APYX 10-K & 10-Q changes, risk factors and insider trading

We are in an inflationary period in the United States and is expected to continue at an elevated level in the near-term. Higher inflation and interest rates could have an adverse impact on our operating expenses and our credit facilities. There is no guarantee we will be able to mitigate the impact of inflation. TheIn recent years, the Federal Reserve has(the raised“Fed”) interestexecuted an aggressive tightening cycle increasing rates toabove combat5% inflationin 2023. For most of 2024, the Fed paused rated increases and restoreat pricethe stability.end of 2024 and throughout 2025 implemented several rate cuts. Increases in interest rates on any of our debt will result in higher debt service costs, which will adversely affect our cash flows. Higher interest rates can also impact our customers’ ability to purchase capital. We cannot assure you that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings. Such future constraints could increase our borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments, which could slow or deter future growth.

The health of the economy may affect consumer purchases of discretionary services, such as cosmetic and aesthetic services, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our results of operations may be materially affected by conditions in the capital and credit markets and the economy generally. Uncertainty in the economy could adversely impact customer purchases of discretionary services, including cosmetic and aesthetic services. Factors that could affect customers’ willingness to make such discretionary purchases include general business conditions, levels of employment, interest rates, tax rates, the availability of consumer credit, consumer confidence in future economic conditions and risks, or the public perception of risks, related to epidemics or pandemics. In the event of a prolonged economic downturn or acute recession, consumer spending habits could be adversely affected, and doctor’s purchasing decisions as it relates to capital goods may be impacted and we could experience lower than expected net sales.

Historically, some doctors have financed their purchase of generatorscapital equipment through third-party credit providers some of whom with which we have existing relationships. If we are unable to maintain our relationships with our financing partners, there is no guarantee that we will be able to find replacement partners who will provide our doctor customers with financing on similar terms, and our revenue may be adversely affected. Further, reductions in consumer lending and the availability of consumer credit could limit the number of patients with the financial means to afford the procedures where our products are used. Higher interest rates could increase our costscosts, decrease our selling price, or increase the monthly payments for consumer products financed through other sources of consumer financing. In the future, we cannot be assured that third-party financing providers will continue to provide doctor customers or patients with access to credit or that available credit limits will not be reduced. Such restrictions or reductions in the availability of consumer credit, or the loss of our relationship with our current financing partners, could have an adverse effect on our business, financial conditions, and operating results.

Due to our recurring net losses and the continued level of demand for the adoption and utilization of our technology, we may need to raise additional capital to fund our future operations. Our cash needs will depend on numerous factors, including our revenues, successful completion of our FDA product clearance activities, our continued ability to commercialize our advancedsurgical energyaesthetics products, and our ability to reduce and control costs. If we are unable to secure such additional financing on terms that are acceptable to us, it will have a material adverse effect on our business, and we may have to limit operations in a manner inconsistent with our growth strategy. If additional funds are raised through the issuance of equity securities, it will be dilutive to our stockholders and could result in a decrease in our stock price. If we are unable to obtain the requisite amount of financing needed to fund our planned operations, it would have a material adverse effect on our business and ability to continue as a going concern.

Our indebtedness levels and achievement of covenants could impact our business.

Our ability to successfully commercialize our products, including AYON, which welaunched expectin to launch duringSeptember 2025, will depend on a number of factors, any of which could delay or prevent commercialization, including:

The energy-based medical device industry infor the aesthetics market is highly competitive and we may be unable to compete effectively.

We have invested and continue to invest, substantial resources to develop and monetize our Renuvion and AYON technology into the cosmeticaesthetic surgery market. We believe we must continue to innovate and develop new applications for our products and obtain new indications for use in order to differentiate ourselves and stay competitive. If we are unable to gain acceptance of our technology in the marketplace, or obtain new indications for use, our business and results of operations and cash flows may be materially and adversely affected.

