UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| | | | | | | | | | | |
| ☒ |
ý
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the fiscal year ended | December 31, 20172022 |
| | | |
| | or |
| | | |
o ☐
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from _____ to _____ |
| | Commission File Number: | 0-12183 |
|
| |
|
BOVIEAPYX 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
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | | | | | | | | | | |
| Title of each Class | | Trading Symbol | | Name of each Exchange on which registered |
| Common Stock, $.001 Par Value | | NYSE MKTAPYX | | Nasdaq Global Select Market |
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes: o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes: o No ý
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes: ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):
|
| | | | | | | | | | | | | |
| Large accelerated filer | o | | Accelerated filer | o |
| Non-accelerated filer | oý | (Do not check if a smaller reporting company) | Smaller reporting company | ý |
| | | Emerging growth company | o |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | o |
| Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o No ý
The aggregate market value of the common stock held by non-affiliates and non-voting equity held by non-affiliates computed by reference to the price at which the common stock was last sold, or the average bid and asked prices of such common stock on the NYSE MKT exchange, as of June 30, 2017,2022, the registrant’s most recently completed second fiscal quarter, was approximately $70.9$202.1 million.
As of March 9, 2018, 33,021,170 shares15, 2023, 34,597,822 shares of the registrant’s $0.001$.001 par value common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
BOVIEAPYX MEDICAL CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
December 31, 2017
| | | | | | | | | | | | | | |
| Part I | | | | Page |
| Item 1 | | | | |
| Item 1A | | | | |
| Item 1B | | | | |
| Item 2 | | | | |
| Item 3 | | | | |
| Item 4 | | | | |
| | | | |
Part III | | | | Page |
Item 15 | | | | |
Item 1A | | | | |
Item 1B | | | | |
Item 2 | | | | |
Item 3 | | | | |
Item 4 | | | | |
| | | | |
Part II | | | | |
Item 5 | | | | |
| Item 6 | | | | |
| Item 7 | | | | |
| Item 7A | | | | |
| Item 8 | | | | |
| Item 9 | | | | |
| Item 9A | | | | |
| Item 9B | | | | |
| | | | |
| Part III | | | | |
| Item 10 | | | | |
| Item 11 | | | | |
| Item 12 | | | | |
| Item 13 | | | | |
| Item 14 | | | | |
| | | | |
| Part IV | | | | |
| Item 15 | | | | |
| Signatures | | | | |
BOVIEAPYX MEDICAL CORPORATION
Cautionary Notes Regarding “Forward-Looking” Statements
We have included or incorporated by reference into this report, and frofrom time to time may make in our public filings, press releases or other public statements, certain statements that may constitute forward-looking statements. These include without limitation those under “Business” in Part I, Item 1, “Risk Factors” in Part I, Item 1A, “Legal Proceedings” in Part I, Item 3 and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, and “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A.7. In addition, our management my make forward-looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts and represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control. We may, in some cases, use words such as “project”, “believe”, “anticipate”, “plan”, “expect”, “estimate”, “intend”, “should”, “would”, “could”, “potentially”, “may” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements.
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results to differ materially from those contained in any forward- looking statements made by us. Any such forward-looking statements are qualified by reference to the following cautionary statements.
Forward-looking statements in this report are subject to a number of risks and uncertainties, some of which are beyond our control, including, among other things:
•changes in general economic, business or demographic conditions or trends in the U.S. or throughout the world or changes in the political environment, including changes in GDP, military and trade wars, interest rates, economic recession and inflation;
•our ability to maintain sufficient liquidity, meet current debt covenants, and preserve working capital in order to maintain operations;
•our ability to conclude a sufficient number of attractive growth projects, deploy growth capital in amounts consistent with our objectives in the prosecution of those and achieve targeted risk-adjusted returns on any growth project, including the continued commercialization of our J-Plasma technology;Helium Plasma Technology;
•the regulatory environment, including our ability to gain requisite approval from the U.S. Food and Drug Administration (“FDA”) and other governmental and regulatory bodies, both domestically and internationally, including the effects of the recent FDA Medical Device Safety Communication regarding an emerging safety signal of our products;
•our ability to estimate compliance costs, comply with any changes thereto, rates implemented by regulators, and our relationships and rights under, and contracts with, governmental agencies and authorities;
•disruptions or other extraordinary or force majeure events and the ability to insure against losses resulting from such events or disruptions;disruptions, including disruptions caused by COVID-19 or other global pandemics;
•sudden or extreme volatility in commodity prices;prices and availability, including supply chain disruptions;
•changes in competitive dynamics affecting our business and the medical device industry as a whole;
•technological innovations leading to increased competition in the medical device industry;
our ability to service, comply with the terms of and refinance at maturity our indebtedness, including due to dislocation in debt markets;
•changes in healthcare policy;
•our ability to make alternate arrangements to account for any disruptions or shutdowns that may affect suppliers’ facilities or the operations upon which our business is dependent;
•continued aggressive EPA state regulation of Ethylene oxide sterilization (EtO) commercial plants resulting in additional plant closures, leading to a reduced availability of our handpieces, which are commercially sterilized;
•our ability to implement operating and internal growth strategies;
•environmental risks, including the impact of climate change and weather conditions;
•the impact of weather events, including potentially hurricanes, tornadoes and/or seasonal extremes;
•unplanned outages and/or failures of technical and mechanical systems;
changes in U.S. income tax laws;•cybersecurity breaches impacting critical systems or data;
•work interruptions or other labor stoppages;
Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. A description of risks that could cause our actual results to differ appears under the caption “Risk Factors” in Part I, Item 1A and elsewhere in this report. It is not possible to predict or identify all risk factors and you should not consider that description to be a complete discussion of all potential risks or uncertainties that could cause actual results to differ.
In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this report may not occur. These forward-looking statements are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should, however, consult further disclosures we may make in future filings with the Securities and Exchange Commission (SEC).Commission. Past performance is not an indicator of future results.
BOVIEAPYX MEDICAL CORPORATION
PART I
ITEM 1. Business
General
BovieApyx Medical Corporation (“Company”, “Bovie“Apyx Medical”, “we”, “us”, or “our”) was incorporated in 1982, under the laws of the State of Delaware and has its principal executive office at 5115 Ulmerton Road, Clearwater, FL 33760.33760.
We are an energy-based medical deviceadvanced energy technology company specializing in developing, manufacturingwith a passion for elevating people’s lives through innovative products, including our Helium Plasma Technology products marketed and marketing a range of electrosurgical products and technologies,sold as well as related medical products used in doctor’s offices, surgery centers and hospitals worldwide. Our medical devices are marketed through Bovie’s own well-respected brands (Bovie®, IDS™ and DERMTM) and on a private label basis to distributors throughout the world. The Company also leverages its expertiseRenuvion® in the design, developmentcosmetic surgery market and manufacturingJ-Plasma® in the hospital surgical market. Our primary focus is on the cosmetic surgery market where Renuvion® offers plastic surgeons, fascial plastic surgeons and cosmetic physicians a unique ability to provide controlled heat to the tissue to achieve their desired results. We also leverage our deep expertise and decades of electrosurgical equipment by producing equipment for large, well-known medical device manufacturersexperience in unique waveforms through original equipment manufacturing (OEM)(“OEM”) agreements with other medical device manufacturers.
As part of our plan to accelerate and fully fund the development of our advanced energy business, with a focus in the cosmetic surgery market, we sold our Core business in 2018 for gross proceeds of $97 million. These proceeds were used to launch broad marketing and sales initiatives which resulted in rapid sales growth through December 31, 2021 and into the first quarter of 2022. This planned growth in the business was accompanied by scaled operations, including procurement of components, expanded manufacturing capacity to turn those materials into saleable inventory, additional discretionary expenditures, including increased global participation at trade shows, additional employee trainings, user meetings, increased travel and entertainment expenses, more expansive research and development projects, and additional headcount to support those activities. Additionally, we had and still have, some significant non-recurring discretionary expenditures associated with completing our multi-year marketing initiatives related to our dermal resurfacing and skin laxity clearances.
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.
On June 2, 2022, and July 21, 2022, the FDA updated the Medical Device Safety Communication to recognize the new 510(k) clearances for the Renuvion® Dermal handpiece, and the expanded indications for the Renuvion® APR 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.
On February 1, 2023, we announced we had submitted a 510(k) premarket notification (“510(k) submission”) for the Renuvion APR Handpiece to the FDA, supported by a clinical study and real-world evidence. The 510(k) submission is intended to expand Renuvion’s indications for use to include a specific indication for the use of the Renuvion APR Handpiece for the coagulation of subcutaneous soft tissues where needed, following liposuction.
On February 27, 2023, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion APR Handpiece for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed. Soft tissue includes subcutaneous tissue.
While we expected that receiving the two clearances in 2022 would materially mitigate the financial effects of the Safety Communication in future periods, we continue to experience reduced demand for the adoption and utilization of our technology and we believe that this may have an adverse effect in future periods. In 2023, we expect to deliver growth in global sales of our Advanced Energy products, fueled by strong execution on our commercial and regulatory objectives and improving generator demand trends as wellwe move through fiscal 2023. We remain focused on maximizing our resources through prudent expense management and have recently implemented activities to eliminate certain operating expenses to improve cash flow, while preserving our capabilities as start-up companiesan organization. We also continue to actively evaluate all potential options to enhance our liquidity and financial condition.
While sales were continuing to grow into the first quarter of 2022 prior to the FDA Safety Communication, over the last few years, exclusive of our sale of the Core business segment to Symmetry Surgical during 2018, we have incurred recurring net losses and cash outflows from operations and we anticipate that losses will continue in the near term. For the year ended December 31, 2022, we incurred an operating loss of $23.6 million and used $20.3 million of cash in operations. As of December 31, 2022, we had cash and cash equivalents of $10.2 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of our consolidated financial statements, including in Part II, Item 8 of this Form 10-K.
In an effort to alleviate these conditions, we pursued various funding solutions in order to improve liquidity.
On November 22, 2022, we filed a shelf registration statement providing us the ability to register securities in the aggregate amount up to $100 million. The shelf registration included an embedded ATM facility for up to $40 million. To date we have not utilized this facility.
On February 17, 2023, we entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”) with MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time.
The Credit Agreement provides for an up to $35 million facility, consisting of senior secured term loans and a secured revolving facility. The Credit Agreement provides for senior secured term loans of up to $25 million, comprised of (i) an initial tranche of $10 million, (ii) a second tranche of $5 million, and (iii) a third tranche of $10 million. The secured revolving facility provides for loans in an aggregate principal amount of up to $10 million, subject to a borrowing base equal to certain percentages of the Company’s eligible accounts receivable and inventory, as determined in accordance with the needterms of the Credit Agreement.
For a more in depth description of the terms of the Credit Agreement see Note 20 of Notes to Consolidated Financial Statements in Part II, Item 8 of this report on Form 10-K.
On February 27, 2023, our Board of Directors approved a plan to sell and leaseback the our real property located in Clearwater, FL. On March 14, 2023, we entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with VK Acquisitions VI, LLC (the “Purchaser”), for the sale of our energy based designs.facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price of $7,650,000. The Purchase Agreement is subject to the satisfactory completion of due diligence by the Purchaser. Upon the closing of the sale of the Property, we will enter into a lease agreement with the Purchaser, pursuant to which the Property will be leased back to us.
For a more in depth description of the terms of the Purchase Agreement see Note 20 of Notes to Consolidated Financial Statements in Part II, Item 8 of this report on Form 10-K.
During January 2023, we were notified that the IRS examination process of our 2018, 2019 and 2020 tax returns was complete and that the our tax refunds were approved for substantially the amount recorded in our Consolidated Balance Sheet at December 31, 2022. As of the date of this report, we are awaiting receipt of the tax refunds.
We are also continue to re-assess our operating expenditures and cost structure to be commensurate with our expected levels of revenue and we have the developerability to reduce or delay expenditures to enhance and preserve liquidity. We have already reduced some operating expenditures, including a reduction-in-force on January 9, 2023, that reduced our U.S. headcount by 14%.
We believe that the actions already taken, and additional actions that we intend to take to manage operating expenditures, will enable us to meet our obligations for a period of J-Plasma;at least one year from the date of issuance of our audited consolidated financial statements. As a patented helium-based plasma surgical product whichresult, we believe hasour plans alleviate substantial doubt about our ability to continue as a going concern. Our audited financial statements do not include any adjustments relating to the potentialcarrying amounts and classification of assets and liabilities that may be necessary should we be unable to becontinue as a transformational product for surgeons.going concern.
Our objective isWe continue to achieve profitable, sustainable growthfocus our efforts to increase the adoption of our Advanced Energy technology and utilization of our handpieces by increasing our market sharesurgeons in the advanced energy category, includingU.S. and fulfilling demand from distributors in our international markets. Management estimates that our products have been sold in more than 60 countries. As of December 31, 2022, we had a direct sales force of 35 field-based selling professionals and utilized 3 independent sales agencies. We also had 4 sales managers. This selling organization is focused on the commercializationuse of products thatRenuvion® and J-Plasma® in the cosmetic 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 the potentialinvested in training programs and marketing-related activities to be transformational with respectsupport accelerated adoption of Renuvion® into surgeons' practices.
In response to the results they produce for surgeonsglobal supply chain instability and patients. In orderinflationary cost increases, we continue to achieve this objective, we plantake action to leverageminimize, as much as possible, any potential adverse impacts by working closely with our long history insuppliers to closely monitor the industry, alongavailability 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 global supply chain instability, inflationary cost increases and the pandemic, 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 reputation for qualitySecurities and reliability that the Bovie brand enjoys within the medical community. At the same time, we will expand our product offerings beyond radio frequency devices, move forward with research and developments projects aimed at creating value within our existing product portfolio, build our pipeline of new complementary products, and utilize multiple channels to bring new and existing products to market.Exchange Commission.
We are working to build our position in advanced electrosurgical generators and disposables, which can be used in diversified niche markets with minimally invasive surgical instruments, while furthering our status as a pioneer in plasma technology and its various medical applications.
Significant Subsidiaries
Aaron Medical Industries, Inc. is a wholly-owned Florida corporation based in Clearwater, Florida. It is principally engaged in the business of marketing our medical products through distributors worldwide under the Bovie name.
BovieApyx Bulgaria, EOOD is a wholly-ownedwholly owned limited liability company incorporated under Bulgarian law, located in Sofia, Bulgaria. It is engaged in the business of engineeringdevelopment and manufacturing of our electrosurgicaladvanced energy generators, as well as the manufacturing of our disposable handpieces and accessories, and development and manufacturing of OEM generators and related accessories. The facility also distributes products directly to customers in certain international markets and provides warranty and repair services.
Industry
Healthcare reform has caused consolidation among providers, with hospitals merging, physician practices joining hospitals and institutions combining to form Accountable Care Organizations, to manage patients on an interdisciplinary basis. AlthoughThe cosmetic surgery market is a special segment of the medical device industry can be challengingfield which is involved in the restoration, reconstruction, or alteration of the human body so as to enhance the body’s appearance. The market for cosmetic surgery includes surgical, minimally invasive, and very competitive, we believe it will continuenonsurgical cosmetic procedures. This market is expected to have a positive, long-termsteady growth trajectory withyear-over-year and this growth is driven by social and cultural factors such as the influence of social media, peer pressure for appearance and beauty, and increasing disposable income. According to the recent International Society of Aesthetic Plastic Surgery (“ISAPS”) 2021 Global Survey report, liposicution procedures grew 24.8% year-over-year, and is now the number ofone aesthetic surgical procedures performed increasing annually as a result of the aging “baby boomer” population and other healthcare trends. Additionally, we also anticipate a continued increase in minimally invasive surgical procedures due to ongoing advancements in technology coupled with continued overall pressure to reduce healthcare costs via a reduction in patient trauma and recovery time. Markets will also continue to provide growth opportunities for the medical device industry.procedure globally.
We believe that Bovie Medical haswe have sustainable, competitive advantages in the medical devicecosmetic surgery market for several reasons. We have areasons: our long history in electrosurgery. Our inspiration dates backof developing unique energy devices to meet the first useneeds of an electrosurgical generator in an operating room in the U.S. in 1926 where Dr. William T. Bovie was present. Thus, the Bovie name is recognized by surgeons the world over for having pioneered the electrosurgery field and is recognized for itsphysicians, our unique Helium Plasma Technology,our outstanding product quality supported by strong engineering and research and development capabilities. This history equates to very strong recognition ofcapabilities, and the Bovie brand. We believeclinical support that our equipmentexpanding global medical affairs team provides to our customers. We feel that our products and devicesour strategy as a customer-centric aesthetic medical device manufacturer have, and will continue to provide better experiences for patients at a lower cost toimprove, the healthcare system.lives of doctors and their patients.
BOVIE MEDICAL CORPORATION
Intellectual Property
We rely on our intellectual property that we have developed or acquired over the years including patents, trade secrets, technical innovations and various licensing agreements to provide our future growth and build our competitive position. We have been issued 4140 patents in the United States and 2328 foreign patents. We have 1222 pending patent applications in the United States and 958 pending foreign applications. Our intellectual property portfolio for the technologyWe have 9 U.S. registered trademarks, 5 international registered trademarks, and products related to Advanced Energy products is included in these totals and continues to grow. Specific to Advanced Energy products, we have been issued 21 U.S. and 6 foreign patents and we have 12 U.S. and 9 foreign applications pending.4 pending international trademark applications. As we continue to expand our intellectual property portfolio, we believe it is critical for us to continue to invest in filing patent applications to protect our technology, inventions and improvements. However, we can
give no assurance that competitors will not infringe on our patent rights or otherwise create similar or non-infringing competing products that are technically patentable in their own right.
Manufacturing and Suppliers
We are committed to producing the most technically advanced and highest quality products of their kind available on the market. We manufacture the majority of our products on our premises in Clearwater, Florida and at our facility located in Sofia, Bulgaria, both of which are certified under the ISOISO13485:2016 international quality standards and are subject to continuing regulation and routine inspections by the FDA and other regulatory agencies to ensure compliance with regulations relating to our quality management system, medical device complaint reporting, and adherence to FDA and other country restrictions on promotion and advertising. In addition, we are subject to regulations under the Occupational Safety and Health Act, the Environmental Protection Act and other federal, state and local regulations, as well as international laws and regulations.
DuringWe work closely with our suppliers to ensure that our raw material inventory (i.e., semiconductors and plastics) needs are met, while maintaining high quality and reliability. To date, we have experienced some delays in locating and obtaining the fourth quartermaterials necessary to fulfill our production requirements, but such delays have not caused a meaningful backlog of 2015, we acquired allsales orders.However, it is possible that a prolonged disruption to the global supply chain could cause a backlog of the outstanding shares of Bovie Bulgaria, EOOD. Bovie Bulgaria operates an 18,745 square foot ISO13485 certified and FDA registered manufacturing facility locatedsales orders in the capital cityfuture. We continue to work to find other sources of Sofia, which housessupply, where feasible, and have expedited the shipments of certain raw material items to adequately maintain our production and safety stock levels, resulting in higher shipping costs.We have also experienced some impact on the purchase prices of our raw materials due to inflation, global inventory shortages. and increased demand across the manufacturing development and assembly operations.sector.
We also havemaintain collaborative arrangements with three foreign suppliers, including our contract component manufacturer located in Ningbo, China, under which we request the development of certain items and components,products which we purchase pursuant to purchase orders. Our purchase order commitments are never more than one year in duration and are supported by our sales forecasts. To our knowledge, none of the products that we source are through entities manufacturing in the Xinjiang province.
During late 2019, we entered into a joint venture with our Chinese supplier to establish a foundation for the manufacturing and sale of our Advanced Energy products into the Chinese market. As of the date of this report, the joint venture has not commenced its principal operations.
Backlog
The value of unshipped factory orders is not material.
EmployeesSustainability
We have created a strong environmental, social and governance (“ESG”) structure by introducing a cross-functional ESG team which has been working with senior management, our board, and other stakeholders to develop an ESG framework that is aligned with our corporate mission, vision and values. Our ESG initiatives are sponsored by our CEO and CFO, and includes a steering committee comprised of all members of the executive management team as well as some mid-level managers in certain areas such as R&D, Regulatory and Quality. In July 2022, we published our first ESG report aligned with the Sustainability Accounting Standards Board (“SASB”) Medical Equipment industry standards.
Part of our culture is to give back and support the communities and people around us. In 2022, we engaged in both employee volunteer and financial support in the areas of education and the environment. Such initiatives included the following:
•Week-long high school internship\shadowing program for students interested in the field of engineering;
•Hosting a group of 25 local students participating in their school’s STEM program at our manufacturing facility
•Employee participation in a local beach clean up event
•Donation of supplies to a local elementary school and to support those impacted by Hurricane Ian
•Local food drive donations as well as gifts for less fortunate children during the holidays
•Several financial contributions and sponsorships to various non-profit organizations
Human Capital Management
At December 31, 2017,2022, we had 211276 full-time employees world-wide, of whom 4 were executive officers, 3647 were supervisory personnel, 1436 were sales personnel and 157189 were technical support, administrative and production employees. None of our current employees are covered by a collective bargaining agreement and we have never experienced a work stoppage. During 2022, our voluntary employee turnover rate was approximately 13.6%.
Diversity, Equity and Inclusion
We considerhave worked to create a culture that fosters employee engagement, where diverse talent is productive and passionate about the work they do. We continuously focus our efforts on cultivating and enhancing our working culture that embraces equality, diversity and inclusion. Currently, over half of our global workforce is represented by women, including half of our executive management team. In addition, in the U.S., approximately 36% of our employees are from minority ethnic\racial groups.
Recruitment, Training and Development
The implementation of our growth strategy largely depends on our ability to hire, train, and retain our workforce. Our recruitment practices include cross-functional departmental interviewing, allowing for the best fit not just for a specific department, but the Company as a whole. We also ensure all of our employees are fully trained and competent for the role for which they were hired. In addition, we train our sales professionals to thoroughly understand our Helium Plasma Technology and the marketplace in which we compete, including how our technologies can increase our customer's revenue and the results they are able to achieve for their patients.
Compensation and Benefits
Our compensation programs are designed to align the compensation of our employees with our performance, and to provide the proper incentives to attract, retain and motivate them to achieve superior results. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance, specifically:
•We offer wages that are competitive and consistent with employee relationspositions, skill levels, experience, knowledge and geographic location;
•Our compensation practices are fair and equitable across all levels of the organization, from our Executive Officers to our hourly employees;
•We work with both local and nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our executive and non-executive compensation and benefit programs and to provide benchmarking against our peers within our industry;
•We may provide our non-hourly U.S-based employees long term incentives in the form of stock options to help foster a culture of ownership, and empower individuals to drive continuous improvements to increase stockholder value;
•Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion;
•All employees are eligible for health insurance, paid and unpaid leaves, a retirement plan, and life and disability/accident coverage. We also offer a variety of voluntary benefits that allow employees to select the options that meet their needs.
Culture
We are a solution focused company in the cosmetic surgery market and the broader medical technology sector, and endeavor to provide unique and creative solutions for the ever-changing needs of our physician customers and their patients.Our mission and vision are to be good.the world’s leading innovator in unique energy solutions that continually reshape what’s possible in cosmetic and medical procedures through innovative solutions.
Our shared values of transforming physicians’ and their patients’ lives, acting with integrity, and driving innovation, form the core of our company's culture. We articulate the qualities associated with these behaviors through our three Core Values:
•Trailblazers: We are passionate about the work we do. We energetically pursue our goals, aim higher, and reach further. When we encounter setbacks, we see opportunities for innovation and improvement. When we clear a business hurdle, we celebrate, and then raise the bar.
BOVIEAPYX MEDICAL CORPORATION
•Challengers: We speak up and are not afraid to question, to reimagine, to think differently. We innovate to break the status quo, and create new possibilities, for our customers and for our company.
•Team Players: We respect everyone’s contribution and are absolutely committed to elevating our fellow team members, and our customers and their patients.
Employee Health and Safety
The health and safety of our employees is our highest priority, and this is consistent with our operating philosophy. We provide a safe and healthy workplace for employees consistent with the requirements of the Occupational Safety and Health Act (“OSHA”). We aim to prevent any employee, visitor, customer, or person from being subjected to any health or safety risks. We provide annual training and expect our employees to diligently work towards the maintenance of safe and healthy working conditions, adhere to proper operating practices and procedures designed to prevent injury and illness, and conscientiously observe all safety regulations. Our commitment to the safety and well-being of our employees is shown through safety walkthroughs by our Safety Committee, as well as having an open-door policy, allowing employees to feel comfortable bringing up any safety concerns to management or Human Resources. Identified concerns and potential hazards are addressed immediately, which is evidenced by our low safety incident rate quarter over quarter. In 2022, we had no lost time accidents.
Our ThreeTwo Business Segments
We manage our business through threeOur reportable segments are disclosed as principally organized and managed as two operating segments: Core,Advanced Energy and OEM. “Corporate & Other” includes certain unallocated corporate and administrative costs which are not specifically attributed to any reportable segment. The OEM segment is primarily development and Advanced Energy.manufacturing contract and product driven, and all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.
In regards to these 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.
For the year ended December 31, 2017, our Core segment contributed 73.7% of our consolidated total revenue, our2022, our OEM segment contributed 6.7%17.3% of our consolidated total revenue and our Advanced Energy segment contributed 19.6%82.7% of our consolidated total revenue.
Core Segment
Overview
Our Core segment manufactures and markets various medical products, both under private label and the Bovie brands (Bovie, IDS and DERM), to distributors worldwide, which distribute to more than 6,000 hospitals and to doctors and other healthcare facilities. New distributors are contacted through responses to our advertising in international and domestic medical journals and our presence at domestic and international trade shows.
Customers
We sell our Core products through major distributors which include Cardinal Health, Independent Medical Co-Op Inc. (IMCO), McKesson Medical Surgical, Inc., National Distribution and Contracting Inc. (NDC), Henry Schein, Medline, and Owens & Minor and have manufacturing agreements for private label of certain products with these and others.
Products
Core products consist of electrosurgery generators and accessories, battery-operated cauteries, lighting, nerve locators, eye-bubbles, penlights, and a variety of other products.
Electrosurgery Products
Electrosurgery is our largest product line and includes desiccators, generators, electrodes, electrosurgical pencils and various ancillary disposable products. These electrosurgical products are used during surgical procedures in gynecology, urology, plastic surgery, dermatology and other surgical markets, including veterinary, for the cutting and coagulation of tissue. It is estimated that electrosurgery is used in 80% of all surgical procedures. Our electrosurgery products fall under two categories, monopolar and bipolar. Monopolar products require the use of a grounding pad attached to the patient for the return of the electrical current, while bipolar products consist of two electrodes; one for the inbound current and one for the return current and therefore do not require the use of a grounding pad.
DERM 101 and DERM 102
These effective and economical 10 watt high frequency desiccators provide a low wattage platform for minor in-office skin procedures. We designed these products specifically for family practice physicians, pediatricians and other general practitioners, enabling them to perform simple skin procedures in their offices instead of referring the patient to a specialist saving the patient time and providing additional revenue generating procedures for the physician.
DERM A942™, Bantam|Pro A952™ and Specialist|Pro A1250S
Bovie’s line of electrosurgical generators has been recently updated with added features and to provide a more modern look for today’s physician office.
The new Bovie DERM A942 is a low powered 40-watt high frequency desiccator designed primarily for dermatology. These units are used mainly for removing skin lesions and growths as well as for coagulation in office-based procedures.
BOVIE MEDICAL CORPORATION
The Bovie Bantam|Pro A952 is a 50-watt high frequency desiccator with the added feature of a cut capacity for outpatient surgical procedures. In effect, the Bovie Bantam|Pro is two independent surgical devices in one small package. The Bantam|Pro replaces the Aaron A950 but with the added feature of Bovie NEM (neutral electrode monitoring), a safety feature that reduces the potential for alternate site burns. This unit is designed mainly for use in doctors’ offices and is used in a broad range of specialties including dermatology, gynecology, family practice, urology, plastic surgery and ophthalmology.
The Bovie Specialist|Pro A1250S is a 120-watt multipurpose electrosurgery generator. The unit features monopolar and bipolar functions with pad sensing and is designed to operate like the larger operating room generator in a reduced size. This product is considered to be ideally suited for office-based procedures in the specialties of gynecology, plastic surgery and urology.
Bovie Surgi-Center|Pro A2350 - IDS210 and Bovie OR|Pro A3350 - IDS310
To address market demand for more powerful electrosurgical generators, Bovie developed 200, 300 and 400-watt multipurpose digital electrosurgery generators designed for the surgi-center market and the hospital outpatient and inpatient markets. This equipment includes digital hardware that enables very high parallel data processing throughout the operation or procedure. All data is sampled and processed digitally. For the first time in electrosurgery, generators are able to measure tissue impedance in real time (5,000 times a second) thanks to the utilization of digital technology. The design of these units is based on a digital feedback system. By using dedicated digital hardware in place of a general purpose controller for processing data, our equipment enables the power to be adjusted as the impedance varies, to deliver a consistent clinical effect.
Bovie Surgi-Center|Pro A2350 and IDS210 are 200-watt generators that have the capability to be used in the majority of procedures performed today in surgi-center or outpatient settings. Although 200 watts is adequate to do most procedures in the operating room, 300 watts is considered the standard and believed to be what most hospitals and surgi-centers will require. To meet this requirement, we developed the Bovie OR|Pro A3350 - IDS 310. The Bovie OR|Pro and IDS 310 incorporate the best features of the IDS 300 and upgrade its capabilities by providing additional bipolar options, including the 225-watt Bovie bipolar and an auto bipolar feature. The 300 watt units also offer the capability to utilize two pencils with simultaneous activation in fulguration mode. In addition, these newer models meet new standards required to sell these products in many of the global markets. The Bovie IDS 400 is a 400-watt generator designed primarily for sale in markets outside of the United States. These units feature both monopolar and bipolar functions, have pad and tissue sensing and include nine blended cutting setting.
Electrosurgical Disposables
Resistick™ II
Resistick II is a trademarked and proprietary coating that is applied to stainless steel that resist eschar (scab or scar tissue caused by burning) during surgery. We have experienced strong demand for this product since its introduction in 2011 and it represents our continued expansion of the Bovie line of electrosurgical disposables.
Disposable Laparoscopic Electrodes
We have introduced a line of disposable laparoscopic electrodes in Resistick coated and stainless steel for use by physicians from a broad group of specialties including gynecology, general surgery and urology. These electrodes are offered in J-hook, L-hook, needle, ball and spatula design and have an adapter included which makes these laparoscopic electrodes usable with a 3/32“ or 4mm plug.
Cauteries
Battery Operated Cauteries
Battery operated cauteries were originally designed for precise hemostasis (to stop bleeding) in ophthalmology. The current use of cauteries has been substantially expanded to include a broad range of applications. Battery operated cauteries are primarily sterile one-time use products. We have continued to improve our offering and in 2016, had a patent issued covering our snap design cautery. It features a switch mechanism that dramatically reduces the potential for accidental activation. We manufacture one of the broadest lines of cauteries in the world, including but not limited to, a line of replaceable battery and replaceable tip cauteries, which are popular in veterinary and overseas markets.
BOVIE MEDICAL CORPORATION
Other Products
Battery Operated Medical Lights
We manufacture and market a variety of specialty lighting instruments for use in ophthalmology as well as distribute specialty lighting instruments for general surgery, hip replacement surgery and for the placement of endotracheal tubes in emergency and surgical procedures. We also manufacture and market physicians’ office use penlights.
Nerve Locator Stimulator
We manufacture a nerve locator stimulator primarily used for identifying motor nerves in hand and facial reconstructive surgery. This instrument is a sterile, self-contained, battery-operated unit, for one time use.
Competition
We compete with numerous manufacturers and distributors of medical supplies and devices, many of which are large and well-established. With the exception of endoscopic instrumentation, which are sold directly or through distribution partners to the end-user under our own brand, many of our products are private labeled. The majority of the products in our core business are sold through distributors under the Bovie label. The balance is private labeled for major distributors who sell it under their own name. By having private labeled and branded distribution, we are able to increase our position in the marketplace and compete with much larger organizations. While our private label customers distribute products through their internal sales force, the majority of our products are sold through distributors which increase our sales potential and help level the playing field relative to our large competitors that sell direct. Domestically, we continue to believe that we have a substantial market share in the field of electrosurgical generator manufacturing through our Bovie branded and OEM units.
Our main competitors in electrosurgical and accessory markets are Valleylab (a division of Medtronic), Conmed and Erbe Electromedizine. In the battery-operated cautery market, our main competitor is Beaver Visitec and in the endoscopic instrumentation market, it is Ethicon (a division of Johnson and Johnson) and Covidien Surgical Solutions.
OEM Segment
Overview
The Company leverages its expertise in the design, development and manufacturing of electrosurgical equipment by producing equipment for large, well-known medical device manufacturers through original equipment manufacturing (OEM) agreements, as well as start-up companies with the need for our energy based designs. These OEM and private label arrangements and our use of the Bovie brands enable us to gain greater market share for the distribution of our products.
Advanced Energy Segment
Overview
The Advanced Energy SegmentOur product portfolio consists primarily of J-Plasma;our Helium Plasma Technology that is marketed and sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market. Our primary focus is on the cosmetic surgery market where Renuvion® offers plastic surgeons, fascial plastic surgeons and cosmetic physicians a patented helium-based plasma surgical product which we believeunique ability to provide controlled heat to the tissue to achieve their desired results. This technology has the potential to be a transformational product for surgeons. J-Plasma has US FDA clearance, CE mark, and clearance for sale in multiple other countries and is generally indicated for the cutting, coagulation and ablation of soft tissue. The J-Plasma system consists of an electrosurgical generator unit (ESU)(“ESU”), a handpiece and a supply of helium gas. Radiofrequency (RF)The proprietary radiofrequency (“RF”) energy is delivered to the handpiece by the ESU and used to energize an electrode. When helium gas passes over the energized electrode, helium plasma is generated which allows for conduction of the RF energy from the electrode to the patient in the form of a precise helium plasma beam. The energy delivered to the patient via the helium plasma beam is very precise and coolerunique in temperaturethat it allows for the application of heat to tissue in comparison to other surgical energy modalities such as standard RFa way that is not possible with traditional monopolar energy. J-Plasmaor bipolar technologies. This technology has been the subject of ten white papersover ninety peer-reviewed journal articles, book chapters, abstracts, and has been cited therein for its clinical utility in gynecologicalposters. It also continues to be the subject of numerous presentations at traditional and plasticcosmetic surgery procedures.conferences around the world.
BOVIE MEDICAL CORPORATION
Our J-Plasma productThis technology initially received FDA clearance in 2012 and a CE mark in December 2014, which enables us to sell the product in the European Union. In 2014, we created and trained a direct sales force dedicated to J-Plasma.sell this technology. In 2015, we continued the commercialization process for J-Plasmaour Helium Plasma Technology with a multi-faceted strategy designed to accelerate adoption of the product. This strategy primarily involved deployment of a dedicated sales force, extending and customizing the J-Plasmadeveloping product line extensions and expanding the surgical specialties in which J-Plasmathis technology can become the “standard of care“care” for certain procedures.
ByDuring 2022, we continued our full-scale, global, commercialization efforts for Renuvion® in the endcosmetic and plastic surgery markets. As of 2017,December 31, 2022, we had 17a direct sales force of 35 field-based selling professionals and a network of 14utilized 3 independent manufacturing representatives, resulting in a total sales force of 31.agencies. We also had 4 sales managers. This is a surgery based selling organization with its focusis focused on the use of J-PlasmaRenuvion® in the cosmetic surgery market, supported by our global medical affairs team. This global team of clinical support specialists focuses on supporting our users to ensure optimal outcomes for surgical procedures.their patients. In addition, we have invested in training programs and marketing-related activities to support accelerated adoption of Renuvion® into physicians’ practices.
From 2015 through 2017,2022, we launched numerous new J-Plasma productsextensions to our Helium Plasma product lines in an effort to target new surgical procedures, users, and markets. Most notably, throughout 2021, we continued our launch of our Renuvion® Apyx Plasma RF handpieces (“APR”) around the world. These handpieces were designed with improved ergonomics and usability for our Renuvion® customers. As a result of our sales, marketing and product development initiatives, we have significantly increased the number of physicians using J-Plasmaour Helium Plasma Technology by expanding usage to include the surgical oncologycosmetic surgery market in the U.S., and the cosmetic surgery market.
market as well as the surgical oncology market outside the U.S. In 2017 specifically,late January 2023, we launched our recently FDA approved Apyx One Console in the US. This is a multi-functional generator incorporating an updated versionadvanced 3-in-1 energy system that enables plastic and cosmetic surgeons to utilize Renuvion technology, together with full monopolar and bipolar energy.
Key features of the Bovie Ultimate generator,Apyx One Console include adaptive and a new J-Plasma handpiece for open surgical procedures. The updated version of the Bovie Ultimate generatorintuitive touch screens, procedural presets by body part, cloud connectivity, data sharing and the new handpieces allow for the combination of our trademarked Cool-Coag technologylogging, remote upgrade capabilities and J-Plasma into one, multiple purpose handpiece. Cool-Coag combines standard monopolar coagulation waveforms with helium to provide three distinct modes to stop bleeding including a high fulguration/spray effect. During the second quarter of 2017, we refocused our U.S. sales team into the cosmetic surgery market. Sincesystem diagnostics, and an advanced gas system that time, we have seen a significant increase in the number of physicians using J-Plasma in the cosmetic surgery market.measures and monitors gas volume and usage.
In order to assist us in leveraging J-Plasma’sour Helium Plasma Technology’s precision and effectiveness in multiple surgical specialties, we launched acontinue to utilize our Medical Advisory Board in 2015 which is currently comprisedconsists of surgeons who are recognized leaders in GYN, urology, cardiovascular5 members representing the plastic surgery, fascial plastic surgery, and cardiothoracic surgery. In 2017, we added an additional surgeon to this board from the cosmetic surgical specialty.procedure specialties.
In 2018, our J-PlasmaOur commercial strategy in the U.S. will beand outside the U.S. is primarily focused on advancing the usage of J-PlasmaRenuvion® in the cosmetic surgery market. In some of our international markets, we will also focus on cosmetic surgery and will continue to focus on the surgical oncology market. Our primary international focus will be on advancing the adoption of J-Plasma in the hospital setting. We believe the majority ofprovide support to our targeted procedures in international markets take place incustomers who have adopted our J-Plasma® technology for the hospital surgical suite and believe the sales process is shorter in hospitals in international markets as comparedmarket. We continue to those in the United States. Also, in 2018, we will initiatedevelop a clinical and regulatory strategy, and corresponding marketing campaigns, to support our market focus, once complete, we will launch a corresponding marketing campaign.focus. We also continue to expand the reach of our global medical affairs team in order to provide clinical support to our customers in all markets.
We are continuingcontinue to make substantial investments in the development and marketing of our J-PlasmaRenuvion® technology for the long termlong-term benefit of the Company and its stakeholders, and this may adversely affect our short term profitabilityshort-term operating performance and cash flow,flows, particularly over the next 12 to 2418 months. While we believe that these investments have the potential to generate additional revenues and profits in the future, there can be no assurance that J-Plasmaour Helium Plasma Technology will continue to be successful or that such future revenues and profitability will be realized.
Customers
WeIn the U.S., we primarily sell our J-PlasmaRenuvion® products through our direct sales force to physicians, cosmetic surgery offices and surgical centers and hospitals.centers.Outside of the U.S., all of our products are sold primarily through our distributor network.
Products
During 2017,Our Advanced Energy Products consistedconsist of the J-Plasma lineour Helium Plasma Technology lines (Renuvion® and J-Plasma®). These product lines consist of products and the Plazxact arthroscopic bipolar ablator. The J-Plasma system consists of an electrosurgicala multifunction generator, unit (ESU), a handpiece and a supply of helium gas. Radiofrequency (RF)RF energy is delivered to the handpiece by the ESUgenerator and used to energize an electrode. When helium gas passes over the energized electrode, helium plasma is generated which allows for conduction of the RF energy from the electrode to the patient in the form of a precise helium plasma beam. The energy delivered to the patient via the helium plasma beam is very precise and coolerunique in temperature in comparisonthat it allows for the application of heat to other surgical energy modalities such as standard RF monopolar energy. The Plazxact arthroscopic bipolar ablator is used to ablate damaged, soft tissue in joint procedures to help improve functiona way that is not possible with traditional monopolar or reduce pain. The Plazxact system is designed withbipolar technologies.
Helium Plasma Generator
While we did a very efficient tip design that allowslimited launch of our Apyx Once Console in the ablator to be activated with any standard electrosurgical generator. This eases and shortensU.S. in the sales cycle for the product by removing the need to sell capital equipment to the hospital.
BOVIE MEDICAL CORPORATION
J-Plasma Generator
In June 2017, we launched the newest version2022, full commercial launch of the Bovie Ultimate™ generator. The Bovie Ultimate 2.0 is agenerator in the U.S. started in January 2023. Internationally, during 2022, we continued our launch of the Renuvion® System 3 generator, to markets outside the U.S. This high frequency electrosurgical generator that can be used for delivery of RF energy and/or helium gas plasma to cut, coagulate and ablate soft tissue during open and laparoscopic surgical procedures. TheThis new generator offers users monopolar, bipolarwas built for use with our Renuvion® APR handpieces, and J-Plasma features inenhanced capabilities such as a single generator. It also powersjoule counter, capable of displaying energy delivered to the Cool-Coag technology that has been incorporated intopatient, and new Auto-Bipolar functionality, which expands the new Precise Open and Precise FLEX J-Plasma handpieces that were released in December 2017.surgical capabilities of the system. These 2017 new product releases continue to expand the procedure base for J-Plasmaour Helium Plasma Technology by providing the surgeons with the tools they need to access additional anatomic locations and perform specific procedures.
J-Plasma DisposableDisposables Portfolio
We offer a variety of different hand pieces for open and laparoscopic procedures. The helium-based plasma generated from these devices havehas been shown to provide increased precision and control and cause less thermal damage to tissue than CO2 laser, argon plasma and RF energy products currently available on the market. The technology has a general indication and can be used for cutting, coagulating and ablating soft tissue. The two primary specialties that are targeted in phase one of the product launch are surgical oncology and cosmetic surgery. The advantages of helium plasma continue to be studied throughout the medical and scientific communities. We believe that surgicalcosmetic surgery applications are just onethe primary area of opportunity for this technology. In 2020, we completed the launch of our new generation APR handpieces in the U.S. market. During 2021, we began to launch these new handpieces in our international markets, designed specifically for minimally invasive use, with improved ergonomics and safety features.
Competition
Currently, we are the only company with helium-based plasma products and retractable blade products. However,two specific indications from the FDA. While the FDA Safety Notice did impact our sales, and there are RF basedRF-based competitors, argon plasma competitors, and CO2 laser competitors for our target market. Wemarket, we still believe our competitive position did not change in 2017.2022.
FDA and Other Government Regulations
The Company’s business is subject to varying degrees of governmental regulation in the countries in which operations are conducted, and the general trend is toward increasingly stringent regulation and enforcement. We are subject to costly and complex U.S. and foreign laws and governmental regulations, and any adverse regulatory action may materially adversely affect the our financial condition and business operations. In the U.S., the drug, device, and cosmetic industries have long been subject to regulation by various federal and state agencies, primarily as to product safety, efficacy, manufacturing, advertising, labeling and safety reporting. The exercise of broad regulatory powers by the FDA continues to result in increases in the amounts of testing and documentation required for FDA approval of new drugs and devices and a corresponding increase in the expense of product introduction. Similar trends are also evident in major markets outside of the U.S. The new medical device regulatory framework and the new privacy regulations in Europe and in other countries are examples of such increased regulation.
For example, the European Union enacted the European Union Medical Device Regulation in May 2017 with an effective date of May 2021, which imposes stricter requirements for the marketing and sale of medical devices, including in the areas of clinical evaluation requirements, quality systems, labeling and post-market surveillance. Additionally, as a result of the exit of the United Kingdom from the European Union (Brexit), new medical device regulations were released by the United Kingdom, which became effective January 1, 2021. A gap analysis against the prior Medical Device Directive (“MDD”), a compliance plan was implemented, and the plan is being executed for both the European Union and United Kingdom regulations to ensure compliance and minimize business disruption.
The regulatory agencies under whose purview the Company operates have administrative powers that may subject it to actions such as product withdrawals, recalls, seizure of products and other civil and criminal sanctions. In some cases, the Company’s may deem it advisable to initiate product recalls.
The FDA and regulatory agencies around the globe are also increasing their enforcement activities. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such products, detain or seize adulterated or misbranded products, order a recall, repair, replacement, or refund of such products, refuse to grant pending applications for marketing authorization or require certificates of foreign governments for exports, and/or require us to notify health professionals and others that the products present unreasonable risks of substantial harm to the public health. The FDA may also assess civil or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide basis or enjoin and/or restrain certain conduct resulting in violations of applicable law. The FDA may also recommend prosecution to the U.S. Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products and limit our ability to obtain future clearances or approvals, and could result in a substantial modification to our business practices and operations. Equivalent enforcement mechanisms exist in different countries in which we conduct business.
