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 warned 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 reduced 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 handpiece. 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 handpiece now addresses improving the appearance of lax (loose) skin in the neck and submental region.

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.

On April 28, 2023, we announced that we received 510(k) clearance from the FDA for the use of the Renuvion APR handpiece for coagulation of subcutaneous soft tissues following liposuction for aesthetic body contouring.

On May 10, 2023, the FDA updated the Safety Communication to inform consumers and healthcare providers about the clearance for the Renuvion APR handpiece for use under the skin in certain procedures intended to improve the appearance of the skin, including for coagulation of subcutaneous soft tissues following liposuction for aesthetic body contouring.

While we expected that receiving these clearances would 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 the current and potentially future periods.

On June 14, 2023, we announced that we received 510(k) clearance from the FDA for the Renuvion Micro handpiece, a new addition to the Renuvion production family. The Renuvion Micro handpiece was cleared with an indication for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed. Soft tissue includes subcutaneous tissue.

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

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

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.

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, 2023, we incurred a loss from operations of $17.3 million and used $5.2 million of cash in operations, which is inclusive of the receipt of our tax refund of approximately $8.1 million. As of December 31, 2023, we had cash and cash equivalents of $43.7 million. We plan to continue to fund our operations and capital funding needs through existing cash, sales of our products and, if necessary, additional equity and/or debt financing. However, we cannot be certain that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or our existing stockholders. The sale of additional equity would result in dilution to our stockholders. Incurring additional debt financing would result in further debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, we may be required to delay, limit, reduce, or terminate our sales, marketing and product development. Any of these actions could harm our business, results of operations and prospects.

On November 22, 2022, we filed a shelf registration statement providing us the ability to register and sell our 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 “MidCap 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 MidCap Credit Agreement provided for an up to $35 million facility, consisting of senior secured term loans and a secured revolving facility. The MidCap Credit Agreement provided 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 provided 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 MidCap Credit Agreement. The MidCap Credit Agreement was extinguished when, on November 8, 2023, we entered into a Credit and Guaranty Agreement (the “Perceptive Credit Agreement”), by and among Apyx Medical (as borrower), Apyx China Holding Corp. and Apyx Bulgaria EOOD, our wholly-owned subsidiaries (as subsidiary guarantors), and Perceptive Credit Holdings IV, LP (as initial lender and administrative agent) (“Perceptive”), and the lenders from time to time party thereto. The Perceptive Credit Agreement provides for a facility of up to $45 million, consisting of senior secured term loans. The Perceptive Credit Agreement provides for (i) an initial loan of $37.5 million and (ii) a delayed draw loan of $7.5 million.

For a more in-depth description of the terms of the Midcap Credit Agreement and the Perceptive Credit Agreement, see Note 11 in Item 8 of this Annual Report on Form 10-K.

On February 27, 2023, our Board of Directors approved a plan to sell and leaseback 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. On May 8, 2023 we closed the Purchase Agreement and concurrently executed a 10-year agreement to leaseback the underlying Property from the Purchaser.

For a more in-depth description of the terms of the Purchase Agreement see Notes 6 and 7 in Item 8 of this Annual 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 approximately $0.2 million more than the amount recorded in the Company's Consolidated Balance Sheet at December 31, 2022. On August 10, 2023, we received $8.1 million from the IRS, which included approximately $0.4 million of interest on the $7.7 of million income tax refunds.

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

We believe that the actions already taken, including replacing the MidCap Credit Agreement with the Perceptive Credit Agreement, alleviated the conditions that previously raised 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.

Other Matters

During 2023, 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, 2023, we had a direct sales force of 31 field-based selling professionals and utilized 3 independent sales agencies. We also had 4 sales managers. This selling organization, along with our international network of distributors, 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 2023 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 increased by 17.6% or approximately $7.8 million for the year ended December 31, 2023 when compared with 2022. Advanced Energy segment sales increased 17.9% or approximately $6.6 million for the year ended December 31, 2023 when compared with 2022. The Advanced Energy sales increase was driven primarily by domestic customers who upgraded their generators to our new Apyx One Console, which we launched in January 2023, a higher average selling price on sales of new generators due to the introduction of the Apyx One Console and an increase in volume of single-use handpieces, domestically.

The OEM product line consists of proprietary products designed specifically for third party equipment manufacturers. Revenue for this product line increased 16.3%, or approximately $1.3 million, when compared to 2022. The increase in OEM sales was due to increases in sales volume to existing customers 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 26.8% and 29.9% of total revenues for the years ended December 31, 2023, and 2022, respectively. Management estimates our products have been sold in more than 60 countries through local distributors coordinated by sales and marketing personnel through our facilities in Clearwater, Florida and Sofia, Bulgaria.

Gross Profit

Year EndedDecember 31,

Percentage of sales 35.5 % 34.6 %

Percentage of sales 64.5 % 65.4 %

Our gross profit margin as a percentage of sales decreased by approximately 1.0% during the year ended December 31, 2023, compared with 2022. The decrease in gross profit margins for the year ended December 31, 2023 from the prior year is primarily attributable to changes in product mix within our Advanced Energy Segment, customer mix, higher material and inbound shipping costs to manufacture our inventory and additional reserves on inventories as a result of lower than expected sales. These decreases were partially offset by geographic mix within our Advanced Energy segment, with higher margin 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 9.3 % 10.2 %

Our expenses for research and development related activities increased by 6.6% or approximately $0.3 million for the year ended December 31, 2023, compared with 2022. This increase was primarily due to higher spending on our product development initiatives and clinical studies ($0.2 million) and increased labor and benefits costs from the same period in the prior year ($0.1 million).

