þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
NEVADA | 90-0214497 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
9990 PARK MEADOWS DRIVE | ||
LONE TREE, COLORADO | 80124 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Class | Shares Outstanding as of November 8, 2011 | |
Common Stock, par value $0.001 | 30,816,631 |
2
ITEM 1. | FINANCIAL STATEMENTS |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(UNAUDITED) | ||||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash |
$ | 761 | $ | 602 | ||||
Accounts receivable, net |
10,756 | 7,309 | ||||||
Inventory |
4,320 | 3,641 | ||||||
Prepaid expenses |
146 | 145 | ||||||
Deferred tax asset |
1,072 | 794 | ||||||
Other current assets |
52 | 41 | ||||||
Total current assets |
17,107 | 12,532 | ||||||
Property and equipment, net |
3,490 | 2,906 | ||||||
Deposits |
210 | 174 | ||||||
Deferred financing fees, net |
78 | 89 | ||||||
Total assets |
$ | 20,885 | $ | 15,701 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Line of credit |
$ | 3,380 | $ | 1,270 | ||||
Current portion of capital lease obligations |
128 | 93 | ||||||
Accounts payable |
2,161 | 1,313 | ||||||
Income taxes payable |
1,245 | 1,103 | ||||||
Accrued payroll and payroll taxes |
759 | 572 | ||||||
Deferred rent |
277 | 221 | ||||||
Other accrued liabilities |
1,699 | 980 | ||||||
Total current liabilities |
9,649 | 5,552 | ||||||
Capital lease obligations, less current portion |
292 | 327 | ||||||
Deferred rent |
1,230 | 1,452 | ||||||
Deferred tax liability |
250 | 188 | ||||||
Total liabilities |
11,421 | 7,519 | ||||||
Stockholders Equity: |
||||||||
Preferred stock; $.001 par value, 10,000,000 shares authorized,
no shares issued or outstanding |
| | ||||||
Common stock, $.001 par value, 100,000,000 shares authorized,
30,794,479 (September 30, 2011) and 30,604,167 (December 31,
2010) shares issued and outstanding |
31 | 31 | ||||||
Paid-in capital |
5,019 | 4,702 | ||||||
Retained earnings |
4,414 | 3,449 | ||||||
Total stockholders equity |
9,464 | 8,182 | ||||||
Total liabilities and stockholders equity |
$ | 20,885 | $ | 15,701 | ||||
3
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net revenue: |
||||||||||||||||
Rental |
$ | 2,482 | $ | 2,032 | $ | 7,377 | $ | 6,639 | ||||||||
Sales |
6,945 | 4,625 | 17,078 | 10,635 | ||||||||||||
9,427 | 6,657 | 24,455 | 17,274 | |||||||||||||
Cost of revenue: |
||||||||||||||||
Rental |
465 | 169 | 1,191 | 702 | ||||||||||||
Sales |
1,470 | 1,257 | 3,915 | 2,942 | ||||||||||||
1,935 | 1,426 | 5,106 | 3,644 | |||||||||||||
Gross profit |
7,492 | 5,231 | 19,349 | 13,630 | ||||||||||||
Selling, general and administrative expense |
6,389 | 4,606 | 17,486 | 12,842 | ||||||||||||
Income from operations |
1,103 | 625 | 1,863 | 788 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest income |
| 2 | 1 | 5 | ||||||||||||
Interest expense and loss on extinguishment of debt |
(87 | ) | (45 | ) | (225 | ) | (177 | ) | ||||||||
Other income (expense) |
| | 2 | (16 | ) | |||||||||||
(87 | ) | (43 | ) | (222 | ) | (188 | ) | |||||||||
Income before income tax |
1,016 | 582 | 1,641 | 600 | ||||||||||||
Income tax expense |
(425 | ) | (214 | ) | (676 | ) | (270 | ) | ||||||||
Net income |
$ | 591 | $ | 368 | $ | 965 | $ | 330 | ||||||||
Net income per share: |
||||||||||||||||
Basic |
$ | 0.02 | $ | 0.01 | $ | 0.03 | $ | 0.01 | ||||||||
Diluted |
$ | 0.02 | $ | 0.01 | $ | 0.03 | $ | 0.01 | ||||||||
Weighted average number of common shares outstanding: |
||||||||||||||||
Basic |
30,794,268 | 30,569,441 | 30,727,720 | 30,555,778 | ||||||||||||
Diluted |
31,013,012 | 30,667,064 | 30,977,933 | 30,744,764 | ||||||||||||
4
Number | Common | Paid in | Retained | |||||||||||||||||
of Shares | Stock | Capital | Earnings | Total | ||||||||||||||||
Balances as of January 1, 2011 |
30,604,167 | $ | 31 | $ | 4,702 | $ | 3,449 | $ | 8,182 | |||||||||||
Issuance of common stock: |
||||||||||||||||||||
for option exercise |
