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ORGANIZATION, NATURE OF BUSINESS AND MANAGEMENT’S PLANS | 12 Months Ended
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Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
ORGANIZATION, NATURE OF BUSINESS AND MANAGEMENT’S PLANS | (1) ORGANIZATION, NATURE OF BUSINESS AND MANAGEMENT’S PLANS Organization Zynex, Inc. (a Nevada corporation) has its headquarters in Lone Tree, Colorado. The Company operates in one primary business segment, Electrotherapy and Pain Management Products. As of December 31, 2016, the Company’s active subsidiaries are Zynex Medical, Inc. (“ZMI,” a wholly-owned Colorado corporation), Zynex Europe, ApS (“ZEU,” a wholly-owned Denmark corporation) and Zynex Monitoring Solutions, Inc. (“ZMS,” a wholly-owned Colorado corporation). Its inactive subsidiaries include Zynex NeuroDiagnostics, Inc. (“ZND,” a wholly-owned Colorado corporation), Zynex Billing and Consulting, LLC (“ZBC,” an 80% owned Colorado limited liability company) and Pharmazy, Inc. (“Pharmazy”), which was incorporated in June 2015 as a wholly-owned Colorado corporation. The Company’s compound pharmacy operated as a division of ZMI dba as Pharmazy through January 2016. During 2016 and 2015 revenues earned by ZMI totaled 99.7% and 99.6%, respectively. The ZMI dba Pharmazy operations represented 0.1% and 9.7% of revenues during 2016 and 2015, respectively. The term “the Company” refers to Zynex, Inc. and its active and inactive subsidiaries. Nature of Business ZMI designs, manufactures and markets U.S. Food and Drug Administration (FDA) cleared medical devices that treat chronic and acute pain, as well as activate and exercise muscles for rehabilitative purposes with electrical stimulation. ZEU was formed in 2012 to conduct international sales and marketing for Company products. ZEU produced minimal revenues during 2016 and 2015. In addition, ZMI dba Pharmazy, which sold compound transdermal pain cream, began operations in early 2014 and was closed in January 2016. ZMS was formed to develop and market medical devices for non-invasive cardiac monitoring, the products of which are under development. The Company is currently developing a blood volume monitoring device. ZMS produced no revenues during 2016 or 2015. ZND was formed in 2011 to market electromyography (“EMG”), electroencephalography (“EEG”), sleep pattern, auditory and nerve conductivity neurological diagnosis devices to hospitals and clinics worldwide. In 2014, the Company decided to no longer focus on selling this product line (no significant revenue was generated during 2015 or 2014). ZBC was formed in 2012 to provide medical billing and consulting services. The Company stopped offering billing and consulting services in April 2015. No significant revenue was generated in 2016 and 2015. In 2016 and 2015, the Company generated substantially all of its revenue in North America from sales and rentals of its products to patients, dealers and health care providers. Management Plans 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. For the years ended December 31, 2016 and 2015, the Company reported net income of $69 and net losses of $2,911, respectively. As of December 31, 2016 the Company had no available borrowing under its line of credit although, based on an interim agreement with the bank (which expired March 31, 2017), the lender continues to release cash collateral to the Company based on the Company’s cash collections. The Company’s working capital deficit at December 31, 2016 totaled $(4,323) as compared to ($4,773) at December 31, 2015, a decrease of $450. In addition, the Company is in default of its secured line of credit and as a result, if its lender insists upon immediate repayment, the Company will be insolvent and may be forced to seek protection from its creditors. These losses, limited liquidity and significant working capital deficit raise substantial doubt about the Company’s ability to continue as a going concern. 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. The Company’s operating plans for 2016 emphasized revenue growth and cash flow; focusing its attention on increasing the number of sales representatives, promoting its EZ Rx Prescription program (see description below), continued improvements to its billing organization and processes and reducing and controlling its administrative expenses. Total net revenue for the year ended December 31, 2016 was $13,313 compared to $11,641 in 2015. This is a significant decline from revenues in 2013 and 2012 of approximately $21.7 million and $39.7 million, respectively. The primary reasons for the decline in revenue 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 the second quarter of 2014, the Company narrowed its focus to the NexWave, InWave and NeuroMove electrotherapy products and continued to build the sales representative group for its TENS solutions. The Company continued to narrow its focus during 2015 by closing its billing consulting services in April 2015 and closing its compound pain cream operations in January 2016. During 2015 and throughout 2014, in an effort to minimize the impact of these challenges, 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 $2,200 and $9,700, respectively, principally through reductions in headcount and facilities rent. 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 over many former Empi sales representatives, including those in areas where we had no previous representation. In addition, during 2016, Company orders steadily increased 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 TBK Bank, SSB (the “Lender”). In July 2014, the Lender notified the Company that it would no longer make additional loans under the credit agreement and that it was exercising its default remedies under the credit agreement, including, among others, accelerating the repayment of all outstanding obligations under the credit agreement and collecting the Company’s bank deposits to apply towards the outstanding obligations. The Lender agreed to forbear from the exercise of its rights and remedies under the terms of the credit agreement through June 30, 2017 and continues to release cash collateral to the Company based on the Company’s cash collections. The Company is obligated to decrease the Lender’s outstanding balance by at least $100 per month. As of March 31, 2017, the Company had $2,200 of outstanding borrowings under the credit agreement. This reduction in the line of credit primarily results from increased accounts receivable collections principally from a single insurance carrier, and proceeds from a private placement completed through Newbridge Securities Corporation in February 2017. The Company and the Lender continue to negotiate the terms of an accelerated repayment of the amounts outstanding under the credit agreement and continued extension of the forbearance agreement. However, no assurance can be given that the Lender will continue to release cash collateral, or that the parties will agree on a repayment plan acceptable to the Company. 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 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. In addition, any additional debt would require the approval of the Lender. A significant component of our negative working capital at December 31, 2015 is the amount due under our line of credit and past due accounts payable, all of which is considered a current liability. The Company’s business plan for 2017 focuses on the Company’s effort to attain external financing, the Lender’s continued support, the vendors continued support and attaining positive cash flow from organic growth. The accomplishment of organic growth in revenues and cash flows is dependent on taking advantage of the Empi opportunity and the increased number of sales representatives, using its EZ Rx Prescription program and continued improvements to its 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. The Company has and will continue to seek external financing and monitor and control its sales growth, product production needs and administrative costs going forward. If the Company continues to increase its revenue while controlling its administrative costs, the Company will return to profitability in future years as of appears in 2016. The Company believes that as a result of the growth opportunities coupled the reduced administrative expenses, the securing of additional capital, the continued support of our Lender, and the continued support of our vendors to work with Company on the slow payment of past due bills; 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 2017 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 2017 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 (principally the line of credit and past due accounts payable which are considered a current liability in their entirety). There can be no assurance that the Company will be able to secure additional external financing, the Lender will continue to release cash collateral, 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, 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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