,428)
Income tax expense6
 —
 15
 —
Net loss$(1,245) $(965) $(4,238) $(3,428)
        
Loss per share       
Basic$(0.04) $(0.04) $(0.14) $(0.13)
Diluted$(0.04) $(0.04) $(0.14) $(0.13)
        
Weighted average number of shares outstanding - basic31,078
 27,075
 30,932
 27,059
Weighted average number of shares outstanding - dilutive31,078
 27,075
 30,932
 27,059


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

3
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)
(In thousands, Unaudited)thousands)
 Preferred Stock Common Stock      
 Shares Par Value Shares Par Value Additional Paid-In Capital Accumulated Deficit Total
Balance
December 31, 2015		1,976
 $2
 27,051
 $27
 $42,859
 $(19,484) $23,404
Options exercised—
 —
 31
 —
 119
 —
 119
Warrants exercised—
 —
 133
 —
 316
 —
 316
Stock based compensation—
 —
 —
 —
 533
 —
 533
Stock swap to acquire options and warrants—
 —
 (73) —
 (315) —
 (315)
Net loss—
 —
 —
 —
 —
 (3,428) (3,428)
Balance
September 30, 2016		1,976
 $2
 27,142
 $27
 $43,512
 $(22,912) $20,629
              
Balance
December 31, 2016		976
 $1
 30,860
 $31
 $49,625
 $(23,434) $26,223
Options exercised—
 —
 21
 —
 275
 —
 275
Conversion of Series B convertible preferred to common stock(976) (1) 1,951
 2
 (1) —
 —
Stock based compensation—
 —
 —
 —
 532
 —
 532
Stock swap to acquire options and warrants—
 —
 —
 —
 (275) —
 (275)
Net loss—
 —
 —
 —
 —
 (4,238) (4,238)
Balance
September 30, 2017		—
 $—
 32,832
 $33
 $50,156
 $(27,672) $22,517
Three Months Ended March 31, 2022 and 2021
Common StockAdditional Paid-In CapitalRetained Earnings (Accumulated Deficit)Non-controlling InterestTotal Equity
SharesPar Value
Balance at December 31, 202034,289 $34 $61,066 $2,621 $138 $63,859 
Shares issued on stock options exercises for cash8 — 21 — —21 
Stock based compensation— — 1,194 — —1,194 
Shares issued on net settlement of stock options21 — — — —— 
Net loss— — — (4,901)(4)(4,905)
Balance at March 31, 202134,318 $34 $62,281 $(2,280)$134 $60,169 
Balance at December 31, 202134,410 $34 $66,221 $(12,551)$305 $54,009 
Shares issued on stock options exercises for cash24 — 152 — —152 
Stock based compensation— — 1,650 — —1,650 
Shares issued on net settlement of stock options19 — — — —— 
Net loss— — — (5,945)(23)(5,968)
Balance at March 31, 202234,453 $34 $68,023 $(18,496)$282 $49,843 

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

4
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(In thousands, Unaudited)thousands)
Three Months Ended March 31,
20222021
Cash flows from operating activities
Net loss(5,968)(4,905)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization225 227 
Provision for inventory obsolescence85 — 
Loss on disposal of property and equipment26 — 
Stock based compensation1,650 1,194 
Provision for allowance for doubtful accounts140 6 
Changes in operating assets and liabilities:
Trade receivables475 680 
Prepaid expenses and other assets649 312 
Inventories(371)(372)
Accounts payable(51)782 
Accrued and other liabilities(1,378)24 
Net cash used in operating activities(4,518)(2,052)
Cash flows from investing activities
Purchases of property and equipment(279)(192)
Net cash used in investing activities(279)(192)
Cash flows from financing activities
Proceeds from stock option exercises152 21 
Repayment of finance lease liabilities(54)(82)
Net cash provided by (used in) financing activities98 (61)
Effect of exchange rates on cash63 (71)
Net change in cash and cash equivalents(4,636)(2,376)
Cash and cash equivalents, beginning of period30,870 41,915 
Cash and cash equivalents, end of period$26,234 $39,539 
Cash paid for:
Interest$8 $4 
Income taxes— — 
 Nine Months Ended September 30,
 2017 2016
Cash flows from operating activities   
Net loss$(4,238) $(3,428)
Adjustments to reconcile net loss to net cash used in operating activities:   
Depreciation and amortization527
 556
Provision for inventory obsolescence203
 365
Gain on disposal of property and equipment, net3
 19
Stock based compensation532
 533
Change in fair value of derivative liabilities(57) 555
Provision for allowance for doubtful accounts128
 126
Provision for deferred taxes—
 25
Changes in current assets and liabilities:   
Trade receivables528
 (1,070)
Prepaid expenses(221) (48)
Inventories(1,380) (337)
Deposits and other assets9
 312
Accounts payable(219) 436
Accrued and other liabilities(250) (337)
Net cash used in operating activities(4,435) (2,293)
Cash flows from investing activities   
Purchases of technology, property and equipment(431) (182)
Net cash used in investing activities(431) (182)
Cash flows from financing activities   
Proceeds from stock options/warrants exercised—
 119
Change in restricted cash—
 60
Repayment of mortgage note payable(179) (180)
Net cash used in financing activities(179) (1)
Net change in cash and cash equivalents(5,045) (2,476)
Cash and cash equivalents, beginning of period14,456
 11,805
Cash and cash equivalents, end of period$9,411
 $9,329
    
Cash paid for:   
Interest paid$103
 $125


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

5
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



NOTE 1.     BASIS OF PRESENTATION


Unless the context otherwise indicates, the terms “we,” “our,” “us,” “Bovie,”Apyx Medical Corporation (“Company", "Apyx", "it" and similar terms referterms) 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® and J-Plasma® in surgical markets. Apyx is solely focused on bringing transformative solutions to Bovie Medical Corporationphysicians and their patients. 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 consolidated subsidiaries.deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device manufacturers.


On March 14, 2022, the U.S. Food and Drug Administration ("FDA") posted a Safety Communication that warns consumers and health care providers against the use of the Company’s Advanced Energy products outside of their FDA-cleared indications for general use in cutting, coagulation, and ablation of soft tissue during open and laparoscopic surgical procedures. Following the Safety Communication, the Company began to experience some slowed demand for the adoption of its Helium Plasma Technology primarily in the U.S. The Company continues to evaluate the full effects the Safety Communication will have on the results of its operations, cash flows and financial position, and expects there will be some continued impact to the results of its operations and cash flows into the second fiscal quarter and possibly beyond.

The Company continues to work with the FDA towards securing 510(k) clearance for additional indications. On April 4, 2022, a 510(k) premarket notification was filed for the use of Renuvion® to improve the appearance of lax (loose) skin in the neck and submental region.

The accompanying unaudited condensed consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, please refer to the consolidated financial statements included in ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2016. These2021. In the opinion of management these unaudited condensed consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of consolidated operations, cash flows and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year.


InReclassifications

We have reclassified certain amounts presented in the first quarter of 2017, the Company adopted a change in presentation on its Consolidated Statements of Cash Flows in order to present a "Provision for allowance for doubtful accounts". Previously reported information has been modifiedprior period to conform to this newthe current period presentation.

NOTE 2.     INVENTORIES

Inventories are stated at the lower of cost These reclassifications had no impact on previously reported net loss, retained earnings or market. Cost is determined on a firstnet cash used in first out basis. Finished goods and work-in-process inventories include material, labor and overhead costs. Factory overhead costs are allocated to inventory manufactured in-house based upon labor hours.

Inventories consisted of the following:
(In thousands)September 30,
2017		 December 31,
2016
Raw materials$5,145
 $4,521
Finished goods3,804
 3,048
Gross inventories8,949
 7,569
Less: reserve for obsolescence(1,614) (1,411)
Net inventories$7,335
 $6,158


6
Table of Contents
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

NOTE 3.     INTANGIBLE ASSETS 

Intangible assets consisted of the following:
(In thousands)September 30,
2017		 December 31,
2016
Brand name and trademark (life indefinite)$1,510
 $1,510
    
Purchased technology (5-17 year lives)$1,496
 $1,441
Less: accumulated amortization(1,307) (1,226)
Purchased technology, net$189
 $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. It is our belief that 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 resulted from our acquisition of Bovie Bulgaria, EOOD.

