ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Executive Level Overview

We are an advanced energy technology company with a passion for elevating people’s lives through innovative products, including our Helium Plasma Technology products marketed and sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market. Renuvion® and J-Plasma® offer surgeons a unique ability to provide controlled heat to tissue to achieve their desired results. We also leverage our deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device manufacturers.

On March 14, 2022, the U.S. Food and Drug Administration (“FDA”) posted a Safety Communication that warns consumers and health care providers against the use of our Advanced Energy products outside of their FDA-cleared indications for general use in cutting, coagulation, and ablation of soft tissue during open and laparoscopic surgical procedures. Following the Safety Communication, we experienced slowed demand for the adoption of our Helium Plasma Technology.

On May 26, 2022, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion Dermal Handpiece for specific dermal resurfacing procedures. On July 18, 2022, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion® APR Handpiece for certain skin contraction procedures.

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

On February 1, 2023, we announced we had submitted a 510(k) premarket notification (“510(k) submission”) for the Renuvion APR Handpiece to the FDA, supported by a clinical study and real-world evidence. The 510(k) submission is intended to expand Renuvion’s indications for use to include a specific indication for the use of the Renuvion APR Handpiece for the coagulation of subcutaneous soft tissues where needed, following liposuction.

On February 27, 2023, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion APR Handpiece for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed. Soft tissue includes subcutaneous tissue.

While we expected that receiving these clearances would materially mitigate the financial effects of the Safety Communication in future periods, we continue to experience reduced demand for the adoption and utilization of our technology and we believe that this may have an adverse effect in future periods.

As part of our plan to accelerate and fully fund the development of our advanced energy business, with a focus in the cosmetic surgery market, we sold our Core business in 2018 for gross proceeds of $97 million. These proceeds were used to launch broad marketing and sales initiatives which resulted in rapid sales growth through December 31, 2021 and into the first quarter of 2022. This planned growth in the business was accompanied by scaled operations, including procurement of components, expanded manufacturing capacity to turn those materials into saleable inventory, additional discretionary expenditures, including increased global participation at trade shows, additional employee trainings, user meetings, increased travel and entertainment expenses, more expansive research and development projects, and additional headcount to support those activities. Additionally, we had and still have, some significant non-recurring discretionary expenditures associated with completing our multi-year marketing initiatives related to our dermal resurfacing and skin laxity clearances.

While sales were continuing to grow into the first quarter of 2022 prior to the FDA Safety Communication, over the last few

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

years, exclusive of our sale of the Core business segment to Symmetry Surgical during 2018, we have incurred recurring net losses and cash outflows from operations and we anticipate that losses will continue in the near term. For the year ended December 31, 2022, we incurred an operating loss of $23.6 million and used $20.3 million of cash in operations. As of December 31, 2022, we had cash and cash equivalents of $10.2 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of these consolidated financial statements.

In an effort to alleviate these conditions, we pursued various funding solutions in order to improve liquidity.

On November 22, 2022, the we filed a shelf registration statement providing us the ability to register securities in the aggregate amount up to $100 million. The shelf registration included an embedded ATM facility for up to $40 million. To date we have not utilized this facility.

On February 17, 2023, we entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”) with MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time.

The Credit Agreement provides for an up to $35 million facility, consisting of senior secured term loans and a secured revolving facility. The Credit Agreement provides for senior secured term loans of up to $25 million, comprised of (i) an initial tranche of $10 million, (ii) a second tranche of $5 million, and (iii) a third tranche of $10 million. The secured revolving facility provides for loans in an aggregate principal amount of up to $10 million, subject to a borrowing base equal to certain percentages of the Company’s eligible accounts receivable and inventory, as determined in accordance with the terms of the Credit Agreement.

For a more in depth description of the terms of the Credit Agreement see Note 20 in Item 8 of this report on Form 10-K.

On February 27, 2023, our Board of Directors approved a plan to sell and leaseback the our real property located in Clearwater, FL. On March 14, 2023, we entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with VK Acquisitions VI, LLC (the “Purchaser”), for the sale of our facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price of $7,650,000. The Purchase Agreement is subject to the satisfactory completion of due diligence by the Purchaser. Upon the closing of the sale of the Property, we will enter into a lease agreement with the Purchaser, pursuant to which the Property will be leased back to us.

For a more in depth description of the terms of the Purchase Agreement see Note 20 in Item 8 of this report on Form 10-K.

During January 2023, we were notified that the IRS examination process of our 2018, 2019 and 2020 tax returns was complete and that the Company's tax refunds were approved for substantially the amount recorded in the Company's Consolidated Balance Sheet at December 31, 2022. As of the date of this report, we are awaiting receipt of the tax refunds.

We also continue to re-assess our operating expenditures and cost structure to be commensurate with our expected levels of revenue and we have the ability to reduce or delay expenditures to enhance and preserve liquidity. We have already reduced some operating expenditures, including a reduction-in-force on January 9, 2023, that reduced our U.S. headcount by 14%.

We believe that the actions already taken, and additional actions that we intend to take to manage operating expenditures, will enable us to meet our obligations for a period of at least one year from the date of issuance of our audited consolidated financial statements. As a result, we believe our plans alleviate substantial doubt about our ability to continue as a going concern. Our audited financial statements do not include any adjustments relating to the carrying amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

Impact of COVID-19, Supply Chain Disruptions and Other Matters

The impact of the COVID-19 outbreak has subsided substantially in the U.S. but continues to result in reduced activity levels outside of the U.S., such as continued restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes or places of business.

In response to the global supply chain instability and inflationary cost increases, we continue to take action to minimize, as much as possible, any potential adverse impacts by working closely with our suppliers to closely monitor the availability of raw

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

material components (i.e., semiconductors and plastics), lead times, and freight carrier availability.We expect global supply chain instability will continue to have an impact on our business, but to date that has not been material to our financial performance. The consequences of global supply chain instability, inflationary cost increases aand the pandemic, and their adverse impact to the global economy, continue to evolve. Accordingly, the significance of the future impact to our business and financial statements remains subject to significant uncertainty.

During 2022, we hosted over 30 Physician Mentor Programs, or “PMPs,” and our efforts to expand our presence and educational programming at industry conferences and trade shows proceeded as expected. In April 2022, we hosted our first in-person Users’ Meeting and had over 200 people in attendance. This program consisted of presentations from key Renuvion® users around the world on various applications for the product. All of the content was recorded and made available on our website portal for reference by all of our users around the world.

