ZYNEX INC - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2021


	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-38804

Zynex, Inc.

(Exact name of registrant as specified in its charter)

NEVADA		90-0275169
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

9655 Maroon Cir.
Englewood, CO		80112
(Address of principal executive offices)		(Zip Code)

(303) 703-4906

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	ZYXI	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ⌧ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Shares Outstanding as of October 27, 2021
Common Stock, par value $0.001		34,779,691

Table of Contents

ZYNEX, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q


		Page
PART I—FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	3

	Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020	4

	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	5

	Unaudited Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020	6

	Unaudited Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II—OTHER INFORMATION		22

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities And Use of Proceeds	22

Item 3.	Defaults Upon Senior Securities	22

Item 4.	Mine Safety Disclosures	22

Item 5.	Other Information	22

Item 6.	Exhibits	23

SIGNATURES		24

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ZYNEX, INC.

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)

(unaudited)


	September 30,		December 31,
	2021		2020
ASSETS
Current assets:
Cash	$	35,368	$	39,173
Accounts receivable, net		24,234		13,837
Inventory, net		9,154		8,635
Prepaid expenses and other		1,102		1,378
Total current assets		69,858		63,023

Property and equipment, net		2,253		1,925
Operating lease asset		17,234		5,993
Finance lease asset		418		321
Deposits		584		347
Deferred income taxes		376		566
Total assets	$	90,723	$	72,175

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses		2,669		4,717
Operating lease liability		2,416		2,051
Finance lease liability		115		77
Income taxes payable		1,577		280
Accrued payroll and related taxes		3,515		2,992
Total current liabilities		10,292		10,117
Long-term liabilities:
Operating lease liability		16,701		4,920
Finance lease liability		347		283
Total liabilities		27,340		15,320

Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2021 and December 31, 2020		—		—
Common stock, $0.001 par value; 100,000,000 shares authorized; 36,436,593 issued and 34,774,723 outstanding as of September 30, 2021 and 36,126,698 issued and 34,791,931 outstanding as of December 31, 2020		37		36
Additional paid-in capital		38,220		37,235
Treasury stock 1,246,399 shares, at September 30, 2021 and 1,071,220 shares at December 31, 2020, respectively, at cost		(6,513)		(3,846)
Retained earnings		31,639		23,430
Total stockholders' equity		63,383		56,855
Total liabilities and stockholders' equity	$	90,723	$	72,175

The accompanying notes are an integral part of these condensed consolidated financial statements

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ZYNEX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
NET REVENUE
Devices	$	9,071	$	5,301	$	23,264	$	13,026
Supplies		25,715		14,725		66,671		41,491
Total net revenue		34,786		20,026		89,935		54,517

COSTS OF REVENUE AND OPERATING EXPENSES
Costs of revenue - devices and supplies		6,837		4,296		19,990		11,758
Sales and marketing		13,083		9,425		40,662		21,817
General and administrative		6,820		4,896		18,503		12,990
Total costs of revenue and operating expenses		26,740		18,617		79,155		46,565

Income from operations		8,046		1,409		10,780		7,952

Other expense
Interest expense		(18)		(5)		(72)		(14)
Other expense, net		(18)		(5)		(72)		(14)

Income from operations before income taxes		8,028		1,404		10,708		7,938
Income tax expense		1,921		71		2,499		651
Net income	$	6,107	$	1,333	$	8,209	$	7,287

Net income per share:
Basic	$	0.18	$	0.04	$	0.24	$	0.22
Diluted	$	0.17	$	0.04	$	0.23	$	0.21

Weighted average basic shares outstanding		34,768		34,486		34,805		33,564
Weighted average diluted shares outstanding		35,493		35,476		35,583		34,715

The accompanying notes are an integral part of these consolidated financial statements

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ZYNEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

(unaudited)


	For the Nine Months Ended September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,209	$	7,287
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Depreciation		1,689		1,042
Non-cash recoveries		(83)		(296)
Stock-based compensation		1,042		1,806
Non-cash lease expense		905		27
Provision for deferred income taxes		190		(473)
Change in operating assets and liabilities:
Accounts receivable		(10,397)		(3,532)
Prepaid and other assets		276		(745)
Accounts payable and other accrued expenses		(284)		1,625
Inventory		(1,898)		(4,274)
Deposits		(238)		47
Net cash (used in)/provided by operating activities		(589)		2,514

