U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
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Commission File Number: 33-26787-D
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Zynex Medical Holdings, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada 33-26787-D 90-0214497
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State or Other Jurisdiction Commission File IRS Employer
of Incorporation or Organization) Number Identification Number
8100 Southpark Way, Suite A-9
Littleton, Colorado 80120
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Address of Principal Executive Offices Zip Code
(303) 703-4906
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Registrant's Telephone Number,
Including Area Code
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of JuLY 31, 2005 23,117,784 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
ZYNEX MEDICAL HOLDINGS, INC.
FORM 10-QSB
INDEX
Page Number
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet -
June 30, 2005 ............................................ 3
Condensed Consolidated Statements of Operations -
Quarters Ended June 30, 2005 and 2004 and Six
Months Ended June 30, 2005 and 2004.................... 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2005 and 2004................... 6
Notes to Condensed Consolidated Financial
Statements ............................................... 7
Item 2. Management's Discussion and Analysis or Plan of
Operations ............................................... 8
Item 3. Controls and Procedures .................................. 9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ........................................ 10
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds ................................................. 10
Item 3. Defaults Upon Senior Securities .......................... 10
Item 4. Submission of Matters to a Vote of Security
Holders .................................................. 10
Item 5. Other Information ........................................ 10
Item 6. Exhibits.................................................. 10
SIGNATURES ........................................................ 12
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Zynex Medical Holdings, Inc.
Condensed Consolidated Balance Sheet
June 30, 2005
(unaudited)
ASSETS
Current Assets:
Cash and equivalents $ --
Receivables, less allowance for
uncollectible accounts of $487,461 475,910
Inventory 396,560
Prepaid expenses 14,344
Refundable income taxes 7,586
Other current assets 661
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Total current assets 895,061
Property and equipment, less accumulated depreciation
of $132,894 223,102
Other assets 10,940
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$1,129,103
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ 19,116
Notes payable 99,951
Capital lease 13,787
Accounts payable 373,824
Loan from stockholder 25,300
Accrued payroll and payroll taxes 87,577
Other accrued liabilities 75,804
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Total current liabilities 695,359
Notes payable, less current maturities 34,629
Capital lease, less current maturities 52,226
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Total liabilities 782,214
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Contingencies and Commitments --
3
Zynex Medical Holdings, Inc.
Condensed Consolidated Balance Sheet
June 30, 2005
(unaudited)
Continued
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Stockholders' Equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, no shares issued or outstanding --
Common stock, $.001, par value, 100,000,000 shares
authorized, 23,117,784 shares issued and outstanding 23,117
Additional paid-in capital 1,347,686
Accumulated (deficit) (1,023,914)
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Total stockholders' equity 346,889
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$ 1,129,103
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4
Zynex Medical Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net sales and rental income $ 589,483 $ 336,705 $ 1,134,426 $ 599,596
Cost of sales, rentals and freight 73,250 54,528 160,362 100,628
------------ ------------ ------------ ------------
Gross profit 516,233 282,177 974,064 498,968
Selling, general and administrative 417,784 456,425 799,824 835,395
Depreciation 16,801 13,759 32,828 22,373
------------ ------------ ------------ ------------
434,585 470,184 832,652 857,768
Income (loss) from operations 81,648 (188,007) 141,412 (358,800)
Interest and other expense 6,232 6,497 9,916 22,696
------------ ------------ ------------ ------------
Income (loss) before income taxes 75,416 (194,504) 131,496 (381,496)
Income tax provision (benefit) -- (6,375) -- (12,750)
------------ ------------ ------------ ------------
Net income (loss) $ 75,416 $ (188,129) $ 131,496 $ (368,746)
============ ============ ============ ============
Basic and diluted net income (loss)
per common share $ 0.00 $ (0.01) $ 0.01 $ (0.02)
============ ============ ============ ============
Weighted average number of shares
outstanding
Basic 23,074,024 22,521,945 23,072,210 22,360,430
============ ============ ============ ============
Diluted 23,237,948 22,521,945 23,230,567 22,360,430
============ ============ ============ ============
5
Zynex Medical Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended June 30,
--------------------------
2005 2004
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Cash flows from operating activities:
Net income (loss) $ 131,496 $ (368,746)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation 16,801 22,858
Issuance of warrants for consulting services -- 61,727
Issuance of common stock for consulting services 12,500 --
Loss on disposal of equipment -- 9,721
Changes in operating assets and liabilities:
Accounts receivable (285,820) (47,583)
Inventory (76,861) (107,733)
Refundable income taxes 4,105 --
Other current assets 7,071 (288)
Other assets 3,532 (6,985)
Bank overdraft 19,116 --
Accounts payable 193,666 39,683
Accrued liabilities 7,981 13,850
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Net cash provided by (used in) operating activities 33,587 (383,496)
Cash flows from investing activities:
Purchase of equipment (11,408) (38,760)
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Net cash used in investing activities (11,408) (38,760)
Cash flows from financing activities:
Payments on notes payable and capital lease (50,557) (62,908)
Proceeds from sale of common stock -- 1,259,988
Proceeds from (payments on) loan from stockholder 25,300 (12,816)
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Net cash provided by (used in) financing activities (25,257) 1,184,264
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(Decrease) Increase in cash (3,078) 762,008
Cash and equivalents at beginning of period 3,078 --
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Cash and equivalents at end of period $ -- $ 762,008
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Supplemental cash flow information:
Interest paid $ 13,212 $ 14,467
Income taxes paid -- 2,391
Non-cash investing and financing activities
Equipment financed with note payable -- 56,332
Zynex Medical Holdings, Inc.