On March 14, 2022, the 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. Throughout 2022, and continuing into 2023, we have been working closely with the FDA to gain clearances for the use of our products in various surgical applications, demonstrating our commitment to both safety and efficacy, supported by both clinical study and real-world data.
The costs of human healthcare have been and continue to be a subject of study, investigation and regulation by governmental agencies and legislative bodies around the world. In the U.S., attention has been focused by states, regulatory agencies and congress on device prices and profits and programs that encourage doctors to recommend, use or purchase particular medical
BOVIEAPYX MEDICAL CORPORATION
devices. Laws and regulations have been enacted to require adherence to strict compliance standards and prevent fraud and abuse in the healthcare industry. There is increased focus on interactions and financial relationships between healthcare companies and healthcare providers.
Various transparency laws and regulations require disclosures of payments and other transfers of value made to physicians and teaching hospitals and, beginning with disclosures in 2022, to certain non-physician practitioners. Payers have become a more potent force in the marketplace and increased attention is being paid to medical device pricing, appropriate drug and medical device utilization and the quality and costs of healthcare generally.However, most of the Company’s products are not reimbursable by payers (including the US. Government) which alleviates some of the burden of reporting.Nevertheless, weare committed to following all legal requirements, as well as company policies and procedures as it relates to our interactions with healthcare professionals. At all times, we will provide information to healthcare professionals that is truthful, not misleading, and consistent with our product labeling and supported by our data.
Medical Device Single Audit Program (“MDSAP”)
The International Medical Device Regulators Forum (“IMDRF”) recognized that a global approach to auditing and monitoring the manufacturing of medical devices could improve their safety and oversight on an international scale. The IMDRF established a work group that developed specific documents to advance a MDSAP. The Medical Device Single Audit Program allowed MDSAP recognized Auditing Organizations to conduct a single regulatory audit of a medical device manufacturer to satisfy the relevant requirements of the regulatory authorities participating in the program. Today the regulatory authority members include the US, Australia, Brazil, Canada and Japan, official observers European Union and United Kingdom, and affiliates Argentina, Israel, South Korea, and Singapore. In February 2022, we underwent a successful annual MDSAP audit by our registrar GMED SAS. There were no observations related to safety or efficacy of our products noted during this MDSAP audit. The FDA accepts MDSAP audit reports as a substitute for routine Agency inspections.
Global Supply Chain Impact
Further, the Company relies on global supply chains, and production and distribution processes, that are complex, are subject to increasing regulatory requirements, and may be faced with unexpected changes that may affect sourcing, supply and pricing of materials used in the Company’s products. These processes also are subject to complex and lengthy regulatory approvals.
OEM Segment
Overview
We leverage our expertise in the design, development and manufacturing of electrosurgical equipment and medical devices by producing generators, medical devices and related accessories for large, well-known medical device manufacturers through original equipment manufacturing (“OEM”) agreements, as well as start-up companies with the need for our energy-based designs.In connection with the Asset Purchase Agreement with Symmetry Surgical in 2018, we entered into a Manufacturing and Supply Agreement for a ten-year term, whereby we will manufacture certain products and sell to them at agreed upon prices.Revenue, costs and expenses resulting from this agreement are reported in our Consolidated Statements of Operations as a component of income or loss from operations of our OEM reporting segment.
ITEM 1A. Risk factorsFactors
In addition to risks and uncertainties in the ordinary course of business, important risk factors that may affect us are discussed below. Additional risks not presently known to us, or that we currently believe are immaterial, may also significantly impact or impair our business operations.
Risks Related to Our IndustryRegulatory Compliance Risk
The medical device industry is highly competitiveProduct Approval and we may be unable to compete effectively.Monitoring
The medical device industry is highly competitive. Many competitors in this industry are well-established, do a substantially greater amount of business and have greater financial resources and facilities than we do.
Domestically, we believe we rank third in the number of units sold in the field of electrosurgical generator manufacturing andMost countries where we sell medical devices subject our productstechnologies to their own approval and compete with other manufacturersregulatory requirements regarding performance, safety, and quality. The global regulatory environment is increasingly unpredictable and stringent. Countries that did not have regulatory requirements for medical devices have established such requirements in various ways. In additionrecent years, and other countries have expanded, or plan to advertising, attending trade shows and supporting our distribution channels, we strive to enhance product quality and functionality, improve user friendliness and expand, product exposure.
We have also invested andtheir existing regulations. While there are efforts at some harmonization of global regulations, requirements continue to invest, substantial resourcesdiffer significantly among countries. We expect that as this global regulatory environment continues to developevolve, it could impact the cost, the time needed to approve, and monetizeultimately, our J-Plasma technology. If we are unableability to gain acceptance in the marketplacemaintain existing approvals or obtain future approvals for our products. Regulations of J-Plasma, our business and results of operations may be materially and adversely affected.
We also compete by private labeling our products for major distributors under their label. This allows us to increase our position in the marketplace and thereby compete from two different approaches, our Bovie label and our customers’ private label. Our private label customers distribute our products under their name through their internal sales force. We believe our main competitors do not private label their products.
Lastly, at this time, we sell the majority of our products through distributors. Many of the companies we compete with sell direct, thus competing directly with distributors they sometimes use.
Our industry is highly regulated by the U.S. Food and Drug Administration (the “FDA”) and internationalother regulatory authorities,agencies in and outside the U.S. impose significant compliance and monitoring obligations on our business.
We are subject to costly and complex laws and governmental regulations and any adverse regulatory action may materially adversely affect our financial condition and business operations.
As a part of the regulatory process for obtaining marketing clearance or approval for new products and new indications for existing products, we conduct and participate in numerous clinical trials with a variety of study designs, patient populations, and trial endpoints. Unfavorable or inconsistent clinical data from existing or future clinical trials, or the market’s or the FDA’s perception of these clinical data, may adversely impact our ability to obtain product approvals, our position in, and share of, the markets in which we participate. We cannot guarantee that we will be able to obtain or maintain marketing clearance for our new products or enhancements or modifications to existing products, and the failure to maintain approvals or obtain approval or clearance could have a material adverse effect on our business, results of operations, financial condition and cash flows. Even if we are able to obtain approval or clearance, it may:
•take a significant amount of time;
•require the expenditure of considerable resources;
•involve rigorous clinical and pre-clinical testing, as well as increased post-market surveillance;
•involve modifications, repairs, corrections, or replacements of our products; and
•limit the proposed intended uses of our products.
On March 14, 2022, the FDA posted a 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. We continue to work with the FDA towards securing 510(k) clearance for additional indications. We continue to evaluate what effects, if any, the Communication will continue to have on our results of operations, cash flows and financial position.
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.
On June 2, 2022, and July 21, 2022, the FDA updated the Medical Device Safety Communication to recognize the new 510(k) clearances for the Renuvion® Dermal handpiece, and the expanded indications for the Renuvion® APR 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.
On February 1, 2023, we announced we had submitted a 510(k) premarket notification (“510(k) submission”) for the Renuvion APRHandpiecetotheFDA,supportedbyaclinicalstudyandreal-worldevidence.This 510(k) submission is intended to expand Renuvion’s indications for use to include a specific indication for the use of the Renuvion APR Handpiece for the coagulation of subcutaneous soft tissues where needed, following liposuction. There can be no assurance that we will receive such FDA clearance.
On February 27, 2023, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion APR Handpiece for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed. Soft tissue includes subcutaneous tissue.
While we expected that receiving these clearances would materially mitigate the financial effects of the Safety Communication in future periods, we continue to experience reduced demand for the adoption and utilization of our technology and we believe that this may have an adverse effect in future periods.
Before and after a product is commercially released, we have ongoing responsibilities under the FDA, Health Canada, Australia, Brazil, EU, and other governmental, stateapplicable world-wide government agency regulations. For instance, many of our processes and federal agencies which have substantial authorityfacilities, as well as those of our suppliers, are also subject to establish criteria which must be compliedperiodic audits to determine compliance with applicable regulations. The results of these audits can include major inspectional observations, warning letters, or other forms of enforcement.
If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical products are ineffective or pose an unreasonable health risk, they could ban such medical products, determine that our products are adulterated or misbranded, order a recall, repair, replacement, correction, or refund of such products, refuse to grant pending pre-market clearances or approvals, refuse to issue export certificates for foreign governments, or require us to continue in operation.notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health.
United States
Our products and research and development activities are subject to regulation by theThe FDA and other non-U.S. government agencies may also assess civil or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide basis. The FDA may also recommend prosecution to the U.S. Department of Justice. Any adverse regulatory bodies.action, depending on its magnitude, may restrict us from effectively marketing and selling our products and limit our ability to obtain future pre-market clearances or approvals, and could result in a substantial modification to our business practices and operations. These potential consequences, as well as any adverse outcome from government investigations, could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
In addition, the FDA has taken the position that device manufacturers are prohibited from promoting their products other than for the uses and indications set forth in the cleared product labeling. Any failure to comply could subject us to significant civil or criminal exposure, administrative obligations and costs, other potential penalties from, and/or agreements with, the federal government. Governmental regulations govern, among other things, the following activities:worldwide have, and may continue to become, increasingly stringent and customary.
•Product development
•Product testing
•Product labeling
•Product storage
•Pre-market clearance or approval
•Advertising and promotion
•Product traceability and
•Product indications.
In the United States,EU, a single regulatory approval process exists, and conformity with the legal requirements is represented by the CE Mark. To obtain a CE Mark, defined products must meet minimum standards of performance, safety, and quality (i.e., the essential requirements), and then, according to their classification, comply with one or more of a selection of conformity assessment routes. The competent authorities of the EU countries separately regulate the clinical research for medical devices and the market surveillance of products once they are classifiedplaced on the basis of control deemed necessary to reasonably ensuremarket. A new Regulation (EU) 2017/745 on medical devices, or “EU MDR”, came into effect in May 2017, which imposes significant additional premarket and postmarket requirements.
The EU MDR represents the safety and effectiveness of the device. Class I devices are subject to general controls. These controls include registration and listing, labeling, pre-market notification and adherencefirst major changes to the FDA Quality System Regulation. Class II devices are subjectEU medical device regulatory environment, has significantly raised the compliance bar for the medical device industry, and will cause significant changes to generalthe regulatory obligations of manufacturers, importers and special controls. Special controls include performance standards,distributors involved in the medical device distribution chain. Classification has changed for some product categories, and strict new requirements have been imposed on clinical data, risk management, post market surveillance, patient registries and FDA guidelines. Class IIIsupplier management. Penalties for regulatory non-compliance could be severe, including fines and revocation or suspension of a company’s business license, and criminal sanctions. The regulation initially provided a three-year implementation period to May 2020, but that timeline was delayed to May 2021 due to COVID-19 and its impact on audits and technical file review by Notified Bodies. After that time, medical devices are thosemarketed in the EU will require certification according to these new requirements, except for devices with valid CE certificates, issued pursuant to the Medical Device Directives before May 2020, which must receive pre-market approval bycan be placed in the FDA to ensure their safety and effectiveness. Currently, we only manufacture Class I and Class II devices. Pre-market notification clearance must be obtained for some Class I and most Class II devices when the FDA does not require pre-market approval. All of our products have been cleared by, or are exempt from, the pre-market notification process.
market until May 2024.
BOVIEAPYX MEDICAL CORPORATION
A pre-market approval application is required for most Class III devices. A pre-market approval application must be supported by valid scientific evidence to demonstrate the safety and effectiveness of the device. The pre-market approval application typically includes:
•Results of bench and laboratory tests, animal studies and clinical studies
•A complete description of the device and its components; and
A detailed description of the methods, facilities and controls used to manufacture the device and proposed labeling.
The pre-market approval process can be expensive, uncertain and lengthy. A number of devices for which pre-market approval has been sought by other companies have never been approved for marketing.
International Regulation
To market products in the European Union, our products must bear the “CE” mark. Manufacturers of medical devices bearing the CE mark have gone through a conformity assessment process that assures that products are manufactured in compliance with a recognized quality system and to comply with the European Medical Devices Directive.
Each device that bears a CE mark has an associated technical documentation that includes a description of the following:
•Description of the device and its components,
•A Summary of how the device complies with the essential requirements of the medical devices directive,
•Safety (risk assessment) and performance of the device,
•Clinical evaluations with respect to the device,
•Methods, facilities and quality controls used to manufacture the device and
•Proposed labeling for the device.
Manufacturing and distribution of a device is subject to ongoing surveillance by the appropriate regulatory body to ensure continued compliance with quality system and reporting requirements.
We began CE marking of devices for sale in the European Union in 1999. In addition to the requirement to CE mark, each member country of the European Union maintains the right to impose additional regulatory requirements.
Outside of the European Union,EU, regulations vary significantly from country to country and are becoming increasingly stringent and country specific. Territories and countries around the world continue to develop their own unique regulatory requirements, and these individual governments are passing laws that enforce these new regulations, including imposing fees, to register products in their country. The time and effort required to obtain approval to market products may be longer or shorter than that required in the United StatesU.S. or the European Union.EU. Certain European countries outside of the European UnionEU, and other countries around the world do not recognize and give effect to the CE mark certification. We are permittedcertification or FDA clearance/approval and have their own regulatory requirements to marketregister and sell our products in these territories.
Environmental Regulation
The medical device industry continues to be the subject of intense scrutiny and stringent regulation and the demand for green, sustainable products is rapidly increasing. There are increasing requirements for efficient and accurate processes for hazardous substance handling, supplier disclosures, and regulatory reporting in order to comply with numerous global health and environmental regulatory requirements and restrictions, including but not limited to:
•Restriction on Hazardous Substances (“RoHS”) Directive
•Packaging and Packing Waste Directive
•REACH Regulation
•Proposition 65
•Hazardous Air Pollutants: Ethylene Oxide
Compliance with existing and future environmental regulations may have an impact on the manufacturing and sterilization of our medical devices. Environmental regulations in the U.S. and EU limit or prohibit the use of certain chemicals, substances and materials in the manufacture of our medical devices such as Prop 65 in California and others in the EU such as REACH, RoHS, and WEEE Directive. With the current global concerns over climate change and the tangible effects human beings are having on the environment, there is no doubt that the amount of environmental legislation is primed to increase still further, with the EU being at the forefront of this movement.
Ethylene oxide (“EtO”) is used to sterilize approximately 50% of medical devices in the U.S. While some alternative methods currently exist, potential device incompatibility issues exist with these alternatives. The U.S. Environmental Protection Agency (EPA) classified EtO as a carcinogen after linking it to cases of breast cancer, lymphoma and leukemia. Currently, shortages due to current closures are not expected, but any additional commercial sterilization facility closures could result in shortages for certain devices. Our devices are not currently impacted by these closures, however, it is unknown if the current EtO facilities utilized by Apyx Medical could be impacted in the future.
The FDA is closely monitoring the supply chain effects of closures and potential closures of certain facilities that use EtO to sterilize medical devices prior to their use, and, is concerned about the future availability of sterile medical devices and the potential for medical device shortages that might impact patient care. However, they do not have oversight authority over EtO emissions, which is within the purview of the EPA.
Our operations and those countries.
of certain third-party suppliers involve the use of substances subject to these laws and regulations, primarily those used in manufacturing and sterilization processes. If we are unable to successfully introduce new products or fail to keep pace with competitive advances in technology, our business, financial conditionsuppliers violate these environmental laws and results of operationsregulations, facilities could be adversely affected.shut down and violators could be fined, criminally charged or otherwise sanctioned. Furthermore, environmental laws outside of the U.S. are becoming more stringent, resulting in increased costs and compliance burdens. In addition, our researchcertain environmental laws assess liability on current or previous owners or operators of real property for the costs of investigation, removal or remediation of hazardous substances or materials at their properties or at properties which they have disposed of hazardous substances. In addition to cleanup actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. The ultimate cost of site cleanup and development efforts rely upon investmentstiming of future cash outflows is difficult to predict, given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and alliancesregulations, and we cannot guarantee that any previousalternative cleanup methods. The costs of complying with current or future investmentsenvironmental protection and health and safety laws and regulations, or alliances will be successful.
Our research and development activities are an essential component of our efforts to develop new and innovative products for introduction in the marketplace. New and improved products play a critical role in our sales growth. We continue to place emphasis on the development of proprietary products, such as our J-Plasma technology, and product improvements to complement and expand our existing product lines. We maintain close working relationships with physicians and medical personnel in hospitals and universities who assist in product research and areas of development. Our research and development activities are primarily conducted internally and are expensed as incurred. These expenses include direct expenses for wages, materials and services associated with the development of our products net of any reimbursementsliabilities arising from customers. Research and development expenses do not include any portion of general and administrative expenses. Our research and development activities are conducted at our Clearwater, Florida and Sofia, Bulgaria facilities. We expect to continue making future investments to enable us to develop and market new technologies and products to further our strategic objectives and strengthen our existing business. However, we cannot guarantee that any of our previouspast or future investments in both facilities will be successfulreleases of, or thatexposures to, hazardous substances, may exceed our new products such as J-Plasma and PlazXact arthroscopic ablator, will gain market acceptance, the failure of which wouldestimates, or have a material adverse effect on our business, and results of operations.
operations, financial condition, and cash flows.
BOVIEAPYX MEDICAL CORPORATION
The amount expendedAnti-Corruption Regulation
As we grow our international presence and global operations, we will be increasingly exposed to statutes, anti-corruption trade policies, economic sanctions and other restrictions imposed by us on researchthe United States and developmentother foreign governments and organizations, including the U.S. Foreign Corrupt Practices Act, or the FCPA, and other federal statutes and regulations, including those established by the Office of Foreign Assets Control, or OFAC. In addition, other foreign statutes, such as the U.K. Bribery Act of 2010, or the Bribery Act, prohibits both domestic and international bribery, as well as bribery across both private and public sectors.
We have implemented policies and procedures designed to ensure compliance by our directors, officers, employees, representatives, consultants and agents with the FCPA, OFAC restrictions, the Bribery Act and other export control, anti-corruption, anti-money-laundering and anti-terrorism laws and regulations, and require training of our products during the years 2017, 2016employees, management team and 2015, totaled approximately $2.5 million, $2.6 millionour global distributors on an annual basis. However, there can be no assurance that our policies and $2.2 million, respectively. During the past three years, we invested substantial resources in the development and marketing of our Advanced Energy product technology. We have not incurred any direct costs relatingprocedures are or will be sufficient to environmental regulations or requirements. For 2018, we expect to invest 6.5% to 7.0% of revenue for research and development activities.
Even if we are successful in developing and obtaining approval for our new product candidates, there are various circumstances that could prevent the successful commercializationviolations from occurring.Violations of the products.
Our ability to successfully commercialize our products, including our J-Plasma technology, will depend on a number of factors, any of which could delay or prevent commercialization, including:
our product is determined to be ineffective or unsafe following approval and is removed fromFCPA, OFAC restrictions, the market or we are required to perform additional research and development to further prove the safety and effectiveness of the product before re-entry into the market;
the regulatory approvals of our new products are delayed or we are required to conduct further research and development of our products prior to receiving regulatory approval;
we are unable to build a sales and marketing group to successfully launch and sell our new products;
we are unable to raise the additional funds needed to successfully develop and commercialize our products or acquire additional products for growth;
we are required to allocate available funds to litigation matters;
we are unable to manufacture the quantity of product needed in accordance with current good manufacturing practices to meet market demand, or at all;
competition from other products or technologies prevents or reduces market acceptance of our products;
we do not have and cannot obtain the intellectual property rights needed to manufacture or market our products without infringing on another company’s patents; or
we are unsuccessful in defending against patent infringementBribery Act or other intellectual property rights, claims thatexport control, anti-corruption, anti-money laundering and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could be brought against us, our products or technologies;
The failure to successfully acquire or develop and commercialize new products will have a material and adverse effect on the future growth of our business,reputation, financial condition, and results of operations.
Our international operations subject us to foreign currency fluctuations and other risks associated with operating in foreign countries.
We operate internationally and enter into transactions denominated in foreign currencies. To date, we have not hedged our exposure to changes in foreign currency exchange rates and as a result, we are subject to foreign currency transaction and translation gains and losses. We purchase goods and services in U.S. dollars and Euros. Foreign exchange risk is managed primarily by satisfying foreign denominated expenditures with cash flows or assets denominated in the same currency therefore we are subject to some foreign currency fluctuation risk. Our currency value fluctuations were not material for 2017. In addition, political changes or instability throughout the world could adversely affect our business internationally.
Our operations and cash flows may be adversely impacted by healthcare reform legislation.
The Patient Protection and Affordable Care Act and Health Care and Education Affordability Reconciliation Act were enacted into law in the U.S. in March 2010. Among other initiatives, this legislation imposes a 2.3% excise tax on domestic sales of Class I, II and III medical devices beginning in 2013. The Consolidated Appropriations Act, 2016, signed into law on Dec. 18, 2015, includes a two year moratorium on the medical device excise tax imposed by Internal Revenue Code section 4191. Thus, the medical device excise tax does not apply to the sale of a taxable medical device by the manufacturer, producer, or importer of the device during the period beginning on Jan. 1, 2016 and ending on Dec. 31, 2017. H.R. 195, signed into law on January 22, 2018, extends the moratorium for an additional two years, ending on December 31, 2019. As approximately 85.2% of our 2017 sales were derived in the U.S., we cannot predict if any additional regulations will be implemented at the federal or state level, or the effect of any future legislation or regulation in the U.S. or internationally.
BOVIE MEDICAL CORPORATION
Our operations may experience higher costs to produce our products as a result of changes in prices for oil, gasoline and other commodities.
We use plastics and other petroleum-based materials along with precious metals contained in electronic components as raw materials in many of our products. Prices of oil and gasoline also significantly affect our costs for freight and utilities. Oil, gasoline and precious metal prices are volatile and may increase, resulting in higher costs to produce and distribute our products. Due to the highly competitive nature of the healthcare industry and the cost-containment efforts of our customers we may be unable to pass along cost increases through higher prices. If we are unable to fully recover these costs through price increases or offset through other cost reductions, our results of operations could be materially and adversely affected.
Our manufacturing facilities are located in Clearwater, Florida and Sophia, Bulgaria and could be affected due to multiple weather risks, including risks to our Florida facility from hurricanes and similar phenomena.
Our manufacturing facilities are located in Clearwater, Florida and Sophia, Bulgaria and could be affected by multiple weather risks. Most notably hurricanes in Clearwater, Florida. Although we carry property and casualty insurance and business interruption insurance, future possible disruptions of operations or damage to property, plant and equipment due to hurricanes or other weather risks could result in impaired production and affect our ability to meet our commitments to our customers and impair important business relationships, the loss of which could adversely affect our operations and profitability. We do however maintain a backup generator at our Clearwater facility and a disaster recovery plan is in place to help mitigate this risk.
Risks Relating to Our Business
We have historically done a substantial amount of business with seven of our top ten customers, who are also major distributors of our products, which as a group have produced substantial revenues for our Company. Loss of business from a major customer will likely materially and adversely affect our business.
We manufacture the majority of our products at our Clearwater, Florida and Sofia, Bulgaria facilities. Labor-intensiveComponents, labor-intensive assemblies and sub-assemblies, and labor-intensive products may be out-sourcedsterilization services are outsourced to third parties and produced to our specification. Although we sell through distributors, we market our products through national trade journal advertising, direct mail, distributor sales representatives and trade shows, under the Bovie name and private label. Major distributors include Cardinal Health, Independent Medical Co-Op Inc. (IMCO), McKesson Medical Surgical, Inc., Medline, National Distribution and Contracting Inc. (NDC) and Owens & Minor. If any of these distributor relationships are terminated or not replaced, our revenue from the territories served by these distributors could be adversely affected.specifications.
We are also dependent on OEM customers who have no legal obligation to purchase products from us. Should such customers fail to give us purchase orders for the productproducts after development, our future business could be negatively affected. Furthermore, no assurance can be given that such customers will give sufficient high priority to our products. Finally, disagreements or disputes may arise between us and our customers, which could adversely affect production and sales of our products.
We rely on certain suppliershave had a history of operating losses that have impacted our overall cash flows and manufacturers for raw materialsmay impact our ability to continue as a going concern. We anticipate that we may need to adjust our operating expenditures to be commensurate with our expected levels of revenue and/or raise additional capital to finance operations.
Due to our recurring net losses and other products and are vulnerable to fluctuations in the availability and price of such products and services.
Fluctuations in the price, availability and qualitycontinued impact of the raw materialsFDA Safety Communication on demand for the adoption and utilization of our technology, we use inmay need to raise additional capital to fund our manufacturing could have a negative effectfuture operations. Our cash needs will depend on numerous factors, including our costrevenues, successful completion of salesour FDA product clearance activities, our continued ability to commercialize our advanced energy products, and our ability to meetreduce and control costs. If we are unable to secure such additional financing on terms that are acceptable to us, it will have a material adverse effect on our business, and we may have to limit operations in a manner inconsistent with our growth strategy. If additional funds are raised through the demandsissuance of equity securities, it will be dilutive to our customers. Inability to meet the demands of our customersstockholders and could result in a decrease in our stock price. If we are unable to obtain the lossrequisite amount of future sales.financing needed to fund our planned operations, it would have a material adverse effect on our business and ability to continue as a going concern.
In addition, the costsOur indebtedness levels could impact our business.
Our ability to manufacturemake payments on, and to refinance, our productsindebtedness will depend in part on the market prices of the raw materials usedour ability to produce them.generate cash from operations or other financings. Our ability to generate cash is subject to general economic, financial, competitive, regulatory, and other factors that are beyond our control. We may not generate sufficient funds to service our debt, meet our required debt covenants, or meet our business needs, such as funding working capital or the expansion of our operations. If we are unable to do so, we may be ableforced to pass alongtake disadvantageous actions, including issuing additional shares of our stock, reducing spending on marketing, product development, reducing financing in the future for working capital, capital expenditures and general corporate purposes, or dedicating an unsustainable level of our cash flows from operations to the payment of principal and interest on our indebtedness. The creditors who hold our debt could also accelerate amounts due in the event that we trigger a default. Any inability to generate sufficient cash flow or to refinance our indebtedness on favorable terms could have a material adverse effect on our financial condition.
The aesthetic equipment market is characterized by rapid innovation. To compete effectively, we must develop and/or acquire new products, seek regulatory clearance, ensure adequate product supply, execute successful marketing, and identify new markets for our technology.
Our industry is subject to continuous technological development and product innovation. If we do not continue to innovate and develop new products and applications, our competitive position will likely deteriorate as other companies successfully design and commercialize new products and applications or enhancements to our customers all current products. To grow in the future, we must continue to develop and/or a portionacquire new and innovative aesthetic products and applications, identify new markets, and successfully launch the newly acquired or developed product offerings.
Our research and development activities are an essential component of our higher costs of raw materials dueefforts to competitivedevelop new and marketing pressures, which could decreaseinnovative products. New and improved products play a critical role in our earnings and profitability.
sales growth. We also have collaborative arrangements with three key foreign suppliers under which we requestcontinue to place emphasis on the development of certain itemsproprietary products, such as our Renuvion®/J-Plasma® technology, and componentsproduct improvements to complement and expand our existing product lines. We maintain close working relationships with physicians and medical personnel in hospitals and universities who assist in product research and areas of development.
While we purchase them pursuantexpect to purchase orders. Our purchase order commitments are never more than one year in durationcontinue making future investments to enable us to develop and are supported bymarket new technologies and products to further our sales forecasts. The majoritystrategic objectives and strengthen our existing business. We cannot guarantee that any of our raw materialsprevious or future investments in both facilities will be successful or that our new products will gain market acceptance. This would have a material adverse effect on our business and results of operations.
Even if we are purchasedsuccessful in developing new, or enhancing our existing products, there are various circumstances that could prevent their successful commercialization.
Our ability to successfully commercialize our products will depend on a number of factors, any of which could delay or prevent commercialization, including:
•our inability to obtain the necessary regulatory clearances or approvals for expanded indications, new products, or product modifications;
•our inability to demonstrate, if required, the safety and efficacy of new products with data from sole-source suppliers. Whilepreclinical studies and clinical trials;
•if our product is determined to be ineffective or unsafe following approval, and is removed from the market or we believeare required to perform additional research and development to further prove the safety and effectiveness of the product before re-entry into the market;
•if the regulatory approvals/clearances of our new products are delayed or denied, or we could ultimately procure other sources for these components, shouldare required to conduct further research and development of our products prior to receiving regulatory approval;
•our inability to build and maintain a sales and marketing group to successfully launch and sell our new products;
•if we experience any significant disruptionssudden or extreme volatility in this keycommodity prices and availability, including supply chain theredisruptions;
•if we are no assurances thatrequired to allocate available funds to litigation matters;
•if the needs of our physicians or their patients are not sufficiently met;
•if we could do so in a timely manner which could render usare unable to manufacture the quantity of products needed, in accordance with quality manufacturing standards, to meet the demandsmarket demand;
•competition from other products or technologies prevents or reduces market acceptance of our customers, resultingproducts;
•if we do not have, and cannot obtain, the intellectual property rights needed to manufacture or market our products without infringing on another company’s patents; or
•if we are unsuccessful in defending against patent infringement, or other intellectual property rights claims, that could be brought against us, our products or technologies;
The failure to successfully commercialize our products will have a material and adverse effect on the future growth of our business and operating results.
BOVIEAPYX MEDICAL CORPORATION
business, financial condition and results of operations.
If we are unable to protect our patents or other proprietary rights, or if we infringe on the patents or other proprietary rights of others, our competitiveness and business prospects may be materially damaged.
We have been issued 4140 patents in the United States and 2328 foreign patents. We have 1222 pending patent applications in the United States and 958 pending foreign applications. Our intellectual property portfolio for the technology andour J-Plasma®/Renuvion® products related to Advanced Energy products are included in these totals and continues to grow. Specific to Advanced Energy products, we have been issued 21 U.S. and 6 foreign patents and we have 12 U.S. and 9 foreign applications pending.grow on an annual basis. We intend to continue to seek legal protection, primarily through patents, for our proprietary technology. Seeking patent protection is a lengthy and costly process and there can be no assurance that patents will be issued from any pending applications, or that any claims allowed from existing or pending patents will be sufficiently broad or strong to protect our proprietary technology. There is also no guarantee that any patents we hold will not be challenged, invalidated or circumvented, or that the patent rights granted will provide competitive advantages to us. Our competitors have developed, and may continue to develop and obtain, patents for technologies that are similar or superior to our technologies. In addition, the laws of foreign jurisdictions in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as do the laws of the United States.
Adverse outcomes in current or future legal disputes regarding patent and other intellectual property rights could result in the loss of our intellectual property rights, subject us to significant liabilities to third parties, require us to seek licenses from third parties on terms that may not be reasonable or favorable to us, prevent us from manufacturing, importing or selling our products, or compel us to redesign our products to avoid infringing third parties’ intellectual property. As a result, our product offerings may be delayed, and we may be unable to meet customers’ requirements in a timely manner. Regardless of the merit of any related legal proceeding, we have incurred in the past, and may be required to incur in the future, substantial costs to prosecute, enforce or defend our intellectual property rights. Even in the absence of infringement by our products ofon third parties’ intellectual property rights, or litigation related to trade secrets, we have elected in the past, and may in the future, elect to enter into settlements to avoid the costs and risks of protracted litigation and the diversion of resources and management’s attention. However, ifIf the terms of settlements entered into with certain of our competitors are not observed or enforced, we may suffer further costs and risks. Any of these circumstances could have a material adverse effect on our business, financial condition, and resources or results of operations.operations or cash flows.
Our abilityIn addition to develop intellectual property depends in large partpatent, copyright, and trademark protection, we also rely on hiring, retaining and motivating highly qualified design and engineering staff with the knowledge and technical competence to advance ourtrade secrets, including unpatented know-how, technology and productivity goals. Toother proprietary information, to maintain our competitive position. We seek to protect our trade secrets, in part, by entering into non-disclosure and proprietary information, generally we have entered into confidentiality agreements with parties who have access to them, such as our employees, as well as with consultants, vendors, and our former or current employees. Despite these efforts, however, any of these parties may breach those agreements and disclose our trade secrets and other parties. If these agreements prove inadequateunpatented or unregistered proprietary information, and once disclosed, we are breached,likely to lose trade secret protection. Monitoring unauthorized uses and disclosures of our trade secrets is difficult, and we cannot be certain that the steps we have taken to protect our intellectual property will be effective. In addition, our remedies may not be sufficient to cover our losses.
We have been, and may in the future, become subject to litigation proceedings that could materially and adversely affect our business.
The medical device industry is characterized by frequent claims and litigation, and we are and may become subject to various claims, lawsuits and proceedings in the ordinary course of our business, including claims by current or former employees, distributors and competitors, and with respect to our products and product liability claims, lawsuits and proceedings.
We are involved in a number of legal actions relating to the use of our J-Plasma technology. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. In the opinion of management, the Company has meritorious defenses, and such claims are adequately covered by insurance, or are not expected, individually or in the aggregate, to result in a material, adverse effect on our financial condition.condition, results of operations and cash flows. However, in the event that damages exceed the aggregate coverage limits of our policy, or if our insurance carriers disclaim coverage, or if we are unable to continue to obtain coverage on commercially reasonable terms, we believe it is possible that costs associated with these claims could have a material adverse impact on our consolidated earnings, financial position, orresults of operations and cash flows.flows (see below ITEM 3: Legal Proceedings).
In accordance with authoritative guidance, we record a liability in our consolidated financial statementsWe rely on certain suppliers, subcontractors, and manufacturers for these actions when a loss is known or considered probableraw materials and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range,other products 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 disclosedare vulnerable to fluctuations in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amountavailability and timingprice of a loss to be recorded.such products and services.
BOVIEAPYX MEDICAL CORPORATION
Fluctuations in the price, availability and quality of the raw materials (including plastics and other petroleum-based materials, along with semi-conductors and precious metals) and subcontracting services we use in our manufacturing could have a negative effect on our cost of sales and our ability to meet the demands of our customers. Inability to meet the demands of our customers could result in the loss of future sales.
Intellectual Property Litigation
In addition, the costs to manufacture our products depend in part on the market prices of the raw materials used to produce them. We may not be able to pass along to our customers all or Trade Secretsa portion of our higher costs of raw materials due to competitive and market pressures, which could decrease our earnings and profitability.
We also have collaborative arrangements with three key foreign suppliers under which we request the development of certain items and components, which we purchase pursuant to purchase orders. Our purchase order commitments are never more than one year in the past, experienced certain allegationsduration and are supported by our sales forecasts. The majority of infringement of intellectual property rights and use of trade secrets and may receive other such claims, with or without merit, in the future. Previously, claims of infringement of intellectual property rights have sometimes evolved into litigation against us and they may continue to do so in the future. It is inherently difficult to assess the outcome of litigation. Althoughour raw materials are purchased from sole-source suppliers. While we believe we have had adequate defenses tocould ultimately procure other sources for these claims and that the outcome of the litigation will not have a material adverse impact on our business, financial condition, or results of operations,components, should we experience any significant disruptions in this key supply chain, there can beare no assurances that we will prevail. Any such litigation could resultdo so in substantial costa timely manner which could render us unable to us, significantly reduce our cash resources and create a diversion ofmeet the effortsdemands of our technical and management personnel, which could havecustomers, resulting in a material and adverse effect on our business financial condition and operating results. If weresults of operations.
Our manufacturing facilities are unable to successfully defend against such claims, welocated in Clearwater, Florida and Sofia, Bulgaria and could be prohibitedaffected due to multiple weather risks, including risks to our Florida facility from hurricanes and similar phenomena.
Our manufacturing facilities are located in Clearwater, Florida and Sofia, Bulgaria and could be affected by multiple weather risks, most notably hurricanes in Clearwater, Florida. Although we carry property and casualty insurance and business interruption insurance, future salespossible disruptions of operations or damage to property, plant and equipment due to hurricanes or other weather risks could result in impaired production and affect our ability to meet our commitments to our customers and impair important business relationships, the allegedly infringing product or products,loss of which could materially and adversely affect our future growth.operations and profitability. We do, however, maintain a backup power source at our Clearwater facility, are working to establish deeper redundancies between both facilities, and have a disaster recovery plan in place to help mitigate this risk.
OurQuality Management and Product Liability
The success of our business is subject todepends on the potential for defects or failures associated withquality of our products, whichand we have global processes, procedures and programs that are intended to help us maintain the highest possible level of quality. We operate in an industry susceptible to significant product liability claims; these claims may be brought by individuals seeking relief on their own behalf or purporting to represent a class.
Quality problems and product liability claims could lead to recalls or safety alerts, and negative publicity.
Manufacturing flaws, component failures, design defects, off-label usesreputational harm, adverse verdicts or inadequate disclosure of product-related information could result in an unsafe condition or the injury or death of a patient. These problems could lead to a recall of, or issuance of a safety alert relating to our products and result in significant costs and negative publicity. Due to the strong name recognition of our brands, an adverse event involving one of our products could result in reduced market acceptance and demand for all products within that brandcostly settlements, and could harm our reputation and our ability to market our products in the future. In some circumstances, adverse events arising from or associated with the design, manufacture or marketing of our products could result in the suspension or delay of our current regulatory reviews of our applications for new product approvals. We also may undertake voluntarily to recall products or temporarily shut down certain production lines based on internal safety and quality monitoring and testing data. Any of the foregoing problems could disrupt our business and have a material adverse effect on our business, results of operations, financial condition and cash flows.
We have incurredQuality is extremely important to us and mayour customers due to the impact on patients, and the serious and potentially costly consequences of product failure. Our business exposes us to potential product liability risks that are inherent in the future incur impairmentsdesign, manufacture, and marketing of medical devices. If they were to occur, component failures, manufacturing nonconformances, design defects, off-label use, or inadequate disclosure of product-related risks or product related information, could result in an unsafe condition, injury to, or even death of, a patient. These problems could lead to recall or issuance of safety notices relating to our long-lived assets.
We review our long-lived assets,products and could result in product liability claims and lawsuits, including intangible assets, for impairment annuallyclass actions. Further, we may be exposed to unpredictable or more frequently if events oraccelerated changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Additionally, if in any period our stock price decreases to the point where our fair value, as determined by our market capitalization, is less than the book valuedemand for certain of our assets, thisproducts in connection with COVID-19, and its related impacts could also indicate a potential impairmentimpact production of products that could increase the risk of regulatory enforcement actions, product defects or related claims, as well as adversely impact our customer relationships and reputation.
Risks Relating to Our Industry
The energy-based medical device industry in the aesthetics market is highly competitive and we may be requiredunable to record an impairment chargecompete effectively.
The energy-based medical device industry for the aesthetics market is highly competitive. Many competitors in that period which could adversely affectthis industry are well-established, do a substantially greater amount of business, and have greater financial resources and facilities than we do.
We have invested and continue to invest, substantial resources to develop and monetize our Renuvion® technology into the cosmetic surgery market. We believe we must continue to innovate and develop new applications for our products and obtain new indications for use in order to differentiate ourselves and stay competitive. If we are unable to gain acceptance of our technology in the marketplace, or obtain new indications for use, our business and results of operations.
Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely heavily on projections of future operating performance. We operate in highly competitive environments and projections of future operating resultsoperations and cash flows may vary significantlybe materially and adversely affected.
Part of our strategy depends on developing strong working relationships with key plastic surgeons, cosmetic physicians and other healthcare professionals. The guidance we get from actual results. Additionally, ifthese relationships is important from both a commercialization strategy and product development standpoint. Without establishing and maintaining these relationships globally, the development and commercialization of our analysis indicates potential impairmentproducts could suffer which could have a material adverse impact on our business.
If there is not sufficient consumer demand for the procedures performed with our products, surgeon demand for our products could be inhibited, resulting in unfavorable operating results and reduced growth potential.
Continued expansion of the global market for aesthetic procedures is a material assumption of our business strategy. The procedures performed using our products are elective procedures not reimbursable through government or private health insurance, with the costs borne by the patient. The decision to utilize our products may therefore be influenced by a long-lived intangible asset, wenumber of factors, including:
•consumer disposable income and access to consumer credit, which as a result of an unstable economy, may be requiredsignificantly impacted;
•the cost, safety and effectiveness of alternative treatments;
•the success of our direct to record additional chargesconsumer sales and marketing efforts; and
•the education of our customers and their patients on the benefits and uses of our products, compared to earnings incompetitors’ products and technologies.
•
If, as a result of these factors, there is not sufficient demand for the procedures performed with our financial statements,products, customer demand could be reduced, which could negatively impacthave a material adverse effect on our resultsbusiness, financial condition, revenue and result of operations.
Risks RelatedRelating to Our Stock
The market price of our stock has been and may continue to be highly volatile.
Our common stock is listed on the NYSE MKTThe NASDAQ Stock Market LLC under the ticker symbol “BVX”“APYX”. The market price of our stock has been, and may continue to be, highly volatile and announcements by us or by third parties may have a significant impact on our stock price. These announcements may include:
•our listing status on the NYSE MKT Market;The NASDAQ Stock Market LLC;
•our operating results falling below the expectations of public market analysts and investors;
•developments in our relationships with or developments affecting our major customers;
•negative regulatory action or regulatory non-approval with respect to our new products;
•government regulation, governmental investigations, or audits related to us or to our products;
•developments related to our patents or other proprietary rights or those of our competitors and
•changes in the position of securities analysts with respect to our stock.
BOVIE MEDICAL CORPORATION
The stock market has from time to timetime-to-time experienced extreme price and volume fluctuations, which have particularly affected the market prices for the medical technology sector companies, and which have often been unrelated to their operating performance. These broad market fluctuations may adversely affect the market price of our common stock.
Historically, when the market price of a stock has been volatile, holders of that stock have often instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. The lawsuit could also divert the time and attention of our management.
In addition, future sales by existing stockholders, warrantour security holders receiving shares upon the exercise of warrants, or any new stockholders receiving our shares in any financing transaction may lower the price of our common stock, which could result in losses to our stockholders. Future sales of substantial amounts of common stock in the public market, or the possibility of such sales occurring, could adversely affect prevailing market prices for our common stock or our future ability to raise capital through an offering of equity securities. Substantially all of our common stock is freely tradable in the public market without restriction under the Securities Act, unless these shares are held by our “affiliates”, as that term is defined in Rule 144 under the Securities Act.
We have no present intention to pay dividends on our common stock and, even if we change that policy, we may be unable to pay dividends on our common stock.it.
We currently do not anticipate paying any dividends on our common stock in the foreseeable future.future, and we are subject to restrictions on our ability to pay dividends pursuant to our credit agreement executed in February 2023. We currently intend to
retain future earnings, if any, to finance operations and invest in our business. Any declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends, and other considerations that our board of directors deems relevant.
If we change that policy and commence paying dividends, we will not be obligated to continue paying those dividends, and our stockholders will not be guaranteed, or have contractual or other rights, to receive dividends. If we commence paying dividends in the future, our board of directors may decide, inat its discretion, at any time, to decrease the amountnumber of dividends, otherwise modify or repeal the dividend policy or discontinue entirely the payment of dividends. Under the Delaware law, our board of directors may not authorize the payment of a dividend unless it is either paid out of our statutory surplus.
The low trading volumeIssuance of equity through our common stock may adversely affect the price of our shares and their liquidity.
Although our common stock is listed on the NYSE MKT exchange, our common stock has experienced low trading volume. Limited trading volume may subject our common stock to greater price volatility and may make it difficult for investors to sell shares at a price that is attractive to them.
We may in the future seek to raise funds through equity offerings, which could have a dilutive effect on our common stock.
In the future we may determine to raise capital through offerings of our common stock, securities convertible into our common stock or rights to acquire these securities or our common stock. For instance, we are authorized to issue up to 75,000,000 shares of common stock and up to 10,000,000 shares of preferred stock. The result of sales of such securities, or the conversion of the shares of Preferred Stock into shares of common stock,shelf registration, as well as the exercise of warrants issued in connection with such offering or the triggering of anti-dilution provisions in such securities would ultimately be dilutive to our common stock by increasing the number of shares outstanding. We cannot predict the effect this dilution may have on the price of our common stock. In addition, the shares of preferred stock may have rights which are senior or superior to those of the common stock, such as rights relating to voting, the payment of dividends, redemption or liquidation.
Exercise of warrants and options issued by us will dilute the ownership interest of existing stockholders.
As of December 31, 2017, the warrants issued by us in December 2013 were exercisable for up to approximately 40,000 shares of our common stock, representing approximately 0.1% of our outstanding common stock.
As of December 31, 2017,2022, our outstanding stock options to our employees, officers, directors and consultants amounted to approximately 4,860,1576,520,444 shares of our common stock, representing approximately 14.8%18.8% of our outstanding common stock.
BOVIE MEDICAL CORPORATION
The issuance of additional equity through our shelf registration or through the exercise of some or all of our warrants and stock options will dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion or exercise could adversely affect prevailing market prices of our common stock.
General Risks
We may, in the future, identify deficiencies in internal controls over financial reporting.