We have been issued 3841 patents in the United States and 5761 foreign patents. We have 1411 pending patent applications in the United States and 1921 pending foreign applications. Our intellectual property portfolio for our RenuvionRenuvion, AYON and J-Plasma products continues to grow on an annual basis. We intend to continue to seek legal protection, primarily through patents, for our proprietary technology. Seeking patent protection is a lengthy and costly process and there can be no assurance that patents will be issued from any pending applications, or that any claims allowed from existing or pending patents will be sufficiently broad or strong to protect our proprietary technology. There is also no guarantee that any patents we hold will not be challenged, invalidated or circumvented, or that the patent rights granted will provide competitive advantages to us. Our competitors have developed, and may continue to develop and obtain, patents for technologies that are similar or superior to our technologies. In addition, the laws of foreign jurisdictions in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as the laws of the United States.

We are involved in a number of legal actions relating to the use of our technology. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. In the opinion of management, we have meritorious defenses, and such claims are adequately covered by insurance, or are not expected, individually or in the aggregate, to result in a material, adverse effect on our financial condition, results of operations and cash flows. However, in the event that damages exceed the aggregate coverage limits of our policy, or if our insurance carriers disclaim coverage, or if we are unable to continue to obtain coverage on commercially reasonable terms, we believe it is possible that costs associated with these claims could have a material adverse impact on our consolidated financial position, results of operations and cash flows (see below ITEM 3: Legal Proceedings).

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

In addition, the FDA has taken the position thatprohibits device manufacturers are prohibited from promoting their products other than for the uses and indications set forth in the cleared product labeling. Any failure to comply could subject us to significant civil or criminal exposure, administrative obligations and costs, other potential penalties from, and/or agreements with, the federal government. Governmental regulations worldwide have, and may continue to become, increasingly stringent and customary.

We are subject to governmental export controls and economic sanctionsregulations that could impair our ability to compete in international markets due to licensing requirements and subject us to potential liability if we are not in compliance with applicable laws. Any non-compliance could have a material adverse effect on our business, financial condition, results of operations and cash flows.

As of December 31, 2024,2025, our outstanding stock options to our employees, officers, directors and consultants amounted to 7,638,4587,579,377 shares of our common stock, representing approximately 20.2%18.1% of our outstanding common stock. In connection with the execution of thecertain MidCapcredit Credit Agreement and the Perceptive Credit Agreement,agreements, we issued warrants to purchase 1,500,000 shares of our commons stock, representing approximately 4.0%3.6% of our outstanding common stock. Additionally, in the registered direct offering that we completed in November 2024, we issued 2,934,690 pre-funded warrantswarrants, of which 1,923,623 remain outstanding and unexercised, which will have a dilutive effect on our common stock outstanding when exercised. As of the date of this annual report on Form 10-K, the dilution is 7.8%.4.6%.

Changes in U.S. or foreign trade policies could significantly increase the cost of imported goods into the United States, which may materially reduce our sales or profitability.

Changes in U.S. or foreign trade policy could trigger retaliatory actions by affected countries, resulting in "trade wars," in increased costs for goods imported into the United States, which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with the United States. If these consequences are realized, the volume of economic activity in the United States, may be materially reduced. Such a reduction may materially and adversely affect our sales volumes. Further, the realization of these matters may increase our cost of goods and, if those costs cannot be passed on to our customers, our business and profits may be materially and adversely affected.

We are a surgical aestheticaesthetics company with a passion for elevating people’s lives through innovative products, including ourits Helium Plasma Platform Technology products marketed and sold as Renuvion® and the AYON Body Contouring SystemTM (“AYON”) 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. AYON is an FDA-cleared, surgeon-designed body contouring system that combines precision, versatility, and innovation in an all-in-one platform. It seamlessly integrates fat removal, closed loop contouring, and Renuvion’s tissue contraction and electrosurgical capabilities, empowering surgeons to deliver comprehensive body contouring treatments for patients. We also leverage our deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device manufacturers.

Glucagon- like peptide -1 peptide receptor agonists (“GLP-1’s”), such as Mounjaro®, Wegovy® and Ozempic®, are prescribed for the treatment of diabetes and or weight loss in combination with exercise to improve glycemic control. GLP-1’s have also been found to mimic the GLP-1 satiety hormone in our bodies. When one eats, GLP-1 is released in the small intestines regulating blood sugar and sending signals to the brain centers that control appetite. Studies have shown patients taking GLP-1’s have experienced a loss of body weight. Currently, two GLP-1’s are cleared by the FDA for weight loss,loss butand now oral versions have been approved and, we anticipate a number of additional drug candidates will be cleared as well as, oral versions of these injectable medications.approved.

