UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, ~~2021~~2022

☐

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



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


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

5115 Ulmerton Road, Clearwater, FL 33760

(Address of principal executive offices, zip code)

(727) 384-2323

(Registrant’s telephone number)

Securities Registered Pursuant to Section 12 (b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock	APYX	Nasdaq 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: ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes: ☒ No ☐

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 growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

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.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: ☐ No ☒

As of August 10, ~~2021, 34,322,749 shares~~2022, 34,573,034 shares of the registrant’s $0.001 par value common stock were outstanding.

Table of Contents

APYX MEDICAL CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended June 30, ~~2021~~2022

Page

Part I.

Financial Information

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at June 30, ~~2021~~2022 and December 31, ~~2020~~2021

Condensed Consolidated Statements of Operations for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021

Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2021~~2022 and ~~2020~~2021

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1519

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

2427

Item 4.

Controls and Procedures

Part II.

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

2831

Item 3.

Defaults Upon Senior Securities

2831

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

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)


		June 30, 2021 (Unaudited)		December 31, 2020			June 30, 2022 (Unaudited)		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	34,670	$	41,915	Cash and cash equivalents	$	20,063	$	30,870
Trade accounts receivable, net of allowance of $340 and $300		8,985		8,399
Trade accounts receivable, net of allowance of $629 and $430						Trade accounts receivable, net of allowance of $629 and $430	10,340		13,038
Income tax receivables	Income tax receivables	7,654		7,654		Income tax receivables	7,642		7,642
Other receivables	Other receivables	1,386		1,275		Other receivables	33		483
Inventories, net of provision for obsolescence of $387 and $388		5,272		4,051
Inventories, net of provision for obsolescence of $360 and $263						Inventories, net of provision for obsolescence of $360 and $263	9,677		6,778
Prepaid expenses and other current assets	Prepaid expenses and other current assets	3,615		2,795		Prepaid expenses and other current assets	2,770		1,926
Total current assets	Total current assets	61,582		66,089		Total current assets	50,525		60,737
Property and equipment, net of accumulated depreciation and amortization of $5,120 and $4,813		6,471		6,541
Property and equipment, net of accumulated depreciation and amortization of $5,245 and $5,316						Property and equipment, net of accumulated depreciation and amortization of $5,245 and $5,316	6,842		6,575
Operating lease right-of-use assets	Operating lease right-of-use assets	182		237		Operating lease right-of-use assets	659		121
Finance lease right-of-use assets	Finance lease right-of-use assets	329		437		Finance lease right-of-use assets	176		178

Other assets	Other assets	1,033		807		Other assets	1,269		1,110
Total assets	Total assets	$	69,597	$	74,111	Total assets	$	59,471	$	68,721

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	2,799	$	1,511	Accounts payable	$	2,587	$	2,631
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	7,594		7,278		Accrued expenses and other current liabilities	8,570		10,287
Current portion of operating lease liabilities	Current portion of operating lease liabilities	127		126		Current portion of operating lease liabilities	110		122
Current portion of finance lease liabilities	Current portion of finance lease liabilities	225		238		Current portion of finance lease liabilities	85		165

Total current liabilities	Total current liabilities	10,745		9,153		Total current liabilities	11,352		13,205
Long-term operating lease liabilities	Long-term operating lease liabilities	63		129		Long-term operating lease liabilities	514		—
Long-term finance lease liabilities	Long-term finance lease liabilities	76		183		Long-term finance lease liabilities	93		18
Contract liabilities		886		621
Long-term contract liabilities						Long-term contract liabilities	1,207		1,323
Other liabilities	Other liabilities	145		166		Other liabilities	142		166
Total liabilities	Total liabilities	11,915		10,252		Total liabilities	13,308		14,712
EQUITY	EQUITY					EQUITY
Common stock, $0.001 par value; 75,000,000 shares authorized; 34,322,749 issued and outstanding as of June 30, 2021, and 34,289,222 issued and outstanding as of December 31, 2020		34		34
Common stock, $0.001 par value; 75,000,000 shares authorized; 34,493,085 issued and outstanding as of June 30, 2022, and 34,409,912 issued and outstanding as of December 31, 2021						Common stock, $0.001 par value; 75,000,000 shares authorized; 34,493,085 issued and outstanding as of June 30, 2022, and 34,409,912 issued and outstanding as of December 31, 2021	34		34
Additional paid-in capital	Additional paid-in capital	63,650		61,066		Additional paid-in capital	69,793		66,221
(Accumulated deficit) retained earnings		(6,326)		2,621
Total stockholders' equity		57,358		63,721
Accumulated deficit						Accumulated deficit	(23,922)		(12,551)
Total stockholders’ equity						Total stockholders’ equity	45,905		53,704
Non-controlling interest	Non-controlling interest	324		138		Non-controlling interest	258		305
Total equity	Total equity	57,682		63,859		Total equity	46,163		54,009
Total liabilities and equity	Total liabilities and equity	$	69,597	$	74,111	Total liabilities and equity	$	59,471	$	68,721

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

Table of Contents

APYX MEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)


		Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020				2022		2021		2022		2021
Sales	Sales	$	11,224	$	4,296	$	19,862	$	9,293		Sales	$	10,292	$	11,224	$	22,785	$	19,862
Cost of sales	Cost of sales	3,690		2,202		6,468		4,215			Cost of sales	3,378		3,690		7,652		6,468
Gross profit	Gross profit	7,534		2,094		13,394		5,078			Gross profit	6,914		7,534		15,133		13,394
Other costs and expenses:	Other costs and expenses:										Other costs and expenses:
Research and development	Research and development	1,084		975		2,199		1,955			Research and development	1,070		1,084		2,228		2,199
Professional services	Professional services	1,889		1,658		3,410		4,047			Professional services	2,389		1,889		4,675		3,410
Salaries and related costs	Salaries and related costs	4,343		3,439		8,588		6,750			Salaries and related costs	4,892		4,343		10,073		8,588
Selling, general and administrative	Selling, general and administrative	4,261		2,189		7,985		5,985			Selling, general and administrative	4,539		4,261		10,004		7,985
Total other costs and expenses	Total other costs and expenses	11,577		8,261		22,182		18,737			Total other costs and expenses	12,890		11,577		26,980		22,182
Loss from operations	Loss from operations	(4,043)		(6,167)		(8,788)		(13,659)			Loss from operations	(5,976)		(4,043)		(11,847)		(8,788)
Interest income	Interest income	4		7		7		223			Interest income	18		4		20		7
Interest expense	Interest expense	(2)		(8)		(6)		(14)			Interest expense	(3)		(2)		(11)		(6)
Other income (loss), net		97		(14)		4		412
Total other income (loss), net		99		(15)		5		621
Other income, net											Other income, net	607		97		586		4
Total other income, net											Total other income, net	622		99		595		5
Loss before income taxes	Loss before income taxes	(3,944)		(6,182)		(8,783)		(13,038)			Loss before income taxes	(5,354)		(3,944)		(11,252)		(8,783)
Income tax expense (benefit)		107		(1,492)		173		(6,397)
Income tax expense											Income tax expense	96		107		166		173
Net loss	Net loss	(4,051)		(4,690)		(8,956)		(6,641)			Net loss	(5,450)		(4,051)		(11,418)		(8,956)
Net loss attributable to non-controlling interest	Net loss attributable to non-controlling interest	(5)		0		(9)		0			Net loss attributable to non-controlling interest	(24)		(5)		(47)		(9)
Net loss attributable to stockholders	Net loss attributable to stockholders	$	(4,046)	$	(4,690)	$	(8,947)	$	(6,641)		Net loss attributable to stockholders	$	(5,426)	$	(4,046)	$	(11,371)	$	(8,947)

Loss per share:	Loss per share:										Loss per share:

Basic and diluted	Basic and diluted	$	(0.12)	$	(0.14)	$	(0.26)	$	(0.19)		Basic and diluted	$	(0.16)	$	(0.12)	$	(0.33)	$	(0.26)

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

Table of Contents

APYX MEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(In thousands)


Three months ended June 30, 2020 and 2021
Three Months Ended June 30, 2022 and 2021																	Three Months Ended June 30, 2022 and 2021
		Common Stock			Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)		Non-controlling Interest				Total Equity			Common Stock						Additional Paid-In Capital				Accumulated Deficit		Non-controlling Interest		Total Equity
		Shares	Par Value
Balance at March 31, 2020		34,184	$	34			$	57,829					$	12,566					$	0		$	70,429

Stock based compensation		—	—		1,097				—		—				1,097
Shares issued on net settlement of stock options		18	—		—				—		—				—

Net loss		—	—		—				(4,690)		—				(4,690)
Balance at June 30, 2020		34,202	$	34	$	58,926			$	7,876	$	0			$	66,836
																		Shares			Par Value			Additional Paid-In Capital				Accumulated Deficit		Non-controlling Interest		Total Equity
Balance at March 31, 2021	Balance at March 31, 2021	34,318	$	34	$	62,281			$	(2,280)	$	134			$	60,169	Balance at March 31, 2021	34,318			$	34
Contributions from non-controlling interest	Contributions from non-controlling interest	—	—		—				—		195				195		Contributions from non-controlling interest	—			—					—				—		195		195

Stock based compensation	Stock based compensation	—	—		1,369				—		—				1,369		Stock based compensation	—			—			1,369				—		—		1,369
Shares issued on net settlement of stock options	Shares issued on net settlement of stock options	5	—		—				—		—				—		Shares issued on net settlement of stock options	5			—			—				—		—		—

