Apyx Medical (APYX) 10-Q 27 Oct 16 2016 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 24, 2016
Document And Entity Information
Entity Registrant Name	BOVIE MEDICAL CORP
Entity Central Index Key	719,135
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		27,373,668
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2,016

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 9,329	$ 11,805
Restricted cash	779	839
Trade accounts receivable, net	3,869	2,925
Inventories, net	5,930	5,957
Prepaid expenses and other current assets	564	516
Total current assets	20,471	22,042
Property and equipment, net	6,498	6,810
Brand name and trademark	1,510	1,510
Purchased technology and license rights, net	242	323
Goodwill	185	185
Deposits	123	123
Deferred tax asset		25
Other assets	119	430
Total assets	29,148	31,448
Current liabilities:
Accounts payable	1,650	1,214
Accrued payroll	216	321
Accrued vacation	454	228
Current portion of mortgage note payable	239	239
Accrued and other liabilities	1,666	2,119
Total current liabilities	4,225	4,121
Mortgage note payable, net of current portion	2,754	2,934
Notes payable	140	140
Deferred rents	14	18
Deferred tax liability	564	564
Derivative liabilities	822	267
Total liabilities	8,519	8,044
Stockholders' equity:
Series B convertible preferred stock, par value $.001; 3,588,139 issued and 1,975,639 outstanding as of September 30, 2016 and December 31, 2015.	2	2
Common stock, par value $.001 par value; 40,000,000 shares authorized; 27,285,297 issued and 27,142,218 outstanding as of September 30, 2016 and 27,194,251 issued and 27,051,172 outstanding as of December 31, 2015	27	27
Additional paid-in capital	43,512	42,859
Accumulated deficit	(22,912)	(19,484)
Total stockholders' equity	20,629	23,404
Total liabilities and stockholders' equity	$ 29,148	$ 31,448

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Stockholders' equity:
Series B convertible preferred stock, par value	$ 0.001	$ 0.001
Series B convertible preferred stock, shares issued	3,588,139	3,588,139
Series B convertible preferred stock, shares outstanding	1,975,639	1,975,639
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	27,285,297	27,194,251
Common stock, shares outstanding	27,142,218	27,051,172

CONSOLIDATED STATEMENTS OF OPER

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Consolidated Statements Of Operations
Sales	$ 10,063	$ 7,823	$ 27,133	$ 21,226
Cost of sales	5,001	4,594	14,049	12,183
Gross profit	5,062	3,229	13,084	9,043
Other costs and expenses:
Research and development	682	583	1,941	1,534
Professional services	292	427	1,045	1,070
Salaries and related costs	2,192	1,929	6,492	5,749
Selling, general and administrative	2,141	2,103	6,354	6,325
Total other costs and expenses	5,307	5,042	15,832	14,678
Loss from operations	(245)	(1,813)	(2,748)	(5,635)
Interest expense, net	(36)	(40)	(125)	(120)
Change in fair value of warrant liabilities, net	(683)	266	(555)	1,800
Total other income (expense), net	(719)	226	(680)	1,680
Loss before income taxes	(964)	(1,587)	(3,428)	(3,955)
Income tax benefit, net				(8)
Net loss	(964)	(1,587)	(3,428)	(3,963)
Accretion on convertible preferred stock				(222)
Gain on conversion of warrants and preferred shares, net				13,956
Net income (loss) attributable to common shareholders	$ (964)	$ (1,587)	$ (3,428)	$ 9,771
Income (loss) per share
Basic	$ (0.04)	$ (0.06)	$ (0.13)	$ 0.42
Diluted	$ (0.04)	$ (0.06)	$ (0.13)	$ 0.31
Weighted average number of shares outstanding- basic	27,075	27,051	27,059	23,414
Weighted average number of shares outstanding - dilutive	27,075	27,051	27,059	26,346