Condensed Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 2005
(unaudited)
Additional
Number of Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
December 31,2004 23,070,377 $ 23,070 $ 1,335,233 $(1,155,410) $ 202,893
Issuance of common
stock for consulting
services 47,407 47 12,453 -- 12,500
Net income -- -- -- 131,496 131,496
----------- ----------- ----------- ----------- -----------
June 30, 2005 23,117,784 $ 23,117 $ 1,347,686 $(1,023,914) $ 346,889
=========== =========== =========== =========== ===========
6
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Business
The Company designs, manufactures and markets a line of FDA approved products
for the electrotherapy and stroke recovery markets. The Company also purchases
electrotherapy devices and supplies from other domestic and international
suppliers for resale.
2. Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with accounting principles
for interim financial information. In the opinion of management, these condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to fairly state the financial position
of the Company as of June 30, 2005 and the results of its operations for the
quarter and six months ended June 30, 2005 and 2004, and its cash flows for the
six months ended June 30, 2005 and 2004.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Furthermore, these financial statements should
be read in conjunction with Zynex Medical Holdings, Inc.'s audited financial
statements at December 31, 2004 included in the Company's Form 10-KSB filed
April 15, 2005.
Certain reclassifications have been made to conform previously reported data to
the current presentation. These reclassifications have no effect on net income
(loss) or financial position as previously reported.
As reported in the December 31, 2004 financial statements, the Company incurred
a substantial loss in 2004 and as of June 30, 2005 reported no cash or cash
equivalents. The foregoing raises substantial doubt about the Company's ability
to continue as a going concern. The accompanying interim financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
The Company is in discussions with commercial banks and asset based lenders that
may provide a secured working capital line of credit and with private equity
investors to further assist in executing its business plan. There can be no
assurance that it will be able to raise such additional financing or do so on
terms that are acceptable to the Company.
3. Stockholders' Equity
The Company computes net earnings (loss) per share in accordance with SFAS No.
128, "Earnings per Share", which establishes standards for computing and
presenting net earnings (loss) per share. Basic earnings (loss) per share is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding and the number of dilutive potential common share equivalents during
the period.
All share and per share amounts presented reflect the 23,117,784 outstanding
shares as a result of the February 11, 2004 reverse acquisition, adjusted for
subsequent activity.
Pursuant to the Company's 2005 Stock Option Plan, adopted on January 3, 2005,
the Company granted 190,000 common stock options to employees on January 3, 2005
at $0.30 per share and 22,000 common stock options to employees on April 1, 2005
at $0.23 per share. As of June 30, 2005, 102,500 options of the January 3, 2005
grant and 22,000 shares of the April 1, 2005 grant remain outstanding.
Pursuant to the April 18, 2005 Compensation Agreement between the Company and
Peter J. Leveton, Chief Financial Officer, on April 18, 2005 the Company granted
350,000 stock options to Mr. Leveton at $0.22 per share of common stock. As of
June 30, 2005, 350,000 shares remain outstanding.
As of June 24, 2005 the Company issued 47,407 shares of common stock to The Wall
Street Group for $12,500 of consulting services rendered during the period April
1 through June 30, 2005, The shares were issued at prices of $0.23 to $0.31
per share.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following information should be read in conjunction with the Company's
condensed consolidated financial statements and related footnotes contained in
this report.
Results of Operations
Net Sales and Rental Income. Net sales and rental income for the quarter and six
months ended June 30, 2005 were $589,483 and $1,134,426, an increase of $252,778
and $534,830, or 75.1% and 89.2% compared to $336,705 and $599,596 for the
quarter and six months ended June 30, 2004. The increase in net sales and rental
income for the quarter ended June 30, 2005 compared to the quarter ended June
30, 2004 was due to greater end user and physician awareness of the Company's
products resulting from its increased 2004 marketing investments and an increase
in sales representatives.
Gross Profit. Gross profit for the quarter and six months ended June 30, 2005
were $516,233 and $974,074, or 87.6% and 85.9% of revenue, an increase of
$234,056 and $475,096, or 82.9% and 95.2%, from the gross profit of $282,177 and
$498,968, or 83.8% and 83.2% of revenue, for the quarter and six months ended
June 30, 2004. The increase in gross profit for the quarter and six months ended
June 30, 2005, as compared with the same period last year, is due to higher net
sales and rental income.
