UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q~~10-Q/A

Amendment No. 1

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2019

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

~~BOVIE~~APYX MEDICAL CORPORATION

(Exact name of registrant as specified in its charter)



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

~~4 Manhattanville~~5115 Ulmerton Road, ~~Suite 106, Purchase, NY 10577~~Clearwater, FL 33760

(Address of principal executive offices, zip code)

~~(914) 468-4009~~(727) 384-2323

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes: ý No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes: ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act (Check one):



Large accelerated filer	o		Accelerated filer	o ý
Non-accelerated filer	o	~~(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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o No ý

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	APYX	NASDAQ Stock Market LLC

As of ~~October 30, 2017, 32,860,785~~May 3rd, 2019, 34,041,830 shares of the registrant’s $0.001 par value common stock were outstanding.

Explanatory Note

As disclosed in Item 4.02 of Form 8-K filed with the U.S Securities and Exchange Commission ("SEC") on March 16, 2020, on March 12, 2020 the Audit Committee of the Board of Directors of Apyx Medical Corporation (formerly known as Bovie Medical Corporation) (the “Company”) concluded, after review and discussion with management, that the Company’s financial statements as of and for the three months ended March 31, 2019 ( the “Financial Statements”) should no longer be relied upon.

Amendment No. 1 on Form 10-Q/A (this “Form 10-Q/A") amends and restates certain items noted below in the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2019, as originally filed with the Securities and Exchange Commission on May 8, 2019 (the “Original Filing”). This Form 10-Q/A amends the Original Filing to reflect the correction of an error in the previously reported financial statements related to the Company’s failure to properly collect and remit employee income and payroll taxes, and remit the employer portion of payroll taxes, resulting from the exercise of non-qualified stock options. In addition, the Company has also corrected other minor items primarily related to the appropriate cutoff of transactions at the balance sheet date and the duplicate recording of a State income tax payment, and has corrected its cost of sales and other operating expenses as a result of reevaluating its subsidiary consolidation process and discovering an inaccuracy in its accounting for the elimination of markup on intercompany sales.

As previously disclosed and adjusted in Form 10-Q for the three and nine months ended September 2019 filed on November 11, 2019, the Company reevaluated its accounting for stock-based compensation expense and during the three months ended September 30, 2019, the Company discovered errors in its accounting for certain items included in stock-based compensation expense. These errors related to its accounting for forfeitures, the vesting periods over which the expense was recognized, modifications, fair value measurements, and other minor miscellaneous items, all of which relate to the prior year. Additionally, the Company identified an issue relating to grants in the first quarter of 2019, whereby compensation was not recognized over the correct vesting period.

The Company also re-evaluated its accounting for pre-development activities on certain OEM contracts determined that it had not completed its performance obligations on its pre-development activities in these contracts. Accordingly, the Company determined that it had prematurely recognized revenues during the first quarter of 2019 relating to these activities and did not defer the accompanying costs.

See Note 2 to the Condensed Consolidated Financial Statements included in Item 1 for additional information and a reconciliation of the previously reported amounts to the restated amounts.

For the convenience of the reader, this form 10-Q/A sets forth the Original Filing, as amended, in its entirety; however, this Form 10-Q/A amends and restates only the following financial statements and disclosures that were impacted from the correction of the errors:

Part I, Item 1 - Financial Statements

Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part II, Item 6 - Exhibits

Signatures

The Company’s Chief Executive Officer and Chief Financial Officer have provided new certifications dated as of the date of this filing in connection with this Form 10-Q/A(Exhibits 31.1, 31.2, 32.1 and 32.2),and the Company has provided its revised audited consolidated financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibit 101.

Except as described above, no other changes have been made to the Original Filing. This Form 10-Q/A speaks as of the date of the Original Filing and does not reflect events that may have occurred after the date of the Original Filing, or modify or update any disclosures that may have been affected by subsequent events.

The Company is also concurrently filing an amended Quarterly Report for the three and nine months ended September 31, 2018 to restate their previously issued interim financial statements due to several of the same accounting errors described above.

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~~BOVIE~~APYX MEDICAL CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended ~~September 30, 2017~~March 31, 2019

(Unaudited)



		Page
Part I.	Financial Information	2

Item 1.	Financial Statements	2
	Consolidated Balance Sheets at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018	2
	Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018	3
	Consolidated ~~Statement~~Statements of Changes in Stockholders’ Equity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018	4
	Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~ 2018	5
	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1618
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2625
Item 4.	Controls and Procedures	2625

Part II.	Other Information	2726

Item 1.	Legal Proceedings	2726
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	2827
	Signatures	29

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~~BOVIE~~APYX MEDICAL CORPORATION

PART I. Financial Information

ITEM 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data, Unaudited)

September 30,
2017 December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents $ 9,411
$ 14,456
Restricted cash 779
779
Trade accounts receivable, net of allowance of $154 and $118 4,077
4,733
Inventories, net 7,335
6,158
Prepaid expenses and other current assets 634
413
Total current assets 22,236
26,539
Property and equipment, net 6,376
6,449
Brand name and trademark 1,510
1,510
Purchased technology and license rights, net 189
215
Goodwill 185
185
Deposits 84
109
Other assets 119
103
Total assets $ 30,699
$ 35,110

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,387
$ 1,606
Accrued payroll 193
419
Accrued vacation 330
404
Current portion of mortgage note payable 239
239
Accrued and other liabilities 2,657
2,604
Total current liabilities 4,806
5,272
Mortgage note payable, net of current portion 2,515
2,694
Note payable 140
140
Deferred rents 11
14
Deferred tax liability 564
564
Derivative liabilities 146
203
Total liabilities 8,182
8,887
STOCKHOLDERS' EQUITY
Series B convertible preferred stock, $0.001 par value; 3,588,139 authorized and zero issued and outstanding as of September 30, 2017 and 3,588,139 authorized and 975,639 issued and outstanding as of December 31, 2016, respectively —
1
Common stock, $0.001 par value; 75,000,000 shares authorized; 32,975,174 issued and 32,832,095 outstanding as of September 30, 2017 and 40,000,000 shares authorized; 31,002,832 issued and 30,859,753 outstanding as of December 31, 2016, respectively 33
31
Additional paid-in capital 50,156
49,625
Accumulated deficit (27,672 ) (23,434 )
Total stockholders' equity 22,517
26,223
Total liabilities and stockholders' equity $ 30,699
$ 35,110



	March 31, 2019 as Restated		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	32,415	$	16,596
Short term investments	40,885		61,678
Trade accounts receivable, net of allowance of $196 and $428	4,969		5,080
Inventories, net of provision for obsolescence of $398 and $439	5,598		5,297
Prepaid expenses and other current assets	1,449		1,184
Total current assets	85,316		89,835
Property and equipment, net	6,031		5,788
Intangibles	190		191
Deposits	80		73
Other assets	239		41
Total assets	$	91,856	$	95,928

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,504	$	1,423
Accrued and other liabilities	5,587		5,865
Joint and several payroll tax liability	1,014		713
Accrued severance and related	511		610
Total current liabilities	8,616		8,611
Note payable	140		140
Long term lease liability	75		—
Other long-term liabilities	194		—
Total liabilities	9,025		8,751
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value; 75,000,000 shares authorized; 34,033,255 issued and 33,891,255 outstanding as of March 31, 2019 and 33,847,100 issued and 33,704,525 outstanding as of December 31, 2018	34		34
Additional paid-in capital	54,182		52,920
Retained earnings	28,615		34,223
Total stockholders’ equity	82,831		87,177
Total liabilities and stockholders’ equity	$	91,856	$	95,928

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

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~~BOVIE~~APYX MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2019 as Restated			2018
Sales	$	9,347		$	10,063		$	27,535		$	27,133		$	5,629		$	3,397
Cost of sales	4,753			5,002			13,673			14,049			2,066			1,185
Gross profit	4,594			5,061			13,862			13,084			3,563			2,212
Other costs and expenses:
Research and development	610			681			2,015			1,941			730			514
Professional services	421			292			1,291			1,045			2,118			506
Salaries and related costs	2,080			2,192			6,783			6,492			3,488			1,802
Selling, general and administrative	2,617			2,141			7,950			6,354			2,957			2,110
Total other costs and expenses	5,728			5,306			18,039			15,832			9,293			4,932
Loss from operations	(1,134		)	(245		)	(4,177		)	(2,748		)	(5,730		)	(2,720		)
Interest expense, net	(36		)	(37		)	(103		)	(125		)
Change in fair value of derivative liabilities	(69		)	(683		)	57			(555		)
Total other loss, net	(105		)	(720		)	(46		)	(680		)
Interest income													423			—
Interest expense													—			(34		)
Other losses													(295		)	—
Change in value of derivative liabilities													—			(26		)
Total other income (expense), net													128			(60		)
Loss before income taxes	(1,239		)	(965		)	(4,223		)	(3,428		)	(5,602		)	(2,780		)
Income tax expense	6			—			15			—			6			11
Loss from continuing operations													(5,608		)	(2,791		)
Income from discontinued operations, net of tax													—			1,856
Net loss	$	(1,245	)	$	(965	)	$	(4,238	)	$	(3,428	)	$	(5,608	)	$	(935	)

Loss per share
EPS from continuing operations:
Basic	$	(0.04	)	$	(0.04	)	$	(0.14	)	$	(0.13	)	$	(0.17	)	$	(0.08	)
Diluted	$	(0.04	)	$	(0.04	)	$	(0.14	)	$	(0.13	)	$	(0.17	)	$	(0.08	)

Weighted average number of shares outstanding - basic	31,078			27,075			30,932			27,059
Weighted average number of shares outstanding - dilutive	31,078			27,075			30,932			27,059
EPS from discontinued operations:
Basic													$	—		$	0.05
Diluted													$	—		$	0.05

EPS from total operations:
Basic													$	(0.17	)	$	(0.03	)
Diluted													$	(0.17	)	$	(0.03	)

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

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~~BOVIE~~APYX MEDICAL CORPORATION

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, Unaudited)