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, 2024,2025, we incurred a loss from operations of $18.8$6.4 million and used $18.0$8.0 million of cash in operations. As of December 31, 2024,2025, we had cash and cash equivalents of $31.7 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 acceptable to us. 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, cash flows and prospects. In November 2024, we undertook a cost saving restructuring which included an organizational reduction in force to better focus, optimize and streamline operations. As a result of the organizational changes, we reduced our U.S. workforce by nearly 25%. We estimate the annualized future cost savings from the reduction in force to be approximately $4.3 million which we expect to contribute to our goal of decreasing losses and achieving cash-flow breakeven. We incurred pre-tax charges of approximately $0.6 million in the fourth quarter of 2024 representing, for the most part, one-time cash expenditures for severance and other employee termination benefits. In addition to the reduction in force, we eliminated bonuses in 2024, reduced the size of the board of directors from eight to five members and reduced aggregate board cash compensation from $0.5 million annually to $0.1 million, while increasing board stock-based compensation.

In addition to the organizational changes, we have identified other direct cost savings we anticipate achievingachieved in 2025. The identified cost savings include reductions in professional fees, lower research and development costs as we complete the development of AYON,costs, lower credit card fees and stock-based compensation. We foresee, in totality, theseThese cost savings will reducereduced our annual operating expenses below $40$40.0 million in 2025.2025, as compared to $48.2 million and $53.7 million in 2024 and 2023, respectively.

On November 7, 2024, we entered into an amendment to the Perceptive Credit Agreement. The amendment reduced the financial covenant trailing twelve-month revenue targets relating to its AdvancedSurgical EnergyAesthetics segment (tested quarterly), with amended year-end targets of $34.4 million, $37.0 million, $52.4 million and $60.3 million for 2024, 2025, 2026 and 2027, respectively. The amendment also introduced a maximum operating expense financial covenant, with full year targets of $40.0 million and $45.0 million for 2025 and 2026, respectively. The Perceptive Credit Agreement, as amended, continues to contain customary affirmative and negative covenants, including covenants limiting theour ability of usability, and our subsidiaries,subsidiaries to, 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. Additionally, we must maintain a balance of $3.0 million in cash and cash equivalents during the term of the Perceptive Credit Agreement. As of December 31, 2024,2025, we were in compliance with the financial covenants contained within the Perceptive Credit Agreement, as amended. Our continued compliance with covenants is subject to meeting or exceeding forecasted AdvancedSurgical EnergyAesthetics revenues, as amended, and reducing operating expenses.

During 2024,2025, we continued to driveaccelerate sales growth in our AdvancedSurgical EnergyAesthetics business by increasinglaunching the adoption and utilization of our handpiecesAYON in the U.S. cosmeticaesthetic surgery marketmarket, beginning in September, and fulfilling demand from distributors for Renuvion in our international markets. Management estimates that our products have been sold in more than 60 countries. Our direct sales force, along with our international network of distributors, is focused on becoming the sole provider of surgical equipment in the cosmetic surgical markets. This sales force is supported by a global team of clinical support specialists, which 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 our technology into surgeons' practices.

We believe that our continued investment and focus on the following strategic initiatives in 20252026 and beyond will position the Companyus for long-term growth in the cosmetic surgery market:

eWe operate in two business segments: OEMSurgical Aesthetics and Advanced Energy.OEM. The OEMSurgical segment is primarily development and manufacturing contract and product driven. The Advanced EnergyAesthetics segment sells both capital equipment and consumables in the form of a single use handpiece. Sales of handpiece units are a substantial portion of our business and for the years ended December 31, 20242025 and 2023,2024, we sold approximately 94,00084,000 and 87,00094,000 units, respectively. During 2024, ourOur single-use handpiece unit sales grew 8% overall and 15% in the United States and handpiece revenue currently accounts for moreapproximately than50% 60%and 63% of our total AdvancedSurgical EnergyAesthetics revenue.revenue for the years ended December 31, 2025 and 2024, respectively. “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.