Net loss	Net loss	—	—		—				(4,046)		(5)				(4,051)		Net loss	—			—			—				(4,046)		(5)		(4,051)
Balance at June 30, 2021	Balance at June 30, 2021	34,323	$	34	$	63,650			$	(6,326)	$	324			$	57,682	Balance at June 30, 2021	34,323			$	34		$	63,650			$	(6,326)	$	324	$	57,682

Six months ended June 30, 2020 and 2021
		Common Stock			Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)		Non-controlling Interest				Total
		Shares	Par Value
Balance at December 31, 2019		34,170	$	34			$	56,708					$	14,517					$	0		$	71,259
Balance at March 31, 2022																	Balance at March 31, 2022	34,453			$	34		$	68,023			$	(18,496)	$	282	$	49,843

Shares issued on stock options exercises for cash	Shares issued on stock options exercises for cash	10	—		72				—		—				72		Shares issued on stock options exercises for cash	20			—			56				—		—		56
Stock based compensation	Stock based compensation	—	—		2,146				—		—				2,146		Stock based compensation	—			—			1,714				—		—		1,714
Shares issued on net settlement of stock options	Shares issued on net settlement of stock options	22	—		—				—		—				—		Shares issued on net settlement of stock options	20			—			—				—		—		—

Net loss	Net loss	—	—		—				(6,641)		—				(6,641)		Net loss	—			—			—				(5,426)		(24)		(5,450)
Balance at June 30, 2020		34,202	$	34	$	58,926			$	7,876	$	0			$	66,836
Balance at June 30, 2022																	Balance at June 30, 2022	34,493			$	34		$	69,793			$	(23,922)	$	258	$	46,163

Six Months Ended June 30, 2022 and 2021																	Six Months Ended June 30, 2022 and 2021
																		Common Stock						Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)		Non-controlling Interest		Total
																		Shares			Par Value
Balance at December 31, 2020	Balance at December 31, 2020	34,289	$	34	$	61,066			$	2,621	$	138			$	63,859	Balance at December 31, 2020	34,289			$	34				$	61,066			$	2,621	$	138	$	63,859
Contributions from non-controlling interest	Contributions from non-controlling interest	—	—		—				—		195				195		Contributions from non-controlling interest	—			—			—				—		195		195
Shares issued on stock options exercises for cash	Shares issued on stock options exercises for cash	8	—		21				—		—				21		Shares issued on stock options exercises for cash	8			—			21				—		—		21
Stock based compensation	Stock based compensation	—	—		2,563				—		—				2,563		Stock based compensation	—			—			2,563				—		—		2,563
Shares issued on net settlement of stock options	Shares issued on net settlement of stock options	26	—		—				—		—				—		Shares issued on net settlement of stock options	26			—			—				—		—		—

Net loss	Net loss	—	—		—				(8,947)		(9)				(8,956)		Net loss	—			—			—				(8,947)		(9)		(8,956)
Balance at June 30, 2021	Balance at June 30, 2021	34,323	$	34	$	63,650			$	(6,326)	$	324			$	57,682	Balance at June 30, 2021	34,323			$	34		$	63,650			$	(6,326)	$	324	$	57,682

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

Shares issued on stock options exercises for cash																	Shares issued on stock options exercises for cash	44			—			208				—		—		208
Stock based compensation																	Stock based compensation	—			—			3,364				—		—		3,364
Shares issued on net settlement of stock options																	Shares issued on net settlement of stock options	39			—			—				—		—		—

Net loss																	Net loss	—			—			—				(11,371)		(47)		(11,418)
Balance at June 30, 2022																	Balance at June 30, 2022	34,493			$	34		$	69,793			$	(23,922)	$	258	$	46,163

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

Table of Contents

APYX MEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


		Six Months Ended June 30,				Six Months Ended June 30,
		2021		2020				2022		2021
Cash flows from operating activities	Cash flows from operating activities						Cash flows from operating activities
Net loss	Net loss	(8,956)		(6,641)			Net loss	(11,418)		(8,956)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:						Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	440		439			Depreciation and amortization	472		440
Provision for inventory obsolescence	Provision for inventory obsolescence	13		413			Provision for inventory obsolescence	139		13

Loss on disposal of property and equipment							Loss on disposal of property and equipment	47		—
Stock based compensation	Stock based compensation	2,563		2,146			Stock based compensation	3,364		2,563
Provision for allowance for doubtful accounts	Provision for allowance for doubtful accounts	46		486			Provision for allowance for doubtful accounts	284		46

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:						Changes in operating assets and liabilities:
Trade receivables	Trade receivables	(656)		1,195			Trade receivables	2,236		(656)
Prepaid expenses and other assets	Prepaid expenses and other assets	(1,160)		(1,410)			Prepaid expenses and other assets	(549)		(1,160)
Income tax receivables		0		(6,017)

Inventories	Inventories	(1,198)		(571)			Inventories	(3,187)		(1,198)
Accounts payable	Accounts payable	1,296		(232)			Accounts payable	33		1,296
Accrued and other liabilities	Accrued and other liabilities	554		(2,241)			Accrued and other liabilities	(1,811)		554
Net cash used in operating activities	Net cash used in operating activities	(7,058)		(12,433)			Net cash used in operating activities	(10,390)		(7,058)
Cash flows from investing activities	Cash flows from investing activities						Cash flows from investing activities
Purchases of property and equipment	Purchases of property and equipment	(221)		(184)			Purchases of property and equipment	(680)		(221)

Net cash used in investing activities	Net cash used in investing activities	(221)		(184)			Net cash used in investing activities	(680)		(221)
Cash flows from financing activities	Cash flows from financing activities						Cash flows from financing activities
Proceeds from stock option exercises	Proceeds from stock option exercises	21		72			Proceeds from stock option exercises	208		21

Repayment of finance lease liabilities	Repayment of finance lease liabilities	(120)		(120)			Repayment of finance lease liabilities	(108)		(120)
Contributions from non-controlling interests	Contributions from non-controlling interests	195		0			Contributions from non-controlling interests	—		195
Net cash provided by (used in) financing activities		96		(48)
Net cash provided by financing activities							Net cash provided by financing activities	100		96
Effect of exchange rates on cash	Effect of exchange rates on cash	(62)		9			Effect of exchange rates on cash	163		(62)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(7,245)		(12,656)			Net change in cash and cash equivalents	(10,807)		(7,245)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	41,915		58,812			Cash and cash equivalents, beginning of period	30,870		41,915
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	34,670	$	46,156		Cash and cash equivalents, end of period	$	20,063	$	34,670

Cash paid for:	Cash paid for:						Cash paid for:
Interest	Interest	$	4	$	8		Interest	$	11	$	4
Income taxes	Income taxes	13		54			Income taxes	8		13

Non cash activities:							Non cash activities:
Right-of-use assets capitalized and operating lease liabilities recognized upon lease modification							Right-of-use assets capitalized and operating lease liabilities recognized upon lease modification	$	600	$	—
Right-of-use assets capitalized and finance lease liabilities recognized upon execution of lease							Right-of-use assets capitalized and finance lease liabilities recognized upon execution of lease	$	103	$	—

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

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

A~~pyx~~Apyx Medical Corporation (“~~Company"~~Company”, ~~"Apyx"~~“Apyx”, ~~"it"~~“it” and similar terms) was incorporated in 1982, under the laws of the State of Delaware and has its principal executive office at 5115 Ulmerton Road, Clearwater, FL 33760.

The Company is an advanced energy technology company with a passion for elevating people’s lives through innovative products, ~~in the cosmetic and surgical markets. Known for~~including its ~~innovative~~ Helium Plasma Technology ~~Apyx is solely focused on bringing transformative solutions to the physicians and patients they serve. It's Helium Plasma Technology is~~products marketed and sold as Renuvion® in the cosmetic surgery ~~market~~ and J-Plasma® in the hospital surgical market. Renuvion® ~~offers plastic~~and J-Plasma® offer surgeons ~~fascial plastic surgeons and cosmetic physicians~~ a unique ability to provide controlled heat to ~~the~~ tissue to achieve their desired results. ~~The J-Plasma® system allows surgeons to operate with a high level of precision, virtually eliminating unintended tissue trauma.~~ The Company also leverages its deep expertise and decades of experience in unique waveforms through ~~original equipment manufacturing (OEM)~~OEM agreements with other medical device manufacturers.

~~The Company is subject to risks~~On March 14, 2022, the U.S. Food and ~~uncertainties as~~Drug Administration (“FDA”) posted a ~~result~~Safety Communication that warns consumers and health care providers against the use of the ~~COVID-19 pandemic~~Company’s Advanced Energy products outside of their FDA-cleared indications for general use in cutting, coagulation, and ablation of soft tissue during open and laparoscopic surgical procedures. Following the Safety Communication, the Company experienced slowed demand for the adoption of its ~~impact on~~Helium Plasma Technology.

On May 26, 2022, the ~~level of economic activity around~~Company announced that it had received 510(k) clearance from the ~~world. The extent~~FDA for the use of the ~~impact~~Renuvion® Dermal Handpiece for specific dermal resurfacing procedures. On July 18, 2022, the Company announced that it had received 510(k) clearance from the FDA for the use of the ~~pandemic on~~Renuvion® APR Handpiece for certain skin contraction procedures. Management believes that receiving these clearances should materially mitigate the ~~Company's business is highly uncertain~~financial effects of the Safety Communication in future periods.