112,500 | | 49 | | 49 | |||||||||||||||
for services |
77,812 | | 61 | | 61 | |||||||||||||||
Employee stock-based compensation |
| | 207 | | 207 | |||||||||||||||
Net income for the nine months
ended September 30, 2011 |
| | | 965 | 965 | |||||||||||||||
Balances as of September 30, 2011 |
30,794,479 | $ | 31 | $ | 5,019 | $ | 4,414 | $ | 9,464 | |||||||||||
5
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 965 | $ | 330 | ||||
Adjustments to reconcile net income to net cash
used in operating activities: |
||||||||
Depreciation expense |
594 | 591 | ||||||
Provision for losses on uncollectible accounts receivable |
1,190 | 118 | ||||||
Amortization of financing fees |
36 | 31 | ||||||
Issuance of common stock for services |
61 | 61 | ||||||
Provision for obsolete inventory |
134 | (2 | ) | |||||
Deferred rent |
(166 | ) | 846 | |||||
Net loss on disposal of equipment |
| 18 | ||||||
Employee stock-based compensation expense |
207 | 203 | ||||||
Deferred tax benefit |
(216 | ) | (331 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(4,637 | ) | (1,707 | ) | ||||
Inventory |
(791 | ) | (1,389 | ) | ||||
Prepaid expenses |
(1 | ) | 100 | |||||
Deposits and other current assets |
(47 | ) | (19 | ) | ||||
Accounts payable |
848 | 358 | ||||||
Accrued liabilities |
906 | 331 | ||||||
Income taxes payable |
142 | (364 | ) | |||||
Net cash used in operating activities |
(775 | ) | (825 | ) | ||||
Cash flows from investing activities: |
||||||||
Proceeds received in lease termination |
| 108 | ||||||
Purchases of equipment and inventory used for rental |
(1,123 | ) | (271 | ) | ||||
Net cash used in investing activities |
(1,123 | ) | (163 | ) | ||||
Cash flows from financing activities: |
||||||||
Net borrowings from line of credit |
2,110 | 972 | ||||||
Issuance of common stock |
49 | | ||||||
Deferred financing fees |
(25 | ) | (90 | ) | ||||
Payments on capital lease obligations |
(77 | ) | (164 | ) | ||||
Net cash provided by financing activities |
2,057 | 718 | ||||||
Net increase (decrease) in cash |
159 | (270 | ) | |||||
Cash at beginning of period |
602 | 863 | ||||||
Cash at end of period |
$ | 761 | 593 | |||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 175 | $ | 83 | ||||
Income taxes paid |
$ | 750 | $ | 955 | ||||
Supplemental disclosure of non-cash investing
and financing activities: |
||||||||
Equipment acquired through capital lease |
$ | 77 | $ | 334 |
6
7
8
September 30, | December 31, | |||||||||||
2011 | 2010 | Useful lives | ||||||||||
Office furniture and equipment |
$ | 1,391 | $ | 1,194 | 3-7 years | |||||||
Rental inventory |
2,599 | 2,108 | 5 years | |||||||||
Vehicles |
76 | 60 | 5 years | |||||||||
Leasehold improvements |
404 | 370 | 2-6 years | |||||||||
Assembly equipment |
39 | 11 | 7 years | |||||||||
4,509 | 3,743 | |||||||||||
Less accumulated depreciation |
(1,019 | ) | (837 | ) | ||||||||
$ | 3,490 | $ | 2,906 | |||||||||
9
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Basic: |
||||||||||||||||
Net income |
$ | 591 | $ | 368 | $ | 965 | $ | 330 | ||||||||
Weighted average shares outstanding basic |
30,794,268 | 30,569,441 | 30,727,720 | 30,555,778 | ||||||||||||
Net income per share basic |
$ | 0.02 | $ | 0.01 | $ | 0.03 | $ | 0.01 | ||||||||
Diluted: |
||||||||||||||||
Net income |
$ | 591 | $ | 368 | $ | 965 | $ | 330 | ||||||||
Weighted average shares outstanding basic |
30,794,268 | 30,569,441 | 30,727,720 | 30,555,778 | ||||||||||||
Dilutive securities |
218,744 | 97,623 | 250,213 | 188,986 | ||||||||||||
Weighted average shares outstanding diluted |
31,013,012 | 30,667,064 | 30,977,933 | 30,744,764 | ||||||||||||
Net income per share diluted |
$ | 0.02 | $ | 0.01 | $ | 0.03 | $ | 0.01 |
10
2011 | 2010 | |||||||
Weighted average expected term |
7 years | 6 years | ||||||
Weighted average volatility |
121.3 | % | 111.5 | % | ||||
Weighted average risk-free interest rate |
2.33 | % | 2.73 | % | ||||
Dividend yield |
0 | % | 0 | % |