Our continued virtual educational events have also included case studies to illustrate how our leading clinician customers have adopted Renuvion®, their strategies for marketing and selling to new patients, and their thoughts on pricing and return on investment. We also engaged with clinician customers outside the U.S. including hosting multiple continuing education training sessions on Renuvion® with our current international distributors and conducting multiple calls with groups of international prospects interested in learning about our Renuvion® technology.

During 2022, we continued to drive sales in our Advanced Energy business by increasing the adoption and utilization of our handpieces in the U.S. cosmetic surgery market and fulfilling demand from distributors in our international markets. Management estimates that our products have been sold in more than 60 countries. As of December 31, 2022, we had a direct sales force of 35 field-based selling professionals and utilized 3 independent sales agencies. We also had 4 sales managers. This selling organization is focused on the use of Renuvion® and J-Plasma® in the cosmetic and hospital surgical markets, supported by our global medical affairs team. This global team of clinical support specialists focuses on supporting our users to ensure optimal outcomes for their patients. In addition, we have invested in training programs and marketing-related activities to support accelerated adoption of Renuvion® into surgeons' practices.

We believe that our continued investment and focus on the following strategic initiatives in 2022 and beyond will position the Company for long-term growth in the cosmetic surgery market:

•To formalize our regulatory strategy to pursue specific clinical indications that will enable us to sell our Renuvion® products for targeted procedures

•To secure new clinical evidence demonstrating the safety and efficacy of our Helium Plasma Technology

•To provide enhanced physician and practice support for our cosmetic surgery customers

•To improve our manufacturing capabilities and efficiencies

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

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

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

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Results of Operations

Sales

Year EndedDecember 31,

Sales by Reportable Segment

Sales by Domestic and International

Total revenue decreased by 8.3% or approximately $4.0 million for the year ended December 31, 2022 when compared with 2021. Advanced Energy segment sales decreased 14.4% or approximately $6.2 million for the year ended December 31, 2022 when compared with 2021. The Advanced Energy sales decrease is due to global decreases in utilization based demand for our handpieces and the adoption of our generator technology following the FDA Safety Communication on March 14, 2022. The Advanced Energy sales decrease was partially offset by an increase in global utilization based demand for our handpieces and adoption of our generator technology in international markets for most of the first quarter before the FDA Safety Communication.

The OEM product line consists of proprietary products designed specifically for third party equipment manufacturers. Revenue for this product line increased 39.3%, or approximately $2.2 million, when compared to 2021. The increase in OEM sales was due to increases in sales volume to existing customers, including Symmetry Surgical, under our 10-year generator manufacturing and supply agreement, as well as incremental new sales upon the commencement of the supply arrangement related to the completion of the development portion of some of our OEM development agreements.

International sales represented approximately 29.9% and 32.0% of total revenues for the years ended December 31, 2022 and 2021, respectively. Management estimates our products have been sold in more than 60 countries through local dealers coordinated by sales and marketing personnel through our facilities in Clearwater, Florida and Sofia, Bulgaria.

Gross Profit

Year EndedDecember 31,

Percentage of sales 34.6 % 30.7 %

Percentage of sales 65.4 % 69.3 %

Our gross profit margin as a percentage of sales decreased by 3.8% during the year ended December 31, 2022 compared with 2021. The decrease in gross profit margins for the year ended December 31, 2022 from the prior year is primarily attributable to changes in the sales mix between our two segments, with our OEM segment comprising a higher percentage of total sales, product mix within our Advanced Energy Segment and higher material and inbound shipping costs to manufacture our inventory. These decreases were partially offset by geographic mix within our Advanced Energy segment, with domestic sales comprising a higher percentage of total sales and the mix of newer product models as we obtain registrations, allowing these products to be introduced into the markets we serve.

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Other Costs and Expenses

Research and development

Year EndedDecember 31,

Percentage of sales 10.2 % 8.9 %

Our expenditures for research and development related activities increased by 5.2% or approximately $0.2 million for the year ended December 31, 2022, compared with 2021. This increase was primarily due to increases in payroll and related benefits of R&D personnel ($0.3 million) partially offset by lower spending on our two investigational device exemption (IDE) clinical studies and other product development initiatives ($0.1 million).

Professional services

Year EndedDecember 31,

Percentage of sales 20.3 % 15.6 %

Professional services expenses increased 19.2%, or approximately $1.5 million for the year ended December 31, 2022, compared with 2021. This increase was primarily attributable to increases in legal expenses ($0.4 million), primarily associated with the estimated loss recorded for the class action lawsuit, Board of Directors option expense ($0.4 million), marketing consulting expense ($0.3 million), accounting and auditing fees ($0.2 million), physician consulting fees ($0.2 million), and employee recruitment expense ($0.2 million). These increases were partially offset by a decrease in stock compensation expense for our partner physicians ($0.2 million).

Salaries and related costs

Year EndedDecember 31,

Percentage of sales 41.8 % 36.1 %

Salaries and related expenses increased 6.3% or approximately $1.1 million for the year ended December 31, 2022, compared to 2021. The increase was primarily driven by higher compensation and benefits ($1.7 million) and stock compensation expense ($1.2 million) as compared to the same period in the prior year. These increases are partially offset by a decrease in bonus expense ($1.8 million) as we determined we did not meet our 2022 bonus objectives, and accordingly, we have recorded no annual bonus expense in 2022.

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Selling, general and administrative expenses

Year EndedDecember 31,

Percentage of sales 46.0 % 38.4 %

Selling, general and administrative expense increased by 10.0% or approximately $1.9 million for the year ended December 31, 2022, compared with 2021. The change is primarily driven by higher insurance expense, including product liability claims on our policies ($1.9 million), travel and entertainment expense ($1.1 million), advertising expense, including trade show fees and related costs ($1.0 million), employee training and other meeting expenses ($0.7 million), bad debt expense ($0.2 million), and other public company related costs ($0.1 million). These increases were partially offset by decreases in commissions on Advanced Energy sales ($2.5 million), OEM product recall costs ($0.2 million) as we experienced no product recalls in 2022, lower technology costs ($0.2 million) and lower regulatory registration expenses ($0.2 million).

Interest Income

Year EndedDecember 31,

Interest income $ 157 $ 11

Percentage of sales 0.4 % — %

Interest income increased approximately $0.1 million for the year ended December 31, 2022, compared with 2021. This increase is due to higher yields on our investments in money market funds and U.S. Treasury securities included in cash and cash equivalents.