On June 2, 2022, and ~~difficult~~July 21, 2022, FDA updated the Medical Device Safety Communication to ~~predict, as~~recognize the ~~responses~~new 510(k) clearances for the Renuvion® Dermal handpiece, and ~~information related~~the expanded indications for the Renuvion® APR handpieces. The 510(k) clearance for the Renuvion® Dermal handpiece allows surgeons to ~~it continue~~perform dermal resurfacing procedures for the treatment of moderate to ~~change. As elective surgery cases using~~severe wrinkles and rhytides, limited to patients with Fitzpatrick Skin Types I, II or III. The 510(k) clearance for the ~~Company’s Helium Plasma Technology have started to increase again, it is unknown whether these trends will continue. The full extent to which~~Renuvion® APR handpieces now addresses improving the ~~COVID-19 pandemic may materially~~appearance of lax (loose) skin in the neck and ~~adversely impact the Company’s future financial position, liquidity, or results of operations remains uncertain.~~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 our Annual Report on Form 10-K for the year ended December 31, ~~2020. These~~2021. In the opinion of management these condensed consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of consolidated operations 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.

Reclassifications

We have reclassified certain amounts presented in the prior ~~year~~period to conform to the current ~~year~~period presentation. These reclassifications had no impact on previously reported net ~~income,~~loss, retained earnings or net cash used in operating ~~cash flows~~activities for the periods presented.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326). The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, contract assets, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update, as originally issued, was effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates of these standards for Smaller Reporting Companies until fiscal years beginning after December 15, 2022. The Company currently expects to continue to qualify as a Smaller Reporting Company, based upon the current SEC definition, and as a result, will be

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(Unaudited)

utilizing the deferred elective date. While we are in the process of determining the effects of the adoption of the standard on the condensed consolidated financial statements, we do not expect the impact to be material.

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

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NOTE 3. DISPOSAL OF BUSINESS

On August 30, 2018, the Company closed on a definitive asset purchase agreement (the ~~"Asset~~“Asset Purchase ~~Agreement"~~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~~Company’s electrosurgical ~~"Core"~~“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 June 30, 2022, amounted to $0.0 million with cost of sales equivalents of $0.0 million and other related expenses of $0.1 million for approximately no net other income (loss). Core activity for the three months ended June 30, 2021, amounted to $2.2 million with cost of sales equivalents of $1.8 million and related other ~~related~~ expenses of $0.3 million for net other income of $0.1 million. Core activity for the ~~three~~six months ended June 30, ~~2020,~~2022, amounted to ~~$2.7~~$0.6 million with cost of sales equivalents of ~~$2.3~~$0.5 million and other related ~~other~~ expenses of ~~$0.4~~$0.1 million for ~~approximately 0~~ net other ~~income.~~loss of $0.1 million. Core activity for the six months ended June 30, 2021, amounted to $3.6 million with cost of sales equivalents of $3.0 million and net other related operating expenses of $0.6 million for approximately 0no net other income. Core activity for the six months ended June 30, 2020, amounted to $5.2 million with cost of sales equivalents of $4.6 million and net other related operating expenses of $0.2 million for net other income of $0.4 million.

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NOTE 4. INVENTORIES

Inventories are stated at the lower of cost or net realizable ~~values.~~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 following:


(In thousands)	(In thousands)	June 30, 2021		December 31, 2020		(In thousands)	June 30, 2022		December 31, 2021
Raw materials	Raw materials	$	3,226	$	2,243	Raw materials	$	4,547	$	3,603
Work in process	Work in process	1,167		1,109		Work in process	2,192		1,441
Finished goods	Finished goods	1,266		1,087		Finished goods	3,298		1,997
Gross inventories	Gross inventories	5,659		4,439		Gross inventories	10,037		7,041
Less: provision for obsolescence	Less: provision for obsolescence	(387)		(388)		Less: provision for obsolescence	(360)		(263)
Inventories, net	Inventories, net	$	5,272	$	4,051	Inventories, net	$	9,677	$	6,778

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NOTE 5. LEASES

Operating Leases

The Company leases its facility in Sofia, Bulgaria and vehicles in Clearwater, Florida under non-cancelable operating lease agreements. During the three months ended June 30, 2022, the Company entered into a five year extension of its Sofia, Bulgaria facility. These operating leases have terms expiring through December 2027.

Finance Leases

The Company has entered into non-cancelable finance leases for certain computer equipment and a vehicle in Clearwater, Florida. During the three months ended June 30, 2022, the Company entered into a 63 month lease for computer equipment. These finance leases have terms expiring through July 2027.

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


	June 30, 2022		December 31, 2021
	Operating	Finance	Operating	Finance
Weighted average remaining lease term (in years)	5.5	3.2	1.0	0.8
Weighted average discount rate	1.83%	3.04%	3.98%	4.00%

Maturities of lease liabilities as of June 30, 2022 are as follows:


(In thousands)	Operating		Finance

2022	$	61	$	70
2023	119		40
2024	119		21
2025	119		21
2026	119		21
Thereafter	119		12
Total lease payments	656		185
Less imputed interest	(32)		(7)
Present value of lease liabilities	624		178
Less current portion of lease liabilities	(110)		(85)
Long-term portion of lease liabilities	$	514	$	93

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(Unaudited)

NOTE 5.6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		(in thousands)	June 30, 2022		December 31, 2021
Accrued payroll	Accrued payroll	$	1,016	$	808	Accrued payroll	$	621	$	546
Accrued bonuses	Accrued bonuses	996		811		Accrued bonuses	802		2,117
Accrued commissions	Accrued commissions	730		1,001		Accrued commissions	1,074		1,656
Accrued product warranties	Accrued product warranties	527		498		Accrued product warranties	611		593
Accrued product liability claim insurance deductibles	Accrued product liability claim insurance deductibles	405		435		Accrued product liability claim insurance deductibles	597		610
Accrued professional fees		357		222
Accrued professional fees and legal related contingent liabilities						Accrued professional fees and legal related contingent liabilities	1,091		421
Joint and several payroll liability	Joint and several payroll liability	1,027		1,027		Joint and several payroll liability	405		1,027
Short-term contract liabilities						Short-term contract liabilities	821		533
Uncertain tax positions	Uncertain tax positions	1,758		1,658		Uncertain tax positions	1,970		1,863
Sales tax payable	Sales tax payable	173		591		Sales tax payable	143		428
Other accrued expenses and current liabilities	Other accrued expenses and current liabilities	605		227		Other accrued expenses and current liabilities	435		493
Total accrued expenses and other current liabilities	Total accrued expenses and other current liabilities	$	7,594	$	7,278	Total accrued expenses and other current liabilities	$	8,570	$	10,287

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. This adjustment is included in other income, net for the three and six months ended June 30, 2022.

NOTE 6.7. CHINA JOINT VENTURE

In 2019, the Company executed a joint venture agreement with its Chinese supplier ~~("China JV"~~(the “China JV”) whereby the Company has a 51% ~~interest~~interest. The China JV has been consolidated in ~~the China JV.~~these condensed consolidated financial statements. The agreement required the Company to make capital contributions into the newly formed entity of approximately $357,000, of which ~~approximately $203,000 and $154,000, respectively, were contributed during the three months ended June 30, 2021 and the year ended~~had been fully funded as of December 31, ~~2020.~~2021. As of the date of these condensed consolidated financial statements, the ~~joint venture~~China JV has not commenced principal operations.

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


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2022		2021		2022		2021
Beginning interest in China JV	$	294	$	140	$	317	$	144
Contributions	$	—	$	203	$	—	$	203
Net loss attributable to Apyx	$	(25)	$	(5)	$	(48)	$	(9)
Ending interest in China JV	$	269	$	338	$	269	$	338

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(Unaudited)

(In thousands) Three Months Ended
June 30, 2021 Six Months Ended
June 30, 2021
Beginning interest in China JV $ 140 $ 144
Contributions 203 203
Net loss attributable to Apyx (5) (9)
Ending interest in China JV $ 338 $ 338

NOTE 7.8. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“basic EPS”) is computed by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period. Diluted earnings (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 loss per share.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		2021		2020		(in thousands, except per share data)	2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net loss attributable to stockholders	Net loss attributable to stockholders	$	(4,046)	$	(4,690)	$	(8,947)	$	(6,641)	Net loss attributable to stockholders	$	(5,426)	$	(4,046)	$	(11,371)	$	(8,947)

Denominator:	Denominator:									Denominator:
Weighted average shares outstanding - basic and diluted	Weighted average shares outstanding - basic and diluted	34,321		34,186		34,312		34,181		Weighted average shares outstanding - basic and diluted	34,464		34,321		34,447		34,312

Loss per share:	Loss per share:									Loss per share:
Basic and diluted	Basic and diluted	$	(0.12)	$	(0.14)	$	(0.26)	$	(0.19)	Basic and diluted	$	(0.16)	$	(0.12)	$	(0.33)	$	(0.26)

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

Options	Options	5,561		4,986		5,561		4,986		Options	6,679		5,561		6,679		5,561

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NOTE 8.9. STOCK-BASED COMPENSATION

Under the ~~Company's~~Company’s stock option plans, the ~~board~~Board of ~~directors~~Directors may grant restricted stock and options to purchase common shares to the Company's employees, officers, directors and consultants. The Company accounts for stock options in accordance with FASB ASC Topic 718, Compensation - Stock Compensation, with stock-based compensation expense recognized over the vesting period based on the fair value on the grant date utilizing the ~~Black Scholes~~Black-Scholes model, which includes a number of estimates that affect the grant date fair value and the amount of expense to recognize.