While we have concluded that, as of December 31, 2022, our disclosure and reporting controls were effective as included in Part II, Item 9A of this Form 10-K, there can be no assurance that future control deficiencies or material weaknesses will not be identified. If we do identify additional material weaknesses in our internal controls over financial reporting in the future, our ability to analyze, record and report financial information free of material misstatements, and to prepare our financial statements within the time periods specified by the rules and forms of the SEC, may likely be adversely affected.
We rely on our management team and other key personnel, and we may lose key personnel or fail to attract, train, and retain other talented personnel.
We depend on the skills, working relationships, and continued services of key personnel, including our experienced management team.In addition, our ability to achieve our strategic operating objectives depends on our ability to identify, hire, train, and retain qualified individuals throughout the organization. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, train, develop, and retain other talented personnel.Any such loss or failure could adversely affect our sales, operating results, and financial condition.
We are at risk of being the victim of a cyber-attack or a security breach that may expose confidential customer, product and Company data or compromise our internal IT infrastructure. This could lead to liabilities resulting from failure to comply with US and foreign data security and privacy regulations and negative impacts to our business operations.
We store in our computer systems and network various elements of data and information related to our customers, products and company that could be compromised as the result of a cyber-attack or security breach. If an individual or group of individuals, including a Company employee, were to compromise confidential information, or if customer confidential information is inappropriately disclosed due to a security breach of our computer systems, system failures or otherwise, we may face substantial liabilities or incur penalties in connection with any violation of applicable privacy laws or regulations. We also rely heavily on our internal systems, network and data. To date, we have not had any breaches against our systems and network, and we obtain cyber security insurance coverage on an annual basis. However, our inability to properly scale IT security levels as our business grows, or any future attacks on our IT infrastructure could have a significant impact on our daily manufacturing and customer service functions which could result in a material adverse impact on our financial results, potentially in excess of our current coverage limits.
Our business is dependent on the security of our IT networks and those of our customers. Internal or external attacks on any of those could disrupt the normal operations of our engagements and impede our ability to provide critical services to our customers, thereby subjecting us to liability under our contracts. Additionally, our business involves the use, storage and transmission of information about our employees, our customers and clients of our customers. While we take measures to protect the security of, and unauthorized access to, our systems, as well as the privacy of personal and proprietary information, it is possible that our security controls over our systems, as well as other security practices we follow or those systems of our customers into which we operate and rely upon, may not prevent the improper access to or disclosure of personally identifiable or proprietary information. Such disclosure could harm our reputation and subject us to liability under our contracts and laws that protect personal data, resulting in increased costs or loss of revenue.
Data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries in which we operate and continue to develop in ways which we cannot predict. We are subject to U.S. federal and state laws regarding data privacy and security including Section 5 of the Federal Trade Commission Act, or FTC Act. We are also subject to foreign data privacy and security laws, including the Global Data Protection Regulation, or GDPR, the European Union-wide legal framework to govern data collection, use and sharing and related consumer privacy rights. The GDPR includes significant penalties for non-compliance. Our failure to adhere to, or successfully implement processes in response to, changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace, which could have a material adverse effect on our business, financial condition and results of operations.
Adverse global and regional economic conditions could materially adversely affect the Company’s business, results of operations and financial condition.
Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs and other barriers to trade, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations can adversely impact consumer confidence and spending and materially adversely affect demand for the Company’s products and services. In addition, uncertainty about, or a decline in, global or regional economic conditions could have a significant impact on the Company’s suppliers, contract manufacturers, freight carriers, and distributors, resulting in delayed or limited availability of components, higher component costs, and higher freight costs. These and other economic factors could materially adversely affect the Company’s business, results of operations, financial condition and stock price.
The Company’s business can be impacted by political events, trade and other international disputes, war, terrorism, natural disasters, public health issues, industrial accidents and other business interruptions.
Political events, trade and other international disputes, war, terrorism, natural disasters, public health issues, industrial accidents and other business interruptions can harm or disrupt international commerce and the global economy, and could have a material adverse effect on the Company and its customers, suppliers, contract manufacturers, freight carriers, and distributors.
Changes in U.S. trade policies could significantly increase the cost of imported goods into the United States, which may materially reduce our sales or profitability.
Changes in U.S. trade policy could trigger retaliatory actions by affected countries, resulting in "trade wars," in increased costs for goods imported into the United States, which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with the United States. If these consequences are realized, the volume of economic activity in the United States, may be materially reduced. Such a reduction may materially and adversely affect our sales volumes. Further, the realization of these matters may increase our cost of goods and, if those costs cannot be passed on to our customers, our business and profits may be materially and adversely affected.
ITEM 1B. Unresolved Staff Comments
Not Applicable.None
ITEM 2. Properties
BovieWe currently maintains aown and maintain an approximately 60,000 square foot facility which consists of office, warehousing, manufacturing and research space located at 5115 Ulmerton Rd., Clearwater, Florida. Monthly principal and interest payments relating to the purchase
Apyx Bulgaria EOOD leases approximately $29,000 per month.
In October, 2015, through our acquisition of Bovie Bulgaria, we acquired a lease for 18,74527,000 square feet of office, warehousing and manufacturing facilities located in Sofia, Bulgaria. The rental cost of the facility is approximately $5,424 per month.
In March 2014, we signed a lease for offices located in Purchase, New York. The lease is for 3,650 square feet of office space with a monthly cost of approximately $9,277 per month. We decided to consolidate operations in the Purchase, NY office with the facility in Clearwater. Based on this, we determined the office in Purchase, NY was no longer necessary and decided to cease all activity at the location. The remaining lease of approximately $175,000, has been expensed in 2017, included as part of severance and related expense and will be operational cash outflows during 2018 and 2019.
ITEM 3. Legal Proceedings
The medical device industry is characterized by frequent claims and litigation, and we are and may become subjectSee Note 17 of Notes to various claims, lawsuits and proceedingsConsolidated Financial Statements in the ordinary coursePart II, Item 8 of our business, including claims by current or former employees, distributors and competitors, and with respect to our products and product liability claims, lawsuits and proceedings.this Form 10-K.
We are involved in a number of legal actions relating to the use of our J-Plasma technology. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. In the opinion of management, the Company has meritorious defenses, and such claims are adequately covered by insurance, or are not expected, individually or in the aggregate, to result in a material, adverse effect on our financial condition. 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 these claims could have a material adverse impact on our consolidated earnings, financial position or cash flows.
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.
ITEM 4. Mine Safety Disclosures
Not Applicable.
BOVIEAPYX MEDICAL CORPORATION
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock currently is traded on the NYSE MKT. The table shows the reported high and low bid prices for the common stock during each quarter of the last eight respective quarters. These prices do not represent actual transactions and do not include retail markups, markdowns or commissions.
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | High | | Low | | High | | Low |
| 4th Quarter | $ | 4.29 |
| | $ | 2.54 |
| | $ | 5.55 |
| | $ | 3.50 |
|
| 3rd Quarter | 3.48 |
| | 2.17 |
| | 5.21 |
| | 1.68 |
|
| 2nd Quarter | 2.83 |
| | 1.87 |
| | 1.97 |
| | 1.56 |
|
| 1st Quarter | 3.95 |
| | 2.53 |
| | 2.44 |
| | 1.60 |
|
On March 9, 2018, the closing bid for our common stock as reported by the NYSE MKT exchange was $2.37 per share.NASDAQ Stock Market LLC. As of March 9, 2018,15, 2023, we had 601approximately 600 stockholders of record. Since many stockholders choose to hold their shares under the name of their brokerage firm, we estimate that the actual number of stockholders was over 3,500 shareholders.stockholders.
Securities Authorized for Issuance Under Equity Compensation Plans
| | | | | | | | | | | | | | | | | |
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(a) | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights
(b) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
(c) |
| Equity compensation plans approved by security holders | 6,460,444 | | | $ | 7.15 | | | 1,815,848 | |
Equity compensation plans not approved by security holders (1) | 60,000 | | | $ | 4.18 | | | — | |
| Total | 6,520,444 | | | $ | 7.12 | | | 1,815,848 | |
|
| | | | | | | | | |
| | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(a) | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights
(b) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
(c) |
| Equity compensation plans approved by security holders | 2,129,674 |
| | $ | 2.86 |
| | 2,280,578 |
|
Equity compensation plans not approved by security holders (1) | 2,730,482 |
| | $ | 3.11 |
| | — |
|
| Total | 4,860,157 |
| | $ | 3.00 |
| | 2,280,578 |
|
Dividend Policy
We have never declared or paid any cash dividends on our common stock and we currently do not anticipate paying cash dividends in the foreseeable future. We currently expect to retain any future earnings to fund the operation and expansion of our business.
BOVIEAPYX MEDICAL CORPORATION
Five Year Performance Graph
The following line graph compares the cumulative total return of our common shares with the cumulative total return of the Standard & Poor’s Composite 500Russell 2000 Stock Index (the "S&P 500 Index") and the Standard & Poor's Composite 500 Healthcare Sector Index (the "S&P 500 Healthcare Index").Russell 3000 Stock Index. The line graph assumes, in each case, an initial investment of $100 on December 31, 2013,2018, based on the market prices at the end of each fiscal year through and including December 31, 2017,2022, and reinvestment of dividends.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| Apyx Medical Corporation | 100.00 | | | 130.56 | | | 111.11 | | | 197.84 | | | 36.11 | |
| Russell 2000 Index | 100.00 | | | 123.72 | | | 146.44 | | | 166.49 | | | 130.6 | |
| Russell 3000 Index | 100.00 | | | 128.54 | | | 152.01 | | | 189.4 | | | 150.61 | |
|
| | | | | | | | | | | | | | |
| | December 31, |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 |
| Bovie Medical Corporation | 100.00 |
| | 171.16 |
| | 97.67 |
| | 166.97 |
| | 120.93 |
|
| S&P 500 Index | 100.00 |
| | 111.39 |
| | 110.58 |
| | 121.12 |
| | 144.64 |
|
| S&P 500 Health Care Index | 100.00 |
| | 123.3 |
| | 129.72 |
| | 124.07 |
| | 148.89 |
|
BOVIEAPYX MEDICAL CORPORATION
ITEM 6. Selected Financial DataReserved
The following selected consolidated financial data (presented in thousands, except per share amounts and employee data) are derived from our consolidated financial statements. This data should be read in conjunction with the consolidated financial statements and notes thereto and with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Sales | $ | 38,883 |
| | $ | 36,627 |
| | $ | 29,520 |
| | $ | 27,681 |
| | $ | 23,660 |
|
| Cost of sales | 19,122 |
| | 18,712 |
| | 16,963 |
| | 18,689 |
| | 14,462 |
|
| Gross profit | 19,761 |
| | 17,915 |
| | 12,557 |
| | 8,992 |
| | 9,198 |
|
| Other costs and expenses: | | | | | | | | | |
| Research and development | 2,455 |
| | 2,618 |
| | 2,160 |
| | 1,416 |
| | 1,260 |
|
| Professional services | 1,771 |
| | 1,486 |
| | 1,484 |
| | 1,016 |
| | 1,835 |
|
| Salaries and related costs | 7,906 |
| | 9,038 |
| | 7,482 |
| | 5,723 |
| | 3,992 |
|
| Selling, general and administrative | 11,370 |
| | 8,565 |
| | 8,417 |
| | 6,686 |
| | 5,777 |
|
| Severance and related expense | 1,524 |
| | — |
| | — |
| | — |
| | — |
|
| Total other costs and expenses | 25,026 |
| | 21,707 |
| | 19,543 |
| | 14,841 |
| | 12,864 |
|
| Loss from operations | (5,265 | ) | | (3,792 | ) | | (6,986 | ) | | (5,849 | ) | | (3,666 | ) |
| Interest expense, net | (136 | ) | | (158 | ) | | (158 | ) | | (151 | ) | | (237 | ) |
| Investor warrants issuance cost | — |
| | — |
| | — |
| | — |
| | (664 | ) |
| Fee associated with refinance | — |
| | — |
| | — |
| | — |
| | (543 | ) |
| Change in fair value of derivative liabilities | 183 |
| | 64 |
| | 1,799 |
| | (7,285 | ) | | (842 | ) |
| Total other income (loss), net | 47 |
| | (94 | ) | | 1,641 |
| | (7,436 | ) | | (2,286 | ) |
| Loss before income taxes | (5,218 | ) | | (3,886 | ) | | (5,345 | ) | | (13,285 | ) | | (5,952 | ) |
| Income tax (benefit) expense | (156 | ) | | 64 |
| | 25 |
| | 3,997 |
| | (1,613 | ) |
| Net loss | $ | (5,062 | ) | | $ | (3,950 | ) | | $ | (5,370 | ) | | $ | (17,282 | ) | | $ | (4,339 | ) |
| Accretion on convertible preferred stock | — |
| | — |
| | (222 | ) | | (932 | ) | | (39 | ) |
| Gain on conversion of warrants and preferred shares, net | — |
| | — |
| | 13,956 |
| | — |
| | — |
|
| Deemed dividend on conversion beneficial conversion feature | — |
| | — |
| | — |
| | — |
| | (2,616 | ) |
| Net (loss) income attributable to common shareholders | $ | (5,062 | ) | | $ | (3,950 | ) | | $ | 8,364 |
| | $ | (18,214 | ) | | $ | (6,994 | ) |
| | | | | | | | | | |
| (Loss) income per share attributable to common shareholders | | | | | | | | | |
| Basic | $ | (0.16 | ) | | $ | (0.14 | ) | | $ | 0.34 |
| | $ | (1.03 | ) | | $ | (0.40 | ) |
| Diluted | $ | (0.17 | ) | | $ | (0.15 | ) | | $ | 0.24 |
| | $ | (1.03 | ) | | $ | (0.40 | ) |
| | | | | | | | | | |
| Balance Sheet Information: | | | | | | | | | |
| Cash and restricted cash | $ | 10,668 |
| | $ | 15,235 |
| | $ | 12,644 |
| | $ | 6,632 |
| | $ | 7,924 |
|
| Working capital | $ | 16,574 |
| | $ | 21,267 |
| | $ | 17,921 |
| | $ | 11,599 |
| | $ | 16,910 |
|
| Total assets | $ | 30,988 |
| | $ | 35,110 |
| | $ | 31,448 |
| | $ | 24,833 |
| | $ | 33,176 |
|
| Long-term liabilities | $ | 2,983 |
| | $ | 3,615 |
| | $ | 3,923 |
| | $ | 16,373 |
| | $ | 8,934 |
|
| Total stockholders' equity | $ | 22,032 |
| | $ | 26,223 |
| | $ | 23,404 |
| | $ | 1,504 |
| | $ | 19,071 |
|
BOVIEAPYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSISANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with our consolidated 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 energy-based medical deviceadvanced energy technology company specializingwith a passion for elevating people’s lives through innovative products, including our Helium Plasma Technology products marketed and sold as Renuvion® in developing, manufacturingthe cosmetic surgery market and marketingJ-Plasma® in the hospital surgical market. Renuvion® and J-Plasma® offer surgeons a range of electrosurgical products and technologies, as well as related medical products used in doctor’s offices, surgery centers and hospitals worldwide. Our medical devices are marketed through Bovie’s own well-respected brands (Bovie®, IDS™ and DERMTM) and on a private label basisunique ability to distributors throughout the world.provide controlled heat to tissue to achieve their desired results. We also leverage our deep expertise and decades of experience in the design, development and manufacturing of electrosurgical equipment by producing equipment for large, well-knownunique waveforms through OEM agreements with other medical device manufacturers through original equipment manufacturing (OEM) agreements, as well as start-up companies withmanufacturers.
On March 14, 2022, the needU.S. Food and Drug Administration (“FDA”) posted a Safety Communication that warns consumers and health care providers against the use of our Advanced Energy products outside of their FDA-cleared indications for our energy based designs.
We are also the developer of J-Plasma; a patented plasma-based surgical product forgeneral use in cutting, coagulation, and ablation of soft tissue. J-Plasma utilizestissue during open and laparoscopic surgical procedures. Following the Safety Communication, we 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.
On June 2, 2022, and July 21, 2022, the FDA updated the Medical Device Safety Communication to recognize the new 510(k) clearances for the Renuvion® Dermal handpiece, and the expanded indications for the Renuvion® APR 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.
On February 1, 2023, we announced we had submitted a helium ionization process510(k) premarket notification (“510(k) submission”) for the Renuvion APR Handpiece to producethe FDA, supported by a stable, focused beamclinical study and real-world evidence. The 510(k) submission is intended to expand Renuvion’s indications for use to include a specific indication for the use of plasmathe Renuvion APR Handpiece for the coagulation of subcutaneous soft tissues where needed, following liposuction.
On February 27, 2023, we announced that provides surgeons with greater precision, minimal invasiveness and an absencewe received 510(k) clearance from the FDA for the use of conductive currents through the patient during surgery. The new J-Plasma handpieces with Cool-Coag™ technology deliverRenuvion APR Handpiece for the precisiondelivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed. Soft tissue includes subcutaneous tissue.
While we expected that receiving these clearances would materially mitigate the financial effects of the Safety Communication in future periods, we continue to experience reduced demand for the adoption and utilization of our technology and we believe that this may have an adverse effect in future periods.
As part of our plan to accelerate and fully fund the development of our advanced energy business, with a focus in the powercosmetic surgery market, we sold our Core business in 2018 for gross proceeds of traditional monopolar coagulation$97 million. These proceeds were used to launch broad marketing and sales initiatives which resulted in rapid sales growth through December 31, 2021 and into the first quarter of 2022. This planned growth in the business was accompanied by scaled operations, including procurement of components, expanded manufacturing capacity to turn those materials into saleable inventory, additional discretionary expenditures, including increased global participation at trade shows, additional employee trainings, user meetings, increased travel and entertainment expenses, more expansive research and development projects, and additional headcount to support those activities. Additionally, we had and still have, some significant non-recurring discretionary expenditures associated with completing our multi-year marketing initiatives related to our dermal resurfacing and skin laxity clearances.
While sales were continuing to grow into the first quarter of 2022 prior to the FDA Safety Communication, over the last few
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
years, exclusive of our sale of the Core business segment to Symmetry Surgical during 2018, we have incurred recurring net losses and cash outflows from operations and we anticipate that losses will continue in the near term. For the year ended December 31, 2022, we incurred an operating loss of $23.6 million and used $20.3 million of cash in operations. As of December 31, 2022, we had cash and cash equivalents of $10.2 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of these consolidated financial statements.
In an effort to alleviate these conditions, we pursued various funding solutions in order to improve liquidity.
On November 22, 2022, the we filed a shelf registration statement providing us the ability to register securities in the aggregate amount up to $100 million. The shelf registration included an embedded ATM facility for up to $40 million. To date we have not utilized this facility.
On February 17, 2023, we entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”) with MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the efficiencylenders party thereto from time to time.
The Credit Agreement provides for an up to $35 million facility, consisting of plasma beam coagulationsenior secured term loans and a secured revolving facility. The Credit Agreement provides for senior secured term loans of up to $25 million, comprised of (i) an initial tranche of $10 million, (ii) a second tranche of $5 million, and (iii) a third tranche of $10 million. The secured revolving facility provides for loans in an aggregate principal amount of up to $10 million, subject to a borrowing base equal to certain percentages of the Company’s eligible accounts receivable and inventory, as determined in accordance with the terms of the Credit Agreement.
For a more in depth description of the terms of the Credit Agreement see Note 20 in Item 8 of this report on Form 10-K.
On February 27, 2023, our Board of Directors approved a plan to sell and leaseback the our real property located in Clearwater, FL. On March 14, 2023, we entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with VK Acquisitions VI, LLC (the “Purchaser”), for the sale of our facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price of $7,650,000. The Purchase Agreement is subject to the satisfactory completion of due diligence by the Purchaser. Upon the closing of the sale of the Property, we will enter into a lease agreement with the Purchaser, pursuant to which the Property will be leased back to us.
For a more in depth description of the terms of the Purchase Agreement see Note 20 in Item 8 of this report on Form 10-K.
During January 2023, we were notified that the IRS examination process of our 2018, 2019 and 2020 tax returns was complete and that the Company's tax refunds were approved for substantially the amount recorded in the Company's Consolidated Balance Sheet at December 31, 2022. As of the date of this report, we are awaiting receipt of the tax refunds.
We also continue to re-assess our operating expenditures and cost structure to be commensurate with our expected levels of revenue and we have the ability to reduce or delay expenditures to enhance and preserve liquidity. We have already reduced some operating expenditures, including a reduction-in-force on January 9, 2023, that reduced our U.S. headcount by 14%.
We believe that the actions already taken, and additional actions that we intend to take to manage operating expenditures, will enable us to meet our obligations for a period of at least one year from the date of issuance of our audited consolidated financial statements. As a result, we believe our plans alleviate substantial doubt about our ability to continue as a going concern. Our audited financial statements do not include any adjustments relating to the carrying amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
Impact of COVID-19, Supply Chain Disruptions and Other Matters
The impact of the COVID-19 outbreak has subsided substantially in the U.S. but continues to result in reduced activity levels outside of the U.S., such as continued restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes or places of business.
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
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - enabling thin-layer ablationContinued
material components (i.e., semiconductors and dissectionplastics), lead times, and fast coagulation with a single instrument, minimizing instrument exchange and allowing a surgeonfreight carrier availability.We expect global supply chain instability will continue to focushave an impact on their patientour business, but to date that has not been material to our financial performance. The consequences of global supply chain instability, inflationary cost increases aand the pandemic, and their procedures. With Cool-Coag technology,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.
During 2022, we hosted over 30 Physician Mentor Programs, or “PMPs,” and our efforts to expand our presence and educational programming at industry conferences and trade shows proceeded as expected. In April 2022, we hosted our first in-person Users’ Meeting and had over 200 people in attendance. This program consisted of presentations from key Renuvion® users around the world on various applications for the product. All of the content was recorded and made available on our website portal for reference by all of our users around the world.
Our continued virtual educational events have also included case studies to illustrate how our leading clinician customers have adopted Renuvion®, their strategies for marketing and selling to new J-Plasma handpieces can deliver three distinctly different energy modalities - furtherpatients, and their thoughts on pricing and return on investment. We also engaged with clinician customers outside the U.S. including hosting multiple continuing education training sessions on Renuvion® with our current international distributors and conducting multiple calls with groups of international prospects interested in learning about our Renuvion® technology.
During 2022, we continued to drive sales in our Advanced Energy business by increasing the utilityadoption and versatilityutilization of our handpieces in the J-Plasma system. J-Plasma hasU.S. cosmetic surgery market and fulfilling demand from distributors in our international markets. Management estimates that our products have been the subjectsold in more than 60 countries. As of ten white papers and has been cited therein for its clinical utility in gynecological and plastic surgery procedures.
During 2017,December 31, 2022, we continued our full scale commercialization efforts for J-Plasma. We havehad a direct sales force of 1735 field-based selling professionals and a network of 14utilized 3 independent manufacturing representatives, resulting in a total sales force of 31.agencies. We also had 4 sales managers. This selling organization is focused on the use of J-PlasmaRenuvion® and J-Plasma® in the cosmetic 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 surgical procedures.their patients. In addition, we have invested in training programs and marketing-related activities to support accelerated adoption of J-Plasma.Renuvion® into surgeons' practices.
The majorityWe believe that our continued investment and focus on the following strategic initiatives in 2022 and beyond will position the Company for long-term growth in the cosmetic surgery market:
•To formalize our regulatory strategy to pursue specific clinical indications that will enable us to sell our Renuvion® products for targeted procedures
•To secure new clinical evidence demonstrating the safety and efficacy of our core products are marketed through medical distributors, which distribute to more than 6,000 hospitals,Helium Plasma Technology
•To provide enhanced physician and to doctorspractice support for our cosmetic surgery customers
•To improve our manufacturing capabilities and other healthcare facilities. New distributors are contacted through responsesefficiencies
In regards to our advertising in international and domestic medical journals andoperating segments, our presence at domestic and international trade shows.
International sales represented approximately 14.8% of total revenues in 2017, 12.5% in 2016 and 16.9% in 2015. Management estimates our products have been sold in more than 150 countries through local dealers coordinated by sales and marketing personnel at the Clearwater, Florida facility.
Operating segmentsresults 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.
Prior to the first quarter of 2017, we disclosed only one reporting segment. Beginning in 2017, ourOur reportable segments are disclosed as principally organized and managed as threetwo operating segments: Core, OEM and Advanced Energy. We adopted reportable segments to align with changes in how we manage our business, review operating performance and allocate resources as a result of the growth in Advanced Energy and the differing behavior of the CoreOEM. “Corporate & Other” includes certain unallocated corporate and OEM product lines.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.
BOVIE MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
On December 15, 2017, Charles D. Goodwin II was appointed by the Board of Directors to serve as Chief Executive Officer and a director of the Company to fill the vacancy created by the departure of Mr. Gershon. The Company believes that Mr. Goodwin is qualified to serve as Chief Executive Officer and a director due to his extensive experience working with medical device companies and knowledge of the industries in which we compete.
Robert L. Gershon, the Chief Executive Officer and a director, resigned from all of his positions with the Company effective December 15, 2017. Jack McCarthy, the Chief Commercialization Officer of the Company, was terminated without cause from his position effective November 6, 2017.
We strongly encourage investors to visit our website: www.boviemedical.comwww.apyxmedical.com to view the most current news and to review our filings with the Securities and Exchange Commission.
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations
Sales
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | | | | | |
| (In thousands) | 2022 | | 2021 | | Change | | | | | | |
| Sales by Reportable Segment | | | | | | | | | | | |
| Advanced Energy | $ | 36,803 | | | $ | 42,985 | | | (14.4) | % | | | | | | |
| OEM | 7,707 | | | 5,532 | | | 39.3 | % | | | | | | |
| Total | $ | 44,510 | | | $ | 48,517 | | | (8.3) | % | | | | | | |
| | | | | | | | | | | |
| Sales by Domestic and International | | | | | | | | | | | |
| Domestic | $ | 31,208 | | | $ | 32,980 | | | (5.4) | % | | | | | | |
| International | 13,302 | | | 15,537 | | | (14.4) | % | | | | | | |
| Total | $ | 44,510 | | | $ | 48,517 | | | (8.3) | % | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| (In thousands) | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change |
| Sales by Reportable Segment | | | | | | | | | | | |
| Core | $ | 28,649 |
| | $ | 27,808 |
| | 3.0 | % | | $ | 27,808 |
| | $ | 26,098 |
| | 6.6 | % |
| OEM | 2,598 |
| | 5,328 |
| | (51.2 | )% | | 5,328 |
| | 2,116 |
| | 151.8 | % |
| Advanced Energy | 7,636 |
| | 3,491 |
| | 118.7 | % | | 3,491 |
| | 1,306 |
| | 167.3 | % |
| Total | $ | 38,883 |
| | $ | 36,627 |
| | 6.2 | % | | $ | 36,627 |
| | $ | 29,520 |
| | 24.1 | % |
| | | | | | | | | | | | |
| Sales by Product Line | | | | | | | | | | | |
| Electrosurgical | $ | 25,727 |
| | $ | 20,901 |
| | 23.1 | % | | $ | 20,901 |
| | $ | 17,558 |
| | 19.0 | % |
| Cauteries | 7,141 |
| | 7,101 |
| | 0.6 | % | | 7,101 |
| | 6,886 |
| | 3.1 | % |
| Lighting | 2,435 |
| | 2,710 |
| | (10.1 | )% | | 2,710 |
| | 2,477 |
| | 9.4 | % |
| Other | 3,580 |
| | 5,915 |
| | (39.5 | )% | | 5,915 |
| | 2,599 |
| | 127.6 | % |
| Total | $ | 38,883 |
| | $ | 36,627 |
| | 6.2 | % | | $ | 36,627 |
| | $ | 29,520 |
| | 24.1 | % |
| | | | | | | | | | | | |
| Sales by Domestic and International | | | | | | | | | | | |
| Domestic | $ | 33,147 |
| | $ | 32,050 |
| | 3.4 | % | | $ | 32,050 |
| | $ | 24,540 |
| | 30.6 | % |
| International | 5,736 |
| | 4,577 |
| | 25.3 | % | | 4,577 |
| | 4,980 |
| | (8.1 | )% |
| Total | $ | 38,883 |
| | $ | 36,627 |
| | 6.2 | % | | $ | 36,627 |
| | $ | 29,520 |
| | 24.1 | % |
Overall sales increasedTotal revenue decreased by 6.2%8.3% or approximately $2.3$4.0 million for the year ended December 31, 20172022 when compared with 2016. Core product revenue, which consists of our brand name electrosurgical devices and accessories, cauteries, penlights, lighting, colposcopes and other similar products, increased 3.0%2021. Advanced Energy segment sales decreased 14.4% or approximately $0.8$6.2 million for the year ended December 31, 20172022 when compared with 2016.2021. The increaseAdvanced Energy sales decrease is due to global decreases in Core revenueutilization based demand for our handpieces and the adoption of our generator technology following the FDA Safety Communication on March 14, 2022. The Advanced Energy sales decrease was primarily driven by higher volume in generators and coloscopes, partially offset by reductionsan increase in lighting, electrodesglobal utilization based demand for our handpieces and higher distributor discounts and rebates. adoption of our generator technology in international markets for most of the first quarter before the FDA Safety Communication.
The OEM product line consists of proprietary products designed specifically for third party equipment manufacturers; revenuemanufacturers. Revenue for this product line decreased 51.2%increased 39.3%, or approximately $2.7$2.2 million, when compared to 2016 as a result of a large non-recurring order in 2016. Advanced Energy product sales were $7.6 million, an increase of approximately 118.7% when compared to 2016.
2021. The increase in electrosurgicalOEM sales was mainlydue 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.
International sales represented approximately 29.9% and 32.0% of total revenues for the years ended December 31, 2022 and 2021, respectively. 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
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | | | | | |
| (In thousands) | 2022 | | 2021 | | Change | | | | | | |
| Cost of sales | $ | 15,379 | | | $ | 14,916 | | | 3.1 | % | | | | | | |
| Percentage of sales | 34.6 | % | | 30.7 | % | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
| Gross profit | $ | 29,131 | | | $ | 33,601 | | | (13.3) | % | | | | | | |
| Percentage of sales | 65.4 | % | | 69.3 | % | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Our gross profit margin as a percentage of sales decreased by 3.8% during the year ended December 31, 2022 compared with 2021. The decrease in gross profit margins for the year ended December 31, 2022 from the prior year is primarily attributable to an increasechanges in the sales mix between our two segments, with our OEM segment comprising a higher percentage of generators in both the Core andtotal sales, product mix within our Advanced Energy segmentsSegment and higher material and inbound shipping costs to manufacture our inventory. These decreases were partially offset by geographic mix within our Advanced Energy segment, with domestic sales comprising a higher percentage of $5.0 million.total sales and the mix of newer product models as we obtain registrations, allowing these products to be introduced into the markets we serve.
BOVIEAPYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSISANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Overall sales increased by 24.1% or approximately $7.1 million for the year ended December 31, 2016 when compared with 2015. The increase in electrosurgical sales was mainly attributable to an increase in sales of generators of $2.9 million and electrodes of $0.4 million. Other product sales improved due to increases in Advanced Energy products of $2.2 million and OEM related products of $0.3 million. OEM related products included a subsequently discontinued pilot program for demonstration product to Hologic for $0.6 million and Arteriocyte for $0.2 million and as a result of a large non-recurring order in 2016. Additionally, sales increased in coloscope products of $0.2 million, additional sales to distributors of $0.1 million and miscellaneous products for $0.5 million.
Our ten largest customers accounted for approximately 48.3%, 54.4% and 58.3% of net sales for the years ended December 31, 2017, 2016 and 2015, respectively. In 2017, McKesson accounted for 15.7% and National Distribution & Contracting Inc. accounted for 9.2% of our sales. In 2016, McKesson accounted for 15.9% and National Distribution & Contracting Inc. accounted for 9.8% of our sales. In 2015, McKesson accounted for 18.6% and National Distribution & Contracting Inc. accounted for 13.3% of our sales.
Gross Profit
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| (In thousands) | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change |
| Cost of sales | $ | 19,122 |
| | $ | 18,712 |
| | 2.2 | % | | $ | 18,712 |
| | $ | 16,963 |
| | 10.3 | % |
| Percentage of sales | 49.2 | % | | 51.1 | % | |
|
| | 51.1 | % | | 57.5 | % | |
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
| Gross profit | $ | 19,761 |
| | $ | 17,915 |
| | 10.3 | % | | $ | 17,915 |
| | $ | 12,557 |
| | 42.7 | % |
| Percentage of sales | 50.8 | % | | 48.9 | % | | 1.9 | % | | 48.9 | % | | 42.5 | % | | 6.4 | % |
Our gross profit margin as a percentage of sales increased by 1.9% or approximately $1.8 million during the year ended December 31, 2017 compared with 2016. The increase was driven by higher margins in Advanced Energy, Cauteries, Lighting and Electrodes, partially offset by reduced sales and orders of lower margin product from OEM segment.
Our gross profit margin as a percentage of sales increased by 6.4% or approximately $5.4 million during the year ended December 31, 2016 compared with 2015. The increase was driven by higher margins in Advanced Energy and OEM products, comparatively. Additionally margins improved due to decreases in the warranty expense partially offset by the expensing of product molds no longer used in production.
We do not anticipate any material impact to our gross profit, material costs, or other costs as a result of the effect of inflation or any material impact of changing prices on net sales.
Other Costs and Expenses
Research and development
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | | | | | |
| (In thousands) | 2022 | | 2021 | | Change | | | | | | |
| Research and development | $ | 4,544 | | | $ | 4,321 | | | 5.2 | % | | | | | | |
| Percentage of sales | 10.2 | % | | 8.9 | % | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| (In thousands) | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change |
| Research and Development expense | $ | 2,455 |
| | $ | 2,618 |
| | (6.2 | )% | | $ | 2,618 |
| | $ | 2,160 |
| | 21.2 | % |
| Percentage of sales | 6.3 | % | | 7.1 | % | |
|
| | 7.1 | % | | 7.3 | % | |
|
|
Our expenditures for R&Dresearch and development related activities decreasedincreased by 6.2%5.2% or approximately $0.2 million for the year ended December 31, 20172022, compared with 2016.
Our expenditures for2021. This increase was primarily due to increases in payroll and related benefits of R&D related activitiespersonnel ($0.3 million) partially offset by lower spending on our two investigational device exemption (IDE) clinical studies and other product development initiatives ($0.1 million).
Professional services
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | | | | | |
| (In thousands) | 2022 | | 2021 | | Change | | | | | | |
| Professional services | $ | 9,044 | | | $ | 7,589 | | | 19.2 | % | | | | | | |
| Percentage of sales | 20.3 | % | | 15.6 | % | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Professional services expenses increased by 21.2%19.2%, or approximately $0.5$1.5 million for the year ended December 31, 20162022, compared with 2015.2021. This increase was mainly causedprimarily attributable to increases in legal expenses ($0.4 million), primarily associated with the estimated loss recorded for the class action lawsuit, Board of Directors option expense ($0.4 million), marketing consulting expense ($0.3 million), accounting and auditing fees ($0.2 million), physician consulting fees ($0.2 million), and employee recruitment expense ($0.2 million). These increases were partially offset by a decrease in stock compensation expense for our partner physicians ($0.2 million).
Salaries and related costs
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | | | | | |
| (In thousands) | 2022 | | 2021 | | Change | | | | | | |
| Salaries and related costs | $ | 18,621 | | | $ | 17,522 | | | 6.3 | % | | | | | | |
| Percentage of sales | 41.8 | % | | 36.1 | % | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Salaries and related expenses increased labor6.3% or approximately $1.1 million for the year ended December 31, 2022, compared to 2021. The increase was primarily driven by higher compensation and material costs of approximately $0.4 millionbenefits ($1.7 million) and an increasestock compensation expense ($1.2 million) as compared to the same period in consulting costs of approximately $0.1 million.the prior year. These increases are partially offset by a decrease in bonus expense ($1.8 million) as we determined we did not meet our 2022 bonus objectives, and accordingly, we have recorded no annual bonus expense in 2022.
BOVIEAPYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSISANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Professional services
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| (In thousands) | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change |
| Professional services expense | $ | 1,771 |
| | $ | 1,486 |
| | 19.2 | % | | $ | 1,486 |
| | $ | 1,484 |
| | 0.1 | % |
| Percentage of sales | 4.6 | % | | 4.1 | % | |
|
| | 4.1 | % | | 5.0 | % | |
|
|
Professional services expenses increased 19.2% for the year ended December 31, 2017 compared with 2016. The change was attributable to increases in legal and regulatory consulting expenses related to the Advanced Energy segment.
Professional services costs increased 0.1% for the year ended December 31, 2016 compared with 2015. Legal fees decreased over the prior year by approximately $0.1 million due to the acquisition of Bovie Bulgaria and the public offering, which closed in March 2015, partially offset by an increase of $0.1 million in consulting fees.
Salaries and related costs
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| (In thousands) | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change |
| Salaries and related expenses | $ | 7,906 |
| | $ | 9,038 |
| | (12.5 | )% | | $ | 9,038 |
| | $ | 7,482 |
| | 20.8 | % |
| Percentage of sales | 20.3 | % | | 24.7 | % | |
|
| | 24.7 | % | | 25.3 | % | |
|
|
During 2017, salaries and related expenses decreased approximately 12.5% or approximately $1.1 million compared to the prior year. The decrease was primarily attributable to reductions in $0.9 million of incentive compensation and $0.4 million accrued expense related to a change in benefit policy. The decreases were partially offset by an increase of international salary expense.
During 2016, salaries and related expenses increased approximately 20.8% or approximately $1.6 million compared to the prior year. The increase was attributable to $0.6 million for incentive compensation and $0.3 million related to direct sales force and associated management. Additionally, accounting and marketing each accounted for $0.2 million and regulatory, customer service and human resources of $0.1 million each.
Selling, general and administrative expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | | | | | |
| (In thousands) | 2022 | | 2021 | | Change | | | | | | |
| Selling, general and administrative | $ | 20,484 | | | $ | 18,617 | | | 10.0 | % | | | | | | |
| Percentage of sales | 46.0 | % | | 38.4 | % | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| (In thousands) | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change |
| SG&A Expense | $ | 11,370 |
| | $ | 8,565 |
| | 32.7 | % | | $ | 8,565 |
| | $ | 8,417 |
| | 1.8 | % |
| Percentage of sales | 29.2 | % | | 23.4 | % | |
|
| | 23.4 | % | | 28.5 | % | |
|
|
Selling, general and administrative expense increased by 32.7%10.0% or approximately $2.8$1.9 million for the year ended December 31, 20172022, compared with 2016. We experienced increases in sales commissions of approximately $1.6 million, advertising and marketing of $0.4 million, bad debt reserve of $0.3 million, sales related2021. The change is primarily driven by higher insurance expense, including product liability claims on our policies ($1.9 million), travel and entertainment expense ($1.1 million), advertising expense, including trade show fees and related costs of $0.2 million, insurance of $0.2 million.($1.0 million), employee training and other meeting expenses ($0.7 million), bad debt expense ($0.2 million), and other public company related costs ($0.1 million). These increases were partially offset by decreases in commissions on Advanced Energy sales ($2.5 million), OEM product recall costs ($0.2 million) as we experienced no product recalls in 2022, lower technology costs ($0.2 million) and lower regulatory registration expenses ($0.2 million).
Selling, general and administrative expenseInterest Income
| | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | | | | | |
| (In thousands) | 2022 | | 2021 | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Interest income | $ | 157 | | | $ | 11 | | | | | | | | | |
| | | | | | | | | | | |
| Percentage of sales | 0.4 | % | | — | % | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Interest income increased by 1.8% or approximately $0.1 million for the year ended December 31, 20162022, compared with 2015. We experienced increases2021. This increase is due to higher yields on our investments in sales commissionsmoney market funds and U.S. Treasury securities included in cash and cash equivalents.
Other (Loss) Income, net
| | | | | | | | | | | | | |
| Year Ended
December 31, | | |
| (In thousands) | 2022 | | 2021 | | |
| Other income (losses), net | $ | 509 | | | $ | (373) | | | |
| Percentage of sales | 1.1 | % | | (0.8) | % | | |
| | | | | |
| | | | | |
Other income (losses), net increased 236.5% for the year ended December 31, 2022, compared with 2021. This increase was primarily attributable to the release of approximately $1.0 million offset by decreases in ACA excise taxesa portion of $0.4 million, sales related travelour joint and entertainment costsseveral payroll liability due to the lapse of approximately$0.2 million, reductionthe statute of limitations on a portion of the liability ($0.6 million) and the wind down of the supply arrangement with Symmetry in the bad debt reserve of $0.2 million and general insurance of $0.1 million.Core business segment ($0.3 million).
BOVIEAPYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSISANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Income Taxes
Severance
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Twelve Months Ended
December 31, | | |
| (In thousands) | | | | | | | 2022 | | 2021 | | Change |
| Income tax expense (benefit) | | | | | | | $ | 367 | | | $ | 380 | | | (3.4) | % |
| Effective tax rate | | | | | | | (1.6) | % | | (2.6) | % | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Jack McCarthy, the Chief Commercialization Officer, was terminated without cause from his position with the Company effective November 6, 2017. Severance costs incurred included salary, option expense and other benefits of approximately $582,000, of which approximately $397,000 will be operational cash outflows during 2018.
Robert L. Gershon, the Chief Executive Officer and a director, resigned from all of his positions with the Company effective December 15, 2017. In connection with this departure, the Company and Mr. Gershon entered into a separation agreement, dated December 15, 2017. Severance costs incurred included salary, option expense and other benefits of approximately $767,000, of which approximately $670,000 will be operational cash outflows during 2018.
In March 2014, we signed a lease for offices located in Purchase, New York. The lease is for 3,650 square feet of office space with a monthly cost of approximately $9,277 per month. Related to the departures of Mr. Gershon and Mr. McCarthy, we determined the office in Purchase, NY was no longer necessary and decided to cease all activity at the location. The remaining lease of approximately $175,000, has been expensed in 2017 and included as part of severance and related expense, of which approximately $115,000 and $60,000 will be operational cash outflows during 2018 and 2019, respectively.
Other Income (Expense), net
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| (In thousands) | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change |
| Interest expense, net | $ | (136 | ) | | $ | (158 | ) | | (13.9 | )% | | $ | (158 | ) | | $ | (158 | ) | | — | % |
| Percentage of sales | (0.3 | )% | | (0.4 | )% | |
|
| | (0.4 | )% | | (0.5 | )% | |
|
|
| Change in fair value of derivative liabilities | $ | 183 |
| | $ | 64 |
| | 185.9 | % | | $ | 64 |
| | $ | 1,799 |
| | (96.4 | )% |
| Percentage of sales | 0.5 | % | | 0.2 | % | | | | 0.2 | % | | 6.1 | % | | |
Interest expense, net
Total net interesttax expense was lowerapproximately $0.4 million, with effective tax rates of (1.6)% and (2.6)%, respectively, for the yearyears ended December 31, 2017 as compared with 2016, due to the extinguishment2022 and 2021. For each of the amortization of loan refinancing expense in 2016.
Total net interest expense was flat for the yearyears ended December 31, 2016 as compared with 2015.
Change in fair value of liabilities, net
On December 13, 2013, we entered into a securities purchase agreement pursuant to which we issued 3,500,000 shares of our newly designated Series A 6% Convertible Preferred Stock with a stated value of $2.00 per share2022 and 5,250,000 warrants to purchase our common stock, at an exercise price of $2.387 per share. We also issued 525,000 warrants to2021, the placement agent, of which 40,000 remain outstanding as of December 31, 2017. The warrants are accounted for as derivative financial instruments at fair value and are re-valued each period.
On March 17, 2015, we completed transactions contemplated under an exchange agreement (the “Exchange Agreement”) entered into on March 11, 2015 with certain investors (the “Investors”) with respect to which Great Point Partners, LLC acts as investment manager. Pursuant toeffective tax rate differs from the terms of the Exchange Agreement, we issued 3,588,139 shares of our Series B Convertible Preferred Stock (the “Series B Preferred Stock”) in exchange for 3,500,000 shares of our Series A 6% Convertible Preferred Stock and warrants to purchase up to 5,250,000 shares of our common stock in the aggregate which were previously issued in conjunction with the sale of our Series A 6% Convertible Preferred Stock to the Investors in a December 13, 2013 offering, as well as accrued and unpaid preferred dividends. The Series B Preferred Stock issued at that time was convertible into an aggregate of 7,176,298 shares of our common stock, upon the terms set forth in the Certificate of Designation. On September 20, 2017, 975,639 shares of Series B Preferred Stock were converted into 1,951,278 shares of our common stock.
BOVIE MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
At December 31, 2017, the placement agent warrants were valued at $20,000 and we recognized a net gain of $183,000.
At December 31, 2016, the placement agent warrants were valued at $203,000 and we recognized a net gain of $64,000.