Professional services

Year EndedDecember 31,

Percentage of sales 13.4 % 20.3 %

Professional services expenses decreased 22.3%, or approximately $2.0 million for the year ended December 31, 2023, compared with 2022. This decrease was primarily attributable to decreases in legal expenses ($1.2 million) associated with the estimated loss recorded in the prior year for certain legal actions and current year reversal of a legal loss contingency, physician consulting fees ($0.5 million), accounting and audit fees ($0.2 million) and board of director’s option expense ($0.2 million).

Salaries and related costs

Year EndedDecember 31,

Percentage of sales 37.5 % 41.8 %

Salaries and related expenses increased 5.5% or approximately $1.0 million for the year ended December 31, 2023, compared to 2022. The increase was primarily driven by increases in bonus expense ($1.3 million), labor and benefits costs ($0.6 million) and temporary labor expenses ($0.3 million). These increases are partially offset by lower stock based compensation expense ($1.3 million).

Selling, general and administrative expenses

Year EndedDecember 31,

Percentage of sales 42.4 % 46.0 %

Selling, general and administrative expense increased by 8.4% or approximately $1.7 million for the year ended December 31, 2023, compared with 2022. The change is primarily driven by increases in commissions ($1.1 million), insurance expense, as a result of increased product liability claims on our policies ($0.9 million), travel expense ($0.3 million), regulatory costs ($0.2 million), building lease expense ($0.2 million) and payment processing fees ($0.1 million). These increases were partially offset

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

by decreases in advertising expense, including trade show fees and related costs ($0.5 million), employee meeting and training costs ($0.3 million), foreign currency gains and losses ($0.2 million) and depreciation expense ($0.1 million).

Gain on sale-leaseback

Year EndedDecember 31,

Gain on sale-leaseback $ 2,692 $ —

Percentage of sales 5.1 % — %

During the year ended December 31, 2023, gain on sale-leaseback was approximately $2.7 million as a result of the gain on the sale and leaseback of our Clearwater, FL facility in May 2023.

Interest Income (Expense)

Year EndedDecember 31,

Percentage of sales 1.8 % 0.4 %

Interest expense $ (2,478) $ (15)

Percentage of sales (4.7) % — %

Interest income increased approximately $0.8 million for the year ended December 31, 2023, compared with 2022. 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 combined with a higher average balance.

Interest expense increased approximately $2.5 million for the year ended December 31, 2023, when compared with the prior year. These increases are due to cash and noncash interest expense on the MidCap Credit Agreement executed on February 17, 2023, and the Perceptive Credit Agreement executed on November 8, 2023.

Other Income (Loss), net

Year EndedDecember 31,

Percentage of sales 1.2 % 1.1 %

Loss on extinguishment of debt $ (3,088) $ —

Percentage of sales (5.9) % — %

Other income, net increased approximately $0.1 million for the year ended December 31, 2023, compared with 2022. This increase was primarily attributable to a small insurance recovery in 2023 ($0.2 million). This increase was partially offset by a decrease in the release of our joint and several payroll liability due to the lapse of the statute of limitations on a portion of the liability ($0.1 million).

During the year ended December 31, 2023, loss on extinguishment of debt was approximately $3.1 million as a result of the extinguishment of the MidCap Credit Agreement upon execution of the Perceptive Credit Agreement.

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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,

Effective tax rate 11.4 % (1.6) %

Income tax (benefit) expense was approximately $2.4 million and $0.4 million, with effective tax rates of 11.4% and (1.6)%, respectively, for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2023, 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 the reversal of our uncertain tax positions upon completion of the IRS audit of our tax return for the 2018, 2019 and 2020 years in January 2023. For the year ended December 31, 2022, 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, 2023, we had approximately $43.7 million in cash and cash equivalents as compared to approximately $10.2 million in cash and cash equivalents at December 31, 2022. Our working capital at December 31, 2023 was approximately $57.6 million compared with $31.1 million at December 31, 2022. The increase in working capital at December 31, 2023, was primarily due to proceeds received from the execution of the Perceptive Credit Agreement, less the proceeds used to payoff the MidCap Credit Agreement, the proceeds received upon the sale-leaseback of our Clearwater, FL facility in May 2023 and the reversal of our liability for uncertain tax positions upon the completion in January 2023 of the IRS examination of our 2018, 2019 and 2020 income tax returns. This increase was partially offset by the net loss we experienced in 2023, excluding non-cash activity, comprised primarily of stock-based compensation.

For the year ended December 31, 2023, net cash used in operating activities was $5.2 million, which is inclusive of the receipt of our tax refund of approximately $8.1 million, which principally funded our loss from operations of $17.3 million, compared with net cash used in operating activities of approximately $20.3 million for 2022.