The Company recognized approximately ~~$1,369,000~~$1,714,000 and ~~$2,563,000,~~$3,364,000, respectively, in stock-based compensation expense during the three and six months ended June 30, ~~2021,~~2022, as compared with ~~$1,097,000~~$1,369,000 and ~~$2,146,000,~~$2,563,000, respectively, for the three and six months ended June 30, ~~2020.~~2021.

Stock option activity is summarized as follows:


		Number of options	Weighted average exercise price			Number of options	Weighted average exercise price

Outstanding at December 31, 2020		4,938,943	$	5.46
Outstanding at December 31, 2021					Outstanding at December 31, 2021	5,397,691	$	5.95
Granted	Granted	775,980	9.32		Granted	1,478,419	10.96
Exercised	Exercised	(55,582)	4.56		Exercised	(119,840)	4.46
Canceled and forfeited	Canceled and forfeited	(98,635)	8.05		Canceled and forfeited	(76,997)	9.81
Outstanding at June 30, 2021		5,560,706	$	5.96
Outstanding at June 30, 2022					Outstanding at June 30, 2022	6,679,273	$	7.04

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 June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, we received ~~6,614~~14,013 and ~~11,085~~6,614 options as payment in the exercise of ~~4,886~~19,987 and ~~17,665~~4,886 options. For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, we received ~~22,055~~36,667 and ~~13,009~~22,055 options as payment in the exercise of ~~26,027~~39,000 and ~~22,027~~26,027 options.

Common shares required to be issued upon the exercise of stock options would be issued from authorized and unissued shares. The Company calculated the grant date fair value of options granted in ~~2021 ("2021 Grants"~~2022 (“2022 Grants”) utilizing a ~~Black Scholes model with an expected life calculated via the simplified method.~~Black-Scholes model.

2021 Grants
Strike price $9.29 - $9.55
Risk-free rate 0.6% - 0.8%
Expected dividend yield 0
Expected volatility 70.7% - 70.8%
Expected term (in years) 4.5 - 6


			2022 Grants
Strike price			$10.96
Risk-free rate			1.6%
Expected dividend yield			—
Expected volatility			69.6%
Expected term (in years)			6

NOTE 9.10. INCOME TAXES

~~On March 27, 2020,~~Income tax expense was approximately $96,000 and $107,000 with effective tax rates of (1.8)% and (2.7)% for the ~~U.S. government enacted~~three months ended June 30, 2022 and 2021, respectively. Income tax expense was approximately $166,000 and $173,000 with effective tax rates of (1.5)% and (2.0)% for the CARES Act to provide relief from COVID-19. The CARES Act includes a provision that allows companies to carryback net operating losses (NOL’s) generated in the period 2018 through 2020 to prior years. In conjunction with the disposition of the Core business in 2018, the Company generated a significant amount of taxable income in 2018. Subsequently, the Company generated net losses in 2019six months ended June 30, 2022 and 2020. For the net losses generated in 2019, the Company previously recorded a full valuation allowance on the deferred tax assets associated with its NOL carryforwards due to realization of the NOL not being probable under then existing tax law. The CARES Act makes these assets realizable and, as of the date of the CARES Act, the Company has recognized an income tax benefit of approximately $3.7 million associated with the release of the valuation allowance on its Federal NOL carryforward related to 2019.2021, respectively. For the three and six months ended June 30, ~~2020,~~2022 and 2021, the ~~Company also recognized income~~effective rates differ from the statutory rate primarily due to the full valuation allowance recorded on the net operating loss (“NOL��) generated during the period, combined with interest and penalties on uncertain tax ~~benefits of approximately $1.5 million and $6.4 million, respectively, related to losses before income taxes.~~positions.

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(Unaudited)

Income tax expense (benefit) was approximately $107,000 and $(1,492,000) with effective tax rates of (2.7)% and 24.1% for the three months ended June 30, 2021 and 2020, respectively. Income tax expense (benefit) was approximately $173,000 and $(6,397,000) with effective tax rates of (2.0)% and 49.1% for the six months ended June 30, 2021 and 2020, respectively. For the three and six months ended June 30, 2021, the effective rates differ from the statutory rate primarily due to the full valuation allowance recorded on the NOL generated during the period, combined with interest and penalties on uncertain tax positions. For the six months ended June 30, 2020, the effective rate differs from the statutory rate primarily due to the release of the valuation allowance on the NOL carryforward from 2019.

The Company has gross unrecognized tax benefits of approximately $1,313,000 at June 30, ~~2021.~~2022. It recognized accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the condensed consolidated financial statements. As of June 30, ~~2021,~~2022, the Company had approximately ~~$445,000~~$657,000 in accrued interest and penalties related to unrecognized tax benefits. Included in the income tax expense ~~(benefit)~~ for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, are approximately ~~$51,000~~$53,000 and ~~$43,000~~$51,000 of interest and penalties on the Company's uncertain tax positions. Included in the income tax expense ~~(benefit)~~ for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, are approximately ~~$99,000~~$105,000 and ~~$86,000~~$99,000 of interest and penalties on the Company's uncertain tax ~~positions.If~~positions. If the Company were to prevail on all uncertain tax positions, the resulting impact will be material as the Company will recognize approximately ~~$1,758,000~~$1,970,000 of income tax benefits in the consolidated statement of operations. During June 2022, the Company was notified by the Internal Revenue Service (“IRS”) that it is examining the Company’s 2018, 2019 and 2020 federal income tax returns. The examination is expected to be completed no later than May 2023. It is expected that all of the uncertain tax positions should be resolved ~~by October 2022.~~with the completion of the IRS examination.

NOTE ~~10.~~11. COMMITMENTS AND CONTINGENCIES

Litigation

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

The Company is involved in a number of legal actions relating to the use of our Helium Plasma technology. The outcomes of these legal actions are not within the Company’s ~~complete~~ control and may not be known for prolonged periods of time. It believes that such claims are adequately covered by insurance; however, in the case of one of the Company’s carriers, the Company is in a dispute regarding the total level of coverage available. Notwithstanding the foregoing, in the opinion of management, the Company has meritorious defenses, and such claims are not expected, individually or in the aggregate, to result in a material, adverse effect on its financial condition, results of operations and cash flows. However, in the event that damages exceed the aggregate coverage limits of the Company’s policies or if its insurance carriers disclaim coverage, management believes it is possible that costs associated with these claims could have a material adverse impact on the consolidated financial condition, results of operations and cash flows.

During December 2021, the Company provided notice of contract termination to an international distributor of the Company. In March 2022, the Company received a letter from the former distributor citing improper contract termination and alleging damages. While the matter is still in the early stages, management has determined that a loss is probable and that a range of estimated losses is approximately $250,000 to $1,000,000. The Company has recorded an estimated loss of $250,000 in professional services in the accompanying Condensed Consolidated Statement of Operations for the six months ended June 30, 2022. It is at least possible that a change in the actual amount of loss will occur in the near term, though management expects the actual amount of loss will be within the estimated range of losses.

In addition, as previously disclosed with the U.S. Securities and Exchange Commission on the Company’s Current Report on Form 8-K filed June 7, 2022, on June 6, 2022, a complaint (the “Complaint”) was filed in the United States District Court for the Middle District of Florida by plaintiff William E. Hattaway, individually and on behalf of all others similarly situated against the Company, Charles D. Goodwin (“Goodwin”), the Company’s President and Chief Executive Officer and a member of the Company’s Board of Directors, and Tara Semb (“Semb”), the Company’s Chief Financial Officer, Treasurer and Secretary, alleging violations by the Company, Goodwin and Semb of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, primarily related to certain public statements and disclosures concerning the off-label usage of certain of the Company’s Advanced Energy products and the impact such usage would have on the Company’s business, operations and prospects. The Complaint seeks an unspecified amount of damages.

Although the ultimate outcome of this matter cannot be determined with certainty, the Company believes that the allegations stated in the Complaint are without merit. The Company, Goodwin and Semb intend to defend themselves vigorously in the suit. In the opinion of management, such claims are adequately covered by insurance, however, in the event that damages exceed the aggregate coverage limits of our policy or if our insurance carriers disclaim coverage, we believe it is possible that costs associated with this claim could have a material adverse impact on our consolidated results of operations, financial

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(Unaudited)

position or cash flows. While the matter is still in the early stages, management has determined that a loss is probable and that a range of estimated losses is approximately $475,000 to $2,500,000. The Company has recorded an estimated loss of $475,000 in professional services in the accompanying Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022. It is at least possible that a change in the actual amount of loss will occur in the near term, though management expects the actual amount of loss will be within the estimated range of losses.

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

Purchase Commitments

At June 30, ~~2021,~~2022, the Company had purchase commitments totaling approximately ~~$2.3~~$5.6 million, substantially all of which is expected to be purchased within the next ~~six~~eighteen months.