11
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Shares | Average | Remaining | Aggregate | |||||||||||||
Under | Exercise | Contractual | Intrinsic | |||||||||||||
Option | Price | Life | Value | |||||||||||||
Outstanding at January 1, 2011 |
1,845,250 | $ | 0.96 | |||||||||||||
Granted |
274,000 | $ | 0.74 | |||||||||||||
Exercised |
(112,500 | ) | $ | 0.43 | ||||||||||||
Forfeited |
(354,000 | ) | $ | 0.85 | ||||||||||||
Outstanding at September 30, 2011 |
1,652,750 | $ | 0.98 | 7.7 Years | $ | 156 | ||||||||||
Exercisable at September 30, 2011 |
752,003 | $ | 1.12 | 6.8 Years | $ | 76 | ||||||||||
Nonvested Shares | Weighted Average | |||||||
Shares Under Option | Grant Date Fair Value | |||||||
Non-vested at January 1, 2011 |
1,195,750 | $ | 0.79 | |||||
Granted |
274,000 | $ | 0.66 | |||||
Vested |
(296,128 | ) | $ | 0.86 | ||||
Forfeited |
(272,875 | ) | $ | 0.73 | ||||
Non-vested at September 30, 2011 |
900,747 | $ | 0.86 | |||||
12
13
14
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
15
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
Total net revenue by type (in thousands): | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net Rental Revenue |
$ | 2,482 | $ | 2,032 | $ | 7,377 | $ | 6,639 | ||||||||
Sales of electrotherapy and other
privately-labeled distributed products |
3,501 | 2,319 | 7,871 | 4,089 | ||||||||||||
Sales of recurring consumable supplies |
3,444 | 2,306 | 9,207 | 6,546 | ||||||||||||
Total Net Sales Revenue |
6,945 | 4,625 | 17,078 | 10,635 | ||||||||||||
Total Net Revenue |
$ | 9,427 | $ | 6,657 | $ | 24,455 | $ | 17,274 | ||||||||
16
17
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 30, | % of Net | September 30, | % of Net | September 30, | % of Net | September 30, | % of Net | |||||||||||||||||||||||||
SG&A expense by department | 2011 | Revenue | 2010 | Revenue | 2011 | Revenue | 2010 | Revenue | ||||||||||||||||||||||||
Sales & Marketing |
$ | 2,812 | 30 | % | $ | 1,590 | 24 | % | $ | 6,778 | 28 | % | $ | 4,542 | 26 | % | ||||||||||||||||
Reimbursement & Billing |
2,078 | 22 | % | 1,815 | 27 | % | 6,520 | 27 | % | 4,925 | 29 | % | ||||||||||||||||||||
General & Administrative |
1,068 | 11 | % | 778 | 12 | % | 2,971 | 12 | % | 2,168 | 13 | % | ||||||||||||||||||||
Engineering & Operations
(including Research and
Development) |
431 | 5 | % | 423 | 6 | % | 1,217 | 5 | % | 1,207 | 7 | % | ||||||||||||||||||||
Total SG&A expenses |
$ | 6,389 | $ | 4,606 | $ | 17,486 | $ | 12,842 | ||||||||||||||||||||||||
18
19
20
ITEM 4. | CONTROLS AND PROCEDURES |
21
ITEM 1. | LEGAL PROCEEDINGS |
22
ITEM 6. | EXHIBITS |
Exhibit | ||||
Number | Description | |||
3.1 | Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 10.1 of the Current Report on Form 8-K
filed on October 7, 2008). |
|||
3.2 | Amended and Restated Bylaws (incorporated by reference to
Exhibit 10.2 of the Companys Current Report on Form 8-K filed
on October 7, 2008). |
|||
4.1 | Form of Warrant (incorporated by reference to Exhibit 10.4 of
the Companys Quarterly Report on Form 10-QSB for the quarter
ended June 30, 2006). |
|||
10.1 | Employment Agreement between the Company and Thomas
Sandgaard dated August 11 2011. |
|||
31.1 | * | Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. |
||
31.2 | * | Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. |
||
32.1 | * | Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
||
101 | * | The following financial statements, formatted in XBRL: (i)
Condensed Consolidated Balance Sheets as of September 30, 2011
and December 31, 2010, (ii) Condensed Consolidated Statements
of Operations for the three and nine months ended September 30,
2011, (iii) Condensed Consolidated Statements of Stockholders
Equity as of September 30, 2011, (iv) Condensed Consolidated
Statements of Cash Flows for the nine months ended September
30, 2010 and September 30, 2011 and (v) Notes to Condensed
Consolidated Financial Statements, tagged as blocks of text.