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(420)		(759)
Net cash (used in) investing activities		(420)		(759)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on finance lease obligations		(73)		(42)
Purchase of treasury stock		(2,667)		—
Proceeds from issuance of common stock under equity offering		—		25,240
Proceeds from the issuance of common stock on stock-based awards		127		236
Taxes withheld and paid on employees' equity awards		(183)		—
Net cash (used in)/provided by financing activities		(2,796)		25,434
Net (decrease)/increase in cash		(3,805)		27,189
Cash at beginning of period		39,173		14,040
Cash at end of period	$	35,368	$	41,229

Supplemental disclosure of cash flow information:
Cash paid for interest	$	(72)	$	(14)
Cash paid for rent	$	(1,510)	$	(1,182)
Cash paid for income taxes	$	(1,019)	$	(750)
Supplemental disclosure of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities	$	13,240	$	1,433
Right-of-use assets obtained in exchange for new finance lease liabilities	$	175	$	72
Inventory transferred to property and equipment under lease	$	1,254	$	641
Inventory transferred to property and equipment as demo devices	$	125	$	377
Capital expenditures not yet paid	$	56	$	—

The accompanying notes are an integral part of these consolidated financial statements

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ZYNEX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

(unaudited)


				Additional								Total
	Common Stock			Paid-in		Treasury		Retained		Non-Controlling		Stockholders’
	Shares	Amount		Capital		Stock		Earnings		Interest		Equity
Balance, December 31, 2019	32,791,665	$	34	$	9,198	$	(3,846)	$	14,356	$	(89)	$	19,653
Exercised and vested stock-based awards	385,917		—		221		—		—		—		221
Stock-based compensation expense	—		—		497		—		—		—		497
Net income	—		—		—		—		2,937		—		2,937
Balance at March 31, 2020	33,177,582	$	34	$	9,916	$	(3,846)	$	17,293	$	(89)	$	23,308
Exercised and vested stock-based awards, net of tax	157,414		—		53		—		—		—		53
Stock-based compensation expense	—		—		579		—		—		—		579
Net income	—		—		—		—		3,017		—		3,017
Balance at June 30, 2020	33,334,996		34		10,548		(3,846)		20,310		(89)		26,957
Stock issued for public offering	1,250,000		1		25,239		—		—		—		25,240
Exercised and vested stock-based awards, net of tax	152,269		—		(38)		—		—		—		(38)
Stock-based compensation expense	—		—		730		—		—		—		730
Net income	—		—		—		—		1,333		—		1,333
Balance at September 30, 2020	34,737,265	$	35	$	36,479	$	(3,846)	$	21,643	$	(89)	$	54,222


				Additional								Total
	Common Stock			Paid-in		Treasury		Retained		Non-Controlling		Stockholders’
	Shares	Amount		Capital		Stock		Earnings		Interest		Equity
Balance, December 31, 2020	34,791,931	$	36	$	37,235	$	(3,846)	$	23,430	$	—	$	56,855
Exercised and vested stock-based awards	57,769		1		29		—		—		—		30
Stock-based compensation expense	—		—		108		—		—		—		108
Shares of common stock withheld to pay taxes on employees' equity awards	(3,758)		—		(59)		—		—		—		(59)
Warrants exercised	8,848		—		—		—		—		—		—
Treasury stock	(5,000)		—		—		(75)		—		—		(75)
Net income	—		—		—		—		(706)		—		(706)
Balance at March 31, 2021	34,849,790	$	37	$	37,313	$	(3,921)	$	22,724	$	—	$	56,153
Exercised and vested stock-based awards, net of tax	85,190		—		59		—		—		—		59
Stock-based compensation expense	—		—		401		—		—		—		401
Shares of common stock withheld to pay taxes on employees' equity awards	(31,902)		—		(76)		—		—		—		(76)
Treasury stock	(135,179)				—		(2,045)		—		—		(2,045)
Net income	—		—		—		—		2,808		—		2,808
Balance at June 30, 2021	34,767,899	$	37	$	37,697	$	(5,966)	$	25,532	$	—	$	57,300
Exercised and vested stock-based awards, net of tax	45,165		—		38		—		—		—		38
Stock-based compensation expense	—		—		533		—		—		—		533
Shares of common stock withheld to pay taxes on employees' equity awards	(3,341)		—		(48)		—		—		—		(48)
Treasury stock	(35,000)		—		—		(547)		—		—		(547)
Net income	—		—		—		—		6,107		—		6,107
Balance at September 30, 2021	34,774,723	$	37	$	38,220	$	(6,513)	$	31,639	$	—	$	63,383