Income Taxes
The income tax provision is related to foreign and certain state income taxes. We have recorded a full valuation allowance against the net deferred tax assets with a finite life. A valuation allowance is required to be provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. Management evaluated the positive and negative evidence in determining the realizability of the net deferred tax asset. In determining the need for valuation allowance, we reviewed historic operating results, updated 2017 actual results, as well as future income forecasts based on the projections, management concluded that it was not more likely than not that the Company should realize its net deferred tax assets through future operating results and the reversal of taxable temporary differences. If in the future we determine that we will be able to realize any of the net deferred tax assets, we will make an adjustmentstatutory rate primarily due to the valuation allowance which would increaseon our income in the period that the determination is made.Federal and State net operating losses (NOLs) combined with interest and penalties on our uncertain tax positions.
Liquidity and Capital Resources
At December 31, 2022, we had approximately $10.2 million in cash and cash equivalents as compared to approximately $30.9 million in cash and cash equivalents at December 31, 2021. Our working capital at December 31, 20172022 was approximately $16.6$31.1 million compared with $21.3 $47.5 million at December 31, 2016. Accounts receivable days sales outstanding were 47 days and 44 days2021. The decrease in working capital at December 31, 2017 and 2016, respectively. The number2022 was primarily due to the net loss incurred by the Company in 2022 following the Safety Communication on March 14, 2022, excluding non-cash activity, comprised primarily of days salesstock-based compensation expense. Following the Safety Communication we had cash outflows of $5.6 million related to growth in inventory which isdue to existing non-cancellable purchase orders when the totalSafety Communication was issued and management's decision to continue to build inventory available for production divided bywith these materials through the 12-month average costuncertainty. The lower sales as a result of materials, increased 7 days to 167 days equating to an inventory turn ratiothe Safety Communication also resulted in operating cash inflows of 1.95 at December 31, 2017 from 160 days and an inventory turn ratio of 1.99 at December 31, 2016. The higher number of days sales in inventory which translated into a lower inventory turnover rate is attributable to slower moving inventory$1.9 million related to Advanced Energy products manufactured for market verticals that are no longer our primary focus and Core products inventory increase in anticipation of sales that did not materialize during 2017.lower accounts receivable balances on the lower sales.
For the year ended December 31, 2017,2022, net cash used in operating activities was approximately $3.7$20.3 million, which principally funded our loss from operations of $23.6 million, compared with net cash used in operating activities of approximately $2.8$10.4 million in 2016. The change was mainly attributable to2021. As discussed in the netExecutive Level Overview, our operating loss, of $5.1 million, changes in working capital of $0.3 million and non-cash changes in fair value of derivative liabilities of $0.2 million, partially offset by stock based compensation of $0.9 million, depreciation and amortization of $0.7 million and provision for inventory obsolescence of $0.5 million.
Net cash used in investing activities was approximately $0.6operations and current cash and cash equivalents balance of $10.2 million raise substantial doubt about our ability to continue as a going concern for thea period of at least one year ended December 31, 2017 compared to net cash used in investing activities was approximately $0.3 million during 2016. The change was mainly attributable to increased investment in equipment, molds and test fixtures in 2017.
Cash used in financing activities of approximately $0.2 million due to repayment of the mortgage note payable during the year ended December 31, 2017, compared to proceeds from the public offering and the exercisedate of warrants that provided approximately $5.8 millionissuance of cash during year ended December 31, 2016.our consolidated financial statements.
In an effort to alleviate these conditions, we pursued various funding solutions in order to improve liquidity.
On June 28, 2016,November 22, 2022, the Companywe filed a shelf registration statement providing us the ability to register securities in the aggregate amount up to $100 million. The shelf registration included an embedded ATM facility for up to $40 million. To date we have not utilized this facility.
On February 17, 2023, we entered into a transactionCredit, Security and Guaranty Agreement (the “Credit Agreement”) with BankMidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time.
The Credit Agreement provides for an up to $35 million facility, consisting of Tampa,senior secured term loans and a Florida banking corporation (“Lender”) wherein Lender amendedsecured revolving facility. The Credit Agreement provides for senior secured term loans of up to $25 million, comprised of (i) an initial tranche of $10 million, (ii) a second tranche of $5 million, and (iii) a third tranche of $10 million. The secured revolving facility provides for loans in an aggregate principal amount of up to $10 million, subject to a borrowing base equal to certain percentages of the Company’s eligible accounts receivable and inventory, as determined in accordance with the terms of the Credit Agreement.
For a mortgage loan (“the Loan”) originally executed on March 20, 2014 with a principal amount of $3,592,000. The Initial Maturity Datemore in depth description 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 $2,000,000terms of the aggregate indebtedness secured by these accounts.Credit agreement see Note 20 in Item 8 of this report on Form 10-K.
The obligations under the Loan are secured byFor a first mortgage and security interestmore in the Company’s Clearwater, Florida facility. In addition, the Company has pledged an interest in a certificate of deposit in the amount of $719,000 as additional collateral.
Borrowings under the Loan bear interest at LIBOR plus 3.5%, with a fixed monthly principal payment of $19,956. The interest rate at December 31, 2017 was 5.640%.
The Loan documents contain customary financial covenants, including a covenant that the Company maintains a minimum liquidity of $750,000. Should we desire to extend the Loan beyond July 20, 2019, we must maintain a Debt Service Coverage Ratio for eachdepth description of the preceding four quartersterms of not less than 1.0the Credit Agreement see Note 20 in Item 8 of this report on Form 10-K.
On February 27, 2023, our Board of Directors approved a plan to 1.0.
sell and leaseback the our real property located in Clearwater, FL. On March 14, 2023, we entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with VK Acquisitions VI,
BOVIEAPYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSISANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
LLC (the “Purchaser”), for the sale of our facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price of $7,650,000. The Purchase Agreement is subject to the satisfactory completion of due diligence by the Purchaser. Upon the closing of the sale of the Property, we will enter into a lease agreement with the Purchaser, pursuant to which the Property will be leased back to us.
Approximate future expected principal
For a more in depth description of the terms of the Purchase Agreement see Note 20 in Item 8 of this report on Form 10-K.
During January 2023, we were notified that the IRS examination process of our 2018, 2019 and interest payments under2020 tax returns was complete and that the Loan agreement are as follows as ofCompany's tax refunds were approved for substantially the amount recorded in the Company's Consolidated Balance Sheet at December 31, 2017:2022. As of the date of this report, we are awaiting receipt of the tax refunds.
|
| | | |
| (In thousands) | |
| 2018 | $ | 247 |
|
| 2019 | 2,541 |
|
| Total | $ | 2,788 |
|
We believe that the actions already taken, and additional actions that we intend to take to manage operating expenditures, will enable us to meet our obligations for a period of at least one year from the date of issuance of our audited consolidated financial statements. As a result, we believe our plans alleviate substantial doubt about our ability to continue as a going concern. Our audited financial statements do not include any adjustments relating to the carrying amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
Net cash used in investing activities for the years ended December 31, 2022 and 2021, were $1.0 million and $0.7 million, respectively, related to purchases of property and equipment.
At December 31, 2017,2022, we had purchase commitments for inventories totaling approximately $4.3$4.1 million substantially, all of which is expected to be purchased by the end of 2018.2023.
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.
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates and assumptions, including those related to inventories, intangible assets, property, plant and equipment, legal proceedings, research and development, warranty obligations, product liability, fair valued liabilities, sales returns and discounts, stock basedstock-based compensation and income taxes are updated as appropriate, which in most cases is at least quarterly. We base our estimates on historical experience, or various assumptions that are believed to be reasonable under the circumstances and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may materially differ from these estimates.
Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Our critical accounting estimates include the following:
Stock-Based Compensation
Under our stock option plans, options to purchase common shares of the Company may be granted to employees, officers and directors of the Company by the Board of Directors. We account for stock options in accordance with FASB ASC Topic 718-10, Compensation-Stock Compensation, with compensation expense recognized over the vesting period. Options are valued using the Black-Scholes model, which includes a number of estimates that affect the amount of our expense. We have determined that the most critical of these estimates are the estimates of expected life and volatility used in the calculations.
Expected life
APYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
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.
Inventory reservesObsolescence Allowance
We maintain a reserve for excess and obsolete inventory resulting from the potential inability to sell our products at prices in excess of current carrying costs. The markets in which we operate are highly competitive, with new products and surgical procedures introduced on an ongoing basis. Such marketplace changes may cause our products to become obsolete. We make estimates regarding the future recoverability of the costs of these products and record a provision for excess and obsolete inventories based on historical experience and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write-downs may be required, which would unfavorably affect future operating results.
Long-lived assets
We review long-lived assets which are held and used, including property and equipment and intangible assets, for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such evaluations compare the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset over its expected useful life and are significantly impacted by estimates of future prices and volumes for our products, capital needs, economic trends and other factors that are inherently difficult to forecast. If the asset is considered to be impaired, we record an impairment charge equal to the amount by which the carrying value of the asset exceeds its fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.
BOVIE MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Derivative liabilities valued at fair value
We generally do not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks. However, certain financial instruments, such as warrants, which are indexed to our common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within our control. In such instances, net-cash settlement is assumed for financial accounting and reporting purposes, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded and continuously carried, at fair value.
Determining the fair value of these instruments involves judgment and the use of certain relevant assumptions including, but not limited to, interest rate risk, historical volatility and stock price, estimated life of the derivative, anti-dilution provisions and conversion/redemption privileges. The use of different assumptions or changes in those assumptions could have a material effect on the estimated fair value amounts.
Stock-based Compensation
Under our stock option plan, options to purchase common shares of the Company may be granted to key employees, officers and directors of the Company by the Board of Directors. The Company accounts for stock options in accordance with FASB ASC Topic 718-10, Compensation-Stock Compensation, with compensation expense amortized over the vesting period based on the trinomial lattice option-pricing model fair value on the grant date, which includes a number of estimates that affect the amount of our expense.
Litigation Contingencies
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.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 have net operating loss and tax credit carry forwards available in certain jurisdictions to reduce future taxable income. Future tax benefits for net operating loss and tax credit carry forwards are recognized towill reassess the extent that realization of these benefits is considered more likely than not. This determination is based on the expectation that related operations will be sufficiently profitable or variousdeferred tax businessassets each reporting period and other planning strategies will enable us to utilize the operating loss and tax credit carry forwards. We cannot be assured that we will be able to realize these future tax benefits or that futurereduce the valuation allowances will not be required. Toallowance to the extent that available evidence raises doubt about the realizationour results of a deferred income tax asset, a valuation allowance is established.
It is our policy to provide for uncertain tax positionsoperations improve, and the related interest and penalties based upon management’s assessment of whether a tax benefit isit becomes more likely than not to be sustained upon examination by tax authorities. To the extent that the probabledeferred tax outcome of these uncertain tax positions changes, such changes in estimateassets will impact the income tax provision in the period in which such determination is made. At December 31, 2017, we believe we have appropriately accounted for any unrecognized tax positions. To the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or we are required to pay amounts in excess of the liability, our effective tax rate in a given financial statement period may be affected.
Since inception, we have been subject to tax by both federal and state taxing authorities. Until the respective statutes of limitations expire (which may be as much as 20 years while we have unused NOL’s), we are subject to income tax audits in the jurisdictions in which we operate.
realized. As
BOVIEAPYX MEDICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANAYLSISANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Management has not fully determined the timing of when it will generate taxable income in the U.S., we continued to record a valuation allowance on the net deferred tax assets balance as of December 31, 2022.
We assess the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that 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 based on the technical merit of the position.
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 theour operations ofor financial performance. However, as these trends continue for raw materials, freight, and labor costs, our Company.future financial performance could be adversely impacted.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements at this time.
Recent Accounting Pronouncements
See Note 103 of the Notes to Consolidated Financial Statements.Statements in Part II, Item 8 of this Form 10-K.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Our short-term investments consist of cash, cash equivalents and overnight investments. As such, we do not believe we are exposed to significant interest rate risk. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid overnight money market investments. If a 10% change in interest rates were to have occurred on December 31, 2017, this change would not have had a material effect on the fair value of our investment portfolio as of that date.
Not required.
BOVIEAPYX MEDICAL CORPORATION
ITEM 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL INFORMATION
[LETTER HEAD OF FRAZIER & DEETER, LLC]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors and Stockholders of
BovieApyx Medical Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of BovieApyx Medical Corporation and its subsidiaries (the "Company")Company) as of December 31, 20172022 and 2016, and2021, the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the periodthen ended, December 31, 2017, and the related notes (collectively referred to as the consolidated financial statements (collectively, the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of theirits operations and its cash flows for each of the three years in the periodthen ended, December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Going Concern
As described in Note 1 to the consolidated financial statements, the Company disclosed certain adverse conditions that raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of the consolidated financial statements. The Company further disclosed certain plans identified by management, which involve the use of significant judgment, that management believes it can implement that alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern.
We identified the Company’s ability to continue as a going concern as a critical audit matter because of certain significant assumptions management made in concluding management’s plans alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern, including the reasonableness of the assumptions underlying management’s cash flow forecast for a period of one year from the date of issuance of the consolidated financial statements. Auditing management’s assumptions involved a high degree of auditor judgment and an increase in audit effort, including the use of an internal specialist, due to the impact these assumptions have on the conclusion that management’s plans alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern.
Our audit procedures related to the Company’s ability to continue as a going concern included the following, among others:
•We obtained management’s going concern assessment and evaluated the reasonableness of the conclusion that management’s plans alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern by considering both the likelihood that management could implement its plans and how the implementation of those plans impacted the identified adverse conditions.
•We evaluated management’s cash flow forecast by performing the following procedures, among others:
◦We evaluated the reasonableness of the forecasted nature, amount and timing of operating expenditures expected to be reduced or delayed over the course of a year from the date of issuance of the consolidated financial statements based on our understanding of the Company’s operations, cost structure, historical expenditures and actions taken to date by management.
◦We evaluated the Company’s ability to comply with its debt covenants under the Company’s new credit agreement, which was executed in February 2023.
◦We obtained and read correspondence between the Internal Revenue Service and the Company evidencing approval of the amount of the Company’s income tax receivable.
◦We obtained and read the purchase and sale agreement between the Company and a third party for the sale and leaseback of the Company’s building.
◦We considered the Company’s current shelf registration and the embedded at-the-market facility by evaluating management’s intent and ability to execute on a public offering.
•With the assistance of an internal specialist, we evaluated the accuracy and completeness of the Company’s financial statement disclosure and their compliance with accounting principles generally accepted in the United States of America.
/s/ RSM US LLP
We have served as the Company’sCompany's auditor since 2007.2020.
/s/ Frazier & Deeter, LLC
Frazier & Deeter, LLC
Tampa, FL
Orlando, Florida
March 13, 2018
16, 2023
BOVIEAPYX MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 10,192 | | | $ | 30,870 | |
| Trade accounts receivable, net of allowance of $668 and $430 | 10,602 | | | 13,038 | |
| Income tax receivables | 7,545 | | | 7,642 | |
| Other receivables | 99 | | | 483 | |
| Inventories, net of provision for obsolescence of $457 and $263 | 11,797 | | | 6,778 | |
| Prepaid expenses and other current assets | 2,737 | | | 1,926 | |
| Total current assets | 42,972 | | | 60,737 | |
| Property and equipment, net | 6,761 | | | 6,575 | |
| Operating lease right-of-use assets | 710 | | | 121 | |
| Finance lease right-of-use assets | 115 | | | 178 | |
| | | |
| Other assets | 1,217 | | | 1,110 | |
| Total assets | $ | 51,775 | | | $ | 68,721 | |
| | | |
| | | |
| | | |
| LIABILITIES AND EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 2,669 | | | $ | 2,631 | |
| Accrued expenses and other current liabilities | 8,928 | | | 10,287 | |
| Current portion of operating lease liabilities | 216 | | | 122 | |
| Current portion of finance lease liabilities | 37 | | | 165 | |
| | | |
| Total current liabilities | 11,850 | | | 13,205 | |
| Long-term operating lease liabilities | 470 | | | — | |
| Long-term finance lease liabilities | 73 | | | 18 | |
| Long-term contract liabilities | 1,408 | | | 1,323 | |
| Other liabilities | 181 | | | 166 | |
| Total liabilities | 13,982 | | | 14,712 | |
| Commitments and Contingencies (Note 17) | | | |
| EQUITY | | | |
| Preferred Stock, $0.001 par value; 10,000,000 shares authorized; 0 issued and outstanding as of December 31, 2022 and 2021 | — | | | — | |
| Common stock, $0.001 par value; 75,000,000 shares authorized; 34,597,822 issued and outstanding as of December 31, 2022, and 34,409,912 issued and outstanding as of December 31, 2021 | 35 | | | 34 | |
| Additional paid-in capital | 73,282 | | | 66,221 | |
| Accumulated deficit | (35,735) | | | (12,551) | |
| Total stockholders' equity | 37,582 | | 53,704 |
| Non-controlling interest | 211 | | | 305 | |
| Total equity | 37,793 | | | 54,009 | |
| Total liabilities and equity | $ | 51,775 | | | $ | 68,721 | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| | December 31,
2017 | | December 31,
2016 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 9,949 |
| | $ | 14,456 |
|
| Restricted cash | 719 |
| | 779 |
|
| Trade accounts receivable, net of allowance of $204 and $118 | 4,857 |
| | 4,733 |
|
| Inventories, net | 6,526 |
| | 6,158 |
|
| Prepaid expenses and other current assets | 496 |
| | 413 |
|
| Total current assets | 22,547 |
| | 26,539 |
|
| Property and equipment, net | 6,408 |
| | 6,449 |
|
| Brand name and trademark | 1,510 |
| | 1,510 |
|
| Purchased technology and license rights, net | 179 |
| | 215 |
|
| Goodwill | 185 |
| | 185 |
|
| Deposits | 92 |
| | 109 |
|
| Other assets | 67 |
| | 103 |
|
| Total assets | $ | 30,988 |
| | $ | 35,110 |
|
| | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 1,583 |
| | $ | 1,606 |
|
| Accrued severance and related | 1,242 |
| | — |
|
| Accrued payroll | 447 |
| | 419 |
|
| Accrued vacation | 74 |
| | 404 |
|
| Current portion of mortgage note payable | 239 |
| | 239 |
|
| Accrued and other liabilities | 2,388 |
| | 2,604 |
|
| Total current liabilities | 5,973 |
| | 5,272 |
|
| Mortgage note payable, net of current portion | 2,455 |
| | 2,694 |
|
| Note payable | 140 |
| | 140 |
|
| Deferred rents | — |
| | 14 |
|
| Deferred tax liability | 368 |
| | 564 |
|
| Derivative liabilities | 20 |
| | 203 |
|
| Total liabilities | 8,956 |
| | 8,887 |
|
| Commitments and Contingencies (see Notes 9 and 11) |
| |
|
| | | | |
| STOCKHOLDERS' EQUITY | | | |
| Series B convertible preferred stock, $0.001 par value; 3,588,139 authorized and zero issued and outstanding as of December 31, 2017 and 3,588,139 authorized and 975,639 issued and outstanding as of December 31, 2016, respectively | — |
| | 1 |
|
| Common stock, $0.001 par value; 75,000,000 shares authorized; 33,021,170 issued and 32,878,091 outstanding as of December 31, 2017 and 40,000,000 shares authorized; 31,002,832 issued and 30,859,753 outstanding as of December 31, 2016, respectively | 33 |
| | 31 |
|
| Additional paid-in capital | 50,495 |
| | 49,625 |
|
| Accumulated deficit | (28,496 | ) | | (23,434 | ) |
| Total stockholders' equity | 22,032 |
| | 26,223 |
|
| Total liabilities and stockholders' equity | $ | 30,988 |
| | $ | 35,110 |
|
The accompanying notes are an integral part of the consolidated financial statements.
BOVIEAPYX MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | |
| Sales | $ | 44,510 | | | $ | 48,517 | | | |
| Cost of sales | 15,379 | | | 14,916 | | | |
| Gross profit | 29,131 | | | 33,601 | | | |
| Other costs and expenses: | | | | | |
| Research and development | 4,544 | | | 4,321 | | | |
| Professional services | 9,044 | | | 7,589 | | | |
| Salaries and related costs | 18,621 | | | 17,522 | | | |
| Selling, general and administrative | 20,484 | | | 18,617 | | | |
| Total other costs and expenses | 52,693 | | | 48,049 | | | |
| Loss from operations | (23,562) | | | (14,448) | | | |
| Interest income | 157 | | | 11 | | | |
| Interest expense | (15) | | | (10) | | | |
| Other income (losses), net | 509 | | | (373) | | | |
| Total other income (loss), net | 651 | | | (372) | | | |
| Loss from operations before income taxes | (22,911) | | | (14,820) | | | |
| Income tax expense | 367 | | | 380 | | | |
| Net loss | (23,278) | | | (15,200) | | | |
| Net loss attributable to non-controlling interest | (94) | | | (28) | | | |
| Net loss attributable to stockholders | $ | (23,184) | | | $ | (15,172) | | | |
| | | | | |
| Loss per share - basic and diluted | $ | (0.67) | | | $ | (0.44) | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Weighted average number of shares outstanding - basic and diluted | 34,516 | | 34,332 | | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Sales | $ | 38,883 |
| | $ | 36,627 |
| | $ | 29,520 |
|
| Cost of sales | 19,122 |
| | 18,712 |
| | 16,963 |
|
| Gross profit | 19,761 |
| | 17,915 |
| | 12,557 |
|
| Other costs and expenses: | | | | | |
| Research and development | 2,455 |
| | 2,618 |
| | 2,160 |
|
| Professional services | 1,771 |
| | 1,486 |
| | 1,484 |
|
| Salaries and related costs | 7,906 |
| | 9,038 |
| | 7,482 |
|
| Selling, general and administrative | 11,370 |
| | 8,565 |
| | 8,417 |
|
| Severance and related expense | 1,524 |
| | — |
| | — |
|
| Total other costs and expenses | 25,026 |
| | 21,707 |
| | 19,543 |
|
| Loss from operations | (5,265 | ) | | (3,792 | ) | | (6,986 | ) |
| Interest expense, net | (136 | ) | | (158 | ) | | (158 | ) |
| Change in fair value of derivative liabilities | 183 |
| | 64 |
| | 1,799 |
|
| Total other income (loss), net | 47 |
| | (94 | ) | | 1,641 |
|
| Loss before income taxes | (5,218 | ) | | (3,886 | ) | | (5,345 | ) |
| Income tax (benefit) expense | (156 | ) | | 64 |
| | 25 |
|
| Net loss | $ | (5,062 | ) | | $ | (3,950 | ) | | $ | (5,370 | ) |
| Accretion on convertible preferred stock | — |
| | — |
| | (222 | ) |
| Gain on conversion of warrants and preferred shares, net | — |
| | — |
| | 13,956 |
|
| Net (loss) income attributable to common shareholders | $ | (5,062 | ) | | $ | (3,950 | ) | | $ | 8,364 |
|
| | | | | | |
| (Loss) income per share attributable to common shareholders | | | | | |
| Basic | $ | (0.16 | ) | | $ | (0.14 | ) | | $ | 0.34 |
|
| Diluted | $ | (0.17 | ) | | $ | (0.15 | ) | | $ | 0.24 |
|
| | | | | | |
| Weighted average number of shares outstanding - basic | 31,420 |
| | 27,433 |
| | 24,333 |
|
| Weighted average number of shares outstanding - dilutive | 31,427 |
| | 27,449 |
| | 27,747 |
|
The accompanying notes are an integral part of the consolidated financial statements.
BOVIEAPYX MEDICAL CORPORATION
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | | | | | |
| | Shares | | Par Value | | Shares | | Par Value | | Additional Paid-In Capital | | Accumulated Deficit | | Total |
Balance
December 31, 2014 | — |
| | $ | — |
| | 17,852 |
| | $ | 18 |
| | $ | 29,334 |
| | $ | (27,848 | ) | | $ | 1,504 |
|
| Options exercised | — |
| | — |
| | 98 |
| | — |
| | 220 |
| | — |
| | 220 |
|
| Warrants exercised | — |
| | — |
| | 739 |
| | — |
| | 1,519 |
| | — |
| | 1,519 |
|
| Issuance of common stock | — |
| | — |
| | 5,219 |
| | 5 |
| | 11,526 |
| | — |
| | 11,531 |
|
| Conversion of Series A preferred stock and common warrants to Series B preferred stock | 3,588 |
| | 4 |
| | — |
| | — |
| | (40 | ) | | 13,956 |
| | 13,920 |
|
| Conversion of Series B convertible preferred to common stock | (1,612 | ) | | (2 | ) | | 3,225 |
| | 4 |
| | (2 | ) | | — |
| | — |
|
| Stock based compensation | — |
| | — |
| | — |
| | — |
| | 575 |
| | — |
| | 575 |
|
| Stock swap to acquire options and warrants | — |
| | — |
| | (81 | ) | | — |
| | (273 | ) | | — |
| | (273 | ) |
| Accretion on convertible preferred stock | — |
| | — |
| | — |
| | — |
| | — |
| | (222 | ) | | (222 | ) |
| Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (5,370 | ) | | (5,370 | ) |
Balance
December 31, 2015 | 1,976 |
| | $ | 2 |
| | 27,052 |
| | $ | 27 |
| | $ | 42,859 |
| | $ | (19,484 | ) | | $ | 23,404 |
|
| Options exercised | — |
| | — |
| | 36 |
| | — |
| | 130 |
| | — |
| | 130 |
|
| Warrants exercised | — |
| | — |
| | 293 |
| | — |
| | 698 |
| | — |
| | 698 |
|
| Issuance of common stock | — |
| | — |
| | 1,625 |
| | 2 |
| | 5,828 |
| | — |
| | 5,830 |
|
| Conversion of Series B convertible preferred to common stock | (1,000 | ) | | (1 | ) | | 2,000 |
| | 2 |
| | (1 | ) | | — |
| | — |
|
| Stock based compensation | — |
| | — |
| | — |
| | — |
| | 809 |
| | — |
| | 809 |
|
| Stock swap to acquire options and warrants | — |
| | — |
| | (146 | ) | | — |
| | (698 | ) | | — |
| | (698 | ) |
| Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (3,950 | ) | | (3,950 | ) |
Balance
December 31, 2016 | 976 |
| | $ | 1 |
| | 30,860 |
| | $ | 31 |
| | $ | 49,625 |
| | $ | (23,434 | ) | | $ | 26,223 |
|
| Options exercised | — |
| | — |
| | 177 |
| | — |
| | 427 |
| | — |
| | 427 |
|
| Warrants exercised | — |
| | — |
| | 54 |
| | — |
| | 130 |
| | — |
| | 130 |
|
| Conversion of Series B convertible preferred to common stock | (976 | ) | | (1 | ) | | 1,951 |
| | 2 |
| | (1 | ) | | — |
| | — |
|
| Stock based compensation | — |
| | — |
| | — |
| | — |
| | 871 |
| | — |
| | 871 |
|
| Stock swap to acquire options and warrants | — |
| | — |
| | (164 | ) | | — |
| | (557 | ) | | — |
| | (557 | ) |
| Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (5,062 | ) | | (5,062 | ) |
Balance
December 31, 2017 | — |
| | $ | — |
| | 32,878 |
| | $ | 33 |
| | $ | 50,495 |
| | $ | (28,496 | ) | | $ | 22,032 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid-In Capital | | Retained Earnings (Accumulated Deficit) | | Non-controlling interest | | |
| | | | | Shares | | Par Value | | | | | Total Equity |
| Balance at December 31, 2020 | | | | | 34,289 | | $ | 34 | | | $ | 61,066 | | | $ | 2,621 | | | $ | 138 | | | $ | 63,859 | |
| Contributions from non-controlling interest | | | | | — | | | — | | | — | | | — | | | 195 | | | 195 | |
| Shares issued on stock options exercises for cash | | | | | 13 | | | — | | | 67 | | | — | | | — | | | 67 | |
| Stock based compensation | | | | | — | | | — | | | 5,088 | | | — | | | — | | | 5,088 | |
| Shares issued on net settlement of stock options | | | | | 108 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
| Net loss | | | | | — | | | — | | | — | | | (15,172) | | | (28) | | | (15,200) | |
| Balance at December 31, 2021 | | | | | 34,410 | | $ | 34 | | | $ | 66,221 | | | $ | (12,551) | | | $ | 305 | | | $ | 54,009 | |
| | | | | | | | | | | | | | | |
| Shares issued on stock options exercises for cash | | | | | 106 | | | 1 | | | 364 | | | — | | | — | | | 365 | |
| Stock based compensation | | | | | — | | — | | | 6,697 | | | — | | | — | | | 6,697 | |
| Shares issued on net settlement of stock options | | | | | 82 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
| Net loss | | | | | — | | | — | | | — | | | (23,184) | | | (94) | | | (23,278) | |
| Balance at December 31, 2022 | | | | | 34,598 | | $ | 35 | | | $ | 73,282 | | | $ | (35,735) | | | $ | 211 | | | $ | 37,793 | |
The accompanying notes are an integral part of the consolidated financial statements.
BOVIEAPYX MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | |
| Cash flows from operating activities | | | | | |
| Net loss | $ | (23,278) | | | $ | (15,200) | | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
| | | | | |
| | | | | |
| Depreciation and amortization | 890 | | | 903 | | | |
| Provision for inventory obsolescence | 240 | | | 109 | | | |
| Provision for product warranties | (2) | | | 318 | | | |
| Loss on disposal of property and equipment | 75 | | | 48 | | | |
| Stock based compensation | 6,697 | | | 5,088 | | | |
| | | | | |
| | | | | |
| | | | | |
| Provision for allowance for doubtful accounts | 315 | | | 128 | | | |
| | | | | |
| Changes in current assets and liabilities: | | | | | |
| Trade receivables | 1,918 | | | (4,901) | | | |
| Income tax receivables | 97 | | | 12 | | | |
| Prepaid expenses and other assets | (523) | | | 1,355 | | | |
| Inventories | (5,568) | | | (2,859) | | | |
| Accounts payable | 67 | | | 1,154 | | | |
| | | | | |
| Accrued expenses and other liabilities | (1,208) | | | 3,396 | | | |
| | | | | |
| | | | | |
| Net cash used in operating activities | (20,280) | | | (10,449) | | | |
| Cash flows from investing activities | | | | | |
| Purchases of property and equipment | (1,010) | | | (723) | | | |
| | | | | |
| | | | | |
| | | | | |
| Net cash used in investing activities | (1,010) | | | (723) | | | |
| | | | | |
| Cash flows from financing activities | | | | | |
| Proceeds from stock option exercises | 365 | | | 67 | | | |
| | | | | |
| Repayment of finance lease liabilities | (148) | | | (238) | | | |
| Contributions from non-controlling interests | — | | | 195 | | | |
| | | | | |
| | | | | |
| | | | | |
| Net cash provided by financing activities | 217 | | | 24 | | | |
| Effect of exchange rates on cash | 395 | | | 103 | | | |
| Net change in cash and cash equivalents | (20,678) | | | (11,045) | | | |
| Cash and cash equivalents, beginning of year | 30,870 | | | 41,915 | | | |
| Cash and cash equivalents, end of year | $ | 10,192 | | | $ | 30,870 | | | |
| | | | | |
| | | | | |
| Cash paid for: | | | | | |
| Interest expense | $ | 15 | | | $ | 10 | | | |
| Income taxes | 128 | | | 111 | | | |
| | | | | |
| Non cash activities: | | | | | |
| Right-of-use assets capitalized and operating lease liabilities recognized upon lease modification | $ | 769 | | | $ | — | | | |
| Right-of-use assets capitalized and finance lease liabilities recognized upon execution of lease | $ | 103 | | | $ | — | | | |
| Right-of-use assets and finance lease liabilities derecognized upon execution of lease modification | $ | 28 | | | $ | — | | | |
| Transfer of right-of-use assets to property and equipment on exercise of purchase option | $ | — | | | $ | 43 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Cash flows from operating activities | | | | | |
| Net loss | $ | (5,062 | ) | | $ | (3,950 | ) | | $ | (5,370 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
| Depreciation and amortization | 696 |
| | 734 |
| | 812 |
|
| Provision for inventory obsolescence | 502 |
| | 178 |
| | 157 |
|
| Gain on disposal of property and equipment, net | 5 |
| | 21 |
| | 21 |
|
| Stock based compensation | 871 |
| | 809 |
| | 575 |
|
| Change in fair value of derivative liabilities | (183 | ) | | (64 | ) | | (1,799 | ) |
| Provision for allowance for doubtful accounts | 179 |
| | 84 |
| | 96 |
|
| Provision (benefit) for deferred taxes | (196 | ) | | 25 |
| | (25 | ) |
| Changes in current assets and liabilities: | | | | | |
| Trade receivables | (303 | ) | | (1,894 | ) | | (1,029 | ) |
| Prepaid expenses | (83 | ) | | 103 |
| | 286 |
|
| Inventories | (870 | ) | | (379 | ) | | (102 | ) |
| Deposits and other assets | 53 |
| | 341 |
| | 228 |
|
| Accounts payable | (23 | ) | | 392 |
| | (189 | ) |
| Accrued severance and related | 1,242 |
| | — |
| | — |
|
| Accrued and other liabilities | (532 | ) | | 763 |
| | 553 |
|
| Net cash used in operating activities | (3,704 | ) | | (2,837 | ) | | (5,786 | ) |
| Cash flows from investing activities | | | | | |
| Purchases of technology, property and equipment | (624 | ) | | (286 | ) | | (421 | ) |
| Acquisition of Bovie Bulgaria, net of cash acquired | — |
| | — |
| | (500 | ) |
| Net cash used in investing activities | (624 | ) | | (286 | ) | | (921 | ) |
| Cash flows from financing activities | | | | | |
| Proceeds from stock options/warrants exercised | — |
| | 124 |
| | 1,427 |
|
| Change in restricted cash | 60 |
| | 60 |
| | 60 |
|
| Repayment of mortgage note payable | (239 | ) | | (240 | ) | | (239 | ) |
| Proceeds from issuance of common shares, net | — |
| | 5,830 |
| | 11,531 |
|
| Net cash (used in) provided by financing activities | (179 | ) | | 5,774 |
| | 12,779 |
|
| Net change in cash and cash equivalents | (4,507 | ) | | 2,651 |
| | 6,072 |
|
| Cash and cash equivalents, beginning of period | 14,456 |
| | 11,805 |
| | 5,733 |
|
| Cash and cash equivalents, end of period | $ | 9,949 |
| | $ | 14,456 |
| | $ | 11,805 |
|
| | | | | | |
| Cash paid for: | | | | | |
| Interest paid | $ | 136 |
| | $ | 158 |
| | $ | 158 |
|
| | | | | | |
| Non cash investing activities: | | | | | |
| Note payable for acquisitions | $ | — |
| | $ | — |
| | $ | 140 |
|
| Cashless exercise of stock options/warrants | $ | 557 |
| | $ | 698 |
| | $ | 272 |
|
The accompanying notes are an integral part of the consolidated financial statements.
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
BovieApyx Medical Corporation (“Bovie”)Company", "Apyx", "it" and similar terms) was incorporated in 1982, under the laws of the State of Delaware. We areDelaware and has its principal executive office at 5115 Ulmerton Road, Clearwater, FL 33760.
The Company is an energy-basedadvanced energy technology company with a passion for elevating people’s lives through innovative products, including its Helium Plasma Technology products marketed and sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market. Renuvion® and J-Plasma® offer surgeons a unique ability to provide controlled heat to tissue to achieve their desired results. The Company also leverages its deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device company specializingmanufacturers.
As part of its plan to accelerate and fully fund the development of its advanced energybusiness, with a focus in developing,the cosmeticsurgery market, the Company sold its Core business in 2018 for gross proceeds of $97 million.These proceeds were used to launch broad marketing and sales initiatives which resulted in rapid sales growth through December 31, 2021 and into the first quarter of 2022.This planned growth in the business was accompanied by scaled operations, including procurement of components, expanded manufacturing capacity to turn those materials into saleable inventory, additional discretionary expenditures, including increased global participation at trade shows, additional employee trainings, user meetings, increased travel and entertainment expenses, more expansive research and development projects, and additional headcount to support those activities. Additionally, the Company had, and still has, some significant non-recurring discretionary expenditures associated with completing its multi-year marketing initiatives related to its dermal resurfacing and skin laxity clearances.
On March 14, 2022, the U.S. Food and Drug Administration (“FDA”) posted a rangeSafety Communication that warns consumers and health care providers against the use of electrosurgicalthe Company’s Advanced Energy products outside of their FDA-cleared indications for general use in cutting, coagulation, and technologies,ablation of soft tissue during open and laparoscopic surgical procedures. Following the Safety Communication, the Company experienced slowed demand for the adoption of its Helium Plasma Technology.
On May 26, 2022, the Company announced that it had received 510(k) clearance from the FDA for the use of the Renuvion® Dermal Handpiece for specific dermal resurfacing procedures. On July 18, 2022, the Company announced that it had received 510(k) clearance from the FDA for the use of the Renuvion® APR Handpiece for certain skin contraction procedures.
On June 2, 2022, and July 21, 2022, the FDA updated the Medical Device Safety Communication to recognize the new 510(k) clearances for the Renuvion® Dermal handpiece, and the expanded indications for the Renuvion® APR 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.
On February 1, 2023, we announced we had submitted a 510(k) premarket notification (“510(k) submission”) for the Renuvion APR Handpiece to the FDA, supported by a clinical study and real-world evidence. The 510(k) submission is intended to expand Renuvion’s indications for use to include a specific indication for the use of the Renuvion APR Handpiece for the coagulation of subcutaneous soft tissues where needed, following liposuction.
On February 27, 2023, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion APR Handpiece for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed. Soft tissue includes subcutaneous tissue.
While management expected that receiving these clearances would materially mitigate the financial effects of the Safety Communication in future periods, the Company continues to experience reduced demand for the adoption and utilization of its technology and management believes that this may have an adverse effect in future periods.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as wella going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as related medical productsa Going Concern, management must evaluate
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these consolidated financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the condensed consolidated financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
While sales were continuing to grow into the first quarter of 2022 prior to the FDA Safety Communication, over the last few years, exclusive of the Company’s sale of the Core business segment to Symmetry Surgical during 2018, it has incurred recurring net losses and cash outflows from operations and the Company anticipates that losses will continue in the near term. During the year ended December 31, 2022, the Company incurred an operating loss of $23.6 million and used $20.3 million of cash in doctor’s offices, surgery centersoperations. As of December 31, 2022, the Company had cash and hospitals worldwide.cash equivalents of $10.2 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of these consolidated financial statements.
In an effort to alleviate these conditions, the Company pursued various funding solutions in order to improve liquidity.
On November 22, 2022, the Company filed a shelf registration statement providing it the ability to register securities in the aggregate amount up to $100 million. The shelf registration included an embedded ATM facility for up to $40 million. To date the Company has not utilized this facility.
On February 17, 2023, the Company entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”) with MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time.
The Credit Agreement provides for an up to $35 million facility, consisting of senior secured term loans and a secured revolving facility. The Credit Agreement provides for senior secured term loans of up to $25 million, comprised of (i) an initial tranche of $10 million, (ii) a second tranche of $5 million, and (iii) a third tranche of $10 million. The secured revolving facility provides for loans in an aggregate principal amount of up to $10 million, subject to a borrowing base equal to certain percentages of the Company’s eligible accounts receivable and inventory, as determined in accordance with the terms of the Credit Agreement.
For a more in depth description of the terms of the Credit Agreement see Note 20.
On February 27, 2023, the Company’s Board of Directors approved a plan to sell and leaseback the Company's real property located in Clearwater, FL. On March 14, 2023, the Company entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with VK Acquisitions VI, LLC (the “Purchaser”), for the sale of the Company's facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price of $7,650,000. The Purchase Agreement is subject to the satisfactory completion of due diligence by the Purchaser. Upon the closing of the sale of the Property, the Company will enter into a lease agreement with the Purchaser, pursuant to which the Property will be leased back to the Company.
For a more in depth description of the terms of the Purchase Agreement see Note 20.
During January 2023, the Company was notified that the IRS examination process of our 2018, 2019 and 2020 tax returns was complete and that the Company's tax refunds were approved for substantially the amount recorded in the Company's Consolidated Balance Sheet at December 31, 2022. As of the date of this report, the Company is awaiting receipt of the tax refunds.
The Company also continues to re-assess its operating expenditures and cost structure to be commensurate with expected levels of revenue and management has the ability to reduce or delay expenditures to enhance and preserve liquidity. Management has already reduced some operating expenditures, including a reduction-in-force on January 9, 2023, that reduced the Company's U.S. headcount by 14%.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Management believes that the actions already taken, and additional actions that it intends to take to manage operating expenditures, will enable the Company to meet its obligations for a period of at least one year from the date of issuance of these audited consolidated financial statements. As a result, management believes its plans alleviate substantial doubt about the Company's ability to continue as a going concern. These audited financial statements do not include any adjustments relating to the carrying amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Consolidated Financial Statements
The accompanying consolidated financial statements include the accounts of Bovie andApyx, its wholly owned subsidiaries, Aaron Medical Industries, Inc., Boviesubsidiary, Apyx Bulgaria, EOOD, BVX Holdings LLC and Bovie Holdings, Inc.its 51% owned subsidiary, Apyx SY Medical Devices (Ningbo) Co., Ltd. (collectively, “Apyx,” or the “Company” or “we”, “our” or “us”). All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires usthe Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions we arethe Company is required to make.
Cash and Cash Equivalents
Holdings of highly liquid investments with original maturities of three months or less from the date of purchase are considered to be cash equivalents. As of December 31, 2022 and 2021, all of the Company’s investments are in money market funds or in Treasury Bills with original maturities of three months or less and are included in cash and cash equivalents.
Fair Values of Financial Instruments and Concentration of Credit Risk
The carrying amounts of our financial instruments included in current assets and liabilities approximate fair value due to their short term nature. In addition, we believe the book values of our mortgage payable and capital lease payable approximates their fair values as the terms of such obligations approximate the terms at which similar types of borrowing arrangements could be currently obtained.
Financial instruments, which potentially subject usthe Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents and trade accounts receivable. With respect to cash, wethe Company frequently maintainmaintains cash and cash equivalent balances in excess of federally insured limits. We havelimits; it has not experienced any losses in such accounts.
Derivative Financial Instruments
We generally do not use derivative financial instruments to hedge exposures to cash-flow risks or market risks. However, certain financial instruments, such as warrants, which are indexed to our common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within our control. In such instances, net-cash settlement is assumed for financial accounting and reporting purposes, even if the terms of the underlying contracts do not always provide for net-cash settlement. Such financial instruments are initially recorded and continuously carried, at fair value.
Determining the fair value of these instruments involves judgment and the use of certain relevant assumptions including, but not limited to, interest rate risk, historical volatility and stock price, estimated life of the derivative, anti-dilution provisions and conversion/redemption privileges. The use of different assumptions or changes in those assumptions could have a material effect on the estimated fair value amounts.
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Trade Accounts Receivable and Allowance for Doubtful Accounts
OurThe Company's standard credit terms for our billings range from net 1030 days to net 60120 days, depending on the customer agreement. Accounts receivable are determined to be past due if payments are not made in accordance with such agreements and an allowance is generally recorded for accounts that become three months past due, or sooner if there are other indicators that the receivables may not be recovered. Customary collection efforts are initiated, and receivables are written off when we determinethe Company determines they are not collectible and abandonabandons these collection efforts. We gave negotiated sales volume discounts, which amounted to approximately $0.5 million, $0.6 million and $0.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. Sales are reported net of all discounts.
We evaluateThe Company evaluates the allowance for doubtful accounts on a regular basis for adequacy based upon ourits periodic review of the collectability of the receivables in light of historical experience, adverse situations that may affect ourits customers’ ability to pay estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Management believes that the allowances for doubtful accounts of approximately $0.2$0.7 million and $0.1$0.4 million at December 31, 20172022 and 2016,2021, respectively, are or were, adequate to provide for possibleprobable bad debts.
With respect to receivables, our ten largest customers accounted for approximately 44.0% and 42.9% of trade receivables as of December 31, 2017 and 2016, respectively and 48.3%, 54.4% and 58.3% of net sales for the years ended December 31, 2017, 2016 and 2015, respectively. In 2017, McKesson accounted for 15.7% and National Distribution & Contracting Inc. accounted for 9.2% of our sales. In 2016, McKesson accounted for 15.9% and National Distribution & Contracting Inc. accounted for 9.8% of our sales. In 2015, McKesson accounted for 18.6% and National Distribution & Contracting Inc. accounted for 13.3% of our sales.