We have incurred recurring net losses and cash outflows from operations and we anticipate that losses will continue in the near term. We plan to continue to fund our operations and capital funding needs through existing cash, sales of our products and if necessary additional equity and/or debt financing. However, we cannot be certain that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or our existing stockholders. The sale of additional equity would result in dilution to our stockholders. Incurring additional debt financing would result in further debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, we may be required to delay, limit, reduce, or terminate our sales, marketing and product development. Any of these actions could harm our business, results of operations and prospects.

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

the MidCap Credit Agreement. The MidCap Credit Agreement was extinguished when, on November 8, 2023, we entered into a Credit and Guaranty Agreement (the “Perceptive Credit Agreement”), by and among Apyx Medical (as borrower), Apyx China Holding Corp. and Apyx Bulgaria EOOD, our wholly-owned subsidiaries (as subsidiary guarantors), and Perceptive Credit Holdings IV, LP (as initial lender and administrative agent) (“Perceptive”), and the lenders from time to time party thereto. The Perceptive Credit Agreement provides for a facility of up to $45 million, consisting of senior secured term loans. The Perceptive Credit Agreement provides for (i) an initial loan of $37.5 million and (ii) a delayed draw loan of $7.5 million.

For a more in-depth description of the terms of the Midcap Credit Agreement and the Perceptive Credit Agreement see Note 11 in Item 8 of this Annual Report on Form 10-K.

On February 27, 2023, our Board of Directors approved a plan to sell and leaseback 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. On May 8, 2023, we closed the Purchase Agreement and concurrently executed a 10-year agreement to leaseback the underlying Property from the Purchaser.

For a more in-depth description of the terms of the Purchase Agreement see Notes 6 and 7 in Item 8 of this Annual Report on Form 10-K.

We believe that the actions already taken, including replacing the MidCap Credit Agreement with the Perceptive Credit Agreement, alleviate the conditions that raised 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.

Net cash provided by investing activities for the year ended December 31, 2023, was $6.7 millionrelated to the sale of our Clearwater, FL facility ($7.3 million), partially offset by investments in property and equipment ($0.5 million). Net cash used in investing activities for the year ended December 31, 2022, was $1.0 million related to investments in property and equipment.

Net cash provided by financing activities for the year ended December 31, 2023, was $32.2 million, which primarily related to proceeds received upon the execution of the Perceptive Credit Agreement ($36.4 million) less debt issuance costs incurred in the transactions for both the Perceptive Credit Agreement and MidCap Credit Agreement ($3.1 million) and fees, premiums and costs to extinguish the MidCap Credit Agreement ($1.3 million).

At December 31, 2023, we had purchase commitments for inventories totaling approximately $3.8 million, all of which is expected to be purchased by the end of 2024.

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 in Item 8 of this Annual Report on Form 10-K.

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.

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

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

Stock-Based Compensation

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

Expected life

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

Volatility

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

Accounts Receivable Allowance

We maintain a reserve for uncollectible accounts receivable. When evaluating the adequacy of the allowance for doubtful accounts, we analyze historical bad debt experience, the composition of outstanding receivables by customer class, and the age of outstanding balances, and we make estimates in connection with establishing the allowance for doubtful accounts, including the expected impacts of changes in the operating environment and other 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.

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APYX MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Income Taxes

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

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 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, 2023.

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 global supply chain instability and inflationary cost increases and their adverse impact to the global economy, continue to evolve. Accordingly, the significance of the future impact to our business and financial statements remains subject to significant uncertainty. We continue to work on initiatives to combat inflation, including finding alternative suppliers that meet our quality standards, streamlining our supplier network to reduce the use of middlemen and redesigning some components to achieve better volume purchase prices. 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 Annual Report on 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) 39

Notes to Consolidated Financial Statements 46

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of 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, 2023 and 2022, 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, 2023 and 2022, 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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the 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 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 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.

Accounting for Credit Agreements

As described in Note 11 to the financial statements, the Company entered into the MidCap credit agreement and the Perceptive credit agreement (collectively, the “Credit Agreements”) during the year ended December 31, 2023 and issued warrants to each of the lenders. The Company evaluated the accounting treatment for the Credit Agreements to determine the impact the warrants and any embedded derivatives had on the amounts recorded. As discussed in Note 2, the Company’s evaluation included estimating the fair value of the Credit Agreements, warrants and any embedded derivatives, that were required to be bifurcated and recorded as a separate liability, in order to properly allocate the proceeds to each of these financial instruments.

We identified the Company’s accounting for the Credit Agreements, which included both management’s evaluation of the accounting treatment for the Credit Agreements and management’s estimates of fair value of each financial instrument and any embedded derivatives, as a critical audit matter because of the complexity involved in evaluating management’s interpretation of applicable accounting rules around the accounting for the Credit Agreements and the judgments and assumptions used by management to estimate the fair values of each financial instrument. Auditing management’s judgments involved a high degree of auditor judgment and an increase in audit effort, including the use of internal accounting and valuation specialists, due to the impact these judgments have on the accounting estimates.

Our audit procedures related to the Company’s accounting for the Credit Agreements included the following, among others:

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•To test the accuracy and completeness of the terms of the warrants and embedded derivatives identified by management in the Credit Agreements, we obtained and read the Credit Agreements and the warrant agreements.