Amortization of intangible assets was $27,000 and $81,000operating activities for the three and nine months ended September 30, 2017, respectively, as compared with $27,000 and $81,000 for the three and nine months ended September 30, 2016. Amortization expense is classified within selling, general and administration expenses in the consolidated statements of operations.periods presented.



NOTE 4.2.     RECENT ACCOUNTING PRONOUNCEMENTS


In January 2017,June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles-Goodwill2016-13, Financial Instruments—Credit Losses (Topic 326). The update changes the impairment model for most financial assets and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The purpose of this ASU is to reduce the costcertain other instruments, including trade and complexity of evaluating goodwill for impairment. It eliminates the need forother receivables, contract assets, held-to-maturity debt securities and loans, and requires entities to calculateuse a new forward-looking expected loss model that will result in the implied fair valueearlier recognition of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilitiesallowance 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 thosebeginning 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 is permitted, however2022. 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 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 paymentsare in the statementprocess of cash flows, including debt prepayment or extinguishment costs, settlementdetermining 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.


7
Table of Contents
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

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 havethe standard on itsthe condensed consolidated financial statements.

In May 2014,statements, we do not expect the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expectsimpact 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.material.


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

6
NOTE 5.     FAIR VALUE MEASUREMENTS

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.

8
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)





The following represents
NOTE 3.     DISPOSAL OF BUSINESS

On August 30, 2018, the Company closed on a reconciliationdefinitive asset purchase agreement (the "Asset Purchase Agreement") with Specialty Surgical Instrumentation Inc., a Tennessee Corporation and wholly owned subsidiary of Symmetry Surgical Inc. (“Symmetry”), pursuant to which the Company divested and sold the Company's electrosurgical "Core" business segment and related intellectual property, including the Bovie® brand and trademarks, to Symmetry for gross proceeds of $97 million in cash.

In connection with the Asset Purchase Agreement, the Company entered into an Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Symmetry for a four-year term, whereby it will manufacture certain Core products and sell them to Symmetry at agreed upon prices. Any activity resulting from this agreement is netted and reported in the Condensed Consolidated Statements of Operations as other income (loss). Core activity for the three months ended March 31, 2022, amounted to $0.5 million with cost of sales equivalents of $0.4 million and other related expenses of $0.1 million for approximately $0.0 million of net other loss. Core activity for the three months ended March 31, 2021, amounted to $1.5 million with cost of sales equivalents of $1.2 million and related other expenses of $0.3 million for net other loss of $0.1 million.


7
Table of Contents
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


NOTE 4.     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 primarily allocated to inventory manufactured in-house based upon direct labor hours.

Inventories consisted of the changes in fair valuefollowing:
(In thousands)March 31,
2022		December 31,
2021
Raw materials$3,487 $3,603 
Work in process1,818 1,441 
Finished goods2,062 1,997 
Gross inventories7,367 7,041 
Less: provision for obsolescence(348)(263)
Inventories, net$7,019 $6,778 



NOTE 5.     ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of warrants measured at fair value using Level 3 inputs during the nine months ended September 30, 2017: following:
(in thousands)March 31,
2022		December 31,
2021
Accrued payroll$855 $546 
Accrued bonuses571 2,117 
Accrued commissions954 1,656 
Accrued product warranties593 593 
Accrued product liability claim insurance deductibles597 610 
Short-term contract liabilities759 533 
Joint and several payroll liability986 1,027 
Uncertain tax positions1,916 1,863 
Sales tax payable163 428 
Other accrued expenses and current liabilities1,443 914 
Total accrued expenses and other current liabilities$8,837 $10,287 
(in thousands)
2013
Placement Agent Warrants
Balance, December 31, 2016$203
Change in fair value(57)
Balance, September 30, 2017 (1)
$146
(1)The warrants are valued using a trinomial lattice valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in the model at September 30, 2017 included the market price of our common stock, an expected dividend yield of zero, the remaining period to the expiration date of the warrants, expected volatility of our common stock over the remaining life of the warrants of 2.0 years, estimated based on a review of our historical volatility of 60.290% and risk-free rates of return of 1.380% for the 2013 warrants based on constant maturity rates published by the U.S. Federal Reserve, applicable to the remaining life of the warrants. We also take into consideration a probability assumption for anti-dilution.


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


NOTE 6.     CHINA JOINT VENTURE

In 2019, the Company executed a joint venture agreement with its Chinese supplier ("China JV") whereby the Company has a 51% interest. The China JV has been consolidated in these condensed consolidated financial statements. The agreement required the Company to make capital contributions into the newly formed entity of approximately $357,000, which had been fully funded as of December 31, 2021. As of the date of these condensed consolidated financial statements, the China JV has not commenced principal operations.

Changes in the Company's investment in the China JV were as follows:

8
Table of Contents
APYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


Three Months Ended March 31,
(In thousands)20222021
Beginning interest in China JV$317 $144 
Net loss attributable to Apyx(23)(4)
Ending interest in China JV$294 $140 

NOTE 7.     EARNINGS (LOSS) PER SHARE


We compute basicBasic 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 (loss) 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 earningsloss per share.
Three Months Ended
March 31,
(in thousands, except per share data)20222021
Numerator:
Net loss attributable to stockholders$(5,945)$(4,901)
Denominator:
Weighted average shares outstanding - basic and diluted
34,429 34,302 
Loss per share:
Basic and diluted$(0.17)$(0.14)
Anti-dilutive instruments excluded from diluted loss per common share:
Options6,796 5,559 
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(in thousands, except per share data)2017 2016 2017 2016
Numerator:       
Net loss available to common shareholders$(1,245) $(965) $(4,238) $(3,428)
Effect of dilutive securities:       
Derivative liability - warrants—
 —
 —
 —
Numerator for dilutive loss per common share$(1,245) $(965) $(4,238) $(3,428)
        
Denominator:       
Weighted average shares used to compute basic loss per common share31,078
 27,075
 30,932
 27,059
Effect of dilutive securities:       
Derivative liability - warrants—
 —
 —
 —
Denominator for dilutive loss per common share31,078
 27,075
 30,932
 27,059
        
Basic loss per common share$(0.04) $(0.04) $(0.14) $(0.13)
Diluted loss per common share$(0.04) $(0.04) $(0.14) $(0.13)



9
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)



NOTE 7.8.     STOCK-BASED COMPENSATION


Under ourthe Company's stock option plans, our boardthe Board of directorsDirectors may grant restricted stock and options to purchase common shares to our keythe Company's employees, officers, directors and consultants. We accountThe Company accounts for stock options in accordance with FASB ASC Topic 718, Compensation - Stock Compensation, with optionstock-based compensation expense amortizedrecognized over the vesting period based on the trinomial lattice option-pricing model fair value on the grant date utilizing the Black Scholes model, which includes a number of estimates that affect the grant date fair value and the amount of our expense. We expensedexpense to recognize.

The Company recognized approximately $191,000 and $532,000$1,650,000 in stock-based compensation duringexpense for the three and nine months ended September 30, 2017, respectively,March 31, 2022, as compared with $173,000 and $533,000$1,194,000 for the three and nine months ended September 30, 2016.March 31, 2021.


The status of our stock options and stock awards areStock option activity is summarized as follows:
Number of optionsWeighted average exercise price
Outstanding at December 31, 20215,397,691 $5.95 
Granted1,478,419 10.96 
Exercised(65,840)5.96 
Canceled and forfeited(14,526)10.23 
Outstanding at March 31, 20226,795,744 $7.03 
 Number of options Weighted average exercise price
Outstanding at December 31, 20163,752,209
 $3.04
Granted628,000
 3.26
Exercised(104,500) 2.64
Canceled and forfeited(196,803) 4.99
Outstanding at September 30, 20174,078,906
 $2.99


The Company allows stock option holders 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. For the three months ended March 31, 2022 and 2021, respectively, we received 22,654 and 15,441 options as payment in the exercise of 19,013 and 21,141 options.