CONSOLIDATED STATEMENT OF STOCK

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (unaudited) - 9 months ended Sep. 30, 2016 - USD ($) $ in Thousands	Preferred Stock	Common Stock	Additional Paid-In Capital	Deficit	Total
Beginning Balance, Shares at Dec. 31, 2015	1,976	27,051
Beginning Balance, Amount at Dec. 31, 2015	$ 2	$ 27	$ 42,859	$ (19,484)	$ 23,404
Warrants exercised, Shares		133
Warrants exercised, Amount			316		316
Options exercised, Shares		31
Options exercised, Amount			119		119
Stock based compensation			533		533
Stock swap to acquire options and warrants, Shares		(73)
Stock swap to acquire options and warrants, Amount			(315)		(315)
Net loss				(3,428)	(3,428)
Ending Balance, Shares at Sep. 30, 2016	1,976	27,142
Ending Balance, Amount at Sep. 30, 2016	$ 2	$ 27	$ 43,512	$ (22,912)	$ 20,629

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities
Net loss	$ (3,428)	$ (3,963)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	556	631
Provision for (recovery of) inventory obsolescence	365	(42)
Gain on disposal of property and equipment, net	19	18
Stock-based compensation	533	380
Non cash other (income) loss - warrants	555	(1,800)
Change in deferred tax asset	25
Changes in current assets and liabilities:
Trade receivables	(944)	(532)
Prepaid expenses	(48)	(23)
Inventories	(337)	(361)
Deposits and other assets	312	34
Accounts payable	436	788
Accrued and other liabilities	(337)	105
Net cash used in operating activities	(2,293)	(4,765)
Cash flows from investing activities
Purchases of property and equipment	(182)	(604)
Net cash used in investing activities	(182)	(604)
Cash flows from financing activities
Proceeds from stock options/warrants exercised	119	1,427
Change in restricted cash	60	60
Change in mortgage note payable	(180)	(180)
Proceeds from issuance of common shares, net		11,531
Net cash provided by (used in) financing activities	(1)	12,838
Net change in cash and cash equivalents	(2,476)	7,469
Cash and cash equivalents, beginning of period	11,805	5,733
Cash and cash equivalents, end of period	9,329	13,202
Cash paid for:
Interest	125	120
Income taxes

BASIS OF PRESENTATION

BASIS OF PRESENTATION	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 1. BASIS OF PRESENTATION	Unless the context otherwise indicates, the terms “we,” “our,” “us,” “Bovie,” and similar terms refer to Bovie Medical Corporation and its consolidated subsidiaries. The accompanying unaudited 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 financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015. These financial statements reflect all adjustments that are necessary for a fair presentation of results of 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.

INVENTORIES

INVENTORIES	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 2. INVENTORIES	Inventories are stated at the lower of cost or market. Finished goods and work-in-process inventories include material, labor, and overhead costs. Factory overhead costs are allocated to inventory manufactured in-house based upon labor hours. Inventories at September 30, 2016 and December 31, 2015 were as follows (in thousands): September 30, December 31, 2016 2015 Raw materials $ 5,333 $ 4,627 Work in process 544 483 Finished goods 1,650 2,080 Gross inventories 7,527 7,190 Less: reserve for obsolescence (1,597 ) (1,233 ) Net inventories $ 5,930 $ 5,957

INTANGIBLE ASSETS

INTANGIBLE ASSETS	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 3. INTANGIBLE ASSETS	At September 30, 2016 and December 31, 2015, intangible assets consisted of the following (in thousands): September 30, December 31, 2016 2015 Brand name and trademark (life indefinite) $ 1,510 $ 1,510 Purchased technology (9-17 year lives) 1,441 1,441 Less: accumulated amortization (1,199 ) (1,118 ) Purchased technology, net $ 242 $ 323 With respect to our trademark and brand name, we continue to market products, release new products and product extensions and maintain and promote these trademarks and brand name in the marketplace through legal registration and such methods as advertising, medical education and trade shows. It is our belief that these trademarks and brand names will generate cash flow for an indefinite period of time. Therefore, we believe our trademarks and brand name intangible assets are not impaired as of September 30, 2016. Amortization of intangibles, which is included in depreciation and amortization in the accompanying statements of cash flows, was approximately $81,000 during the nine month periods ended September 30, 2016 and 2015.