Total revenue decreasedincreased by 8.1%9.9% or approximately $4.2$4.7 million for the year ended December 31, 20242025 when compared with 2023.2024. AdvancedSurgical EnergyAesthetics segment sales decreasedincreased 11.0%17.4% or approximately $4.8$6.7 million for the year ended December 31, 20242025 when compared with 2023.2024. The AdvancedSurgical EnergyAesthetics sales decreaseincrease was primarilydriven due to lowerby sales of our generators in both domestic and certain international markets as a result of economic uncertaintyAYON in the capital equipment market that is being experienced in the aesthetic space and a lower average selling price of generators to domestic customersU.S., as awe resultcommenced ofour thesecommercial marketlaunch conditions.during TheseSeptember decreases2025. wereThis increase was partially offset by increaseddecreases in domestic sales of generators, including upgrades to the Apyx One Console, where the purchase of AYON was not part of the sale, and decreased volume of single-use handpieces globally and sales of Apyx One Console upgrades internationally.handpieces.

The OEM product line consists of proprietary products designed specifically for third party equipment manufacturers. Revenue for this product line increaseddecreased 5.9%,20.9%, or approximately $0.5$2.0 million, when compared to 2023.2024. The increasedecrease in OEM sales was due to increasesdecreases in sales volume to existing customers,customers. includingWith Symmetrythe focus on Surgical underAesthetics, ourwe 10-yearanticipate generatorthat manufacturingthe andOEM supplysegment agreement.revenue will continue to decrease over time.

Our gross profit margin as a percentage of sales decreasedincreased by approximately 3.5%1.5% during the year ended December 31, 2024,2025, compared with 2023.2024. The decreaseincrease in gross profit margins for the year ended December 31, 20242025 from the prior year is primarily due to a decrease in the average selling price of generators to domestic customers, changes in the sales mix between our two segments, with ourSurgical OEM segmentAesthetics comprising a higher percentage of total sales and geographic mix within our Advanced Energy segment,mix, with internationaldomestic sales comprising a higher percentage of total sales. These increases were partially offset by tariffs that began effecting us in the second half of 2025.

Our expenses for research and development related activities decreased by 6.6%33.6%, or approximately $0.4$1.7 million for the year ended December 31, 2024,2025, compared with 2023.2024. This increasedecrease was primarily due to lower compensation and benefits costs from the prior year ($0.3$1.1 million) and lower spending on our product development initiatives and clinical studies ($0.1$0.6 million)., as we complete the development of AYON.

Professional services expenses decreased 1.7%,8.8%, or approximately $0.1$0.6 million for the year ended December 31, 2024,2025, compared with 2023.2024. This decrease was primarily due to decreases in boardphysician ofand director’smarketing stock-based compensation expenseconsulting ($0.5$0.3 million), recruitinglegal expenses ($0.4$0.3 million) and, accounting and audit fees ($0.2$0.1 million) and recruiting expenses ($0.1 million). These decreases were partially offset by increasesan increase in physicianboard andof marketingdirector’s consultingstock-based compensation expense ($0.6 million) and legal expenses ($0.4$0.2 million), aswhich awas resultoffset ofby thelower reversalboard ofcash acompensation legal loss contingencyincluded in theselling, priorgeneral year.and administrative expenses.

Salaries and related expenses decreased 8.9%19.3%, or approximately $1.7$3.3 million for the year ended December 31, 2024,2025, compared to 2023.2024. The decrease was primarily due to a decrease in bonussalaries expenseand benefits ($1.0$2.9 million), aswhich wewas reverseddue to lower headcount following our entirereduction annualin bonus accrual during the third quarter because of economic uncertainty for capital equipment purchasesforce in the aestheticsfourth space. The decrease was also the resultquarter of 2024 and lower stock-based compensation expense ($0.5$1.8 million). These decreases were partially offset by increases in bonus expense ($1.3 million) as the compensation committee declared a discretionary bonus in 2025 based on our financial and operational results and temporary labor expensescosts ($0.2$0.1 million).

Interest income increaseddecreased approximately $0.7$0.5 million for the year ended December 31, 2024,2025, compared with 2023.2024. This increasedecrease is due to a higherlower average balance and lower average yield in on our investmentscash equivalents in money market funds and U.S. Treasury securities included in cash and cash equivalents.securities.

