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Unaudited Condensed Consolidated Financial Statements and Managements' Plans | 9 Months Ended
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Sep. 30, 2014
Organization Consolidation And Presentation Of Financial Statements [Abstract] |
Unaudited Condensed Consolidated Financial Statements and Managements' Plans | (1) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENTS’ PLANS Zynex, Inc. (a Nevada corporation) and its subsidiaries, Zynex Medical, Inc. (ZMI) (a Colorado corporation, wholly-owned), Zynex NeuroDiagnostics, Inc. (ZND) (a Colorado corporation, wholly-owned), Zynex Monitoring Solutions Inc. (ZMS) (a Colorado corporation, wholly-owned), Zynex Billing and Consulting, LLC (ZBC) (a Colorado limited liability company, 80% majority-owned) and Zynex Europe, ApS (ZEU) (a Denmark corporation, wholly-owned), 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 (“SEC”) and accounting principles generally accepted in the United States of America (“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 SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Amounts as of December 31, 2013 are derived from those audited consolidated financial statements. These interim condensed consolidated financial statements should be read in conjunction with the annual audited financial statements, accounting policies and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, which has previously been filed with the SEC. 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, 2014 and the results of its operations and its cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2014 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. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company reported a net loss of $6,734 for the nine months ended September 30, 2014 and $7,340 for the year ended December 31, 2013, and has no available borrowings as of September 30, 2014 under its line of credit, which had an outstanding balance of $4,541 at September 30, 2014. As a result of the Company losses from operations, negative operating cash flow, and limited liquidity, the Company’s independent registered public accounting firm’s report on the Company’s consolidated financial statements as of and for the year ended December 31, 2013 includes an explanatory paragraph discussing that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Over the last two years, the Company encountered industry challenges related to health care reform, including the Affordable Care Act and coverage and reimbursement changes from government and Third-party Payors (as defined below), which has caused uncertainty to exist at the medical practitioner level causing a delay and decline in demand for the Company’s ZMI electrotherapy products. In an effort to minimize the impact of health care reform and changes in reimbursement, beginning in the second quarter of 2013, the Company made reductions in its annual operating expenses by cutting the Company’s annual employee costs by approximately $7,000 through headcount reductions. In October 2014, the Company negotiated a Termination Agreement for its existing building lease and a new Lease Agreement for a reduced space at its current headquarters. Under the terms of the Termination Agreement, among other things, the Company agreed to consolidate its operations into approximately one-third of the total square footage it occupied previously; monthly base rental payments were reduced from approximately $129 to $43 for the period from September 1, 2014 through December 31, 2014; all future rental payments and deferred rent amounts will be forgiven as of December 31, 2014; and, the terms of the new lease will take effect on January 1, 2015. The terms of the new lease include, among other things, a term of two years, fixed monthly base rental payments of approximately $49 for the full term of the lease; and, the right for either party to terminate the lease without future liability upon six months written notice to the Company or three months written notice to the landlord. Refer to Note 13. Additionally, the Company recently added new products to its ZMI sales channel, including the compound and sale of topical and transdermal pain creams, which typically have more certainty as to reimbursement because all orders are preauthorized by the insurance company prior to shipment. The Company developed its operating plans for 2014 to emphasize cash flow, under which the Company is focusing on its topical pain cream sales, which the Company believes will yield high margins, streamlining the Company’s electrotherapy products sales process and continuing to implement various cost modifications to reduce the Company’s expenses. During the second quarter of 2014, the Company narrowed its focus to NexWave, InWave and NeuroMove electrotherapy products and continued to build the sales representative group for its TENS and compound pain cream solutions. As part of that effort, it restructured internal operations, including manufacturing, billing and customer service. As a result of these activities, the Company recorded a charge to cost of revenue – write-off of noncore inventory in the amount of $2,655, which included $2,005 of inventory and $650 of rental units in the quarter ended June 30, 2014. Refer to Note 2. Due to the Company’s negative cash flows, there is no guarantee that the Company will be able to meet the requirements of its 2014 operating plan. The amount outstanding on the Company’s line of credit (the “Triumph Agreement”) decreased from $5,820 at December 31, 2013 to $4,541 at September 30, 2014, primarily driven by collection of accounts receivable. On July 14, 2014, the Company received notice from Triumph Healthcare Finance (the “Lender”) of an event of default under the Triumph Agreement. The notice relates to the Company’s default under the minimum debt service coverage ratio for the quarter ended March 31, 2014 and certain other alleged defaults. The Lender notified the Company that it was exercising its default remedies under the Triumph Agreement, including, among others, accelerating the repayment of all outstanding obligations under the Triumph Agreement (outstanding principal and accrued interest) and collecting the Company’s bank deposits to apply towards the outstanding obligations. The Company and the Lender are negotiating the terms of an accelerated repayment of the amounts outstanding under the Triumph Agreement and the Lender has continued to make additional loans to the Company under the facility. However, no assurance can be given that the Lender will continue to make such additional loans or that the parties will agree on a repayment plan acceptable to the Company. If the Lender insists upon immediate repayment, the Company will be insolvent and may be forced to seek protection from creditors. This default under the Triumph Agreement and potential remedies the Lender can demand, raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s long-term business plan contemplates organic growth in revenues, through the addition of new products to the Company’s sales channel that could add more revenue as well as growth in its ZMI electrotherapy products. Therefore, in order to support growth in revenue, the Company requires, among other things, funds for the purchase of equipment (primarily for rental inventory), funds for the purchase of inventory and the payment of commissions to sales representatives, funds for the expansion of the Company’s compound pharmacy, and the potential creation of other new product lines. There is no assurance that the Company’s operations and future access to new capital, if any, will provide enough cash for operating requirements including payment of key Company suppliers or for increases in the Company’s inventory of products, as needed, for growth. The Company is actively seeking external financing through the issuance of debt or sale of equity, and the Company is not certain whether any such financing would be available to the Company on acceptable terms, or at all. Any additional debt would require the approval of the Lender. The Company’s dependence on operating cash flow means that risks involved in the Company’s business can significantly affect the Company’s liquidity. Contingencies such as unanticipated shortfalls in revenues or increases in expenses could affect the Company’s projected revenues, cash flows from operations and liquidity which may force the Company to curtail its operating plan or impede the Company’s ability to grow.

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