NEW ACCOUNTING PRONOUNCEMENTS

NEW ACCOUNTING PRONOUNCEMENTS	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS	In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively and early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on its consolidated financial statements. In March 2016, FASB issued ASU No. 2016-09 Compensation-Stock Compensation - (Topic 718) Improvements to employee share-based payments accounting as part of simplicity initiatives. This update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. For us, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently assessing the impact the adoption of ASU 2016-09 will have on its consolidated financial statements. No other new accounting pronouncement issued or effective during the period had or is expected to have a material impact on our consolidated financial statements or disclosures.

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 5. FAIR VALUE MEASUREMENTS	Certain assets and liabilities that are measured at fair value on a recurring basis are measured in accordance with FASB ASC Topic 820-10-05, Fair Value Measurements The statement requires fair value measurement be classified and disclosed in one of the following three categories: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Our derivative financial instruments that are measured at fair value on a recurring basis are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following represents a reconciliation of the changes in fair value of warrants measured at fair value using Level 3 inputs during the nine months ended September 30, 2016: (in $ thousands) 2013 Placement Agent Warrants Balance, December 31, 2015 $ 267 Change in fair value 555 Balance, September 30, 2016 (1) $ 822 (1) The warrants are valued using a trinomial lattice valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in the model at September 30, 2016 included the market price of our common stock, an expected dividend yield of zero, expected term of December 31, 2017, expected volatility of our common stock over the expected life of the warrants of 80.8%, estimated based on a review of our historical volatility, and risk-free rates of return of 0.9% for the 2013 warrants based on constant maturity rates published by the U.S. Federal Reserve, applicable to the expected term of the warrants. We also take into consideration a probability assumption for anti-dilution.

EARNINGS PER SHARE

EARNINGS PER SHARE	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 6. EARNINGS PER SHARE	We compute basic earnings per share (“basic EPS”) by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. The following table provides the computation of basic and diluted earnings per share for the three and nine month periods ending September 30, 2016 and 2015: Three Months Ended Nine Months Ended September 30, September 30, (in thousands, except per share data) 2016 2015 2016 2015 Numerator: Net income (loss) available to common shareholders $ (964 ) $ (1,587 ) $ (3,428 ) $ 9,771 Effect of dilutive securities Derivative liability - warrants $ - $ - $ - $ (1,800 ) Accretion on convertible preferred stock - - - 222 Numerator for diluted income (loss) per common share $ (964 ) $ (1,587 ) $ (3,428 ) $ 8,193 Denominator: Weighted average shares used to compute basic income (loss) per common share 27,075 27,051 27,059 23,414 Effect of dilutive securities: Derivative liability - warrants - - - 54 Convertible preferred stock - - - 2,862 Stock options - - - 16 Denominator for diluted income (loss) per common share 27,075 27,051 27,059 26,346 Basic income (loss) per common share $ (0.04 ) $ (0.06 ) $ (0.13 ) $ 0.42 Diluted income (loss) per common share $ (0.04 ) $ (0.06 ) $ (0.13 ) $ 0.31 For the three and nine months ended September 30, 2016 and 2015, the potential conversion of Series B Preferred Stock into 3,951,278 shares of common stock was excluded from the computation of diluted earnings per share as the effect is anti-dilutive. For the three and nine months ended September 30, 2016 and for the three months ended September 30, 2015, the change in the fair market valuation of the derivative liability was excluded in the computation of diluted earnings per share as the effect is anti-dilutive. For the three and nine months ended September 30, 2016 and for the three months ended September 30, 2015, the exercise of warrants and options were excluded from the computation of fully diluted earnings per share because their effect was antidilutive. At September 30, 2016, 254,375 warrants and 2,780,876 options, exercisable into 1,062,592 common shares, were excluded from the computation of diluted earnings per share as the effect is anti-dilutive.