Other (Loss) Income, net

Year EndedDecember 31,

Other income (losses), net $ 509 $ (373)

Percentage of sales 1.1 % (0.8) %

Other income (losses), net increased 236.5% for the year ended December 31, 2022, compared with 2021. This increase was primarily attributable to the release of a portion of our joint and several payroll liability due to the lapse of the statute of limitations on a portion of the liability ($0.6 million) and the wind down of the supply arrangement with Symmetry in the Core business segment ($0.3 million).

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Income Taxes

Twelve Months EndedDecember 31,

Income tax expense (benefit) $ 367 $ 380 (3.4) %

Effective tax rate (1.6) % (2.6) %

Income tax expense was approximately $0.4 million, with effective tax rates of (1.6)% and (2.6)%, respectively, for the years ended December 31, 2022 and 2021. For each of the years ended December 31, 2022 and 2021, the effective tax rate differs from the statutory rate primarily due to the valuation allowance on our Federal and State net operating losses (NOLs) combined with interest and penalties on our uncertain tax positions.

Liquidity and Capital Resources

At December 31, 2022, we had approximately $10.2 million in cash and cash equivalents as compared to approximately $30.9 million in cash and cash equivalents at December 31, 2021. Our working capital at December 31, 2022 was approximately $31.1 million compared with $47.5 million at December 31, 2021. The decrease in working capital at December 31, 2022 was primarily due to the net loss incurred by the Company in 2022 following the Safety Communication on March 14, 2022, excluding non-cash activity, comprised primarily of stock-based compensation expense. Following the Safety Communication we had cash outflows of $5.6 million related to growth in inventory due to existing non-cancellable purchase orders when the Safety Communication was issued and management's decision to continue to build inventory with these materials through the uncertainty. The lower sales as a result of the Safety Communication also resulted in operating cash inflows of $1.9 million related to lower accounts receivable balances on the lower sales.

For the year ended December 31, 2022, net cash used in operating activities was approximately $20.3 million, which principally funded our loss from operations of $23.6 million, compared with net cash used in operating activities of approximately $10.4 million in 2021. As discussed in the Executive Level Overview, our operating loss, cash used in operations and current cash and cash equivalents balance of $10.2 million raise substantial doubt about our ability to continue as a going concern for a period of at least one year from the date of issuance of our consolidated financial statements.

In an effort to alleviate these conditions, we pursued various funding solutions in order to improve liquidity.

For a more in depth description of the terms of the Credit agreement see Note 20 in Item 8 of this report on Form 10-K.

For a more in depth description of the terms of the Credit Agreement see Note 20 in Item 8 of this report on Form 10-K.

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

LLC (the “Purchaser”), for the sale of our facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price of $7,650,000. The Purchase Agreement is subject to the satisfactory completion of due diligence by the Purchaser. Upon the closing of the sale of the Property, we will enter into a lease agreement with the Purchaser, pursuant to which the Property will be leased back to us.

For a more in depth description of the terms of the Purchase Agreement see Note 20 in Item 8 of this report on Form 10-K.

Net cash used in investing activities for the years ended December 31, 2022 and 2021, were $1.0 million and $0.7 million, respectively, related to purchases of property and equipment.

At December 31, 2022, we had purchase commitments for inventories totaling approximately $4.1 million, all of which is expected to be purchased by the end of 2023.

Critical Accounting Estimates

In preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), we have adopted various accounting policies. Our most significant accounting policies are disclosed in Note 2 to the consolidated financial statements.

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

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

Stock-Based Compensation

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

Expected life

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

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

Volatility

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

Accounts Receivable Allowance

We maintain a reserve for uncollectible accounts receivable. When evaluating the adequacy of the allowance for doubtful accounts, we analyze specific unremitted customer balances for known collectability issues, review historical bad debt experience, customer credit worthiness and economic trends, and we make estimates in connection with establishing the allowance for doubtful accounts, including the future impacts of current trends. Changes in estimates are reflected in the period they are made. If the financial condition of our customers deteriorates, resulting in an inability to make payments, additional allowances may be required.

Inventory Obsolescence Allowance

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

Litigation Contingencies

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

Income Taxes

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

As a result of historical losses and our expectation to continue to generate losses in the near future, we recorded a valuation allowance on our net deferred tax assets. Exclusive of the carryback provisions of the CARES Act and the associated income tax benefit recognized in 2020, we do not anticipate recording an income tax benefit related to our deferred tax assets. We will reassess the realization of deferred tax assets each reporting period and will be able to reduce the valuation allowance to the extent our results of operations improve, and it becomes more likely than not that the deferred tax assets will be realized. As

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Management has not fully determined the timing of when it will generate taxable income in the U.S., we continued to record a valuation allowance on the net deferred tax assets balance as of December 31, 2022.

We assess the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained based on the technical merit of the position.

Inflation

The consequences of the pandemic, global supply chain instability and inflationary cost increases and their adverse impact to the global economy, continue to evolve. Accordingly, the significance of the future impact to our business and financial statements remains subject to significant uncertainty. Inflation has not, to date, materially impacted our operations or financial performance. However, as these trends continue for raw materials, freight, and labor costs, our future financial performance could be adversely impacted.

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

See Note 3 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

Not required.

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APYX MEDICAL CORPORATION

ITEM 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL INFORMATION

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 49) 37

Notes to Consolidated Financial Statements 43

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Report of Independent Registered Public Accounting Firm

Stockholders and the Board of Directors

Apyx Medical Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Apyx Medical Corporation and its subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Going Concern

As described in Note 1 to the consolidated financial statements, the Company disclosed certain adverse conditions that raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of the consolidated financial statements. The Company further disclosed certain plans identified by management, which involve the use of significant judgment, that management believes it can implement that alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern.

We identified the Company’s ability to continue as a going concern as a critical audit matter because of certain significant assumptions management made in concluding management’s plans alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern, including the reasonableness of the assumptions underlying management’s cash flow forecast for a period of one year from the date of issuance of the consolidated financial statements. Auditing management’s assumptions involved a high degree of auditor judgment and an increase in audit effort, including the use of an internal specialist, due to the impact these assumptions have on the conclusion that management’s plans alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern.

Our audit procedures related to the Company’s ability to continue as a going concern included the following, among others:

•We obtained management’s going concern assessment and evaluated the reasonableness of the conclusion that management’s plans alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern by considering both the likelihood that management could implement its plans and how the implementation of those plans impacted the identified adverse conditions.

•We evaluated management’s cash flow forecast by performing the following procedures, among others:

◦We evaluated the reasonableness of the forecasted nature, amount and timing of operating expenditures expected to be reduced or delayed over the course of a year from the date of issuance of the consolidated financial statements based on our understanding of the Company’s operations, cost structure, historical expenditures and actions taken to date by management.