Preferred Stock Common Stock
Shares Par Value Shares Par Value Additional Paid-In Capital Accumulated Deficit Total
Balance
December 31, 2015 1,976
$ 2
27,051
$ 27
$ 42,859
$ (19,484 ) $ 23,404
Options exercised —
—
31
—
119
—
119
Warrants exercised —
—
133
—
316
—
316
Stock based compensation —
—
—
—
533
—
533
Stock swap to acquire options and warrants —
—
(73 ) —
(315 ) —
(315 )
Net loss —
—
—
—
—
(3,428 ) (3,428 )
Balance
September 30, 2016 1,976
$ 2
27,142
$ 27
$ 43,512
$ (22,912 ) $ 20,629

Balance
December 31, 2016 976
$ 1
30,860
$ 31
$ 49,625
$ (23,434 ) $ 26,223
Options exercised —
—
21
—
275
—
275
Conversion of Series B convertible preferred to common stock (976 ) (1 ) 1,951
2
(1 ) —
—
Stock based compensation —
—
—
—
532
—
532
Stock swap to acquire options and warrants —
—
—
—
(275 ) —
(275 )
Net loss —
—
—
—
—
(4,238 ) (4,238 )
Balance
September 30, 2017 —
$ —
32,832
$ 33
$ 50,156
$ (27,672 ) $ 22,517



	Common Stock
	Shares		Par Value		Additional Paid-In Capital			Retained Earnings (Accumulated deficit)			Total
Balance December 31, 2017	32,878		$	33	$	50,495		$	(28,496	)	$	22,032
Stock based compensation	—		—		372			—			372
Net loss	—		—		—			(935		)	(935		)
Balance March 31, 2018	32,878		$	33	$	50,867		$	(29,431	)	$	21,469

Balance December 31, 2018	33,705		$	34	$	52,920		$	34,223		$	87,177
Options exercised	271		—		777			—			777
Stock based compensation - as Restated	—		—		1,195			—			1,195
Stock exercise to acquire options and warrants	(85	)	—		(710		)	—			(710		)
Net loss - as Restated	—		—		—			(5,608		)	(5,608		)
Balance March 31, 2019 - as Restated	33,891		$	34	$	54,182		$	28,615		$	82,831

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

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~~BOVIE~~APYX MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2019 as Restated			2018
Cash flows from operating activities
Net loss	$	(4,238	)	$	(3,428	)	$	(5,608	)	$	(935	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	527			556			194			199
Provision for inventory obsolescence	203			365			41			(47		)
Gain on disposal of property and equipment, net	3			19
Stock based compensation	532			533			1,195			372
Change in fair value of derivative liabilities	(57		)	555			—			26
Provision for allowance for doubtful accounts	128			126
Provision for deferred taxes	—			25
Unrealized gain on short term investments							(164		)	—
Provision (benefit) for allowance for doubtful accounts							(238		)	(9		)
Changes in current assets and liabilities:
Trade receivables	528			(1,070		)	349			(277		)
Prepaid expenses	(221		)	(48		)	(265		)	(26		)
Inventories	(1,380		)	(337		)	(342		)	(136		)
Deposits and other assets	9			312			(346		)	4
Accounts payable	(219		)	436			81			514
Accrued and other liabilities	(250		)	(337		)
Accrued severance and related							(99		)	—
Accrued expenses and other liabilities							113			(793		)
Net cash used in operating activities	(4,435		)	(2,293		)	(5,089		)	(1,108		)
Cash flows from investing activities
Purchases of technology, property and equipment	(431		)	(182		)
Net cash used in investing activities	(431		)	(182		)
Purchases of property and equipment							(117		)	(139		)
Purchases of marketable securities							(18,884		)	—
Proceeds of marketable securities							39,842			—
Net cash provided by (used in) investing activities							20,841			(139		)
Cash flows from financing activities
Proceeds from stock options/warrants exercised	—			119
Change in restricted cash	—			60
Proceeds from stock options exercised							67			—
Repayment of mortgage note payable	(179		)	(180		)	—			(60		)
Net cash used in financing activities	(179		)	(1		)
Net change in cash and cash equivalents	(5,045		)	(2,476		)
Cash and cash equivalents, beginning of period	14,456			11,805
Cash and cash equivalents, end of period	$	9,411		$	9,329
Net cash provided by (used in) financing activities							67			(60		)
Net change in cash, cash equivalents and restricted cash							15,819			(1,307		)
Cash, cash equivalents and restricted cash, beginning of period							16,596			10,668
Cash, cash equivalents and restricted cash, end of period							$	32,415		$	9,361

Cash paid for:
Interest paid	$	103		$	125
Interest expense							$	—		34

Non cash investing activities:
Cashless exercise of stock options/warrants							$	710		$	—
Capitalization of Lease							178			—

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

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~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

Unless the context otherwise indicates, the terms “we,” “our,” “us,” ~~“Bovie,~~“Apyx,” "Company" and similar terms refer to ~~Bovie~~Apyx Medical Corporation and its consolidated subsidiaries.

We are a medical technology company and the developer of J-Plasma® (marketed and sold under the Renuvion™ Cosmetic Technology brand in the cosmetic surgery market), a patented plasma-based surgical product for cutting, coagulation and ablation of soft tissue. J-Plasma technology utilizes a helium ionization process to produce a stable, focused beam of plasma that provides surgeons with greater precision and minimal invasiveness. The Company also leverages its expertise through original equipment manufacturing (OEM) agreements with other medical device manufacturers.

On August 30, 2018, we closed on a definitive asset purchase agreement with Specialty Surgical Instrumentation Inc., a Tennessee Corporation and wholly-owned subsidiary of Symmetry Surgical Inc. (“Symmetry”), pursuant to which we divested and sold our electrosurgical "Core" business segment and related intellectual property, including the Bovie® brand and trademarks, to Symmetry for gross proceeds of $97 million in cash. The divestiture and sale of our Core business segment to Symmetry allows us to further focus on our strategic objective of commercializing our J-Plasma technology, including the RenuvionTM brand in the cosmetic surgery market. We also entered into with Symmetry a transition services agreement, a Patent Licensing Agreement, a Disposables Supply Agreement, and a Generator Manufacturing and Supply Agreement, the latter of which will establish us as an OEM-provider of generators to Symmetry for a period of at least 10 years. For the three months ended March 31, 2018, the Core sales amounted to $6.5 million with cost of sales of $3.7 million and related operating expenses of $0.9 million, which are included in income from discontinued operations on the Consolidated Statement of Operations.

In connection with the asset purchase agreement, we also entered into an Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Symmetry for up to a four-year term, whereby we will manufacture certain Core products and sell them to Symmetry at agreed upon prices. Any revenue, costs and expenses resulting from this agreement are netted and reported in our Consolidated Statements of Operations as Other gains or losses. For the three months ended March 31, 2019, Core sales following the divestiture amounted to $2.2 million with cost of sales of $2.1 million and related operating expenses of $0.1 million, which are included in other losses on the Consolidated Statement of Operations.

In connection with the asset purchase agreement, we also entered into a Manufacture and Supply Agreement with Symmetry for a ten-year term, whereby we will manufacture certain products and sell them to Symmetry at agreed upon prices. Revenue, costs and expenses resulting from this agreement are reported in our Consolidated Statements as income or loss from operations of our OEM reporting segment.

We reclassified the financial results of the Core business to discontinued operations and from segment results for all periods presented.

The accompanying unaudited consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, please refer to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year.

NOTE 2. RESTATEMENT

Throughout 2019, the Company made efforts to remediate its material weaknesses in internal control as of December 31, 2018, including investing in new personnel that have expertise in a broad array of accounting topics. As a result of these investments and remediation efforts, the Company reevaluated the accounting for a broad array of items and discovered numerous immaterial errors. On March 12, 2020, our Management and the Audit Committee of the Board of Directors, following discussion with our predecessor independent registered public accounting firm, concluded that the Company's previously filed financial statements as of and for three months ended March 31, 2019, were no longer able to be relied upon as the result of the aggregation of errors identified by Management and the Company’s new accounting personnel during 2019 related to the following:

As identified during preparation of the fiscal year 2019 Form 10-K:

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

The Company reevaluated its subsidiary consolidation process and discovered an inaccuracy in its accounting for the elimination of markup on intercompany sales. This resulted in the Company incorrectly including the markup in US inventory purchased from Apyx Bulgaria and resulted in an overstatement of cost of sales and a corresponding understatement of other costs and expenses when the inventory was sold, which did not have any impact on net income (loss) or financial position.


◦	For the three months ended March 31, 2019, the total impact included increases to both gross profit and to operating expenses of approximately $113,000.

During the first quarter of ~~2017,~~2020, while reconciling the 2019 income tax provision back to the corresponding records, we determined that when employees exercised non-qualified stock options, we did not collect and remit the employee’s income and payroll taxes on the exercises and did not accrue and remit the employer portion of payroll taxes. Due to statutory requirements, we have joint and several liability on the amounts that we did not withhold from employees and remit to the proper taxing authorities. While further investigating the issue, we determined that during 2018 we did not report the correct amount of income to employees on their form W-2 for both non-qualified and incentive stock option exercises and misclassified some non-qualified stock option exercises as incentive stock option exercises.


◦	For the three months ended March 31, 2019, the total aggregated impact included an increase to operating expenses of $16,000, an increase of approximately $301,000 to other losses and an increase to net loss of approximately $317,000.

Other minor items primarily related to the appropriate cutoff of transactions at the balance sheet date and the duplicate recording of a State income tax payment.


◦	For the three months ended March 31, 2019, the total aggregated impact included a decrease to operating loss of $90,000 and an increase to net loss of $40,000.

As previously disclosed and adjusted in Form 10-Q for the three and nine months ended September 2019 filed on November 11, 2019:

The Company reevaluated its accounting for stock-based compensation expense and during the three months ended September 30, 2019, the Company ~~adopted a change~~discovered errors in ~~presentation~~its accounting for certain items included in stock-based compensation expense. These errors related to its accounting for forfeitures, the vesting periods over which the expense was recognized, modifications, fair value measurements, and other minor miscellaneous items, all of which relate to the prior year. Additionally, the Company identified an issue relating to grants in the first quarter of 2019, whereby compensation was not recognized over the correct vesting period.