Common shares required to be issued upon the exercise of stock options and warrants would be issued from our authorized and unissued shares. WeThe Company calculated the grant date fair value of issued options granted in 2022 ("2022 Grants") utilizing a trinomial lattice with an expected life calculated via the simplified method as we do not have sufficient history to determine actual expected life.Black Scholes model.
2022 Grants
Strike price$10.96
Risk-free rate1.6%
Expected dividend yield—
Expected volatility69.6%
Expected term (in years)6
 2017 Grants
Option value$1.73
-$2.34
Risk-free rate1.5%
Expected dividend yield—%
Expected volatility68.0%
Expected term (in years)6



NOTE 8.9.     INCOME TAXES


The Company's incomeIncome tax expense was $6,000approximately $70,000 and $66,000 with an effective tax raterates of 0.0%(1.2)% and $15,000 with an effective tax rate of 0.0%(1.4)% for the three and nine months ended September 30, 2017, respectively, as compared to $0 with an effective tax rate of 0.0% for bothMarch 31, 2022 and 2021, respectively. For the three and nine months ended September 30, 2016. The Company'sMarch 31, 2022 and 2021, the effective tax rate differsrates differ from the statutory rate primarily due to the changefull valuation allowance recorded on the NOL generated during the period, combined with interest and penalties on uncertain tax positions.

The Company has gross unrecognized tax benefits of approximately $1,313,000 at March 31, 2022. It recognized accrued interest and penalties related to unrecognized tax benefits in the valuation allowanceprovision for income taxes in the condensed consolidated financial statements. As of March 31, 2022, the Company had approximately $603,000 in accrued interest and penalties related to unrecognized tax benefits. Included in the income tax expense (benefit) for the three months ended March 31, 2022 and 2021, respectively, are approximately $53,000 and $48,000 of interest and penalties on the Company's net deferreduncertain tax assets with a finite life.

As a result of historical losses,positions. If the Company recorded a valuation allowancewere to prevail on the net deferred tax asset with a finite life and does not anticipate recording an income tax benefit related to these deferred tax assets. The Company will reassess the realization of deferred tax assets each reporting period and will be able to reduce the valuation allowance to the extent that the financial results of these operations improve and it becomes more likely than not that the deferred tax assets are realizable.

For the nine months ended September 30, 2017, we do not believe we had any significantall uncertain tax positions, nor did we have any interest or penalties related to any significantthe resulting impact will be material as the Company will recognize approximately $1,916,000 of income tax benefits in the consolidated statement of operations. It is expected that all of the uncertain tax positions.positions should be resolved by October 2022.


The Company is subject to U.S. federal income tax, state income tax and Bulgarian income tax. Until the respective statutes of limitations expire (which may be as much as 20 years while we have unused NOL's), we are subject to income tax audits in the jurisdictions in which we operate.


10
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)




NOTE 9.10.     COMMITMENTS CONTINGENCIES AND CONCENTRATIONSCONTINGENCIES


PropertyLitigation

The medical device industry is characterized by frequent claims and Rental Agreementslitigation, 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.

The Company accrues a liability in its consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is recorded. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the 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.

During December 2021, the Company provided notice of contract termination to an international distributor of the Company. In March 2014, we signed2022, the Company received a lease for offices locatedletter from the former distributor citing improper contract termination and alleging damages. While the matter is still in Purchase, New York.the early stages, management has determined that a loss is probable and that a range of estimated losses is approximately $250,000 to $1,000,000. The lease is for 3,650 square feetCompany has recorded an estimated loss of office space with a monthly cost$250,000 in professional services in the accompanying Condensed Consolidated Statement of approximately $13,916 per month for the lease expiring in June 2019.

In October 2015, pursuant to our acquisition of Bovie Bulgaria, we are obligated to pay a lease of $5,114 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 September 30, 2017:
(In thousands) 
2017 (remaining three months)
$47
2018189
2019132
202073
202173
Total$514

Rent expense was approximately $41,385 and $126,711Operations for the three and nine months ended September 30, 2017, respectively compared to $57,720 and $140,000 forMarch 31, 2022. It is at least possible that a change in the three and nine months ended September 30, 2016.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.


Purchase Commitments


At September 30, 2017, weMarch 31, 2022, the Company had purchase commitments for inventories totaling approximately $3.6$7.5 million, substantially all of which is expected to be purchased bywithin the endnext twelve months.

11
Table of 2017.Contents

APYX MEDICAL CORPORATION
ConcentrationsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)
With respect to receivables, our ten largest customers accounted for approximately 35.3% and 41.3% of trade receivables as of September 30, 2017 and 2016, respectively, and approximately 50.0% and 56.9% of net revenues for the nine months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017, McKesson and National Distribution & Contracting Inc. accounted for 15.7% and 9.3% of sales, while for the same period in 2016, McKesson and National Distribution & Contracting Inc. accounted for 15.0% and 9.0% of sales.


NOTE 10.11.     RELATED PARTY TRANSACTIONS


Several relatives of Nikolay Shilev, BovieApyx Bulgaria’s Managing Director, are considered related parties. Teodora Shileva, Mr. Shilev’s spouse, is an employee of the companyCompany working in the Accountingaccounting department. Antoaneta Dimitrova Shileva-Toromanova, Mr. Shilev’s sister, is the Managermanager of Production and Human Resources.human resources. Svetoslav Shilev, Mr. Shilev’s son, is an Engineera quality manager in the Quality Assurancequality assurance department.


A relative of Moshe Citronowicz, Bovie’s Senior Vice President,The partner in the Company's China JV is consideredalso a related party. Arik Zoran is a consultant ofsupplier to the Company. For the three months ended March 31, 2022 and 2021, the Company doing business as AR Logic, Inc., a consulting firm owned by Arik Zoran, Mr. Citronowicz’s brother. The Company has been working with AR Logic since 2011made purchases from this supplier of approximately $124,000 and as of April 14, 2017,$116,000, respectively. At March 31, 2022 and December 31, 2021, respectively, the Company agreed to a renewal contractowed this supplier approximately $10,000 and terms to continue the consulting arrangement, expiring December 31, 2017. AR Logic was paid consulting fees of approximately $33,333 and $129,366 for the three and nine months ended September 30, 2017, respectively compared to $81,000 and $158,000 for the three and nine months ended September 30, 2016.$1,000.



11
Table of Contents
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

NOTE 11.     LONG TERM DEBT

On June 28, 2016, the Company entered into a transaction 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 exchange for a negative covenant limited to $2,000,000 of the aggregate indebtedness secured by these accounts.

The obligations under the Loan are secured by a first mortgage and security interest in the Company’s Clearwater, Florida facility. In addition, the Company has pledged an interest in a certificate of deposit in the amount of $779,000 as additional collateral. The amount of the additional collateral required declines on a pro rata basis as principal is paid.

Borrowings under the Loan bear interest at LIBOR plus 3.5%, with a fixed monthly principal payment of $19,956. The interest rate at September 30, 2017 was 4.732%.

The Loan documents contain customary financial covenants, including a covenant that the Company maintains a minimum liquidity, as defined, 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
2017 (remaining three months)
$60
2018239
20192,455
Total$2,754


12
Table of Contents
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

NOTE 12.     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 considerconsiders the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to ourits 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, ourThe Company's reportable segments are disclosed as principally organized and managed as three2 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 CorporateOEM. "Corporate & Other categoryOther" includes certain unallocated corporate operational, research and development and marketingadministrative 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:
12
 Three Months Ended September 30, 2017
(In thousands)Core OEM Advanced Energy Corporate (Other) Total
Sales$6,696
 $525
 $2,126
 $—
 $9,347
          
Income (loss) from operations (1)
1,699
 323
 (718) (2,438) (1,134)
          
Interest expense, net—
 —
 —
 (36) (36)
Change in fair value of derivative liabilities—
 —
 —
 (69) (69)
Income tax expense—
 —
 —
 6
 6
Depreciation and amortization—
 —
 —
 171
 171
 Three Months Ended September 30, 2016
(In thousands)Core OEM Advanced Energy Corporate (Other) Total
Sales$6,902
 $1,762
 $1,399
 $—
 $10,063
          
Income (loss) from operations2,089
 690
 (707) (2,317) (245)
          
Interest expense, net—
 —
 —
 (37) (37)
Change in fair value of derivative liabilities—
 —
 —
 (683) (683)
Income tax expense—
 —
 —
 —
 —
Depreciation and amortization—
 —
 —
 201
 201

13
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)



 Nine Months Ended September 30, 2017
(In thousands)Core OEM Advanced Energy Corporate (Other) Total
Sales$20,959
 $2,030
 $4,546
 $—
 $27,535
          
Income (loss) from operations (1)
6,471
 1,031
 (3,821) (7,858) (4,177)
          
Interest expense, net—
 —
 —
 (103) (103)
Change in fair value of derivative liabilities—
 —
 —
 57
 57
Income tax expense—
 —
 —
 15
 15
Depreciation and amortization—
 —
 —
 527
 527
Three Months Ended March 31, 2022
(In thousands)Advanced EnergyOEMCorporate & OtherTotal
Sales$10,814 $1,679 $— $12,493 
Income (loss) from operations(1,339)317 (4,849)(5,871)
Interest income— — 2 2 
Interest expense— — (8)(8)
Other loss, net— — (21)(21)
Income tax expense— — 70 70 

 Nine Months Ended September 30, 2016
(In thousands)Core OEM Advanced Energy Corporate (Other) Total
Sales$20,261
 $4,351
 $2,521
 $—
 $27,133
          
Income (loss) from operations5,047
 2,498
 (3,331) (6,962) (2,748)
          
Interest expense, net—
 —
 —
 (125) (125)
Change in fair value of derivative liabilities—
 —
 —
 (555) (555)
Income tax expense—
 —
 —
 —
 —
Depreciation and amortization—
 —
 —
 355
 556
(1)During the first and second quarter of 2017, marketing expenses were considered as attributable only to the Corporate (Other) segment in the line Income (loss) from operations. Beginning with the third quarter of 2017, it was determined that certain marketing expenses are attributable to specific segments. The disclosure of Income (loss) from operations was updated for the third quarter of 2017 to reflect marketing expense by segment.

