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 September 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 October 31, 2005, 23,186,381 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
------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet - September 30, 2005 3
Condensed Consolidated Statements of Operations -
Quarters Ended September 30, 2005 and 2004 and Nine
Months Ended September 30, 2005 and 2004 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2005 and 2004 6
Condensed Consolidated Statement of Stockholders' Equity-
Nine Months Ended September 30, 2005 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operations 10
Item 3. Controls and Procedures 12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits 13
SIGNATURES 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Zynex Medical Holdings, Inc.
Condensed Consolidated Balance Sheet
September 30, 2005
(unaudited)
ASSETS
Current Assets:
Cash and equivalents $ --
Receivables, less allowance for
uncollectible accounts of $583,911 657,630
Inventory 396,473
Prepaid expenses 17,224
Refundable income taxes 7,586
Other current assets 1,827
-----------
Total current assets 1,080,740
Property and equipment, less accumulated depreciation
of $148,926 217,797
Other assets 10,940
-----------
$ 1,309,477
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ 9,572
Notes payable 90,016
Capital lease 14,082
Accounts payable 395,855
Loan from stockholder 48,011
Accrued payroll and payroll taxes 92,755
Other accrued liabilities 81,204
-----------
Total current liabilities 731,495
Long Term Liabilities:
Notes payable, less current maturities 31,862
Capital lease, less current maturities 48,593
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Total liabilities 811,950
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Contingencies and Commitments --
3
Zynex Medical Holdings, Inc.
Condensed Consolidated Balance Sheet
September 30, 2005
(unaudited)
Continued
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Stockholders' Equity:
Preferred stock, $0.001 par value, 10,000,000
authorized, no shares issued or outstanding --
Common stock, $0.001, par value, 100,000,000 shares
authorized, 23,165,351 shares issued and outstanding 23,165
Additional paid-in capital 1,368,866
Accumulated deficit (894,504)
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Total stockholders' equity 497,527
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$ 1,309,477
===========
See accompanying condensed consolidated notes.
4
Zynex Medical Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Nine Months Ended
Quarter Ended September 30, September 30,
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2005 2004 2005 2004
------------ ------------ ------------ ------------
Net sales and rental income $ 604,141 $ 366,784 $ 1,738,566 $ 966,430
Cost of sales and rentals 39,926 61,194 200,287 161,820
------------ ------------ ------------ ------------
Gross profit 564,215 305,590 1,538,279 804,610
Operating expenses:
Selling, general and administrative 414,440 545,661 1,214,281 1,381,240
Depreciation 16,032 10,324 48,860 32,697
------------ ------------ ------------ ------------
430,472 555,985 1,263,141 1,413,937
------------ ------------ ------------ ------------
Income (loss) from operations 133,743 (250,395) 275,138 (609,327)
Interest and other expense (4,333) (33,823) (14,232) (56,387)
------------ ------------ ------------ ------------
Income (loss) before income taxes 129,410 (284,218) 260,906 (665,714)
Income tax provision (benefit) -- -- -- (12,750)
------------ ------------ ------------ ------------
Net income (loss) $ 129,410 $ (284,218) $ 260,906 $ (652,964)
============ ============ ============ ============
Basic and diluted net income (loss)
per common share $ 0.01 $ (0.01) $ 0.01 $ (0.03)
============ ============ ============ ============
Weighted average number of shares
outstanding:
Basic 23,141,330 22,039,007 23,095,520 22,588,273
============ ============ ============ ============
Diluted 23,383,878 23,039,007 23,210,830 22,588,273
============ ============ ============ ============
See accompanying condensed consolidated notes.