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(Unaudited)

NOTE ~~11.~~12. RELATED PARTY TRANSACTIONS

Several relatives of Nikolay Shilev, Apyx Bulgaria’s Managing Director, are considered related parties. Teodora Shileva, Mr. Shilev’s spouse, is an employee of the Company working in the accounting department. Antoaneta Dimitrova Shileva-Toromanova, Mr. Shilev’s sister, is the manager of human resources. Svetoslav Shilev, Mr. Shilev’s son, is a quality manager in the quality assurance department.

The partner in the Company's China joint venture is also a supplier to the Company. For the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company made purchases from this supplier of approximately ~~$529,000~~$143,000 and ~~$264,000,~~$529,000, respectively. For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company made purchases from this supplier of approximately ~~$646,000~~$370,000 and ~~$850,000,~~$646,000, respectively. At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, the Company owed this supplier approximately ~~$75,000~~$99,000 and ~~$38,000.~~$1,000.

NOTE ~~12.~~13. GEOGRAPHIC AND SEGMENT INFORMATION

Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, the Company also considers the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to its chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors. Asset information is not reviewed by the chief operating decision maker by segment and is not available by segment, accordingly, the Company has not presented a measure of assets by segment.

The ~~Company's~~Company’s reportable segments are disclosed as principally organized and managed as 2 operating segments: Advanced Energy and OEM. ~~"Corporate~~“Corporate & ~~Other"~~Other” includes certain unallocated corporate and administrative costs which were not specifically attributed to any reportable segment. The OEM segment is primarily development and manufacturing contract and product driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.

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

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(Unaudited)


		Three Months Ended June 30, 2021									Three Months Ended June 30, 2022
(In thousands)	(In thousands)	Advanced Energy		OEM		Corporate & Other		Total		(In thousands)	Advanced Energy		OEM		Corporate & Other		Total
Sales	Sales	$	9,978	$	1,246	$	0	$	11,224	Sales	$	8,364	$	1,928	$	—	$	10,292

Income (loss) from operations	Income (loss) from operations	326		263		(4,632)		(4,043)		Income (loss) from operations	(1,252)		469		(5,193)		(5,976)

Interest income	Interest income	0		0		4		4		Interest income	—		—		18		18
Interest expense	Interest expense	0		0		(2)		(2)		Interest expense	—		—		(3)		(3)
Other income, net	Other income, net	0		0		97		97		Other income, net	—		—		607		607

Income tax expense	Income tax expense	0		0		107		107		Income tax expense	—		—		96		96


		Three Months Ended June 30, 2020									Three Months Ended June 30, 2021
(In thousands)	(In thousands)	Advanced Energy		OEM		Corporate & Other		Total		(In thousands)	Advanced Energy		OEM		Corporate & Other		Total
Sales	Sales	$	2,867	$	1,429	$	0	$	4,296	Sales	$	9,978	$	1,246	$	—	$	11,224

Income (loss) from operations	Income (loss) from operations	(3,292)		584		(3,459)		(6,167)		Income (loss) from operations	326		263		(4,632)		(4,043)

Interest income	Interest income	0		0		7		7		Interest income	—		—		4		4

Interest expense	Interest expense	0		0		(8)		(8)		Interest expense	—		—		(2)		(2)
Other loss, net		0		0		(14)		(14)
Other income, net										Other income, net	—		—		97		97

Income tax benefit		0		0		(1,492)		(1,492)
Income tax expense										Income tax expense	—		—		107		107


		Six Months Ended June 30, 2021									Six Months Ended June 30, 2022
(In thousands)	(In thousands)	Advanced Energy		OEM		Corporate & Other		Total		(In thousands)	Advanced Energy		OEM		Corporate & Other		Total
Sales	Sales	$	17,638	$	2,224	$	0	$	19,862	Sales	$	19,178	$	3,607	$	—	$	22,785

Income (loss) from operations	Income (loss) from operations	(276)		260		(8,772)		(8,788)		Income (loss) from operations	(2,591)		786		(10,042)		(11,847)

Interest income	Interest income	0		0		7		7		Interest income	—		—		20		20
Interest expense	Interest expense	0		0		(6)		(6)		Interest expense	—		—		(11)		(11)
Other income, net	Other income, net	0		0		4		4		Other income, net	—		—		586		586

Income tax expense	Income tax expense	0		0		173		173		Income tax expense	—		—		166		166

1317

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APYX MEDICAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)


		Six Months Ended June 30, 2020									Six Months Ended June 30, 2021
(In thousands)	(In thousands)	Advanced Energy		OEM		Corporate & Other		Total		(In thousands)	Advanced Energy		OEM		Corporate & Other		Total
Sales	Sales	$	6,853	$	2,440	$	0	$	9,293	Sales	$	17,638	$	2,224	$	—	$	19,862

Income (loss) from operations	Income (loss) from operations	(7,276)		831		(7,214)		(13,659)		Income (loss) from operations	(276)		260		(8,772)		(8,788)

Interest income	Interest income	0		0		223		223		Interest income	—		—		7		7
Interest expense	Interest expense	0		0		(14)		(14)		Interest expense	—		—		(6)		(6)
Other income, net	Other income, net	0		0		412		412		Other income, net	—		—		4		4

Income tax benefit		0		0		(6,397)		(6,397)
Income tax expense										Income tax expense	—		—		173		173

International sales represented approximately 22.8% and 32.0% of total revenues for the three and six months ended June 30, 2022, respectively, as compared with approximately 34.2% and 34.8% of total revenues for the three and six months ended June 30, 2021, ~~respectively, as compared with approximately 21.0% and 24.6% of total revenues for the three and six months ended June 30, 2020,~~ respectively.

Revenue by geographic region, based on the customer's “ship to” location on the invoice, are as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021
Sales by Domestic and International	Sales by Domestic and International									Sales by Domestic and International
Domestic	Domestic	$	7,383	$	3,393	$	12,949	$	7,011	Domestic	$	7,947	$	7,383	$	15,495	$	12,949
International	International	3,841		903		6,913		2,282		International	2,345		3,841		7,290		6,913
Total	Total	$	11,224	$	4,296	$	19,862	$	9,293	Total	$	10,292	$	11,224	$	22,785	$	19,862

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS 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

We are an advanced energy technology company with a passion for elevating people’s lives through innovative products, ~~in the cosmetic and surgical markets. Known for~~including our ~~innovative~~ Helium Plasma Technology ~~Apyx is solely focused on bringing transformative solutions to the physicians and patients it serves. Our Helium Plasma Technology is~~products marketed and sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market. Renuvion® ~~offers plastic~~and J-Plasma® offer surgeons ~~fascial plastic surgeons and cosmetic physicians~~ a unique ability to provide controlled heat to tissue to achieve their desired ~~results. The J-Plasma® system allows surgeons to operate with a high level of precision, virtually eliminating unintended tissue trauma.~~results. We also leverage our deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device manufacturers.

On March 14, 2022, the U.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 general use in cutting, coagulation, and ablation of soft tissue during open and laparoscopic surgical procedures. Following the Safety Communication, we experienced slowed demand for the adoption of our Helium Plasma Technology.

On May 26, 2022, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion Dermal Handpiece for specific dermal resurfacing procedures. On July 18, 2022, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion® APR Handpiece for certain skin contraction procedures. We believe that receiving these clearances should materially mitigate the financial effects of the Safety Communication in future periods.

On June 2, 2022, and July 21, 2022, FDA updated the Medical Device Safety Communication to recognize the new 510(k) clearances for the Renuvion® Dermal handpiece, and the expanded indications for the Renuvion® APR handpieces. The 510(k) clearance for the Renuvion® Dermal handpiece allows surgeons to perform dermal resurfacing procedures for the treatment of moderate to severe wrinkles and rhytides, limited to patients with Fitzpatrick Skin Types I, II or III. The 510(k) clearance for the Renuvion® APR handpieces now addresses improving the appearance of lax (loose) skin in the neck and submental region.

We continue to drive sales in our Advanced Energy business by increasing the adoption and utilization of our handpieces by surgeons in the U.S. ~~cosmetic surgery market~~ and fulfilling demand from distributors in our international markets. Management estimates that our products have been sold in more than 60 countries. As of June 30, ~~2021,~~ 2022, we had a direct sales force of 3135 field-based selling professionals and utilized 2 independent sales agencies. We also had 5 sales managers. This selling organization is focused on the use of Renuvion® and J-Plasma® in the cosmetic ~~surgery market.~~and hospital 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 their patients. In addition, we have invested in ~~both in-person and virtual~~ training programs and marketing-related activities to support accelerated adoption of Renuvion® into ~~physicians'~~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 and OEM. ~~"Corporate~~“Corporate & ~~Other"~~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.

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

In response to the global supply chain instability and inflationary cost increases, we continue to take action to minimize, as much as possible, any potential adverse impacts by working closely with our suppliers to closely monitor the availability of raw material components (i.e. semiconductors and plastics), lead times, and freight carrier availability.We expect global supply chain instability will continue to have an impact on our business, but to date that has not been material to our financial performance. The consequences of the pandemic, global supply chain instability and inflationary cost increases and their adverse impact to the global economy, continue to evolve. Accordingly, the significance of the future impact to our business and financial statements remains subject to significant uncertainty.

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

~~Impact of COVID-19~~

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Form 10-K"), an outbreak of a novel strain of the coronavirus, COVID-19, was identified in China and subsequently recognized as a pandemic by the World Health Organization. While the situation shows signs of improvement in certain countries, the COVID-19 outbreak generally continues to severely restrict the level of economic activity around the world. In response to the COVID-19 outbreak the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. Temporary closures of businesses in some jurisdictions were ordered, and numerous other businesses closed permanently. Many other businesses continue to be operated at reduced capacity.