•With the assistance of an internal accounting specialist, we obtained management’s technical memoranda and evaluated the reasonableness of the conclusions reached by management of the accounting treatment for the warrants and embedded derivatives in relation to the applicable accounting guidance.

•We utilized valuation specialists to assist in the following procedures to test the fair value of the Credit Agreements and embedded derivatives:

◦Evaluate the appropriateness of the valuation methods used by management and testing their mathematical accuracy.

◦Evaluating the reasonableness of certain valuation assumptions utilized by management by comparing the underlying source information to publicly available market data and verifying the accuracy of the calculations.

•We tested management’s estimates of fair value of the warrants by comparing certain underlying assumptions to publicly available market data and testing the mathematical accuracy of the valuation models.

•We recalculated the proceeds management allocated to the Credit Agreements, the warrants, and embedded derivatives based upon the estimates of fair value of each financial instrument.

/s/ RSM US LLP

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

Tampa, Florida

March 21, 2024

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APYX MEDICAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

ASSETS

Current assets:

Income tax receivables — 7,545

Other receivables 30 99

Inventories, net of provision for obsolescence of $875 and $457 9,923 11,797

Prepaid expenses and other current assets 2,734 2,737

Operating lease right-of-use assets 5,162 710

Finance lease right-of-use assets 69 115

LIABILITIES AND EQUITY

Current liabilities:

Accrued expenses and other current liabilities 9,661 8,928

Current portion of operating lease liabilities 347 216

Current portion of finance lease liabilities 20 37

Long-term debt, net of debt discounts and issuance costs 33,185 —

Long-term operating lease liabilities 4,896 470

Long-term finance lease liabilities 53 73

Long-term contract liabilities 1,246 1,408

Commitments and Contingencies (Note 17)

EQUITY

Non-controlling interest 221 211

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:

Gain on sale-leaseback 2,692 —

Loss on extinguishment of debt (3,088) —

Total other (loss) income, net (4,023) 651

Loss from operations before income taxes (21,282) (22,911)

Income tax (benefit) expense (2,432) 367

Net loss attributable to non-controlling interest (137) (94)

Net loss attributable to stockholders $ (18,713) $ (23,184)

Loss per share - basic and diluted $ (0.54) $ (0.67)

Weighted average number of shares outstanding - basic and diluted 34,622 34,516

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

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 — — — — —

Contributions from non-controlling interest — — — — 147 147

Shares issued on stock options exercises for cash 35 — 86 — — 86

Stock based compensation — — 5,114 — — 5,114

Shares issued on net settlement of stock options 11 — — — — —

Proceeds from debt allocated to warrants — — 2,632 — — 2,632

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 692 890

Provision for inventory obsolescence 523 240

Provision for product warranties 261 (2)

(Gain) loss on disposal of property and equipment (2,531) 75

Loss on extinguishment of debt 3,088 —

Allowance for credit losses 279 315

Non-cash lease expense 87 —

Non-cash interest expense 545 —

Changes in operating assets and liabilities:

Income tax receivables 7,545 97

Prepaid expenses and other assets (188) (523)

Accounts payable 25 67

Accrued expenses and other liabilities 276 (1,208)

Net cash used in operating activities (5,249) (20,280)

Cash flows from investing activities

Purchases of property and equipment (533) (1,010)

Proceeds from sale of property and equipment 7,267 —

Net cash provided by (used in) investing activities 6,734 (1,010)

Cash flows from financing activities

Proceeds from stock option exercises 86 365

Proceeds from long-term debt 43,474 —

Payment of debt issuance costs (3,106) —

Proceeds from debt allocated to warrants 2,632 —

Repayment of finance lease liabilities (37) (148)

Extinguishment of credit agreement (11,030) —

Contributions from non-controlling interests 147 —

Net cash provided by financing activities 32,166 217

Effect of exchange rates on cash (191) 395

Net change in cash and cash equivalents 33,460 (20,678)

Cash and cash equivalents, beginning of year 10,192 30,870

Cash and cash equivalents, end of year $ 43,652 $ 10,192

APYX MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

Year Ended December 31,

Cash paid for:

Noncash 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.

Recent Business Developments

On March 14, 2022, the U.S. Food and Drug Administration (“FDA”) posted a Safety Communication that warned 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 reduced demand for the adoption of its Helium Plasma Technology.

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

On June 2, 2022, and July 21, 2022, the FDA updated the Medical Device Safety Communication to recognize the new 510(k) clearances for the Renuvion Dermal handpiece, and the expanded indications for the Renuvion® APR handpiece. 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 27, 2023, the Company announced that it 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.

On April 28, 2023, the Company announced it had received 510(k) clearance from the FDA for the use of the Renuvion APR handpiece for coagulation of subcutaneous soft tissues following liposuction for aesthetic body contouring.

On May 10, 2023, the FDA updated the Safety Communication to inform consumers and healthcare providers about the clearance for the Renuvion APR handpiece for coagulation of subcutaneous soft tissues following liposuction.