◦	For the three months ended March 31, 2019, the total impact included increases to operating expenses, operating loss and net loss of approximately $453,000 each.

During the three months ended September 30, 2019, the Company reevaluated its accounting for pre-development activities on certain OEM contracts. In performing the review, the Company determined that the it has not completed its performance obligations on its pre-development activities in these contracts. Accordingly, the Company determined that it had prematurely recognized revenues during the first quarter relating to these activities and did not defer the accompanying costs.


◦	For the three months ended March 31, 2019, the total impact included decreases to sales of approximately $194,000, decreases to operating expenses of approximately $77,000 and increases to both operating loss and net loss of approximately $117,000.

A reconciliation of the originally reported amounts to the restated amounts for the adjustments noted above for each of the affected periods is presented below.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Consolidated ~~Statements~~Balance Sheet as of ~~Cash Flows in order to present a "Provision~~March 31, 2019:



(In thousands)	As Originally Reported		Adjustments			As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	32,415	$	—		$	32,415
Short term investments	40,885		—			40,885
Trade accounts receivable, net	4,931		38			4,969
Inventories, net	5,598		—			5,598
Prepaid expenses and other current assets	1,411		38			1,449
Total current assets	85,240		76			85,316
Property and equipment, net	6,031		—			6,031
Intangibles	190		—			190
Deposits	80		—			80
Other assets	162		77			239
Total assets	$	91,703	$	153		$	91,856

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,504	$	—		$	1,504
Accrued expenses and other liabilities	5,460		127			5,587
Joint and several payroll tax liability	—		1,014			1,014
Accrued severance and related	511		—			511
Total current liabilities	7,475		1,141			8,616
Related party note payable	140		—			140
Long-term portion of operating lease liabilities	75		—			75
Other long-term liabilities	—		194			194
Total liabilities	7,690		1,335			9,025
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 75,000,000 shares authorized; 34,033,255 issued and 33,891,255 outstanding	34		—			34
Additional paid-in capital	53,147		1,035			54,182
Retained earnings	30,832		(2,217		)	28,615
Total stockholders’ equity	84,013		(1,182		)	82,831
Total liabilities and stockholders’ equity	$	91,703	$	153		$	91,856

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Consolidated Statement of Operations for ~~allowance for doubtful accounts". Previously reported information has been modified to conform to this new presentation.~~the three months ended March 31, 2019:



(In thousands)	As Originally Reported			Adjustments			As Restated
Sales	$	5,823		$	(194	)	$	5,629
Cost of sales	2,103			(37		)	2,066
Gross profit	3,720			(157		)	3,563
Other costs and expenses:
Research and development	810			(80		)	730
Professional services	1,791			327			2,118
Salaries and related costs	3,221			267			3,488
Selling, general and administrative	3,101			(144		)	2,957
Total other costs and expenses	8,923			370			9,293
Loss from operations	(5,203		)	(527		)	(5,730		)
Interest income	423			—			423
Other losses	(25		)	(270		)	(295		)
Total other losses, net	398			(270		)	128
Loss from continuing operations before income taxes	(4,805		)	(797		)	(5,602		)
Income tax (benefit) expense	(124		)	130			6
Net loss	$	(4,681	)	$	(927	)	$	(5,608	)

Loss per share
Basic and Diluted	$	(0.14	)	$	(0.03	)	$	(0.17	)

Weighted average number of shares outstanding basic and diluted	33,343			33,343			33,343

NOTE 2.3. INVENTORIES

Inventories are stated at the lower of cost or market. 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-house based upon labor hours.

Inventories consisted of the following:


(In thousands)	September 30, 2017			December 31, 2016			March 31, 2019 as Restated			December 31, 2018
Raw materials	$	5,145		$	4,521		$	5,032		$	4,521
Finished goods	3,804			3,048			964			1,215
Gross inventories	8,949			7,569			5,996			5,736
Less: reserve for obsolescence	(1,614		)	(1,411		)	(398		)	(439		)
Net inventories	$	7,335		$	6,158		$	5,598		$	5,297

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

NOTE 3.4. INTANGIBLE ASSETS

Intangible assets consisted of the following:


(In thousands)	September 30, 2017			December 31, 2016
Brand name and trademark (life indefinite)	$	1,510		$	1,510

(in thousands)							March 31, 2019 as Restated			December 31, 2018
Purchased technology (5-17 year lives)	$	1,496		$	1,441		$	1,447		$	1,448
Less: accumulated amortization	(1,307		)	(1,226		)	(1,442		)	(1,442		)
Purchased technology, net	$	189		$	215		$	5		$	6

Goodwill	$	185		$	185		$	185		$	185
Intangibles							$	190		$	191

~~With respect to our trademark~~Intangible assets and ~~brand name, we continue to market products, release new products and product extensions and maintain and promote these trademarks and brand name in~~goodwill are the marketplace through legal registration and such methods as advertising, medical education and trade shows. It is our belief that these trademarks and brand names will generate cash flow for an indefinite periodresult of ~~time. Therefore, we believe our trademarks and brand name intangible assets are not impaired. Goodwill resulted from~~ our acquisition of ~~Bovie~~Apyx (formerly known as Bovie) Bulgaria, ~~EOOD.~~EOOD in 2015.

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

NOTE 4.5. RECENT ACCOUNTING PRONOUNCEMENTS

~~In January 2017,~~ASU No. 2016-18, Restricted Cash Flows provides guidance on the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04,~~ ~~Intangibles-Goodwill~~presentation of restricted cash and ~~Other~~ ~~(Topic 350):~~ ~~Simplifying~~restricted cash equivalents, which are now included with cash and cash equivalents when reconciling the ~~Test for Goodwill Impairment. The purpose~~beginning and ending cash amounts shown on the statements of ~~this ASU is to reduce~~cash flows. Using the ~~cost and complexity of evaluating goodwill for impairment. It eliminates~~retrospective transition method required under the ~~need for entities to calculate~~standard, the ~~implied fair value of goodwill by assigning~~Company has adjusted the ~~fair value of a reporting unit to all~~presentation of its ~~assets and liabilities as if that reporting unit had been acquired in a business combination. Under this~~Condensed Consolidated Statements of Cash Flows for all periods presented. The adoption of 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 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, however weNo. 2016-18 did not have ~~chosen not to do so. The amendment is not expected to have a material~~any other impact on ~~our financial condition or results of operations.~~the Company’s Consolidated Financial Statements.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments~~. The new guidance clarifies the classification of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs, settlement 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.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

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

~~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 became effective for us beginning with the first quarter of 2018, and we adopted the new accounting standard using the modified retrospective transition approach. The modified retrospective transition approach recognized any changes from the beginning of the year of initial application through retained earnings with no restatement of comparative periods. We 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 ~~January 1, 2018. Early adoption is not permitted. The standard permits~~ the ~~use~~results of ~~either~~ the ~~retrospective or cumulative effect transition method. We performed an analysis and concluded~~evaluation, we have determined that the ~~amendment will~~adoption of the new standard presents no material impact on our consolidated financial statements. Application of the transition requirements of the new standard did not have a material impact on ~~our financial condition or results of operations.~~opening retained earnings. We have disaggregated revenue by segment and geography in Note 12 Geographic and Segment Information.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842), which became effective for us beginning with the first quarter of 2019. ASU 2016-02 requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. This new standard requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis, and classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. In accordance with the standard, we took a modified retrospective transition approach and included the $178,000 right of use asset and corresponding liabilities in our property plant and equipment, accrued expenses and long term lease liability on the consolidated balance sheet. The lease is also represented in our consolidated statement of cash flows as a non cash investing activity.

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

~~NOTE 5. FAIR VALUE MEASUREMENTS~~

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

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

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

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

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

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

810

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~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

~~The following represents a reconciliation of the changes in fair value of warrants measured at fair value using Level 3 inputs during the nine months ended September 30, 2017:~~

(in thousands)
2013
Placement Agent Warrants
Balance, December 31, 2016 $ 203
Change in fair value (57 )
Balance, September 30, 2017 ⁽¹⁾
$ 146

~~(1)~~

The warrants are valued using a trinomial lattice valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in the model at September 30, 2017 included the market price of our common stock, an expected dividend yield of zero, the remaining period to the expiration date of the warrants, expected volatility of our common stock over the remaining life of the warrants of 2.0 years, estimated based on a review of our historical volatility of 60.290% and risk-free rates of return of 1.380% for the 2013 warrants based on constant maturity rates published by the U.S. Federal Reserve, applicable to the remaining life of the warrants. We also take into consideration a probability assumption for anti-dilution.

NOTE 6. EARNINGS PER SHARE

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

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands, except per share data) 2017 2016 2017 2016
Numerator:
Net loss available to common shareholders $ (1,245 ) $ (965 ) $ (4,238 ) $ (3,428 )
Effect of dilutive securities:
Derivative liability - warrants —
—
—
—
Numerator for dilutive loss per common share $ (1,245 ) $ (965 ) $ (4,238 ) $ (3,428 )

Denominator:
Weighted average shares used to compute basic loss per common share 31,078
27,075
30,932
27,059
Effect of dilutive securities:
Derivative liability - warrants —
—
—
—
Denominator for dilutive loss per common share 31,078
27,075
30,932
27,059

Basic loss per common share $ (0.04 ) $ (0.04 ) $ (0.14 ) $ (0.13 )
Diluted loss per common share $ (0.04 ) $ (0.04 ) $ (0.14 ) $ (0.13 )



	Three Months Ended March 31,
(in thousands, except per share data)	2019 as Restated			2018
Numerator:
Net (loss) from continuing operations	$	(5,608	)	$	(2,791	)
Numerator for diluted (loss) per common share - continuing operations	(5,608		)	(2,791		)

Net income from discontinued operations, net of tax	—			1,856
Numerator for diluted income per share - discontinued operations	—			1,856

Net (loss) from all operations	(5,608		)	(935		)
Numerator for full diluted (loss) per share - all	(5,608		)	(935		)

Denominator - continuing operations
Weighted average shares used to compute basic (loss)	33,343			32,878
Denominator for diluted (loss) per common share	33,343			32,878

Denominator - discontinued operations:
Weighted average shares used to compute basic (loss)	—			32,878
Denominator for diluted (loss) per common share - discontinued operations	—			32,878

Denominator - all operations:
Weighted average shares used to compute basic (loss)	33,343			32,878
Denominator for diluted (loss) per common share - all operations	33,343			32,878

Loss per share from continuing operations:
Basic and diluted	$	(0.17	)	$	(0.08	)

Income per share from discontinued operations
Basic and diluted	$	—		$	0.05

Loss per share from all operations
Basic and diluted	$	(0.17	)	$	(0.03	)

Anti-dilutive instruments excluded from diluted loss per common share:
Warrants	—			3
Options	1,908			470

911

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~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

NOTE 7. STOCK-BASED COMPENSATION

Under our stock option plans, our board of directors may grant options to purchase common shares to our key employees, officers, directors and consultants. We account for stock options in accordance with FASB ASC Topic 718, Compensation - Stock Compensation, with option 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. We expensed approximately ~~$191,000 and $532,000~~$1,195,000 in stock-based compensation during the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, as compared with ~~$173,000 and $533,000~~$372,000 for the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2018.