The information in Exhibit 101 is furnished and not filed,
as provided in Rule 402 of Regulation S-T. |
* | Filed herewith. |
23
ZYNEX, INC. |
||||
Dated: November 10, 2011 | /s/ Thomas Sandgaard | |||
Thomas Sandgaard | ||||
President, Chief Executive Officer and Treasurer | ||||
Dated: November 10, 2011 | /s/ Anthony A. Scalese | |||
Anthony A. Scalese | ||||
Chief Financial Officer |
24
-2-
-3-
-4-
-5-
(a) | If to the Executive, to: | ||
Thomas Sandgaard 1175 Castle Pointe Drive Castle Rock, CO 80104 |
-6-
(b) | If to the Employer, to: | ||
Attn: Board of Directors Zynex, Inc. 9990 Park Meadows Drive Lone Tree, CO 80124 |
|||
With a copy to: | |||
Jason Day, Esq. Perkins Coie, LLP 1900 16th Street, Suite 1400 Denver, CO 80202 |
-7-
-8-
ZYNEX MEDICAL, INC. |
||||
/s/ Anthony Scalese | ||||
By: Anthony Scalese | ||||
Its: Chief Financial Officer | ||||
THOMAS SANDGAARD |
||||
/s/ Thomas Sandgaard | ||||
Thomas Sandgaard | ||||
-9-
a) | Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared; |
||
b) | Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
||
c) | Evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
||
d) | Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
a) | All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
||
b) | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
control over financial reporting. |
/s/ THOMAS SANDGAARD
|
||
President and Chief Executive Officer |
||
Principal Executive Officer |
a) | Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared; |
||
b) | Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
||
c) | Evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
||
d) | Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
a) | All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
||
b) | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
control over financial reporting. |
/s/ ANTHONY A. SCALESE
|
||
Chief Financial Officer |
||
Principal Financial Officer |
1. | The quarterly report on Form 10-Q for the quarter ended September
30, 2011 (the 10-Q Report) fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and |
2. | The information contained in the 10-Q Report fairly presents, in
all material respects, the financial condition and results of
operations of Zynex for the period covered by the 10-Q Report. |
/s/ Thomas Sandgaard
|
||
President and Chief Executive Officer |
||
/s/ Anthony A. Scalese
|
||
Chief Financial Officer |
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Stockholders' Equity: | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding | ||
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 30,794,479 | 30,604,167 |
Common stock, shares outstanding | 30,794,479 | 30,604,167 |
Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Net revenue: | ||||
Rental | $ 2,482 | $ 2,032 | $ 7,377 | $ 6,639 |
Sales | 6,945 | 4,625 | 17,078 | 10,635 |
Total net revenue | 9,427 | 6,657 | 24,455 | 17,274 |
Cost of revenue: | ||||
Rental | 465 | 169 | 1,191 | 702 |
Sales | 1,470 | 1,257 | 3,915 | 2,942 |
Total cost of revenue | 1,935 | 1,426 | 5,106 | 3,644 |
Gross profit | 7,492 | 5,231 | 19,349 | 13,630 |
Selling, general and administrative expense | 6,389 | 4,606 | 17,486 | 12,842 |
Income from operations | 1,103 | 625 | 1,863 | 788 |
Other income (expense): | ||||
Interest income | 2 | 1 | 5 | |
Interest expense and loss on extinguishment of debt | (87) | (45) | (225) | (177) |
Other income (expense) | 2 | (16) | ||
Total other income (expense) | (87) | (43) | (222) | (188) |
Income before income tax | 1,016 | 582 | 1,641 | 600 |
Income tax expense | (425) | (214) | (676) | (270) |
Net income | $ 591 | $ 368 | $ 965 | $ 330 |
Net income per share: | ||||
Basic | $ 0.02 | $ 0.01 | $ 0.03 | $ 0.01 |
Diluted | $ 0.02 | $ 0.01 | $ 0.03 | $ 0.01 |
Weighted average number of common shares outstanding: | ||||
Basic | 30,794,268 | 30,569,441 | 30,727,720 | 30,555,778 |
Diluted | 31,013,012 | 30,667,064 | 30,977,933 | 30,744,764 |
Document and Entity Information (USD $) | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | Nov. 08, 2011 | Jun. 30, 2010 | |
Document and Entity Information [Abstract] | |||
Entity Registrant Name | ZYNEX INC | ||
Entity Central Index Key | 0000846475 | ||
Document Type | 10-Q | ||
Document Period End Date | Sep. 30, 2011 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q3 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 6,999,242 | ||
Entity Common Stock, Shares Outstanding | 30,816,631 |
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Line of Credit | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Line of Credit [Abstract] | |
LINE OF CREDIT |
(6) LINE OF CREDIT
In February 2011, the Company entered into an amendment to its revolving credit and security
agreement with CapitalSource Bank (the “Credit Agreement”) to add Zynex Monitoring Solutions Inc.
and Zynex NeuroDiagnostic Inc. to the Credit Agreement and to amend certain financial covenants.