◦We evaluated the Company’s ability to comply with its debt covenants under the Company’s new credit agreement, which was executed in February 2023.

◦We obtained and read correspondence between the Internal Revenue Service and the Company evidencing approval of the amount of the Company’s income tax receivable.

◦We obtained and read the purchase and sale agreement between the Company and a third party for the sale and leaseback of the Company’s building.

◦We considered the Company’s current shelf registration and the embedded at-the-market facility by evaluating management’s intent and ability to execute on a public offering.

•With the assistance of an internal specialist, we evaluated the accuracy and completeness of the Company’s financial statement disclosure and their compliance with accounting principles generally accepted in the United States of America.

/s/ RSM US LLP

We have served as the Company's auditor since 2020.

Orlando, Florida

March 16, 2023

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APYX MEDICAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

ASSETS

Current assets:

Inventories, net of provision for obsolescence of $457 and $263 11,797 6,778

Prepaid expenses and other current assets 2,737 1,926

Operating lease right-of-use assets 710 121

Finance lease right-of-use assets 115 178

LIABILITIES AND EQUITY

Current liabilities:

Accrued expenses and other current liabilities 8,928 10,287

Current portion of operating lease liabilities 216 122

Current portion of finance lease liabilities 37 165

Long-term operating lease liabilities 470 —

Long-term finance lease liabilities 73 18

Long-term contract liabilities 1,408 1,323

Commitments and Contingencies (Note 17)

EQUITY

Non-controlling interest 211 305

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

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APYX MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Year Ended December 31,

Other costs and expenses:

Interest expense (15) (10)

Other income (losses), net 509 (373)

Total other income (loss), net 651 (372)

Loss from operations before income taxes (22,911) (14,820)

Net loss attributable to non-controlling interest (94) (28)

Net loss attributable to stockholders $ (23,184) $ (15,172)

Loss per share - basic and diluted $ (0.67) $ (0.44)

Weighted average number of shares outstanding - basic and diluted 34,516 34,332

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

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APYX MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands)

Shares Par Value Total Equity

Contributions from non-controlling interest — — — — 195 195

Shares issued on stock options exercises for cash 13 — 67 — — 67

Stock based compensation — — 5,088 — — 5,088

Shares issued on net settlement of stock options 108 — — — — —

Shares issued on stock options exercises for cash 106 1 364 — — 365

Stock based compensation — — 6,697 — — 6,697

Shares issued on net settlement of stock options 82 — — — — —

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

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APYX MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 890 903

Provision for inventory obsolescence 240 109

Provision for product warranties (2) 318

Loss on disposal of property and equipment 75 48

Provision for allowance for doubtful accounts 315 128

Changes in current assets and liabilities:

Income tax receivables 97 12

Prepaid expenses and other assets (523) 1,355

Accrued expenses and other liabilities (1,208) 3,396

Net cash used in operating activities (20,280) (10,449)

Cash flows from investing activities

Purchases of property and equipment (1,010) (723)

Net cash used in investing activities (1,010) (723)

Cash flows from financing activities

Proceeds from stock option exercises 365 67

Repayment of finance lease liabilities (148) (238)

Contributions from non-controlling interests — 195

Net cash provided by financing activities 217 24

Effect of exchange rates on cash 395 103

Net change in cash and cash equivalents (20,678) (11,045)

Cash and cash equivalents, beginning of year 30,870 41,915

Cash and cash equivalents, end of year $ 10,192 $ 30,870

Cash paid for:

Interest expense $ 15 $ 10

Non cash activities:

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

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS

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

The Company is an advanced energy technology company with a passion for elevating people’s lives through innovative products, including its Helium Plasma Technology products marketed and sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market. Renuvion® and J-Plasma® offer surgeons a unique ability to provide controlled heat to tissue to achieve their desired results. The Company also leverages its deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device manufacturers.

As part of its plan to accelerate and fully fund the development of its advanced energybusiness, with a focus in the cosmeticsurgery market, the Company sold its Core business in 2018 for gross proceeds of $97 million.These proceeds were used to launch broad marketing and sales initiatives which resulted in rapid sales growth through December 31, 2021 and into the first quarter of 2022.This planned growth in the business was accompanied by scaled operations, including procurement of components, expanded manufacturing capacity to turn those materials into saleable inventory, additional discretionary expenditures, including increased global participation at trade shows, additional employee trainings, user meetings, increased travel and entertainment expenses, more expansive research and development projects, and additional headcount to support those activities. Additionally, the Company had, and still has, some significant non-recurring discretionary expenditures associated with completing its multi-year marketing initiatives related to its dermal resurfacing and skin laxity clearances.

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

On May 26, 2022, the Company announced that it had received 510(k) clearance from the FDA for the use of the Renuvion® Dermal Handpiece for specific dermal resurfacing procedures. On July 18, 2022, the Company announced that it had received 510(k) clearance from the FDA for the use of the Renuvion® APR Handpiece for certain skin contraction procedures.

While management expected that receiving these clearances would materially mitigate the financial effects of the Safety Communication in future periods, the Company continues to experience reduced demand for the adoption and utilization of its technology and management believes that this may have an adverse effect in future periods.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these consolidated financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the condensed consolidated financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

While sales were continuing to grow into the first quarter of 2022 prior to the FDA Safety Communication, over the last few years, exclusive of the Company’s sale of the Core business segment to Symmetry Surgical during 2018, it has incurred recurring net losses and cash outflows from operations and the Company anticipates that losses will continue in the near term. During the year ended December 31, 2022, the Company incurred an operating loss of $23.6 million and used $20.3 million of cash in operations. As of December 31, 2022, the Company had cash and cash equivalents of $10.2 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of these consolidated financial statements.

In an effort to alleviate these conditions, the Company pursued various funding solutions in order to improve liquidity.

On November 22, 2022, the Company filed a shelf registration statement providing it the ability to register securities in the aggregate amount up to $100 million. The shelf registration included an embedded ATM facility for up to $40 million. To date the Company has not utilized this facility.

On February 17, 2023, the Company entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”) with MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time.

For a more in depth description of the terms of the Credit Agreement see Note 20.