On June 14, 2023, the Company announced that we received 510(k) clearance from the FDA for the Renuvion Micro handpiece, a new addition to the Renuvion production family. The Renuvion Micro handpiece was cleared with an indication for the delivery of radiofrequency energy and/or helium plasma where coagulation/contraction of soft tissue is needed. Soft tissue includes subcutaneous tissue.

Liquidity

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 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

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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.

The Company has incurred recurring net losses and cash outflows from operations and it anticipates that losses will continue in the near term. For the year ended December 31, 2023, the Company incurred a loss from operations of $17.3 million and used $5.2 million of cash in operations, which is inclusive of the receipt of its tax refund of approximately $8.1 million. As of December 31, 2023, cash and cash equivalents on-hand were $43.7 million. The Company plans to continue to fund its operations and capital funding needs through existing cash, sales of our products and if necessary additional equity and/or debt financing. However, it cannot be certain that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to the Company or its existing stockholders. The sale of additional equity would result in dilution to the Company’s stockholders. Incurring additional debt financing would result in further debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict the Company’s operations. If the Company is unable to raise additional capital in sufficient amounts or on acceptable terms, it may be required to delay, limit, reduce, or terminate its sales, marketing and product development. Any of these actions could harm the business, results of operations and prospects.

On November 22, 2022, the Company filed a shelf registration statement providing it the ability to register and sell 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 “MidCap 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 MidCap Credit Agreement provided for an up to $35 million facility, consisting of senior secured term loans and a secured revolving facility. The MidCap Credit Agreement provided 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 provided 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 MidCap Credit Agreement. The MidCap Credit Agreement was extinguished when, on November 8, 2023, when we entered into a Credit and Guaranty Agreement (the “Perceptive Credit Agreement”), by and among Apyx Medical (as borrower), Apyx China Holding Corp. and Apyx Bulgaria EOOD, our wholly-owned subsidiaries (as subsidiary guarantors), and Perceptive Credit Holdings IV, LP (as initial lender and administrative agent)(“Perceptive”), and the lenders from time to time party thereto. The Perceptive Credit Agreement provides for a facility of up to $45 million, consisting of senior secured term loans. The Perceptive Credit Agreement provides for (i) an initial loan of $37.5 million and (ii) a delayed draw loan of $7.5 million.

For a more in-depth description of the terms of the MidCap Credit Agreement and the Perceptive Credit Agreement, see Note 11.

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. On May 8, 2023, the Company closed on the Purchase Agreement and concurrently executed a 10-year agreement to leaseback the underlying Property from the Purchaser.

For a more in-depth description of the terms of the Purchase Agreement, see Notes 6 and 7.

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 approximately $0.2 million more than the amount recorded in the Company’s Consolidated Balance Sheet at December 31, 2022. On August 10, 2023, the Company received $8.1 million from the IRS, which included approximately $0.4 million of interest on the $7.7 million income tax refunds.

Management believes that the actions already taken, including replacing the MidCap Credit Agreement with the Perceptive

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Credit Agreement, alleviated the conditions that previously raised 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 its Consolidated Financial Statements.

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, 2023 and 2022, 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. However, it has not experienced any losses in such accounts.

Trade Accounts Receivable and Allowance for Credit Losses

The Company’s standard credit terms for billings range from net 30 days to net 120 days, depending on the customer agreement. However, management is able to use discretion in actual terms granted to customers. Accounts receivable are determined to be past due if payments are not made in accordance with such agreements.

When evaluating the adequacy of the allowance for credit losses, we analyze historical bad debt experience, the composition of outstanding receivables by customer class, and the age of outstanding balances, and we make estimates in connection with establishing the allowance for credit losses, including the expected impacts of changes in the operating environment and other 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. 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 credit losses of approximately $0.6 million and $0.7 million at December 31, 2023 and 2022, respectively, are adequate to provide for probable credit losses.

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.

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.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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, 2023 and 2022, the Company believes the remaining carrying values of its long-lived assets are recoverable.

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 Sheets 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. Rates utilized were 1.83% to 9.09% for our outstanding leases at December 31, 2023.

Product Warranties

The Company provides a four-year limited warranty on end-user sales of its Renuvion and 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.

Debt and Debt Issuance Costs

Proceeds allocated to debt instruments are recorded net of discounts, such as those resulting from other financial instruments issued in a debt transaction or bifurcated embedded derivative features within the debt agreement, and debt issuance costs. Debt issuance costs are allocated to issued and unissued financial instruments based on costs incurred and the underlying commitments in the debt agreement. At the inception of the debt instrument, the Company determined the fair value of the debt and other financial instruments, including warrants and bifurcated embedded derivatives, and allocated the proceeds to each financial instrument based upon these estimated fair values. Debt issuance costs allocated to unissued financial instruments are deferred as an asset until the financial instrument is issued. Debt discounts and issuance costs are amortized over the estimated life of issued debt using the effective interest method and are presented as reduction of the related debt.

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 and J-Plasma), this is

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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.

•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, direct to consumer advertising and other related costs, were approximately $1.8 million and $2.3 million for the years ended December 31, 2023, and 2022, 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 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

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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. The amounts of research and development costs were approximately $4.8 million and $4.5 million for the years ended December 31, 2023 and 2022, respectively.

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 allowance 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 planning strategies. As of December 31, 2023 and 2022, the Company recorded a valuation allowance on its 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, 2023.