5
Zynex Medical Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30,
(unaudited)
2005 2004
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Cash flow from operating activities:
Net income (loss) $ 260,906 $ (652,964)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation 48,860 32,697
Issuance of warrants for consulting services -- 61,727
Issuance of common stock for consulting services 33,728 11,707
Loss on disposal of equipment -- 38,221
Issuance of stock for loan financing -- 2,730
Changes in operating assets and liabilities:
Receivables (467,539) (68,722)
Inventory (76,774) (188,118)
Refundable income taxes 4,105 --
Other current assets 3,025 (25,162)
Other assets 3,532 (6,985)
Bank overdraft 9,572 --
Accounts payable 215,697 (25,634)
Accrued liabilities 18,559 24,258
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Net cash provided by (used in) operating activities 53,671 (796,245)
Cash flows from investing activities:
Purchase of equipment (38,162) (43,893)
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Net cash (used in) investing activities (38,162) (43,893)
Cash flows from financing activities:
Payments on notes payable and capital lease (66,598) (122,739)
Proceeds from sale of common stock -- 1,259,987
Proceeds from (payments on) loan from stockholder 48,011 (13,878)
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Net cash provided by (used in) financing activities (18,587) 1,123,370
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(Decrease) Increase in cash (3,078) 283,232
Cash and equivalents at beginning of period 3,078 --
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Cash and equivalents at end of period $ -- $ 283,232
=========== ===========
Supplemental cash flow information:
Interest paid $ 14,693 $ 22,184
Income taxes paid -- 13,153
Non-cash investing and financing activities -
Equipment financed with note payable -- 56,332
See accompanying condensed consolidated notes.
6
Zynex Medical Holdings, Inc.
Condensed Consolidated Statement of Stockholders' Equity
Nine Months Ended September 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 94,974 95 33,633 -- 33,728
Net income -- -- -- 260,906 260,906
----------- ----------- ----------- ----------- -----------
September 30, 2005 23,165,351 $ 23,165 $ 1,368,866 $ (894,504) $ 497,527
=========== =========== =========== =========== ===========
See accompanying condensed consolidated notes.
7
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Business
The Company designs, manufactures, markets and sells its own lines of FDA
approved products for the domestic and international 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 September 30, 2005 and the results of its operations for
the quarter and nine months ended September 30, 2005 and 2004, and its cash
flows for the nine months ended September 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.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities as well as disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expense during the reporting period. Actual results could differ
from those estimates.
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 September 30, 2005 reported no cash or cash
equivalents. The Company executed a $400,000 term loan agreement with Silicon
Valley Bank, Santa Clara, CA and Boulder, CO on September 29, 2005. The
Agreement became effective October 5, 2005 and the Company believes this loan,
coupled with its improved operating performance, will provide the funds
necessary to continue its operations as a going concern.
Additionally, the Company is in discussions with potential investors and
investment bankers that may provide long term funding 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.
8
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 23,165,351 outstanding
shares resulting from the February 11, 2004 reverse acquisition, adjusted for
subsequent activity.
Pursuant to the Company's 2005 Stock Option Plan, on July 1, 2005 the Company
granted 28,000 stock options to employees at exercise prices of $0.50 per share
and on August 15, 2005 the Company granted 12,670 stock options to an employee
at an exercise price of $0.57 per share.
For the quarter and the nine months ended September 30, 2005, the Company issued
47,567 and 94,974 shares of common stock, respectively, to investor relations
and financial consultants for services performed, at prices ranging from $0.23
to $0.54 per share.
4. Subsequent Event
On October 5, 2005 the Company and its wholly owned subsidiary Zynex Medical,
Inc. received $400,000 under a three-year term loan agreement with Silicon
Valley Bank, Santa Clara, California and Boulder, Colorado (the "Lender"). The
loan bears interest at a per annum fixed rate of 7.84%. The loan is personally
guaranteed by Zynex Chairman, President and Chief Executive Officer Thomas
Sandgaard and is collateralized by a first perfected security interest in
accounts receivable, inventory, chattel paper, equipment, fixtures, general
intangibles, including intellectual property and other assets. The Company will
repay the loan in 36 equal monthly payments of principal and interest. The loan
includes financial covenants for minimum liquidity and minimum debt service
coverage. In connection with the loan the Lender was granted a seven-year
warrant to purchase 50,000 shares of Zynex Common Stock at an exercise price of
$0.71 per share.