Inventories and Repair Parts
Inventories are stated at the lower of cost or market.net realizable value. Cost is determined on a first in, first out basis. Finished goods and work-in-process inventories include material, labor and overhead costs. Factory overhead costs are allocated to inventory manufactured in-houseinventory based upon labor hours.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The Company monitors inventory usage reports to determine if the carrying value of any items should be adjusted due to lack of demand for the item and adjust theadjusts inventory for estimated obsolescence or unusable inventory equal to the difference between the cost of inventory and the estimated marketnet realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Inventories consisted of the following:
|
| | | | | | | |
| (In thousands) | December 31,
2017 | | December 31,
2016 |
| Raw materials | $ | 5,163 |
| | $ | 4,521 |
|
| Finished goods | 3,276 |
| | 3,048 |
|
| Gross inventories | 8,439 |
| | 7,569 |
|
| Less: reserve for obsolescence | (1,913 | ) | | (1,411 | ) |
| Inventories, net | $ | 6,526 |
| | $ | 6,158 |
|
The Company recorded changes in excess and obsolete inventory totaling approximately $0.5 million, $0.2 million and $0.2 million during 2017, 2016 and 2015, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the assets. The amortization of leasehold improvements is based on the shorter of the lease term or the life of the improvement. Betterments and largemajor improvements, which extend the life of the asset, are capitalized, whereas maintenance and repairs and smallroutine improvements are expensed as incurred. The estimated useful lives are: buildings and improvements, 39 years; machinery and equipment, 3-10 years; buildings, 39 years; molds, 7-15 years and furniture and fixtures, 5-10 years; computer equipment and software, 3-5 years; and molds, 7-15 years.
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Intangible Assets
Intangible assets consist of licenses, purchased technology and brand name and trademarks. The licenses and purchased technology are being amortized by the straight-line method over a 5-17 year period commencing with the date they were placed in service.
Brand name and trademark qualifies as an indefinite-lived intangible asset and is not subject to amortization. Intangibles with indefinite lives are analyzed for impairment annually or more frequently if events and circumstances indicate that the asset may be impaired. If impaired, an impairment loss is recognized in an amount equal to the excess of the asset’s carrying value over its fair value. Management concluded that the assigned value at December 31, 2017 of approximately $1.5 million was not impaired and is reasonable.
Valuation of Long-Lived Assets
We reviewThe Company reviews long-lived assets for recoverability if events or changes in circumstances indicate that the assets may have been impaired. This circumstance exists when the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. In those cases, an impairment loss is recognized to the extent that the assets’ carrying amount exceeds its fair value. Any impairment losses are not restored in the future if the fair value increases. At December 31, 2017, we believe2022 and 2021, the Company believes the remaining carrying values of ourits long-lived assets are recoverable.
Product Warranties
The Company provides a four year limited warranty on end-user sales of its Renuvion®/J-Plasma® generators, a two year warranty on mounting fixtures, and a one-year warranty on certain accessories. The Company estimates and provides for future costs for product warranties in cost of sales at the time revenue is recognized. The Company bases its product warranty costs on related material costs, repair labor costs and shipping costs. The Company estimates the future cost of product warranties by considering historical material, repair labor, and shipping costs, and applying the experience rates to the outstanding warranty period for products sold. It is reasonably possible that actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that the Company expects to receive for those goods or services. To recognize revenue, the Company (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when, or as, it satisfies the performance obligation(s). For sales of the Company's Advanced Energy products (Renuvion®/J-Plasma®), this is at a point in time when title has been transferred to the customer, which is generally at the time of shipment or receipt by customer for FOB destination terms. For sales of products under its OEM agreements, the Company recognizes revenue over time when no alternative use exists for the manufactured goods and the Company has rights to payment. Presently, the Company does not stock any significant completed goods under its OEM agreements, accordingly, the recognition of revenue under these agreements approximates point in time recognition. The following policies apply to ourits major categories of revenue transactions:
•The majority of our sales to customers are evidenced by firm purchase orders. Generally, title and the risks and rewards of ownership are transferred to the customer when the product is shipped. Payment by the customer is due under fixed payment terms.
•Product returns are only accepted at ourthe Company's discretion and in accordance with ourits “Returned Goods Policy”. Historically, the level of product returns has not been significant. We accrueAccruals for sales returns, rebates and allowances are made as a reduction of revenue based upon an analysis of historical customer returns and credits, rebates, discounts and current market conditions.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
•The terms of sale to customers generally do not include any obligations to perform future services. Limited warranties are generally provided for sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data.
Amounts•In connection with the execution of OEM supply agreements, the Company may enter into an accompanying product development agreement. If the Company enters into a product development agreement, and development of the goods does not represent a performance obligation on a standalone basis, the Company defers the development fees billed to customers related to shipping and handling charges are included in sales. Shipping and handling costs included in cost of sales were approximately $0.2 million, $0.2 million and $0.1 million in 2017, 2016 and 2015, respectively.
ASU No. 2014-09 (ASC 606), Revenue from Contracts with Customers will become effective for us beginning with the first quarter of 2018, and we plan to adopt the new accounting standard using the modified retrospective transition approach. The modified retrospective transition approach will recognize any changes from the beginningassociated costs. Recognition of the year of initial application through retained earnings with no restatement of comparative periods. We will record revenue under ASC 606 at a single point in time, when control is transferred todeferred billings and costs occurs as the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, systems and controls to support recognition and disclosure under the new standard. BasedCompany performs on the results of the evaluation, we have determined that the adoption of the new standard will have a material impact on our consolidated financial statements. Application of the transition requirements of the new standard will not have a material impact on opening retained earnings.accompanying supply arrangements.
Advertising Costs
All advertisingAdvertising costs are expensed as incurred. The amounts of advertising costs, including trade shows, were approximately $0.6 million, $0.7$2.3 million and $0.5$1.3 million for the years ended December 31, 2017, 20162022 and 2015,2021, respectively.
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Stock-Based Compensation
We accountThe Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation. FASB ASC 718 requires recognizing compensation costsexpense for all share-based payment awards made to employees, directors and directorsnon-employees based upon the awards’ grant date fair value.value of such awards. It accounts for forfeitures as they occur. The standard covers employee stock options, restricted stock and other equity awards. For stock options, we useThe Company utilizes a trinomial lattice option-pricingBlack-Scholes model to estimate the grant date fair value of stock option awards. For employee and director awards, and recognize compensation costexpense is recognized on a straight-line basis over the awards’ vesting periods. For non-employee awards, compensation expense is recorded for non-forfeitable, fully vested awards at the grant date. For other awards granted to non-employees, compensation cost is recognized as services are provided, which approximates a straight-line basis over the vesting period.
Litigation Contingencies
In accordance with authoritative guidance, we recordthe Company accrues a liability in ourits 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.recorded; actual results may differ from those estimates.
Tax Effects of Stock-Based Compensation
We will only recognize a tax benefit from windfall tax deductions for stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available have been utilized.
NetEarnings (Loss) Earnings Per Common Share
We computeThe Company computes basic (loss) earnings attributable to common shareholdersstockholders per share by dividing net (loss) income attributable to common shareholdersstockholders by the weighted average number of common shares outstanding for the reporting period. Diluted (loss) earnings per share attributable to common shareholdersstockholders gives effect to all potential dilutive shares outstanding during the period. The number of dilutive shares is calculated using the treasury stock method which reduces the effective number of shares by the amount of shares wethe Company could purchase with the proceeds of assumed exercises. Anti-dilutive units are excluded from the calculation of diluted shares. In periods of loss, all potentially dilutive units are anti-dilutive and are excluded from the calculation of diluted income (loss) per share.
Research and Development Costs
With the exception of development costs that are purchased from another enterprise and have alternative future use, researchResearch and development expenses are charged to operations as incurred. We have expended approximately $2.5 million and $2.6 million and $2.2 million for the years ended 2017, 2016 and 2015 respectively.
Research and Development Costs for Others
For research and development activities that are partially or completely funded by other parties and when the obligation is incurred solely to perform contractual services, expenses are charged to cost of sales and all revenues resulting from such activities are shown as sales.
Income Taxes
We utilizeThe Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC 740.Topic 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basisbases of assets and liabilities using tax rates expected to be in effect during the years in which the basis differencesdeferred taxes reverse. Management evaluated the positiveThe Company accounts for interest and negative evidence in determining the realizability of the net deferredpenalties on income taxes as income tax asset.expense. A valuation allowances is recorded when it is more likely than not that a tax benefit will not be realized. In determining the need for valuation allowance, we reviewed historic operating results, updated 2017 actual results, as well as future income forecasts based on the projections, management concluded that it was not more likely thatallowances the Company should realize its net deferred tax assets throughconsiders projected future operating resultstaxable income, the timing of reversals of temporary differences, and the reversalavailability of taxable temporary differences.
tax
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
planning strategies. As of December 31, 2022 and 2021, the Company recorded a valuation allowance on the net deferred tax assets.
If in
The Company assesses the future we determine that werealizability of deferred tax assets each reporting period and will be able to realize anyreduce the valuation allowance to the extent the financial results of continuing operations improve, and it becomes more likely than not that the deferred tax assets will be realized. As Management has not fully determined the timing of when it will generate taxable income in the U.S., the Company will continue to record a full valuation allowance on the net deferred tax assets we will make adjustmentas of December 31, 2022.
The Company assesses the financial statement impact of an uncertain tax position taken or expected to the valuation allowance, which would increase our income in the period that the determination is made.
We assess ourbe taken on an income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available as of the reporting date. For those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, we have recordedreturn at the largest amount of tax benefit that may potentiallyis more-likely-than-not to be realizedsustained upon ultimate settlement with aaudit by the relevant taxing authority that has full knowledge of all relevant information. For thoseauthority. An uncertain income tax positions where there is less than 50% likelihood that a tax benefitposition will not be sustained, no tax benefit has been recognized in the financial statements.statements unless it is more likely than not of being sustained.
Foreign Currency Transactions NOTE 3. ACQUISITION OF BOVIE BULGARIA
The functional currency of Apyx Bulgaria is the U.S. dollar. The monetary assets and liabilities that are denominated in a currency other than U.S. dollar are remeasured into U.S. dollars at the exchange rate on the balance sheet date, while nonmonetary items are remeasured at historical rates. Revenue and expenses are remeasured at weighted average exchange rates during the period. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in selling, general and administrative expenses in the Consolidated Statements of Operations and were not material for the years ended December 31, 2022 and 2021.
On October 20, 2015 (the “Effective Date”),
Reclassifications
We have reclassified certain amounts presented in the Company and Nikolay Shilev entered into and consummated a Share Purchase Agreement (the “Purchase Agreement”) whereby the Company acquired all of the outstanding equity interests of Bovie Bulgaria EOOD, a limited liability company incorporated under Bulgarian law (“Bovie Bulgaria”). Pursuantprior year to conform to the terms ofcurrent year presentation. These reclassifications had no impact on previously reported net income, retained earnings or operating cash flows for the Purchase Agreement, the Company agreed to pay Mr. Shilev approximately $559,000 payable as follows: (i) $419,000 payable within three business days after the effective registration of the Company as the sole shareholder of Bovie Bulgaria and (ii) $140,000 payable on the five year anniversary of the Effective Date.periods presented.
In conjunction with the execution and consummation of the Purchase Agreement, the Company caused Bovie Bulgaria to enter into a Management Agreement with Mr. Shilev (the “Management Agreement”). Pursuant to the terms of the Management Agreement: (i) Mr. Shilev shall be engaged by the Company for a period of five years; (ii) the Company agreed to pay Mr. Shilev an annual base salary of $141,250; (iii) Mr. Shilev shall be entitled to, subject to certain limitations, an annual performance based bonus equal to twenty percent of Mr. Shilev’s base salary; (iv) as an inducement to enter into the Management Agreement, the Company awarded Mr. Shilev a restricted stock grant of 225,922 shares of the Company’s common stock, with such restricted stock vesting ratably over a five year period and subject to forfeiture upon Mr. Shilev’s Management Agreement being terminated for Cause or without “Good Reason” (as each is defined in the Management Agreement); and (v) the Company agreed to provide severance payments in the event of certain termination events as set forth in the Management Agreement.
The table below summarizes the preliminary purchase price and the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date of October 20, 2015:
|
| | | |
| (In thousands) | |
| Cash and cash equivalents | $ | 59 |
|
| Inventories, net | 285 |
|
| Prepaid expenses and other current assets | 1 |
|
| Property and equipment, net | 167 |
|
| Goodwill | 185 |
|
| Deferred income tax assets, net | 25 |
|
| Deposits, net of current portion | 8 |
|
| Accounts payable | (150 | ) |
| Accrued and other liabilities | (21 | ) |
| Value of consideration paid | $ | 559 |
|
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of the following:
|
| | | | | | | |
| (In thousands) | December 31,
2017 | | December 31,
2016 |
| Trade accounts receivable | $ | 5,061 |
| | $ | 4,851 |
|
| Less: allowance for doubtful accounts | (204 | ) | | (118 | ) |
| Trade accounts receivable, net | 4,857 |
| | 4,733 |
|
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
| | | | | | | |
| (In thousands) | December 31,
2017 | | December 31,
2016 |
| Land | $ | 1,600 |
| | $ | 1,600 |
|
| Machinery and equipment | 3,231 |
| | 3,775 |
|
| Building and improvements | 4,512 |
| | 4,237 |
|
| Furniture and fixtures | 1,947 |
| | 2,194 |
|
| Leasehold improvements | — |
| | 12 |
|
| Molds | 1,829 |
| | 1,900 |
|
| Total property, plant and equipment | 13,119 |
| | 13,718 |
|
| Less: accumulated depreciation | (6,711 | ) | | (7,269 | ) |
| Net property, plant and equipment | $ | 6,408 |
| | $ | 6,449 |
|
Total depreciation expense was $0.6 million, $0.6 million and $0.7 million for the years ended December 31, 2017, 2016 and 2015, respectively. Depreciation expense is included primarily within cost of goods sold in the consolidated statements of operations.
NOTE 6. INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
| | | | | | | |
| (In thousands) | December 31,
2017 | | December 31,
2016 |
| Brand name and trademark (life indefinite) | $ | 1,510 |
| | $ | 1,510 |
|
| | | | |
| Purchased technology (5-17 year lives) | $ | 1,513 |
| | $ | 1,441 |
|
| Less: accumulated amortization | (1,334 | ) | | (1,226 | ) |
| Purchased technology, net | $ | 179 |
| | $ | 215 |
|
| | | | |
| Goodwill | $ | 185 |
| | $ | 185 |
|
With respect to our trademark and brand name, we continue to market products, release new products and product extensions and maintain and promote these trademarks and brand name in the marketplace through legal registration and such methods as advertising, medical education and trade shows. Based on our annual impairment testing, these trademarks and brand names will generate cash flow for an indefinite period of time. Therefore, we believe our trademarks and brand name intangible assets are not impaired. Goodwill results from our acquisition of Bovie Bulgaria, EOOD.
Amortization of intangible assets was $0.1 million for the years ended December 31, 2017, 2016 and 2015. Amortization expense is classified within selling, general and administration expenses in the consolidated statements of operations.
Amortization expense amounts for the next three years are expected to be approximately $0.1 million for 2018 through 2020.
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. EARNINGS PER SHARE
We compute basic earnings per share (“basic EPS”) by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. The following table provides the computation of basic and diluted earnings per share.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands, except per share data) | 2017 | | 2016 | | 2015 |
| Numerator: | | | | | |
| Net (loss) income available to common shareholders | $ | (5,062 | ) | | $ | (3,950 | ) | | $ | 8,364 |
|
| Effect of dilutive securities: | | | | | |
| Derivative liability - warrants | (183 | ) | | (64 | ) | | (1,799 | ) |
| Accretion on convertible preferred stock | — |
| | — |
| | 222 |
|
| Numerator for dilutive (loss) income per common share | (5,245 | ) | | (4,014 | ) | | 6,787 |
|
| | | | | | |
| Denominator: | | | | | |
Weighted average shares used to compute basic (loss) income
per common share | 31,420 |
| | 27,433 |
| | 24,333 |
|
| Effect of dilutive securities: | | | | | |
| Derivative liability - warrants | 7 |
| | 16 |
| | 28 |
|
| Convertible preferred stock | — |
| | — |
| | 3,137 |
|
| Stock options | — |
| | — |
| | 249 |
|
| Denominator for dilutive (loss) income per common share | 31,427 |
| | 27,449 |
| | 27,747 |
|
| | | | | | |
| Basic (loss) income per common share | $ | (0.16 | ) | | $ | (0.14 | ) | | $ | 0.34 |
|
| Diluted (loss) income per common share | $ | (0.17 | ) | | $ | (0.15 | ) | | $ | 0.24 |
|
NOTE 8. CAPITAL STOCK
Common Stock - We are authorized to issue 75,000,000 shares of common stock. Holders of common stock are entitled to one vote for each share held of record on each matter submitted to a vote of shareholders. Holders of our common stock do not have a cumulative voting right, which means that the holders of more than one half of our outstanding shares of common stock, subject to the rights of the holders of preferred stock, can elect all of our directors, if they choose to do so. In this event, the holders of the remaining shares of common stock would not be able to elect any directors. Subject to the prior rights of any class or series of preferred stock which may from time to time be outstanding, if any, holders of common stock are entitled to receive ratably, dividends when, as and if declared by our Board of Directors out of funds legally available for that purpose and, upon our liquidation, dissolution, or winding up, are entitled to share ratably in all assets remaining after payment of liabilities and payment of accrued dividends and liquidation preferences on the preferred stock, if any. Holders of common stock have no preemptive rights and have no rights to convert their common stock into any other securities. The outstanding common stock is duly authorized and validly issued, fully-paid and non-assessable. Except as otherwise required by Delaware law and subject to the rights of the holders of preferred stock, all stockholder action is taken by the vote of a majority of the outstanding shares of common stock present at a meeting of shareholders at which a quorum consisting of a majority of the outstanding shares of common stock is present in person or by proxy. Shares repurchased are held as treasury shares and used for general corporate purposes including, but not limited to, satisfying obligations under our employee benefit plans. Treasury stock is recorded at cost.
On November 10, 2016, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with certain selling stockholders of the Company (the “Selling Stockholders”) and Piper Jaffray & Co. (the “Underwriter”) relating to public offerings of the Company's common stock, par value $0.001 per share at a public offering price of $4.00 per share. The Company made a primary offering of 1,625,000 shares and a secondary offering of 1,625,000 shares by the Selling Stockholders.
The net proceeds from the sale of the shares, after deducting the Underwriter’s discounts and commissions and estimated offering expenses payable, were approximately $5.8 million. The offerings closed on November 16, 2016.
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The shares were offered and sold by the Company pursuant to a prospectus dated December 16, 2014 and a prospectus supplement filed with the Securities and Exchange Commission (the “SEC”) on November 10, 2016, which are part of the effective shelf registration statement on Form S-3 (File No. 333-200986) filed with the SEC on December 15, 2014. The shares were offered and sold by the Selling Stockholders pursuant to a prospectus dated April 24, 2015 and a prospectus supplement filed with the SEC on November 10, 2016, which are part of the effective registration statement on Form S-3 (File No. 333-203422) filed with the SEC on April 15, 2015.
Preferred Stock - We are authorized to issue 10,000,000 shares of preferred stock, par value $0.001 per share. We may issue preferred stock in one or more series and having the rights, privileges and limitations, including voting rights, conversion rights, liquidation preferences, dividend rights and preferences and redemption rights, as may from time to time be determined by our Board of Directors. Preferred stock may be issued in the future in connection with acquisitions, financings, or other matters, as our Board of Directors deems appropriate. In the event that we determine to issue any shares of preferred stock, a certificate of designation containing the rights, privileges and limitations of this series of preferred stock will be filed with the Secretary of State of the State of Delaware. The effect of this preferred stock designation power is that our Board of Directors alone, subject to Federal securities laws, applicable blue sky laws and Delaware law, may be able to authorize the issuance of preferred stock which could have the effect of delaying, deferring, or preventing a change in control of our company without further action by our shareholders and may adversely affect the voting and other rights of the holders of our common stock. The issuance of preferred stock with voting and conversion rights may also adversely affect the voting power of the holders of our common stock, including the loss of voting control to others.
Series B Convertible Preferred Stock – On March 16, 2015, the Company filed a Certificate to Set Forth Designations, Voting Powers, Preferences, Limitations, Restrictions and Relative Rights (the “Certificate of Designations”) of its Series B Convertible Preferred Stock with the Secretary of State of the State of Delaware to amend our articles of incorporation. The Certificate of Designations sets forth the rights, preferences and privileges of the Series B Preferred Stock. As provided in our articles of incorporation, the filing of the Certificate of Designations was approved by our Board of Directors. As of December 31, 2017, there are no shares of Series B Preferred Stock outstanding.
The following is a summary of the rights, privileges and preferences of the Series B Preferred Stock:
Number of Shares: The number of shares of Preferred Stock designated as Series B Preferred Stock are 3,588,139.
Conversion: The Series B Preferred Stock were convertible at the option of the holder, into common stock at a conversion ratio of one (1) share of Series B Preferred to two (2) shares of Common Stock, subject to adjustments for stock dividends, splits, combinations and similar events as described in the form of Certificate of Designations.
Dividends: The Series B Preferred Stock was not entitled to receive any special dividend.
Voting Rights: Except as described in the Certificate of Designations, holders of the Series B Preferred Stock would have voted together with holders of the Company common stock on all matters, on an as-converted to common stock basis and not as a separate class or series (subject to limited exceptions).
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 9. CONVERTIBLE PREFFERED STOCK AND WARRANTS
2013 Financing
On December 13, 2013, the Company entered into a securities purchase agreement with certain investors for the private placement, for aggregate gross proceeds of $7.0 million, of 3,500,000 shares of the Company’s newly-designated Series A 6% Convertible Preferred Stock (the “Series A Preferred Stock” – see Note 6) and warrants to purchase 5,250,000 shares of our common stock at an exercise price of $2.387 per share.
In connection with the placement of the Series A Preferred Stock and warrants, we also issued warrants to purchase 525,000 shares of our common stock, with the same terms as the investor warrants, to the placement agent.
Because the holders of the Series A Preferred Stock could have requested redemption on or after December 13, 2017, the preferred stock had conditions for its redemption that were not within the control of the Company. Accordingly, the carrying amount of the Series A Preferred Stock of $2.6 million, net of the expenses allocated to the preferred stock of $0.4 million, was recorded outside of stockholders’ equity, as mezzanine equity, in accordance with FASB ASC 480-10-S99. The net carrying amount of the Series A Preferred Stock was accreted to its redemption value over the four year period to when the holders may request redemption, using an effective interest method. For the year ended December 31, 2015, additional accretion of $221,902 was recognized. During 2015, the Series A Preferred Stock and certain related common warrants were exchanged for Series B Preferred Stock. As a result the net carrying amount of the Series A Preferred Stock at December 31, 2017 and 2016 was $0.
Reconciliation of changes in fair value
Certain assets and liabilities that are measured at fair value on a recurring basis are measured in accordance with FASB ASC Topic 820-10-05, Fair Value Measurements. FASB ASC Topic 820-10-05 defines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurements for financial assets and liabilities as well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial statements.
The statement requires fair value measurement be classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Our derivative financial instruments that are measured at fair value on a recurring basis are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following represents a reconciliation of the changes in fair value of warrants measured at fair value using Level 3 inputs during the year ended December 31, 2017:
|
| | | |
| (in thousands) | 2013 Placement Agent Warrants |
| Balance, December 31, 2015 | $ | 267 |
|
| Exercise of warrants | (698 | ) |
| Change in fair value | 634 |
|
| Balance, December 31, 2016 | 203 |
|
| Exercise of warrants | (130 | ) |
| Change in fair value | (53 | ) |
| Balance, December 31, 2017 | $ | 20 |
|
The warrants are valued using a trinomial lattice model. Significant assumptions used in the model at December 31, 2017 and 2016, include the market price of our common stock, an expected dividend yield of zero, remaining life of 2.0 years and 2.5 years, historical volatility of 24.359% and 82.470% and risk-free rates of return of 1.798% and 1.470%, respectively.
At December 31, 2017 and December 31, 2016, the fair value of the remaining 40,000 placement agent warrants was approximately $20,000 and $203,000, respectively.
NOTE 10.3. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2017,June 2016, the FASB issued ASU 2016-13, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles-Goodwill and OtherInstruments – Credit Losses (Topic 350): Simplifying the Test for Goodwill Impairment326). The purpose of this ASU is to reduceupdate changes the costimpairment model for most financial assets and complexity of evaluating goodwill for impairment. It eliminates the need forcertain other instruments, including trade and other receivables, contract assets, held-to-maturity debt securities and loans, and requires entities to calculateuse a new forward-looking expected loss model that will result in the implied fair valueearlier recognition of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilitiesallowance for losses. This update, as if that reporting unit had been acquired in a business combination. Under this ASU, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit's fair value. The new standard isoriginally issued, was effective for fiscal years,annual and interim periods within thosebeginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates of these standards for Smaller Reporting Companies until fiscal years beginning after December 15, 2019. Early adoption2022. The Company currently expects to continue to qualify as a Smaller Reporting Company, based upon the current SEC definition and, as a result, will be utilizing the deferred elective date. While the Company is permitted, however we have chosen not to do so. The amendment is not expected to have a material impact on our financial condition or results of operations.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. The new guidance clarifies the classification of certain cash receipts and cash payments in the statementprocess of cash flows, including debt prepayment or extinguishment costs, settlementdetermining the effects of contingent consideration arising from a business combination, insurance settlement proceeds, and distributions from certain equity method investees. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, however we have chosen not to do so. The amendment is not expected to have a material impact on our financial condition or results of operations.
In March 2016, FASB issued ASU No. 2016-09 Compensation-Stock Compensation - (Topic 718) Improvements to employee share-based payments accounting as part of simplicity initiatives. This update involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. For us, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The amendment has not made a material impact on our financial condition or results of operations.
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.
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In May 2014, the FASB issued ASU No. 2014-09 (ASC 606), Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for us on January 1, 2018. Early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We performed an analysis and concluded that the amendment will not have a material impact on our financial condition or results of operations.
ASU No. 2014-09 (ASC 606), Revenue from Contracts with Customers will become effective for us beginning with the first quarter of 2018, and we plan to adopt the new accounting standard using the modified retrospective transition approach. The modified retrospective transition approach will recognize any changes from the beginning of the year of initial application through retained earnings with no restatement of comparative periods. We will record revenue under ASC 606 at a single point in time, when control is transferred to the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, systems and controls to support recognition and disclosure under the new standard. Based on the results of the evaluation, we have determined that the adoption of the new standard will have a material impact on ourthe consolidated financial statements. Application ofstatements, it does not expect the transition requirements of the new standard will not have a material impact on opening retained earnings.to be material.
No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on ourthe Company's consolidated financial statements or disclosures.
NOTE 11. LONG TERM DEBT4. DISPOSITION OF THE CORE BUSINESS
On June 28, 2016,August 30, 2018, the Company closed on a definitive asset purchase agreement (the “Asset Purchase Agreement”) with Specialty Surgical Instrumentation Inc., a Tennessee Corporation and wholly owned subsidiary of Symmetry Surgical Inc. (“Symmetry”), pursuant to which the Company divested and sold the Company’s electrosurgical “Core” business segment and related intellectual property, including the Bovie® brand and trademarks, to Symmetry for gross proceeds of $97 million in cash.
In connection with the Asset Purchase Agreement, the Company entered into a transactionan Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Bank of Tampa, a Florida banking corporation (“Lender”) wherein Lender amended the terms of a mortgage loan (“the Loan”) originally executed on March 20, 2014 with a principal amount of $3,592,000. The Initial Maturity Date of the Loan was extended to July 20, 2019 from March 19, 2017, and the Extended Maturity Date was amended to July 20, 2024 from March 20, 2022. In addition, the Lender released as collateral to the Loan, the Company’s working capital accounts in exchangeSymmetry for a negative covenant limitedfour-year term, which expired August 30, 2022, whereby it manufactured certain Core products and sold them to $2,000,000 of the aggregate indebtedness secured by these accounts.
The obligations under the Loan are secured by a first mortgageSymmetry at agreed upon prices. Any activity resulting from this agreement is netted and security interestreported in the Company’s Clearwater, Florida facility. In addition, the Company has pledged an interest in a certificateConsolidated Statements of deposit in the amountOperations as other income (loss). Core activity for 2022 amounted to $0.6 million with cost of $719,000 as additional collateral. The amountsales equivalents of the additional collateral required declines on a pro rata basis as principal is paid.$0.6 million and other related expenses of $0.1 million for net other loss of $0.1 million. Core activity for 2021 amounted to $6.5 million with cost of sales equivalents of $5.5 million and other related expenses of $1.5 million for net other loss of $0.4 million.
Borrowings under the Loan bear interest at LIBOR plus 3.5%, with a fixed monthly principal payment of $19,956. The interest rate at December 31, 2017 was 5.640%.
The Loan documents contain customary financial covenants, including a covenant that the Company maintains a minimum liquidity of $750,000. Should we desire to extend the Loan beyond July 20, 2019, we must maintain a Debt Service Coverage Ratio for each of the preceding four quarters of not less than 1.0 to 1.0.
Our future contractual obligations for agreements with initial terms greater than one year are as follows:
|
| | | |
| (In thousands) | Long-term debt |
| 2018 | $ | 239 |
|
| 2019 | 2,455 |
|
| Total | $ | 2,694 |
|
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. INTEREST IN JOINT VENTURE INVESTMENT
In 2019, the Company executed a joint venture agreement with its Chinese supplier (the “China JV”) whereby the Company has a 51% interest. The China JV has been consolidated in these 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 years ended December 31, 2021 and 2020. As of the date of these consolidated financial statements, the joint venture has not commenced principal operations.
Changes in the Company’s ownership investment in the China JV were as follows:
| | | | | | | | | | | | | |
| Year Ended December 31, | |
| (In thousands) | 2022 | | 2021 | | |
| Beginning interest in China JV | $ | 317 | | | $ | 144 | | | |
| Contributions | — | | | 203 | | | |
| Net loss attributable to Apyx | (98) | | | (30) | | | |
| Ending interest in China JV | $ | 219 | | | $ | 317 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. INVENTORIES
Inventories consisted of the following:
| | | | | | | | | | | |
| (In thousands) | December 31,
2022 | | December 31,
2021 |
| Raw materials | $ | 4,979 | | | $ | 3,603 | |
| Work in process | 2,160 | | | 1,441 | |
| Finished goods | 5,115 | | | 1,997 | |
| Gross inventories | 12,254 | | | 7,041 | |
| Less: provision for obsolescence | (457) | | | (263) | |
| Inventories, net | $ | 11,797 | | | $ | 6,778 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
| | | | | | | | | | | |
| (In thousands) | December 31,
2022 | | December 31,
2021 |
| Land | $ | 1,600 | | | $ | 1,600 | |
| Building and improvements | 4,426 | | | 4,429 | |
| Machinery and equipment | 2,613 | | | 2,337 | |
| Furniture and fixtures | 211 | | | 306 | |
| Computer equipment and software | 1,420 | | | 1,535 | |
| Leasehold improvements | 178 | | | 171 | |
| Molds | 847 | | | 859 | |
| Total property, plant and equipment | 11,295 | | | 11,237 | |
| Less: accumulated depreciation and amortization | (5,041) | | | (5,316) | |
| Property and equipment in service | 6,254 | | | 5,921 | |
| Construction in progress | 507 | | | 654 | |
| Property and equipment, net | $ | 6,761 | | | $ | 6,575 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Total depreciation expense was $0.7 million for the years ended December 31, 2022 and 2021. Depreciation expense is included within cost of goods sold and selling, general and administrative expense in the Consolidated Statements of Operations.
NOTE 8. LEASES
The Company does not recognize leases with terms less than twelve months in duration, or that have variable only payments, in its Consolidated Balance Sheet as right-of-use assets and lease liabilities. The Company has adopted the practical expedient which allows for the Company to not separate lease and non-lease components of contracts. Accordingly, non-lease components are included in the measurement of the Company’s lease liabilities and right-of-use assets. If the Company is aware of the implicit rate in leases, the Company determines the operating lease liability using the implicit rate. For those leases where the Company is not aware of the implicit rate in the lease, the Company utilizes an incremental borrowing rate, which is indicative of its collateralized borrowing rate. We utilized rates of 1.83% to 6.49% for our outstanding leases at December 31, 2022.
Operating Leases
The Company leases its facility in Sofia, Bulgaria and computers under non-cancelable operating lease agreements. During the year ended December 31, 2022, the Company’s leases on the vehicles in Clearwater, Florida expired and the Company purchased the vehicles at fair value. During the year ended December 31, 2022, the Company entered into a one year extension on one of its leases on computer equipment. This extension resulted in reclassification of the lease from finance to operating. During the year ended December 31, 2022, the Company entered into a five year extension of its Sofia, Bulgaria facility. These operating leases have terms expiring through 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 year ended December 31, 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 lease costs are as follows:
| | | | | | | | |
| Year Ended
December 31, |
Lease costs (in thousands): | 2022 | 2021 |
| Operating lease costs | $ | 213 | | $ | 134 | |
| Finance lease costs: | | |
| Amortization of right-of-use assets | 138 | | 216 | |
| Interest on lease liabilities | 5 | | 12 | |
| Variable lease costs | 16 | | 12 | |
| Total lease costs | $ | 372 | | $ | 374 | |
Cash information related to our leases are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended
December 31, 2022 | | Year Ended
December 31, 2021
|
| (in thousands) | Operating | Finance | | Operating | Finance |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Cash paid for lease liabilities | $ | 219 | | $ | 153 | | | $ | 135 | | $ | 228 | |
Information about the Company’s weighted average remaining lease terms and discount rate assumptions are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended
December 31, 2022 | | Year Ended
December 31, 2021
|
| Operating | Finance | | Operating | Finance |
| Weighted average remaining lease term (in years) | 4.4 | 3.9 | | 1.0 | 0.8 |
| Weighted average discount rate | 2.54% | 2.60% | | 3.98% | 4.00% |
Maturities of lease liabilities as of December 31, 2022 are as follows:
| | | | | | | | |
| (In thousands) | Operating | Finance |
| | |
| 2023 | $ | 229 | | $ | 40 | |
| 2024 | 122 | | 21 | |
| 2025 | 122 | | 21 | |
| 2026 | 122 | | 21 | |
| 2027 | 122 | | 12 | |
| Total lease payments | 717 | | 115 | |
| Less imputed interest | (31) | | (5) | |
| Present value of lease liabilities | 686 | | 110 | |
| Less current portion of lease liabilities | (216) | | (37) | |
| Long-term portion of lease liabilities | $ | 470 | | $ | 73 | |
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
| | | | | | | | | | | |
| (in thousands) | December 31, 2022 | | December 31, 2021 |
| | | |
| Accrued payroll | $ | 563 | | | $ | 546 | |
| Accrued bonus | — | | | 2,117 | |
| Accrued commissions | 847 | | | 1,656 | |
| Accrued product warranties | 391 | | | 593 | |
| Accrued product liability claim insurance deductibles | 1,825 | | | 610 | |
| Accrued professional fees and legal related contingent liabilities | 901 | | | 421 | |
| Joint and several payroll liability | 345 | | | 1,027 | |
| Short-term contract liabilities | 853 | | | 533 | |
| Uncertain tax positions | 2,079 | | | 1,863 | |
| Sales tax payable | 245 | | | 428 | |
| Other accrued expenses and current liabilities | 879 | | | 493 | |
| Total accrued expenses and other current liabilities | $ | 8,928 | | | $ | 10,287 | |
NOTE 10. PRODUCT WARRANTIES
Product warranty activity consisted of the following for the years ended:
| | | | | | | | | | | |
| (In thousands) | December 31,
2022 | | December 31,
2021 |
| Beginning balance | $ | 593 | | | $ | 498 | |
| Provision for product warranties | 196 | | | 318 | |
| Change in estimate to fulfill prior-year warranty obligations | (198) | | | — | |
| Product warranty costs incurred | (200) | | | (223) | |
| Accrued product warranties | $ | 391 | | | $ | 593 | |
| | | |
NOTE 11. JOINT AND SEVERAL PAYROLL LIABILITY
During 2018 and 2019, the Company improperly calculated and reported the amount of income to certain employees, and did not collect and remit the correct amount of its employees' portion of income and payroll taxes, related to stock option exercises as required by the IRS. Due to IRS statutory requirements, the Company has joint and several liability for the full amount that was not withheld and remitted to the proper taxing authorities. During 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 (losses), net in the accompany Consolidated Statement of Operations for the year ended December 31, 2022. This amount of the liability was approximately $0.3 million and $1.0 million at December 31, 2022 and 2021, respectively. The Company will be relieved of the remainder of the liability as the statute of limitations on the liability expires, which the Company expects to occur during April 2023, or once the Company can establish that its employees have in fact paid these obligations.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 12. TAXESCONTRACT ASSETS AND NET OPERATING LOSS CARRYFORWARDSLIABILITIES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) bonus depreciation that will allow for full expensing of qualified property; (3) creating a new limitation on deductible interest expense; (4) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (5) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (6) limitations on the deductibility of certain executive compensation. The SEC issued guidance on accounting for the tax effects of the Tax Act. The Company must reflect the income tax effects of those aspects of the Tax Act for which the accounting is known. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimateCompany’s contracts with customers may result in the financial statementsCompany having contract assets and the Tax Act provides a measurement period that should not extend beyond one year from the Tax Act enactment date. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the tax laws that were in effect immediately before the enactment of the Tax Act.
The corporate tax rate reduction was applied to our inventory of deferred tax liabilities, which resulted in the net tax benefit in the period ending December 31, 2017, of approximately $196,000.
Deferred income taxes reflect the impact of temporary differences between the amount ofliabilities. These contract assets and liabilities arise primarily from OEM development and supply agreements where the development of the goods does not represent a performance obligation on a standalone basis. The Company defers the development fees billed to customers, and the associated costs, and recognizes them as it completes performance obligations on the supply portion of the agreement. Other contract liabilities may be recognized when a customer prepays for financialgoods or services.
At December 31, 2022 and 2021, respectively, the Company had recorded approximately $2.3 million and $1.9 million of contract liabilities and $0.6 million and $0.5 million of contract assets related to customer prepayments and the deferral of revenues and expenses under these agreements. At December 31, 2022, $0.9 million of the contract liabilities and $0.1 million of the contract assets are presented as current in the accompanying Consolidated Balance Sheet within accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively. At December 31, 2021, $0.5 million of the contract liabilities and $0.1 million of the contract assets are presented as current in the accompanying Consolidated Balance Sheet within accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively.
During 2022, the Company recognized approximately $0.2 million of contract liabilities and $0.1 million of contract assets that existed as of December 31, 2021 in sales and cost of sales, respectively, in the accompanying Consolidated Statement of Operations for the year ended December 31, 2022. During 2021, the Company did not recognize any significant contract liabilities or contract assets that existed as of December 31, 2020 in sales or cost of sales in the accompanying Consolidated Statement of Operations for the year ended December 31, 2021.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 13. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share (“basic EPS”) is computed by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting purposesperiod. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. As the Company is in a net loss position for all periods presented, all potential shares outstanding are anti-dilutive. The following table provides the computation of basic and such amounts recognized fordiluted earnings (loss) per share.
| | | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands, except per share data) | 2022 | | 2020 | | |
| Numerators: | | | | | |
| Net loss attributable to stockholders | $ | (23,184) | | | $ | (15,172) | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Weighted average shares outstanding - basic and diluted | 34,516 | | | 34,332 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Loss per share - basic and diluted | $ | (0.67) | | | $ | (0.44) | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Anti-dilutive instruments excluded from diluted loss per common share: | | | | | |
| | | | | |
| | | | | |
| Options | 6,520 | | | 5,398 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
NOTE 14. INCOME TAXES
Components of income tax purposes. Theexpense are as follows:
| | | | | | | | | | | | | |
| (In thousands) | December 31,
2022 | | December 31,
2021 | | |
| Current: | | | | | |
| Federal | $ | 214 | | | $ | 217 | | | |
| State | 29 | | | 54 | | | |
| Foreign | 124 | | | 109 | | | |
| 367 | | | 380 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Deferred: | | | | | |
| Federal | (4,096) | | | (2,518) | | | |
| State | (1,004) | | | (613) | | | |
| | | | | |
| (5,100) | | | (3,131) | | | |
| | | | | |
| Valuation allowance | 5,100 | | | 3,131 | | | |
| | | | | |
| | | | | |
| | | | | |
| Total income tax expense | $ | 367 | | | $ | 380 | | | |
Below is a reconciliation of the statutory federal income tax effectsrate to the Company's effective tax rate:
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | |
| Federal tax provision | 21.0 | % | | 21.0 | % | | |
| State taxes (net of federal benefit) | 4.4 | % | | 3.8 | % | | |
| Valuation allowance | (22.3) | % | | (21.1) | % | | |
| Incentive stock compensation expense | (2.2) | % | | (1.8) | % | | |
| Section 162(m) compensation | (1.1) | % | | (3.8) | % | | |
| GILTI | (0.9) | % | | (1.2) | % | | |
| | | | | |
| Other | (0.5) | % | | 0.5 | % | | |
| Total | (1.6) | % | | (2.6) | % | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Major components of the components ofCompany’s deferred tax assets (liabilities) wereare as follows:
| | | | | | | | | | | | | |
| (In thousands) | December 31,
2022 | | December 31,
2021 | | |
| Deferred tax assets: | | | | | |
| Loss and credit carryforwards | $ | 7,476 | | | $ | 4,256 | | | |
| Stock-based compensation | 2,381 | | | 1,701 | | | |
| Research and development capitalization | 982 | | | — | | | |
| Accrued insurance deductibles | 400 | | | 70 | | | |
| Inventory 263A adjustment | 394 | | | — | | | |
| Deferred revenue | 339 | | | 163 | | | |
| Accrued bonus | — | | | 555 | | | |
| Other | 553 | | | 653 | | | |
| Total deferred tax assets | 12,525 | | | 7,398 | | | |
| Valuation allowance | (12,068) | | | (6,968) | | | |
| Total deferred tax assets, net of valuation allowance | 457 | | | 430 | | | |
| Deferred tax liabilities: | | | | | |
| | | | | |
| Property and equipment | (205) | | | (205) | | | |
| | | | | |
| Other | (252) | | | (225) | | | |
| Total deferred tax liabilities | (457) | | | (430) | | | |
| Net deferred tax assets | $ | — | | | $ | — | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | |
| (In thousands) | December 31,
2017 | | December 31,
2016 |
| Deferred tax assets: | | | |
| Loss and credit carry-forwards | $ | 7,722 |
| | $ | 9,169 |
|
| Stock-based compensation | 549 |
| | 519 |
|
| Inventory Reserve | 494 |
| | 534 |
|
| Other | 178 |
| | 263 |
|
| Total deferred tax assets | 8,943 |
| | 10,485 |
|
| Valuation allowance | (8,756 | ) | | (10,185 | ) |
| Total deferred tax assets, net of valuation allowance | 187 |
| | 300 |
|
| Deferred tax liabilities: | | | |
| State taxes (capital) | (17 | ) | | (19 | ) |
| Property and equipment | (294 | ) | | (459 | ) |
| Intangibles | (244 | ) | | (386 | ) |
| Total deferred tax liabilities | (555 | ) | | (864 | ) |
| Net deferred tax liabilities | $ | (368 | ) | | $ | (564 | ) |
We considerThe Company considers all positive and negative evidence regarding the realization of deferred tax assets, including past operating results and future sources of taxable income.
The Company considers the earnings of Apyx Bulgaria, EOOD to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. It has not recorded a deferred tax liability related to the U.S. net operating lossesFederal and State income taxes and foreign withholding taxes on the undistributed earnings of Apyx Bulgaria, EOOD indefinitely invested outside the United States. If it decides to repatriate the foreign earnings, the Company will beginneed to expireadjust its income tax provision in years beginning in 2019.the period it determines that the earnings will no longer be indefinitely invested outside the United States.
We assessThe Company assesses the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained. AllAs of ourDecember 31, 2022 and 2021, the Company has recorded a liability of approximately $1.3 million related to uncertain tax positions arise from taxable temporary differences and as such, the liability has been recognized in the net deferred tax asset, currentaccrued approximately $0.8 million and non-current items to which they relate.$0.6 million, respectively, of interest and penalties on these positions.
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BelowThe following is a reconciliationroll-forward of the statutoryCompany's total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31:
| | | | | | | | | | | | | | |
| (in thousands) | | Gross Unrealized Tax Benefits |
| | 2022 | | 2021 |
| Beginning of year balance | | $ | 1,313 | | | $ | 1,313 | |
| Additions of tax positions related to the current year | | — | | | — | |
| Additions of tax positions related to the prior year | | — | | | — | |
| Decreases for tax positions related to prior year | | — | | | — | |
| End of year balance | | $ | 1,313 | | | $ | 1,313 | |
The Company is subject to U.S. federal and state income tax examination. The Company’s 2019 through 2021 U.S. federal income tax ratereturns are subject to examination by the Internal Revenue Service (“IRS”). The Company’s state income tax returns are subject to examination for the 2018 through 2021 tax years.
During 2022, the Company was notified by the IRS that it is examining the Company’s 2018, 2019 and 2020 federal income tax returns. During January 2023, the Company was notified that the examination process was complete and that the Company's tax refunds were approved for substantially the amount recorded in the Company's Consolidated Balance Sheet at December 31, 2022. In the examination, the Company's uncertain tax positions were accepted by the IRS as submitted on our effectiveincome tax rate:returns and the Company reversed its uncertain tax position in January 2023.
