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BACKGROUND AND MANAGEMENT'S PLANS | 9 Months Ended
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Sep. 30, 2016
Back Ground And Managements Plans [Abstract] |
BACKGROUND AND MANAGEMENT’S PLANS | (2) BACKGROUND AND MANAGEMENT’S PLANS Background For the years ended December 31, 2015 and 2014, the Company reported net losses of $2,911 and $6,199, respectively. As of September 30, 2016, the Company had no available borrowing under its line of credit although, based on an interim agreement with the Company’s senior secured lender, Triumph Healthcare Finance, a division of TBK Bank, SSB, formerly known as Triumph Community Bank, (the “Lender”), continues to make additional loans to the Company based on the Company’s cash collections. The Company’s working capital deficit at September 30, 2016 totaled ($4,464) as compared to ($4,773) at December 31, 2015. In addition, the Company remains in default of its secured line of credit and as a result, if its lender insists upon immediate repayment, the Company will be unable to do so and may be forced to seek protection from its creditors. The Company has not been in compliance with the financial covenants under the agreement with its primary lender since July 2014. The Company’s assets, both at December 31, 2015 and at September 30, 2016, are significantly less than the Company’s liabilities, and the Company is dependent on its banking relationship to be able to pay its obligations as they become due. The Company’s losses, lack of liquidity, and substantial working capital deficit raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying 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 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. Although the Company’s revenues increased during the three months and nine months ended September 30, 2016 as compared to the same periods in the prior year, the Company has not recovered from the significant revenue decreases in total net revenue for the years ended December 31, 2015 and 2014 (approximately $11.6 million and $11.1 million, respectively) as compared to 2013 and 2012 (approximately $21.7 million and $39.7 million, respectively). The primary reasons for the decline in revenue from 2012-2013 to 2014-2015 were (i) the impact of Medicare and healthcare reform, (ii) a loss of Zynex’s independent sales force to sell transdermal compounded pain cream from competing pharmacies rather than focusing on selling the Company’s Electrotherapy products and (iii) in the latter part of 2012, the elimination of Medicare reimbursement for transcutaneous electrical nerve stimulation (TENS) Electrotherapy products for low-back pain while still covering TENS for other indications. Medicare also continued increasing the requirements for paperwork and documentation in connection with reimbursement requests. As a result, late in 2013 Zynex began declining orders for Medicare and Medicaid patients. Commercial and workers’ compensation insurance plans continue to reimburse at similar levels as in previous years and have not adopted Medicare’s limited coverage. During 2015 and throughout 2014, in an effort to minimize the impact of the challenges discussed above, the Company restructured its internal operations, including manufacturing, billing and customer service; and made reductions in its fixed expenses by cutting its administrative costs by approximately $2.2 million and $9.7 million, respectively, principally through reductions in headcount and facilities rent. In addition, the Company during the second quarter of 2014 narrowed its focus to the NexWave, InWave and NeuroMove electrotherapy products and continued to build the sales representative group for its electrotherapy solutions. The Company continued to narrow this focus by closing its billing consulting services in April 2015 and closing its compound pain cream operations in January 2016. The Company is continuing to address cost of revenues and overhead expenses in 2016 and as a result has improved the Company’s operating performance for the three and nine months ended September 30, 2016 (being net income of $532 and net loss of $(140) respectively) as compared to the same periods of the prior year (being net losses of $(322) and $(1,711) respectively). During the fourth quarter of 2015, the electrotherapy industry experienced a significant development when the Company’s largest competitor (DJO/Empi) announced the closure of their Empi electrotherapy division. Empi previously held a large share of the electrotherapy market. Management believes this presents a significant growth opportunity for the Company. The Company has recruited many former Empi sales representatives, including those in areas where it had no previous representation. In addition, during 2016, the Company’s orders have been steadily increasing as compared to 2015. To focus on growth and the potential for future positive cash flow, the Company has committed its limited resources to the new salesforce, including the supporting product production and supporting administrative (customer service and billing) personnel. The Company is not in compliance with the financial covenants under the terms of its line of credit with the Lender. See Note 7 to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report for further discussion. Management’s Plans The Company’s business plan for the remainder of 2016 and into 2017 focuses on the Company’s effort to attain external financing, retaining the Lender’s continued support, maintaining the continued support of the Company’s vendors on the slow payment of past due invoices, and pursuing organic growth in our electrotherapy and pain management products with a goal of attaining positive cash flow. The accomplishment of organic growth in revenues and cash flows is dependent on taking advantage of the Empi opportunity, increasing the number of sales representatives, promoting the EZ Rx Prescribe program (described further below) and continuing improvements to the Company’s billing organization and processes. The Company’s long-term business plan contemplates organic growth in revenues through an increase in the electrotherapy market share and the addition of new products such as the ZMS Blood Volume Monitor, which is currently under development. The Company is actively seeking additional financing through the issuance of debt or sale of equity. The additional capital is to refinance or replace the line of credit and to provide the additional working capital necessary to continue the Company’s business operations. The Company’s history of net losses and negative working capital may make it difficult to raise any new capital and any such capital raised (if any) may result in significant dilution to existing stockholders. 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. A significant component of our negative working capital at September 30, 2016 is the amount due under our line of credit and past due accounts payable, all of which is considered a current liability. In addition to seeking external financing, the Company has and will continue to monitor and control its sales growth, product production needs and administrative costs going forward. The Company’s efforts to reduce costs and increase revenues have led to net income (loss) from operations for the three- and nine-month periods in 2016 ($532 and ($140), respectively) as compared to losses for the same periods in 2015 (($322)and ($1,711), respectively). If the Company continues to increase its revenue while controlling its administrative costs and the Lender permits it to continue to operate, the Company believes that it may continue its 2016 return to profitability in future periods. The Company believes that as a result of potential growth opportunities coupled with reduced administrative expenses, the securing of additional capital (if available), the continued support of its Lender (which cannot be assured), and the continued support of vendors to work with the Company on the slow payment of past due bills (which cannot be assured); that the Company’s cash flows from operating activities will be sufficient to fund the Company’s cash requirements through the next twelve months. Management believes that its cash flow projections for 2016 are achievable and that sufficient cash will be generated to meet the Company’s currently restrained operating requirements. Such cash is projected to be generated by securing external financing, retaining the continued support of the Lender and vendors, and increasing cash flow from operations generated from organic growth. There is no guarantee that the Company will be able to meet the requirements of its 2016 cash flow projections or that it will be able to address its working capital shortages; the principal component of which is the negative working capital. There can be no assurance that the Company will be able to secure additional external financing, the Lender will continue to make loan advances, the vendors will continue to work with slow repayment terms, and the sales and cash flow growth are attainable and sustainable. The Company’s dependence on operating cash flows 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, and cash flows from operations and liquidity, which may force the Company to curtail its operating plan or impede the Company’ growth.

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