9
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
nine months ended September 30, 2005 were $604,141 and $1,738,566, an increase
of $237,357 and $772,136, or 64.7% and 79.9% compared to $366,784 and $966,430
for the quarter and nine months ended September 30,2004. The increase in net
sales and rental income for the quarter and nine months ended September 30, 2005
compared to the quarter and nine months ended September 30, 2004 was due
primarily to greater awareness of the Company's products by end users and
physicians resulting from its increased 2004 and 2005 marketing investments,
growing market penetration and increased rental income from the greater number
of Zynex products placed in use during the prior periods.
Gross Profit. Gross profit for the quarter and nine months ended September 30,
2005 was $564,215 and $1,538,279, or 93.4% and 88.5% of revenue, an increase of
$258,625 and $733,669, or 84.6% and 91.2%, from the gross profit of $305,590 and
$804,610, or 83.3% and 83.3% of revenue for the quarter and nine months ended
September 30, 2004. The increase in gross profit for the quarter and nine months
ended September 30, 2005, as compared with the same periods last year, is due to
higher net sales and rental income.
Gross profit as a percent of revenue for the quarter and nine months ended
September 30, 2005 is higher than the like periods in 2004 because rental
revenue, which maintains a higher profit margin, represents a larger percentage
of total revenue than in the prior periods, the Company obtained improved
pricing with certain vendors and estimated collections improved over the prior
periods.
Selling, General and Administrative. Selling, general and administrative
expenses for the quarter and nine months ended September 30, 2005 were $414,440
and $1,214,281, a decrease of $131,221 and $166,959 compared to $545,661 and
$1,381,240 for the same periods last year. The decreases compared to the same
periods last year were due to reductions in personnel, travel and entertainment,
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 $4,333 and $14,232 for the
quarter and nine months ended September 30, 2005, a decrease of $29,490 and
$42,155 compared to $33,823 and $56,387 for the same periods last year. The
decreases result primarily from a reduction in interest and finance charges due
to an increase in cash flow and reduction in debt.
10
Liquidity and Capital Resources. We expect that our cash requirements will
increase as our operations expand. Based on the Company's results for the first
nine months of 2005, our projected revenue through 2006 and our post September
30, 2005 completed $400,000 bank loan, we believe that available cash will be
adequate to meet our requirements for the balance of 2005 and future periods
through at least September 2006. However, to fully implement our 2005/2006
business plan, we need to raise additional equity or debt financing.
We are in discussions with potential investors and investment bankers to raise
additional funds that will further assist in executing our business plan. There
can be no assurance that we will be able to raise such additional funds or do so
on terms that are acceptable to us.
Cash provided by operating activities was $53,671 for the nine months ended
September 30, 2005 compared to $796,245 cash used in operating activities for
the nine months ended September 30, 2004. The primary reasons for improvement in
cash flow were the 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 $38,162 for the nine months ended
September 30, 2005 compared to $43,893 for the same period in 2004. Cash used in
investing activities represents the purchase of equipment and inventory rented
to customers.
Cash used in financing activities was $18,587 for the nine months ended
September 30, 2005 compared with cash provided by financing activities of
$1,123,370 for the nine months ended September 30, 2004. Sales of common stock
during the nine months ended September 30, 2004 provided net cash proceeds of
$1,259,987. During the nine months ended September 30, 2005 the Company received
$48,011 in net working capital loans from principal stockholder and Chief
Executive Officer, Thomas Sandgaard.
To conserve and most efficiently and effectively use our financial resources we
do now and will continue to closely monitor our actual and projected revenue,
costs and cash flow, 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.
11
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 September 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.
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 investor relations and
financial consultants. 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
12
ITEM 6. EXHIBITS.
(a) Exhibits
31.1 Certification of Chief Filed herewith
Executive Officer electronically
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Filed herewith
Officer Pursuant to Section 302 electronically
of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Filed herewith
Executive Officer and Chief electronically
Financial Officer Pursuant
to Section 18 U.S.C. Section 1350
(b) Reports on Form 8-K
None
13
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: November 14, 2005 By: /s/ Thomas Sandgaard
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President and
Chief Executive Officer,
Treasurer
By: /s/ Peter J. Leveton
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Chief Financial Officer
Principal Financial Officer
INDEX TO EXHIBITS
Certifications to be attached
Exhibit No. Description
----------- -----------
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
Financial Officer Pursuant to Section 18 U.S.C. Section 1350
14