Three Months Ended March 31, 2021
(In thousands)Advanced EnergyOEMCorporate & OtherTotal
Sales$7,660 $978 $— $8,638 
Loss from operations(602)(3)(4,140)(4,745)
Interest income— — 3 3 
Interest expense— — (4)(4)
Other loss, net— — (93)(93)
Income tax expense— — 66 66 
We derive revenues from four major product lines: Electrosurgical, Cauteries, Lighting and Other products. We do not review or analyze our four major product lines below net sales. Sales for the product lines are summarized as follows:
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands)2017 2016 2017 2016
Sales by Product Line       
Electrosurgical$6,205
 $5,690
 $17,741
 $15,020
Cauteries1,696
 1,863
 5,224
 5,417
Lighting573
 740
 1,966
 2,046
Other873
 1,770
 2,604
 4,650
Total$9,347
 $10,063
 $27,535
 $27,133


14
Table of Contents
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


International sales represented approximately 14.6% and 14.0%39.6% of total revenues for the three and nine months ended September 30, 2017, respectively,March 31, 2022, as compared with 13.2% and 14.9%approximately 35.6% of total revenues for the three and nine months ended September 30, 2016. Substantially all of these sales are denominated in U.S. dollars. March 31, 2021.

Revenue by geographic region, based on the "ship to"customer's “ship to” location on the invoice, are as follows:
Three Months Ended
March 31,
(In thousands)20222021
Sales by Domestic and International
Domestic$7,548 $5,566 
International4,945 3,072 
Total$12,493 $8,638 

13
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands)2017 2016 2017 2016
Sales by Domestic and International       
Domestic$7,978
 $8,730
 $23,678
 $23,102
International1,369
 1,333
 3,857
 4,031
Total$9,347
 $10,063
 $27,535
 $27,133

15
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSISANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS




ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


You should read the following discussion and analysis in conjunction with our financial statements and related notes contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors discussed in this report and those discussed in other documents we file with the SEC. In light of these risks, uncertainties and assumptions, readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements represent beliefs and assumptions as of the date of this report. While we may elect to update forward-looking statements and at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Past performance does not guarantee future results.


Executive Level Overview


Bovie Medical Corporation (“Company”, “Bovie”, “we”, “us”, or “our”) was incorporated in 1982, under the laws of the State of Delaware and has its principal executive office at 4 Manhattanville Road, Suite 106, Purchase, NY 10577.

We are an energy-based medical deviceadvanced energy technology company specializingwith a passion for elevating people’s lives through innovative products, including our Helium Plasma Technology products marketed and sold as Renuvion® and J-Plasma® in developing, manufacturingsurgical markets. We are solely focused on bringing transformative solutions to physicians and marketingtheir patients. Renuvion® and J-Plasma® offer surgeons a range of electrosurgical products and technologies, as well as related medical products used in doctor’s offices, surgery centers and hospitals worldwide. Our medical devices are marketed through Bovie’s own well-respected brands (Bovie®, IDS™ and DERMTM) and on a private label basisunique ability to distributors throughout the world.provide controlled heat to tissue to achieve their desired results. We also leverage our deep expertise and decades of experience in the design, development and manufacturing of electrosurgical equipment by producing equipment for large, well-knownunique waveforms through OEM agreements with other medical device manufacturers through original equipment manufacturing (OEM) agreements, as well as start-up companies withmanufacturers.

On March 14, 2022, the needU.S. Food and Drug Administration ("FDA") posted a Safety Communication that warns consumers and health care providers against the use of our Advanced Energy products outside of their FDA-cleared indications for our energy based designs.

We are also the developer of J-Plasma; a patented plasma-based surgical product forgeneral use in cutting, coagulation, and ablation of soft tissue. J-Plasma utilizestissue during open and laparoscopic surgical procedures. Following the Safety Communication, we began to experience some slowed demand for the adoption of our Helium Plasma Technology primarily in the U.S. We continue to evaluate the full effects the Safety Communication will have on the results of our operations, cash flows and financial position, and expects there will be some continued impact to the results of our operations and cash flows into the second fiscal quarter and possibly beyond.

We continue to work with the FDA towards securing 510(k) clearance for additional indications. On April 4, 2022, a helium ionization process510(k) premarket notification was filed for the use of Renuvion® to produce a stable, focused beamimprove the appearance of plasma that provides surgeons with greater precision, minimal invasivenesslax (loose) skin in the neck and an absence of conductive currents through the patient during surgery. The new J-Plasma handpieces with Cool-Coag™ technology deliver the precision of helium plasma energy, the power of traditional monopolar coagulation and the efficiency of plasma beam coagulation - enabling thin-layer ablation and dissection and fast coagulation with a single instrument, minimizing instrument exchange and allowing a surgeonsubmental region.

We continue to focus on their patient and their procedures. With Cool-Coag technology, the new J-Plasma handpieces can deliver three distinctly different energy modalities - furtherdrive sales in our Advanced Energy business by increasing the utilityadoption and versatility of the J-Plasma system. J-Plasma has been the subject of ten white papers and has been cited therein for its clinical utility in gynecological and plastic surgery procedures.

The majorityutilization of our core products are marketed through medical distributors, which distribute to more than 6,000 hospitals, and to doctors and other healthcare facilities. New distributors are contacted through responses to our advertising in international and domestic medical journals and our presence at domestic and international trade shows.

International sales represented approximately 14.6% and 14.0% of total revenues for the three and nine months ended September 30, 2017, respectively, as compared with 13.2% and 14.9% of total revenues for the three and nine months ended September 30, 2016, respectively. The decrease in international sales as a percentage of revenue during the nine months ended September 30, 2017, was driven pending product registration in foreign jurisdictions and large international purchase tenders that did not occurhandpieces by surgeons in the current period as compared to the same period of 2016.U.S. and fulfilling demand from distributors in our international markets. Management estimates that our products have been sold in more than 150 countries through local dealers coordinated by sales and marketing personnel at the Clearwater, Florida facility. Our business is generally not seasonal in nature.

During 2017,60 countries. As of March 31, 2022, we continued our full scale commercialization efforts for Advanced Energy technology which includes J-Plasma. We havehad a direct sales force of 1731 field-based selling professionals and a network of 14utilized 2 independent manufacturing representatives, resulting in a total sales force of 31.agencies. We also had 5 sales managers. This selling organization is focused on the use of Advanced Energy technology, primarily J-Plasma,Renuvion® and J-Plasma® in the surgical markets, supported by our global medical affairs team. This global team of clinical support specialists focuses on supporting our users to ensure optimal outcomes for operating room procedures.their patients. In addition, we have invested in training programs and marketing-related activities to support accelerated adoption of Renuvion® into surgeons' practices.

In regards to our operating segments, our results are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our 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 and, accordingly, we have not presented a measure of assets by reportable segment.

Our reportable segments are disclosed as principally organized and managed as two operating segments: Advanced Energy technology.and OEM. "Corporate & Other" includes certain unallocated corporate and administrative costs which are not specifically attributed to any reportable segment. The OEM segment is primarily development and manufacturing contract and product driven, and all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.