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ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

Organization

Zynex, Inc. (a Nevada corporation) has its headquarters in Englewood, Colorado. The term “the Company” refers to Zynex, Inc. and its active and inactive subsidiaries. The Company operates in one primary business segment, medical devices which include electrotherapy and pain management products. As of September 30, 2021, the Company’s only active subsidiaries are Zynex Medical, Inc. (“ZMI,” a wholly-owned Colorado corporation) through which the Company conducts most of its operations, and Zynex Monitoring Solutions, Inc. (“ZMS,” a wholly-owned Colorado corporation). ZMS has developed a blood volume monitoring device which received approval by the U.S. Food and Drug Administration (“FDA”) during 2020 and is still awaiting CE Marking in Europe. ZMS has achieved no revenues to date. The Company’s inactive subsidiaries include Zynex Europe, Zynex NeuroDiagnostics, Inc. (“ZND,” a wholly-owned Colorado corporation) and Pharmazy, Inc. (“Pharmazy”, a wholly-owned Colorado Corporation), which was incorporated in June 2015. The Company’s compounding pharmacy operated as a division of ZMI dba as Pharmazy through January 2016.

Nature of Business

The Company designs, manufactures and markets medical devices that treat chronic and acute pain, as well as activate and exercise muscles for rehabilitative purposes with electrical stimulation. The Company’s devices are intended for pain management to reduce reliance on drugs and medications and provide rehabilitation and increased mobility through the utilization of non-invasive muscle stimulation, electromyography technology, interferential current (“IFC”), neuromuscular electrical stimulation (“NMES”) and transcutaneous electrical nerve stimulation (“TENS”). All of our medical devices are designed to be patient friendly and designed for home use. Our devices are small, portable, battery operated and include an electrical pulse generator which is connected to the body via electrodes. All of our medical devices are marketed in the U.S. and are subject to FDA regulation and approval. Our products require a physician’s prescription before they can be dispensed in the U.S. Our primary product is the NexWave device. The NexWave is marketed to physicians and therapists by our field sales representatives. The NexWave requires consumable supplies, such as electrodes and batteries, which are shipped to patients on a recurring monthly basis, as needed.

During the three and nine months ended September 30, 2021 and 2020, the Company generated substantially all of its revenue in the United States from sales of its devices and related supplies to patients and health care providers.

Unaudited Consolidated Financial Statements

The unaudited 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, 2020. Amounts as of December 31, 2020, are derived from those audited consolidated financial statements. These interim 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, 2020.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2021 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, 2021 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.

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ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Zynex, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The most significant management estimates used in the preparation of the accompanying consolidated financial statements are associated with the allowance for billing adjustments and uncollectible accounts receivable, the reserve for obsolete and damaged inventory, stock-based compensation, and valuation of long-lived assets and realizability of deferred tax assets.

Leases

The Company recognizes finance and operating lease right-of-use assets and liabilities at the lease commencement date based on the estimated present value of the lease payments over the lease term. For our finance leases, the Company uses the implicit rate to determine the present value of future lease payments. For our operating leases that do not provide an implicit rate, the Company uses incremental borrowing rates to determine the present value of future lease payments. The Company includes options to extend or terminate a lease in the lease term when it is reasonably certain to exercise such options. The Company recognizes leases with an initial term of 12 months or less as lease expense over the lease term and those leases are not recorded on our Consolidated Balance Sheets. For additional information on our leases where the Company is the lessee, see Note 7- Leases.

