RESTATEMENT

Throughout 2019, the Company made efforts to remediate its material weaknesses in internal control as of December 31, 2018, including investing in new personnel that have expertise in a broad array of accounting topics. As a result of these investments and remediation efforts, the Company reevaluated the accounting for a broad array of items and discovered numerous immaterial errors. On March 12, 2020, our Management and the Audit Committee of the Board of Directors, following discussion with our predecessor independent registered public accounting firm, concluded that the Company's previously filed financial statements as of and for three months ended March 31, 2019, were no longer able to be relied upon as the result of the aggregation of errors identified by Management and the Company’s new accounting personnel during 2019 related to the following:

As identified during preparation of the fiscal year 2019 Form 10-K:

•

The Company reevaluated its subsidiary consolidation process and discovered an inaccuracy in its accounting for the elimination of markup on intercompany sales. This resulted in the Company incorrectly including the markup in US inventory purchased from Apyx Bulgaria and resulted in an overstatement of cost of sales and a corresponding understatement of other costs and expenses when the inventory was sold, which did not have any impact on net income (loss) or financial position.


◦	For the three months ended March 31, 2019, the total impact included increases to both gross profit and to operating expenses of approximately $113,000.

•

During the first quarter of 2020, while reconciling the 2019 income tax provision back to the corresponding records, we determined that when employees exercised non-qualified stock options, we did not collect and remit the employee’s income and payroll taxes on the exercises and did not accrue and remit the employer portion of payroll taxes. Due to statutory requirements, we have joint and several liability on the amounts that we did not withhold from employees and remit to the proper taxing authorities. While further investigating the issue, we determined that during 2018 we did not report the correct amount of income to employees on their form W-2 for both non-qualified and incentive stock option exercises and misclassified some non-qualified stock option exercises as incentive stock option exercises.


◦	For the three months ended March 31, 2019, the total aggregated impact included an increase to operating expenses of $16,000, an increase of approximately $301,000 to other losses and an increase to net loss of approximately $317,000.


•	Other minor items primarily related to the appropriate cutoff of transactions at the balance sheet date and the duplicate recording of a State income tax payment.


◦	For the three months ended March 31, 2019, the total aggregated impact included a decrease to operating loss of $90,000 and an increase to net loss of $40,000.

As previously disclosed and adjusted in Form 10-Q for the three and nine months ended September 2019 filed on November 11, 2019:

•

The Company reevaluated its accounting for stock-based compensation expense and during the three months ended September 30, 2019, the Company discovered errors in its accounting for certain items included in stock-based compensation expense. These errors related to its accounting for forfeitures, the vesting periods over which the expense was recognized, modifications, fair value measurements, and other minor miscellaneous items, all of which relate to the prior year. Additionally, the Company identified an issue relating to grants in the first quarter of 2019, whereby compensation was not recognized over the correct vesting period.


◦	For the three months ended March 31, 2019, the total impact included increases to operating expenses, operating loss and net loss of approximately $453,000 each.

•

During the three months ended September 30, 2019, the Company reevaluated its accounting for pre-development activities on certain OEM contracts. In performing the review, the Company determined that the it has not completed its performance obligations on its pre-development activities in these contracts. Accordingly, the Company determined that it had prematurely recognized revenues during the first quarter relating to these activities and did not defer the accompanying costs.


◦	For the three months ended March 31, 2019, the total impact included decreases to sales of approximately $194,000, decreases to operating expenses of approximately $77,000 and increases to both operating loss and net loss of approximately $117,000.

A reconciliation of the originally reported amounts to the restated amounts for the adjustments noted above for each of the affected periods is presented below.

Consolidated Balance Sheet as of March 31, 2019:



(In thousands)	As Originally Reported		Adjustments			As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	32,415	$	—		$	32,415
Short term investments	40,885		—			40,885
Trade accounts receivable, net	4,931		38			4,969
Inventories, net	5,598		—			5,598
Prepaid expenses and other current assets	1,411		38			1,449
Total current assets	85,240		76			85,316
Property and equipment, net	6,031		—			6,031
Intangibles	190		—			190
Deposits	80		—			80
Other assets	162		77			239
Total assets	$	91,703	$	153		$	91,856

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,504	$	—		$	1,504
Accrued expenses and other liabilities	5,460		127			5,587
Joint and several payroll tax liability	—		1,014			1,014
Accrued severance and related	511		—			511
Total current liabilities	7,475		1,141			8,616
Related party note payable	140		—			140
Long-term portion of operating lease liabilities	75		—			75
Other long-term liabilities	—		194			194
Total liabilities	7,690		1,335			9,025
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 75,000,000 shares authorized; 34,033,255 issued and 33,891,255 outstanding	34		—			34
Additional paid-in capital	53,147		1,035			54,182
Retained earnings	30,832		(2,217		)	28,615
Total stockholders’ equity	84,013		(1,182		)	82,831
Total liabilities and stockholders’ equity	$	91,703	$	153		$	91,856

Consolidated Statement of Operations for the three months ended March 31, 2019:



(In thousands)	As Originally Reported			Adjustments			As Restated
Sales	$	5,823		$	(194	)	$	5,629
Cost of sales	2,103			(37		)	2,066
Gross profit	3,720			(157		)	3,563
Other costs and expenses:
Research and development	810			(80		)	730
Professional services	1,791			327			2,118
Salaries and related costs	3,221			267			3,488
Selling, general and administrative	3,101			(144		)	2,957
Total other costs and expenses	8,923			370			9,293
Loss from operations	(5,203		)	(527		)	(5,730		)
Interest income	423			—			423
Other losses	(25		)	(270		)	(295		)
Total other losses, net	398			(270		)	128
Loss from continuing operations before income taxes	(4,805		)	(797		)	(5,602		)
Income tax (benefit) expense	(124		)	130			6
Net loss	$	(4,681	)	$	(927	)	$	(5,608	)

Loss per share
Basic and Diluted	$	(0.14	)	$	(0.03	)	$	(0.17	)

Weighted average number of shares outstanding basic and diluted	33,343			33,343			33,343