In response to the global supply chain instability and inflationary cost increases, we continue to take action to minimize, as much as possible, any potential adverse impacts by working closely with our suppliers to closely monitor the availability of raw material components (i.e. semiconductors and plastics), lead times, and freight carrier availability.We expect global supply
14
Table of Contents
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

chain instability will continue to have an impact on our business, but to date that has not been material to our financial performance. The Company continuously reviewsconsequences of the pandemic, global supply chain instability and refines its marketing strategiesinflationary cost increases and distribution channels regardingtheir adverse impact to the commercializationglobal economy, continue to evolve. Accordingly, the significance of Advanced Energy technology as well as initiativesthe future impact to manage expensesour business and costs as appropriate for market conditions.financial statements remains subject to significant uncertainty.


We strongly encourage investors to visit our website: www.boviemedical.comwww.apyxmedical.com to view the most current news and to review our filings with the Securities and Exchange Commission.


Results of Operations

Sales
Three Months Ended
March 31,
(In thousands)20222021Change
Sales by Reportable Segment
Advanced Energy$10,814 $7,660 41.2 %
OEM1,679 978 71.7 %
Total$12,493 $8,638 44.6 %
Sales by Domestic and International
Domestic$7,548 $5,566 35.6 %
International4,945 3,072 61.0 %
Total$12,493 $8,638 44.6 %

Total revenue increased by 44.6%, or approximately $3.9 million, for the three months ended March 31, 2022 when compared with the three months ended March 31, 2021. Advanced Energy segment sales increased 41.2%, or approximately $3.2 million, for the three months ended March 31, 2022 when compared with the three months ended March 31, 2021. The Advanced Energy sales increase was driven by an increase in global utilization based demand for our handpieces and adoption of our generator technology in international markets. This increase was partially offset by a decrease in the adoption of our generator technology in the U.S. following the FDA Safety Communication on March 14, 2022.

OEM segment sales increased 71.7%, or approximately $0.7 million, for the three months ended March 31, 2022 when compared with the three months ended March 31, 2021. The increase in OEM sales was due to increases in sales volume to existing customers, including Symmetry Surgical under our 10-year generator manufacturing and supply agreement.

International sales represented approximately 39.6% of total revenues for the three months ended March 31, 2022, as compared with 35.6% of total revenues for the same prior year period. Management estimates our products have been sold in more than 60 countries through local dealers coordinated by sales and marketing personnel through our facilities in Clearwater, Florida and Sofia, Bulgaria.

16
15
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSISANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued



Gross Profit
Results of Operations
Three Months Ended
March 31,
(In thousands)20222021Change
Cost of sales$4,274 $2,778 53.9 %
Percentage of sales34.2 %32.2 %

Gross profit$8,219 $5,860 40.3 %
Percentage of sales65.8 %67.8 %
Sales
 Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(In thousands)2017 2016 Change 2017 2016 Change
Sales by Reportable Segment           
Core$6,696
 $6,902
 (3.0)% $20,959
 $20,261
 3.4 %
OEM525
 1,762
 (70.2)% 2,030
 4,351
 (53.3)%
Advanced Energy2,126
 1,399
 52.0 % 4,546
 2,521
 80.3 %
Total$9,347
 $10,063
 (7.1)% $27,535
 $27,133
 1.5 %
            
Sales by Product Line           
Electrosurgical$6,205
 $5,690
 9.1 % $17,741
 $15,020
 18.1 %
Cauteries1,696
 1,863
 (9.0)% 5,224
 5,417
 (3.6)%
Lighting573
 740
 (22.6)% 1,966
 2,046
 (3.9)%
Other873
 1,770
 (50.7)% 2,604
 4,650
 (44.0)%
Total$9,347
 $10,063
 (7.1)% $27,535
 $27,133
 1.5 %
            
Sales by Domestic and International           
Domestic$7,978
 $8,730
 (8.6)% $23,678
 $23,102
 2.5 %
International1,369
 1,333
 2.7 % 3,857
 4,031
 (4.3)%
Total$9,347
 $10,063
 (7.1)% $27,535
 $27,133
 1.5 %

Overall sales decreased by 7.1% or approximately $0.7 millionGross profit for the three months ended September 30, 2017, whenMarch 31, 2022, increased 40.3% to $8.2 million, compared with 2016. Core segment revenue, which consists of our brand name electrosurgical devices and accessories, cauteries, penlights, lighting, colposcopes and other similar products, decreased 3.0% or approximately $0.2to $5.9 million for the same period in the prior year. Gross margin for the three months ended September 30, 2017, whenMarch 31, 2022, was 65.8%, compared to 67.8% for the same period in 2021.

The decrease in gross profit margins for the three months ended March 31, 2022 from the prior year period is primarily attributable to sales mix between our two segments, with 2016. Theour OEM segment consistscomprising a higher percentage of proprietarytotal sales, product and geographic mix within our Advanced Energy segment, and higher costs to manufacture our inventory as we continue to experience higher shipping costs. These decreases were partially offset by the mix of newer product models as we obtain registrations, allowing these products designed specifically for third party equipment manufacturers; revenue for this product line decreased 70.2% or approximately $1.2 millionto be introduced into the markets we serve.

Other Costs and Expenses
Research and development
Three Months Ended
March 31,
(In thousands)20222021Change
Research and development expense$1,158 $1,115 3.9 %
Percentage of sales9.3 %12.9 %

Research and development expenses increased 3.9% for the three months ended September 30, 2017, when compared with 2016,March 31, 2022, primarily due to a one-time orderincreased labor and benefit costs from the same period in the comparable period of 2016. Advanced Energy segment salesprior year ($0.1 million). These increased costs were $2.1 million, an increase of approximately 52.0%partially offset by lower spending on our two investigational device exemption (IDE) clinical studies and other product development initiatives ($0.1 million).

Professional services
Three Months Ended
March 31,
(In thousands)20222021Change
Professional services expense$2,286 $1,521 50.3 %
Percentage of sales18.3 %17.6 %

Professional services expense increased 50.3% for the three months ended September 30, 2017, whenMarch 31, 2022 as compared to 2016.

For the three months ended September 30, 2017,same period in the increase in electrosurgical sales was mainlyprior year, primarily attributable to an increaseincreases in saleslegal expenses ($0.4 million), physician consulting fees ($0.3 million) and Board of generators of $0.6 million.Directors option expense ($0.1 million).


Overall sales increased by 1.5% or approximately $0.4 million for the nine months ended September 30, 2017, when compared with 2016. Core segment revenue, which consists of our brand name electrosurgical devicesSalaries and accessories, cauteries, penlights, lighting, colposcopes and other similar products, increased 3.4% or approximately $0.7 million for the nine months ended September 30, 2017, when compared with 2016. The OEM segment consists of proprietary products designed specifically for third party equipment manufacturers; revenue for this product line decreased 53.3% or approximately $2.3 million for the nine months ended September 30, 2017, when compared to 2016, due to a one-time order in the comparable period of 2016. Advanced Energy segment sales were $4.5 million, an increase of approximately 80.3% for the nine months ended September 30, 2017, when compared to 2016.related costs

For the nine months ended September 30, 2017, the increase in electrosurgical sales was mainly attributable to an increase in sales of generators of $2.6 million and accessories of $0.1 million.


Three Months Ended
March 31,
(In thousands)20222021Change
Salaries and related expenses$5,181 $4,245 22.0 %
Percentage of sales41.5 %49.1 %
17
16
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSISANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued




Our ten largest customers accounted for approximately 35.3% and 41.3% of trade receivables as of September 30, 2017 and 2016, respectively and approximately 50.0% and 56.9% of net revenues forDuring the ninethree months ended September 30, 2017March 31, 2022, salaries and 2016, respectively. For the nine months ended September 30, 2017, McKessonrelated expenses increased 22.0%, primarily driven by higher compensation and National Distribution & Contracting Inc. accounted for 15.7%benefits ($0.5 million), stock compensation expense ($0.3 million) and 9.3% of sales, while forbonus expense ($0.1 million) as compared to the same period in 2016, McKessonthe prior year.

Selling, general and National Distribution & Contracting Inc. accounted for 15.0% and 9.0% of sales.administrative expenses

Three Months Ended
March 31,
(In thousands)20222021Change
SG&A expense$5,465 $3,724 46.8 %
Percentage of sales43.7 %43.1 %

During August and September 2017, we were impacted by Hurricanes Harvey in Texas and Irma in Florida. We derive a portion of our revenue from these two states and management believes we were negatively impacted, however we cannot quantify with certainty the amount of the financial impact. There was no significant asset damage at our facility in Clearwater, FL as a result of Hurricane Irma.

