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SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
SIGNIFICANT ACCOUNTING POLICIES | SIGNIFICANT ACCOUNTING POLICIES Consolidated Financial Statements The accompanying consolidated financial statements include the accounts of Apyx and its wholly owned subsidiary, Apyx Bulgaria, EOOD, (collectively, the “Company” or “we”, “our” or “us”). All intercompany transactions and balances have been eliminated in consolidation. On August 30 th, 2018, we sold our Core business and discontinued those operations. The Company concluded that the divestiture of the Core business on August 30 th, 2018 met the criteria for discontinued operations set forth in FASB ASC Topic No. 205, " Presentation of Financial Statements. " The Company reclassified its discontinued operations for all periods presented and has excluded the results of its discontinued operations from continuing operations and from segment results for all periods presented. 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 us 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 we are 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. Short-term Investments Our short-term investments principally consisted of US Treasury Bills, which are classified available-for-sale and are carried at their fair value as of the balance sheet date. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. Short-term investments generally mature between three months and one year from the purchase date. Marketable securities less than or equal to three months are identified as cash equivalents while marketable securities with a maturity duration over three months are considered short term investments. Currently all of our US Treasury Bills have original maturities of three months or less and are included in cash and cash equivalents. The Treasury Bill investments accrue interest monthly, which is treated as interest income. Realized gains or losses are determined on the specific identification method and are reflected in other income. Net unrealized gains and losses are recorded on a quarterly basis in interest income. Fair Values of Financial Instruments and Concentration of Credit Risk The carrying amounts of our financial instruments included in current assets and liabilities approximate fair value due to their short term nature. Financial instruments, which potentially subject us to significant concentrations of credit risk, consists primarily of short term investments and trade accounts receivable. With respect to cash, we frequently maintain cash and cash equivalent balances in excess of federally insured limits. We have not experienced any losses in such accounts. Accounts Receivable and Allowance for Doubtful Accounts Our standard credit terms for our billings range from net 10 days to net 90 days, depending on the customer agreement. Accounts receivable are determined to be past due if payments are not made in accordance with such agreements and an allowance is generally recorded for accounts that become three months past due, or sooner if there are other indicators that the receivables may not be recovered. Customary collection efforts are initiated, and receivables are written off when we determine they are not collectible and abandon these collection efforts. We evaluate the allowance for doubtful accounts on a regular basis for adequacy based upon our periodic review of the collectability of the receivables in light of historical experience, adverse situations that may affect our customers’ ability to pay and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Management believes that the allowances for doubtful accounts of approximately $0.3 million and $0.4 million at December 31, 2019 and 2018, respectively, are, or were, adequate to provide for possible bad debts. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first in, first out basis. Finished goods and work-in-process inventories include material, labor and overhead costs. Factory overhead costs are allocated to inventory manufactured in-house based upon labor hours. We monitor usage reports to determine if the carrying value of any items should be adjusted due to lack of demand for the item and adjust the inventory for estimated obsolescence or unusable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the assets. The amortization of leasehold improvements is based on the shorter of the lease term or the life of the improvement. Betterments and major improvements, which extend the life of the asset, are capitalized, whereas maintenance and repairs and routine improvements are expensed as incurred. The estimated useful lives are: machinery and equipment, 3-10 years; buildings, 39 years; molds, 7-15 years; furniture and fixtures, 5-10 years; and computer equipment and software, 3-5 years. Goodwill Goodwill of $0.2 million resulted from our acquisition of Apyx Bulgaria, EOOD and is included in other assets in the Company's consolidated balance sheets. Valuation of Long-Lived Assets We review 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, 2019, we believe the remaining carrying values of our long-lived assets are recoverable. Product Warranties We provide a four years limited warranty on end-user sales of our Renuvion®/J-Plasma® generators, a two years warranty on mounting fixtures, and a one year warranty on some accessories. We estimate and provide for future costs for product warranties in cost of sales at the time revenue is recognized. We base product warranty costs on related material costs, repair labor costs and shipping costs. We estimate the future cost of product warranties by considering historical material, repair labor, and shipping costs, and applying the experience rates to the outstanding warranty period for products sold. It is reasonably possible that actual results could differ from those estimates. Revenue Recognition ASU No. 2014-09 (ASC 606), Revenue from Contracts with Customers became effective for us beginning with the first quarter of 2018, and we adopted the new accounting standard using the modified retrospective transition approach. The modified retrospective transition approach recognized any changes from the beginning of the year of initial application through retained earnings with no restatement of comparative periods. Management performed an evaluation to determine the effects of adopting ASC 606 and we determined that the adoption and the application of the transition requirements of the new standard presented no material impact on our consolidated financial statements, and no entry was recorded to opening retained earnings. We have disaggregated revenue by segment and geography in Note 20 Geographic and Segment Information. Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that we expect to receive for those goods or services. To recognize revenue, we (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy the performance obligation(s). For sales of our Advanced Energy products (Renuvion®/J-Plasma®), this is at a point in time when title has been transferred to the customer, which is generally at the time of shipment or receipt by customer for FOB destination terms. For sales of products under our 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 our OEM agreements, accordingly, the recognition of revenue under these agreements approximates point in time recognition. The following policies apply to our major categories of revenue transactions:
• | The majority of our 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 our discretion and in accordance with our “Returned Goods Policy”. Historically, the level of product returns has not been significant. We accrue for sales returns, rebates and allowances as a reduction of revenue based upon an analysis of historical customer returns and credits, rebates, discounts and current market conditions.
• | Our 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 our 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 revenues and cost of sales occurs as revenue is recognized on the accompanying supply agreement. At December 31, 2019, the Company had recorded approximately $0.4 million of contract liabilities and $0.1 million of contract assets related to the deferral of revenues and expenses under these agreements.
Advertising Costs All advertising costs are expensed as incurred. The amounts of advertising costs, including trade shows, were approximately $1.5 million, $0.8 million and $1.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. Stock-Based Compensation We account for stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation. FASB ASC 718 requires recognizing compensation costs for all share-based payment awards made to employees, directors and non-employees based upon the awards’ grant date fair value. The Company currently accounts for forfeitures using the estimate method. The standard covers employee stock options, restricted stock and other equity awards. We currently utilize a Black-Scholes model and in prior years utilized a trinomial lattice option-pricing model to estimate the grant date fair value of stock option awards. For employee and director awards compensation cost is recognized on a straight-line basis over the awards’ vesting periods. For non-employee awards, compensation cost 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, we accrue a liability in our consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is 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. Income (Loss) Per Share We compute basic (loss) earnings attributable to common shareholders per share by dividing net (loss) income attributable to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted (loss) earnings per share attributable to common shareholders 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 we could purchase with the proceeds of assumed exercises. Research and Development Costs Research and development expenses are charged to operations as incurred. We have expended approximately $3.7 million and $2.5 million and $1.9 million for the years ended 2019, 2018 and 2017 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 basis difference. The Company accounts for interest and penalties on income taxes as income tax expense. A valuation allowances is recorded when it is more likely than not that a tax benefit will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income, the timing of reversals of temporary differences, and the availability of tax planning strategies. As of December 31, 2019 and 2018, the Company recorded a valuation allowance on the net deferred tax asset. The Company will reassess the realization 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 realizable. As Management expects the Company to continue to generate losses in the foreseeable future after 2019, the Company will continue to record a valuation allowance on the remaining deferred tax assets balance as of December 31, 2019. 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. Foreign Currency Transactions The functional currency of Apyx Bulgaria is the U.S. dollar. The monetary assets and liabilities that are denominated in a currency other than U.S. dollar are remeasured into U.S. dollars at the exchange rate on the balance sheet date, while nonmonetary items are remeasured at historical rates. Revenue and expenses are remeasured at weighted average exchange rates during the period. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in selling, general and administrative expenses in the consolidated statements of operations and were not material for the years ended December 31, 2019, 2018 and 2017. Reclassifications We have reclassified certain amounts presented in prior years 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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