Interest expense increaseddecreased approximately $3.4$0.3 million for the year ended December 31, 2024,2025, when compared with the prior year. TheseThe increasesdecrease areis dueprimarily attributable to cashthe andwrite noncashoff interestof expensedeferred oncosts allocated to the Perceptivedelayed Creditdraw Agreement.term loan that expired in 2024.

Other income (expense) income,, net decreasedincreased approximately $0.8$0.3 million for the year ended December 31, 2024,2025, compared with 2023.2024. This decreaseincrease was primarily due to the currentprior year recording of a joint and several liability for sales taxes related to one customer ($0.2 million), a small insurance recovery in 2023 ($0.2 million) and the releasecurrent year reversal of oura jointportion andof several payrollthis liability due to the lapse of the statute of limitations on a portion of the liabilitylapsing ($0.4$0.1 million) in 2023..

Income tax expense (benefit) was approximately $0.3 million and $(2.4 million),million, with effective tax rates of (1.12.5)% and 11.4%,(1.1)%, respectively, for the years ended December 31, 20242025 and 2023,2024, respectively. For each of the yearyears ended December 31, 2025 and 2024, the effective tax rate differs from the statutory rate primarily due to the valuation allowance on our Federal and state net operating losses (NOLs) and net deferred tax assets generated during the year. 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.

At December 31, 2025 and 2024, we had approximately $31.7 million in cash and cash equivalents as compared to approximately $43.7 million in cash and cash equivalents at December 31, 2023.equivalents. Our working capital at December 31, 20242025 was approximately $45.7$46.8 million compared with $57.6$45.7 million at December 31, 2023.2024.

For the year ended December 31, 2024,2025, net cash used in operating activities was $18.0$8.0 million, which principally funded our loss from operations of $18.8$6.4 million, compared with net cash used in operating activities, exclusive of the receipt of our $8.1 million final income tax refund,activities of approximately $13.3$18.0 million for 2023.2024. The increasedecrease in cash used in operations is primarily due to the paymentreduction in our operating loss, which is a result of accruedthe bonusescost cutting measures implemented in the firstfourth quarter of 2024 (nocombined bonuseswith wereincreased paidsales inas 2023),we highercommenced accountsthe receivable,commercial higher cash interest expense, netlaunch of interestAYON income, andduring the increasesecond-half inof operating2025. lossThis drivenreduction by lower Advanced Energy sales compared to the same period in the prior year. These decreases werewas partially offset by improvementshigher intrade accounts receivable on our prepaidhigher expensessales and cash used to procure inventory positions.for our expanded product portfolio.

Net cash used in investing activities for the year ended December 31, 2024,2025, was $0.7$1.1 million related to investments in property and equipment. Net cash provided by investing activities for the year ended December 31, 2023,2024, was $6.7$0.7 million related to the sale of our Clearwater, FL facility ($7.3 million), partially offset by investments in property and equipment ($0.5 million).equipment.

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, onOn 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 provided for a facility of up to $45 million, consisting of senior secured term loans. The Perceptive Credit Agreement provided for (i) an initial loan of $37.5 million and (ii) a delayed draw loan of $7.5 million. The Company'sOur ability to borrow the delayed draw loan of $7.5 million lapsed on December 31, 2024.

On November 7, 2024, we entered into an amendment to the Perceptive Credit Agreement. The amendment reduced the financial covenant trailing twelve-month revenue targets relating to itsour AdvancedSurgical EnergyAesthetics segment (tested quarterly), with amended year-end targets of $34.4 million, $37.0 million, $52.4 million and $60.3 million for 2024, 2025, 2026 and 2027, respectively. The amendment also introduced a maximum operating expense financial covenant, with full year targets of $40.0 million and $45.0 million for 2025 and 2026, respectively. The Perceptive Credit Agreement, as amended, continues to contain customary affirmative and negative covenants, including covenants limiting theour ability of usability, and our subsidiaries,subsidiaries to, 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. Additionally, we must maintain a balance of $3.0 million in cash and cash equivalents during the term of the Perceptive Credit Agreement. As of December 31, 2024,2025, we were in compliance with the financial covenants contained within the Perceptive Credit Agreement, as amended. Our continued compliance with covenants is subject to meeting or exceeding forecasted AdvancedSurgical EnergyAesthetics revenues, as amendedamended, and reducing operating expenses.