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 7. STOCK-BASED COMPENSATION	Under our stock option plans, our board of directors may grant options to purchase common shares to our key employees, officers, non-employees, directors and consultants. We account for stock options in accordance with FASB ASC Topic 718, Compensation – Stock Compensation Activity in our stock options during the period ended September 30, 2016 was as follows: Number of Weighted Options Average (in thousands) Exercise Price Outstanding at December 31, 2015 3,131 $ 3.38 Granted 786 $ 1.76 Exercised (31 ) 3.81 Cancelled (68 ) 3.35 Outstanding at September 30, 2016 3,818 $ 3.02 The grant date fair value of options granted during the first nine months of 2016 were estimated on the grant date using a trinomial lattice option-pricing model and the following assumptions: expected volatility of 49.5%, expected term of between 5-8 years, risk-free interest rate of 1.5%, and expected dividend yield of 0%. On June 30, 2016, the Company entered into a sales channel partnership agreement with Arteriocyte LLC. As part of the agreement, Arteriocyte was granted 240,000 ten-year options with a four year performance based vesting schedule and an exercise price of $1.64 per option. Expected volatility is based on the average of the historical volatility of the Company's stock over the expected term of the options. The risk-free rate is based on the rate of U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of the options. The Company uses historical data to estimate pre-vesting forfeiture rates.

INCOME TAXES

INCOME TAXES	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 8. INCOME TAXES	The Company’s income tax provision was $0 with an effective tax rate of 0% for the three and nine months ended September 30, 2016. The Company’s effective tax rate differs from the statutory rate primarily due to the valuation allowance on the Company’s net deferred tax assets with finite life. As a result of historical losses, the Company recorded a valuation allowance on the net deferred tax asset with a finite life and does not anticipate recording an income tax benefit related to these deferred tax assets. The Company reassesses the realization of deferred tax assets each reporting period and will be able to reduce the valuation allowance to the extent that the financial results of these operations improve and it becomes more likely than not that the deferred tax assets are realizable. For the three and nine months ended September 30, 2016, we do not believe we had any significant uncertain tax positions nor did we have any interest or penalties related to any significant uncertain tax positions. The Company is subject to U.S. federal income tax, state income tax and Bulgarian income tax. Until the respective statutes of limitations expire (which may be as much as 20 years while we have unused NOL’s), we are subject to income tax audits in the jurisdictions in which we operate.

COMMITMENTS, CONTINGENCIES AND

COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 9. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS	In March 2014, we entered into a lease for offices located in Purchase, New York, where we are obligated to pay $9,277 per month for the lease expiring June 14, 2019. The lease is for 3,650 square feet of office space. In October 2015, pursuant to our acquisition of Bovie Bulgaria, we are obligated to pay approximately $6,350 per month for the lease expiring on December 31, 2016. The following is a schedule of approximate future minimum lease payments under operating leases having remaining terms in excess of one year as of September 30, 2016 for the calendar years ending December 31, 2016 and thereafter (in thousands): 2016 $ 47 2017 113 2018 117 2019 59 Total $ 336 Rent expense approximated $57,720 and $140,000 for the three and nine month periods ending September 30, 2016 and $25,075 and $78,000 for the three and nine month periods ending September 30, 2015, respectively. Other future contractual obligations for other agreements with initial terms greater than one year and agreements to purchase materials in the normal course of business are summarized as follows (in thousands): Year Ending December 31, Description 2016 2017 2018 2019 Thereafter Purchase commitments $ 3,617 $ - $ - $ - $ - Mortgage debt 239 239 239 2,276 - Total $ 3,856 $ 239 $ 239 $ 2,276 $ - Litigation In the normal course of business, we are subject, from time to time, to legal proceedings, lawsuits and claims. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. If any of these matters arise in the future, it could affect the operating results of any one or more quarters. We expense costs of litigation related to contingencies in the periods in which the costs are incurred. Concentrations Our ten largest customers accounted for approximately 56.9% and 57.8% of revenues for the nine months ended September 30, 2016 and 2015, respectively.