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.

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 non-monetary 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, 2023 and 2022.

Reclassifications

The Company has 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 adopted ASU 2016-13 on January 1, 2023, and its impact was not material to the Company.

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. CHINA JOINT VENTURE

In 2019, the Company executed a joint venture agreement with its Chinese supplier (the “China JV”) whereby the Company has a 51% ownership interest. The China JV has been consolidated in these consolidated financial statements. The agreement required the Company to make capital contributions of approximately $357,000 into the newly formed entity, which were made in prior years. In June 2023, the Company executed an amendment to the joint venture agreement to increase the amount of its registered capital. The amendment requires the Company to make additional capital contributions to the China JV of $255,000, of which $153,000 has been made as of December 31, 2023. 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 $ 219 $ 317

Contributions 153 —

Net loss attributable to Apyx (143) (98)

Ending interest in China JV $ 229 $ 219

NOTE 5. INVENTORIES

Inventories consisted of the following:

Less: provision for obsolescence (875) (457)

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Building and improvements — 4,426

Computer equipment and software 1,018 1,420

Total property, plant and equipment 5,037 11,295

Less: accumulated depreciation and amortization (3,522) (5,041)

Property and equipment in service 1,515 6,254

Construction in progress 400 507

Property and equipment, net $ 1,915 $ 6,761

Total depreciation expense was $0.7 million for each of the years ended December 31, 2023 and 2022, respectively. Depreciation expense is included within cost of goods sold and selling, general and administrative expense in the Consolidated Statements of Operations.

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.

On May 8, 2023, the Company closed on the Purchase Agreement and concurrently executed a 10-year agreement to leaseback the underlying Property from the Purchaser (see Note 7). The Company received net cash proceeds of approximately $6.6 million after withholding the security deposit of approximately $0.6 million, equal to one year's rent, taxes, first month's rent, expenses, and fees. The $2.7 million gain on this transaction is presented in gain on sale-leaseback in the accompanying Consolidated Statement of Operations for the year ended December 31, 2023.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 7. LEASES

Operating Leases

The Company leases its facilities in Clearwater, Florida and Sofia, Bulgaria under non-cancelable operating lease agreements. In connection with the terms of the Purchase Agreement (see Note 6), during May 2023, the Company entered into a Single Tenant Industrial Building Lease (the “Lease”), pursuant to which the Property was leased back to the Company. The Lease has an initial term of ten (10) years commencing from the closing (the “Initial Term”), and a renewal term of five (5) years, exercisable at the Company’s option. The annual fixed rent is $619,500 for the first year of the Initial Term, and is subject to a 4% escalation every year thereafter through the Initial Term. Rent will be reset to the current market rate should the Company exercise the renewal option. The Lease provides for a 3% management fee on rent payments throughout the Initial Term and optional renewal term. 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. This lease expired during the year ended December 31, 2023 and the Company continued to rent the equipment on a month-to-month basis. 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 May 2033.

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, 2023, the Company’s lease on the vehicle in Clearwater, Florida expired and the Company purchased the vehicle for the purchase price specified in the lease agreement. Upon termination of the lease, the vehicle was transferred to fixed assets. During the year ended December 31, 2022, the Company entered into a 63-month lease for computer equipment. The computer equipment lease expires in July 2027.

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

Year Ended December 31,

Operating lease costs $ 732 $ 213

Finance lease costs:

Amortization of right-of-use assets 31 138

Interest on lease liabilities 2 5

Variable lease costs 44 16

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) 8.9 3.6 4.4 3.9

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Maturities of lease liabilities as of December 31, 2023 are as follows:

(In thousands) Operating Finance

Less imputed interest (2,548) (2)

Present value of lease liabilities 5,243 73

Less current portion of lease liabilities (347) (20)

Long-term portion of lease liabilities $ 4,896 $ 53

NOTE 8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

Accrued payroll and related costs $ 829 $ 563

Accrued bonuses 1,545 —

Accrued product warranties 445 391

Accrued product liability claim insurance deductibles 3,521 1,825

Accrued professional fees and legal related contingent liabilities 518 901

Joint and several payroll liability — 345

Short-term contract liabilities 488 853

Uncertain tax positions — 2,079

Other accrued expenses and current liabilities 826 1,124

Total accrued expenses and other current liabilities $ 9,661 $ 8,928

Included in accrued payroll and related costs at December 31, 2023 is approximately $0.3 million of accrued severance costs for the Company’s former Chief Financial Officer.

NOTE 9. PRODUCT WARRANTIES

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

Provision for product warranties 261 196

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

Product warranty costs incurred (207) (200)

Accrued product warranties $ 445 $ 391

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 10. 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 had joint and several liability for the full amount that was not withheld and remitted to the proper taxing authorities. During the years ended December 31, 2023 and 2022, the Company was relieved of $0.3 million and $0.7 million, respectively, of its joint and several payroll liability due to the lapse of the statute of limitations on the liability. These adjustments are included in other income, net in the accompanyng Consolidated Statements of Operations for the years ended December 31, 2023 and 2022. This amount of the liability was approximately $0.3 million at December 31, 2022.