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Federal tax provision | 34.0 | % | | 34.0 | % | | 34.0 | % |
| State taxes (net of federal benefit) | 4.8 | % | | 3.7 | % | | 2.4 | % |
| Warrant gains | 0.4 | % | | 31.4 | % | | (11.1 | )% |
| Valuation allowance | 28.9 | % | | (71.8 | )% | | (26.3 | )% |
| Change in federal tax rate | (71.2 | )% | | — | % | | — | % |
| Other | 6.2 | % | | 1.5 | % | | 0.6 | % |
| | 3.1 | % | | (1.2 | )% | | (0.4 | )% |
NOTE 13.15. RETIREMENT PLAN
The Company provides a tax-qualified profit-sharing retirement plan under section 401(k) of the Internal Revenue Code for the benefit of eligible employees with an accumulation of funds for retirement on a tax-deferred basis and provides for annual discretionary contribution to individual trust funds.
All employees are eligible to participate.participate upon completing three months of service. The employees may make voluntary contributions to the plan up to the maximum percentage allowed by the Internal Revenue Code. Vesting in employee matching contributions is graded and depends on the years of service. After three years from their date of hire, the employees are 100% vested. The Company makes matching contributions of 50% of the employee contributions up to a total of 3% of participant payroll. Matching contributions made by the Company totaled $0.3approximately $0.4 million $0.3 million and $0.2 million for each of the years ended December 31, 2017, 20162022 and 2015, respectively.2021.
NOTE 14.16. RELATED PARTY TRANSACTIONS
Research and Development Consulting Services
Our policy is that employees, non-employees and third parties must obtain authorization from the appropriate department executive manager, for any business relationship or proposed business transaction in which they or an immediate family member has a direct or indirect interest, or from which they or an immediate family member may derive a personal benefit (a “related party transaction”). The maximum dollar amount of related party transactions that may be approved as described above in this paragraph in any calendar year is $120,000. Any related party transactions that would bring the total value of such transactions to greater than $120,000 must be referred to the Audit Committee to determine the procedure for approval and then have the recommendations presented to the Board of Directors for approval.
Several relatives of Nikolay Shilev, BovieApyx Bulgaria’s Managing Director, are considered related parties. Teodora Shileva, Mr. Shilev’s spouse, is an employee of the companyCompany working in the Accountingaccounting department. Antoaneta Dimitrova Shileva-Toromanova,Shileva-Toromanova, Mr. Shilev’s sister, is the Managermanager of Production and Human Resources.human resources. Svetoslav Shilev, Mr. Shilev’s son, is an Engineera quality manager in the Quality Assurancequality assurance department.
A relative of Moshe Citronowicz, Bovie’s Senior Vice President,The partner in the Company’s China joint venture is consideredalso a related party. Arik Zoran is a consultantsupplier of the Company doing business as AR Logic, Inc., a consulting firm owned by Arik Zoran, Mr. Citronowicz’s brother. The Company has been working with AR Logic since 2011Company. For the years ended December 31, 2022 and as of April 14, 2017,2021, the Company agreed to a renewal contractmade purchases from this supplier of approximately $0.6 million and terms to continue the consulting arrangement, expiring$1.3 million, respectively. At December 31, 2017. AR Logic was paid consulting fees2022 and 2021, the Company had net receivables from and payables to this supplier of approximately $0.2 million, $0.2 million$8,000 and $0.3 million during 2017, 2016 and 2015, respectively.$1,000, respectively.
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 15. OTHER17. COMMITMENTS AND CONTINGENCIES
Property and Rental Agreements
In March 2014, we signed a lease for offices located in Purchase, New York. The lease is for 3,650 square feet of office space with a monthly cost of approximately $9,277 per month. We decided to consolidate operations in the Purchase, NY office with the facility in Clearwater. Based on this, we determined the office in Purchase, NY was no longer necessary and decided to cease all activity at the location. The remaining lease of approximately $175,000, has been expensed in 2017, included as part of severance and related expense and will be operational cash outflows during 2018 and 2019.
In October 2015, pursuant to our acquisition of Bovie Bulgaria, we are obligated to pay a lease of $5,424 per month, expiring in December 2021, for 18,745 square feet of office, research and manufacturing space in Sofia, Bulgaria.
The following is a schedule of approximate future minimum lease payments under operating leases as of December 31, 2017:
|
| | | |
| (In thousands) | |
| 2018 | $ | 74 |
|
| 2019 | 74 |
|
| 2020 | 74 |
|
| 2021 | 74 |
|
| Total | $ | 296 |
|
Litigation
The medical device industry is characterized by frequent claims and litigation, and we are andthe Company may become subject to various claims, lawsuits and proceedings in the ordinary course of our business, includingbusiness. Such claims may include claims by current or former employees, distributors and competitors, claims concerning the marketing and with respect topromotion of our products and product liability claims, lawsuits and proceedings.claims.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The Company is involved in a number of legal actions relating to the use of our J-PlasmaHelium Plasma technology. The outcomes of these legal actions are not within our completethe Company’s control and may not be known for prolonged periods of time. InIt believes that such claims are adequately covered by insurance; however, in the case of one of the Company’s carriers, the Company is in a dispute regarding the total level of coverage available. Notwithstanding the foregoing, in the opinion of management, the Company has meritorious defenses, and such claims are adequately covered by insurance, or are not expected, individually or in the aggregate, to result in a material, adverse effect on ourits financial condition.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 Consolidated Statement of Operations for the year ended December 31, 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.
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 these claimsthis claim could have a material adverse impact on our consolidated earnings,results of operations, financial 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 Consolidated Statement of Operations for the year ended December 31, 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.
During 2022, the Company was notified of certain procedures alleged to have been performed by the same physician and which are currently the subject of two related products liability cases within the courts. Subsequent to year end, the Company was notified by its insurance carriers that all or most of the ten individual plaintiff’s allegations could be subject to separate deductibles notwithstanding the commonality of each underlying occurrence. The Company has determined that a loss is probable and that a range of estimated losses is approximately $1,450,000 to $2,400,000. The Company has recorded an estimated loss of $1,450,000 in selling, general and administrative expenses associated with the insurance deductibles in the accompanying Consolidated Statement of Operations for the year ended December 31, 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 condensed 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.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Purchase Commitments
At December 31, 2017, we had2022, the Company has purchase commitments for inventories totaling approximately $4.3$4.1 million, substantially all of which is expected to be purchased by the end of 2018.2023.
SeveranceConcentrations
Jack McCarthy,There were no significant sales concentrations for the Chief Commercialization Officer, was terminated without causeyear ended December 31, 2022. Sales to one customer within the Advanced Energy segment represented 11% of total sales for the year ended December 31, 2021.
Receivables from his position withone customer and two customers within the Company effective November 6, 2017. Severance costs incurred included salary, option expenseAdvanced Energy segment represented 13% and other benefits22%, respectively, of approximately $582,000, of which approximately $397,000 will be operational cash outflows during 2018.trade accounts receivable at December 31, 2022 and December 31, 2021.
Robert L. Gershon, the Chief Executive Officer and a director, resigned from all of his positions with the Company effective December 15, 2017. In connection with this departure, the Company and Mr. Gershon entered into a separation agreement, dated December 15, 2017. Severance costs incurred included salary, option expense and other benefits of approximately $767,000, of which approximately $670,000 will be operational cash outflows during 2018.
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 16.18. STOCK OPTIONS
On October 30, 2007, ourthe Company’s stockholders approved, and the Board of Directors adopted an amendment to the 2003 Executive and Employee Stock Option Plan (the “Plan”) to increase the maximum aggregate number of shares of common stock reserved for issuance under the Plan from 1.2 million shares (already reserved against outstanding options) to 1.7 million shares. Except for the increase in the number of shares covered by the Plan, the Plan remained otherwise unchanged. In 2001, the Board of Directors adopted the 2001 Executive and Employee Stock Option Plan which reserved for issuance 1.2 million stock options. Stock options to employees typically have a ten-year life and currently vest over aperiods between one and seven year period.years.
In July of 2012, the Company’s stockholders approved the 2012 Share Incentive Plan covering a total of 750,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 20172022 approximately 37,000 remain170,000 are available to be issued in this plan.
In July of 2015, the Company’s stockholders approved the 2015 Executive and Employee Stock Option Plan covering a total of 2,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 20172022 approximately 343,578 remain40,000 are available to be issued in this plan.
In August of 2017, the Company’s stockholders approved the 2017 Executive and Employee Stock Option Plan covering a total of 3,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 20172022 approximately 1,900,000 remain30,000 are available to be issued in this plan.
In August 2019, the Company’s stockholders approved the 2019 Share Incentive Plan covering a total of 2,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2022, all 200,000 are available to be issued in this plan.
In August 2021, the Company’s stockholders approved the 2021 Share Incentive Plan covering a total of 1,375,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2022, all 1,375,000 are available to be issued in this plan.
On January 11, 2023, the Company granted employees approximately 1,400,000 options to purchase common shares of the Company's stock. All options granted were pursuant to the plans noted above. The options vest over a period of three years.
The status of ourthe Company’s stock options and stock awards areis summarized as follows:
| | | | | | | | | | | |
| Number of options | | Weighted average exercise price |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Outstanding at December 31, 2020 | 4,938,943 | | | $ | 5.46 | |
| Granted | 894,980 | | | 9.37 | |
| Exercised | (232,521) | | | 6.65 | |
| Canceled and forfeited | (203,711) | | | 8.27 | |
| Outstanding at December 31, 2021 | 5,397,691 | | | $ | 5.95 | |
| Granted | 1,692,417 | | | 10.64 | |
| Exercised | (316,506) | | | 3.96 | |
| Canceled and forfeited | (253,158) | | | 9.59 | |
| Outstanding at December 31, 2022 | 6,520,444 | | | $ | 7.12 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
|
| | | | | | |
| | Number of options | | Weighted average exercise price |
| Outstanding at December 31, 2015 | 3,131,447 |
| | $ | 3.38 |
|
| Granted | 810,762 |
| | 1.87 |
|
| Exercised | (36,250 | ) | | 3.62 |
|
| Canceled and forfeited | (153,750 | ) | | 3.69 |
|
| Outstanding at December 31, 2016 | 3,752,209 |
| | $ | 3.04 |
|
| Granted | 1,728,000 |
| | 3.09 |
|
| Exercised | (176,750 | ) | | 2.41 |
|
| Canceled and forfeited | (443,302 | ) | | 3.95 |
|
| Outstanding at December 31, 2017 | 4,860,157 |
| | $ | 3.00 |
|
| | | | |
| Exercisable at December 31, 2017 | 2,627,722 |
| | $ | 3.46 |
|
| | | | | | | | | | | |
| Number of options | | Weighted average grant date fair value |
| Non-vested at December 31, 2021 | 1,802,216 | | | $ | 5.21 | |
| Granted | 1,692,417 | | | 6.71 | |
| Vested | (1,028,867) | | | 5.11 | |
| Forfeited | (238,158) | | | 6.23 | |
| Non-vested at December 31, 2022 | 2,227,608 | | | $ | 6.27 | |
|
| | | | | | |
| | Number of options | | Weighted average grant date fair value |
| Non-vested at December 31, 2016 | 1,745,506 |
| | $ | 1.25 |
|
| Granted | 1,728,000 |
| | 1.82 |
|
| Vested | (797,769 | ) | | 1.01 |
|
| Forfeited | (443,302 | ) | | 1.95 |
|
| Non-vested at December 31, 2017 | 2,232,435 |
| | 1.40 |
|
Common shares required to be issued upon the exercise of stock options and warrants would be issued from our authorized and unissued shares. We calculatedOptions are valued using the fair value of issued options utilizing a trinomial lattice with anBlack-Scholes model. For employee grants, the Company calculates expected life calculated via the simplified method as we doit does not have sufficient history to determine actual expected life. For non-employee grants, the Company calculates expected life using a combination of past exercise behavior, the contractual term and expected remaining exercise behavior. Inputs used in the valuation models are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 Grants | | 2021 Grants | | |
| Option value | $5.10 | - | $10.96 | | $9.29 | - | $11.51 | | | | |
| Risk-free rate | 1.6% | - | 3.9% | | 0.6% | - | 0.8% | | | | |
| Expected dividend yield | —% | | —% | | |
| Expected volatility | 69.6% | - | 78.5% | | 68.9% | - | 70.8% | | | | |
| Expected term (in years) | 5 | - | 6 | | 4.5 | - | 6 | | | | |
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
|
| | | | | | | | | | | |
| | 2017 Grants | | 2016 Grants | | 2015 Grants |
| Option value | $1.73 | - | $2.34 | | $0.80 | - | $0.91 | | $0.90 | - | $1.84 |
| Risk-free rate | 1.5% | - | 1.9% | | 1.5% | - | 1.8% | | 0.2% | | 1.6% |
| Expected dividend yield | —% | | —% | | —% |
| Expected volatility | 62.1% | - | 68.0% | | 49.5% | - | 50.3% | | 53.0% | - | 54.0% |
| Expected term (in years) | 6 | | 6 | | 6 |
As ofThe Company recognized approximately $6,697,000 and $5,088,000 in stock-based compensation expense during the years ended December 31, 2017, the aggregate intrinsic value of all stock options outstanding2022 and expected to vest was approximately $1,306,791 and the aggregate intrinsic value of currently exercisable stock options was approximately $768,706. 2021, respectively.
The intrinsic value of each option share is the difference between the fair market value of our common stock and the exercise price of such option share to the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation at December 31, 2022 is based on the $2.60$2.34 closing stock price of ourthe Company's common stock on December 31, 2017,30, 2022, the last trading day of 2017. The total number of in-the-money options outstanding and exercisable as of December 31, 2017 was approximately 2,318,887.2022.
As of December 31, 2016, the aggregate intrinsic value of all2022, there were 6,074,922 stock options outstanding and expected to vest was approximately $4,150,334 and thewith an aggregate intrinsic value of currently exercisable stockapproximately $160,000. These options was approximately $1,574,318. The intrinsic value calculation is based on the $3.59 closing stockhave a weighted average exercise price of our common stock on$6.91 and a weighted average remaining contractual term of approximately 6 years.
As of December 31, 2016, the last trading day of 2016. The total number of in-the-money2022, there were 4,292,836 stock options outstanding and exercisable aswith an aggregate intrinsic value of December 31, 2016 was approximately 1,211,014.$160,000. These options have a weighted average exercise price of $5.60 and a weighted average remaining contractual term of approximately 6 years.
The total intrinsic value of in the money options exercised during the years ended December 31, 2017, 20162022 and 20152021, was approximately $223,340, $119,026$900,000 and $51,575,$1,600,000, respectively. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option holder to exercise the options. The total cash proceeds received from the exercise of stock options was approximately $0 and $12,300 and $209,250 for the years ended December 31, 2017, 2016 and 2015, respectively.or other consideration paid.
The total fair value of options granted during the years ended December 31, 2017, 20162022 and 20152021, was approximately $3,144,960, $1,516,125$11,350,000 and $932,771,$5,150,000, respectively. The weighted average fair value of options granted during the years ended December 31, 2022 and 2021, was $6.71 and $5.76, respectively. The total fair value of option sharesoptions vested during the years ended December 31, 2017, 20162022 and 2015,2021, was approximately $805,748, $612,464$5,260,000 and $412,638,$4,270,000, respectively.
The Company allows employees to exercise stock-based awards by surrendering stock-based awards with an intrinsic value equal to the cumulative exercise price of the stock-based awards being exercised, referred to as net settlements. These surrenders are included in stock options exercised in the options rollforward above. During the yearyears ended December 31, 2017, we issued 47,372 common shares in exchange for 176,750 non-employee stock2022 and 2021, the Company received 125,596 and 111,831 options and 129,378 common shares (via stock swaps).
During the year ended December 31, 2016, we issued 9,614 common shares in exchange for 36,250 non-employee stock options and 26,636 common shares (via stock swaps). Net proceeds from the issuance of common shares along with the shares receivedas payment in the stock swap exercises were approximately $12,300 for the year ended December 31, 2016.exercise of 81,737 and 107,357 options, respectively.
During the year ended December 31, 2015, we issued 33,520 common shares in exchange for 114,500 employee and non-employee stock options and 80,980 common shares (via stock swaps).APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
As of December 31, 2017,2022, there was approximately $3.0 million$8,430,000 of total unrecognized stock-based compensation cost,expense, related to unvested stock options granted under the Amended Plan.plans above. This costexpense is expected to be recognized over a weighted-average period of approximately 4 years.1 year.
Allocation of stock based compensation expense was as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Cost of sales | $ | — |
| | $ | 2 |
| | $ | 3 |
|
| Research and development | 27 |
| | 27 |
| | 39 |
|
| Salaries and related costs | 844 |
| | 780 |
| | 526 |
|
| Total | $ | 871 |
| | $ | 809 |
| | $ | 568 |
|
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 17.19. GEOGRAPHIC AND SEGMENT INFORMATION
Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, wethe Company also considerconsiders the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to ourits chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors. Asset information is not reviewed by the chief operating decision maker by segment and is not available by segment, accordingly, the Company has not presented a measure of assets by segment.
Prior to the first quarter of 2017, we disclosed only one reporting segment. Beginning in 2017, ourThe Company’s reportable segments are disclosed as principally organized and managed as threetwo operating segments: Core, OEM and Advanced Energy. We adopted reportable segments to align with changes in how we manage our business, review operating performance and allocate resources as a result of the growth in Advanced Energy and the differing behavior of the Core and OEM product lines. The CorporateOEM. "Corporate & Other categoryOther" includes certain unallocated corporate operational, research and development and marketingadministrative costs which were not specifically attributed to any reportable segment. Net assets are shared, therefore, not allocated to the reportable segments. The OEM segment is primarily development and manufacturing contract and product driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.
Summarized financial information with respect to reportable segments is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| (In thousands) | Advanced Energy | | OEM | | Corporate (Other) | | Total |
| Sales | $ | 36,803 | | | $ | 7,707 | | | $ | — | | | 44,510 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| (Loss) income from operations | (4,103) | | | 1,641 | | | (21,100) | | | (23,562) | |
| | | | | | | |
| | | | | | | |
| Interest income | — | | | — | | | 157 | | | 157 | |
| Interest expense | — | | | — | | | (15) | | | (15) | |
| Other income, net | — | | | — | | | 509 | | | 509 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Income tax expense | — | | | — | | | 367 | | | 367 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | Year ended December 31, 2017 | | Year ended December 31, 2021 |
| (In thousands) | Core | | OEM | | Advanced Energy | | Corporate (Other) | | Total | (In thousands) | Advanced Energy | | OEM | | Corporate (Other) | | Total |
| Sales | $ | 28,649 |
| | $ | 2,598 |
| | $ | 7,636 |
| | $ | — |
| | $ | 38,883 |
| Sales | $ | 42,985 | | | $ | 5,532 | | | $ | — | | | $ | 48,517 | |
| | | | | | | | | | | |
| | | Income (loss) from operations | 8,620 |
| | 1,353 |
| | (3,957 | ) | | (11,281 | ) | | (5,265 | ) | Income (loss) from operations | 2,784 | | | 1,033 | | | (18,265) | | | (14,448) | |
| | | | | | | | | | | |
| Severance and related expense | — |
| | — |
| | — |
| | 1,524 |
| | 1,524 |
| |
| Interest expense, net | — |
| | — |
| | — |
| | (136 | ) | | (136 | ) | |
| Change in fair value of derivative liabilities | — |
| | — |
| | — |
| | 183 |
| | 183 |
| |
| | Interest income | | Interest income | — | | | — | | | 11 | | | 11 | |
| Interest expense | | Interest expense | — | | | — | | | (10) | | | (10) | |
| Other losses, net | | Other losses, net | — | | | — | | | (373) | | | (373) | |
| | Income tax benefit | — |
| | — |
| | — |
| | (156 | ) | | (156 | ) | Income tax benefit | — | | | — | | | 380 | | | 380 | |
| Depreciation and amortization | — |
| | — |
| | — |
| | 696 |
| | 696 |
| |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2016 |
| (In thousands) | Core | | OEM | | Advanced Energy | | Corporate (Other) | | Total |
| Sales | $ | 27,808 |
| | $ | 5,328 |
| | $ | 3,491 |
| | $ | — |
| | $ | 36,627 |
|
| | | | | | | | | | |
| Income (loss) from operations | 7,600 |
| | 3,045 |
| | (4,812 | ) | | (9,625 | ) | | (3,792 | ) |
| | | | | | | | | | |
| Severance and related expense | — |
| | — |
| | — |
| | — |
| | — |
|
| Interest expense, net | — |
| | — |
| | — |
| | (158 | ) | | (158 | ) |
| Change in fair value of derivative liabilities | — |
| | — |
| | — |
| | 64 |
| | 64 |
|
| Income tax expense | — |
| | — |
| | — |
| | 64 |
| | 64 |
|
| Depreciation and amortization | — |
| | — |
| | — |
| | 734 |
| | 734 |
|
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
|
| | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2015 |
| (In thousands) | Core | | OEM | | Advanced Energy | | Corporate (Other) | | Total |
| Sales | $ | 26,098 |
| | $ | 2,116 |
| | $ | 1,306 |
| | $ | — |
| | $ | 29,520 |
|
| | | | | | | | | | |
| Income (loss) from operations | 5,690 |
| | 1,524 |
| | (4,688 | ) | | (9,512 | ) | | (6,986 | ) |
| | | | | | | | | | |
| Severance and related expense | — |
| | — |
| | — |
| | — |
| | — |
|
| Interest expense, net | — |
| | — |
| | — |
| | (158 | ) | | (158 | ) |
| Change in fair value of derivative liabilities | — |
| | — |
| | — |
| | 1,799 |
| | 1,799 |
|
| Income tax expense | — |
| | — |
| | — |
| | 25 |
| | 25 |
|
| Depreciation and amortization | — |
| | — |
| | — |
| | 812 |
| | 812 |
|
We derive revenues from four major product lines: Electrosurgical, Cauteries, Lighting and Other products. We do not review or analyze our four major product lines below net sales. Sales for the product lines are summarized as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Sales by Product Line | | | | | |
| Electrosurgical | $ | 25,727 |
| | $ | 20,901 |
| | $ | 17,558 |
|
| Cauteries | 7,141 |
| | 7,101 |
| | 6,886 |
|
| Lighting | 2,435 |
| | 2,710 |
| | 2,477 |
|
| Other | 3,580 |
| | 5,915 |
| | 2,599 |
|
| Total | $ | 38,883 |
| | $ | 36,627 |
| | $ | 29,520 |
|
International sales in 2017, 20162022 and 20152021, were 14.8%, 12.5%29.9% and 16.9%32.0% of sales, respectively. Substantially all of these sales are denominated in U.S. dollars. Revenue by geographic region, based on the "ship to" location on the invoice are as follows:
| | | | | | | | | | | | | |
| Year Ended December 31, |
| (In thousands) | 2022 | | 2021 | | |
| Sales by Domestic and International | | | | | |
| Domestic | $ | 31,208 | | | $ | 32,980 | | | |
| International | 13,302 | | | 15,537 | | | |
| Total | $ | 44,510 | | | $ | 48,517 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Sales by Domestic and International | | | | | |
| Domestic | $ | 33,147 |
| | $ | 32,050 |
| | $ | 24,540 |
|
| International | 5,736 |
| | 4,577 |
| | 4,980 |
|
| Total | $ | 38,883 |
| | $ | 36,627 |
| | $ | 29,520 |
|
BOVIEAPYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 18. SUPPLEMENTAL UNAUDITED QUARTERLY FINANCIAL INFORMATION20. SUBSEQUENT EVENTS
Execution of Credit Agreement
On February 17, 2023, the Company entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”), by and among the Company (as borrower) and Apyx China Holding Corp., the Company’s wholly-owned subsidiary (as guarantor), and MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time.
The following table sets forthCredit Agreement provides for an up to $35 million facility, consisting of senior secured term loans and a secured revolving facility. The Credit Agreement provides for senior secured term loans of up to $25 million, comprised of (i) an initial tranche of $10 million, (ii) a second tranche of $5 million, and (iii) a third tranche of $10 million. The secured revolving facility provides for loans in an aggregate principal amount of up to $10 million, subject to a borrowing base equal to certain unaudited quarterly data for eachpercentages of the four quartersCompany’s eligible accounts receivable and inventory, as determined in accordance with the terms of the Credit Agreement. The Credit Agreement matures on February 1, 2028.
Term Loans
The initial tranche of $10 million was fully funded on February 17, 2023, with approximately $2 million of the proceeds used to pay for transaction fees and other costs incurred in connection with the Credit Agreement. Subject to certain terms and conditions of the Credit Agreement, the second tranche would be available between June 30, 2023 and December 31, 2023 and the third tranche would be available between January 1, 2024 and September 30, 2024, respectively. The Company’s ability to access these additional tranches is conditioned upon, among other things, the achievement of certain minimum revenue targets. The net proceeds of these term loans are to be used for working capital and general corporate purposes.
Each term loan bears interest at a floating rate based on an Adjusted Term SOFR (as defined in the years ended December 31, 2017Credit Agreement), subject to a floor of 2.5%, plus 7.35%. The first twenty-four (24) months of the term loans constitute an interest-only period (with a possible twelve (12) month extension), with interest payable monthly on the first day of each month. Subsequent to the interest-only period, the outstanding principal amount of the term loans is repayable in thirty-six (36) equal monthly payments (or twenty-four (24) with the extension of the interest-only period). All remaining outstanding principal, together with all accrued and 2016,unpaid interest, is due at maturity. The term loans may be voluntarily prepaid in full, or in part, at any time, subject to terms and conditions set forth in the Credit Agreement. Additionally, the term loans are subject to mandatory prepayment obligations, pursuant to the terms of the Credit Agreement. Prepayments of the term loans are subject to fees of 3%, 2%, and 1% of the prepayment amounts made during the first year, second year, and thereafter, respectively. At the time of the final payment of the term loans, the Company is also obligated to pay an exit fee of 4% of the total amount funded thereunder.
Revolving Facility
The Company may borrow, repay and reborrow under the revolving facility until February 1, 2028, at which time the facility will terminate and all outstanding amounts thereunder, including all accrued and unpaid interest, must be repaid. The proceeds of the revolving facility may be used for working capital needs and general corporate purposes.
Loans made under the revolving facility bear interest at a floating rate based on an Adjusted Term SOFR (as defined in the Credit Agreement), subject to a floor of 2.5%, plus 4%. The Company is obligated to pay a fee equal to 0.5% per annum on the outstanding balance of the revolving loans and the average unused portion of the available revolving commitments, respectively. Additionally, if the revolving facility is terminated or reduced before maturity, the Company is subject to a deferred origination fee pursuant to the terms of the Credit Agreement. Terminations and reductions of the commitments are subject to fees of 3%, 2%, and 1% of the terminated or reduced commitments during the first year, second year, and thereafter, respectively. The dataCompany is required to maintain a minimum balance of 30% of the lesser of the borrowing base or $10 million under the revolving facility. If the average outstanding balance for a month is less than the minimum balance, the Company will pay a minimum balance fee for the difference between the minimum balance and the average outstanding balance for the month at the highest rate for the revolving loans during the month. For such loans, interest and fees are payable monthly on the first day of each month.
Collateral
The obligations of the Company under the Credit Agreement are secured by first priority liens on substantially all of its assets.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Covenants
The Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its subsidiaries, among other things, to incur debt, grant liens, make distributions, enter certain restrictive agreements, pay or modify subordinated debt, dispose of assets, make investments and acquisitions, enter into certain transactions with affiliates, and undergo certain fundamental changes, in each case, subject to limitations and exceptions set forth in the Credit Agreement. The Credit Agreement also requires the Company to satisfy certain financial covenants, including minimum trailing twelve (12) month net revenue targets relating to its Advanced Energy segment (tested quarterly), with year-end targets of $49 million, $60 million and $70 million for 2023, 2024, and 2025, respectively. Additionally, the Company must maintain a balance of $10 million in cash and cash equivalents during the duration of the Credit Agreement’s term.
Events of Default
The Credit Agreement also contains customary Events of Default (as defined in the Credit Agreement) that include, among other things, certain payment defaults, cross defaults to certain other contracts and indebtedness, covenant defaults, inaccuracy of representations and warranties, bankruptcy and insolvency defaults, judgment defaults, change of control defaults, defaults related to the failure to remain registered with the Securities and Exchange Commission and listed for trading on the Nasdaq Stock Market, and any material adverse change.
Upon the occurrence and during the continuance of an Event of Default under the Credit Agreement, the respective administrative agent, if requested by the respective lenders, may, among other things, (i) suspend or terminate commitments, as well as obligations of the relevant administrative agent and lenders, (ii) declare all outstanding obligations under the agreement (including principal and accrued and unpaid interest) immediately due and payable, and (iii) exercise the other rights and remedies provided for under the agreement. The Credit Agreement provides that, under certain circumstances, a default interest rate will apply on all obligations under such agreement during the existence of an Event of Default, at a per annum rate equal to 2% in excess of the applicable interest rate.
Issuance of Warrants
In connection with the Company’s obligations under the Credit Agreement, the Company issued to a statutory trust of MidCap Financial warrants to purchase up to 250,000 shares of its common stock, par value $0.001, with an exercise price of $3.40 per share.
Sale Leaseback of Clearwater, FL Real Property
In an effort to improve liquidity and the balance sheet condition of the Company, management has been derivedexploring options to leverage the Company's unencumbered real property. On February 27, 2023 the Company’s Board of Directors approved a plan to sell and leaseback the Company's real property located in Clearwater, FL.
On March 14, 2023, Apyx Medical Corporation (the “Company”) entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with VK Acquisitions VI, LLC (the “Purchaser”), for the sale of the Company’s facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price of $7,650,000. The Purchase Agreement is subject to the satisfactory completion of due diligence by the Purchaser within thirty (30) days from the date of execution, during which time the Purchaser retains the right to cancel the Purchase Agreement. The closing shall occur five (5) days following the expiration of the due diligence period. Upon execution of the Purchase Agreement, the Purchaser paid a down payment of $400,000 into escrow, which shall be held in accordance with the Purchase Agreement.
Pursuant to the terms of the Purchase Agreement, the transaction is not conditioned upon Purchaser obtaining any form of financing. The Purchase Agreement contains customary representations, warranties and covenants.
In accordance with the terms of the Purchase Agreement, upon the closing of the sale of the Property, the Company will enter into a Single Tenant Industrial Building Lease (the “Lease”) with the Purchaser, pursuant to which the Property will be leased back to the Company. The Lease will have an initial term of ten (10) years commencing from the closing (the “Initial Term”), and a renewal term of five (5) years, exercisable at the Company’s unaudited consolidated financial statements that, in management’s opinion, include all adjustments (consistingoption. The annual fixed rent will be $619,500 for the first year of normal recurring adjustments) necessarythe Initial Term, and will be subject to a 4% escalation every year thereafter through the Initial Term. Rent will be reset to the current market rate should the Company exercise the renewal option. The Lease provides for a fair presentation3% management fee on rent payments throughout the Initial Term and optional renewal term.
APYX MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The Lease is a triple net lease, pursuant to which all costs, expenses, and obligations relating to the Property, including, repair and maintenance charges, utility charges, real estate taxes or other taxes that may be imposed that relate to the Property, shall be paid by the Company. In addition, the Lease contains other customary terms and provisions generally contained within leases of this type.
The net cash proceeds the Company expects to receive following closing is approximately $6,700,000 after taxes, expenses, and fees. This estimate is subject to the consummation of the transaction and the finalization of the Company’s obligations associated with the Consolidated Financial Statementssale. The Company anticipates that the net cash proceeds will be used to strengthen its balance sheet and Notes thereto. The resultsprovide working capital
Litigation
On March 1, 2023, Shiva Stein as plaintiff filed a derivative complaint in the Court of operations for any quarter are not necessarily indicativeChancery of the resultsState of operations for any future period.
|
| | | | | | | | | | | | | | | |
| (In thousands, except per share data) | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter |
| Year ended December 31, 2017 | | | | | | | |
| Sales | $ | 8,389 |
| | $ | 9,799 |
| | $ | 9,347 |
| | $ | 11,348 |
|
| Gross profit | 4,226 |
| | 5,042 |
| | 4,594 |
| | 5,899 |
|
| Net loss attributable to common shareholders | (1,685 | ) | | (1,308 | ) | | (1,245 | ) | | (824 | )* |
| Basic loss per common share | $ | (0.05 | ) | | $ | (0.04 | ) | | $ | (0.04 | ) | | $ | (0.03 | ) |
| | | | | | | | |
| Year ended December 31, 2016 | | | | | | | |
| Sales | $ | 7,775 |
| | $ | 9,295 |
| | $ | 10,063 |
| | $ | 9,494 |
|
| Gross profit | 3,323 |
| | 4,700 |
| | 5,062 |
| | 4,830 |
|
| Net loss attributable to common shareholders | (1,944 | ) | | (519 | ) | | (964 | ) | | (523 | ) |
| Basic loss per common share | $ | (0.07 | ) | | $ | (0.02 | ) | | $ | (0.04 | ) | | $ | (0.02 | ) |
*Fourth quarter 2017 period includes approximately $1.5 million of non-recurring severance and expenses related to formerDelaware, captioned Stein v. Makrides, et al., C.A. No. 2023-0239-MTZ (the “Stein Suit”) against individual members of the Company’s executive management teamboard of directors and naming the Company as a nominal defendant, primarily concerning the facts at issue in a previously disclosed federal securities class action lawsuit filed in 2019 and settled in 2020, captioned Pritchard v. Apyx Medical Corporation, et al., Case No. 8:19-cv-00919 (M.D. Fla.) (the “Pritchard Case”). The Stein Suit seeks unspecified damages alleged to have resulted from purported breaches of fiduciary duty, unjust enrichment and related closureclaims based on the same set of allegedly misleading statements and material omissions described in the settled Pritchard Case, which concerned the 2018-2019 clinical study conducted by the Company to evaluate the safety and efficacy of its J-Plasma technology for dermal resurfacing. The Company believes that the claims are subject to procedural and substantive defenses, anticipates defense and indemnity coverage to be made available by the relevant insurer, and expects the individual defendants to defend all of the corporate officeallegations vigorously. The outcome of the action is not within the Company’s control and may not be known for a prolonged period of time. In the opinion of management, neither the alleged claims against the individual defendants nor the defense thereof are expected to result in Purchase, New York.a material, adverse effect on the Company’s financial condition, results of operations and cash flows.
BOVIEAPYX MEDICAL CORPORATION
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no disagreements with our current accountants on accounting and financial disclosures.None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have carried out an evaluation, under the supervision ofOur management has established and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of ourmaintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of December 31, 2017. Based upon that evaluation, our CEO and CFO concludedare designed to ensure that as of the end of that period, our disclosure controls and procedures are effective in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we filedfile or submittedsubmit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC’sSecurities and Exchange Commission's rules and forms, and (b)that such information is accumulated and communicated to our management, including our CEOthe Chief Executive Officer and CFO,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designingManagement carried out an evaluation, under the supervision and evaluatingwith the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures our management recognized that any controls(as such term is defined in Rules 13a-15(e) and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving15d-15(e) under the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control over Financial Reporting
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate annually the effectiveness of our internal controls over financial reportingExchange Act) as of the end of each fiscal yearthe period covered by this report. Based on such evaluation, our Chief Executive Officer and to include a management report assessing the effectivenessChief Financial Officer have concluded that as of our internal control over financial reporting in all annual reports. There were no changes in our internal control over financial reporting during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.2022, the Company's disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control overOver Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internalreporting (as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f) under the Exchange Act). The Company's internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. ProjectionsAlso, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
OurUnder the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management assessedcarried out an evaluation of the effectiveness of ourthe Company's internal control over financial reporting as of December 31, 2017. In making this assessment, management used2022, based on the criteriaframework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessment, ourthat evaluation, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2017,2022.
Changes in Internal Control Over Financial Reporting
There has not been any change in our internal control over financial reporting was effective.(as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our year ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
None.
BOVIEAPYX MEDICAL CORPORATION
Part III
ITEM 10. Directors, Executive Officers and Corporate Governance
BACKGROUND AND EXPERIENCE OF DIRECTORS
When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable the Board of Directors (“Board”) to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Governance and Nominating Committee focused primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth immediately below. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business. As more specifically described in such person’s individual biographies set forth below, our directors possess relevant and industry-specific experience and knowledge in the medical, engineering and business fields, as the case may be, which we believe enhances the Board’s ability to oversee, evaluate and direct our overall corporate strategy. The Governance and Nominating Committee annually reviews and makes recommendations to the Board regarding the composition and size of the Board so that the Board consists of members with the proper expertise, skills, attributes and personal and professional backgrounds needed by the Board, consistent with applicable regulatory requirements.
The Governance and Nominating Committee believes that all directors, including nominees, should possess the highest personal and professional ethics, integrity and values and be committed to representing the long-term interests of our stockholders. The Governance and Nominating Committee will consider criteria including the nominee’s current or recent experience as a senior executive officer, whether the nominee is independent, as that term is defined in existing independence requirements of the NYSE MKTThe NASDAQ Stock Market and the Securities and Exchange Commission,LLC, the business, scientific or engineering experience currently desired on the Board, geography, the nominee’s industry experience and the nominee’s general ability to enhance the overall composition of the Board.
The Governance and Nominating Committee does not have a formal policy on diversity; however, in recommending directors, the Board and the Committee consider the specific background and experience of the Board members and other personal attributes in an effort to provide a diverse mix of capabilities, contributions and viewpoints which the Board believes enables it to function effectively as the Board of Directors of a company with our size and nature of business. Moreover, our corporate governance guidelines commit the Company to maintaining a Board with a strong and diverse membership as set forth below.
Directors serve for one-year terms and are elected at the annual stockholders’ meeting. Set forth below is information regarding the executive officers, directors and key employees of BovieApyx Medical Corporation as of March 13, 2018.
| | | | | | | | | | | | | | | | | | | | |
| Name | | Age | | Position | | Director Since |
| Charles D. Goodwin | | 57 | | Chief Executive Officer and Director | | December 2017 |
| Tara Semb | | 53 | | Chief Financial Officer, Treasurer and Secretary | | N/A |
| Todd Hornsby | | 47 | | Executive Vice President | | N/A |
| Moshe Citronowicz | | 70 | | Senior Vice President | | N/A |
| Andrew Makrides | | 81 | | Chairman of the Board | | December 1982 |
| Lawrence J. Waldman | | 76 | | Lead Independent Director | | March 2011 |
| Michael Geraghty | | 75 | | Director | | March 2011 |
| John Andres | | 65 | | Vice-Chairman of the Board | | July 2014 |
| Craig Swandal | | 62 | | Director | | March 2018 |
| Minnie Baylor-Henry | | 75 | | Director | | August 2019 |
| Wendy Levine | | 50 | | Director | | August 2021 |
| | | | | | |
Name | | Age | | Position | | Director Since |
Board Diversity Matrix
The matrix below reflects our Board’s gender and racial characteristics and LGBTQ+ status, based on the self-identification of our directors. Each of the categories listed below has the meaning as it is used in Nasdaq Rule 5605(f).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Charles D. Goodwin | | 52 | | Chief Executive OfficerBoard Diversity Matrix (as of December 31, 2022 and Director | | December 20172021) |
Jay D. Ewers | | 57 | | Chief Financial Officer, Treasurer and Secretary | | N/ATotal Number of Directors 8 |
J. Robert Saron | | 65 | Makrides | President, Chief | Goodwin | | Waldman | | Andres | | Geraghty | | Swandal | | Baylor-Henry | | Levine | | |
| Gender Identity |
| Male | | X | | X | | X | | X | | X | | X | | | | | | |
| Female | | | | | | | | | | | | | | X | | X | | |
| Non-Binary | | | | | | | | | | | | | | | | | | |
| Did Not Disclose Gender | | | | | | | | | | | | | | | | | | |
| Demographic Background |
| African American or Black | | | | | | | | | | | | | | X | | | | |
| Alaskan Native or Native American | | | | | | | | | | | | | | | | | | |
| Asian | | | | | | | | | | | | | | | | | | |
| Hispanic or Latinx | | | | | | | | | | | | | | | | | | |
| Native Hawaiian or Pacific Islander | | | | | | | | | | | | | | | | | | |
| White | | X | | X | | X | | X | | X | | X | | | | X | | |
| LGBTQ+ | | | | | | | | | | | | | | | | | | |
| Did Not Disclose Demographic Background | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Knowledge, Skills and Experience Matrix
The matrix below summarizes certain of the key experiences, qualifications, skills, and attributes that our directors bring to the Board to enable effective oversight. This matrix is intended only to provide a summary of our directors’ qualifications and is not a complete listing of each director’s strengths and contributions to the Board. Additional information on each director is set forth in their respective biography.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | | | | | | | | | |
| Knowledge, Skills and Experience Matrix |
| | | Makrides | | Goodwin | | Waldman | | Andres | | Geraghty | | Swandal | | Baylor-Henry | | Levine | | |
| Public Company Board Experience | | X | | X | | X | | X | | X | | X | | X | | | | |
| Financial | | | | X | | X | | | | | | | | X | | | | |
| Risk Management | | | | X | | X | | | | | | | | X | | | | |
| Accounting | | | | | | X | | | | | | | | | | | | |
| Corporate Governance\Ethics | | X | | X | | X | | X | | | | | | X | | | | |
| Legal\Regulatory | | X | | X | | | | X | | | | | | X | | | | |
| HR\Compensation | | X | | X | | X | | | | X | | X | | | | | | |
| Executive Experience | | X | | X | | X | | X | | X | | X | | X | | X | | |
| Operations | | X | | X | | | | | | | | X | | | | | | |
| Strategic Planning\Oversight | | X | | X | | X | | X | | X | | X | | X | | X | | |
| Sales and Marketing Officer and Director | | August 1988 | | X | | | | | | X | | | | | | X | | |
Moshe Citronowicz | Technology | 65 | X | Senior Vice President | | N/A | X | | X | | | | X | | | | | | |
Andrew Makrides | Medical Device Industry | 76 | X | Chairman of the Board | X | December 1982 |
Lawrence J. Waldman | | 71 | X | Director | X | March 2011 |
Michael Geraghty | X | 71 | X | Director | | March 2011 |
John Andres | | 60 | | Vice-Chairman of the Board | | July 2014 |
Andrew Makrides, Esq. age 76,81, Chairman of the Board of Directors since December 1982, received a Bachelor of Arts degree in Psychology from Hofstra University and a Juris Doctor Degree from Brooklyn Law School. He is a member of the Bar of the State of New York and practiced law from 1968 until joining BovieApyx Medical Corporation as a co-founder and Executive Vice President and director, in 1982. Mr. Makrides became President of the Company in 1985 and the CEO in December 1998 and served as such until March 18, 2011 at which point he relinquished his position as President, but remained CEO until December 2013. Mr. Makrides employment contract expired December 31, 2016. Mr. Makrides has over 30 years of executive experience in the medical device industry. The Company believes Mr. Makrides is qualified to serve as Chairman because of his over 30 years of experience in the medical device industry as well as with his previous tenure with the Company.
BOVIE MEDICAL CORPORATION
Charles D. Goodwin, age 52,57, Chief Executive Officer and a Director of BovieApyx Medical Inc.,since December 2017, is an
accomplished senior executive with over 25 years of experience in the healthcare industry. Before joining BovieApyx Medical in December 2017, Mr. Goodwin was the Chief Executive Officer of MIS Implants Technologies, Inc., a privately held company specializing in dental implants. Prior to this position, Mr. Goodwin spent more than 11 years with Olympus/Gyrus ACMI in a variety of commercial and leadership roles of increasing responsibility. Mr. Goodwin began as a regional sales director for Gyrus in 2002 and was later promoted to Vice President of Sales, overseeing the Company’s strong commercial ramp and assisting Gyrus’ executive leadership team in the successful acquisition of American Cytoscope Makers, or “ACMI”, for $500 million in 2005. As President of Gyrus ACMI’s surgical division, Mr. Goodwin developed the company’s global distribution network and achieved average annual sales growth of 35% for three consecutive years, resulting in a promotion to President of Worldwide Sales in 2007. As President of Worldwide Sales for Gyrus ACMI, Mr. Goodwin was responsible for a global business with approximately 700 employees and was a key contributor to the successful sale of Gyrus ACMI to Olympus for $2.2 billion in 2008. Mr. Goodwin served as Group Vice President of Olympus Corporation’s global surgical energy group, where he was responsible for commercial strategy, R&D and operations for a business with more than 500 employees worldwide. Mr. Goodwin held this position for five years before joining MIS Implants Technologies, Inc. in 2014. In March, 2022 Mr. Goodwin joined the Board of ZSX Medical, LLC, a clinical stage medical device company improving minimally-invasive surgery. Mr. Goodwin holds a B.A. in Finance and Economics from Eastern Washington University. The Company believes Mr. Goodwin is qualified to serve as a Director given his over 25 years of experience in the medical device industry.