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 10. RELATED PARTY TRANSACTIONS	Several relatives of Nikolay Shilev, Bovie 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 in Bovie Bulgaria. Antoaneta Dimitrova Shileva-Toromanova, Mr. Shilev's sister, is the Manager of Production and Human Resources in Bovie Bulgaria. Svetoslav Shilev, Mr. Shilev's son is an Engineer in the Quality Assurance department in Bulgaria. A relative of Moshe Citronowicz, Bovie's Senior Vice President, is considered a related party. Arik Zoran is a consultant of the Company doing business as AR Logic, Inc., a consulting firm owned by Arik Zoran, Mr. Citronowicz's brother. On March 1, 2013 the Company amended the Consulting Services Agreement dated January 2011, extending the term of the existing agreement until December 31, 2014. The agreement shall automatically renew for additional one year periods, unless either party gives written notice of its desire not to renew at least one year prior to the expiration of the initial Term or renewal term. The agreement with AR Logic provides for a monthly retainer for engineering support for our existing generator product line and a separate hourly based fee structure for additional consulting related to new product lines. AR Logic has a royalty contract with us related to the creation and design of proprietary technology that is used in some of our generators. AR Logic was paid consulting fees of approximately $81,000 and $158,000 for the three and nine month periods ending September 30, 2016 and $63,000 and $241,000 for the three and nine month periods ending September 30, 2015, respectively. A second relative of Mr. Citronowicz is considered a related party. Yechiel Tsitrinovich is also a brother of Mr. Citronowicz, and acts as a consultant to the Company related to research and development of certain products. Mr. Tsitrinovich has a royalty contract with us related to the creation and design of a proprietary technology that is used in some of our generators. On June 6, 2016, the Company notified Mr. Tsitrinovich of our intent to terminate his contract effective January 31, 2017. Mr. Tsitrinovich was paid a combination of consulting fees and royalties on previous product designs approximating $22,000 and $59,000 for the three and nine month periods ending September 30, 2016 and $19,000 and $58,000 for the three and nine month periods ending September 30, 2015, respectively.

LONG TERM DEBT

LONG TERM DEBT	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 11. LONG TERM DEBT	On June 28, 2016, the Company entered into a transaction with Bank of Tampa, a Florida banking corporation (“Lender”) wherein Lender amended the terms of a mortgage loan (“the Loan”) originally executed on March 20, 2014 with a principal amount of $3,592,000. The Initial Maturity Date of the Loan was extended to July 20, 2019 from March 19, 2017, and the Extended Maturity Date was amended to July 20, 2024 from March 20, 2022. In addition, the Lender released as collateral to the Loan, the Company’s working capital accounts in exchange for a negative covenant limited to $2,000,000 of the aggregate indebtedness secured by these accounts. The obligations under the Loan are secured by a first mortgage and security interest in the Company’s Clearwater, Florida facility. In addition, the Company has pledged an interest in a certificate of deposit in the amount of $779,000 as additional collateral. The amount of the additional collateral required declines on a pro rata basis as principal is paid. Borrowings under the Loan bear interest at LIBOR plus 3.5%, with a fixed monthly principal payment of $19,956. The interest rate at September 30, 2016 was 4.025%. The Loan documents contain customary financial covenants, including a covenant that the Company maintains a minimum liquidity of $750,000. Should we desire to extend the Loan beyond July 20, 2019, we must maintain a Debt Service Coverage Ratio for each of the preceding four quarters of not less than 1.0 to 1.0.

GEOGRAPHIC AND PRODUCT LINE INF

GEOGRAPHIC AND PRODUCT LINE INFORMATION	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 12. GEOGRAPHIC AND PRODUCT LINE INFORMATION	International sales represented approximately 13.2% and 14.9% of total revenues for the three and nine months ended September 30, 2016, respectively, as compared with 13.5% and 13.3% of total revenues for the three and nine months ending September 30, 2015. Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015 Sales by Domestic and International (in 000's) Domestic $ 8,730 $ 6,767 $ 23,094 $ 18,395 International 1,333 1,056 4,039 2,831 Total $ 10,063 $ 7,823 $ 27,133 $ 21,226 Although we have only one reporting segment, management analyzes revenue and other operating metrics across three operating categories. Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015 Sales by Operating Category (in 000's) Core $ 6,902 $ 6,641 $ 20,261 $ 18,573 OEM 1,762 677 4,351 1,695 J-Plasma 1,399 505 2,521 958 Total $ 10,063 $ 7,823 $ 27,133 $ 21,226