For a more in-depth description of the terms of the Midcap Credit Agreement and the Perceptive Credit Agreement, as amended, see Note 1110 in Item 8 of this Annual Report on Form 10-K.

We operate in two business segments: OEM and Surgical Aesthetics, formerly known as Advanced Energy. The OEM segment is primarily development and manufacturing contracts and product driven. The Surgical Aesthetics segment sells both capital equipment and consumables in the form of a single-use handpiece. Sales of handpiece units are a substantial portion of our business and for the threesix months ended MarchJune 31,30, 2026 and 2025, we sold approximately 26,00048,000 and 19,00040,000 units, respectively. In the U.S.U.S., Handpiecehandpiece revenue accounts for more than 50% of our total Surgical Aesthetics revenue.

Glucagon- like peptide -1 receptor agonists ("“GLP-1s"”), such as Mounjaro®, Wegovy® and Ozempic®, are prescribed for the treatment of diabetes and/or weight loss in combination with exercise to improve glycemic control. GLP-1’sGLP-1s have also been found to mimic the GLP-1 satiety hormone in our bodies. When one eats, GLP-1 is released in the small intestines regulating blood sugar and sending signals to the brain centers that control appetite. Studies have shown patients taking GLP-1’s have experienced a significant loss of body weight.

Total revenue increased by 32.4%,22.1%, or approximately $3.1$2.5 million, for the three months ended MarchJune 31,30, 2026 when compared with the three months ended MarchJune 31,30, 2025. Surgical Aesthetics segment sales increased 36.1%,28.1%, or approximately $2.8$2.7 million, for the three months ended MarchJune 31,30, 2026 when compared with the three months ended MarchJune 31,30, 2025. The Surgical Aesthetics sales increase was driven by sales of AYON, as we commenced our commercial launch in the third quarter of 2025, increased sales of generators internationally and increased volume of single-use handpieces in both domestic and international markets.domestically. These increases were partially offset by decreases in domestic sales of generators,standalone including upgrades to the Apyx One Console, where the purchase of AYON was not part of the sale, as expected, and upgrades to the Apyx One Console in international markets.generators. OEM segment sales increaseddecreased 13.8%,12.0%, or approximately $0.2 million, for the three months ended MarchJune 31,30, 2026 when compared with the three months ended MarchJune 31,30, 2025. The increasedecrease in OEM sales was due to increasesa decrease in sales volume to existing customers. While OEM segment sales increased for the three month period, withWith the increased focus on Surgical Aesthetics, we expect that OEM segment revenue will decrease for the year and that this trend will continue over time.

International sales represented approximately32.2% 35.1%and 33.6% of total revenues for the three and six months ended MarchJune 31,30, 2026 as compared with 28.5%31.6% and 30.2% of total revenues for the same periodperiods in the prior year. Management estimates our products have been sold in more than 60 countries through local dealers, coordinated by our sales and marketing personnel through our facilities in Clearwater, Florida and Sofia, Bulgaria.

Gross profit for the three months ended MarchJune 31,30, 2026, increased 39.9%25.2% to $7.9$8.9 million, compared to $5.7$7.1 million for the same period in the prior year. Gross margin for the three months ended MarchJune 31,30, 2026, was 63.5%,63.9%, compared to 60.1%62.3% for the same period in 2025. The increase in gross margin for the three months ended MarchJune 31,30, 2026 from the prior year period is primarily attributable to mix between our segments with Surgical Aesthetics comprising a higher percentage of total sales and product mix within our OEM segment. This was partially offset by geographic mix, with international sales comprising a higher percentage of total sales and tariffs that began effectingaffecting us in the second half of 2025.

Research and development expenses decreased 4.9%3.8% for the three months ended MarchJune 31,30, 2026. There were no significant changes from the prior period in the components of research and development expense.

Professional services expense decreased 9.0%18.2% for the three months ended MarchJune 31,30, 2026, primarily due to a decrease in physician and marketing consulting expenses ($0.1 million) and legal expense ($0.1$0.3 million). These decreases were partially offset by an increase in recruiting expense ($0.1 million).