On February 27, 2023, the Company’s Board of Directors approved a plan to sell and leaseback the Company's real property located in Clearwater, FL. On March 14, 2023, the Company entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with VK Acquisitions VI, LLC (the “Purchaser”), for the sale of the Company's facility located at 5115 Ulmerton Road, Clearwater, Florida, as more fully described in the Purchase Agreement (collectively, the “Property”) for a purchase price of $7,650,000. The Purchase Agreement is subject to the satisfactory completion of due diligence by the Purchaser. Upon the closing of the sale of the Property, the Company will enter into a lease agreement with the Purchaser, pursuant to which the Property will be leased back to the Company.

For a more in depth description of the terms of the Purchase Agreement see Note 20.

During January 2023, the Company was notified that the IRS examination process of our 2018, 2019 and 2020 tax returns was complete and that the Company's tax refunds were approved for substantially the amount recorded in the Company's Consolidated Balance Sheet at December 31, 2022. As of the date of this report, the Company is awaiting receipt of the tax refunds.

The Company also continues to re-assess its operating expenditures and cost structure to be commensurate with expected levels of revenue and management has the ability to reduce or delay expenditures to enhance and preserve liquidity. Management has already reduced some operating expenditures, including a reduction-in-force on January 9, 2023, that reduced the Company's U.S. headcount by 14%.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Management believes that the actions already taken, and additional actions that it intends to take to manage operating expenditures, will enable the Company to meet its obligations for a period of at least one year from the date of issuance of these audited consolidated financial statements. As a result, management believes its plans alleviate substantial doubt about the Company's ability to continue as a going concern. These audited financial statements do not include any adjustments relating to the carrying amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Consolidated Financial Statements

The accompanying consolidated financial statements include the accounts of Apyx, its wholly owned subsidiary, Apyx Bulgaria, EOOD, and its 51% owned subsidiary, Apyx SY Medical Devices (Ningbo) Co., Ltd. (collectively, “Apyx,” or the “Company”). All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions the Company is required to make.

Cash and Cash Equivalents

Holdings of highly liquid investments with original maturities of three months or less from the date of purchase are considered to be cash equivalents. As of December 31, 2022 and 2021, all of the Company’s investments are in money market funds or in Treasury Bills with original maturities of three months or less and are included in cash and cash equivalents.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of trade accounts receivable. With respect to cash, the Company frequently maintains cash and cash equivalent balances in excess of federally insured limits; it has not experienced any losses in such accounts.

Trade Accounts Receivable and Allowance for Doubtful Accounts

The Company's standard credit terms for billings range from net 30 days to net 120 days, depending on the customer agreement. Accounts receivable are determined to be past due if payments are not made in accordance with such agreements and an allowance is generally recorded for accounts that become three months past due, or sooner if there are other indicators that the receivables may not be recovered. Customary collection efforts are initiated, and receivables are written off when the Company determines they are not collectible and abandons these collection efforts.

The Company evaluates the allowance for doubtful accounts on a regular basis for adequacy based upon its periodic review of the collectability of the receivables in light of historical experience, adverse situations that may affect its customers’ ability to pay and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Management believes that the allowances for doubtful accounts of approximately $0.7 million and $0.4 million at December 31, 2022 and 2021, respectively, are adequate to provide for probable bad debts.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first in, first out basis. Finished goods and work-in-process inventories include material, labor and overhead costs. Factory overhead costs are allocated to manufactured inventory based upon labor hours.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company monitors inventory usage to determine if the carrying value of any items should be adjusted due to lack of demand for the item and adjusts inventory for estimated obsolescence or unusable inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the assets. The amortization of leasehold improvements is based on the shorter of the lease term or the life of the improvement. Betterments and major improvements, which extend the life of the asset, are capitalized, whereas maintenance and repairs and routine improvements are expensed as incurred. The estimated useful lives are: buildings and improvements, 39 years; machinery and equipment, 3-10 years; furniture and fixtures, 5-10 years; computer equipment and software, 3-5 years; and molds, 7-15 years.

Valuation of Long-Lived Assets

The Company reviews long-lived assets for recoverability if events or changes in circumstances indicate that the assets may have been impaired. This circumstance exists when the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. In those cases, an impairment loss is recognized to the extent that the assets’ carrying amount exceeds its fair value. Any impairment losses are not restored in the future if the fair value increases. At December 31, 2022 and 2021, the Company believes the remaining carrying values of its long-lived assets are recoverable.

Product Warranties

The Company provides a four year limited warranty on end-user sales of its Renuvion®/J-Plasma® generators, a two year warranty on mounting fixtures, and a one-year warranty on certain accessories. The Company estimates and provides for future costs for product warranties in cost of sales at the time revenue is recognized. The Company bases its product warranty costs on related material costs, repair labor costs and shipping costs. The Company estimates the future cost of product warranties by considering historical material, repair labor, and shipping costs, and applying the experience rates to the outstanding warranty period for products sold. It is reasonably possible that actual results could differ from those estimates.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that the Company expects to receive for those goods or services. To recognize revenue, the Company (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when, or as, it satisfies the performance obligation(s). For sales of the Company's Advanced Energy products (Renuvion®/J-Plasma®), this is at a point in time when title has been transferred to the customer, which is generally at the time of shipment or receipt by customer for FOB destination terms. For sales of products under its OEM agreements, the Company recognizes revenue over time when no alternative use exists for the manufactured goods and the Company has rights to payment. Presently, the Company does not stock any significant completed goods under its OEM agreements, accordingly, the recognition of revenue under these agreements approximates point in time recognition. The following policies apply to its major categories of revenue transactions:

•The majority of sales to customers are evidenced by firm purchase orders. Generally, title and the risks and rewards of ownership are transferred to the customer when the product is shipped. Payment by the customer is due under fixed payment terms.

•Product returns are only accepted at the Company's discretion and in accordance with its “Returned Goods Policy”. Historically, the level of product returns has not been significant. Accruals for sales returns, rebates and allowances are made as a reduction of revenue based upon an analysis of historical customer returns and credits, rebates, discounts and current market conditions.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

•The terms of sale to customers generally do not include any obligations to perform future services. Limited warranties are generally provided for sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data.

•In connection with the execution of OEM supply agreements, the Company may enter into an accompanying product development agreement. If the Company enters into a product development agreement, and development of the goods does not represent a performance obligation on a standalone basis, the Company defers the development fees billed to customers and the associated costs. Recognition of the deferred billings and costs occurs as the Company performs on the accompanying supply arrangements.