INVENTORIES (Tables)

INVENTORIES (Tables)	9 Months Ended
	Sep. 30, 2016
Inventories Tables
Schedule of inventory	September 30, December 31, 2016 2015 Raw materials $ 5,333 $ 4,627 Work in process 544 483 Finished goods 1,650 2,080 Gross inventories 7,527 7,190 Less: reserve for obsolescence (1,597 ) (1,233 ) Net inventories $ 5,930 $ 5,957

INTANGIBLE ASSETS (Tables)

INTANGIBLE ASSETS (Tables)	9 Months Ended
	Sep. 30, 2016
Intangible Assets Tables
Schedule of intangible assets	September 30, December 31, 2016 2015 Brand name and trademark (life indefinite) $ 1,510 $ 1,510 Purchased technology (9-17 year lives) 1,441 1,441 Less: accumulated amortization (1,199 ) (1,118 ) Purchased technology, net $ 242 $ 323

FAIR VALUE MEASUREMENTS (Tables

FAIR VALUE MEASUREMENTS (Tables)	9 Months Ended
	Sep. 30, 2016
Fair Value Measurements Tables
Activity in Level 3 assets	(in $ thousands) 2013 Placement Agent Warrants Balance, December 31, 2015 $ 267 Change in fair value 555 Balance, September 30, 2016 (1) $ 822

EARNINGS PER SHARE (Tables)

EARNINGS PER SHARE (Tables)	9 Months Ended
	Sep. 30, 2016
Earnings Per Share Tables
Basic and diluted earnings per share	Three Months Ended Nine Months Ended September 30, September 30, (in thousands, except per share data) 2016 2015 2016 2015 Numerator: Net income (loss) available to common shareholders $ (964 ) $ (1,587 ) $ (3,428 ) $ 9,771 Effect of dilutive securities Derivative liability - warrants $ - $ - $ - $ (1,800 ) Accretion on convertible preferred stock - - - 222 Numerator for diluted income (loss) per common share $ (964 ) $ (1,587 ) $ (3,428 ) $ 8,193 Denominator: Weighted average shares used to compute basic income (loss) per common share 27,075 27,051 27,059 23,414 Effect of dilutive securities: Derivative liability - warrants - - - 54 Convertible preferred stock - - - 2,862 Stock options - - - 16 Denominator for diluted income (loss) per common share 27,075 27,051 27,059 26,346 Basic income (loss) per common share $ (0.04 ) $ (0.06 ) $ (0.13 ) $ 0.42 Diluted income (loss) per common share $ (0.04 ) $ (0.06 ) $ (0.13 ) $ 0.31

STOCK-BASED COMPENSATION (Table

STOCK-BASED COMPENSATION (Tables)	9 Months Ended
	Sep. 30, 2016
Stock-based Compensation Tables
Summary of stock options	Number of Weighted Options Average (in thousands) Exercise Price Outstanding at December 31, 2015 3,131 $ 3.38 Granted 786 $ 1.76 Exercised (31 ) 3.81 Cancelled (68 ) 3.35 Outstanding at September 30, 2016 3,818 $ 3.02

COMMITMENTS, CONTINGENCIES AN24

COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS (Tables)	9 Months Ended
	Sep. 30, 2016
Commitments Contingencies And Concentrations Tables
Future minimum lease payments under operating leases	2016 $ 47 2017 113 2018 117 2019 59 Total $ 336
Future minimum payments under these agreements	Year Ending December 31, Description 2016 2017 2018 2019 Thereafter Purchase commitments $ 3,617 $ - $ - $ - $ - Mortgage debt 239 239 239 2,276 - Total $ 3,856 $ 239 $ 239 $ 2,276 $ -