A significant portion of our device revenue is derived from patients who obtain our devices under month-to-month lease arrangements. Revenue related to devices on lease is recognized in accordance with ASC 842, Leases. Using the guidance in ASC 842, we concluded these transactions should be accounted for as operating leases based on the criteria below:

●

The lease does not transfer ownership of the underlying asset to the lessee by the end of the lease term;

●

The lease does not grant the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise;

●

The lease term is month-to-month, which does not meet the major part of the remaining economic life of the underlying asset; however, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease;

●

There is no residual value guaranteed and the present value of the sum of the lease payments does not equal or exceed substantially all of the fair value of the underlying asset; and

●

The underlying asset is expected to have alternative uses to the lessor at the end of the lease term.

Lease commencement occurs upon delivery of the device to the patient. The Company retains title to the leased device and those devices are classified as property and equipment on the balance sheet. Since our leases are month-to-month and can be returned by the patient at any time, revenue is recognized monthly for the duration of the period in which the patient retains the device.

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ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable, Net

The Company’s accounts receivables represent unconditional rights to consideration and are generated when a patient receives one of the Company’s devices, related supplies or complimentary products. In conjunction with fulfilling the Company’s obligation to deliver a product, the Company invoices the patient’s third-party payor or the patient. Billing adjustments represent the difference between the list price and the reimbursement rates set by third-party payors, including Medicare, commercial payors and amounts billed directly to the patient. Specific amounts, if uncollected over a period of time, may be written-off after several appeals, which in some cases may take longer than twelve months. Substantially all of the Company’s receivables are due from patients with commercial or government health plans and workers compensation claims with a small portion related to private pay individuals, attorney and auto claims.

Revenue Recognition

Revenue is derived from sales and leases of our electrotherapy devices and sales of related supplies and complimentary products. The Company recognizes revenue when control of the product has been transferred to the patient, in the amount that reflects the consideration the Company expects to receive. In general, revenue from sales of our devices and supplies is recognized once the product is delivered to the patient, which is when control is deemed to have transferred to our patient.

Sales of our devices and supplies are primarily made with and shipped directly to the patient with a small amount of revenue generated from sales to distributors. In the healthcare industry there is often a third party involved that will pay on the patients’ behalf for purchased or leased devices and supplies. The terms of the separate arrangement impact certain aspects of the contracts, with patients covered by third party payors, such as contract type, performance obligations and transaction price, but for purposes of revenue recognition the contract with the customer refers to the arrangement between the Company and the patient. The Company does not have any material deferred revenue in the normal course of business as each performance obligation is met upon delivery of goods to the patient. There are no substantial costs incurred through support or warranty obligations.

The following table provides a breakdown of net revenue related to devices accounted for as purchases subject to ASC 606 and leases subject to ASC 842 (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Device revenue
Purchased	$	2,076	$	1,618	$	6,734	$	4,121
Leased		6,995		3,683		16,530		8,905
Total Device revenue	$	9,071	$	5,301	$	23,264	$	13,026

Revenues are estimated using the portfolio approach by third-party payor type based upon historical rates of collection, aging of receivables, trends in historical reimbursement rates by third-party payor types, and current relationships and experience with the third-party payors, which includes estimated constraints for third-party payor refund requests, deductions and adjustments. Inherent in these estimates is the risk that they will have to be revised as additional information becomes available and constraints are released. Specifically, the complexity of third-party payor billing arrangements and the uncertainty of reimbursement amounts for certain products from third-party payors or unanticipated requirements to refund payments previously received may result in adjustments to amounts originally recorded. Due to continuing changes in the health care industry and third-party payor reimbursement, it is possible our forecasting model to estimate collections could change, which could have an impact on our results of operations and cash flows. Any differences between estimated and actual collectability are reflected in the period in which the difference is identified. Historically these differences have been immaterial, and the Company has not had a significant reversal of revenue from prior periods.

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ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

A change in the way estimates are determined can result from a number of factors, including changes in the reimbursement policies or practices of third-party payors, or changes in industry rates of reimbursement. The Company monitors the variability and uncertain timing over third-party payor types in our portfolios. If there is a change in our third-party payor mix over time, it could affect our net revenue and related receivables. We believe we have a sufficient history of collection experience to estimate the net collectible amounts by third-party payor type. However, changes to constraints for billing adjustments have historically fluctuated and may continue to fluctuate significantly from quarter to quarter and year to year.