The Company has an asset-based revolving line of credit (“RLOC”) under the Credit Agreement that
allows borrowing, repayment and re-borrowing, subject to the lesser of the facility cap of $3,500
or 85% of the borrowing base less certain reserved amounts. The borrowing base is generally the
net collectible dollar value of the Company’s eligible accounts receivable, as defined. The Credit
Agreement bears interest at a floating rate based on the one-month London interbank offered rate
(LIBOR), divided by the sum of one minus a measure of the aggregate maximum reserve requirement for
“Eurocurrency Liabilities” for the previous month, as defined, plus 4.0%. Interest is payable
monthly. As of September 30, 2011, the effective interest rate under the Credit Agreement was 10%
(7% interest rate and 3% fees). As of September 30, 2011, $3,380 was outstanding on the Credit
Agreement (the remaining amount available for borrowing was $120).
As of September 30, 2011, the Company was in compliance with its financial covenants.
On October 7, 2011, the Company received a commitment letter from a new lender to provide a larger,
more favorable loan facility. Although no assurance can be given that the Company will close the
new loan facility, the Company is currently negotiating and documenting the terms. On October 10,
2011, the Company provided its existing lender notice to terminate the Credit Agreement. The
Company will continue to operate under its existing Credit Agreement until the new agreement is
finalized, which is expected to occur during the fourth quarter of 2011.
|
Significant Accounting Policies | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Significant Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SIGNIFICANT ACCOUNTING POLICIES |
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
Preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates. The most significant management estimates used in the preparation of the accompanying
consolidated financial statements are associated with the allowances for provider discounts and
uncollectible accounts receivable, the reserve for obsolete and damaged inventory, stock-based
compensation and income taxes.
REVENUE RECOGNITION, AND ALLOWANCES FOR PROVIDER DISCOUNTS AND COLLECTIBILITY
The Company recognizes revenue when each of the following four conditions are met: 1) a contract or
sales arrangement exists; 2) products have been shipped and title has transferred, or rental
services have been rendered; 3) the price of the products or services is fixed or determinable; and
4) collectability is reasonably assured. Accordingly, the Company recognizes revenue, both rental
and sales, when products have been delivered to the patient and the patient’s insurance (if the
patient has insurance) has been verified (if any). For medical products that are sold from
inventories consigned at clinic locations, the Company recognizes revenue when it receives notice
that the product has been prescribed and delivered to the patient and the patient’s insurance
coverage has been verified or preauthorization has been obtained from the insurance company, when
required. Revenue from the rental of products is normally on a month-to-month basis and is
recognized ratably over the products’ rental period. Revenue from sales to distributors is
recognized when the Company ships its products, which fulfills its order and transfers title. All
revenue is recognized at amounts estimated to be received from customers or third-party providers
using the Company’s established rates, net of estimated provider discounts.
A significant portion of the Company’s revenue is derived, and the related receivables are due,
from insurance companies or other third-party payors. The nature of these receivables within this
industry has typically resulted in long and varying collection cycles. The process of determining
what products will be reimbursed by third-party providers and the amounts that they will reimburse
is complex and depends on conditions and procedures that vary among providers and may change from
time to time. The Company maintains an allowance for provider discounts and records additions to
the allowance to account for the risk of nonpayment. Provider discounts result from reimbursements
from insurance or other third party payors that are less than amounts claimed (billed), where the
amount claimed by the Company exceeds the insurance or other payor’s usual, customary and
reasonable reimbursement rate. The Company determines the amount of the allowance, and adjusts the
allowance at the end of each reporting period, based on a number of factors, including historical
rates of collection, the aging of the receivables, trends in the historical rates of collection and
current relationships and experience with insurance companies or other third party payors. If the
rate of collection of past-due receivables recorded for previous fiscal periods changes, or if
there is a trend in the rates of collection on those receivables, the Company may be required to
change the rate at which it provides for additions to the allowance. A change in the rates of the
Company’s collections can result from a number of factors, including experience and training of
billing personnel, changes in the reimbursement policies or practices of payors, or changes in
industry rates of reimbursement. Accordingly, the provision for provider discounts recorded in the
income statement as a reduction of revenue has fluctuated and may continue to fluctuate
significantly from quarter to quarter.