Jay D. EwersTara Semb, CPA, age 57,53, Chief Financial Officer, Treasurer and Secretary has more than 30 yearssince January 2019. Prior to joining Apyx Medical, Ms. Semb was the Chief Financial Officer for AVAIL Vapor LLC, a manufacturer and retailer of accounting experience, havinge-liquid for use in electronic vapor devices, from 2015 until 2018. Ms. Semb previously worked for Amsted Industries, a diversified global manufacturer of industrial components, in multiple positions of increasing responsibility from 2006 until 2015, culminating in her promotion to Director of Finance for the company’s rail bearings division in 2013. Before joining Amsted Industries as Director of Internal Audit in 2006, she held financial executive positionsand operational roles at Blyth Industries, a manufacturer and seller of candles and home fragrance products, and Anixter International, a global distributor of network & security solutions. She began her career in corporations ranging from early stage to high profile public companies with global operations in the medical equipment, manufacturing and semiconductor industries. Mr. Ewers joined the company1991 as Corporate Controller in June, 2014. From 2004 to 2014, Mr. Ewers worked in private practice providing accounting and advisory services to both publicly traded and privately-held companies. Mr. Ewers received his CPA license in 1987 and is a certified internal auditor.
J. Robert Saron, age 65, President, Chief Sales and Marketing Officer and Director,an auditor at Price Waterhouse. Ms. Semb holds a Bachelor of Science degree in Social and Behavioral ScienceAccounting from the University of South Florida. From 1988 to present Mr. SaronIllinois, as well as an MBA from Washington University in St. Louis. She is a Certified Public Accountant (CPA).
Todd Hornsby, age 47, Executive Vice President since January 2019, has served as a director of the Company. Mr. Saron has previously served as both director and president of the Health Care Manufacturing Management Council. In 2011 Mr. Saron received the Leonard Berke Achievement awardresponsibility for ethics, mentoring, marketing skill, industry knowledge, contributions to the industry and contributions to HMMC.global Commercial operations. He currently serves as a director of the Health Industry Distributors Association Education Foundation. Mr. Saron received the Health Industry Distributors Association’s highest award in 2008, the Industry Award of Distinction (renamed the John F. Sasen Leadership Award) and in February 2013 was inducted into the Medical Distribution Hall of Fame. Mr. Saron’s employment contract extends to December 31, 2018. Mr. Saron brings over 39is an accomplished Senior Executive with more than 20 years of executive marketing and distribution experiencesuccess in the medical industry.device and biotech industries. Throughout his career, Todd has held various leadership positions and has extensive experience in sales, sales management, and with building strong teams and launching new technologies. Since joining Apyx™ Medical in August 2014, Todd has focused primarily on the commercialization of Apyx’s Renuvion / J-Plasma advanced energy system. Prior to joining Apyx, Todd held roles of increasing seniority and responsibility at CryoLife, Inc. During his tenure, Todd directed the US Sales team, with a diversified product portfolio of biological heart valves and vascular grafts, surgical adhesives and hemostatic agents, dialysis access and CHF chronic heart failure products. Todd also directed successful integrations of three acquisitions into the US sales channel. Early in his medical device career, Todd held positions with Ethicon - Endo Surgery and Medex Medical. Todd holds a BA in Psychology from Hope College. He is also the recipient of many awards for sales achievement and growth.
Moshe Citronowicz, age 65,70, Senior Vice President since 2012, came to the United States in 1978 and has worked in a variety of manufacturing and high technology industries. In October 1993, Mr. Citronowicz joined the Company as Vice President of Operations and served as our Chief Operating Officer until November 2011. Currently, he is serving as the Senior Vice President. Mr. Citronowicz’s employment contract extends to December 31, 2018.2023.
Lawrence J. Waldman, CPA, CPA, age 71, has served as a director76, Director since March 2011, and is currently the Chair of our audit committee and Lead Independent Director, of the Board.and Audit Committee Chair. Mr. Waldman has over thirty-five years of experience in public accounting. Mr. Waldman currently serves as a senior advisor to First Long Island Investors, LLC, an investment and wealth management firm since May 2016. Prior to that Mr. Waldman served as an advisor to the accounting firm of EisnerAmper LLP, where he was previously the Partner-in-Charge of Commercial Audit Practice Development for Long Island since September 2011. Prior to joining EisnerAmper LLP, Mr. Waldman was the Partner-in-Charge of Commercial Audit Practice Development for Holtz Rubenstein Reminick, LLP from July 2006 to August 2011. Mr. Waldman was the Managing Partner of the Long Island office of KPMG LLP from 1994 through 2006, the accounting firm where he began his career in 1972. Mr. Waldman was elected to the Board of Directors of Comtech Telecommunications Corp. in August, of 2015 and since December 2015, serves as Chair of its audit committee.Audit Committee, and since December 17, 2021 serves as its Lead Independent Director. In October 2016, Mr. Waldman was appointed and subsequently in December 2016 elected to the Board of Directors of CVD Equipment Corporation, and serves as a member of the audit committee and Chair of the compensation committee.Audit Committee and as Lead Independent Director. In January 2021, Mr. Waldman serveswas appointed to serve as non-Executive Chairman of the Board of CVD Equipment Corporation. Mr. Waldman also served through October 2018 as a member of the Board of Directors of Northstar/RXR Metro Income Fund, a non-traded Real Estate Investment Trust, and haswhere he
also had served as a member of its audit committee sinceAudit Committee starting in 2014. Mr. Waldman is also the Chair of the Supervisory Committee of Bethpage Federal Credit Union. Mr. Waldman also served as a member of the State University of New York’s Board of Trustees and as chairChair of its audit committee.Audit Committee. He previously served as the Chairman of the Board of Trustees of the Long Island Power Authority and as Chair and a member of the financeFinance and audit committeeAudit Committee of its Board of Trustees. Mr. Waldman meets the definition of a financial expert as defined by the SEC and NYSE MKT.The NASDAQ Stock Market LLC. The Company believes Mr. Waldman is qualified to serve as Director, Audit Committee Chair and Lead Independent Director because of his over 35 years of experience in public accounting and his positions on various boards.
BOVIE MEDICAL CORPORATION
Michael Geraghty, age 71, has served as a director75, Director since March 20112010 and Compensation Committee Chair. Mr. Geraghty was previously employed as the President of Global Sales at Optos, Inc., a developer and manufacturer of retinal imaging devices for screening, detection and diagnosis of eye related conditions. From 2005 through 2008, he was the President of International Sales at Gyrus Acmi where he first started in 2000 as Senior Vice President of Sales for Gyrus Medical. Prior to this, Mr. Geraghty was the Vice President of Sales and Marketing for Everest Medical, Inc. and before that was the Director of Marketing for Advanced Products at Arthrocare Corporation. Mr. Geraghty specializes in building independent direct sales teams in the medical device industry and has extensive domestic and international sales and marketing experience. He received his bachelor’s degree from St. Mary’s University and graduate degree in Executive Sales Management from the University of Minnesota. The Company believes Mr. Geraghty is qualified to serve as Director and Compensation Committee Chair because of his extensive domestic and international sales, marketing, and management experience.
John AndresCraig Swandal, age 60,62, Director since March 2018. Mr. Swandal has over 30 years of experience at public and privately-held medical technology and electronics manufacturing companies. He began his career in 1981 at Unisys Corporation, a manufacturer of main frame computer systems, where he held a variety of manufacturing positions of increasing responsibility. In 1995 he joined Silent Knight, a manufacturer of industrial fire and security systems, as a Manufacturing Manager and was promoted to Vice President of Operations.
In 2001, Mr. Swandal joined Gyrus, a manufacturer of surgical devices, where he was responsible for the company’s manufacturing operations as Director of Operations and later Vice President of Operations. Following Gyrus’s acquisition of ACMI in 2005, Mr. Swandal was promoted to Senior Vice President and was responsible for the global operations of the combined company. He developed and executed Gyrus ACMI’s strategy to consolidate its manufacturing, distribution, customer service and service and repair operations and was a member of the leadership team that successfully sold the company to Olympus Corporation for $2.2 billion in 2008.
Following the acquisition of Gyrus ACMI, Mr. Swandal served on the executive leadership teams of several companies, including ATS Medical, ACELL and Tendyne, where he was focused on operational development and currently holds a position. He is currently the Principal of Lead 2 Change Consulting, where he assists companies in identifying and implementing new manufacturing initiatives. Mr. Swandal serves as a member of the Board of Managers for Tiumed LLC a nontraded medical device start up. Mr. Swandal holds a Bachelor’s degree in Organizational Management and Communications from Concordia University, as well as a mini Master of Business Administration in Medical Technology from the University of St Thomas. The Company believes Mr. Swandal is qualified to serve as Director because of his extensive experience in manufacturing operations.
John Andres, age 65, Vice Chairman of the Board of Directors and Governance and Nominating Committee Chair since July 2014, has over thirty years of experience in the medical device industry. Since April, 2004, Mr. Andres has been a private consultant, doing business through John C. Andres, LLC, specializing in patent/business strategy development and execution. He also is a partner of Hawk Healthcare, LLC, which provides strategic transaction management to private individuals and companies.
In 2020, Mr. Andres joined the Board of Directors of Adaptilens, LLC, which is developing an accommodating intraocular lens. In 2017, Mr. Andres joined the Board of Directors of Longeviti Neuro Solutions, LLC Board of Directors which is developingdevelops and sells cranial implant products for cranial reconstruction. In 2004, Mr. Andres helped found K2M, Inc. (KTWO) and from 2004 until 2010 served as a member of the Board of Directors of K2M, Inc. Prior to 2004, Mr. Andres held various legal and strategic business development positions at the Surgical Division of Tyco Healthcare Group, LLP, now Medtronic (NYSE: MDT) and its predecessor, United States Surgical Corporation. Before joining U.S. Surgical, Mr. Andres worked at the New York law firm of Morgan & Finnegan. He received his Associate of Applied Science degree from Rochester Institute of Technology, his Bachelor of Arts degree from Lehigh University and his Juris Doctor from Pace University School of Law. The Company believes Mr. Andres is qualified to serve as a director because of his extensive experience in patent and business strategy development and execution in the medical device industry.
Minnie Baylor-Henry, age 75, Director and Regulatory Compliance Committee Chair since August 2019. Ms. Baylor-Henry has over 25 years of regulatory affairs experience. She is the President of B-Henry & Associates, LLC, a consulting firm that she founded to provide regulatory strategic support to life sciences companies. Prior to starting her consulting company, she held various executive level positions over a 15-year period at Johnson & Johnson (J&J). Before retiring from J&J in 2015, she was the Worldwide Vice President of Regulatory Affairs-Medical Devices. During her time at J&J, she also had served as the Vice President-Medical & Regulatory Affairs in the Over-the Counter Group, as well as Senior Director, Regulatory Affairs- Pharmaceuticals. Ms. Baylor-Henry also worked for Deloitte & Touche (2008-2010) as the National Director Regulatory Affairs- Life Sciences. Prior to joining the private sector, she worked for the US Food & Drug Administration (1991-1999) in many roles, including serving as the Director of the Division of Drug, Marketing, Advertising & Communications and the FDA’s National Health Fraud Coordinator.
In 2018, Ms. Baylor-Henry joined the Board of Directors of scPharmaceuticals, a publicly-held company focused on developing technologies that enable subcutaneous administration of therapies and in 20 she stepped down from the Board of Directors of PolarityTE, a publicly- held regenerative medicine company. She joined the Board of Directors of Paratek Pharmaceuticals, a publicly-held company focused on solutions for patients with infectious diseases in 2021. In March, 2022, she joined the Board of Directors of Lantheus Holdings, LLC, an innovative diagnostics and targeted therapeutics company. Ms. Baylor-Henry received her pharmacy degree from Howard University’s College of Pharmacy and a law degree from Catholic University’s Columbus School of Law. The Company believes Ms. Baylor-Henry is qualified to serve as Director and Regulatory and Compliance Committee Chair because of her extensive experience in global and regulatory management and compliance.
Wendy Levine, age 50, Director, has over 25 years of healthcare marketing and advertising experience across the pharmaceutical, biotech, medical device and vaccine sectors. She is currently Group President and head of the advertising business at 21GRAMS, part of Real Chemistry, a global health innovation company that she founded with her partners in 2018. From 2003 to 2007, Ms. Levine worked at Johnson & Johnson, where she served as Group Product Director in the Specialty Pharmaceuticals Business Unit and then as Director, Stakeholder Marketing in the Medical Device Business Unit. From 2007 to 2009, Ms. Levine held the position of Senior Director of Marketing for the influenza portfolio at Novartis Vaccines. From 2009 to 2014, a love for advertising brought her to the agency world, where she rose through the ranks within account management at The Bloc. From 2014 to 2015, Ms. Levine held the role of EVP, Managing Director at McCann Health. From 2015 to 2017, she worked as Director of Client Services at GSW. Ms. Levine received her bachelor’s degree in interdisciplinary studies (economics and Western European culture) from the University of Pittsburgh and a master’s degree in education from Beaver College (Arcadia University). The Company believes Ms. Levine is qualified to serve as Director because of her extensive experience in marketing and advertising.
Involvement in Certain Legal Proceedings
None
Independent Board Members
During 2017, theThe Board had threecurrently has seven independent members, Andrew Makrides, John Andres, Michael Geraghty, and Lawrence J. Waldman, who meetCraig Swandal, Minnie Baylor-Henry and Wendy Levine, each of whom meets the existing independence requirements of the NYSE MKTThe NASDAQ Stock Market LLC and the Securities and Exchange Commission.
Board Leadership
The independent directors appointed Lawrence J. Waldman as the Lead Independent Director. The Lead Independent Director is appointed by the Board and is responsible for coordinating the activities of the independent directors and coordinating with the Chief Executive Officer of the Company to set agendas for Board meetings and chair executive sessions of the independent directors. The Lead Independent Director is also responsible for meeting, from time to time, with the Company’s Compensation Committee to discuss the Chief Executive Officer’s performance.
The Company’s Corporate Governance Policies also contain several features which the companyCompany believes will ensure that the Board maintains effective and independent oversight of management, including the following:
•Executive sessions without management and non-independent directors present are a standing Board agenda item. Executive sessions of the independent directors are held at any time requested by an independent director and, in any event, are held in connection with at least 100% ofall regularly scheduled Board meetings.
•The Board regularly meets in executive session with the CEO without other members of management present.
•All Board committee members are independent directors. The committee chairs have authority to hold executive sessions without management and non-independent directors present.
The Board has no formal policy with respect to separation of the positions of Chairman and CEO or with respect to whether the Chairman should be a member of management or an independent director, and believes that these are matters that should be discussed and determined by the Board from time to time. The Chief Executive Officer of the Company, CharlieCharles D. Goodwin, is tasked with the responsibility of implementing our corporate strategy, westrategy. We believe heMr. Goodwin is best suited for leading discussions, at the Board level, regarding performance relative to our corporate strategy and this discussion accounts for a significant portion of the time devoted at our Board meetings.
BOVIE MEDICAL CORPORATION
Board Evaluations
The Board has adopted a policy to evaluate its performance and effectiveness as well as that of the threefour standing committees on an annual basis. The purpose of the evaluation is to track progress in certain areas targeted for improvement from year to year and to identify ways to enhance the Board’s effectiveness. As part of the evaluation, each Director may complete a written questionnaire developed by the Governance and Nominating Committee to provide feedback on the effectiveness of the Board, the Committees, as well as each individual Director’s own contributions. The collective ratings and comments of the Directors are compiled and then presented to the Governance and Nominating Committee and to the full Board for discussion and action as necessary.
Risk Management
The Board believes that risk management is an important component of the Company’s corporate strategy. While we assess specific risks at our committee levels, the Board, as a whole, oversees our risk management process, and discusses and reviews with management major policies with respect to risk assessment and risk management. The Board is regularly informed through its interactions with management and committee reports about risks we face in the course of our business. Our Audit Committee also takes an active role in risk assessment and risk management.
Audit Committee
The Audit Committee assists the Board in its general oversight of our financial reporting, internal controls, and audit functions, and is directly responsible for the appointment, compensation and oversight of the work of our independent registered public accounting firm. The Audit Committee reviews and discusses with management and our independent accountants the annual audited and quarterly financial statements (including the disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and matters required to be discussed by the applicable requirements of the PCAOB), reviews the integrity of the financial reporting processes, both internal and external, reviews the qualifications, performance and independence of our independent accountants, and prepares the Audit Committee Report included in thisits Annual Report on Form 10-K in accordance with rules and regulations of the Securities and Exchange Commission. The Audit Committee has the power to investigate any matter brought to its attention within the scope of its duties. It also has the authority to retain counsel and advisors to fulfill its responsibilities and duties. The Audit Committee also acts as a qualified legal compliance committee.
The meetings of the Committee are designed to facilitate and encourage communication among the Committee, the Company and the Company’s independent auditor. The Committee discussed with the Company’s Independent Auditor the overall scope and plans for their respective audits. The Committee meets with the independent auditor, with and without management present, to discuss the results of their examinations; their evaluations of the Company’s internal controls; and the overall quality of the Company’s financial reporting.
During 2017,2022, our Audit Committee consisted of threefour independent members of the Board of Directors, Lawrence J. Waldman,
John Andres, Michael Geraghty and Michael Geraghty.Craig Swandal. As a smaller reporting company, we are required to have at least two independent members comprising our Audit Committee in accordance with Rule 10A-3 of the Securities Exchange Act of 1934 and the rules of the NYSE MKT Exchange.The NASDAQ Stock Market LLC. During 2017,2022, Mr. Waldman served as the Audit Committee ChairmanChairperson and financial expert. The Audit Committee meets as often as it determines necessary but not less frequently than once every fiscal quarter. During 2017, the Audit Committee met four times.
Governance and Nominating Committee
The Governance and Nominating Committee is responsible for matters relating to the corporate governance of our company and the nomination of members of the board and committees thereof. The Governance and Nominating Committee also provides oversight to the Company over its Environmental, Social and Governance (“ESG”) initiatives. During 2017,2022, our Governance and Nominating Committee consisted of three independent members of the Board of Directors, John Andres who serves as Chairman,Chairperson, Lawrence J. Waldman and Michael Geraghty. The Governance and Nominating Committee meets as often as it determines necessary, but not less than once a year. During 2017,March 2022, the Board appointed Minnie Baylor-Henry as a member of the Governance and Nominating Committee met one times.Committee.
Compensation Committee
The Compensation Committee is responsible for overseeing our compensation and employee benefit plans (including those involving the issuance of our equity securities) and practices, including formulating, evaluating and approving the compensation of our executive officers and reviewing and recommending to the full Board of Directors the compensation of our Chief Executive Officer. During 2017,2022, our Compensation Committee consisted of four independent members of the Board of Directors, Michael Geraghty who served as Chairman,Chairperson, John Andres, and Lawrence J. Waldman.Waldman and Wendy Levine. The Compensation Committee meets as often as it determines necessary, but not less than once a year.
Regulatory Compliance Committee
The Regulatory Compliance Committee, formed in the third quarter of 2019, is responsible for matters relating to the Company’s overall non-financial regulatory and compliance strategies and systems. Specifically, the Committee provides oversight of management’s efforts to comply with the requirements for a medical device company operating in a highly regulated environment with respect to healthcare compliance, product quality and safety, and other areas as directed by the Board. During 2017,2022, our Regulatory Compliance Committee consisted of four independent members of the CompensationBoard of Directors, Minnie Baylor-Henry who serves as Chairperson, John Andres, Craig Swandal and Wendy Levine. The Regulatory Compliance Committee meets as often as it determines necessary, but not less than once a year.
The table below indicates the current membership of each committee and how many times the Board and each committee met three times.and/or acted by written consent in 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Board | | Audit | | Governance
and
Nominating | | Compensation | | Regulatory Compliance |
| Andrew Makrides | | Chair | | | | | | | | |
| Charles D. Goodwin | | Member | | | | | | | | |
| John Andres | | Vice Chair | | Member | | Chair | | Member | | Member |
| Michael Geraghty | | Member | | Member | | Member | | Chair | | |
| Lawrence J. Waldman | | Member | | Chair** | | Member | | Member | | |
| Craig Swandal | | Member | | Member | | | | | | Member |
| Minnie Baylor-Henry | | Member | | | | Member | | | | Chair |
| Wendy Levine | | Member | | | | | | Member | | Member |
| Number of Meetings* | | 12 | | 4 | | 1 | | 6 | | 5 |
* Includes formal meetings and acts of written consent
** Mr. Waldman has also been designated the Audit Committee’s financial expert as well as the Board’s Lead Independent Director.
BOVIEAPYX MEDICAL CORPORATION
Code of Ethics
On March 30, 2004 Bovie adopted aWe made minor revisions to our Code of Ethics (“the Code”) in the first quarter of 2021. We also have made available a whistleblower hotline that provides a mechanism for executive employees.reporting breaches of the Code in an anonymous manner.
Review and acknowledgement of the Code is required of all new employees as part of the on-boarding process, and of all existing employees on an annual basis.
A copy of the code of ethics, which expressly includes the fiduciary responsibilities of the CEO and CFO, is available on our website at http:https://boviemed.com/financials/Bovie_Code_of_Business_Conduct_and_Ethics_v2.pdfapyxmedical.com/code-of-ethics-and-conduct/.
Environmental Social and Governance
Our Governance and Nominating Committee provides oversight to the Company over its ESG initiatives. The Chairman of that Committee has been actively involved in our work to date with our ESG efforts and continues to lead in providing suggestions as to what else can be done to further enhance our initiatives in this area, including a continued focus on Board diversity from the perspective of gender, ethnic\racial background, and relevant professional and educational experience.
Our ESG initiatives are sponsored by our CEO and CFO, and consists of a steering committee that includes all members of the executive management team as well as some mid-level managers in certain areas such as R&D, Regulatory and Quality. In July 2022, we published our first ESG report aligned with the Sustainability Accounting Standards Board (SASB) Medical Equipment industry standards.
We have created a strong environmental, social and governance (“ESG”) structure by introducing a cross-functional ESG team which has been working with senior management, our board, and other stakeholders to develop an ESG framework that is aligned with our corporate mission, vision and values. Our ESG initiatives are sponsored by our CEO and CFO, and includes a steering committee comprised of all members of the executive management team as well as some mid-level managers in certain areas such as R&D, Regulatory and Quality. In July 2022, we published our first ESG report aligned with the Sustainability Accounting Standards Board (“SASB”) Medical Equipment industry standards.
Part of our culture is to give back and support the communities and people around us. In 2022, we engaged in both employee volunteer and financial support in the areas of education and the environment. Such initiatives included the following:
•Week-long high school internship\shadowing program for students interested in the field of engineering;
•Hosting a group of 25 local students participating in their school’s STEM program at our manufacturing facility
•Employee participation in a local beach clean up event
•Donation of supplies to a local elementary school and to support those impacted by Hurricane Ian
•Local food drive donations as well as gifts for less fortunate children during the holidays
•Several financial contributions and sponsorships to various non-profit organizations
ITEM 11. Executive Compensation Discussion and Analysis
INTRODUCTION
This Compensation Discussion & Analysis (“CD&A”) explains our executive compensation program for our named executive officers (“NEOs”) listed below. This CD&A also describes the Compensation Committee’s process for making pay decisions, as well as its rationale for specific decisions related to the fiscal year ended December 31, 2022.
Although Apyx Medical qualifies as a “smaller reporting company” as defined by the SEC, which allows us to take advantage of scaled-back disclosure requirements, we are including more extensive narrative about our executive compensation program in an effort to be more transparent. We are also committed to keeping an open dialogue with our stockholders to help ensure that we have a regular pulse on investor perspectives and, as we continue to grow, we intend to further enhance our outreach efforts during 2023 and into the future.
| | | | | |
| Name | Position |
| Charles D. Goodwin | President, CEO and Director |
| Moshe Citronowicz | Senior Vice President |
| Todd Hornsby | Executive Vice President |
| Tara Semb | Chief Financial Officer |
2022 Business Overview
While 2022 ultimately proved to be a challenging year, our team made important progress under difficult circumstances. We believe we are incrementally better positioned in 2023, with an expanding portfolio of 510(k) clearances for our targeted clinical indications, recently implemented activities to reduce operating expenses while preserving our capabilities as an organization, and additional financing secured to strengthen our balance sheet and enhance our financial flexibility. Below are key financial and strategic highlights:
•Total revenue of $44.5 million, representing a decline of 8.3% year-over-year
•Advanced Energy revenue of $36.8 million, representing a decline of approximately 14.4% year-over-year
•Loss from operations of $23.6 million, vs. $14.4 million in 2021
On March 14, 2022, the U.S. Food and Drug Administration (“FDA”) posted a Safety Communication that warns consumers and health care providers against the use of the Company’s Advanced Energy products outside of their FDA-cleared indications for general use in cutting, coagulation, and ablation of soft tissue during open and laparoscopic surgical procedures. Following the Safety Communication, the Company began to experience some slowed demand for the adoption of its Helium Plasma Technology primarily in the U.S. The Company continues to evaluate the full effects the Safety Communication will have on the results of its operations, cash flows and financial position.
On April 4, 2022, the Company announced that it had submitted a 510(k) premarket notification to the FDA for the use of the Renuvion to improve the appearance of lax (loose) skin in the neck and submental region.
On May 26, 2022, the Company announced that it had received 510(k) clearance from the FDA for the use of the Renuvion Dermal Handpiece for specific dermal resurfacing procedures.
On February 1, 2023, we announced we had submitted a 510(k) premarket notification (“510(k) submission”) for the Renuvion APR Handpiece to the FDA, supported by a clinical study and real-world evidence. The 510(k) submission is intended to expand Renuvion’s indications for use to include a specific indication for the use of the Renuvion APR Handpiece for the coagulation of subcutaneous soft tissues where needed, following liposuction.
On February 27, 2023, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion APR Handpiece for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed. Soft tissue includes subcutaneous tissue.
WHAT GUIDES OUR PROGRAM
General Compensation Philosophy
The primary objective of our compensation program for employees, including our compensation program for executive officers, is to attract, retain and motivate qualified individuals and reward them in a manner that is fair to all stockholders. We strive to provide incentives for every employee that rewardsreward them for their contribution to the Company.
Our compensation program is designed to be competitive with other employment opportunities and to align the interests
| | | | | |
| Performance-Driven and Stockholder-Aligned | A portion of a NEO’s total compensation should be variable (“at-risk”) and linked to the achievement of specific short- and long-term performance objectives and designed to drive stockholder value creation. |
| Competitively-Positioned | Target compensation should be competitive with that being offered to individuals in comparable roles at other companies with which we compete for talent to ensure that we employ the best people to lead our success. |
| Responsibly-Governed | Decisions about compensation should be guided by best-practice governance standards and rigorous processes that encourage prudent decision-making. |
Elements of our stockholders. Historically, for our executive officers, we link a much higher percentage of total compensation to incentive compensation such as stock based compensation than we do for other employees.Pay
With these objectives in mind, our Board has built executive and non-executive compensation programs that consist of three principal elements - base salary, performance bonuses and grants of stock options and/or sharesoptions.
| | | | | | | | |
| Pay Element | How It’s Paid | Purpose |
| Base Salary | Cash (Fixed) | Provide a competitive base salary rate relative to similar positions in the market and enable the Company to attract and retain critical executive talent. |
| Performance Bonuses (Annual Incentives) | Cash (Variable) | Reward executive officers for delivering on annual financial and/or strategic objectives that contribute to the creation of stockholder value. |
| Long-Term Incentives | Equity (Variable) | Provide incentives for executive officers to execute on longer-term financial goals that drive the creation of stockholder value, support the Company’s retention strategy, and provide alignment with the interests of our stockholders. |
The Decision-Making Process
The Role of restricted stock.the Compensation Committee. The Compensation Committee oversees the executive compensation program for our NEOs. The Compensation Committee is comprised of independent, non-employee members of the Board. The Compensation Committee works very closely with its independent consultant and management to examine the effectiveness of the Company’s executive compensation program throughout the year. Details of the Compensation Committee’s authority and responsibilities are specified in its charter, which may be accessed at apyxmedical.com. The Compensation Committee makes all final compensation and equity award decisions regarding our NEOs, except for the CEO, whose compensation is determined by the independent members of the full Board, based upon recommendations of the Compensation Committee.
To understand the competitivenessThe Role of Management. Members of our management team attend regular meetings where executive compensation, arrangements provided to our executive officers, in 2014Company and individual performance, and competitive compensation levels and practices are discussed and evaluated. Only the Compensation Committee engagedmembers are allowed to vote on decisions regarding NEO compensation. The CEO reviews his recommendations pertaining to other executives (non-NEO) pay with the Compensation Committee providing transparency and oversight. Decisions on non-NEO pay are made by the CEO. The CEO does not participate in the deliberations of the Compensation Committee regarding his own compensation. Independent members of the Board make all final determinations regarding CEO compensation.
The Role of the Independent Consultant. The Compensation Committee engages an independent compensation consultant to provide expertise on competitive pay practices, program design, and an objective assessment of any inherent risks of any programs. Pursuant to authority granted to it under its charter, the Compensation Committee has hired Pearl Meyer & Partners, LLC (“Pearl Meyer”) as its independent consultant. Pearl Meyer reports directly to performthe Compensation Committee and does not provide any additional services to management. The Compensation Committee has conducted an independence assessment of Pearl Meyer in accordance with SEC rules.
The Role of Peer Group Companies. The Compensation Committee strives to set a competitive assessmentlevel of base salaries, bonusestotal compensation for on-target performanceeach NEO as compared with executive officers in similar positions at comparable companies, which we define as our compensation peer group. The Compensation Committee looks to its independent compensation consultant to provide and grantsanalyze competitive market data for each NEO, comparing each of equity incentives. In 2016, Pearl Meyer & Partners updated the competitive frametheir individual components of reference for the studycompensation and total compensation to consist of the following group of pre-selected companies that were of comparable size and operated in our industry category.
|
| | |
Avinger, Inc. | Esko Bionics Holdings, Inc. | IRIDEX Corporation |
AxoGen, Inc. | Fonar Corporation | Misonix, Inc. |
BIOLASE, Inc | iCAD, Inc. | Retractable Technologies, Inc. |
Cogentix Medical, Inc. | Invuity, Inc. | Utah Medical Products Inc. |
Cutera, Inc. | IRadimed Corporation | |
market. In addition to the peer group, Pearl Meyer referencedmay reference industry-specific, size-adjusted market survey data where appropriate. We continue to consult with Pearl Meyer on our compensation strategy on an ongoing basis.
At the time of our last competitive assessment, Pearl Meyer recommended and the Compensation Committee approved an update to our peer group. Pearl Meyer developed a set of objective filtering and selection criteria to identify US-based, publicly traded companies in the health care equipment, supplies or technology space that were comparable to Apyx at the time in terms of both revenue and market capitalization. The Company's current compensation peer group was composed of the following companies and was unchanged in 2022:
| | | | | | | | |
| Avedro, Inc. | GenMark Diagnostics, Inc. | OrthoPediatrics Corp. |
| BioLife Solutions, Inc. | iCAD, Inc. | Sensus Healthcare, Inc. |
| Corindus Vascular Robotics, Inc. | IRadimed Corporation | TransEnterix, Inc. |
| Cutera, Inc. | Misonix, Inc. | TransMedics Group, Inc. |
| Ekso Bionics Holdings, Inc. | Neuronetics, Inc. | Utah Medical Products Inc. |
| | |
| | |
| | |
| | |
| | |
The results of the survey confirmed that, consistent with our desired philosophy, our compensation arrangements were competitive with the marketplace, with some variation by individual.
2022 Executive Compensation Program
Base Salary
We pay base salaries to our Executive Officers in order to provide a consistent, minimum level of pay that sustained individual performance warrants. We also believe that a competitive annual base salary is important to attract and retain an appropriate caliber of talent for each position over time.
The annual base salaries of our Executive Officers are determined by our Compensation Committee and approved by the Board of Directors. All salary decisions are based on each Executive Officer’s level of responsibility, experience and recent and past performance, as determined by the Compensation Committee. The Compensation Committee benchmarks base salaries using a major independent consulting firm and using their recommendations and other information the Committee evaluates and establishes the base compensation for our executives.
| | | | | | | | | | | |
| Name | 2022 | 2021 | % Change |
| Charles D. Goodwin | $ | 482,500 | | $ | 450,000 | | 7% |
| Moshe Citronowicz | $ | 311,500 | | $ | 299,000 | | 4% |
| Todd Hornsby | $ | 368,000 | | $ | 347,000 | | 6% |
| Tara Semb | $ | 342,500 | | $ | 328,000 | | 4% |
Performance Bonus
The performance-based cash incentive bonus is designed to provide an opportunity for our senior executives, including our NEOs, to earn an annual incentive, paid in cash, based on the achievement of certain financial targets and/or strategic priorities. An executive’s incentive target is a percentage of their base salary. The Compensation Committee assessed our performance against certain financial metrics during 2022 with payouts measured on a scale of zero to 125% of target. The table below discloses the annual incentive targets for each NEO for 2022:
| | | | | | | | | | | | | | |
| Name | | 2022 Base Salary
($) | Bonus Target
(% of Base Salary) | Bonus at Target
($) |
| Charles D. Goodwin | | $ | 482,500 | | 85 | % | $ | 410,125 | |
| Moshe Citronowicz | | $ | 311,500 | | 30 | % | $ | 93,450 | |
| Todd Hornsby | | $ | 368,000 | | 55 | % | $ | 202,400 | |
| Tara Semb | | $ | 342,500 | | 50 | % | $ | 171,250 | |
In 2022, we used Total Revenue, Operating Income/(loss) and Total Operating Cash Burn as the financial performance metrics for determining annual performance bonuses because we believe it is important to focus on driving our top line revenue growth,
BOVIEAPYX MEDICAL CORPORATION
while focusing on continued improvements to our gross product margins and efficiently investing in our operations to drive towards longer-term, bottom-line profitability. This ultimately results in our ability to maintain acceptable levels of cash burn, setting a path to generating positive cash flow through our overall business performance.
Performance Bonus
The second component of executive compensation is2022 Annual Incentive Plan Payouts. Based on the actual financial performance results, the funding for performance bonuses which arewas set at 0% of each NEO’s applicable target. The Committee retains discretion to further adjust the award upward or downward based on its assessment of individual performance. The following table lists the actual awards earned when defined metrics are achieved.by the NEOs in 2022:
| | | | | | | | | | | | | | |
| Name | | Bonus Target
(% of Base Salary) | Bonus Target
($) | Actual Award Payout
($) |
| Charles D. Goodwin | | 85 | % | $ | 410,125 | | $ | — | |
| Moshe Citronowicz | | 30 | % | $ | 93,450 | | $ | — | |
| Todd Hornsby | | 55 | % | $ | 202,400 | | $ | — | |
| Tara Semb | | 50 | % | $ | 171,250 | | $ | — | |
For 2017, the Company established a combination of financial, operational and personal objectives as the broad criteria that would determine annual performance bonus amounts for the year.
|
| | | | | | | | | | | | | | | | | | |
| (In millions) | | Threshold | | Target | | Achievement | | Overall Weight | | Achievement | | Calculation |
| Advanced Energy Revenue | | 5.1 |
| | 6.8 |
| | 7.6 |
| | 30 | % | | 125 | % | | 37.5 | % |
| Core Revenue | | 27.0 |
| | 30.0 |
| | 28.6 |
| | 10 | % | | 75 | % | | 7.5 | % |
| OEM Revenue | | 3.7 |
| | 4.1 |
| | 2.6 |
| | 10 | % | | — | % | | — | % |
| Operating Loss | | (3.1 | ) | | (2.75 | ) | | (5.2 | ) | | 25 | % | | — | % | | — | % |
| Total Cash Balance | | 7.2 |
| | 9.6 |
| | 9.9 |
| | 10 | % | | 110 | % | | 11.0 | % |
| MBO | | 1 |
| | 1 |
| | 1 |
| | 15 | % | | 100 | % | | 15.0 | % |
| Total | | | | | | | | 100 | % | | | | 71.0 | % |
After careful review and consideration of the measures that comprise the 2017 bonus, the Compensation Committee approved the following performance bonuses:
|
| | | | | |
| Name | | Bonus | |
| Charles D. Goodwin | | $ | — |
| |
| Jay D. Ewers | | $ | 67,344 |
| * |
| J. Robert Saron | | $ | 83,119 |
| * |
| Moshe Citronowicz | | $ | 56,263 |
| * |
| Robert L. Gershon | | $ | 122,080 |
| |
| Jack McCarthy | | $ | 59,191 |
| |
| Total | | $ | 387,997 |
| |
* The Company and Messrs. Ewers, Saron and Citronowicz agreed to waive their bonus payment for 2017.
Stock Options
The third component of executive compensation is equity grants which have mainly come in the form of stock options. We believe that equity ownership in our Company is important to provide our Executive Officers and key employees with long-term incentives to better align interests of executives with the interests of stockholders and build value for our stockholders. In addition, the equity compensation is designed to attract and retain the executive management team.team and other key employees throughout the organization.
In January 2022, the Board approved equity awards to the NEOs. These equity awards were granted using incentive stock options to the extent permitted by the IRS. Stock options haveare intended to align the interests of award recipients with those of stockholders, since options deliver value only if theApyx’s stock price increases over time and, therefore, provide executives with an incentive to build Bovie’s value.appreciates after they are granted. This characteristic ensures that the Executive Officers and key employees have a meaningful portion of their compensation tied to future stock price increases and rewards management for long-term strategic planning through the resulting enhancement of the stock price. The 2022 awards for each NEO were as follows:
| | | | | |
| Name | Stock Options
(# of options) |
| Charles D. Goodwin | 243,000 |
| Moshe Citronowicz | 72,000 |
| Todd Hornsby | 100,000 |
| Tara Semb | 96,000 |
The stock options vest one-third per year on the anniversary date of the grant over a 3-year period, expire on the 10th anniversary of the grant date, and have an exercise price of $10.96 per share. Stock options are subject to the award recipient’s continued employment through each vesting date.
Stock option awards to Executive Officers and key employees are entirely discretionary. The CEO recommends to the Compensation Committee awards for Executive Officersindividuals other than himself. The Compensation Committee considers this recommendation along with the prior contribution of these individuals and their expected future contributions to our growth. The Committee formulates and presents its recommended allocation of stock option awards to the Board of Directors for approval. The Compensation Committee then would make an independent determination on CEO stock option awards, again formulating and presenting its recommendation for the allocation of stock option awards to the Board of Directors for approval. The Board of Directors approves, rejects, or, if necessary, modifies the Committee’s recommendations.
BOVIE MEDICAL CORPORATION
Perquisites and Other Benefits
Our Executive Officers are eligible for the same health and welfare programs and benefits as the rest of our employees in their respective locations.
Our Executive Officers are entitled to participate in and receive employer contributions to Bovie’sApyx's 401(k) Savings Plan. For more information on employer contributions to the 401(k) Savings Plan see the Summary Compensation Table and its footnotes.
Tax and Accounting Considerations
We regularly consider the various tax and accounting implications of our compensation plans. Section 162(m) of the Internal Revenue Code generally prohibits any publicly held corporation from taking a federal income tax deduction for compensation paid in excess of 1986,$1 million in any taxable year to the CEO and the other “covered employees” as amended (the “Code”), places a limit of $1.0 million ondefined in the amount ofrule. Under the tax laws in effect before 2018, compensation that wequalified as “performance-based compensation” under Section 162(m) of the Code was deductible without regard to this limitation. Effective for tax years beginning after December 31, 2017, the Tax Cuts and Jobs Act of 2017 generally eliminated the performance-based exemption, subject to a special rule that grandfathers certain awards and agreements that were in effect on November 2, 2017. While considering tax deductibility as only one of several considerations in determining compensation, the Committee believes that the tax deduction limitation should not compromise its ability to structure compensation programs that provide benefits to the Company that outweigh the potential benefit of a tax deduction and, therefore, may deduct as a business expense in any year with respect to each of our most highly paid executives unless, among other things, suchapprove compensation that is performance-based and has been approved by stockholders. The non-performance-based compensation paid to our executive officersnot deductible for the 2017 fiscal year did not exceed the $1.0 million limit per executive officer. tax purposes.
Accounting considerations also play an important role in the design of our executive compensation program. Accounting rules, such as FASB ASC Topic 718-10-10, Share-Based Payment, require us to expense the cost of our stock option grants which reduces the amount of our reported profits. Because of option expensing and the impact of dilution on our stockholders, we pay close attention to the number and value of the shares underlying stock options we grant.
BOVIE MEDICAL CORPORATION
Compensation of Executive Officers
The following table sets forth the compensation paid to each of our Executive Officers for the three years ended December 31, 2017, 2016,2022 and 20152021 for services to our Company in all capacities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Name and Principal Position | | Year | | Salary | | Bonus
($) | | Stock Awards
($) | | Option Awards
($) (1) | | Non-Equity Incentive Plan Compensation Earnings
($) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings
($) | | All Other Compensation
($) (2) | | Total
($) |
| Charles D. Goodwin | | 2022 | | $ | 482,500 | | | $ | — | | | $ | — | | | 1,664,793 | | | $ | — | | | $ | — | | | $ | 22,943 | | | $ | 2,170,236 | |
| CEO and Director | | 2021 | | $ | 450,000 | | | $ | 421,875 | | | $ | — | | | 701,420 | | | $ | — | | | $ | — | | | $ | 21,099 | | | $ | 1,594,394 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Moshe Citronowicz | | 2022 | | $ | 311,500 | | | $ | — | | | $ | — | | | 493,272 | | | $ | — | | | $ | — | | | $ | 21,444 | | | $ | 826,216 | |
| Senior Vice President | | 2021 | | $ | 299,000 | | | $ | 112,125 | | | $ | — | | | 207,828 | | | $ | — | | | $ | — | | | $ | 21,367 | | | $ | 640,320 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Todd Hornsby | | 2022 | | $ | 368,000 | | | $ | — | | | $ | — | | | 685,100 | | | $ | — | | | $ | — | | | $ | 26,778 | | | $ | 1,079,878 | |
| Executive Vice President | | 2021 | | $ | 347,000 | | | $ | 216,875 | | | $ | — | | | 288,650 | | | $ | — | | | $ | — | | | $ | 26,785 | | | $ | 879,310 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Tara Semb | | 2022 | | $ | 342,500 | | | $ | — | | | $ | — | | | 657,696 | | | $ | — | | | $ | — | | | $ | 17,553 | | | $ | 1,017,749 | |
| CFO, Treasurer and Secretary | | 2021 | | $ | 328,000 | | | $ | 184,500 | | | $ | — | | | 277,104 | | | $ | — | | | $ | — | | | $ | 19,169 | | | $ | 808,773 | |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Name and Principal Position | | Year | | Salary | | Bonus
($) | | Stock Awards
($) | | Option Awards
($) (1) | | Non-Equity Incentive Plan Compensation Earnings
($) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings
($) | | All Other Compensation
($) (7) | | Total
($) |
| Charles D. Goodwin | | 2017 | | $ | 15,385 |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 15,385 |
|
| CEO and Director | | 2016 | | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | 2015 | | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | |
| Jay D. Ewers* | | 2017 | | $ | 271,000 |
| | $ | 300 |
| (2) | $ | — |
| | 137,340 |
| | $ | — |
| | $ | — |
| | $ | 8,491 |
| | $ | 417,131 |
|
| Chief Financial Officer, | | 2016 | | $ | 235,000 |
| | $ | 109,892 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 10,608 |
| | $ | 355,500 |
|
| Treasurer and Secretary | | 2015 | | $ | 171,456 |
| | $ | 65,255 |
| | $ | — |
| | 70,655 |
| | $ | — |
| | $ | — |
| | $ | 32,185 |
| | $ | 339,551 |
|
| | | | | | | | | | | | | | | | | | | |
| J. Robert Saron | | 2017 | | $ | 334,485 |
| | $ | 300 |
| (3) | $ | — |
| | 137,340 |
| | $ | — |
| | $ | — |
| | $ | 19,769 |
| | $ | 491,894 |
|
| President, Chief Sales & | | 2016 | | $ | 318,917 |
| | $ | 148,956 |
| | $ | — |
| | 32,375 |
| | $ | — |
| | $ | — |
| | $ | 24,383 |
| | $ | 524,631 |
|
| Marketing Officer & Director | | 2015 | | $ | 305,184 |
| | $ | 79,543 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 24,383 |
| | $ | 409,110 |
|
| | | | | | | | | | | | | | | | | | | |
| Moshe Citronowicz | | 2017 | | $ | 226,410 |
| | $ | 300 |
| (4) | $ | — |
| | 137,340 |
| | $ | — |
| | $ | — |
| | $ | 18,968 |
| | $ | 383,018 |
|
| Senior Vice President | | 2016 | | $ | 213,990 |
| | $ | 100,112 |
| | $ | — |
| | 32,375 |
| | $ | — |
| | $ | — |
| | $ | 22,066 |
| | $ | 368,543 |
|
| | | 2015 | | $ | 204,775 |
| | $ | 53,537 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 22,066 |
| | $ | 280,378 |
|
| | | | | | | | | | | | | | | | | | | |
| Robert L. Gershon | | 2017 | | $ | 436,000 |
| | $ | 122,080 |
| | $ | — |
| | 196,200 |
| (5) | $ | — |
| | $ | — |
| | $ | 29,367 |
| | $ | 783,647 |
|
| CEO and Director | | 2016 | | $ | 365,750 |
| | $ | 293,724 |
| | $ | — |
| | 65,625 |
| | $ | — |
| | $ | — |
| | $ | 30,201 |
| | $ | 755,300 |
|
| | | 2015 | | $ | 350,000 |
| | $ | 180,000 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 30,201 |
| | $ | 560,201 |
|
| | | | | | | | | | | | | | | | | | | |
| Jack McCarthy | | 2017 | | $ | 287,375 |
| | $ | 59,191 |
| | $ | — |
| | 137,340 |
| (6) | $ | — |
| | $ | — |
| | $ | 27,242 |
| | $ | 511,148 |
|
| Chief Commercialization | | 2016 | | $ | 287,375 |
| | $ | 134,273 |
| | $ | — |
| | 32,375 |
| | $ | — |
| | $ | — |
| | $ | 29,922 |
| | $ | 483,945 |
|
| Officer | | 2015 | | $ | 275,000 |
| | $ | 74,500 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 29,922 |
| | $ | 379,422 |
|
* Assumed role
(1)These columns represent the grant date fair value of the awards as CFO on October 1, 2015. calculated in accordance with FASB ASC 718 (Stock Compensation).
| |
(1) | These columns represent the grant date fair value of the awards as calculated in accordance with FASB ASC 718 (Stock Compensation). Pursuant to SEC rule changes effective February 28, 2010, we are required to reflect the total grant date fair values of the option grants in the year of grant, rather than the portion of this amount that was recognized for financial statement reporting purposes in a given fiscal year which was required under the prior SEC rules, resulting in a change to the amounts reported in prior Annual Reports. |
| |
(2) | The Company and Mr. Ewers voluntarily agreed to waive his bonus payment for 2017 of $67,344. |
| |
(3) | The Company and Mr. Saron voluntarily agreed to waive his bonus payment for 20177 of $83,119. |
| |
(4) | The Company and Mr. Citronowicz voluntarily agreed to waive his bonus payment for 2017 of $56,263. |
| |
(5) | Mr. Gershon resigned from all of his positions with the Company effective December 15, 2017. In connection with this departure, unvested options were forfeited in accordance with the terms of the Separation Agreement. |
| |
(6) | Mr. McCarthy was terminated without cause from his position with the Company effective November 6, 2017. In connection with this departure, unvested options were forfeited pursuant to the terms of his employment contract and the option agreements. |
(2)The amounts for 2022 include compensation under the following plans and programs:
BOVIEAPYX MEDICAL CORPORATION
| |
(7) | The amounts for 2017 include compensation under the following plans and programs: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | C.D.