The status of our stock options and stock awards are summarized as follows:


	Number of options		Weighted average exercise price		Number of options - as Restated		Weighted average exercise price - as Restated
Outstanding at December 31, 2016	3,752,209		$	3.04
Outstanding at December 31, 2018					3,254,799		$	3.18
Granted	628,000		3.26		1,277,500		7.73
Exercised	(104,500	)	2.64		(270,549	)	2.87
Canceled and forfeited	(196,803	)	4.99		(10,500	)	2.10
Outstanding at September 30, 2017	4,078,906		$	2.99
Outstanding at March 31, 2019					4,251,250		$	4.57

Common shares required to be issued upon the exercise of stock options ~~and warrants~~ would be issued from our authorized and unissued shares. We calculated the fair value of issued options utilizing a trinomial lattice with an expected life calculated via the simplified method as we do not have sufficient history to determine actual expected life.


	2017 Grants					2019 Grants
Option value	$	1.73	-	$	2.34	$	7.15	-	$	7.91
Risk-free rate	1.5%					2.6%		-	2.6		%
Expected dividend yield	—%					—
Expected volatility	68.0%					69.1%		-	69.1		%
Expected term (in years)	6					6

NOTE 8. INCOME TAXES

The ~~Company's~~Company’s income tax expense was $6,000 with an effective tax rate of ~~0.0% and $15,000~~-0.1% for the three months ended March 31, 2019, as compared to an expense of $11,000, with an effective tax rate of ~~0.0%~~-0.4%, for the three ~~and nine~~ months ended ~~September 30, 2017, respectively, as compared to $0 with an~~March 31, 2018. The effective ~~tax rate of 0.0% for both the three and nine months ended September 30, 2016. The Company's effective tax~~ rate differs from the statutory rate primarily due to ~~the change in the valuation allowance on the Company's net deferred tax assets with a finite life.~~

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

For the nine months ended September 30, 2017, we do not believe we had any significant uncertain tax positions nor did we have any interest or penalties related to any significant uncertain tax positions.$6,000.

The ~~Company~~following is ~~subject to U.S. federal income~~a roll-forward of the Company's total gross unrecognized tax ~~state income tax~~benefits, not including interest and ~~Bulgarian income tax. Until~~penalties, for 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.~~period ended March 31, 2019.



(in thousands)	Gross Unrealized Tax Benefits
Balance at January 1, 2019	$	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 the prior year	—
Balance at March 31, 2019	$	1,313

1012

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

NOTE 9. COMMITMENTS ~~CONTINGENCIES~~ AND ~~CONCENTRATIONS~~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 $13,916 per month for the lease expiring in June 2019.

In October 2015, pursuant to our acquisition of ~~Bovie~~Apyx Bulgaria, we ~~are~~became obligated to ~~pay a~~make lease payments of ~~$5,114~~approximately $9,000 per month ~~expiring in December 2021,~~ for ~~18,745~~approximately 20,000 square feet of office, research and manufacturing space in Sofia, Bulgaria. This lease expires in December 2020.

The following is a schedule of approximate future minimum lease payments under operating leases as of ~~September 30, 2017:~~March 31, 2019:

(In thousands)
2017 (remaining three months)
$ 47
2018 189
2019 132
2020 73
2021 73
Total $ 514



(In thousands)
2019 (remaining 9 months)	$	80
2020	107
Total	$	187

~~Rent expense~~On August 30, 2018, we paid the remaining mortgage balance of $2.5 million on the Clearwater facility, releasing us from any and all obligations to the Bank of Tampa.

Litigation

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. 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 addition, as previously disclosed with the Commission on Form 8-K filed April 26, 2019, we have learned that on April 17, 2019, a complaint (the “Complaint”) was ~~approximately $41,385 and $126,711~~filed in the United States District Court for the ~~three~~Middle District of Florida by plaintiff Kyle Pritchard, individually and ~~nine months ended September 30, 2017, respectively compared~~on behalf of all others similarly situated against the Company and Charles D. Goodwin (“Goodwin”), the Company’s President and Chief Executive Officer and a member of the Company’s Board of Directors.

The Complaint (which as of the date hereof has not been delivered through formal process to ~~$57,720~~the Company) seeks class action status on behalf of all persons and ~~$140,000~~entities that acquired the Company’s securities between August 1, 2018 and April 1, 2019 and alleges violations by the Company and Goodwin of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, primarily related to certain public statements concerning the Premarket Notification 510(k) submission made to the US Food and Drug Administration for a new indication for the ~~three~~Company’s J-Plasma® technology for use in dermal resurfacing procedures. 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 entirely without merit. The Company and ~~nine months ended September 30, 2016.~~Goodwin intend to defend themselves vigorously in the suit. Such claims are adequately covered by insurance, however, in the event that damages exceed the aggregate coverage limits of our policy or if our insurance carriers disclaim coverage, we believe it is possible that costs associated with this claim could have a material adverse impact on our consolidated earnings, financial position or cash flows. Under the deductible portion of our insurance coverage, we have accrued $0.5 million for initial defense costs.

In accordance with authoritative guidance, we accrue 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 recorded. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded, actual results may differ from these estimates.

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Purchase Commitments

At ~~September 30, 2017,~~March 31, 2019, we had purchase commitments for inventories totaling approximately ~~$3.6~~$5.8 million, substantially all of which is expected to be purchased by the end of ~~2017.~~2019.

~~Concentrations~~Our manufacturing services agreements requires Symmetry to provide us with a twelve-month rolling production forecast, of which four months are binding, non-cancelable orders, subject to certain termination rights.

~~With respect to receivables, our ten largest customers accounted for approximately 35.3% and 41.3%~~

Table of trade receivables as of September 30, 2017 and 2016, respectively, and approximately 50.0% and 56.9% of net revenues for the nine months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017, McKesson and National Distribution & Contracting Inc. accounted for 15.7% and 9.3% of sales, while for the same period in 2016, McKesson and National Distribution & Contracting Inc. accounted for 15.0% and 9.0% of sales.Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

NOTE 10. RELATED PARTY TRANSACTIONS

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

NOTE 11. FINANCIAL INSTRUMENTS

Cash, Cash Equivalents and ~~as of April 14, 2017, the Company agreed to a renewal contract~~Marketable Securities at March 31, 2019:



(In thousands)	Adjusted Cost		Unrealized Gains		Fair Value⁽³⁾		Cash and Cash Equivalents ⁽¹⁾		Short-term Marketable Securities
Cash	$	3,802	$	—	$	3,802	$	3,802	$	—

Level 1 ⁽²⁾
U.S. Treasury Securities, maturities less than three months	28,613		—		28,613		28,613		—
U.S. Treasury Securities, maturities greater than three months	40,721		164		40,885		—		40,885
Total	$	73,136	$	164	$	73,300	$	32,415	$	40,885

Cash, Cash Equivalents and ~~terms to continue the consulting arrangement, expiring~~Marketable Securities at December 31, 2017. AR Logic was paid consulting fees of approximately $33,333 and $129,366 for the three and nine months ended September 30, 2017, respectively compared to $81,000 and $158,000 for the three and nine months ended September 30, 2016.

2018:



(In thousands)	Adjusted Cost		Unrealized Gains		Fair Value⁽³⁾		Cash and Cash Equivalents ⁽¹⁾		Short-term Marketable Securities
Cash	$	6,467	$	—	$	6,467	$	6,467	$	—

Level 1 ⁽²⁾
U.S. Treasury Securities, maturities less than three months	10,129		—		10,129		10,129		—
U.S. Treasury Securities, maturities greater than three months	61,431		247		61,678		—		61,678
Total	$	78,027	$	247	$	78,274	$	16,596	$	61,678

⁽¹⁾The company considers all highly liquid instruments with maturities of three months or less at the time of purchase to be cash equivalents.

⁽²⁾ The fair value of the debt securities consisting of U.S. Treasury bills is based on their quoted market prices. The fair value of these financial instruments are classified as Level 1 in the fair value hierarchy. The original purchase of U.S. Treasury bills occurred in September 2018 utilizing the proceeds from the sale of our Core business.

⁽³⁾ ASC 825-10, Financial Instruments, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings within interest income at each subsequent reporting date. At the date of purchase, the Company elected the fair value option for all investments with maturities of three months or greater at the time of purchase.

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

~~NOTE 11. LONG TERM DEBT~~

On June 28, 2016, the Company entered into a transaction with Bank of Tampa, a Florida banking corporation (“Lender”) wherein Lender amended the terms of a mortgage loan (“the Loan”) originally executed on March 20, 2014 with a principal amount of $3,592,000. The Initial Maturity Date of the Loan was extended to July 20, 2019 from March 19, 2017, and the Extended Maturity Date was amended to July 20, 2024 from March 20, 2022. In addition, the Lender released as collateral to the Loan, the Company’s working capital accounts in exchange for a negative covenant limited to $2,000,000 of the aggregate indebtedness secured by these accounts.

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

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

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

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

(In thousands) Long-term debt
2017 (remaining three months)
$ 60
2018 239
2019 2,455
Total $ 2,754

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

NOTE 12. GEOGRAPHIC AND SEGMENT INFORMATION

Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, 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.