Due to the nature of the industry and the reimbursement environment in which the Company operates,
estimates are required to record net revenues and accounts receivable at their net realizable
values. Inherent in these estimates is the risk that they will have to be revised or updated as
additional information becomes available. Specifically, the complexity of third-party billing
arrangements and the uncertainty of reimbursement amounts for certain products or services from
payors may result in adjustments to amounts originally recorded. Due to continuing changes in the
health care industry and third-party reimbursement, it is possible that management’s estimates
could change in the near term, which could have an impact on results of operations and cash flows.
Any differences between estimated settlements and final determinations are reflected as an increase
or a reduction to revenue in the period when such final determinations are known.
The Company frequently receives refund requests from insurance providers relating to specific
patients and dates of service. Billing and reimbursement disputes are very common in the Company’s
industry. For example, on April 26, 2010, the Company received a refund request from Anthem Blue
Cross Blue Shield (“Anthem”) covering the period from October 1, 2008 (the date of the last
retrospective audit by Anthem) through March 12, 2010. These requests are sometimes related to a
limited number of patients; at other times, they include a significant number of refund claims in a
single request. The Company reviews and evaluates these requests and determines if any refund
request is appropriate. The Company also reviews refund claims when it is rebilling or pursuing
reimbursement from that insurance provider. The Company frequently has significant offsets against
such refund requests, and sometimes amounts are due to the Company in excess of the amounts of
refunds requested by the insurance providers. Therefore, at the time of receipt of such refund
requests, the Company is generally unable to determine if a refund request is valid and should be
accrued.
On September 22, 2011, the Company and Anthem reached a settlement resolving all issues, claims and
disputes between the parties in the amount of $226 (the “Settlement”). The Settlement provided for
an initial payment of $60 by the Company, which was paid on October 3, 2011, with the remaining
amount payable over a twelve month, interest free period. The Company recorded an accrued liability
of $226 as of September 30, 2011.
As of September 30, 2011, the Company believes it has adequate reserves relating to all known
insurance disputes and refund requests. However, no assurances can be given with respect to such
estimates of reimbursements and offsets or the ultimate outcome of any refund requests.
In addition to the allowance for provider discounts, the Company records an allowance for
uncollectible accounts receivable. Uncollectible accounts receivable are primarily a result of the
following: non-payment from patients who have been direct billed for co-payments or deductibles,
lack of appropriate insurance coverage and disallowances of charges by third-party payors. If there
is a change to a material insurance provider contract or policy, application by a provider, a
decline in the economic condition of providers or a significant turnover of Company billing
personnel resulting in diminished collection effectiveness, the estimate of the allowance for
uncollectible accounts receivable may not be adequate and may result in an increase in the future.
At September 30, 2011 and December 31, 2010, the allowance for uncollectible accounts receivable is
$1,937 and $1,262, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CREDIT RISK
The Company’s financial instruments at September 30, 2011 include cash, accounts receivable,
accounts payable, capital lease obligations and the line of credit balance, for which current
carrying amounts approximate fair value due to their short-term nature. At September 30, 2011 and
December 31, 2010, the Company had no financial assets or liabilities subject to recurring fair
value measurement.
RECLASSIFICATIONS
Certain reclassifications to the 2010 cash flow statement and balance sheet have been made to
conform to the 2011 presentation, none of which had any effect on cash flows from operating,
investing and financing activities or total assets, total liabilities or stockholders’ equity.
INVENTORY
Inventories, which primarily represents finished goods, are valued at the lower of cost (average) or market. Finished goods include products
held at the Company’s headquarters and at different clinics by health care providers or other third
parties for rental or sale to patients.
The Company monitors inventory for turnover and obsolescence, and records losses for excess and
obsolete inventory as appropriate. At September 30, 2011, the Company had a reserve for obsolete
and damaged inventory of approximately $661 and a reserve of approximately $549 at December 31,
2010. The Company had $2,614 of open purchase commitments at September 30, 2011.
PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2011 and December 31, 2010, are as follows:
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2011, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No.
2011-07, “Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue,
Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities”,
which requires that certain health care entities change the presentation of their statement of
operations by reclassifying the provision for bad debts associated with patient service revenue
from an operating expense to a deduction from patient service revenue (net of contractual
allowances and discounts). In addition, the amendments also require enhanced disclosure about
policies for recognizing revenue and assessing bad debts and disclosures of qualitative and
quantitative information about changes in the allowance for doubtful accounts. This ASU is
effective for fiscal years and interim periods within those fiscal years beginning after December
15, 2011, with early adoption permitted. Management currently expects that this ASU will not have a
material impact on the Company’s consolidated financial statements.