~~Table of Contents~~

~~APYX MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued~~

As vaccines have become more available, the number of COVID-19 cases has declined in the United States and various other countries, and economic conditions have improved. However, uncertainty remains regarding the extent, timing, and duration of the pandemic, including the extent to which the availability of these vaccines will positively impact public health conditions and whether new, potentially more contagious variants may pose additional public health risks. The pandemic continues to cause uncertainty and potential economic volatility, including with regard to the pandemic’s various and unpredictable impacts on our customers and our business.

Any future significant reductions in business-related activities could result in further loss of sales and profits and other material adverse effects. The extent of the impact of COVID-19 on our business, financial results, liquidity and cash flows will depend largely on future developments, including new information that may emerge concerning actions taken to contain or prevent further spread of the virus, or its newly forming variants, within the U.S. and the related impact on consumer confidence and ~~spending, all of which are highly uncertain and cannot be predicted.~~

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

We were pleased to see overall improvements in our Advanced Energy business trends starting in the latter half of 2020, and continued to see improvements in the first half of 2021 in utilization based global demand for our handpieces and adoption of our generator technology. Demand trends, however, for generator adoption continue to remain in varying stages of recovery in the markets we serve. Although the timing of a return to a more normalized economic environment remains uncertain, we remain optimistic with respect to the continued recovery of the cosmetic and plastic surgery market, and the utilization and adoption of our products globally.

We source the components used in our products from a variety of suppliers and we have collaborative arrangements with three key foreign suppliers. At this time our suppliers have experienced no significant production disruptions as a result of COVID-19. However, we have started to experience longer lead times and increased delays in our deliveries from these suppliers as a result of the availability of shipping from third party freight carriers. While we continue to monitor these delays, they have not, to date, had a significant impact on our manufacturing operations, but have resulted in increased inbound shipping costs and the necessity to increase levels of our key raw material component inventories..

We continue to closely monitor developments related to COVID-19 that may impact our operations and financial performance, and continue our efforts to support our employees and customers in the following areas:

•~~Protecting the Health and Safety of our Employees:~~ To reduce the risk to our employees and their families to potential exposure to COVID-19, we have required that all non-essential employees work remotely until further notice. We also split the shifts of our manufacturing personnel to allow for adequate social distancing, and require all personnel to utilize personal protective equipment while on site at our facilities. We also significantly reduced business travel and outside access to our facilities.

•~~Maintaining Engagement of or Sales Team and Our Customers:~~ In addition to the initiatives we put in place to protect health and safety for all employees, we focused our direct sales team on remaining in close contact with their existing surgeon customers to do everything they can to provide them with support during this difficult time. With this goal in mind, we implemented additional training for our sales reps in order to sharpen their ability to engage with our customers virtually. In addition to engaging with existing customers via virtual methods, our sales representatives also continued to target and reach out to prospective customers, and outside the U.S., we continued to monitor the activities of our distributor partners and helped them navigate the challenges they faced as a result of the slower demand they have seen in their respective countries.

•~~Operating Expenses:~~ Given the uncertainty surrounding the impacts that COVID-19 could have on our business, we took preemptive steps to curtail spending, including implementing hiring restrictions,reducing discretionary spending, reducing capital expenditures, and delaying certain R&D projects and clinical research studies. Taking into account the early signs of improving economic environment and conditions related to COVID-19, we have started to ease these measures in certain areas. However, we will continue to monitor any future developments related to the pandemic and may reinstate them if necessary.

•~~Governmental Policy:~~ ~~On March 27, 2020, the U.S. government enacted the CARES Act to provide relief from COVID-19. We have taken advantage of certain provisions of the CARES Act which are applicable to us, including~~

~~Table of Contents~~

~~APYX MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued~~

~~utilizing net operating loss (NOL) carryback provisions. Utilizing these provisions significantly mitigated the working capital impact COVID-19 has had on our sales and operations.~~

Results of Operations

Sales


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	(In thousands)	2021		2020		Change		2021		2020		Change		(In thousands)	2022		2021		Change		2022		2021		Change
Sales by Reportable Segment	Sales by Reportable Segment													Sales by Reportable Segment
Advanced Energy	Advanced Energy	$	9,978	$	2,867	248.0	%	$	17,638	$	6,853	157.4	%	Advanced Energy	$	8,364	$	9,978	(16.2)	%	$	19,178	$	17,638	8.7	%
OEM	OEM	1,246		1,429		(12.8)	%	2,224		2,440		(8.8)	%	OEM	1,928		1,246		54.7	%	3,607		2,224		62.2	%
Total	Total	$	11,224	$	4,296	161.3	%	$	19,862	$	9,293	113.7	%	Total	$	10,292	$	11,224	(8.3)	%	$	22,785	$	19,862	14.7	%
										(632,000)													(632,000)
Sales by Domestic and International	Sales by Domestic and International													Sales by Domestic and International
Domestic	Domestic	$	7,383	$	3,393	117.6	%	$	12,949	$	7,011	84.7	%	Domestic	$	7,947	$	7,383	7.6	%	$	15,495	$	12,949	19.7	%
International	International	3,841		903		325.4	%	6,913		2,282		202.9	%	International	2,345		3,841		(38.9)	%	7,290		6,913		5.5	%
Total	Total	$	11,224	$	4,296	161.3	%	$	19,862	$	9,293	113.7	%	Total	$	10,292	$	11,224	(8.3)	%	$	22,785	$	19,862	14.7	%

Total revenue decreased by 8.3%, or approximately $(0.9) million, for the three months ended June 30, 2022 when compared with the three months ended June 30, 2021. Advanced Energy segment sales decreased 16.2%, or approximately $(1.6) million, for the three months ended June 30, 2022 when compared with the three months ended June 30, 2021. The Advanced Energy sales decrease is due to global decreases in utilization based demand for our handpieces and the adoption of our generator technology following the FDA Safety Communication on March 14, 2022. OEM segment sales increased 54.7%, or approximately $0.7 million, for the three months ended June 30, 2022 when compared with the three months ended June 30, 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, as well as incremental new sales upon the commencement of the supply arrangement related to the completion of the development portion of some of our OEM development agreements.

Total revenue increased by ~~161.3% and 113.7%~~14.7%, or approximately ~~$6.9 million and $10.6~~$2.9 million, for the ~~three and~~ six months ended June 30, ~~2021~~2022 when compared with the ~~three and~~ six months ended June 30, ~~2020.~~2021. Advanced Energy segment sales increased ~~248.0% and 157.4%~~8.7%, or approximately ~~$7.1~~$1.5 million ~~and $10.8 million,~~, for the ~~three and~~ six months ended June 30, 2022 when compared with the six months ended June 30, 2021 ~~when compared with the three and six months ended June 30, 2020. In the first half of 2021, we saw increased~~. The Advanced Energy sales increase was driven by an increase in global utilization based demand for our handpieces and adoption of our generator technology ~~despite the continued headwinds~~in international markets for most of the ~~COVID-19 pandemic, while~~first quarter. This increase was partially offset by global decreases in utilization based demand for our handpieces and the ~~same period in 2020 was severely impacted.~~adoption of our generator technology following the FDA Safety Communication on March 14, 2022. OEM segmen

~~International~~t sales ~~represented~~increased 62.2%, or approximately ~~34.2% and 34.8% of total revenues~~$1.4 million, for the ~~three and~~ six months ended June 30, 2022 when compared with the six months ended June 30, 2021 respectively, as compared with 21.0% and 24.6% 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.

~~Gross Profit~~

Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2021 2020 Change 2021 2020 Change
Cost of sales $ 3,690 $ 2,202 67.6 % $ 6,468 $ 4,215 53.5 %
Percentage of sales 32.9 % 51.3 % 32.6 % 45.4 %

Gross profit $ 7,534 $ 2,094 259.8 % $ 13,394 $ 5,078 163.8 %
Percentage of sales 67.1 % 48.7 % 67.4 % 54.6 %

Gross profit for the three months ended June 30, 2021, increased 259.8% to $7.5 million, compared to $2.1 million for the same period in the prior year. Gross margin for the three months ended June 30, 2021, was 67.1%, compared to 48.7% for the same period in 2020.

Gross profit for the six months ended June 30, 2021, increased 163.8% to $13.4 million, compared to $5.1 million for the same period in the prior year. Gross margin for the six months ended June 30, 2021, was 67.4%, compared to 54.6% for the same period in 2020.

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~~APYX MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued~~

. The increase in ~~gross profit margins for the three~~OEM sales was due to increases in sales volume to existing customers, including Symmetry Surgical, under our 10-year generator manufacturing and six months ended June 30, 2021 from the prior year periods is primarily attributable to sales mix between our two segments, with our Advanced Energy segment comprising a higher percentage of total sales,supply agreement, as well as ~~product mix within our Advanced Energy segment. Our continued manufacturing efficiency initiatives and~~incremental new sales upon the ~~introduction~~commencement of ~~newer product models have continued~~the supply arrangement related to ~~result in improved margins as we obtain registration, allowing these products to be introduced into~~ the ~~markets we serve. Additionally,~~completion of the strong sales during the three and six months ended June 30, 2021, resulted in reduced product costs as our fixed costs were spread across higher production volumes. This manufacturing efficiency was partially offset by higher inbound shipping costs, as we expedited the sourcingdevelopment portion of ~~key component raw material inventories.~~

~~During the second quarter of 2020, we reassessed our forecasted product mix due to COVID-19, increased availability~~some of our newer handpiece designs, and earlier than expected completion of product registrations in certain international markets. As a result, certain products were reduced to a lower carrying value, and some components were also written off as it was determined to cease further production on these models. This resulted in a decrease in gross profit of approximately $0.4 million during the three and six months ended June 30, 2020.