NOTE 11. DEBT

MIDCAP CREDIT AGREEMENT

On February 17, 2023, the Company entered into a Credit, Security and Guaranty Agreement (the “MidCap Credit Agreement”), by and among the Company (as borrower) and Apyx China Holding Corp., the Company’s wholly-owned subsidiary (as guarantor), and MidCap Funding IV Trust (as agent), and MidCap Financial Trust (as term loan servicer), and the lenders party thereto from time to time (collectively “MidCap”).

Issuance of MidCap Warrants

In connection with the Company’s obligations under the MidCap Credit Agreement, the Company issued to a statutory trust of MidCap Financial warrants to purchase up to 250,000 shares of its common stock, par value $0.001, with an exercise price of $3.40 per share. These warrants remain outstanding as of December 31, 2023.

The warrants have a 10 year term and can be exercised by issuing payment to the Company for the number of warrants exercised or exercised net by surrendering warrants with an intrinsic value equal to the cumulative exercise price of the warrants being exercised.

The Company determined that these warrants meet the criteria for equity classification and included the proceeds allocated to the warrants, on a relative fair value basis, as a debt discount and additional paid-in capital in the accompanying consolidated financial statements.

MidCap Debt Issuance Costs

In connection with entering into the MidCap Credit Agreement, the Company incurred debt issuance costs of approximately $1.6 million, comprised primarily of commissions paid to the financial advisor. These costs were allocated to the issued and unissued term loans and the revolving facility. The costs allocated to the issued term loan were being amortized using the effective interest method over the life of the loan. The costs allocated to the unissued term loans were deferred and were being amortized over the life of the term loans starting at the issuance date. The Company recognized the deferred costs at the point that the Company’s rights to borrow on the term loans expired. The costs allocated to the revolving facility were being recognized on a straight-line basis over the term of the MidCap Credit Agreement. Together with unamortized debt discounts and prepayment penalties incurred in the extinguishment, the Company recognized all unamortized debt issuance costs in loss on extinguishment of debt in the accompanying Consolidated Statement of Operations for the year ended December 31, 2023.

PERCEPTIVE CREDIT AGREEMENT

On November 8, 2023, the Company entered into a Credit and Guaranty Agreement (the “Perceptive Credit Agreement”), by and among the Company (as borrower), Apyx China Holding Corp. and Apyx Bulgaria EOOD, the Company’s wholly-owned subsidiaries (as subsidiary guarantors), and Perceptive Credit Holdings IV, LP (as initial lender and administrative agent)(“Perceptive”), and the lenders from time to time party thereto.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Perceptive Credit Agreement provides for a facility of up to $45 million, consisting of senior secured term loans. The Perceptive Credit Agreement provides for (i) an initial loan of $37.5 million and (ii) a delayed draw loan of $7.5 million. The Credit Agreement matures on November 8, 2028.

Loans

The initial loan of $37.5 million was fully funded on November 8, 2023, with approximately $11.0 million of the proceeds used to payoff the obligations under the MidCap Credit Agreement, including approximately $1.0 million of related prepayment penalties and exit fees, and $2.7 million for transaction fees and other expenses incurred in connection with the Perceptive Credit Agreement, which included a 2% fee of the total facility payable to Perceptive at closing. The delayed draw loan is available until December 31, 2024, conditioned upon, among other things, the achievement of a minimum revenue target. After repayment of the MidCap Credit Agreement and payment of transaction fees and other expenses in connection with the Perceptive Credit Agreement, the net proceeds of these loans will be used for working capital and general corporate purposes.

The initial loan and delayed draw loan bear interest at a floating rate based on one-month SOFR, subject to a floor of 5.0%, plus 7.0% (12.4% at December 31, 2023). The first forty-eight (48) months of the loans constitute an interest-only period, with interest payable monthly on the last day of each month. Subsequent to the interest-only period, the outstanding principal amount of the loans is repayable in monthly payments of 3% of the outstanding balance on the payment date. All remaining outstanding principal, together with all accrued and unpaid interest, is due at maturity. The loans may be voluntarily prepaid in full, or in part, at any time, subject to terms and conditions set forth in the Perceptive Credit Agreement. Additionally, the loans are subject to mandatory prepayment obligations, pursuant to the terms of the Perceptive Credit Agreement. Prepayments of the loans are subject to fees of 10%, 9%, 6%, 4% and 2% of the prepayment amounts made during the first year, second year, third year, fourth year, and thereafter, respectively.

Collateral

The obligations of the Company under the Perceptive Credit Agreement are secured by first priority liens on substantially all of its assets.

Covenants

The Perceptive Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its subsidiaries, among other things, to incur debt, grant liens, make distributions, enter certain restrictive agreements, pay or modify subordinated debt, dispose of assets, make investments and acquisitions, enter into certain transactions with affiliates, and undergo certain fundamental changes, in each case, subject to limitations and exceptions set forth in the Perceptive Credit Agreement. The Perceptive Credit Agreement also requires the Company to satisfy certain financial covenants, including minimum trailing twelve month net revenue targets relating to its Advanced Energy segment (tested quarterly), with year-end targets of $41.6 million, $57.0 million, $70.2 million, and $87.8 million for 2024, 2025, 2026, and 2027, respectively. Additionally, the Company must maintain a balance of $3 million in cash and cash equivalents during the duration of the Perceptive Credit Agreement’s term. As of December 31, 2023, the Company was in compliance with the financial covenants contained within the Perceptive Credit Agreement.