Advertising Costs

Advertising costs are expensed as incurred. The amounts of advertising costs, including trade shows, were approximately $2.3 million and $1.3 million for the years ended December 31, 2022 and 2021, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation. FASB ASC 718 requires recognizing compensation expense for all share-based payment awards made to employees, directors and non-employees based upon the grant date fair value of such awards. It accounts for forfeitures as they occur. The standard covers employee stock options, restricted stock and other equity awards. The Company utilizes a Black-Scholes model to estimate the grant date fair value of stock option awards. For employee and director awards, compensation expense is recognized on a straight-line basis over the vesting periods. For non-employee awards, compensation expense is recorded for non-forfeitable, fully vested awards at the grant date. For other awards granted to non-employees, compensation cost is recognized as services are provided, which approximates a straight-line basis over the vesting period.

Litigation Contingencies

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

Earnings (Loss) Per Share

The Company computes basic (loss) earnings attributable to common stockholders per share by dividing net (loss) income attributable to common stockholders by the weighted average number of common shares outstanding for the reporting period. Diluted (loss) earnings per share attributable to common stockholders gives effect to all potential dilutive shares outstanding during the period. The number of dilutive shares is calculated using the treasury stock method which reduces the effective number of shares by the amount of shares the Company could purchase with the proceeds of assumed exercises. Anti-dilutive units are excluded from the calculation of diluted shares. In periods of loss, all potentially dilutive units are anti-dilutive and are excluded from the calculation of diluted income (loss) per share.

Research and Development Costs

Research and development expenses are charged to operations as incurred.

Income Taxes

The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC Topic 740, Income Taxes. Under the liability method, deferred taxes are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using tax rates expected to be in effect during the years in which the deferred taxes reverse. The Company accounts for interest and penalties on income taxes as income tax expense. A valuation allowances is recorded when it is more likely than not that a tax benefit will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income, the timing of reversals of temporary differences, and the availability of tax

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

planning strategies. As of December 31, 2022 and 2021, the Company recorded a valuation allowance on the net deferred tax assets.

The Company assesses the realizability of deferred tax assets each reporting period and will be able to 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 assets will be realized. As Management has not fully determined the timing of when it will generate taxable income in the U.S., the Company will continue to record a full valuation allowance on the net deferred tax assets as of December 31, 2022.

Foreign Currency Transactions

The functional currency of Apyx Bulgaria is the U.S. dollar. The monetary assets and liabilities that are denominated in a currency other than U.S. dollar are remeasured into U.S. dollars at the exchange rate on the balance sheet date, while nonmonetary items are remeasured at historical rates. Revenue and expenses are remeasured at weighted average exchange rates during the period. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in selling, general and administrative expenses in the Consolidated Statements of Operations and were not material for the years ended December 31, 2022 and 2021.

Reclassifications

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

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, contract assets, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update, as originally issued, was effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates of these standards for Smaller Reporting Companies until fiscal years beginning after December 15, 2022. The Company currently expects to continue to qualify as a Smaller Reporting Company, based upon the current SEC definition and, as a result, will be utilizing the deferred elective date. While the Company is in the process of determining the effects of the adoption of the standard on the consolidated financial statements, it does not expect the impact to be material.

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

NOTE 4. DISPOSITION OF THE CORE BUSINESS

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

In connection with the Asset Purchase Agreement, the Company entered into an Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Symmetry for a four-year term, which expired August 30, 2022, whereby it manufactured certain Core products and sold them to Symmetry at agreed upon prices. Any activity resulting from this agreement is netted and reported in the Consolidated Statements of Operations as other income (loss). Core activity for 2022 amounted to $0.6 million with cost of sales equivalents of $0.6 million and other related expenses of $0.1 million for net other loss of $0.1 million. Core activity for 2021 amounted to $6.5 million with cost of sales equivalents of $5.5 million and other related expenses of $1.5 million for net other loss of $0.4 million.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 5. INTEREST IN JOINT VENTURE INVESTMENT

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

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

Year Ended December 31,

Beginning interest in China JV $ 317 $ 144

Contributions — 203

Net loss attributable to Apyx (98) (30)

Ending interest in China JV $ 219 $ 317

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 6. INVENTORIES

Inventories consisted of the following:

Less: provision for obsolescence (457) (263)

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Computer equipment and software 1,420 1,535

Less: accumulated depreciation and amortization (5,041) (5,316)

Property and equipment in service 6,254 5,921

Construction in progress 507 654

Property and equipment, net $ 6,761 $ 6,575

Total depreciation expense was $0.7 million for the years ended December 31, 2022 and 2021. Depreciation expense is included within cost of goods sold and selling, general and administrative expense in the Consolidated Statements of Operations.

NOTE 8. LEASES

The Company does not recognize leases with terms less than twelve months in duration, or that have variable only payments, in its Consolidated Balance Sheet as right-of-use assets and lease liabilities. The Company has adopted the practical expedient which allows for the Company to not separate lease and non-lease components of contracts. Accordingly, non-lease components are included in the measurement of the Company’s lease liabilities and right-of-use assets. If the Company is aware of the implicit rate in leases, the Company determines the operating lease liability using the implicit rate. For those leases where the Company is not aware of the implicit rate in the lease, the Company utilizes an incremental borrowing rate, which is indicative of its collateralized borrowing rate. We utilized rates of 1.83% to 6.49% for our outstanding leases at December 31, 2022.

Operating Leases

The Company leases its facility in Sofia, Bulgaria and computers under non-cancelable operating lease agreements. During the year ended December 31, 2022, the Company’s leases on the vehicles in Clearwater, Florida expired and the Company purchased the vehicles at fair value. During the year ended December 31, 2022, the Company entered into a one year extension on one of its leases on computer equipment. This extension resulted in reclassification of the lease from finance to operating. During the year ended December 31, 2022, the Company entered into a five year extension of its Sofia, Bulgaria facility. These operating leases have terms expiring through December 2027.

Finance Leases

The Company has entered into non-cancelable finance leases for certain computer equipment and a vehicle in Clearwater, Florida. During the year ended December 31, 2022, the Company entered into a 63 month lease for computer equipment. These finance leases have terms expiring through July 2027.