Gross Profit
 Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(In thousands)2017 2016 Change 2017 2016 Change
Cost of sales$4,753
 $5,002
 (5.0)% $13,673
 $14,049
 (2.7)%
Percentage of revenue50.9% 49.7% 

 49.7% 51.8% 

Gross profit$4,594
 $5,061
 (9.2)% $13,862
 $13,084
 5.9%
Percentage of revenue49.1% 50.3% (1.2)% 50.3% 48.2% 2.1%

Our gross profit decreased by 9.2% or approximately $0.5 million during the three months ended September 30, 2017 when compared to 2016. MarginsMarch 31, 2022, selling, general and administrative expense increased 46.8%, primarily driven by increased advertising expense, including trade show fees and related costs ($0.7 million), higher employee training and other meeting expenses ($0.5 million), travel and entertainment expense ($0.4 million), commissions on Advanced Energy sales ($0.2 million) and higher bad debt expenses ($0.1 million). These increases were negatively impacted due to a write down of approximately $370,000 for obsolete inventory related to our first generation J-Plasma products that have been substantially upgraded to our current generation. The overall decrease in margins was partially offset by higher marginsa decrease in the Advanced Energy segment, driven by higher volume and pricing mix on generator sales.OEM product recall costs ($0.2 million) as we experienced no product recalls in 2022.


Income Taxes
Three Months Ended
March 31,
(In thousands)20222021Change
Income tax expense (benefit)$70 $66 (6.1)%
Effective tax rate(1.2)%(1.4)%

Our gross profit increased by 5.9% orincome tax expense (benefit) was approximately $0.8 million during the nine months ended September 30, 2017 when compared to 2016. The increase was attributed to higher margins in the Advanced Energy segment, driven by higher volume$70,000 and pricing mix.

We do not anticipate any material impact to our gross profit, material costs, or other costs as a result$66,000 with effective tax rates of the effect of inflation or any material impact of changing prices on net revenue.

Other Costs(1.2)% and Expenses

Research and development
 Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(In thousands)2017 2016 Change 2017 2016 Change
Research and Development expense$610
 $681
 (10.4)% $2,015
 $1,941
 3.8%
Percentage of revenue6.5% 6.8%   7.3% 7.2% 0.1%

Bringing new, innovative products to market and enhancing existing products is a critical component of our strategy. As such, spending in R&D as a percentage of sales was 6.5% and 7.3%(1.4)% for the three and nine months ended September 30, 2017,March 31, 2022 and 2021, respectively. For the three and three months ended March 31, 2022 and 2021, the effective rates differ from statutory rates primarily due to the full valuation allowance recorded on our NOL generated during the periods, combined with interest and penalties on our uncertain tax positions.



Liquidity and Capital Resources

Our working capital at March 31, 2022 was approximately $43.2 million compared with $47.5 million at December 31, 2021. The decrease in working capital from December 31, 2021 was primarily due to the net loss incurred by the Company during the first quarter of 2022, excluding non-cash activity, comprised primarily of stock-based compensation expense.

For the three months ended March 31, 2022, net cash used in operating activities was approximately $4.5 million, which principally funded our loss from operations of $5.9 million, compared with net cash used in operating activities of approximately $2.1 million in the same period for 2021.

Net cash used in investing activities for the three months ended March 31, 2022 and 2021, was $0.3 million and $0.2 million, respectively, related to investments in property and equipment.

At March 31, 2022, we had purchase commitments totaling approximately $7.5 million, substantially all of which is expected to be purchased within the next twelve months.

18
17
Table of Contents
BOVIEAPYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSISANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued



Professional services
 Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(In thousands)2017 2016 Change 2017 2016 Change
Professional services expense$421
 $292
 44.2% $1,291
 $1,045
 23.4%
Percentage of revenue4.5% 2.9% 1.6% 4.7% 3.9% 0.8%

During the three and nine months ended September 30, 2017, professional services expense increased approximately 44.2% and 23.4%, respectively, compared to the prior year. The change was attributable to increases in legal and regulatory consulting expenses related to the Advanced Energy segment.
Salaries and related costs
 Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(In thousands)2017 2016 Change 2017 2016 Change
Salaries and related expenses$2,080
 $2,192
 (5.1)% $6,783
 $6,492
 4.5%
Percentage of revenue22.3% 21.8%   24.6% 23.9%  

During the three months ended September 30, 2017, salaries and related expenses decreased approximately 5.1% compared to the prior year. The change was attributable to decreases in administrative and personnel expenses, partially offset by increases in international salary expense.

During the nine months ended September 30, 2017, salaries and related expenses increased approximately 4.5% or approximately $0.3 million compared to the prior year. The increase was attributable to approximately $0.2 million of incentive compensation and $0.1 million related to administrative, direct sales force and associated management.

Selling, general and administrative expenses
 Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(In thousands)2017 2016 Change 2017 2016 Change
SG&A Expense$2,617
 $2,141
 22.2% $7,950
 $6,354
 25.1%
Percentage of revenue28.0% 21.3%   28.9% 23.4%  

Selling, general and administrative expense increased by 22.2% or approximately $0.5 million for the three months ended September 30, 2017, when compared to 2016. We experienced increases in sales commissions of $0.3 million and administrative and marketing expense of $0.2 million.

Selling, general and administrative expense increased by 25.1% or approximately $1.6 million for the nine months ended September 30, 2017, when compared to 2016. We experienced increases in sales commissions of $0.8 million, administrative and regulatory expenses of $0.7 million and marketing of $0.4 million, partially offset by decreases in trade shows and general insurance of $0.3 million.


19
Table of Contents
BOVIE MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


Other Income (Expense), net
 Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(In thousands)2017 2016 Change 2017 2016 Change
Interest expense, net$(36) $(37) (2.7)% $(103) $(125) (17.6)%
Percentage of revenue(0.4)% (0.4)%   (0.4)% (0.5)%  
Change in fair value of derivative liabilities$(69) $(683) (89.9)% $57
 $(555) (110.3)%
Percentage of revenue(0.7)% (6.8)%   0.2 % (2.0)%  

Interest expense

Total net interest expense decreased for the three and nine months ended September 30, 2017 as compared with 2016, due to a decline in the mortgage note principal balance.

Change in fair value of liabilities

On December 13, 2013, we entered into a securities purchase agreement pursuant to which we issued 3,500,000 shares of our newly designated Series A 6% Convertible Preferred Stock with a stated value of $2.00 per share and 5,250,000 warrants to purchase our common stock, at an exercise price of $2.387 per share. We also issued 525,000 warrants to the placement agent, of which 94,375 remain outstanding, as of September 30, 2017, and have a strike price of $2.387. The warrants are accounted for as derivative financial instruments at fair value and are re-valued each period. At September 30, 2017, the placement agent warrants were valued at $0.1 million and for the nine months ended September 30, 2017, we recognized a non-cash gain of $57,000.

On March 17, 2015, we completed transactions under an exchange agreement (the “Exchange Agreement”) entered into on March 11, 2015 with certain investors (the “Investors”) with respect to which Great Point Partners, LLC acts as investment manager. Pursuant to the terms of the Exchange Agreement, we issued 3,588,139 shares of our Series B Convertible Preferred Stock (the “Series B Preferred Stock”) in exchange for 3,500,000 shares of our Series A 6% Convertible Preferred Stock and warrants to purchase up to 5,250,000 shares of our common stock in the aggregate which were previously issued in conjunction with the sale of our Series A 6% Convertible Preferred Stock to the Investors in a December 13, 2013 offering, as well as accrued and unpaid preferred dividends. The Series B Preferred Stock issued at that time was convertible into an aggregate of 7,176,298 shares of our common stock, upon the terms set forth in the Certificate of Designation. On September 20, 2017, 975,639 shares of Series B Preferred Stock were converted into 1,951,278 shares of our common stock.

Income Taxes

We recorded an income tax expense of $6,000 and $15,000 during the three and nine months ended September 30, 2017, respectively. A valuation allowance is required to be provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. Management evaluated the positive and negative evidence in determining the realizability of the net deferred tax asset. In determining the need for valuation allowance, we reviewed historic operating results, the current period operating results, as well as future income forecasts based on the projections, management concluded that it was not more likely that the Company should realize its net deferred tax assets through future operating results and the reversal of taxable temporary differences. 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.

