Apyx Medical(APYX) - 2019 Q3 - Quarterly Report

Part I. Financial Information Financial Statements The company's financials show increased sales but a larger net loss due to higher operating expenses - The company corrected immaterial errors in prior period statements related to stock-based compensation and OEM revenue recognition[17][18][20] Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $62,272 | $16,466 | | Total current assets | $78,905 | $89,517 | | Total assets | $86,943 | $95,610 | | Liabilities & Equity | | | | Total current liabilities | $9,039 | $7,585 | | Total liabilities | $10,210 | $7,725 | | Total stockholders' equity | $76,733 | $87,885 | Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Sales | $7,575 | $3,672 | $19,772 | $10,760 | | Gross Profit | $5,017 | $2,521 | $13,015 | $7,270 | | Loss from operations | $(4,697) | $(2,796) | $(14,935) | $(8,449) | | Net (Loss) Income | $(4,311) | $69,174 | $(13,900) | $67,967 | | Basic & Diluted EPS (Continuing Ops) | $(0.13) | $(0.01) | $(0.41) | $(0.19) | Consolidated Statements of Changes in Stockholders' Equity - Total stockholders' equity decreased from $87.9 million to $76.7 million, driven by a net loss of $13.9 million for the nine-month period[8] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(15,094) | $(2,835) | | Net cash provided by investing activities | $60,766 | $35,459 | | Net cash provided by (used in) financing activities | $152 | $(2,629) | | Net change in cash | $45,806 | $29,995 | | Cash at end of period | $62,272 | $40,663 | Notes to Consolidated Financial Statements - The company divested its "Core" business segment for $97 million to focus on its J-Plasma® technology[13] - Adoption of the new lease accounting standard (Topic 842) resulted in recognizing $212,000 of operating lease liabilities and right-of-use assets[30] - The company is involved in legal actions related to its J-Plasma® technology and has accrued $500,000 for class-action defense costs[44][47] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth is driven by Renuvion® commercialization, though margins declined and expenses rose Executive Level Overview - The company is focused on the full-scale commercialization of Renuvion® in the cosmetic surgery market[78] - International sales grew to 26.7% of total revenue in Q3 2019, up from 24.8% in Q3 2018[79] - The company initiated an IDE clinical study for skin laxity and received 510(k) clearance for the Apyx Plasma/RF Handpiece[80][81] Results of Operations Revenue by Segment (in thousands) | Segment | Q3 2019 | Q3 2018 | % Change | Nine Months 2019 | Nine Months 2018 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Advanced Energy | $6,094 | $2,985 | 104.2% | $15,734 | $8,727 | 80.3% | | OEM | $1,481 | $687 | 115.6% | $4,038 | $2,033 | 98.6% | | Total | $7,575 | $3,672 | 106.3% | $19,772 | $10,760 | 83.8% | - Gross margin decreased to 66.2% in Q3 2019 from 68.7% in Q3 2018, driven by product mix and international sales[91] Operating Expense Changes (Q3 2019 vs Q3 2018) | Expense Category | Q3 2019 (in thousands) | Q3 2018 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Research & Development | $936 | $613 | 52.7% | | Professional services | $1,996 | $628 | 217.8% | | Salaries and related costs | $3,020 | $2,119 | 42.5% | | SG&A | $3,762 | $1,957 | 92.2% | Liquidity and Capital Resources - Working capital was approximately $69.9 million at September 30, 2019, a decrease from $81.9 million at year-end 2018[106] - Net cash used in operating activities was $15.1 million, primarily funding the operating loss of $13.9 million[107] - The company had purchase commitments of approximately $4.6 million as of September 30, 2019[108] Critical Accounting Estimates - Management identifies several critical accounting estimates requiring significant judgment, including inventory reserves and litigation accruals[112][113][114][115][117] Quantitative and Qualitative Disclosures about Market Risk The company has indicated that this section is not applicable - Not applicable[123] Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2019[124] - The company has identified three material weaknesses in its control environment, control activities, and monitoring controls[130] - Remediation efforts are underway, including hiring new personnel and engaging a third-party specialist[133][136] Part II. Other Information Legal Proceedings The company faces legal actions and a class-action lawsuit related to its J-Plasma® technology and disclosures - The company is involved in legal actions concerning the use of its J-Plasma® technology, which it believes are covered by insurance[140] - A class-action complaint was filed alleging violations of securities laws related to a 510(k) submission[141][142] - The company believes the allegations are without merit but has accrued $500,000 for initial defense costs[143] Risk Factors No material changes to previously disclosed risk factors were reported for the period - There have been no material changes to the Risk Factors described in the annual report on Form 10-K[145] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[146] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[146] Mine Safety Disclosures This section is not applicable to the company - Not Applicable[147] Other Information The company reported no other information for the period - None[147] Exhibits This section lists all exhibits filed with the report, including certifications and XBRL data files