|
Litigation | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Litigation [Abstract] | |
LITIGATION |
(8) LITIGATION
A lawsuit was filed against the Company, its President and Chief Executive Officer and its former
Chief Financial Officer on April 6, 2009, in the United States District Court for the District of
Colorado (Marjorie and David Mishkin v. Zynex, Inc. et al.). On April 9 and 10, 2009, two other
lawsuits were filed in the same court against the same defendants. These lawsuits alleged
substantially the same matters and have been consolidated. On April 19, 2010, the plaintiffs filed
a Consolidated Class Action Complaint (Civil Action No. 09-cv-00780-REB-KLM). The consolidated
lawsuit refers to the April 1, 2009 announcement by the Company that it would restate its unaudited
interim financial statements for the first three quarters of 2008. The lawsuit purports to be a
class action on behalf of purchasers of the Company’s securities between May 21, 2008 and March 31,
2009. The lawsuit alleges, among other things, that the defendants violated Section 10 and Rule
10b-5 of the Securities Exchange Act of 1934 by making intentionally or recklessly untrue
statements of material fact and/or failing to disclose material facts regarding the financial
results and operating conditions for the first three quarters of 2008. The plaintiffs asked for a
determination of class action status, unspecified damages and costs of the legal action.
On May 17, 2010, the Company filed a Motion to Dismiss. The plaintiffs filed an Opposition to
Defendant’s Motion to Dismiss, and on July 5, 2010, the Company filed a Reply in Support of
Defendant’s Motion to Dismiss. On March 30, 2011, the United States District Court of Colorado
entered an Order denying the Company’s motion to dismiss. On November 8, 2011, the parties entered into an agreement
to settle the lawsuit for a payment of $2.5 million to the plaintiff class in exchange for the dismissal with
prejudice of all claims against all defendants in the litigation. The settlement is expected to be fully funded
by insurance and is subject to final approval of the court. The Company cannot predict with certainty the outcome
of the litigation, and if the settlement is not finally approved by the Court, the Company believes that it has
meritorious defenses to the claims in the compliant.
On July 28, 2011, a stockholder derivative suit was filed purportedly on behalf of the Company in
the United States District Court for the District of Colorado against the Company’s President and
Chief Executive Officer, its former Chief Financial Officer and certain of its directors (Stephen
Hatch, derivatively, on behalf of Zynex Inc. v. Thomas Sandgaard et. al., 11-CV-01964). The
lawsuit alleges breach of fiduciary duty by the Company’s officers and directors in connection with
the restatement of the Company’s unaudited interim financial statements for the first three
quarters of 2008. The plaintiff is seeking, on behalf of the Company, an undisclosed amount of
damages and equitable relief. On October 11, 2011, the Company and the individual defendants filed
a motion to dismiss, which is currently pending before the Court. On October 18, 2011, certain
individual defendants filed a motion requesting the plaintiff to post a security bond pursuant to
Nevada law.
The Company has notified its directors and officers liability insurer of this claim. At this
time, the Company is not able to determine the likely outcome of the legal matter,
nor can it estimate its potential financial exposure. Litigation is subject to inherent
uncertainties, and if an unfavorable resolution of this matter occurs, the Company’s
business, results of operations, and financial condition could be adversely affected.
The Company is not a party to any other material pending or threatened legal proceedings.
|
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Concentrations | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Concentrations [Abstract] | |
CONCENTRATIONS |
(7) CONCENTRATIONS
The Company had a receivable from one private health insurance carrier at September 30, 2011 that
made up approximately 30% of the net accounts receivable balance. The same private health insurance
carrier made up approximately 27% of net accounts receivable at December 31, 2010.
|
Earnings (Loss) Per Share | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings (Loss) Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS (LOSS) PER SHARE |
(3) EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing net income by the weighted-average number of
common shares outstanding during the period. Diluted earnings per share is computed by dividing net
income by the weighted-average number of common shares outstanding and the number of dilutive
potential common share equivalents during the period, calculated using the treasury-stock method.
The calculation of basic and diluted earnings per share for the three and nine months ended
September 30, 2011 and 2010 is as follows:
The effects of potential common stock equivalents for the nine months ended September 30, 2011
and 2010 (1,116,000 and 1,229,000 shares, respectively) have not been included in the computation
of diluted loss per share as the impact of the potential common shares would be anti-dilutive.
|
Stock-Based Compensation Plans | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Stock-Based Compensation Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK-BASED COMPENSATION PLANS |
(4) STOCK-BASED COMPENSATION PLANS
The Company has reserved 3,000,000 shares of common stock for issuance under its 2005 Stock Option
Plan (the “Option Plan”). Vesting provisions are determined by the Board of Directors. All stock
options under the Option Plan expire no later than ten years from the date of grant.