Product Development

We have developed most of our products and product improvements internally. Funds for this development have come primarily from our internal cash flow and equity issuances. We maintain close working relationships with physicians and medical personnel in hospitals and universities who assist in product research and development. New and improved products play a critical role in our sales growth. We continue to emphasize the development of proprietary products and product improvements to complement and expand our existing product lines. Our research and development team members are based in our Clearwater, Florida facility and our facility in Sofia, Bulgaria.


20
Table of Contents
BOVIE MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


Reliance on Collaborative, Manufacturing and Selling Arrangements

We manufacture the majority of our products on our premises in Clearwater, Florida and in Sofia, Bulgaria. Labor-intensive sub-assemblies and labor-intensive products may be out-sourced to our specification. Although we sell through distributors, we market our products through national trade journal advertising, direct mail, distributor sales representatives and trade shows, under the Bovie name and private label. Major distributors include Cardinal Health, Independent Medical Co-Op Inc. (IMCO), McKesson Medical Surgical, Inc., Medline, National Distribution and Contracting Inc. (NDC) and Owens & Minor. If any of these distributor relationships are terminated or not replaced, our revenue from the territories served by these distributors could be adversely affected.

We are also dependent on OEM customers who have no legal obligation to purchase products from us. Should such customers fail to give us purchase orders for the product after development, our future business and value of related assets could be negatively affected. Furthermore, no assurance can be given that such customers will give sufficient high priority to our products. Finally, disagreements or disputes may arise between us and our customers, which could adversely affect production and sales of our products.

We also have collaborative arrangements with three key foreign suppliers under which we request the development of certain items and components and we purchase them pursuant to purchase orders. Our purchase order commitments are never more than one year in duration and are supported by our sales forecasts. The majority of our raw materials are purchased from sole-source suppliers. While we believe we could ultimately procure other sources for these components, should we experience any significant disruptions in this key supply chain, there are no assurances that we could do so in a timely manner which could render us unable to meet the demands of our customers, resulting in a material and adverse effect on our business and operating results.

Liquidity and Capital Resources

Our working capital at September 30, 2017 was approximately $17.4 million compared with $21.3 million at December 31, 2016. Accounts receivable days sales outstanding were 40 days and 41 days at September 30, 2017 and 2016, respectively. The number of days sales in inventory, which is the total inventory available for production divided by the 12-month average cost of materials, increased 1 day to 152 days equating to an inventory turn ratio of 1.92 at September 30, 2017 from 151 days and an inventory turn ratio of 2.30 at September 30, 2016. The lower inventory turn ratio is mainly attributable to an inventory build in support of new, extended and improved product lines.

For the nine months ended September 30, 2017, net cash used in operating activities was approximately $4.4 million compared with net cash used by operating activities of approximately $2.3 million for the same period in 2016. The net cash used in operating activities was attributed to $4.2 million of net loss, increases of inventory of $1.4 million, partially offset by non-cash inflows of $1.2 million.

Net cash used in investing activities was attributed to purchases of property and equipment for approximately $431,000 during the nine months ended September 30, 2017, compared to $182,000 cash used for the same period in 2016.

Cash used in financing activities was approximately $179,000 during the nine months ended September 30, 2017, compared to cash used in financing activities of approximately $1,000 during the same period in 2016.

On June 28, 2016, the Company entered into a transaction 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 exchange for a negative covenant limited to $2,000,000 of the aggregate indebtedness secured by these accounts.

The obligations under the Loan are secured by a first mortgage and security interest in the Company’s Clearwater, Florida facility. In addition, the Company has pledged an interest in a certificate of deposit in the amount of $779,000 as additional collateral. The amount of the additional collateral required declines on a pro rata basis as principal is paid.

Borrowings under the Loan bear interest at LIBOR plus 3.5%, with a fixed monthly principal payment of $19,956. The interest rate at September 30, 2017 was 4.732%.


21
Table of Contents
BOVIE MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


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.

Approximate future expected principal and interest payments under the Loan agreement are as follows as of September 30, 2017:
(In thousands) 
2017 (remaining three months)
$62
2018247
20192,541
Total$2,850

At September 30, 2017, we had purchase commitments for inventories totaling approximately $3.6 million, substantially all of which is expected to be purchased by the end of 2017.

22
Table of Contents
BOVIE MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


Critical Accounting Estimates


In preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), we have adopted various accounting policies. Our most significant accounting policies are disclosed in Note 2 to the consolidated financial statements included in our report on2021 Form 10-K for, filed with the year ended December 31, 2016, filedSEC on March 10, 2017.17, 2022.


The preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates and assumptions, including those related to inventories, intangible assets, property, plant and equipment, legal proceedings, research and development, warranty obligations, product liability, fair valued liabilities, sales returns and discounts, stock basedstock-based compensation and income taxes are updated as appropriate, which in most cases is at least quarterly. We base our estimates on historical experience, or various assumptions that are believed to be reasonable under the circumstances and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may materially differ from these estimates.


Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Our critical accounting estimates include the following:


Stock-based Compensation

Under our stock option plans, options to purchase common shares of the Company may be granted to employees, officers and directors of the Company by the Board of Directors. We account for stock options in accordance with FASB ASC Topic 718-10, Compensation-Stock Compensation, with compensation expense recognized over the vesting period. Options are valued using the Black-Scholes model, which includes a number of estimates that affect the amount of our expense. We have determined that the most critical of these estimates are the estimates of expected life and volatility used in the calculations.

Expected life

For employee stock-based compensation awards, we estimate the expected life of awards utilizing the SEC's simplified method. We utilize this method, as we have not historically granted stock-based compensation awards to employees in sufficient volumes to determine a reasonable estimate of the life of awards. For awards granted to non-employees, we calculate expected life using a combination of past exercise behavior, the contractual term and expected remaining exercise behavior.

Volatility

We determine the volatility by utilizing the historical volatility of our stock over the period of the awards expected life. The SEC allows us to include periods in excess of the useful life if we determine that they provide a more reasonable basis for the volatility of our stock. Additionally, ASC 718-10 allows us to exclude periods from the volatility if they pertain to events or circumstances that in our judgment are specific to us and if the event or transaction is not reasonably expected to occur again during the expected term of the awards. We have not included any additional periods, nor disregarded any periods, in calculating our volatility.

Accounts Receivable Allowance

We maintain a reserve for uncollectible accounts receivable. When evaluating the adequacy of the allowance for doubtful accounts, we analyze specific unremitted customer balances for known collectability issues, review historical bad debt experience, customer credit worthiness and economic trends, and we make estimates in connection with establishing the allowance for doubtful accounts, including the future impacts of current 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.
18
Table of Contents
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Inventory reservesObsolescence Allowance


We maintain a reserve for excess and obsolete inventory resulting from the potential inability to sell our products at prices in excess of current carrying costs. The markets in which we operate are highly competitive, with new products and surgical procedures introduced on an ongoing basis. Such marketplace changes may cause our products to become obsolete. We make estimates regarding the future recoverability of the costs of these products and record a provision for excess and obsolete inventories based on historical experience and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write-downs may be required, which would unfavorably affect future operating results.


Long-lived assetsLitigation Contingencies


We review long-lived assets which are heldIn accordance with authoritative guidance, we record a liability in our consolidated financial statements for these actions when a loss is known or considered probable and used, including propertythe amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and equipment and intangible assets, for impairment whenever changes in circumstances indicate thatno amount within the carryingrange is a better estimate than any other, the minimum amount of the assets may not be recoverable. Such evaluations compare the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset over its expected useful life and are significantly impacted by estimates of future prices and volumes for our products, capital needs, economic trends and other factors that are inherently difficult to forecast.range is accrued. If the asseta loss is considered to be impaired, we record an impairment charge equal to the amount by which the carrying value of the asset exceeds its fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.

Derivative liabilities valued at fair value

We generally do not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks. However, certain financial instruments, such as warrants, which are indexed to our common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within our control. In such instances, net-cash settlement is assumed for financial accounting and reporting purposes, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded and continuously carried, at fair value.

Determining the fair value of these instruments involves judgment and the use of certain relevant assumptions including,reasonably possible, but not limited to, interest rate risk, historical volatilityknown or probable, and stock price,can be reasonably estimated, life of the derivative, anti-dilution provisions and conversion/redemption privileges. The use of different assumptions or changes in those assumptions could have a material effect on the estimated fair value amounts.