During the three months ended MarchJune 31,30, 2026, salaries and related expenses increased 5.6%,9.8%, primarily due to an increase in salaries and benefits to existing employees and certain additional employees in sales and marketing to support the launch of AYON ($0.3$0.4 million). This was partially offset by a decrease in stock-based compensation expense as($0.1 we have not granted any options in 2026.million).

During the three months ended MarchJune 31,30, 2026, selling, general and administrative expense increased 3.2%,23.9%, primarily due to an increaseincreases in Executive Chairman of the Board of Directors stock-based compensation expense ($0.7 million), advertising expense ($0.3 million) and commissions ($0.2 million) and increases in non-Executive Chairman board of directors compensation stock-based expense ($0.1 million). These increases were partially offset by decreases in allowances for credit losses ($0.1 million), travel expenses ($0.1 million) and miscellaneousinsurance otherexpense, expensesincluding claims on our policies ($0.2$0.1 million). These increases were partially offset by a decrease in advertising expense ($0.4 million).

Interest income was flat at approximately $0.3 million for the three months ended June 30, 2026 and 2025. Interest income decreased approximately $0.1 million for the threesix months ended MarchJune 31,30, 20262026, when compared with the same period in the prior year. This decreasesdecrease areis due to a lower average yield in our cash equivalents in money market funds and U.S. Treasury securities.

Interest expense was largely unchangedflat at approximately $1.4 million and $2.8 million for the three and six months ended MarchJune 31,30, 2026 and 2025.2025, respectively.

Income tax expense was approximately $143,000$124,000 and $49,000 with effective tax rates of (7.24.2)% and (1.21.3)% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. Income tax expense was approximately $267,000 and $98,000 with effective tax rates of (5.4)% and (1.3)% for the three months ended June 30, 2026 and 2025, respectively. For the three and threesix months ended MarchJune 31,30, 2026 and 2025, the effective rate differs from the statutory rate primarily due to the full valuation allowance recorded on the net operating loss (“NOL”) and net deferred tax assets generated during the period.periods.

At MarchJune 31,30, 2026, we had approximately $31.1$27.6 million in cash and cash equivalents as compared to approximately $31.7 million in cash and cash equivalents at December 31, 2025. Our working capital at MarchJune 31,30, 2026 was approximately $45.3$43.8 million compared with $46.8 million at December 31, 2025.

For the threesix months ended MarchJune 31,30, 2026, net cash used in operating activities was approximately $0.6$4.1 million, compared with net cash used in operating activities of approximately $0.7$2.0 million in the threesix months ended MarchJune 31,30, 2025. The decreaseincrease in cash used in operations is primarily due to the reduction in our operating loss, which was driven by an increase in Surgical Aesthetics sales. This was partially offset by the payment of 2025 bonuses in the first quarter of 2026 and cash used to procure inventory for our expanded product portfolio. This was partially offset by the reduction in our operating loss, which was driven by an increase in Surgical Aesthetics sales.

Net cash used in investing activities was $0.1 million and $0.3 million for each of the threesix months ended MarchJune 31,30, 2026 and 2025, was $0.1 million,respectively, related to investments in property and equipment.

Net cash provided by financing activities for the threesix months ended MarchJune 31,30, 2026 was $0.1 million and was primarily related to proceeds on the exercise of stock options.

On November 7, 2024, we entered into an amendment to the Perceptive Credit Agreement. The amendment reduced the financial covenant trailing twelve-month revenue targets relating to its Surgical Aesthetics segment (tested quarterly), with amended year-end targets of $52.4 million and $60.3 million for 2026 and 2027, respectively. The amendment also introduced a maximum operating expense financial covenant, with a full year target of $45.0 million for 2026. The Perceptive Credit Agreement, as amended, continues to contain customary affirmative and negative covenants, including covenants limiting the ability of us and our 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. Additionally, we must maintain a balance of $3.0 million in cash and cash equivalents during the term of the Perceptive Credit Agreement. As of MarchJune 31,30, 2026, we were in compliance with the financial covenants contained within the Perceptive Credit Agreement, as amended. Our continued compliance with covenants is subject to meeting or exceeding forecasted Surgical Aesthetics revenues, as amended and controlling operating expenses.

At MarchJune 31,30, 2026, we had purchase commitments totaling approximately $4.2$3.8 million, substantially all of which is expected to be purchased within the next twelve months.