Events of Default

The Perceptive Credit Agreement also contains customary Events of Default (as defined in the Perceptive Credit Agreement) that include, among other things, certain payment defaults, cross defaults to certain other contracts and indebtedness, covenant defaults, inaccuracy of representations and warranties, bankruptcy and insolvency defaults, judgment defaults, change of control defaults, defaults related to the failure to remain registered with the Securities and Exchange Commission and listed for trading on the Nasdaq Stock Market, and any material adverse change.

Upon the occurrence and during the continuance of an Event of Default under the Perceptive Credit Agreement, the administrative agent, if requested by the respective lenders, may, among other things, (i) terminate commitments, (ii) declare all outstanding obligations under the agreement (including principal and accrued and unpaid interest) immediately due and payable, and (iii) exercise the other rights and remedies provided for under the agreement. The Perceptive Credit Agreement provides that, under certain circumstances, a default interest rate will apply on all obligations upon the occurrence and during the existence of an Event of Default, at a per annum rate equal to 3% in excess of the applicable interest rate.

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company bifurcated a derivative liability related to the potential acceleration triggered upon an event of default (contingent put option) and the supplemental interest upon an event of default features of the Perceptive Credit Agreement. The fair value of the bifurcated derivative is de minimis to the Company’s consolidated financial statements.

Issuance of Warrants

In connection with the Company’s initial loan under the Perceptive Credit Agreement, the Company issued Perceptive warrants to purchase up to 1,250,000 shares of its common stock, par value $0.001, with an exercise price of $2.43 per share. Upon the issuance of the delayed draw loan, if applicable, the Company will issue Perceptive warrants to purchase up to 250,000 shares of its common stock, par value $0.001, with an exercise price of equal to the 10-day volume weighted average sale price from the preceding business day.

Debt Issuance Costs

In connection with entering into the Perceptive Credit Agreement, the Company incurred debt issuance costs of approximately $1.5 million, comprised primarily of commissions paid to the financial advisor. These costs were allocated to the initial term loan and the currently unissued delayed draw term loan. The costs allocated to the issued term loan are being amortized using the effective interest method over the life of the loan. The costs allocated to the unissued delayed draw term loan have been deferred and will be amortized over the life of the delayed draw term loan starting at the issuance date. If the delayed draw term loan is not issued, the Company will recognize the deferred costs at the point that the Company's rights to borrow on the term loan expires.

Other Debt Information

Included in interest expense for the year ended December 31, 2023, is $140,000 of amortization of the debt issuance costs and $324,000 of amortization of the debt discounts including accretion of the exit fee on the MidCap term loan. Included in interest expense for the year ended December 31, 2023, is $74,000 of amortization of the debt issuance costs and $7,000 of amortization of the debt discount on the MidCap revolving facility.

The Company’s term loan, net consists of the following at December 31, 2023:

(In thousands)

Unamortized debt issuance costs (1,240)

Unamortized debt discount (3,075)

As of December 31, 2023, principal repayments on the term loan are as follows:

(In thousands)

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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 or if the Company has an unfulfilled performance obligation that a customer has been invoiced for.

At December 31, 2023 and 2022, respectively, the Company had recorded approximately $1.7 million and $2.3 million of contract liabilities and $0.5 million and $0.6 million of contract assets related to customer prepayments and the deferral of revenues and expenses under these agreements. At December 31, 2023, $0.5 million of the contract liabilities and $0.1 million of the contract assets are presented as current in the accompanying Consolidated Balance Sheets within accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively. 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 Sheets within accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively.

During each of the years ended December 31, 2023 and 2022, the Company recognized approximately $0.2 million of contract liabilities and $0.1 million of contract assets that existed as of December 31, 2022 and 2021, in sales and cost of sales, respectively, in the accompanying Consolidated Statement of Operations for the year ended December 31, 2023 and 2022.

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) 2023 2022

Numerators:

Net loss attributable to stockholders $ (18,713) $ (23,184)

Weighted average shares outstanding - basic and diluted 34,622 34,516

Loss per share - basic and diluted $ (0.54) $ (0.67)

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

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 14. INCOME TAXES

Components of income tax (benefit) expense are as follows:

Current:

Deferred:

Total income tax (benefit) expense $ (2,432) $ 367

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

Year Ended December 31,

Federal tax provision 21.0 % 21.0 %

State taxes (net of federal benefit) 4.6 % 4.4 %

Valuation allowance (20.6) % (22.3) %

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

Section 162(m) compensation (1.4) % (1.1) %

GILTI (1.9) % (0.9) %

Uncertain tax positions 9.8 % (0.9) %

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APYX MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Deferred tax assets:

Loss and credit carryforwards $ 8,771 $ 7,476

Research and development capitalization 2,178 982

Lease liabilities 1,276 —

Accrued insurance deductibles 798 400

Interest expense limitation 599 —

Accrued bonuses 408 —

APYX US Equity

APYX · 10-K · period ended 2023-12-31

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 2023-12-31

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