~~Other Costs and Expenses~~

~~Research and development~~

Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2021 2020 Change 2021 2020 Change
Research and development expense $ 1,084 $ 975 11.2 % $ 2,199 $ 1,955 12.5 %
Percentage of sales 9.7 % 22.7 % 11.1 % 21.0 %

~~Research and~~OEM development ~~expenses increased 11.2% and 12.5% for the~~agreements. ~~three and six months ended June 30, 2021, primarily due to continued spending on our two investigational device exemption (IDE) clinical studies and product development initiatives.~~

~~Professional services~~

Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2021 2020 Change 2021 2020 Change
Professional services expense $ 1,889 $ 1,658 13.9 % $ 3,410 $ 4,047 (15.7) %
Percentage of sales 16.8 % 38.6 % 17.2 % 43.5 %

~~Professional ser~~vices expense increased 13.9% for the three months ended June 30, 2021, primarily attributable to increases in legal fees ($0.1 million) and professional services for continued consulting expense associated with our implementation of SAP ($0.1 million).

~~Professional ser~~vices expense decreased 15.7% for the six months ended June 30, 2021, primarily attributable to decreases in physician consulting fees ($0.2 million), accounting and auditing fee overages ($0.3 million) related to 2019 financial statement restatements and remediation activities that occurred in the three months ended March 31, 2020, and legal fees ($0.1 million). These decreases were partially offset by an increase in professional services for continued consulting expense associated with our implementation of SAP ($0.1 million).

~~Salaries and related costs~~

Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2021 2020 Change 2021 2020 Change
Salaries and related expenses $ 4,343 $ 3,439 26.3 % $ 8,588 $ 6,750 27.2 %
Percentage of sales 38.7 % 80.1 % 43.2 % 72.6 %

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~~APYX MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued~~

During the three months ended June 30, 2021, salaries and related expenses increased 26.3%, primarily driven by increases in bonus expense in 2021 ($0.5 million), stock option expense ($0.1 million), and higher headcount ($0.2 million) as compared to the same period in the prior year.

During the six months ended June 30, 2021, salaries and related expenses increased 27.2%, primarily driven by increases in bonus expense in 2021 ($1.0 million), stock option expense ($0.3 million) and higher headcount ($0.3 million) as compared to the same period in the prior year.

~~Table of Contents~~

~~APYX MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued~~

~~Selling, general and administrative expenses~~

Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2021 2020 Change 2021 2020 Change
SG&A expense $ 4,261 $ 2,189 94.7 % $ 7,985 $ 5,985 33.4 %
Percentage of sales 38.0 % 51.0 % 40.2 % 64.4 %

During the three months ended June 30, 2021, selling, general and administrative expense increased 94.7%, primarily driven by higher commissions on Advanced Energy sales ($1.0 million), travel and entertainment expense ($0.4 million), advertising expense, including trade show fees and related costs ($0.2 million), insurance expense ($0.2 million) and higher credit card processing fees ($0.1 million). These increases were partially offset by lower bad debt expenses ($0.1 million).

During the six months ended June 30, 2021, selling, general and administrative expense increased 33.4%, primarily driven by higher commissions on Advanced Energy sales ($1.6 million), insurance expense ($0.3 million), higher credit card processing fees ($0.2 million) and accrued OEM product recall costs ($0.2 million). These increases were partially offset by lower bad debt expenses ($0.4 million).

~~Other Income (Expense)~~

Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2021 2020 Change 2021 2020 Change
Interest income $ 4 $ 7 (42.9) % $ 7 $ 223 (96.9) %
Percentage of sales — % 0.2 % — % 2.4 %
Other income (loss), net 97 $ (14) 792.9 % 4 $ 412 (99.0) %
Percentage of sales 0.9 % (0.3) % — % 4.4 %

~~Interest income decreased~~ ~~96.9%~~ for the six months ended June 30, 2021 compared with the same period in the prior year. This decrease is due to a lower yield, as well as a lower average balance, on our investments in U.S. Treasury securities included in cash and cash equivalents.

~~Other income (loss), net increased 792.9% for the three months ended June 30, 2021, as compared with the same period in the prior year. This increase is primarily due to increased manufacturing volumes which resulted in reduced overhead costs being allocated to the Core business segment.~~

~~Other income, net decreased~~ ~~99.0%~~ ~~for the six months ended June 30, 2021, as compared with the same period in the prior year. This decrease is primarily due to the receipt of refunds in the first quarter 2020 on tariffs paid in 2019.~~

~~Income Taxes~~

Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2021 2020 Change 2021 2020 Change
Income tax expense (benefit) $ 107 $ (1,492) 107.2 % $ 173 $ (6,397) 102.7 %
Effective tax rate (2.7) % 24.1 % (2.0) % 49.1 %

Table of Contents

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

~~Our income tax expense (benefit) was~~International sales represented approximately ~~$107,000~~22.8% and ~~$(1,492,000)~~32.0% of total revenues for the three and six months ended June 30, 2022, respectively, as compared with ~~effective tax rates~~34.2% and 34.8% of ~~(2.7)%~~total revenues for the same period in the prior year. Management estimates our products have been sold in more than 60 countries through local dealers coordinated by sales and ~~24.1%~~marketing personnel through our facilities in Clearwater, Florida and Sofia, Bulgaria.

Gross Profit


	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2022			2021			Change		2022			2021			Change
Cost of sales	$	3,378		$	3,690		(8.5)	%	$	7,652		$	6,468		18.3	%
Percentage of sales	32.8		%	32.9		%			33.6		%	32.6		%




Gross profit	$	6,914		$	7,534		(8.2)	%	$	15,133		$	13,394		13.0	%
Percentage of sales	67.2		%	67.1		%			66.4		%	67.4		%

Gross profit for the three months ended June 30, ~~2021~~2022, decreased 8.2% to $6.9 million, compared to $7.5 million for the same period in the prior year. Gross margin for the three months ended June 30, 2022, was 67.2%, compared to 67.1% for the same period in 2021. The increase in gross profit margins for the three months ended June 30, 2022 from the prior year period is primarily attributable to geographic mix within our Advanced Energy segment, with domestic sales comprising a higher percentage of total sales and ~~2020,~~the mix of newer product models as we obtain registrations, allowing these products to be introduced into the markets we serve. These margin improvements were partially offset by decreases resulting from changes in the sales mix between our two segments, with our OEM segment comprising a higher percentage of total sales, and higher costs to manufacture our inventory as we continue to experience higher shipping costs.

Gross profit for the six months ended June 30, 2022, increased 13.0% to $15.1 million, compared to $13.4 million for the same period in the prior year. Gross margin for the six months ended June 30, 2022, was 66.4%, compared to 67.4% for the same period in 2021. The decrease in gross profit margins for the six months ended June 30, 2022 from the prior year period is primarily attributable to product mix within our Advanced Energy segment, changes in the sales mix between our two segments, with our OEM segment comprising a higher percentage of total sales, as well as 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 to be introduced into the markets we serve.

Other Costs and Expenses

Research and development


	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2022			2021			Change		2022			2021			Change
Research and development expense	$	1,070		$	1,084		(1.3)	%	$	2,228		$	2,199		1.3	%
Percentage of sales	10.4		%	9.7		%			9.8		%	11.1		%

Research and development expenses decreased 1.3% for the three months ended June 30, 2022, primarily due to lower spending on our two investigational device exemption (IDE) clinical studies and other product development initiatives ($0.1 million). These decreased costs were partially offset by increased labor and benefit costs from the same period in the prior year ($0.1 million).

Research and development expenses increased 1.3% for thesix months ended June 30, 2022, primarily due to increased labor and benefit costs from the same period in the prior year ($0.2 million). These increased costs were partially offset by lower spending on our two investigational device exemption (IDE) clinical studies and other product development initiatives ($0.2 million).

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Professional services


	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2022			2021			Change		2021			2021			Change
Professional services expense	$	2,389		$	1,889		26.5	%	$	4,675		$	3,410		37.1	%
Percentage of sales	23.2		%	16.8		%			20.5		%	17.2		%

Professional services expense increased 26.5% for the three months ended June 30, 2022, primarily attributable to increases in legal expenses ($0.5 million), primarily associated with the estimated loss recorded for the class action lawsuit, Board of Directors option expense ($0.1 million) and accounting and auditing fees ($0.1 million). These increases were partially offset by decreases in physician consulting fees ($0.1 million), option expense for our partner physicians ($0.1 million) as we added a new member to our Medical Advisory Board in the second quarter of 2021.

Professional services expense increased 37.1% for the six months ended June 30, 2022, primarily attributable to increases in legal expenses ($0.7 million), primarily associated with the estimated loss recorded for the class action lawsuit, physician consulting fees ($0.3 million), Board of Directors option expense ($0.2 million), employee recruitment expense ($0.1 million) and accounting and auditing fees ($0.1 million). These increases were partially offset by a decrease in option expense for our partner physicians ($0.1 million) as we added a new member to our Medical Advisory Board in the second quarter of 2021.