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

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

Three Months Ended September 30, 2017
(In thousands) Core OEM Advanced Energy Corporate (Other) Total
Sales $ 6,696
$ 525
$ 2,126
$ —
$ 9,347

Income (loss) from operations ⁽¹⁾
1,699
323
(718 ) (2,438 ) (1,134 )

Interest expense, net —
—
—
(36 ) (36 )
Change in fair value of derivative liabilities —
—
—
(69 ) (69 )
Income tax expense —
—
—
6
6
Depreciation and amortization —
—
—
171
171

Three Months Ended September 30, 2016
(In thousands) Core OEM Advanced Energy Corporate (Other) Total
Sales $ 6,902
$ 1,762
$ 1,399
$ —
$ 10,063

Income (loss) from operations 2,089
690
(707 ) (2,317 ) (245 )

Interest expense, net —
—
—
(37 ) (37 )
Change in fair value of derivative liabilities —
—
—
(683 ) (683 )
Income tax expense —
—
—
—
—
Depreciation and amortization —
—
—
201
201

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

Nine Months Ended September 30, 2017
(In thousands) Core OEM Advanced Energy Corporate (Other) Total
Sales $ 20,959
$ 2,030
$ 4,546
$ —
$ 27,535

Income (loss) from operations ⁽¹⁾
6,471
1,031
(3,821 ) (7,858 ) (4,177 )

Interest expense, net —
—
—
(103 ) (103 )
Change in fair value of derivative liabilities —
—
—
57
57
Income tax expense —
—
—
15
15
Depreciation and amortization —
—
—
527
527

Nine Months Ended September 30, 2016
(In thousands) Core OEM Advanced Energy Corporate (Other) Total
Sales $ 20,261
$ 4,351
$ 2,521
$ —
$ 27,133

Income (loss) from operations 5,047
2,498
(3,331 ) (6,962 ) (2,748 )

Interest expense, net —
—
—
(125 ) (125 )
Change in fair value of derivative liabilities —
—
—
(555 ) (555 )
Income tax expense —
—
—
—
—
Depreciation and amortization —
—
—
355
556



~~(1)~~	During the first and second quarter of 2017, marketing expenses were considered as attributable only to the Corporate (Other) segment in the line Income (loss) from operations. Beginning with the third quarter of 2017, it was determined that certain marketing expenses are attributable to specific segments. The disclosure of Income (loss) from operations was updated for the third quarter of 2017 to reflect marketing expense by segment.

We derive revenues from four major product lines: Electrosurgical, Cauteries, Lighting and Other products. We do not review or analyze our four major product lines below net sales. Sales for the product lines are summarized as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2017 2016 2017 2016
Sales by Product Line
Electrosurgical $ 6,205
$ 5,690
$ 17,741
$ 15,020
Cauteries 1,696
1,863
5,224
5,417
Lighting 573
740
1,966
2,046
Other 873
1,770
2,604
4,650
Total $ 9,347
$ 10,063
$ 27,535
$ 27,133



	Three Months Ended March 31, 2019 - as Restated
(In thousands)	Advanced Energy		OEM	Corporate & Other		Total
Sales	4,371		1,258	—		5,629

Net income (loss) from continuing operations	(3,328	)	591	(2,993	)	(5,730	)

Interest income	—		—	423		423
Other losses	—		—	(295	)	(295	)
Income tax expense	—		—	6		6

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~



	Three Months Ended March 31, 2018
(In thousands)	Advanced Energy		OEM	Corporate & Other		Total
Sales	2,629		768	—		3,397

Net income (loss) from continuing operations	(578	)	406	(2,548	)	(2,720	)

Interest expense	—		—	(34	)	(34	)
Change in value of derivative liabilities	—		—	(26	)	(26	)
Income tax expense	—		—	11		11

International sales represented approximately ~~14.6% and 14.0%~~30.5% of total revenues for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, as compared with ~~13.2% and 14.9%~~18.8% of total revenues for ~~the~~ three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2018. Substantially all of these sales are denominated in U.S. dollars. Revenue by geographic region, based on the ~~"ship to"~~“ship to” location on the invoice, are as follows:

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

Table of Contents

APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)



	Three Months Ended March 31,
(In thousands)	2019		2018
Sales by Domestic and International
Domestic	$	3,910	$	2,758
International	1,719		639
Total	$	5,629	$	3,397

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

~~MANAGEMENT'S DISCUSSION AND ANAYLSIS OF~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

(Unaudited)

NOTE 13. JOINT AND SEVERAL PAYROLL LIABILITY

As discussed in the Restatement Note (2), the Company did not report the correct amount of income to employees, nor did we collect and remit the employees' portion of income and payroll taxes, related to stock option exercises as required by the IRS. Due to IRS statutory requirements, we have joint and several liability for the full amount that was not withheld and remitted to the proper taxing authorities. This amount of the liability was approximately $1.0 million and $0.7 million at March 31, 2019 and December 31, 2018 respectively. The Company has recognized these amounts in other losses in the accompanying Consolidated Statements of Operations. If we can establish that our employees have in fact paid these obligations, either presently or in the future, we will be relieved of our liability.

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

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

Executive Level Overview

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

We are ~~an energy-based~~a medical ~~device~~technology company ~~specializing in developing, manufacturing~~ and ~~marketing a range~~the developer 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 (BovieJ-Plasma^®~~, IDS™~~ (marketed and ~~DERM~~^TM~~) and on a private label basis to distributors throughout~~sold under the ~~world. We also leverage our expertise~~Renuvion™ Cosmetic Technology brand 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.

~~We are also the developer of J-Plasma;~~cosmetic surgery market), a patented plasma-based surgical product for cutting, coagulation and ablation of soft tissue. J-Plasma technology utilizes a helium ionization process to produce a stable, focused beam of plasma that provides surgeons with greater precision and minimal ~~invasiveness and an absence of conductive currents~~invasiveness. We also leverage our expertise through ~~the patient during surgery. The new J-Plasma handpieces~~original equipment manufacturing (OEM) agreements with Cool-Coag™ technology deliver the precision of helium plasma energy, the power of traditional monopolar coagulation and the efficiency of plasma beam coagulation - enabling thin-layer ablation and dissection and fast coagulation with a single instrument, minimizing instrument exchange and allowing a surgeon to focus on their patient and their procedures. With Cool-Coag technology, the new J-Plasma handpieces can deliver three distinctly different energy modalities - further increasing the utility and versatility of the J-Plasma system. J-Plasma has been the subject of ten white papers and has been cited therein for its clinical utility in gynecological and plastic surgery procedures.

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

International sales represented approximately 14.6% and 14.0% of total revenues for the three and nine months ended September 30, 2017, respectively, as compared with 13.2% and 14.9% of total revenues for the three and nine months ended September 30, 2016, respectively. The decrease in international sales as a percentage of revenue during the nine months ended September 30, 2017, was driven pending product registration in foreign jurisdictions and large international purchase tenders that did not occur in the current period as compared to the same period of 2016. 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. Our business is generally not seasonal in nature.device manufacturers.

During ~~2017,~~2019, we ~~continued~~will continue our ~~full scale~~full-scale commercialization efforts for ~~Advanced Energy technology which includes J-Plasma. We have~~Renuvion. As of March 31, 2019, we had a direct sales force of 1728 field-based selling professionals and a network of 147 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 ~~Advanced Energy technology, primarily J-Plasma, for operating room procedures.~~Renuvion in the cosmetic surgery market. In addition, we have invested in training programs and marketing-related activities to support accelerated adoption of ~~Advanced Energy technology.~~Renuvion.

~~The Company continuously reviews~~International sales represented approximately 29.5% and ~~refines its~~18.8% of total revenues in the three months ended March 31, 2019 and 2018, respectively. Management estimates our products have been sold in more than 40 countries through local dealers coordinated by sales and marketing ~~strategies~~personnel at the Clearwater, Florida facility.

As previously disclosed with the Commission on Form 8-K filed on April 4, 2019, we announced on April 1, 2019, that we voluntarily withdrew our application for premarket notification 510(k) regulatory clearance of our J-Plasma/Renuvion technology for use in dermal resurfacing procedures (see Note 9). While this is a delay in our commercialization efforts, we remain committed to working with the U.S. Food and ~~distribution channels regarding~~Drug Administration relative to the ~~commercialization~~development of ~~Advanced Energy technology as well as initiatives to manage expenses and costs as appropriate for market conditions.~~a new 510(k) submission.

On August 30, 2018, we 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 we divested and sold our electrosurgical "Core" business segment and related intellectual property, including the Bovie^® brand and trademarks, to Symmetry for gross proceeds of $97 million in cash. The divestiture and sale of our Core business segment to Symmetry allows us to further focus on our strategic objective of commercializing our J-Plasma technology, including the Renuvion^TM brand in the cosmetic surgery market. We also entered into with Symmetry a transition services agreement, Patent Licensing Agreement, a Disposables Supply Agreement, and a Generator Manufacturing and Supply Agreement, the latter of which will establish us as an OEM-provider of generators to Symmetry for a period of at least 10 years.

In connection with the Asset Purchase Agreement, we entered into an Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Symmetry for up to a four-year term, whereby we will manufacture certain Core products and sell them to Symmetry at agreed upon prices. Any revenue, costs and expenses resulting from this agreement are netted and reported in our Consolidated Statements of Operations as Other gains or losses.

Table of Contents

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

In connection with the Asset Purchase Agreement, we entered into a Manufacture and Supply Agreement with Symmetry for a ten-year term, whereby we will manufacture certain products and sell them to Symmetry at agreed upon prices. Revenue, costs and expenses resulting from this agreement are reported in our Consolidated Statements as income or loss from operations of our OEM reporting segment.

Our reportable segments are disclosed as principally organized and managed as two operating segments: Advanced Energy and OEM. "Corporate & Other" includes certain unallocated corporate and administrative costs which are 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.

We reclassified the financial results of the Core business to discontinued operations and from segment results for all periods presented. We strongly encourage investors to visit our website: ~~www.boviemedical.com~~www.apyxmedical.com to view the most current news and to review our filings with the Securities and Exchange Commission.