In the three months ended September 30, 2011 and 2010, the Company recorded compensation expense
related to stock options of $61 and $77, respectively. In the nine months ended September 30, 2011
and 2010, the Company recorded compensation expense related to stock options of $207 and $203,
respectively. The stock-based compensation expense was included in selling, general and
administrative expenses in the accompanying condensed consolidated statements of operations.
In the nine months ended September 30, 2011, the Company granted options to purchase up to 274,000
shares of common stock to employees at exercise prices that ranged from $0.62 to $0.90 per share.
In the nine months ended September 30, 2010, the Company granted options to purchase up to
374,500 shares of common stock at exercise prices that ranged from $0.41 to $1.06 per share.
The Company used the Black-Scholes option pricing model to determine the fair value of stock option
grants, using the following assumptions during the nine months ended September 30, 2011 and 2010:
The weighted average expected term of stock options represents the period of time that the stock
options granted are expected to be outstanding based on historical exercise trends. The weighted
average expected volatility is based on the historical price volatility of the Company’s common
stock. The weighted average risk-free interest rate represents the U.S. Treasury bill rate for the
expected term of the related stock options. The dividend yield represents the Company’s anticipated
cash dividend over the expected term of the stock options. Forfeitures of share-based payment
awards are estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. The estimated average forfeiture rate for the nine
months ended September 30, 2011 and 2010 was 35%.
A summary of stock option activity under the Option Plan for the nine months ended September 30,
2011, is presented below:
A summary of status of the Company’s non-vested share awards as of and for the nine months ended
September 30, 2011, is presented below:
As of September 30, 2011, the Company had approximately $382 of unrecognized compensation expense
related to stock options that will be recognized over a weighted-average period of approximately
2.4 years.
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Income Taxes | 9 Months Ended |
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Sep. 30, 2011 | |
Income Taxes [Abstract] | |
INCOME TAXES |
(5) INCOME TAXES
The provision for income taxes is recorded at the end of each interim period based on the Company’s
best estimate of its effective income tax rate expected to be applicable for the full fiscal year.
The Company paid income taxes of $750 during the first nine months of 2011, which was included in
income taxes payable at December 31, 2010. For the nine months ended September 30, 2011, permanent
differences are added back to net income resulting in a higher taxable income for purposes of
calculating income tax expense or benefit. On July 13, 2011, the Company received a letter from the
Internal Revenue Service (“IRS”) denying the Company’s request for abatement of penalties and
interest incurred and previously recorded in 2010. The Company is in the process of appealing the
denial and intends to mitigate partial or full payment of these penalties and interest.
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Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (USD $) In Thousands, except Share data | Total | Common Stock | Paid in Capital | Retained Earnings |
---|---|---|---|---|
Balance at Dec. 31, 2010 | $ 8,182 | $ 31 | $ 4,702 | $ 3,449 |
Balance, shares at Dec. 31, 2010 | 30,604,167 | 30,604,167 | ||
Issuance of common stock | ||||
for option exercise | 49 | 49 | ||
for option exercise, shares | 112,500 | |||
for services | 61 | 61 | ||
for services, shares | 77,812 | |||
Employee stock-based compensation | 207 | 207 | ||
Net income for the nine months ended September 30, 2011 | 965 | 965 | ||
Balance at Sep. 30, 2011 | $ 9,464 | $ 31 | $ 5,019 | $ 4,414 |
Balance, shares at Sep. 30, 2011 | 30,794,479 | 30,794,479 |
Unaudited Condensed Consolidated Financial Statements | 9 Months Ended |
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Sep. 30, 2011 | |
Unaudited Condensed Consolidated Financial Statements [Abstract] | |
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(1) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Zynex, Inc. and its wholly-owned subsidiaries, Zynex Medical, Inc., Zynex NeuroDiagnostics Inc. and
Zynex Monitoring Solutions Inc. are collectively referred to as the “Company.” The unaudited
condensed consolidated financial statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission and accounting
principles generally accepted in the United States (U.S. GAAP). Certain information and footnote
disclosures normally included in financial statements prepared in accordance with U.S. GAAP have
been condensed or omitted pursuant to such rules and regulations, although the Company believes
that the disclosures included herein are adequate to make the information presented not misleading.
A description of the Company’s accounting policies and other financial information is included in
the audited consolidated financial statements as filed with the Securities and Exchange Commission
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Amounts as of
December 31, 2010, are derived from those audited consolidated financial statements. These interim
condensed consolidated financial statements should be read in conjunction therewith.
In the opinion of management, the accompanying unaudited condensed consolidated financial
statements contain all adjustments necessary to present fairly the financial position of the
Company as of September 30, 2011, and the results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring nature. The results of operations for
the nine months ended September 30, 2011, are not necessarily indicative of the results that may be
achieved for a full fiscal year and cannot be used to indicate financial performance for the entire
year.
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