Gross profit as a percent of revenue for the quarter and six months ended June
30, 2005 is higher than the like period in 2004 because of improved terms with
certain suppliers and improved collections.
Selling, General and Administrative. Selling, general and administrative
expenses for the quarter and six months ended June 30, 2005 were $417,784 and
$799,824, a decrease of $38,641 and $35,571 or 8.5% and 4.3%, compared to
$456,425 and $835,395 for the same periods last year. The decreases compared to
the same periods last year were due to reductions in highly compensated
personnel, office expense, and advertising, marketing and promotion, offset by
increases in public company expense, consulting, legal fees, and liability
insurance.
Interest and Other. Interest and other expenses were $6,232 and $9,916 for the
quarter and six months ended June 30, 2005, a decrease of $265 and $12,780
compared to $6,497 and $22,696 for the same periods last year. The decreases
result primarily from a reduction in interest and finance charges due to a
reduction in debt.
Liquidity and Capital Resources. We expect that our cash requirements will
increase as our operations expand. Based on the Company's first half results and
planned sales revenue for the next two quarters we believe that available cash
will be adequate to meet our requirements for the balance of 2005. However, in
order to fully implement our 2005 business plan, we need to raise additional
equity or debt financing.
We are in discussions with commercial banks and asset based lenders that may
provide a secured working capital line of credit and with private equity
investors to further assist in executing our business plan. There can be no
assurance that we will be able to raise such additional financing or do so on
terms that are acceptable to us.
Cash provided by operating activities was $33,587 for the six months ended June
30, 2005 compared with cash used by operations of $383,496 for the six months
ended June 30, 2004. The primary reasons for improvement in cash flow werethe
increase in net sales and rental income concurrent with reductions in operating
expenses and the resultant improvement in net income.
Cash used in investing activities was $11,408 for the six months ended June 30,
2005 compared to $38,760 for the same period in 2004. Cash used in investing
activities represent the purchase of equipment and inventory rented to
customers.
Cash used in financing activities was $25,257 for the six months ended June 30,
2005 compared with cash provided by financing activities of $1,184,264 for the
six months ended June 30, 2004. Sales of common stock during the six months
ended June 30, 2004 provided net cash proceeds of $1,259,988. During the six
months ended June 30, 2005 the Company received $25,300 in working capital loans
from principal shareholder Thomas Sandgaard.
8
To conserve and most efficiently and effectively use financial resources now and
in the future we will continue to closely monitor both our costs and revenue
expectations and will take appropriate action as circumstances require.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this quarterly report contains statements that
are forward-looking, such as statements relating to plans for future expansion
and other business development activities, as well as other capital spending and
financing sources. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks
include the need to obtain additional capital in order to grow our business,
larger competitors with greater financial resources, the need to keep pace with
technological changes, our dependence on the reimbursement from insurance
companies for products sold or rented to our customers, our dependence on third
party manufacturers to produce our goods on time and to our specifications, the
acceptance of our products by hospitals and clinicians, implementation of our
sales strategy including a strong direct sales force and other risks described
in our 10-KSB Report for the year ended December 31, 2004.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this quarterly report, an evaluation was
performed under the supervision and with the participation of the Company's
management including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective as of June 30, 2005.
There have been no changes in internal control over financial reporting that
occurred during the quarter that have materially affected, or are reasonably
likely to affect, the Company's internal control over financial reporting.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
See Note 3 to the Notes to the Condensed Consolidated Financial Statements for
information regarding the issuance of common stock to The Wall Street Group on
June 24, 2005. These shares were issued pursuant to an exemption from
registration under the Securities Act of 1933 for a limited or non-public
offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
(a) Exhibits
10.1 Compensation Agreement dated Filed herewith electronically
as of April 18, 2005
between the Company
and Peter J. Leveton.
31.1 Certification of Chief Filed herewith electronically
Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Filed herewith electronically
Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
10
32 Certification of Chief Filed herewith electronically
Executive Officer and Chief
Financial Officer Pursuant
to Section 18 U.S.C. Section 1350
(b) Reports on Form 8-K
On June 2, 2005 the Company filed a Form 8-K to report a
definitive compensation agreement with Peter J. Leveton, Chief
Financial Officer of the Company.
On June 28, 2005 the Company filed a Form 8-K to announce the June 27,
2005 press release and publication of a Wall Street Transcript
interview with Thomas Sandgaard, Chairman, President and Chief
Executive Officer of the Company.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZYNEX MEDICAL HOLDINGS, INC.
Date: August 11, 2005 By: /s/ Thomas Sandgaard
-----------------------------------------
Thomas Sandgaard, President,
Chief Executive Officer,
Treasurer
By: /s/ Peter J. Leveton
-----------------------------------------
Chief Financial Officer
Principal Financial Officer
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
10.1 Compensation Agreement dated as of
April 18, 2005 between
the Company and Peter J. Leveton.
31.1 Certification Of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of the Chief Executive Officer and Chief
Chief Financial Officer Pursuant to Section 18 U.S.C.
Section 1350
12