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Note 11 - Debt | 12 Months Ended
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Dec. 31, 2024
Notes to Financial Statements |
Debt Disclosure [Text Block] | 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”). 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 percentages of eligible accounts receivable and inventory determined in accordance with the MidCap Credit Agreement. The MidCap Credit Agreement was to mature on February 1, 2028. The outstanding borrowings under the MidCap Credit Agreement were repaid in full using proceeds from the execution of the Perceptive Credit Agreement. 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, 2024. 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. 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's ability to borrow the delayed draw loan lapsed on December 31, 2024. The Credit Agreement matures on November 8, 2028. On November 7, 2024, the Company entered into an amendment to the Perceptive Credit Agreement. The amendment reduced the financial covenant trailing twelve-month revenue targets relating to its Advanced Energy segment and introduced a maximum operating expense financial covenant for 2025 and 2026. In connection with the amendment to the Perceptive Credit Agreement, the Company issued Perceptive 150,000 shares of its common stock. The Company determined that the amendment was a modification in accordance with ASC 470. 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. 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 bears interest at a floating rate based on one-month SOFR, subject to a floor of 5.0%, plus 7.0% (12.0% at December 31, 2024). The effective interest rate on the loan was 14.7% at December 31, 2024. 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 loan 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 loan is subject to mandatory prepayment obligations, pursuant to the terms of the Perceptive Credit Agreement. Prepayments of the loan is 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 As amended, 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. As amended, 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 $34.4 million, $37.0 million, $52.4 million, and $60.3 million for 2024, 2025, 2026, and 2027, respectively. The amendment introduced a maximum operating expense financial covenant, with full year targets of $40.0 million and $45.0 million for 2025 and 2026, 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, 2024, the Company was in compliance with the financial covenants contained within the Perceptive Credit Agreement, as amended. The Company’s continued compliance with covenants is subject to meeting or exceeding forecasted Advanced Energy revenues, as amended, and reducing operating expenses. 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. 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. Debt Discounts - Issuance of Warrants and Common Stock 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. 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. In connection with the amendment to the Perceptive Credit Agreement, the Company paid lender fees of approximately $11,000 and issued to Perceptive 150,000 shares of its common stock. The Company included the fair value of the common stock in debt discounts and additional paid in capital in the accompanying consolidated financial statements. 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 were deferred and were recognized on December 31, 2024, at the point that the Company's rights to borrow on the term loan expired. Other Debt Information Included in interest expense for the year ended December 31, 2024 are $516,000 and $641,000 of amortization of the debt issuance costs and debt discounts, respectively. Included in interest expense for the year ended December 31, 2023 are $214,000 and $331,000 of amortization of the debt issuance costs and debt discounts, respectively, including accretion of the exit fee on the Company’s prior credit agreement. The Company’s term loan, net consists of the following at December 31, 2024:
|  | December 31, |  |  | December 31, |
(In thousands) |  | 2024 |  |  | 2023 |
Term loan |  | $ | 37,500 |  |  | $ | 37,500 |
Unamortized debt issuance costs |  |  | (979 | ) |  |  | (1,240 | )
Unamortized debt discount |  |  | (2,628 | ) |  |  | (3,075 | )
Term loan, net |  | $ | 33,893 |  |  | $ | 33,185 |
As of December 31, 2024, principal repayments on the term loan are as follows:
(In thousands) |  |  |  |
2025 |  | $ | — |
2026 |  |  | — |
2027 |  |  | 2,216 |
2028 |  |  | 35,284 |
Total repayments |  | $ | 37,500 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 470 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147481544/470-10-50-6 Reference 2: 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