Information about the Company’s lease costs are as follows:

Year Ended December 31,

Operating lease costs $ 213 $ 134

Finance lease costs:

Amortization of right-of-use assets 138 216

Interest on lease liabilities 5 12

Variable lease costs 16 12

Cash information related to our leases are as follows:

(in thousands) Operating Finance Operating Finance

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

Operating Finance Operating Finance

Weighted average remaining lease term (in years) 4.4 3.9 1.0 0.8

Maturities of lease liabilities as of December 31, 2022 are as follows:

(In thousands) Operating Finance

Less imputed interest (31) (5)

Present value of lease liabilities 686 110

Less current portion of lease liabilities (216) (37)

Long-term portion of lease liabilities $ 470 $ 73

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

Accrued bonus — 2,117

Accrued product warranties 391 593

Accrued product liability claim insurance deductibles 1,825 610

Accrued professional fees and legal related contingent liabilities 901 421

Joint and several payroll liability 345 1,027

Short-term contract liabilities 853 533

Other accrued expenses and current liabilities 879 493

Total accrued expenses and other current liabilities $ 8,928 $ 10,287

NOTE 10. PRODUCT WARRANTIES

Product warranty activity consisted of the following for the years ended:

Provision for product warranties 196 318

Change in estimate to fulfill prior-year warranty obligations (198) —

Product warranty costs incurred (200) (223)

Accrued product warranties $ 391 $ 593

NOTE 11. JOINT AND SEVERAL PAYROLL LIABILITY

During 2018 and 2019, the Company improperly calculated and reported the amount of income to certain employees, and did not collect and remit the correct amount of its employees' portion of income and payroll taxes, related to stock option exercises as required by the IRS. Due to IRS statutory requirements, the Company has joint and several liability for the full amount that was not withheld and remitted to the proper taxing authorities. During 2022, the Company was relieved of approximately $650,000 of its joint and several payroll liability due to the lapse of the statute of limitations on the liability. This adjustment is included in other income (losses), net in the accompany Consolidated Statement of Operations for the year ended December 31, 2022. This amount of the liability was approximately $0.3 million and $1.0 million at December 31, 2022 and 2021, respectively. The Company will be relieved of the remainder of the liability as the statute of limitations on the liability expires, which the Company expects to occur during April 2023, or once the Company can establish that its employees have in fact paid these obligations.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 12. CONTRACT ASSETS AND LIABILITIES

The Company’s contracts with customers may result in the Company having contract assets and liabilities. These contract assets and liabilities arise primarily from OEM development and supply agreements where the development of the goods does not represent a performance obligation on a standalone basis. The Company defers the development fees billed to customers, and the associated costs, and recognizes them as it completes performance obligations on the supply portion of the agreement. Other contract liabilities may be recognized when a customer prepays for goods or services.

At December 31, 2022 and 2021, respectively, the Company had recorded approximately $2.3 million and $1.9 million of contract liabilities and $0.6 million and $0.5 million of contract assets related to customer prepayments and the deferral of revenues and expenses under these agreements. At December 31, 2022, $0.9 million of the contract liabilities and $0.1 million of the contract assets are presented as current in the accompanying Consolidated Balance Sheet within accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively. At December 31, 2021, $0.5 million of the contract liabilities and $0.1 million of the contract assets are presented as current in the accompanying Consolidated Balance Sheet within accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively.

During 2022, the Company recognized approximately $0.2 million of contract liabilities and $0.1 million of contract assets that existed as of December 31, 2021 in sales and cost of sales, respectively, in the accompanying Consolidated Statement of Operations for the year ended December 31, 2022. During 2021, the Company did not recognize any significant contract liabilities or contract assets that existed as of December 31, 2020 in sales or cost of sales in the accompanying Consolidated Statement of Operations for the year ended December 31, 2021.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 13. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“basic EPS”) is computed by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. As the Company is in a net loss position for all periods presented, all potential shares outstanding are anti-dilutive. The following table provides the computation of basic and diluted earnings (loss) per share.

Year Ended December 31,

(in thousands, except per share data) 2022 2020

Numerators:

Net loss attributable to stockholders $ (23,184) $ (15,172)

Weighted average shares outstanding - basic and diluted 34,516 34,332

Loss per share - basic and diluted $ (0.67) $ (0.44)

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

NOTE 14. INCOME TAXES

Components of income tax expense are as follows:

Current:

Deferred:

Total income tax expense $ 367 $ 380

Below is a reconciliation of the statutory federal income tax rate to the Company's effective tax rate:

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Year Ended December 31,

Federal tax provision 21.0 % 21.0 %

State taxes (net of federal benefit) 4.4 % 3.8 %

Valuation allowance (22.3) % (21.1) %

Incentive stock compensation expense (2.2) % (1.8) %

Section 162(m) compensation (1.1) % (3.8) %

GILTI (0.9) % (1.2) %

Total (1.6) % (2.6) %

Major components of the Company’s deferred tax assets (liabilities) are as follows:

Deferred tax assets:

Loss and credit carryforwards $ 7,476 $ 4,256

Research and development capitalization 982 —

Accrued insurance deductibles 400 70

Inventory 263A adjustment 394 —

Accrued bonus — 555

Total deferred tax assets, net of valuation allowance 457 430

Deferred tax liabilities:

Property and equipment (205) (205)

Total deferred tax liabilities (457) (430)

Net deferred tax assets $ — $ —

The Company considers all positive and negative evidence regarding the realization of deferred tax assets, including past operating results and future sources of taxable income.

The Company considers the earnings of Apyx Bulgaria, EOOD to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. It has not recorded a deferred tax liability related to the U.S. Federal and State income taxes and foreign withholding taxes on the undistributed earnings of Apyx Bulgaria, EOOD indefinitely invested outside the United States. If it decides to repatriate the foreign earnings, the Company will need to adjust its income tax provision in the period it determines that the earnings will no longer be indefinitely invested outside the United States.

The Company assesses the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained. As of December 31, 2022 and 2021, the Company has recorded a liability of approximately $1.3 million related to uncertain tax positions and accrued approximately $0.8 million and $0.6 million, respectively, of interest and penalties on these positions.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The following is a roll-forward of the Company's total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31:

(in thousands) Gross Unrealized Tax Benefits

Beginning of year balance $ 1,313 $ 1,313

Additions of tax positions related to the current year — —

Additions of tax positions related to the prior year — —

Decreases for tax positions related to prior year — —

The Company is subject to U.S. federal and state income tax examination. The Company’s 2019 through 2021 U.S. federal income tax returns are subject to examination by the Internal Revenue Service (“IRS”). The Company’s state income tax returns are subject to examination for the 2018 through 2021 tax years.

During 2022, the Company was notified by the IRS that it is examining the Company’s 2018, 2019 and 2020 federal income tax returns. During January 2023, the Company was notified that the examination process was complete and that the Company's tax refunds were approved for substantially the amount recorded in the Company's Consolidated Balance Sheet at December 31, 2022. In the examination, the Company's uncertain tax positions were accepted by the IRS as submitted on our income tax returns and the Company reversed its uncertain tax position in January 2023.