Results of Operations

Sales



	Three Months Ended March 31,
(In thousands)	2019 as Restated		2018		Change
Sales by Reportable Segment
Advanced Energy	4,371		2,629		66.3	%
OEM	1,258		768		63.8	%
Total	$	5,629	$	3,397	65.7	%

Sales by Domestic and International
Domestic	3,910		2,758		41.8	%
International	1,719		639		169.0	%
Total	$	5,629	$	3,397	65.7	%

Total revenue from continuing operations for first quarter 2019 increased $2.2 million, or 65.7%, to $5.6 million, compared to $3.4 million in the first quarter of 2018. Sales of the Company’s Advanced Energy generators and handpieces drove the increase in total revenue in first quarter 2019, with OEM segment sales contributing modestly to the year-over-year increase in total revenue from continuing operations during the first quarter 2019 period. Advanced Energy segment sales increased approximately $1.7 million, or 66.3% year-over-year, to $4.4 million, compared to approximately $2.6 million last year. OEM segment sales increased $0.5 million, or 63.8% year-over-year, to $1.3 million, compared to $0.8 million last year.

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

~~Results of Operations~~

~~Sales~~Gross Profit

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2017 2016 Change 2017 2016 Change
Sales by Reportable Segment
Core $ 6,696
$ 6,902
(3.0 )% $ 20,959
$ 20,261
3.4 %
OEM 525
1,762
(70.2 )% 2,030
4,351
(53.3 )%
Advanced Energy 2,126
1,399
52.0 % 4,546
2,521
80.3 %
Total $ 9,347
$ 10,063
(7.1 )% $ 27,535
$ 27,133
1.5 %

Sales by Product Line
Electrosurgical $ 6,205
$ 5,690
9.1 % $ 17,741
$ 15,020
18.1 %
Cauteries 1,696
1,863
(9.0 )% 5,224
5,417
(3.6 )%
Lighting 573
740
(22.6 )% 1,966
2,046
(3.9 )%
Other 873
1,770
(50.7 )% 2,604
4,650
(44.0 )%
Total $ 9,347
$ 10,063
(7.1 )% $ 27,535
$ 27,133
1.5 %

Sales by Domestic and International
Domestic $ 7,978
$ 8,730
(8.6 )% $ 23,678
$ 23,102
2.5 %
International 1,369
1,333
2.7 % 3,857
4,031
(4.3 )%
Total $ 9,347
$ 10,063
(7.1 )% $ 27,535
$ 27,133
1.5 %



	Three Months Ended March 31,
(In thousands)	2019 as Restated			2018			Change
Cost of sales	$	2,066		$	1,185		74.3	%
Percentage of sales	36.7		%	34.9		%



Gross profit	$	3,563		$	2,212		61.1	%
Percentage of sales	63.3		%	65.1		%

~~Overall~~Gross profit for the first quarter of 2019 increased approximately $1.4 million, or 61.1% year-over-year, to $3.6 million, compared to $2.2 million for first quarter of 2018. Gross margin for the first quarter of 2019 was 63.3%, compared to 65.1% last year. The primary drivers of the decrease in gross profit margin were Advanced Energy product mix and Advanced Energy sales ~~decreased~~outside the U.S., which represented a higher mix of total sales in the first quarter of 2019 compared to last year. OEM gross margins were lower in the first quarter of 2019 when compared to the prior year period, driven primarily by ~~7.1% or approximately $0.7 million~~revenue related to our new Product, Manufacturing, and Supply agreements with Symmetry, which did not contribute to revenue results in the prior period.

Other Costs and Expenses

Research and development



	Three Months Ended March 31,
(In thousands)	2019 as Restated			2018			Change
Research and Development expense	$	730		$	514		42.0	%
Percentage of sales	13.0		%	15.1		%

Spending on Research and development increased 42.0% for the three months ended ~~September 30, 2017, when compared with 2016. Core segment revenue, which consists of our brand name electrosurgical devices~~March 31, 2019, primarily due to focused spending on clinical studies and ~~accessories, cauteries, penlights, lighting, colposcopes and other similar products, decreased 3.0% or approximately $0.2 million~~research projects related to the cosmetic surgery market.

Professional services



	Three Months Ended March 31,
(In thousands)	2019 as Restated			2018			Change
Professional services expense	$	2,118		$	506		318.6	%
Percentage of sales	37.6		%	14.9		%

Professional services expense increased 318.6% for ~~the~~ three months ended ~~September 30, 2017, when compared with 2016.~~March 31, 2019, versus comparable periods in 2018. The OEM segment consists of proprietary products designed specifically for third party equipment manufacturers; revenue for this product line decreased 70.2% or approximately $1.2 million for the three months ended September 30, 2017, when compared with 2016, due to a one-time order in the comparable period of 2016. Advanced Energy segment sales were $2.1 million, an increase of approximately 52.0% for the three months ended September 30, 2017, when compared to 2016.

~~For the three months ended September 30, 2017, the increase in electrosurgical sales~~change was ~~mainly~~primarily attributable to ~~an increase in sales of generators of $0.6 million.~~

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

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

1720

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

~~Our ten largest customers accounted for approximately 35.3%~~Salaries and 41.3% of trade receivables as of September 30, 2017 and 2016, respectively and approximately 50.0% and 56.9% of net revenues for the nine months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017, McKesson and National Distribution & Contracting Inc. accounted for 15.7% and 9.3% of sales, while for the same period in 2016, McKesson and National Distribution & Contracting Inc. accounted for 15.0% and 9.0% of sales.related costs



	Three Months Ended March 31,
(In thousands)	2019 as Restated			2018			Change
Salaries and related expenses	$	3,448		$	1,802		93.6	%
Percentage of sales	62.0		%	53.0		%

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

~~Gross Profit~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2017 2016 Change 2017 2016 Change
Cost of sales $ 4,753
$ 5,002
(5.0 )% $ 13,673
$ 14,049
(2.7 )%
Percentage of revenue 50.9 % 49.7 %

49.7 % 51.8 %

Gross profit $ 4,594
$ 5,061
(9.2 )% $ 13,862
$ 13,084
5.9 %
Percentage of revenue 49.1 % 50.3 % (1.2 )% 50.3 % 48.2 % 2.1 %

~~Our gross profit decreased by 9.2% or approximately $0.5 million during~~ the three months ended ~~September 30, 2017~~March 31, 2019, salaries and related expenses increased approximately 93.6%, compared to the prior year. The increase was primarily driven by an increase in employee stock option expense, increase in sales force, and reclassification of regulatory salaries from cost of goods sold.

Selling, general and administrative expenses



	Three Months Ended March 31,
(In thousands)	2019 as Restated			2018			Change
SG&A Expense	$	2,957		$	2,110		40.1	%
Percentage of sales	52.5		%	62.1		%

Selling, general and administrative expense increased by 40.1% for the three months ended March 31, 2019 when compared to ~~2016. Margins were negatively impacted~~2018. The increase was primarily driven by sales commissions and product sample expense. These increases are offset by an adjustment to our bad debt reserve which had a change in calculation due to a ~~write down of approximately $370,000 for obsolete inventory related to~~shift in our ~~first generation J-Plasma products that have been substantially upgraded to our current generation. The overall decrease in margins was partially offset by higher margins in~~customer base following the ~~Advanced Energy segment, driven by higher volume and pricing mix on generator sales.~~

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

~~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 revenue.~~

~~Other Costs and Expenses~~

~~Research and development~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2017 2016 Change 2017 2016 Change
Research and Development expense $ 610
$ 681
(10.4 )% $ 2,015
$ 1,941
3.8 %
Percentage of revenue 6.5 % 6.8 % 7.3 % 7.2 % 0.1 %

~~Bringing new, innovative products to market and enhancing existing products is a critical component~~disposition of our ~~strategy. As such, spending in R&D as a percentage of sales was 6.5% and 7.3% for the three and nine months ended September 30, 2017, respectively.~~Core business.

Other Income (Expense), net



	Three Months Ended March 31,
(In thousands)	2019 as Restated			2018			Change
Interest income	$	423		$	—		100.0	%
Percentage of sales	7.3		%	—		%
Interest expense	$	—		$	(34	)	(100.0	)%
Percentage of sales	—		%	1.0		%
Other losses	$	(295	)	$	—		100.0	%
Percentage of sales	(5.2		)%	—		%
Change in fair value of derivative liabilities, net	$	—		$	(26	)	(100.0	)%
Percentage of sales	—		%	(0.8		)%

Interest income

Total interest income was higher for the three months ended March 31, 2019, as compared with 2018. This increase is primarily related to short term investments in U.S. Treasury Securities which we purchased with the proceeds from the sale of the Core business in September 2018.

Income Taxes

The Company’s income tax expense was $6,000 with an effective tax rate of -0.1% for the three months ended March 31, 2019, as compared to an expense of $11,000, with an effective tax rate of -0.4%, for the three months ended March 31, 2018. The effective

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~~BOVIE~~APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

~~Professional services~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2017 2016 Change 2017 2016 Change
Professional services expense $ 421
$ 292
44.2 % $ 1,291
$ 1,045
23.4 %
Percentage of revenue 4.5 % 2.9 % 1.6 % 4.7 % 3.9 % 0.8 %

~~During~~rate differs from the three and nine months ended September 30, 2017, professional services expense increased approximately 44.2% and 23.4%, respectively, compared to the prior year. The change was attributable to increases in legal and regulatory consulting expenses related to the Advanced Energy segment.

~~Salaries and related costs~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2017 2016 Change 2017 2016 Change
Salaries and related expenses $ 2,080
$ 2,192
(5.1 )% $ 6,783
$ 6,492
4.5 %
Percentage of revenue 22.3 % 21.8 % 24.6 % 23.9 %

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

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

~~Selling, general and administrative expenses~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2017 2016 Change 2017 2016 Change
SG&A Expense $ 2,617
$ 2,141
22.2 % $ 7,950
$ 6,354
25.1 %
Percentage of revenue 28.0 % 21.3 % 28.9 % 23.4 %

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

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

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~~BOVIE MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANAYLSIS OF~~

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

~~Other Income (Expense), net~~

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

~~Interest expense~~

~~Total net interest expense decreased for the three and nine months ended September 30, 2017 as compared with 2016,~~statutory rate primarily due to a ~~decline~~valuation allowance on our net operating loss carry forward and foreign taxes of $6,000.