GEOGRAPHIC AND PRODUCT LINE I25

GEOGRAPHIC AND PRODUCT LINE INFORMATION (Tables)	9 Months Ended
	Sep. 30, 2016
Geographic And Product Line Information Tables
Analyzing International sales represented	Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015 Sales by Domestic and International (in 000's) Domestic $ 8,730 $ 6,767 $ 23,094 $ 18,395 International 1,333 1,056 4,039 2,831 Total $ 10,063 $ 7,823 $ 27,133 $ 21,226
Analyzing revenue and other operating metrics across three operating segments	Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015 Sales by Operating Category (in 000's) Core $ 6,902 $ 6,641 $ 20,261 $ 18,573 OEM 1,762 677 4,351 1,695 J-Plasma 1,399 505 2,521 958 Total $ 10,063 $ 7,823 $ 27,133 $ 21,226

INVENTORIES (Details)

INVENTORIES (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Inventories Details
Raw materials	$ 5,333	$ 4,627
Work in process	544	483
Finished goods	1,650	2,080
Gross inventories	7,527	7,190
Less: reserve for obsolescence	(1,597)	(1,233)
Net inventories	$ 5,930	$ 5,957

INTANGIBLE ASSETS (Details)

INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Purchased technology, net	$ 242	$ 323
Brand name and trademark (life indefinite) [Member]
Indefinite-lived intangible assets	1,510	1,510
Purchased Technology [Member]
Indefinite-lived intangible assets	1,441	1,441
Less: accumulated amortization	(1,199)	(1,118)
Purchased technology, net	$ 242	$ 323
Purchased Technology [Member] | Minimum [Member]
Useful life	9 years
Purchased Technology [Member] | Maximum [Member]
Useful life	17 years

INTANGIBLE ASSETS (Details Narr

INTANGIBLE ASSETS (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Intangible Assets Details Narrative
Amortization of intangibles	$ 81,000	$ 81,000

FAIR VALUE MEASUREMENTS (Detail

FAIR VALUE MEASUREMENTS (Details) - 2013 Placement Agent Warrants [Member] $ in Thousands	9 Months Ended
	Sep. 30, 2016USD ($)
Beginning balance	$ 267
Change in fair value	555
Ending Balance	$ 822	[1]
[1]	The warrants are valued using a trinomial lattice valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in the model at September 30, 2016 included the market price of our common stock, an expected dividend yield of zero, expected term of December 31, 2017, expected volatility of our common stock over the expected life of the warrants of 80.8%, estimated based on a review of our historical volatility, and risk-free rates of return of 0.9% for the 2013 warrants based on constant maturity rates published by the U.S. Federal Reserve, applicable to the expected term of the warrants. We also take into consideration a probability assumption for anti-dilution.

EARNINGS PER SHARE (Details)

EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share Details
Net income (loss) available to common shareholders	$ (964)	$ (1,587)	$ (3,428)	$ 9,771
Effect of dilutive securities
Derivative liability - warrants				(1,800)
Accretion on convertible preferred stock				222
Numerator for diluted income (loss) per common share	$ (964)	$ (1,587)	$ (3,428)	$ 8,193
Weighted average shares used to compute basic income (loss) per common share	27,075	27,051	27,059	23,414
Effect of dilutive securities:
Derivative liability - warrants				54
Convertible preferred stock				2,862
Stock options				16
Denominator for diluted income (loss) per common share	27,075	27,051	27,059	26,346
Basic income (loss) per common share	$ (0.04)	$ (0.06)	$ (0.13)	$ 0.42
Diluted income (loss) per common share	$ (0.04)	$ (0.06)	$ (0.13)	$ 0.31

EARNINGS PER SHARE (Details Nar

EARNINGS PER SHARE (Details Narrative)	Sep. 30, 2016shares
Conversion of Series B Preferred Stock	3,951,278
Converted common stock from warrants and option	1,062,592
Warrant [Member]
Warrants and option exercisable	254,375
Option [Member]
Warrants and option exercisable	2,780,876