Goodwin | | | | | | M.
Citronowicz | | T.
Hornsby | | T.
Semb |
| | | | | | | | | | | | |
| Life insurance premiums | | 198 | | | | | | | 129 | | | 198 | | | 198 | |
| Short-term disability premiums | | 186 | | | | | | | 186 | | | 186 | | | 186 | |
| Health insurance premiums | | 9,059 | | | | | | | 12,896 | | | 18,688 | | | 6,960 | |
| Employer 401(k) contribution | | 13,500 | | | | | | | 8,233 | | | 7,706 | | | 10,209 | |
| | | | | | | | | | | | |
| Total | | $ | 22,943 | | | | | | | $ | 21,444 | | | $ | 26,778 | | | $ | 17,553 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | C.D.
Goodwin | | J.D.
Ewers | | J.R.
Saron | | M.
Citronowicz | | R.L.
Gershon | | J.J.
McCarthy |
| Life insurance premiums | | — |
| | 425 |
| | 499 |
| | 464 |
| | 502 |
| | 502 |
|
| Health insurance premiums | | — |
| | — |
| | 11,170 |
| | 11,775 |
| | 20,765 |
| | 21,927 |
|
| Employer 401(k) contribution | | — |
| | 8,066 |
| | 8,100 |
| | 6,729 |
| | 8,100 |
| | 4,813 |
|
| | | | | | | | | | | | | |
| Total | | $ | — |
| | $ | 8,491 |
| | $ | 19,769 |
| | $ | 18,968 |
| | $ | 29,367 |
| | $ | 27,242 |
|
Amounts in the table above are pro-rated where applicable.
Employment Agreements and Potential Payments Upon Termination or Change in Control
At December 31, 2017,2022, we were obligated under four employment agreements.
|
| | | | | | | |
| Name | | Contract Expiration Date |
| Charles D. Goodwin | | N/A(1) |
Jay D. EwersTara Semb | | N/A(1) |
J. Robert SaronTodd Hornsby | | N/A(1) |
| Moshe Citronowicz | | December 31, 2018 |
Moshe Citronowicz | | December 31, 20182023 |
| |
(1) | Employment contracts provide for the Executives to remain employed by the Company until such time as their employment is terminated pursuant to the terms of their Employment Agreement. |
(1)Employment contracts provide for the Executives to remain employed by the Company until such time as their employment is terminated pursuant to the terms of their Employment Agreement.
Approximate future minimum payments under these agreements are
Charles D. Goodwin Employment Agreement
On September 17, 2020, the Company entered into an Amended and Restated Employment Agreement, effective as followsof September 17, 2020, with Charles D. Goodwin II, the Company’s President and Chief Executive Officer (the “Goodwin Agreement”). The Goodwin Agreement amends and restates Mr. Goodwin’s original employment agreement, dated as of December 31, 2017:15, 2017, in its entirety. The term of Mr. Goodwin’s employment under the Goodwin Agreement commenced as of the effective date thereof and shall continue until terminated in accordance with the terms of the Goodwin Agreement. Under the Goodwin Agreement, Mr. Goodwin will receive an initial annual base salary of $450,000, which shall be reviewed from time to time and may be increased, but not decreased, by the Compensation Committee of the Board of Directors (the “Committee”) in its sole and exclusive discretion. Mr. Goodwin shall be entitled to participate in (i) any bonus or incentive plan available to the Company’s executives generally, on such terms as the Committee may determine in its discretion, and (ii) the equity-based incentive plans of the Company, pursuant to which he may receive awards thereunder, as determined by the Company’s Board of Directors in its sole discretion from time to time and subject to the terms and conditions of such plans and any applicable award agreement.
In the event Mr. Goodwin’s employment is terminated as a result of death or disability, Mr. Goodwin or his estate shall be entitled to receive (i) any unpaid base salary earned and accrued prior to the date of termination, (ii) reimbursement for expenses incurred prior to the date of termination, (iii) a pro rata bonus for the year of termination, and, (iv) if Mr. Goodwin is eligible for and elects continuation benefits under COBRA, the Company will pay the employer portion of the COBRA coverage premium for the shorter of (x) the 12-month period following the date of termination, or (y) the time at which Mr. Goodwin becomes eligible for medical and dental benefits through another employer. In addition, Mr. Goodwin’s outstanding option grants shall continue to be treated in accordance with the terms of the applicable plan and award agreement, provided that the portion of Mr. Goodwin’s options (i) that were exercisable as of the effective date of the Goodwin Agreement and (ii) that would have become exercisable on the next anniversary of the effective date following the date of termination shall become and remain exercisable for a period of 12 months following the date of termination.
In the event Mr. Goodwin’s employment is terminated by the Company for cause or by Mr. Goodwin without good reason, Mr. Goodwin shall be entitled to receive any unpaid base salary earned and accrued prior to the date of termination, and reimbursement for expenses incurred prior to the date of termination. In addition, in the event Mr. Goodwin’s employment is terminated by Mr. Goodwin without good reason, Mr. Goodwin’s stock option grants shall continue to be treated in accordance with the terms of the applicable plan and award agreement, provided that the portion of Mr. Goodwin’s options which were exercisable as of the date of termination shall remain exercisable for a period of 3 months following the date of termination.
|
| | | |
| (In thousands) | |
| 2018 | $ | 1,005 |
|
| 2019 | — |
|
| Total | $ | 1,005 |
|
In the event Mr. Goodwin’s employment is terminated by Mr. Goodwin for good reason, by the Company without cause, or in connection with a change of control (as defined in the Goodwin Agreement), Mr. Goodwin shall be entitled to receive (i) any unpaid base salary and other benefits earned and accrued prior to the date of termination, (ii) reimbursement for expenses incurred prior to the date of termination, (iii) a pro rata bonus for the year of termination, (iv) continued payment of his base salary for the twelve (12) month period following the date of termination, and (v) if Mr. Goodwin is eligible for and elects continuation benefits under COBRA, the Company will pay the employer portion of the COBRA coverage premium for the shorter of (x) the 12-month period following the date of termination, or (y) the time at which Mr. Goodwin becomes eligible for medical and dental benefits through another employer. In addition, Mr. Goodwin’s outstanding option grants shall continue to be treated in accordance with the terms of the applicable plan and award agreement, provided that the portion of Mr. Goodwin’s options that (i) were exercisable as of the date of termination and (ii) would have become exercisable on the next anniversary of the effective date following the date of termination, shall become and remain exercisable for a period of 12 months following the date of termination.
The Goodwin Agreement contains customary non-competition, non-solicitation, and confidentiality provisions in favor of the Company.
Tara Semb Employment contracts,Agreement
On September 16, 2020, the Company entered into an Amended and Restated Employment Agreement, effective as of September 16, 2020, with Tara Harris Semb, the Company’s Chief Financial Officer, Secretary and Treasurer (the “Semb Agreement”). The Semb Agreement amends and restates Ms. Semb’s original employment agreement, dated as of January 2, 2019, in its entirety. The term of Ms. Semb’s employment under the Semb Agreement commenced as of the effective date thereof and shall continue until terminated in accordance with the terms of the Semb Agreement. Under the Semb Agreement, Ms. Semb will receive an initial annual base salary of $328,000, which shall be reviewed from time to time and may be increased, but not decreased, by the Committee in its sole and exclusive discretion. Ms. Semb shall be entitled to participate in any bonus or incentive plan available to the Company’s executives generally, on such terms as the Committee may determine in its discretion.
In the event Ms. Semb’s employment is terminated as a result of death or disability, Ms. Semb or her estate shall be entitled to receive (i) any unpaid base salary earned and accrued prior to the date of termination, (ii) reimbursement for expenses incurred prior to the date of termination, (iii) a pro rata bonus for the year of termination, and, (iv) if Ms. Semb is eligible for and elects continuation benefits under COBRA, the Company will pay the employer portion of the COBRA coverage premium for the shorter of (x) the 12-month period following the date of termination, or (y) the time at which Ms. Semb becomes eligible for medical and dental benefits through another employer. In addition, Ms. Semb’s outstanding option grants shall continue to be treated in accordance with the terms of the applicable plan and award agreement, provided that the portion of Ms. Semb’s options (i) that were exercisable as of the effective date of the Semb Agreement and (ii) that would have become exercisable on the next anniversary of the effective date following the date of termination shall become and remain exercisable for a period of 12 months following the date of termination.
In the event Ms. Semb’s employment is terminated for by the Company for cause or by Ms. Semb without good reason, Ms. Semb shall be entitled to receive any unpaid base salary earned and accrued prior to the date of termination, and reimbursement for expenses incurred prior to the date of termination. In addition, in the event Ms. Semb’s employment is terminated by Ms. Semb without good reason, Ms. Semb’s stock option grants shall continue to be treated in accordance with the terms of the applicable plan and award agreement, provided that the portion of Ms. Semb’s options which were exercisable as of the date of termination shall remain exercisable for a period of 3 months following the date of termination.
In the event Ms. Semb’s employment is terminated by Ms. Semb for good reason, by the Company without cause, or in connection with a change of control (as defined in the Semb Agreement), Ms. Semb shall be entitled to receive (i) any unpaid base salary and other thanbenefits earned and accrued prior to the date of termination, (ii) reimbursement for Messrs. Goodwinexpenses incurred prior to the date of termination, (iii) a pro rata bonus for the year of termination, (iv) continued payment of her base salary for the twelve (12) month period following the date of termination, and Ewers, contain(v) if Ms. Semb is eligible for and elects continuation benefits under COBRA, the Company will pay the employer portion of the COBRA coverage premium for the shorter of (x) the 12-month period following the date of termination, or (y) the time at which Ms. Semb becomes eligible for medical and dental benefits through another employer. In addition, Ms. Semb’s outstanding option grants shall continue to be treated in accordance with the terms of the applicable plan and award agreement, provided that the portion of Ms. Semb’s options that (i) were exercisable as of the date of termination and (ii) would have become exercisable on the next anniversary of the effective date following the date of termination, shall become and remain exercisable for a period of 12 months following the date of termination.
The Semb Agreement contains customary non-competition, non-solicitation, and confidentiality provisions in favor of the Company.
Todd Hornsby Employment Agreement
On September 17, 2020, the Company entered into an Amended and Restated Employment Agreement, effective as of September 17, 2020, with Todd Hornsby, the Company’s Executive Vice President (the “Hornsby Agreement”). The Hornsby Agreement amends and restates Mr. Hornsby’s original employment agreement, dated as of January 1, 2018, in its entirety. The term of Mr. Hornsby’s employment under the Hornsby Agreement commenced as of the effective date thereof and shall continue until terminated in accordance with the terms of the Hornsby Agreement. Under the Hornsby Agreement, Mr. Hornsby will receive an initial annual base salary of $347,000, which shall be reviewed from time to time and may be increased, but not decreased, by the Committee in its sole and exclusive discretion. Mr. Hornsby shall be entitled to participate in (i) any bonus or incentive plan available to the Company’s executives generally, on such terms as the Committee may determine in its discretion, and (ii) the equity-based incentive plans of the Company, pursuant to which he may receive awards thereunder, as determined by the Company’s Board of Directors in its sole discretion from time to time and subject to the terms and conditions of such plans and any applicable award agreement.
In the event Mr. Hornsby’s employment is terminated as a result of death or disability, Mr. Hornsby or his estate shall be entitled to receive (i) any unpaid base salary earned and accrued prior to the date of termination, (ii) reimbursement for expenses incurred prior to the date of termination, (iii) a pro rata bonus for the year of termination, and, (iv) if Mr. Hornsby is eligible for and elects continuation benefits under COBRA, the Company will pay the employer portion of the COBRA coverage premium for the shorter of (x) the 12-month period following the date of termination, or (y) the time at which Mr. Hornsby becomes eligible for medical and dental benefits through another employer. In addition, Mr. Hornsby’s outstanding option grants shall continue to be treated in accordance with the terms of the applicable plan and award agreement, provided that the portion of Mr. Hornsby’s options (i) that were exercisable as of the effective date of the Hornsby Agreement and (ii) that would have become exercisable on the next anniversary of the effective date following the date of termination shall become and remain exercisable for a period of 12 months following the date of termination.
In the event Mr. Hornsby’s employment is terminated by the Company for cause or by Mr. Hornsby without good reason, Mr. Hornsby shall be entitled to receive any unpaid base salary earned and accrued prior to the date of termination, and reimbursement for expenses incurred prior to the date of termination. In addition, in the event Mr. Hornsby’s employment is terminated by Mr. Hornsby without good reason, Mr. Hornsby’s stock option grants shall continue to be treated in accordance with the terms of the applicable plan and award agreement, provided that the portion of Mr. Hornsby’s options which were exercisable as of the date of termination shall remain exercisable for a period of 3 months following the date of termination.
In the event Mr. Hornsby’s employment is terminated by Mr. Hornsby for good reason, by the Company without cause, or in connection with a change of control (as defined in the Hornsby Agreement), Mr. Hornsby shall be entitled to receive (i) any unpaid base salary and other benefits earned and accrued prior to the date of termination, (ii) reimbursement for expenses incurred prior to the date of termination, (iii) a pro rata bonus for the year of termination, (iv) continued payment of his base salary for the twelve (12) month period following the date of termination, and (v) if Mr. Hornsby is eligible for and elects continuation benefits under COBRA, the Company will pay the employer portion of the COBRA coverage premium for the shorter of (x) the 12-month period following the date of termination, or (y) the time at which Mr. Hornsby becomes eligible for medical and dental benefits through another employer. In addition, Mr. Hornsby’s outstanding option grants shall continue to be treated in accordance with the terms of the applicable plan and award agreement, provided that the portion of Mr. Hornsby’s options that (i) were exercisable as of the date of termination and (ii) would have become exercisable on the next anniversary of the effective date following the date of termination, shall become and remain exercisable for a period of 12 months following the date of termination.
The Hornsby Agreement contains customary non-competition, non-solicitation, and confidentiality provisions in favor of the Company.
Moshe Citronowicz Employment Agreement
Mr. Citronowicz employment agreement contains an automatic extension for a period of one year after the initial term unless we provide the executivesMr. Citronowicz with appropriate 60 days written notice pursuant to the contracts. Thehis contract. Mr. Citronowicz’s employment agreements provide,agreement provides, among other things, that the executiveMr. Citronowicz may be terminated as follows:
| |
(a) | Upon the death of the executive, in which case the executive’s estate shall be paid the basic annual compensation due the employee pro-rated through the date of death. |
| |
(b) | By the resignation of the executive at any time upon at least thirty (30) days prior written notice to Bovie in which case Bovie shall be obligated to pay the employee the basic annual compensation due him pro-rated to the effective date of termination. |
| |
(c) | By Bovie, “for cause” if during the term of the employment agreement the employee violates the non-competition provisions of his employment agreement, or is found guilty in a court of law of any crime of moral turpitude in which case the contract would be terminated and provisions for future compensation forfeited. |
| |
(d) | By Bovie, without cause, with the majority approval of the Board of Directors, for Mr. Goodwin, Mr. Saron, Mr. Ewers and Mr. Citronowicz at any time upon at least thirty (30) days prior written notice to the executive. In this case Bovie shall be obligated to pay the executive compensation in effect at such time, including all bonuses, accrued or prorated and expenses up to the date of termination. Thereafter for Messrs. Saron and Citronowicz, Bovie shall pay the executive three times the salary in effect at the time of termination payable in one lump sum. |
BOVIEAPYX MEDICAL CORPORATION
a.Upon the death of the Mr. Citronowicz, in which case Mr. Citronowicz’sestate shall be paid the basic annual compensation due to Mr. Citronowicz pro-rated through the date of death.
| |
(e) | If Bovie fails to meet its obligations to the executive on a timely basis, or if there is a change in the control of Bovie, the executive may elect to terminate his employment agreement. Upon any such termination or breach of any of its obligations under the employment agreement, Bovie shall pay Mr. Saron and Mr. Citronowicz a lump sum severance equal to three times the annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms of the employment agreement up to the date of termination. Mr. Goodwin and Mr. Ewers shall be paid two times their annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms of their respective employment agreement up to the date of termination. |
b.By the resignation of Mr. Citronowicz at any time upon at least thirty (30) days prior written notice to Apyx in which case Apyx shall be obligated to pay Mr. Citronowicz the basic annual compensation due him pro-rated to the effective date of termination.
c.By Apyx, “for cause” if during the term of the employment agreement Mr. Citronowicz violates the non-competition provisions of his employment agreement, or is found guilty in a court of law of any crime of moral turpitude in which case the contract would be terminated and provisions for future compensation forfeited.
d.By Apyx, without cause, with the majority approval of the Board of Directors, for Mr. Citronowicz at any time upon at least thirty (30) days prior written notice to Mr. Citronowicz. In this case Apyx shall be obligated to pay Mr. Citronowicz compensation in effect at such time, including all bonuses, accrued or prorated and expenses up to the date of termination. Thereafter, Apyx shall pay Mr. Citronowicz three times the salary in effect at the time of termination payable in one lump sum.
e.If Apyx fails to meet its obligations to Mr. Citronowicz on a timely basis, or if there is a change in the control of Apyx, the executive may elect to terminate Mr. Citronowicz’s employment agreement. Upon any such termination or breach of any of its obligations under the employment agreement, Apyx shall pay Mr. Citronowicz a lump sum severance equal to three times the annual salary and bonus in effect the month preceding such termination or breach as well as any other sums which may be due under the terms of the employment agreement up to the date of termination.
There are no other employment contracts that have non-cancelable terms in excess of one year.
Outstanding Equity Awards
The following table presents information with respect to each unexercised stock option held by our Executive Officers as of December 31, 2017:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | # of Securities
Underlying
Unexercised
Options
(# Exercisable) | | # of Securities Underlying Unexercised Options
(# Unexercisable) | | Weighted Average Option
Exercise Price
($/Sh) | | Option Expiration
Range After Grant Date |
| Charles D. Goodwin | | 1,438,500 | | | 405,000 | | | $ | 5.77 | | | 12/15/2027 | - | 1/19/2032 |
| | | | | | | | | | |
| | | | | | | | | | |
| Moshe Citronowicz | | 239,000 | | | 120,000 | | | $ | 7.17 | | | 3/16/2026 | - | 1/19/2032 |
| Todd Hornsby | | 339,334 | | | 166,666 | | | $ | 6.95 | | | 8/27/2024 | - | 1/19/2032 |
| Tara Semb | | 145,000 | | | 160,000 | | | $ | 9.17 | | | 1/9/2029 | - | 1/19/2032 |
|
| | | | | | | | | | | | | | |
| Name | | # of Securities Underlying Unexercised Options (# Exercisable) | | # of Securities Underlying Unexercised Options (# Unexercisable) | | Weighted Average Option Exercise Price ($/Sh) | | Option Expiration Range After Grant Date |
| Charles D. Goodwin | | — |
| | 1,000,000 |
| | $ | 2.99 |
| | 12/15/2027 |
| Jay D. Ewers | | 58,750 |
| | 141,250 |
| | $ | 2.85 |
| | 6/30/2024 | - | 1/4/2028 |
| J. Robert Saron | | 39,250 |
| | 97,750 |
| | $ | 2.69 |
| | 7/12/2022 | - | 5/1/2027 |
| Moshe Citronowicz | | 39,250 |
| | 97,750 |
| | $ | 2.69 |
| | 7/12/2022 | - | 5/1/2027 |
Compensation of Non-Employee Directors
The following is a table showing the director compensation for the year ended December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name (a) | | Fees Earned Or Paid In Cash
($)
(b) | | Stock Awards ($)
(c) | | Option Awards
***
($)
(d)(1) | | Non-Equity Incentive Plan Compensation
($)
(e) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings
($)
(I) | | All Other Compensation
($)
(g) | | Total
($)
(h) |
| Andrew Makrides | | $ | 50,000 |
| | $ | — |
| | $ | 20,772 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 70,772 |
|
| Lawrence J. Waldman | | $ | 70,000 |
| | $ | — |
| | $ | 20,772 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 90,772 |
|
| Michael Geraghty | | $ | 40,000 |
| | $ | — |
| | $ | 20,772 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 60,772 |
|
| John Andres | | $ | 66,500 |
| | $ | — |
| | $ | 20,772 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 87,272 |
|
*** These columns represent the grant date fair value of the awards as calculated in accordance with FASB ASC 718 (Stock Compensation).
| |
(1) | On September 14, 2017, 12,000 one year stock options with an exercise price of $2.85 and calculated option fair value of $1.731 were granted to each member of the Board.
|
In 2017, our Board of Directors consisted of Charles D. Goodwin, J. Robert Saron, Andrew Makrides, John Andres, Lawrence J. Waldman and Michael Geraghty. Mr. Gershon resigned from all of his positions with the Company effective December 15, 2017.
In 2003, the Board of Directors adopted, and our stockholders approved Bovie’sApyx's 2003 Executive and Employee Stock Option Plan covering a total of 1,200,000 shares of common stock issuable upon exercise of options to be granted under the Plan.
On October 30, 2007, our stockholders approved, and the Board of Directors adopted an amendment to the 2003 Executive and Employee Stock Option Plan to increase the maximum aggregate number of shares of common stock reserved for issuance under the 2003
BOVIE MEDICAL CORPORATION
Plan from 1.2 million shares (already reserved against outstanding options) to 1.7 million shares, or an increase of 500,000 shares of common stock for future issuance pursuant to the terms of the plan. Except for the increase in the number of shares covered by the plan, the plan remains otherwise unchanged from its present status. In 2011, the Board of Directors granted 25,000 options to purchase a like number of shares of common stock.
In July of 2012, the Company’s stockholders approved the 2012 Executive and Employee Stock OptionShare Incentive Plan covering a total of 750,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 20172022 approximately 37,000 remain170,000 are available to be issued in this plan.
In July of 2015, the Company’s stockholders approved the 2015 Executive and Employee Stock Option Plan covering a total of 2,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 20172022 approximately 343,578 remain40,000 are available to be issued in this plan.
In August of 2017, the Company’s stockholders approved the 2017 Executive and Employee Stock Option Plan covering a total of 3,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 20172022 approximately 1,900,000 remain30,000 are available to be issued in this plan.
In August 2019, the Company’s stockholders approved the 2019 Share Incentive Plan covering a total of 2,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2022 approximately 200,000 are available to be issued in this plan.
In August 2021, the Company’s stockholders approved the 2021 Share Incentive Plan covering a total of 1,375,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2022, all 1,375,000 are available to be issued in this plan.
There have been no changes in the pricing of any options previously or currently awarded.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors is responsible for determining the compensation of executive officers of the Company, as well as compensation awarded pursuant to the Company’s equity incentive plans.
In 2017,2022, our Compensation Committee consisted of threefour independent members of the Board of Directors, Michael Geraghty (Chairman)(Chairperson), John Andres, and Lawrence J. Waldman.Waldman and Wendy Levine.
No member of the Compensation Committee is or has been an officer or employee of the Company or any of its subsidiaries. In addition, no member of the Compensation Committee had any relationships with the Company or any other entity that require disclosure under the proxy rules and regulations promulgated by the SEC.
COMPENSATION COMMITTEE REPORT
Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Annual Report on Form 10-K with management. Based on our Compensation Committee’s review of and the discussions with management with respect to the Compensation Discussion and Analysis, our Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Proxy Statement and in this Annual Report on Form 10-K for the fiscal year ended December 31, 20172022 for filing with the SEC. During the majority of 2017,2022, our Compensation Committee consisted of three independent members of the Board of Directors, Michael Geraghty, who served as Chairman,Chairperson, John Andres, and Lawrence J. Waldman.Waldman and Wendy Levine.
BOVIEAPYX MEDICAL CORPORATION
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
See “ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters”.
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information as of March 5, 201815, 2023, with respect to the beneficial ownership of the Company’s common stock by its executive officers, directors, all persons known by the Company to be the beneficial owners of more than 5% of its outstanding shares and by all officers and directors as a group.
| | | | | Number of Shares | | | | Number of Shares | | |
| Name and Address | | Title | | Owned (i) | | Nature of Ownership | | Percentage of Ownership (i) | Name and Address | | Title | | Owned (i) | | Nature of Ownership | | Percentage of Ownership (i) | |
| William Weeks Vanderfelt | | Common | | 2,417,899 |
| | Beneficial | | 7.3 | % | |
| Coralis 44, Azzuri Village 44 | | | | | |
| Roches Noires, 31201 Mauritius | | | | | |
| | | | | | |
| Archon Capital Management, LLC | | Common | | 2,158,538 |
| | Beneficial | | 6.5 | % | Archon Capital Management, LLC | | Common | | 3,452,030 | | | Beneficial | | 9.9 | % | |
| 1100 19th Avenue E | | | | | 1100 19th Avenue E | | |
| Seattle, WA 98122 | | | | | Seattle, WA 98122 | | |
| | | | | | | |
| RTW Investments | | Common | | 1,752,611 |
| | Beneficial | | 5.3 | % | RTW Investments | | Common | | 3,398,279 | | | Beneficial | | 9.8 | % | |
| 250 West 55th St. 16th Floor | | | | | 250 West 55th St. 16th Floor | | |
| New York, NY 10019 | | | | | New York, NY 10019 | | |
| | | | | | | |
| Andrew Makrides | | Common | | 641,972 |
| (ii) | | Beneficial | | 1.9 | % | |
| 5115 Ulmerton Rd. | | | | | |
| Clearwater, FL 33760 | | | | | |
| William Weeks Vanderfelt | | William Weeks Vanderfelt | | Common | | 3,158,414 | | | Beneficial | | 9.1 | % | |
| Coralis 44, Azzuri Village 44 | | Coralis 44, Azzuri Village 44 | | |
| Roches Noires, 31201 Mauritius | | Roches Noires, 31201 Mauritius | | |
| | PURA VIDA INVESTMENTS, LLC | | PURA VIDA INVESTMENTS, LLC | | Common | | 2,287,560 | | | Beneficial | | 6.6 | % | |
| 512 West 22nd Street, 7th Floor | | 512 West 22nd Street, 7th Floor | | |
| New York, NY 10011 | | New York, NY 10011 | | |
| | Cowen Financial Products, LLC | | Cowen Financial Products, LLC | | Common | | 1,775,793 | | | Beneficial | | 5.1 | % | |
| 599 Lexington Ave. | | 599 Lexington Ave. | | |
| New York, NY 10022 | | New York, NY 10022 | | |
| | | | | | | |
| Charles D. Goodwin II | | Common | | — |
| (iii) | | Beneficial | | — | % | Charles D. Goodwin II | | Common | | 1,669,250 | | (ii) | | Beneficial | | 4.6 | % | |
| 5115 Ulmerton Rd. | | | | | 5115 Ulmerton Rd. | | |
| Clearwater, FL 33760 | | | | | Clearwater, FL 33760 | | |
| | | | | | |
| J. Robert Saron | | Common | | 445,190 |
| (iv) | | Beneficial | | 1.3 | % | |
| 5115 Ulmerton Rd. | | | | | |
| Clearwater, FL 33760 | | | | | |
| | | | | | |
| Moshe Citronowicz | | Common | | 465,754 |
| (v) | | Beneficial | | 1.4 | % | |
| 5115 Ulmerton Rd. | | | | | |
| Clearwater, FL 33760 | | | | | |
| | | | | | |
| John Andres | | Common | | 34,500 |
| (vi) | | Beneficial | | 0.1 | % | |
| 5115 Ulmerton Rd. | | | | | |
| Clearwater, FL 33760 | | | | | |
| | | | | | |
BOVIEAPYX MEDICAL CORPORATION
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Moshe Citronowicz | | Common | | 755,504 | | (iii) | | Beneficial | | 2.2 | % | |
| 5115 Ulmerton Rd. | | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | | |
| | | | | | | | | | |
| Andrew Makrides | | Common | | 712,244 | | (iv) | | Beneficial | | 2.1 | % | |
| 5115 Ulmerton Rd. | | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | | |
| | | | | | | | | | |
| Todd Hornsby | | Common | | 422,668 | | (v) | | Beneficial | | 1.2 | % | |
| 5115 Ulmerton Rd. | | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | | |
| | | | | | | | | | |
| Tara Semb | | Common | | 225,000 | | (vi) | | Beneficial | | 0.6 | % | |
| 5115 Ulmerton Rd. | | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | | |
| | | | | | | | | | |
| Lawrence Waldman | | Common | | 210,918 | | (vii) | | Beneficial | | 0.6 | % | |
| 5115 Ulmerton Rd. | | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | | |
| | | | | | | | | | |
| Michael E. Geraghty | | Common | | 161,855 | | (viii) | | Beneficial | | 0.5 | % | |
| 5115 Ulmerton Rd. | | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | | |
| | | | | | | | | | |
| John Andres | | Common | | 134,355 | | (ix) | | Beneficial | | 0.4 | % | |
| 5115 Ulmerton Rd. | | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | | |
| | | | | | | | | | |
| Craig Swandal | | Common | | 99,855 | | (x) | | Beneficial | | 0.3 | % | |
| 5115 Ulmerton Rd. | | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | | |
| | | | | | | | | | |
| Minnie Baylor-Henry | | Common | | 78,978 | | (xi) | | Beneficial | | 0.2 | % | |
| 5115 Ulmerton Rd. | | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | | |
| | | | | | | | | | |
| Wendy Levine | | Common | | 29,855 | | (xii) | | Beneficial | | 0.1 | % | |
| 5115 Ulmerton Rd. | | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | | |
| | | | | | | | | | |
| Officers and Directors as a group (10 persons) | | | | 4,500,482 | | | | | | 13.0 | % | |
(i) Based on 34,597,822 outstanding shares of Common Stock as of March 15, 2023, of which officers and directors owned a total of 1,241,379 shares at March 15, 2023. We have calculated the percentage ownership in the table above on the basis of the number of outstanding securities plus, for each person or group, any securities that person or group has current or future right to acquire pursuant to options, warrants, conversion privileges or other rights based on the 13G and 13D SEC filings at March 15, 2023 (and exercisable within 60 days thereafter).
(ii) Includes 28,250 shares and 1,641,000 vested options (and exercisable within 60 days thereafter).
(iii) Includes 456,504 shares and 299,000 vested options (and exercisable within 60 days thereafter).
(iv) Includes 624,389 shares and 87,855 vested options (and exercisable within 60 days thereafter).
(v) Includes 0 shares and 422,668 vested options (and exercisable within 60 days thereafter).
|
| | | | | | | | | | | |
| Jay D. Ewers | | Common | | 58,750 |
| (vii) | | Beneficial | | 0.2 | % |
| 5115 Ulmerton Rd. | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | |
| | | | | | | | | | |
| Michael E. Geraghty | | Common | | 62,000 |
| (viii) | | Beneficial | | 0.2 | % |
| 5115 Ulmerton Rd. | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | |
| | | | | | | | | | |
| Lawrence Waldman | | Common | | 113,000 |
| (ix) | | Beneficial | | 0.3 | % |
| 5115 Ulmerton Rd. | | | | | | | | | |
| Clearwater, FL 33760 | | | | | | | | | |
| | | | | | | | | | |
| Officers and Directors as a group (8 persons) | | | | 1,821,166 |
| (x) | | | | 5.5 | % |
| |
(i) | Based on 33,021,170 outstanding shares of Common Stock and 4,890,156 outstanding options to acquire a like number of shares of Common Stock as of March 5, 2018, of which officers and directors owned a total of 376,750 options and 1,444,416 shares at March 5, 2018. We have calculated the percentage on the basis of the amount of outstanding securities plus, for each person or group, any securities that person or group has current or future right to acquire pursuant to options, warrants, conversion privileges or other rights.
|
| |
(ii) | Includes 611,972 shares and 30,000 vested options out of a total of 30,000 ten year options owned by Mr. Makrides to purchase shares of Common Stock of the Company at an exercise price of $2.54. These options vest equally over a four year period. |
| |
(iii) | Includes 0 shares and 0 vested options out of a total of 1,000,000 ten year options owned by Mr. Goodwin to purchase shares of Common Stock of the Company. Exercise price for his options is $2.99. These options vest equally over a two year period.
|
| |
(iv) | Includes 405,940 shares and 39,250 vested options out of a total of 137,000 ten year options owned by Mr. Saron to purchase shares of Common Stock of the Company at an exercise price ranging from $1.80 to $3.23. These options vest equally over a four year period.
|
| |
(v) | Includes 426,504 shares and 39,250 vested options out of a total of 137,000 ten year options owned by Mr. Citronowicz to purchase shares of Common Stock of the Company at an exercise price ranging from $1.80 to $3.23. These options vest equally over a four year period.
|
| |
(vi) | Includes 34,500 vested options out of a total of 46,500 ten year options owned by Mr. Andres to purchase shares of Common Stock of the Company at an exercise price ranging from $1.88 to $3.81
|
| |
(vii) | Includes 58,750 vested options out of a total of 200,000 ten year options owned by Mr. Ewers to purchase shares of Common Stock of the Company at an exercise price ranging from $2.13 to $3.63. These options vest equally over a four year period.
|
| |
(viii) | Includes 62,000 vested options out of a total of 74,000 ten year options owned by Mr. Geraghty to purchase shares of Common Stock of the Company at an exercise price ranging from $1.88 to $3.81
|
| |
(ix) | Includes 113,000 vested options out of a total of 125,000 ten year options owned by Mr. Waldman to purchase shares of Common Stock of the Company at an exercise price ranging from $1.88 to $3.81
|
| |
(x) | Includes 376,750 vested ten year options out of a total of 1,761,500 ten year outstanding options and 1,444,416 shares owned by all Executive Officers and directors as a group. The last date options can be exercised is January 4, 2028.
|
(vii) Includes 37,563 shares and 173,355 vested options (and exercisable within 60 days thereafter).
(viii) Includes 17,500 shares and 144,355 vested options (and exercisable within 60 days thereafter).
(ix) Includes 0 shares and 134,355 vested options (and exercisable within 60 days thereafter).
(x) Includes 77,173 shares and 22,682 vested options (and exercisable within 60 days thereafter).
(xi) Includes 0 shares and 78,978 vested options (and exercisable within 60 days thereafter).
(xii) Includes 0 shares and 29,855 vested options (and exercisable within 60 days thereafter).
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission.Commission. Officers, directors and greater than ten-percent shareholders (the “Reporting Persons”) are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
To the Company’s knowledge, based solely on its review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, the Company believes that during its fiscal year ended December 31, 20172022 all filing requirements applicable to the Reporting Persons were timely met.
met, with the exception of one delinquent filing for Mr. Swandal who inadvertently failed to timely file a Form 4 showing a single transaction.
BOVIEAPYX MEDICAL CORPORATION
ITEM 13. Certain Relationships and Related Transactions and Director Independence
Certain Relationships and Related Transactions
Our policy is that employees, non-employees and third parties must obtain authorization from the appropriate department executive manager, for any business relationship or proposed business transaction in which they or an immediate family member has a direct or indirect interest, or from which they or an immediate family member may derive a personal benefit (a “related party transaction”). The maximum dollar amount of related party transactions that may be approved as described above in this paragraph in any calendar year is $120,000. Any related party transactions that would bring the total value of such transactions to greater than $120,000 must be referred to the Audit Committee to determine the procedure for approval and then have the recommendations presented to the Board of Directors for approval.
Several relatives of Nikolay Shilev, BovieApyx Bulgaria’s Managing Director, are considered related parties. Teodora Shileva, Mr. Shilev’s spouse, is an employee of the companyCompany working in the Accountingaccounting department. Antoaneta Dimitrova Shileva-Toromanova, Mr. Shilev’s sister, is the Managerthe manager of Production and Human Resources.human resources. Svetoslav Shilev, Mr. Shilev’s son, is an Engineera quality manager in the Quality Assurancequality assurance department.
A relative of Moshe Citronowicz, Bovie’s Senior Vice President, 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. The Company has been working with AR Logic since 2011 and as of April 14, 2017, the Company agreed to a renewal contract and terms to continue the consulting arrangement, expiring December 31, 2017. AR Logic was paid consulting fees of approximately $0.2 million, $0.2 million and $0.3 million during 2017, 2016 and 2015, respectively.
Independent Board Members
The Board currently has threeseven independent members, Andrew Makrides, John Andres, Michael Geraghty, and Lawrence J. Waldman, Craig Swandal, Minnie Baylor-Henry and Wendy Levine who meet the existing independence requirements of the NYSE MKTThe NASDAQ Stock Market LLC and the Securities and Exchange Commission.
ITEM 14. Principal Accountant Fees and Services
The following table sets forth the aggregate fees billed to us and expected to be billed to us by RSM US LLP, our current accountants, Frazier & Deeter, LLC:principal accountant for 2022 and 2021:
| | | | | | | | | | | |
| Year Ended December 31, |
| (In thousands) | 2022 | | 2021 |
Audit fees (1) | $ | 525 | | | $ | 531 | |
Audit related fees (2) | 43 | | | — | |
Tax fees (3) | 107 | | | 98 | |
All other fees (4) | — | | | — | |
| Total fees billed | $ | 675 | | | $ | 629 | |
|
(1)Audit fees consist of billed and unbilled fees for professional services rendered for the audit of Apyx's annual financial statements and reviews of its interim consolidated financial statements included in quarterly reports and other services related to statutory and regulatory filings or engagements.
(2)Audit related fees consist of billed and unbilled fees for assurance and related services that are reasonably related to the performance of the audit or reviews of Apyx's consolidated financial statements and are not reported under “Audit Fees”.
(3)Tax fees consist of billed and unbilled fees for professional services rendered for tax compliance and tax advice (domestic and international). These services include assistance regarding federal and international tax compliance and planning associated with transfer pricing and research and development activities.
(4)All other fees consist of fees for products and services other than the services reported above.
|
| | | | | | | |
| | Year Ended December 31, |
| (In thousands) | 2017 | | 2016 |
Audit fees (1) | $ | 194 |
| | $ | 173 |
|
| Non-Audit fees: | | | |
Audit related fees (2) | 4 |
| | 3 |
|
Tax fees (3) | — |
| | — |
|
All other fees (4) | — |
| | — |
|
| Total fees billed | $ | 198 |
| | $ | 176 |
|
| |
(1) | Audit fees consist of fees billed for professional services rendered for the audit of Bovie’s annual financial statements and reviews of its interim consolidated financial statements included in quarterly reports and other services related to statutory and regulatory filings or engagements. |
| |
(2) | Audit related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or reviews of Bovie’s consolidated financial statements and are not reported under “Audit Fees”. |
| |
(3) | Tax fees consist of fees billed for professional services rendered for tax compliance and tax advice (domestic and international). These services include assistance regarding federal, state and international tax compliance, acquisitions and international tax planning. |
| |
(4) | All other fees consist of fees for products and services other than the services reported above. |
BOVIEAPYX MEDICAL CORPORATION
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
| | | | | | | | | | | | | | |
| (a)(1) | LISTING OF FINANCIAL STATEMENTS | Page |
| | | | |
(a)(1) | LISTING OF FINANCIAL STATEMENTS | Page |
| | | | |
| The following consolidated financial statements of the Company are included in Item 8 of this Report: | |
| | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (a)(2) | FINANCIAL STATEMENT SCHEDULES | |
| | All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Report. | |
(a)(3) EXHIBITS
|
| | | | | | | |
1.13.1 | | |
1.2 | | |
3.1 | | |
| 3.2 | | |
| 3.3 | | |
| 3.4 | | |
3.4 | | |
10.13.5 | | |
10.24.1 | | |
| 10.1** | | |
10.310.2** | | |
10.410.3** | | |
10.5 | | |
10.610.4 | | |
10.7 | | |
10.810.5 | | |
10.910.6 | | |
10.1010.7 | | |
BOVIE MEDICAL CORPORATION
| 14.1 | | Code of Ethics (Incorporated by the reference to the Registrant’s Annual Report on Form 10-K filed on March 31, 2020) |
| | |
10.1121.1* | | |
10.12 | | |
10.13 | | |
10.14 | | |
10.15 | | |
10.16* | | |
10.17* | | |
14.1 | | |
21.1* | | |
| 23.1* | | |
31.1* | | |
| 31.1* | | |
| 31.2* | | |
| 32.1* | | |
| 32.2* | | |
| 101.INS*** | | XBRL Instance Document |
| 101.SCH*** | | XBRL Taxonomy Extension Schema Document |
| 101.CAL*** | | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF*** | | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB*** | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE*** | | XBRL Taxonomy Extension Label Presentation Document |
* Filed herewith.
** Management contract or compensatory arrangement.
*** 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.
BOVIEAPYX MEDICAL CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Clearwater, Florida on March 13, 2018.
| | | | | | | | | | | |
| Apyx Medical Corporation | |
| | | |
| Bovie Medical CorporationBy: | |
| | | |
| By: | /s/ Charles D. Goodwin II | |
| | Charles D. Goodwin II
| |
| | President, Chief Executive Officer and Director | |
| | (Principal Executive Officer) | |
| | | |
| By: | /s/ Jay D. EwersTara Semb | |
| | Jay D. EwersTara Semb | |
| | Chief Financial Officer, | |
| | Treasurer and Secretary | |
| | (Principal Financial Officer) | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Name | | Title | | Date |
| | | | |
| Directors: | | | | |
| | | | |
Name | | Title | | Date |
| | | | |
Directors: | | | | |
| | | | |
| /s/ ANDREW MAKRIDES | | Chairman of the Board | | March 13, 201816, 2023 |
| Andrew Makrides | | | | |
| | | | |
| /s/ CHARLES D. GOODWIN II | | Chief Executive Officer and Director | | March 13, 201816, 2023 |
| Charles D. Goodwin II | | | | |
| | | | |
/s/ JAY D. EWERSTARA SEMB | | Chief Financial Officer, Treasurer and Secretary | | March 13, 201816, 2023 |
Jay D. EwersTara Semb | | | | |
| | | | |
/s/ J. ROBERT SARON | | President, Chief Sales and Marketing Officer and Director | | March 13, 2018 |
J. Robert Saron | | | | |
| | | | |
| /s/ JOHN ANDRES | | Vice Chairman of the Board | | March 13, 201816, 2023 |
| John Andres | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| /s/ LAWRENCE J. WALDMAN | | Director | | March 13, 201816, 2023 |
| Lawrence J. Waldman | | | | |
| | | | |
| /s/ MICHAEL GERAGHTY | | Director | | March 13, 201816, 2023 |
| Michael Geraghty | | | | |
| | | | |
| /s/ CRAIG SWANDAL | | Director | | March 16, 2023 |
| Craig Swandal | | | | |
| | | | |
| /s/ MINNIE BAYLOR-HENRY | | Director | | March 16, 2023 |
| Minnie Baylor-Henry | | | | |
| | | | |
| /s/ WENDY LEVINE | | Director | | March 16, 2023 |
| Wendy Levine | | | | |