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Salaries and related costs


	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2022			2021			Change		2022			2021			Change
Salaries and related expenses	$	4,892		$	4,343		12.6	%	$	10,073		$	8,588		17.3	%
Percentage of sales	47.5		%	38.7		%			44.2		%	43.2		%

During the three months ended June 30, 2022, salaries and related expenses increased 12.6%, primarily driven by higher compensation and benefits ($0.5 million) and stock compensation expense ($0.3 million) as compared to the same period in the prior year. These increases are partially offset by a decrease in bonus expense ($0.3 million) as we reduced our expected 2022 bonus achievement during the second quarter.

During the six months ended June 30, 2022, salaries and related expenses increased 17.3%, primarily driven by higher compensation and benefits ($1.1 million) and stock compensation expense ($0.6 million) as compared to the same period in the prior year. These increases are partially offset by a decrease in bonus expense ($0.2 million) as we reduced our expected 2022 bonus achievement.

Selling, general and administrative expenses


	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2022			2021			Change		2022			2021			Change
SG&A expense	$	4,539		$	4,261		6.5	%	$	10,004		$	7,985		25.3	%
Percentage of sales	44.1		%	38.0		%			43.9		%	40.2		%

During the three months ended June 30, 2022, selling, general and administrative expense increased 6.5%, primarily driven by higher travel and entertainment expense ($0.3 million), employee training and other meeting expenses ($0.2 million), advertising expense, including trade show fees and related costs ($0.1 million) and bad debt expense ($0.1 million). These increases were partially offset by lower commissions on Advanced Energy sales ($0.4 million).

During the six months ended June 30, 2022, selling, general and administrative expense increased 25.3%, primarily driven by increased advertising expense, including trade show fees and related costs ($0.8 million), higher employee training and other meeting expenses ($0.8 million), travel and entertainment expense ($0.7 million) and higher bad debt expense ($0.2 million). These increases were partially offset by decreases in commissions on Advanced Energy sales ($0.2 million), OEM product recall costs ($0.2 million) as we experienced no product recalls in 2022, and lower regulatory registration expenses ($0.1 million).

Other income (loss)


	Three Months Ended June 30,							Six Months Ended June 30,
(In thousands)	2022		2021			Change		2022		2021			Change




Other income, net	607		$	97		525.8	%	586		$	4		14,550.0	%
Percentage of sales	5.9	%	0.9		%			2.6	%	—		%

Other income, net increased 525.8% and 14,550.0% for the three and six months ended June 30, 2022, as compared with the same periods in the prior year. This increase was primarily attributable to the release of a portion of our joint and several payroll liability due to the lapse of the statute of limitations on a portion of the liability ($0.6 million).

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Income Taxes


	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2022			2021			Change		2022			2021			Change
Income tax expense (benefit)	$	96		$	107		10.3	%	$	166		$	173		4.0	%
Effective tax rate	(1.8)		%	(2.7)		%			(1.5)		%	(2.0)		%

Our income tax expense was approximately $96,000 and $107,000 with effective tax rates of (1.8)% and (2.7)% for the three months ended June 30, 2022 and 2021, respectively. Our income tax expense ~~(benefit)~~ was approximately ~~$173,000~~$166,000 and ~~$(6,397,000)~~$173,000 with effective tax rates of ~~(2.0)~~(1.5)% and ~~49.1%~~(2.0)% for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. For the three and six months ended June 30, 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. ~~For the six months ended June 30, 2020, the effective rate differs from the statutory rate primarily due to the release of the valuation allowance on our NOL carryforward from 2019.~~

Liquidity and Capital Resources

Our working capital at June 30, ~~2021~~2022 was approximately ~~$50.8~~$39.2 million compared with ~~$56.9~~$47.5 million at December 31, ~~2020.~~2021. The decrease in working capital from December 31, ~~2020~~2021 was primarily due to the net loss incurred by the Company during the first half of ~~2021,~~2022, excluding non-cash activity, comprised primarily of stock-based compensation expense.

For the six months ended June 30, ~~2021,~~2022, net cash used in operating activities was approximately ~~$7.1~~$10.4 million, which principally funded our loss from operations of ~~$8.8~~$11.8 million, compared with net cash used in operating activities of approximately ~~$12.4~~$7.1 million in the same period for ~~2020.~~2021.

Net cash used in investing activities for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, was $~~0.2~~0.7 million and $0.2 million, respectively, related to investments in property and equipment.

At June 30, ~~2021,~~2022, we had purchase commitments totaling approximately ~~$2.3~~$5.6 million, substantially all of which is expected to be purchased within the next ~~six~~eighteen months.

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MANAGEMENT'S DISCUSSION AND ANALYSIS 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 2021~~2020~~ Form 10-K, filed with the SEC on March ~~31, 2021.~~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, sales returns and discounts, stock-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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Inventory Obsolescence 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.

Litigation Contingencies

In 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 the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded; actual results may differ from these 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 will reassess the realization of deferred tax assets each reporting period and will be able to reduce the valuation allowance to the extent ~~the financial~~our results of ~~continuing~~ operations improve, and it becomes more likely than not that the deferred tax assets will be ~~realizable.~~realized. As ~~management expects~~Management has not fully determined the ~~Company to continue to~~timing of when it will generate ~~losses~~taxable income in the ~~foreseeable future after 2020,~~U.S., we ~~will continue~~continued to record a valuation allowance on the net deferred tax assets balance as of June 30, ~~2021.~~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 is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained.

Inflation

The consequences of the pandemic, global supply chain instability and inflationary cost increases and their adverse impact to the global economy, continue to evolve. Accordingly, the significance of the future impact to our business and financial statements remains subject to significant uncertainty. Inflation has not, to date, materially impacted ~~the~~our 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.

Recent Accounting Pronouncements

See Note 2 of the Notes to Condensed Consolidated Financial Statements in Part I , Item 1 of th is Form 10-Q.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

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ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

Our management has established and maintains disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the ~~"Exchange Act"~~“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management carried out an evaluation, under the supervision and with 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 Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, ~~2021,~~2022, the ~~Company's~~Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

~~We rely extensively on information systems to manage~~There were no changes in our business and summarize and report our financial condition, results of operations and cash flows. In 2020, we began the implementation of a new global enterprise resource planning (“ERP”) system, which replaced much of our existing core financial systems in the first quarter of 2021. The ERP system is designed to accurately maintain our financial records, enhance the flow of financial information, improve data management and provide timely information to our management team.

As a result of this implementation, certain internal controls over financial reporting have been automated, modified or implemented to address the new environment associated with this type of system. While we believe that this new system will strengthen our internal controls, there are inherent risks in implementing any new system, and we will continue to evaluate these control changes as part of our assessment of internal control over financial reporting ~~throughout 2021.~~during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. Other Information

ITEM 1. Legal Proceedings

See Note 101 1 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

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ITEM 1A. Risk factors

There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020, except for the following:~~2021.

Any disruption in our suppliers’ operations, or timely availability of shipments from our third party freight carriers, could disrupt our production schedule and our ability to provide product to our customers in a timely manner

Our operations and ability to maintain production is dependent upon our suppliers delivering sufficient quantities of components and raw materials on time to manufacture our products and meet our production schedules. The COVID-19 pandemic has adversely impacted worldwide supply chains and the ability to obtain sufficient amounts of component parts, while disruptions and delays in the ability of our third party freight carriers to transport these items to our manufacturing facilities also continues to be a challenge. If the situation worsens, these negative impacts on our supply chain could have a material adverse effect on our business.

Any shortage of components or raw materials could cause us to not be able to meet customer demand, to alter production schedules, to delay product launch schedules, or to suspend production entirely, which could cause a loss of revenues, which could materially and adversely affect our results of operations.

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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.

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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 Annual Report on Form 10-K/A filed on March 31, 2011)


3.3						Certificate of Amendment of the Certificate of Incorporation of the Registrant (Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on November 3, 2017).
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*						Certification pursuant to Section 302 of Sarbanes-Oxley Act of ~~202~~2 0 02
31.2*						Certification pursuant to Section 302 of Sarbanes-Oxley Act of ~~202~~2 0 02
32.1*						Certification pursuant to Section 906 of Sarbanes-Oxley Act of ~~202~~2 0 02
32.2*						Certification pursuant to Section 906 of Sarbanes-Oxley Act of ~~202~~2 0 02




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.

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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: August ~~12, 2021~~11, 2022	By:	/s/ Charles D. Goodwin II
		Charles D. Goodwin II
		President, Chief Executive Officer and Director
		(Principal Executive Officer)

Date: August ~~12, 2021~~11, 2022	By:	/s/ Tara Semb
		Tara Semb
		Chief Financial Officer,
		Treasurer and Secretary
		(Principal Financial Officer)

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(In thousands)	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021

Beginning interest in China JV	$	140		$	144
Contributions	203			203
Net loss attributable to Apyx	(5)			(9)
Ending interest in China JV	$	338		$	338


	2021 Grants
Strike price	$9.29	-	$9.55
Risk-free rate	0.6%	-	0.8%
Expected dividend yield	0
Expected volatility	70.7%	-	70.8%
Expected term (in years)	4.5	-	6