As a result of historical losses exclusive of discontinued operations and the Company’s expectation to continue to generate losses in the ~~mortgage note principal balance.~~

~~Change in fair value of liabilities~~

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

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

~~Income Taxes~~

~~We recorded~~does not anticipate recording an income tax ~~expense~~benefit related to these deferred tax assets. The Company will reassess the realization of ~~$6,000~~deferred tax assets each reporting period and ~~$15,000 during~~will be able to reduce the ~~three and nine months ended September 30, 2017, respectively. A~~ valuation allowance ~~is required~~ to ~~be provided to reduce~~the extent the financial results of the operations improve and it becomes more likely than not that the deferred tax assets ~~to a level which, more likely than not,~~ will be realized. Management evaluated the positive and negative evidence in determining the realizability of the net deferred tax asset. In determining the need for valuation allowance, we reviewed historic operating results, the current period operating results, as well as future income forecasts based on the projections, management concluded that it was not more likely that the Company should realize its net deferred tax assets through future operating results and the reversal of taxable temporary differences. If in the future we determine that we will be able to realize any of the net deferred tax assets, we will make adjustment to the valuation allowance, which would increase our income in the period that the determination is made.realizable.

Product Development

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

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~~BOVIE MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANAYLSIS OF~~

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

Reliance on Collaborative, Manufacturing and Selling Arrangements

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

We ~~are~~ also ~~dependent on~~perform development services for OEM customers who have no legal obligation to purchase products from us. Should such customers fail to give us purchase orders for the product after development, our future business and value of related assets could be negatively affected. Furthermore, no assurance can be given that such customers will give sufficient high priority to our products. ~~Finally, disagreements or disputes may arise between us and our customers, which could adversely affect production and sales~~Additionally, we will function as an OEM-provider of ~~our products.~~generators to Symmetry for a period of at least 10 years.

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

Liquidity and Capital Resources

On August 30, 2018, we sold our Core business segment and other related assets for $97 million in cash. At December 31, 2018, we had approximately $78 million in Cash, Cash Equivalents and Short-Term Investments, after making estimated Federal and State tax payments of $13.3 million. Our working capital at ~~September 30, 2017~~March 31, 2019 was approximately ~~$17.4~~$76.7 million compared with ~~$21.3~~$81.2 million at December 31, 2016. Accounts receivable days sales outstanding were 40 days and 41 days at September 30, 2017 and 2016, respectively. The number of days sales in inventory, which is the total inventory available for production divided by the 12-month average cost of materials, increased 1 day to 152 days equating to an inventory turn ratio of 1.92 at September 30, 2017 from 151 days and an inventory turn ratio of 2.30 at September 30, 2016. The lower inventory turn ratio is mainly attributable to an inventory build in support of new, extended and improved product lines.2018.

For the ~~nine months~~quarter ended ~~September 30, 2017,~~March 31, 2019, net cash used in operating activities ~~was~~is approximately ~~$4.4~~$5.1 million compared with net cash used byin operating activities of approximately ~~$2.3~~$1.1 million ~~for the same period~~ in ~~2016. The net cash used in operating activities was attributed to $4.2 million of net loss, increases of inventory of $1.4 million, partially offset by non-cash inflows of $1.2 million.~~2018.

Net cash ~~used in~~from investing activities ~~was attributed to purchases~~is $20.8 million, primarily related the shift in categorization of ~~property~~short-term investments and ~~equipment for approximately $431,000 during the nine months ended September 30, 2017, compared to $182,000~~ cash ~~used for the same period~~equivalents in ~~2016.~~our Treasury Bill investments.

Cash ~~used in financing activities was approximately $179,000 during the nine months ended September 30, 2017, compared to cash used in~~from financing activities of approximately ~~$1,000~~$0.1 million relates to cash collected for stock options during the ~~same period~~quarter ended March 31, 2019. Cash used in ~~2016.~~2018 financing activities in financing activities in 2018 was $0.1 million related to the repayment of our mortgage at the Clearwater, FL, facility.

~~On June 28, 2016,~~At March 31, 2019, we had purchase commitments for inventories totaling approximately $5.8 million, substantially all of which is expected to be purchased by the ~~Company entered into a transaction with Bank~~end of Tampa, a Florida banking corporation (“Lender”) wherein Lender amended the terms of a mortgage loan (“the Loan”) originally executed on March 20, 2014 with a principal amount of $3,592,000. The Initial Maturity Date of the Loan was extended to July 20, 2019 from March 19, 2017, and the Extended Maturity Date was amended to July 20, 2024 from March 20, 2022. In addition, the Lender released as collateral to the Loan, the Company’s working capital accounts in exchange for a negative covenant limited to $2,000,000 of the aggregate indebtedness secured by these accounts.

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

2019.

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~~BOVIE~~APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

~~The Loan documents contain customary financial covenants, including~~

Our manufacturing services agreements requires Symmetry to provide us with a covenant that the Company maintains a minimum liquidity of $750,000. Should we desire to extend the Loan beyond July 20, 2019, we must maintain a Debt Service Coverage Ratio for each of the preceding four quarters of not less than 1.0 to 1.0.

~~Approximate future expected principal and interest payments under the Loan agreement are as follows as of September 30, 2017:~~

(In thousands)
2017 (remaining three months)
$ 62
2018 247
2019 2,541
Total $ 2,850

~~At September 30, 2017, we had purchase commitments for inventories totaling approximately $3.6 million, substantially all~~twelve-month rolling production forecast, of which ~~is expected~~four months are binding, non-cancelable orders, subject to ~~be purchased by the end of 2017.~~certain termination rights.

2223

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~~BOVIE~~APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Critical Accounting Estimates

In preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), we have adopted various accounting policies. Our most significant accounting policies are disclosed in Note 2 to the consolidated financial statements included in our report on Form 10-K for the year ended December 31, ~~2016,~~2018, filed on March ~~10, 2017.~~14, 2019.

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 based~~stock-based compensation and income taxes are updated as appropriate, which in most cases is at least quarterly. We base our estimates on historical experience, or various assumptions that are believed to be reasonable under the circumstances and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may materially differ from these estimates.

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

Inventory reserves

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.

~~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.

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~~BOVIE MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANAYLSIS OF~~

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

Stock-based Compensation

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

Litigation Contingencies

~~From time to time,~~In accordance with authoritative guidance, we ~~are exposed to claims~~accrue a liability in our consolidated financial statements for these actions when a loss is known or considered probable and ~~litigation arising in~~ the ~~ordinary course~~amount can be reasonably estimated. If the reasonable estimate of ~~business~~a known or ~~otherwise~~probable loss is a range, and ~~use various methods to resolve these matters in~~no amount within the range is a ~~manner that we believe serves~~better estimate than any other, the ~~best interest~~minimum amount of the ~~Company~~range is recorded. If a loss is reasonably possible, but not known or probable, and ~~our stockholders. There~~ can be ~~no assurance these actions or other third party assertions will be resolved without costly litigation, or in a manner that is not adverse to our financial position. We do not believe that any of~~reasonably estimated, the currently identified claims or litigation matters will have a material adverse impact on our results of operations, cash flows or financial condition. However, given uncertainties associated with any litigation, if our assessments prove to be wrong, or if additional information becomes available such that we estimate that there is a possibleestimated loss or ~~possible~~ range of loss ~~associated with~~is disclosed in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded, actual results may differ from these ~~contingencies, then we would record the minimum estimated liability, which could materially impact our results~~estimates.

Table of ~~operations, financial position and cash flows.~~Contents

APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

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.

~~We have~~As a result of historical losses exclusive of discontinued operations and the Company’s expectation to continue to generate losses in the near future, the Company recorded a valuation allowance on the net ~~operating loss~~deferred tax asset and does not anticipate recording an income tax ~~credit carry forwards available in certain jurisdictions~~benefit related to ~~reduce future taxable income. Future~~these deferred tax ~~benefits for net operating loss and tax credit carry forwards are recognized to~~assets. The Company will 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 various~~deferred tax ~~business~~assets 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~~reduce the valuation allowance to the extent the financial results of continuing operations improve and it becomes more likely than not that the deferred tax ~~benefits~~assets will be realizable.

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

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

~~Since inception, we have been~~The Company is subject to ~~tax by both~~U.S. 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~~income tax examination. The Company’s 2015 through 2018 U.S. federal income tax returns are subject to examination by the Internal Revenue Service. The Company’s state income tax ~~audits in~~returns are subject to examination for the ~~jurisdictions in which we operate.~~tax years 2014 through 2018.

Inflation

Inflation has not materially impacted the operations of our Company.

Off-Balance Sheet Arrangements

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

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~~BOVIE MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANAYLSIS OF~~

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

Recent Accounting Pronouncements

See Note 45 of the Notes to Consolidated Financial Statements.

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~~BOVIE MEDICAL CORPORATION~~

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

For our disclosures about market risk, please see Part II, Item 7A., ~~"Quantitative~~“Quantitative and Qualitative Disclosures about Market Risk,"” in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. We believe there have been no material changes to the information provided therein.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~We have carried out an~~Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ~~under~~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.

Under the supervision of and with the participation of our ~~management, including our~~ Chief Executive Officer ~~(“CEO”)~~ and Chief Financial Officer, ~~(“CFO”),~~management carried out an evaluation of the effectiveness of the ~~design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended),~~Company's internal control over financial reporting as of ~~September 30, 2017.~~December 31, 2018, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based ~~upon~~on that evaluation, ~~our CEO and CFO~~management concluded that, as of December 31, 2018, the ~~end~~Company's internal control over financial reporting was not effective as a result of the material weaknesses described below.