NOTE 15. RETIREMENT PLAN

The Company provides a tax-qualified profit-sharing retirement plan under section 401(k) of the Internal Revenue Code for the benefit of eligible employees with an accumulation of funds for retirement on a tax-deferred basis and provides for annual discretionary contribution to individual trust funds.

All employees are eligible to participate upon completing three months of service. The employees may make voluntary contributions to the plan up to the maximum percentage allowed by the Internal Revenue Code. Vesting in employee matching contributions is graded and depends on the years of service. After three years from their date of hire, the employees are 100% vested. The Company makes matching contributions of 50% of the employee contributions up to a total of 3% of participant payroll. Matching contributions made by the Company totaled approximately $0.4 million for each of the years ended December 31, 2022 and 2021.

NOTE 16. RELATED PARTY TRANSACTIONS

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

The partner in the Company’s China joint venture is also a supplier of the Company. For the years ended December 31, 2022 and 2021, the Company made purchases from this supplier of approximately $0.6 million and $1.3 million, respectively. At December 31, 2022 and 2021, the Company had net receivables from and payables to this supplier of approximately $8,000 and $1,000, respectively.

NOTE 17. COMMITMENTS AND CONTINGENCIES

Litigation

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

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

During December 2021, the Company provided notice of contract termination to an international distributor of the Company. In March 2022, the Company received a letter from the former distributor citing improper contract termination and alleging damages. While the matter is still in the early stages, management has determined that a loss is probable and that a range of estimated losses is approximately $250,000 to $1,000,000. The Company has recorded an estimated loss of $250,000 in professional services in the accompanying Consolidated Statement of Operations for the year ended December 31, 2022. It is at least possible that a change in the actual amount of loss will occur in the near term, though management expects the actual amount of loss will be within the estimated range of losses.

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

Although the ultimate outcome of this matter cannot be determined with certainty, the Company believes that the allegations stated in the Complaint are without merit. The Company, Goodwin and Semb intend to defend themselves vigorously in the suit. In the opinion of management, such claims are adequately covered by insurance, however, in the event that damages exceed the aggregate coverage limits of our policy or if our insurance carriers disclaim coverage, we believe it is possible that costs associated with this claim could have a material adverse impact on our consolidated results of operations, financial position or cash flows. While the matter is still in the early stages, management has determined that a loss is probable and that a range of estimated losses is approximately $475,000 to $2,500,000. The Company has recorded an estimated loss of $475,000 in professional services in the accompanying Consolidated Statement of Operations for the year ended December 31, 2022. It is at least possible that a change in the actual amount of loss will occur in the near term, though management expects the actual amount of loss will be within the estimated range of losses.

During 2022, the Company was notified of certain procedures alleged to have been performed by the same physician and which are currently the subject of two related products liability cases within the courts. Subsequent to year end, the Company was notified by its insurance carriers that all or most of the ten individual plaintiff’s allegations could be subject to separate deductibles notwithstanding the commonality of each underlying occurrence. The Company has determined that a loss is probable and that a range of estimated losses is approximately $1,450,000 to $2,400,000. The Company has recorded an estimated loss of $1,450,000 in selling, general and administrative expenses associated with the insurance deductibles in the accompanying Consolidated Statement of Operations for the year ended December 31, 2022. It is at least possible that a change in the actual amount of loss will occur in the near term, though management expects the actual amount of loss will be within the estimated range of losses.

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

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Purchase Commitments

At December 31, 2022, the Company has purchase commitments for inventories totaling approximately $4.1 million, all of which is expected to be purchased by the end of 2023.

Concentrations

There were no significant sales concentrations for the year ended December 31, 2022. Sales to one customer within the Advanced Energy segment represented 11% of total sales for the year ended December 31, 2021.

Receivables from one customer and two customers within the Advanced Energy segment represented 13% and 22%, respectively, of trade accounts receivable at December 31, 2022 and December 31, 2021.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 18. STOCK OPTIONS

On October 30, 2007, the Company’s stockholders approved, and the Board of Directors adopted an amendment to the 2003 Executive and Employee Stock Option Plan (the “Plan”) to increase the maximum aggregate number of shares of common stock reserved for issuance under the Plan from 1.2 million shares (already reserved against outstanding options) to 1.7 million shares. Except for the increase in the number of shares covered by the Plan, the Plan remained otherwise unchanged. In 2001, the Board of Directors adopted the 2001 Executive and Employee Stock Option Plan which reserved for issuance 1.2 million stock options. Stock options to employees typically have a ten-year life and currently vest over periods between one and seven years.

In July 2012, the Company’s stockholders approved the 2012 Share Incentive Plan covering a total of 750,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2022 approximately 170,000 are available to be issued in this plan.

In July 2015, the Company’s stockholders approved the 2015 Executive and Employee Stock Option Plan covering a total of 2,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2022 approximately 40,000 are available to be issued in this plan.

In August 2017, the Company’s stockholders approved the 2017 Executive and Employee Stock Option Plan covering a total of 3,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2022 approximately 30,000 are available to be issued in this plan.

In August 2019, the Company’s stockholders approved the 2019 Share Incentive Plan covering a total of 2,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2022, all 200,000 are available to be issued in this plan.

In August 2021, the Company’s stockholders approved the 2021 Share Incentive Plan covering a total of 1,375,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2022, all 1,375,000 are available to be issued in this plan.

On January 11, 2023, the Company granted employees approximately 1,400,000 options to purchase common shares of the Company's stock. All options granted were pursuant to the plans noted above. The options vest over a period of three years.

The status of the Company’s stock options is summarized as follows:

Number of options Weighted average exercise price

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Number of options Weighted average grant date fair value

Common shares required to be issued upon the exercise of stock options would be issued from authorized and unissued shares. Options are valued using the Black-Scholes model. For employee grants, the Company calculates expected life via the simplified method as it does not have sufficient history to determine actual expected life. For non-employee grants, the Company calculates expected life using a combination of past exercise behavior, the contractual term and expected remaining exercise behavior. Inputs used in the valuation models are as follows:

Expected dividend yield —% —%

Expected term (in years) 5 - 6 4.5 - 6

The Company recognized approximately $6,697,000 and $5,088,000 in stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively.

The intrinsic value of each option share is the difference between the fair value of our common stock and the exercise price of such option share to the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation at December 31, 2022 is based on the $2.34 closing stock price of the Company's common stock on December 30, 2022, the last trading day of 2022.

APYX US Equity

APYX · 10-K · period ended 2022-12-31

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

APYX US Equity☆

APYX · 10-K · period ended 2022-12-31

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

APYX US Equity