23
Table of Contents
BOVIE MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


Stock-based Compensation

Under our stock option plan, options to purchase common shares of the Company may be granted to key employees, officers and directors of the Company by the Board of Directors. The Company accounts for stock options in accordance with FASB ASC Topic 718-10, Compensation-Stock Compensation, with compensation expense amortized over the vesting period based on the trinomial lattice option-pricing model fair value on the grant date, which includes a number of estimates that affect the amount of our expense.

Litigation Contingencies

From time to time, we are exposed to claims and litigation arising in the ordinary course of business or otherwise and use various methods to resolve these matters in a manner that we believe serves the best interest of the Company and our stockholders. There can be no assurance these actions or other third party assertions will be resolved without costly litigation, or in a manner that is not adverse to our financial position. We do not believe that any of the currently identified claims or litigation matters will have a material adverse impact on our results of operations, cash flows or financial condition. However, given uncertainties associated with any litigation, if our assessments prove to be wrong, or if additional information becomes available such that we estimate that there is a possible loss or possible range of loss associated withis 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 contingencies, then we would record the minimum estimated liability, which could materially impact our results of operations, financial position and cash flows.estimates.


Income Taxes


The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using enacted marginal tax rates. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period.


As a result of historical losses and our expectation to continue to generate losses in the near future, we recorded a valuation allowance on our net deferred tax assets. Exclusive of the carryback provisions of the CARES Act and the associated income tax benefit recognized in 2020, we do not anticipate recording an income tax benefit related to our deferred tax assets. We have net operating loss and tax credit carry forwards available in certain jurisdictions to reduce future taxable income. Future tax benefits for net operating loss and tax credit carry forwards are recognized towill reassess the extent that realization of these benefits is considered more likely than not. This determination is based on the expectation that related operations will be sufficiently profitable or variousdeferred tax businessassets each reporting period and other planning strategies will enable us to utilize the operating loss and tax credit carry forwards. We cannot be assured that we will be able to realize these futurereduce the valuation allowance to the extent our results of operations improve, and it becomes more likely than not that the deferred tax benefitsassets will be realized. As Management has not fully determined the timing of when it will generate taxable income in the U.S., we continued to record a valuation allowance on the net deferred tax assets balance as of March 31, 2022.

We assess the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that future valuation allowancesis more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be required. Torecognized in the extent that available evidence raises doubt about the realization of a deferred income tax asset, a valuation allowance is established.

It is our policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefitfinancial statements unless it is more likely than not to be sustained upon examination by tax authorities. To the extent that the probable tax outcome of these uncertain tax positions changes, such changes in estimate will impact the income tax provision in the period in which such determination is made. At September 30, 2017, we believe we have appropriately accounted for any unrecognized tax positions. To the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or we are required to pay amounts in excessbeing sustained.

Inflation

The consequences of the liability,pandemic, global supply chain instability and inflationary cost increases and their adverse impact to the global economy, continue to evolve. Accordingly, the significance of the future impact to our effective tax rate in a givenbusiness and financial statement period may be affected.

Since inception, we have beenstatements remains subject to tax by both federal and state taxing authorities. Until the respective statutes of limitations expire (which may be as much as 20 years while we have unused NOL’s), we are subject to income tax audits in the jurisdictions in which we operate.

Inflation

significant uncertainty. Inflation has not, to date, materially impacted theour operations ofor financial performance. However, as these trends continue for raw materials, freight, and labor costs, our Company.future financial performance could be adversely impacted.


Off-Balance Sheet Arrangements


We have no off-balance sheet arrangements at this time.


24
Table of Contents
BOVIE MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued



Recent Accounting Pronouncements


See Note 42 of the Notes to Condensed Consolidated Financial Statements.Statements.



25
19
Table of Contents
BOVIEAPYX MEDICAL CORPORATION

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk


For our disclosures about market risk, please see Part II, Item 7A., "Quantitative and Qualitative Disclosures about Market Risk," in our Annual Report on Form 10-K for the year ended December 31, 2016. We believe there have been no material changes to the information provided therein.Not applicable.


20
Table of Contents
APYX MEDICAL CORPORATION
ITEM 4. Controls and Procedures


Evaluation of Disclosure Controls and Procedures


We have carried out an evaluation, under the supervision ofOur management has established and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of ourmaintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of September 30, 2017. Based upon that evaluation, our CEO and CFO concludedare designed to ensure that as of the end of that period, our disclosure controls and procedures are effective in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we filedfile or submittedsubmit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC’sSecurities and Exchange Commission's rules and forms, and (b)that such information is accumulated and communicated to our management, including our CEOthe Chief Executive Officer and CFO,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designingManagement carried out an evaluation, under the supervision and evaluatingwith the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our management recognizedChief Executive Officer and Chief Financial Officer have concluded that anyas of March 31, 2022, the Company's disclosure controls and procedures no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.were effective.


Changes in Internal Control overOver Financial Reporting


There were no changes in our internal control over financial reporting (as defined in Rules 13(a)-15(f) and 15(d)-15(f)) during the nine monthsquarter ended September 30, 2017March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



26
21
Table of Contents
BOVIEAPYX MEDICAL CORPORATION

PART II.     Other Information


ITEM 1. Legal Proceedings


From timeSee Note 10 of Notes to time, we are exposed to claims and litigation arisingCondensed Consolidated Financial Statements in the ordinary coursePart I, Item 1 of business or otherwise and use various methods to resolve these matters in a manner that we believe serves the best interestthis Form 10-Q.


22
Table of the Company and our stockholders. There can be no assurance these actions or other third party assertions will be resolved without costly litigation, or in a manner that is not adverse to our financial position. We do not believe that any of the currently identified claims or litigation matters will have a material adverse impact on our results of operations, cash flows or financial condition. However, given uncertainties associated with any litigation, if our assessments prove to be wrong, or if additional information becomes available such that we estimate that there is a possible loss or possible range of loss associated with these contingencies, then we would record the minimum estimated liability, which could materially impact our results of operations, financial position and cash flows.Contents

APYX MEDICAL CORPORATION
We expense costs of litigation related to contingencies in the periods in which the costs are incurred.

ITEM 1A. Risk factors


There have been no material changes to the risk factors previously disclosed indescribed under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, in response to Item 1A to Part 12021.


23

APYX MEDICAL CORPORATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds


None.


ITEM 3. Defaults Upon Senior Securities


None.


ITEM 4. Mine Safety Disclosures


Not Applicable.


ITEM 5. Other Information


None.

24

27
Table of Contents
BOVIEAPYX MEDICAL CORPORATION

ITEM 6. Exhibits
3.1
Articles of Incorporation of the Registrant (Incorporated by reference to the Registrant’s report on Form 10-K/A filed on March 31, 2011)
3.2
By laws of the Registrant (Incorporated by reference to the Registrant’s reportAnnual Report on Form 10-K/A filed on March 31, 2011)
3.3
Certificate of Designation of Preferences, Rights and Limitations of Series A 6% Convertible Preferred Stock of Bovie Medical Corporation (Incorporated by reference to the Registrant’s report on Form 8-K filed December 16, 2013)
3.4
Certificate of Designation of Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 on Form 8-K filed on March 11, 2015.
3.5*3.3
Certificate of Amendment of the Certificate of Incorporation of the Registrant.Registrant (Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on November 3, 2017)
31.1*3.4
Certificate of Elimination (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on May 3, 2018)
3.5
Certificate of Amendment of the Certificate of Incorporation of the Registrant (Incorporated by reference to the Registrant's Current Report of Form 8-K filed on December 28, 2018)
31.1*
31.2*
32.1*
32.2*
101.INS**XBRL Instance Document
101.SCH**XBRL Taxonomy Extension Schema Document
101.CAL**XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**XBRL Taxonomy Extension Label Linkbase Document
101.PRE**XBRL Taxonomy Extension Label Presentation Document


* Filed herewith.


** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended and otherwise is not subject to liability under these sections.



28
25
Table of Contents
BOVIEAPYX MEDICAL CORPORATION

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Apyx Medical Corporation
Date: May 12, 2022Bovie Medical CorporationBy:/s/ Charles D. Goodwin II
Charles D. Goodwin II
Date: November 3, 2017By:/s/ Robert L. Gershon
Robert L. Gershon
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: November 3, 2017May 12, 2022By:/s/ Jay D. EwersTara Semb
Jay D. EwersTara Semb
Chief Financial Officer,
Treasurer and Secretary
(Principal Financial Officer)



29
26