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

The effectiveness of our internal control over financial reporting as of December 31, 2018 was audited by Frazier & Deeter, LLC, an independent registered public accounting firm, as stated in their report included in Part II, Item 8 of our most recent Form 10-K for the period ended December 31, 2018, contains an adverse opinion on the effectiveness of our internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that ~~period, our disclosure~~there is a reasonable possibility that material misstatements of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

We have identified three material weaknesses: (i) an ineffective control environment due to a lack of sufficient qualified accounting personnel with an appropriate level of knowledge and experience with generally accepted accounting principles, (ii) ineffective control activities due to the lack of documentation and timeliness in executing business process controls, and (iii) ineffective monitoring controls to ascertain whether the components of internal control were present and functioning.

As of March 31, 2019, we continue our remediation efforts related to these deficiencies.

Remediation Efforts to Address Material Weaknesses

We continue to make further enhancements to our control environment by improving documentation of internal controls, guidance in the performance of those controls, communication of expectations, and emphasis on the importance of internal controls. In addition, we continue to make improvements to the level of detail in our risk assessment and clarity of the linkage between risks and internal controls.

We continue to improve upon our risk assessment procedures and the timeliness of those procedures and continue to make progress towards addressing the weaknesses in information and communication beginning the process to better identify, document, and assess information used when performing internal controls.

We also are working to further enhance our policies, procedures, and controls for all key processes, which includes the training of personnel to ensure consistent application of accounting principles and adherence to the Company’s policies, procedures, and controls. We will also be implementing enhanced monitoring procedures to allow for more effective ~~in providing reasonable assurance that (a) the information required~~monitoring of compliance.

We will continue to ~~be disclosed by~~work with third-party specialists, and we have retained a firm to assist us in our remediation efforts. We will also review, document, and (as needed) supplement our controls, with the reports that we filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Ingoal of designing and ~~evaluating~~implementing controls that not only better address both the accuracy and precision of management's review, but also enhance our ~~disclosure~~ability to manage our business.

Management believes the steps outlined above, when fully implemented, will remediate the material weaknesses described above. The Audit Committee of the Board of Directors and management will continue to monitor the implementation of these remediation measures and the effectiveness of our internal controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.over financial reporting on an ongoing basis.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13(a)-15(f) and 15(d)-15(f)) during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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~~BOVIE MEDICAL CORPORATION~~

PART II. Other Information

ITEM 1. Legal Proceedings

~~From time to time, we are exposed to~~The medical device industry is characterized by frequent claims and litigation, ~~arising~~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 ~~otherwise~~former employees, distributors and ~~use various methods~~competitors, and with respect to ~~resolve these matters~~our products and product liability claims, lawsuits and proceedings.

We are involved in a ~~manner~~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

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APYX MEDICAL CORPORATION

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

~~We expense costs~~In addition, as previously disclosed with the Commission on Form 8-K filed April 26, 2019, we have learned that on April 17, 2019, a complaint (the “Complaint”) was filed in the United States District Court for the Middle District of ~~litigation~~Florida by plaintiff Kyle Pritchard, individually and on behalf of all others similarly situated against the Company and Charles D. Goodwin (“Goodwin”), the Company’s President and Chief Executive Officer and a member of the Company’s Board of Directors.

The Complaint (which as of the date hereof has not been delivered through formal process to the Company) seeks class action status on behalf of all persons and entities that acquired the Company’s securities between August 1, 2018 and April 1, 2019 and alleges violations by the Company and Goodwin of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, primarily related to ~~contingencies~~certain public statements concerning the Premarket Notification 510(k) submission made to the US Food and Drug Administration for a new indication for the Company’s J-Plasma® technology for use in dermal resurfacing procedures. 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 ~~periods~~Complaint are entirely without merit. The Company and Goodwin intend to defend themselves vigorously in ~~which~~ the suit. 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 ~~are incurred.~~associated with this claim could have a material adverse impact on our consolidated earnings, financial position or cash flows.

ITEM 1A. Risk ~~factors~~Factors

~~There have been no material changes to the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2016, in response to Item 1A to Part 1 of Form 10-K.~~Not Applicable.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not Applicable.

ITEM 5. Other Information

None.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

ITEM 6. Exhibits

Table of Contents

APYX MEDICAL CORPORATION



2.1		Asset Purchase Agreement, dated as of July 9, 2018, by and between Bovie Medical Corporation and Specialty Surgical Instrumentation Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on July 9, 2018)
3.1		Articles of Incorporation of the Registrant (Incorporated by reference to the Registrant’s report on Form 10-K/A filed on March 31, 2011)
3.2		By laws of the Registrant (Incorporated by reference to the Registrant’s ~~report~~Annual Report on Form 10-K/A filed on March 31, 2011)
3.3		Certificate of ~~Designation~~Amendment of ~~Preferences, Rights and Limitations~~the Certificate of ~~Series A 6% Convertible Preferred Stock~~Incorporation of ~~Bovie Medical Corporation~~the Registrant (Incorporated by reference to the Registrant’s ~~report~~Quarterly Report on Form ~~8-K~~10-Q filed ~~December 16, 2013)~~on November 3, 2017).
3.4		Certificate of ~~Designation of Series B Preferred Stock~~Elimination (Incorporated by reference to ~~Exhibit 3.1~~the Registrant’s Current Report on Form 8-K filed on ~~March 11, 2015.~~May 3, 2018)
3.5*3.5		Certificate of Amendment of the Certificate of Incorporation of the ~~Registrant.~~Registrant (Incorporated by reference to the Registrant's Current Report of Form 8-K filed on December 28, 2018)
31.1*		Certification pursuant to Section 302 of Sarbanes-Oxley Act of 202
31.2*		Certification pursuant to Section 302 of Sarbanes-Oxley Act of 202
32.1*		Certification pursuant to Section 906 of Sarbanes-Oxley Act of 202
32.2*		Certification pursuant to Section 906 of Sarbanes-Oxley Act of 202
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Label Presentation Document

* Filed herewith.

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

Table of Contents

~~BOVIE~~APYX MEDICAL CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	~~Bovie~~Apyx Medical Corporation

Date: ~~November 3, 2017~~May 8, 2020	By:	/s/ ~~Robert L. Gershon~~Charles D. Goodwin II
		~~Robert L. Gershon~~Charles D. Goodwin II
		President, Chief Executive Officer and Director
		(Principal Executive Officer)

Date: ~~November 3, 2017~~May 8, 2020	By:	/s/ ~~Jay D. Ewers~~Tara Semb
		~~Jay D. Ewers~~Tara Semb
		Chief Financial Officer,
		Treasurer and Secretary
		(Principal Financial Officer)



	Preferred Stock					Common Stock
	Shares		Par Value			Shares		Par Value		Additional Paid-In Capital			Accumulated Deficit			Total
Balance December 31, 2015	1,976		$	2		27,051		$	27	$	42,859		$	(19,484	)	$	23,404
Options exercised	—		—			31		—		119			—			119
Warrants exercised	—		—			133		—		316			—			316
Stock based compensation	—		—			—		—		533			—			533
Stock swap to acquire options and warrants	—		—			(73	)	—		(315		)	—			(315		)
Net loss	—		—			—		—		—			(3,428		)	(3,428		)
Balance September 30, 2016	1,976		$	2		27,142		$	27	$	43,512		$	(22,912	)	$	20,629

Balance December 31, 2016	976		$	1		30,860		$	31	$	49,625		$	(23,434	)	$	26,223
Options exercised	—		—			21		—		275			—			275
Conversion of Series B convertible preferred to common stock	(976	)	(1		)	1,951		2		(1		)	—			—
Stock based compensation	—		—			—		—		532			—			532
Stock swap to acquire options and warrants	—		—			—		—		(275		)	—			(275		)
Net loss	—		—			—		—		—			(4,238		)	(4,238		)
Balance September 30, 2017	—		$	—		32,832		$	33	$	50,156		$	(27,672	)	$	22,517



(in thousands)	2013 Placement Agent Warrants
Balance, December 31, 2016	$	203
Change in fair value	(57		)
Balance, September 30, 2017 ⁽¹⁾	$	146



(In thousands)
2017 (remaining three months)	$	47
2018	189
2019	132
2020	73
2021	73
Total	$	514



(In thousands)	Long-term debt
2017 (remaining three months)	$	60
2018	239
2019	2,455
Total	$	2,754



	Three Months Ended September 30, 2017
(In thousands)	Core		OEM		Advanced Energy			Corporate (Other)			Total
Sales	$	6,696	$	525	$	2,126		$	—		$	9,347

Income (loss) from operations ⁽¹⁾	1,699		323		(718		)	(2,438		)	(1,134		)

Interest expense, net	—		—		—			(36		)	(36		)
Change in fair value of derivative liabilities	—		—		—			(69		)	(69		)
Income tax expense	—		—		—			6			6
Depreciation and amortization	—		—		—			171			171



	Three Months Ended September 30, 2016
(In thousands)	Core		OEM		Advanced Energy			Corporate (Other)			Total
Sales	$	6,902	$	1,762	$	1,399		$	—		$	10,063

Income (loss) from operations	2,089		690		(707		)	(2,317		)	(245		)

Interest expense, net	—		—		—			(37		)	(37		)
Change in fair value of derivative liabilities	—		—		—			(683		)	(683		)
Income tax expense	—		—		—			—			—
Depreciation and amortization	—		—		—			201			201



	Nine Months Ended September 30, 2017
(In thousands)	Core		OEM		Advanced Energy			Corporate (Other)			Total
Sales	$	20,959	$	2,030	$	4,546		$	—		$	27,535

Income (loss) from operations ⁽¹⁾	6,471		1,031		(3,821		)	(7,858		)	(4,177		)

Interest expense, net	—		—		—			(103		)	(103		)
Change in fair value of derivative liabilities	—		—		—			57			57
Income tax expense	—		—		—			15			15
Depreciation and amortization	—		—		—			527			527



	Nine Months Ended September 30, 2016
(In thousands)	Core		OEM		Advanced Energy			Corporate (Other)			Total
Sales	$	20,261	$	4,351	$	2,521		$	—		$	27,133

Income (loss) from operations	5,047		2,498		(3,331		)	(6,962		)	(2,748		)

Interest expense, net	—		—		—			(125		)	(125		)
Change in fair value of derivative liabilities	—		—		—			(555		)	(555		)
Income tax expense	—		—		—			—			—
Depreciation and amortization	—		—		—			355			556