STOCK-BASED COMPENSATION (Detai

STOCK-BASED COMPENSATION (Details)	9 Months Ended
	Sep. 30, 2016$ / sharesshares
Number of options, outstanding
Outstanding, beginning of period (in shares) | shares	3,131
Granted | shares	786
Exercised | shares	(31)
Cancelled | shares	(68)
Outstanding, end of period (in shares) | shares	3,818
Weighted average exercise price
Outstanding, beginning of period (in dollars per share) | $ / shares	$ 3.38
Granted (in dollars per share) | $ / shares	1.76
Exercised (in dollars per share) | $ / shares	3.81
Cancelled (in dollars per share) | $ / shares	3.35
Outstanding, end of period (in dollars per share) | $ / shares	$ 3.02

STOCK-BASED COMPENSATION (Det33

STOCK-BASED COMPENSATION (Details Narrative)	9 Months Ended
	Sep. 30, 2016USD ($)
Stock-based compensation	$ 533,000
Expected volatility rate	49.50%
Risk free interest rate	1.50%
Expected dividend yield	0.00%
Minimum [Member]
Expected term	5 years
Maximum [Member]
Expected term	8 years

INCOME TAXES (Details Narrative

INCOME TAXES (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Taxes Details Narrative
Income tax provision				$ 8
Effective tax rate	0.00%		0.00%

COMMITMENTS, CONTINGENCIES AN35

COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS (Details) $ in Thousands	Sep. 30, 2016USD ($)
Future minimum lease payments under operating leases
2,016	$ 47
2,017	113
2,018	117
2,019	59
Total	$ 336

COMMITMENTS, CONTINGENCIES AN36

COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS (Details 1) $ in Thousands	Sep. 30, 2016USD ($)
2,016	$ 3,856
2,017	239
2,018	239
2,019	2,276
Thereafter
Purchase Commitments [Member]
2,016	3,617
2,017
2,018
2,019
Thereafter
Mortgage debt [Member]
2,016	239
2,017	239
2,018	239
2,019	2,276
Thereafter

COMMITMENTS, CONTINGENCIES AN37

COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Rent expense	$ 57,720	$ 25,075	$ 140,000	$ 78,000
Ten largest Customers [Member]
Net revenues			56.90%	57.50%

RELATED PARTY TRANSACTION (Deta

RELATED PARTY TRANSACTION (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
AR Logic [Member]
Consulting fees	$ 81,000	$ 63,000	$ 158,000	$ 241,000
Mr. Tsitrinovich [Member]
Consulting fees	$ 22,000	$ 19,000	$ 59,000	$ 58,000

LONG TERM DEBT (Details Narrati

LONG TERM DEBT (Details Narrative)	Sep. 30, 2016
Long Term Debt Details Narrative
Interest rate	4.025%

GEOGRAPHIC AND PRODUCT LINE I40

GEOGRAPHIC AND PRODUCT LINE INFORMATION (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Sales by Domestic and International	$ 10,063	$ 7,823	$ 27,133	$ 21,226
Domestic [Member]
Sales by Domestic and International	8,730	6,767	23,094	18,395
International [Member]
Sales by Domestic and International	$ 1,333	$ 1,056	$ 4,039	$ 2,831

GEOGRAPHIC AND PRODUCT LINE I41

GEOGRAPHIC AND PRODUCT LINE INFORMATION (Details 1) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Sales by Operating Category	$ 10,063	$ 7,823	$ 27,133	$ 21,226
Core [Member]
Sales by Operating Category	6,902	6,641	20,261	18,573
OEM [Member]
Sales by Operating Category	1,762	677	4,351	1,695
J-Plasma [Member]
Sales by Operating Category	$ 1,399	$ 505	$ 2,521	$ 958

GEOGRAPHIC AND PRODUCT LINE I42

GEOGRAPHIC AND PRODUCT LINE INFORMATION (Details Narrative)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Geographic And Product Line Information Details Narrative
Percentage of International sales of sales	13.20%	13.50%	14.90%	13.30%