Stock-based Compensation

The Company accounts for stock-based compensation through recognition of the cost of employee services received in exchange for an award of equity instruments, which is measured based on the grant date fair value of the award that is ultimately expected to vest during the period. The stock-based compensation expenses are recognized over the period during which an employee is required to provide service in exchange for the award (the requisite service period, which in the Company’s case is the same as the vesting period). For awards subject to the achievement of performance metrics, stock-based compensation expense is recognized when it becomes probable that the performance conditions will be achieved over the respective performance period.

Fair Value of Financial Instruments

The Company’s financial instruments include cash, accounts receivable, accounts payable, and accrued liabilities, for which current carrying amounts approximate fair value due to their short-term nature. Financial instruments also include capitalized leases, the carrying value of which approximates fair value because the interest rates on the outstanding borrowings are at rates that approximate market rates for borrowings with similar terms and average maturities.

Inventory, Net

Inventories are stated at the lower of cost or net realizable value. Cost is computed using standard costs, which approximates actual costs on an average cost basis. Following are the components of inventory (in thousands):


	September 30, 2021		December 31, 2020
Raw Materials	$	4,102	$	3,213
Work-in-process		466		1,455
Finished Goods		4,738		4,119
	$	9,306	$	8,787
Less: reserve		(152)		(152)
	$	9,154	$	8,635

The Company monitors inventory for turnover and obsolescence and records losses for excess and obsolete inventory, as appropriate. The Company provides reserves for estimated excess and obsolete inventories based upon assumptions about future demand. If future demand is less favorable than currently projected by management, additional inventory write-downs may be required.

Segment Information

We define operating segments as components of our enterprise for which separate financial information is reviewed regularly by the chief operating decision-makers to evaluate performance and to make operating decisions. We have identified our Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer as our chief operating decision-makers (“CODM”).

We currently operate our business as one operating segment that includes two revenue types: Devices and Supplies.

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ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

We record deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We reduce deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that these benefits will not be realized.

We recognize tax benefits from uncertain tax positions if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

Recent Accounting Pronouncements

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU 2016-13"), Measurement of Credit Losses on Financial Instruments. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard will replace today's "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU is effective for annual periods beginning after December 15, 2022, and interim periods therein for smaller reporting companies. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on our financial condition, results of operations and cash flows.

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a material impact on the Company’s consolidated financial statements.

(2) PROPERTY AND EQUIPMENT

The components of property and equipment are as follows (in thousands):


	September 30, 2021		December 31, 2020
Property and equipment
Office furniture and equipment	$	2,232	$	2,362
Assembly equipment		100		143
Vehicles		203		198
Leasehold improvements		1,033		559
Sales rep demo units		122		361
Leased devices		1,223		809
		4,913		4,432
Less accumulated depreciation		(2,660)		(2,507)
	$	2,253	$	1,925

Total depreciation expense related to our property and equipment, exclusive of leased devices, was $0.2 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense for the nine months ended September 30, 2021 and 2020 was $0.7 million and $0.5 million, respectively.

Total depreciation expense related to devices out on lease was $0.4 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense related to devices out on lease was $1.0 million and $0.6 million for the nine months ended September 30, 2021 and 2020, respectively. Depreciation on leased units is reflected on the income statement as cost of revenue.

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ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company monitors devices out on lease for potential loss and places an estimated reserve on the net book value based on an analysis of the number of units which are still with patients for which the Company cannot determine the current status.

The Company monitors demo devices for potential losses and places an estimated reserve on the net book value based on an analysis of terminated territory managers that have not yet returned their units.

(3) EARNINGS PER SHARE

Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding and the number of dilutive potential common share equivalents during the period, calculated using the treasury-stock method for outstanding stock options.

The calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2021 and 2020 are as follows (in thousands, except per share data):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Basic earnings per share
Net income available to common stockholders	$	6,107	$	1,333	$	8,209	$	7,287
Basic weighted-average shares outstanding		34,768		34,486		34,805		33,564

Basic earnings per share	$	0.18	$	0.04	$	0.24	$	0.22

Diluted earnings per share
Net income available to common stockholders	$	6,107	$	1,333	$	8,209	$	7,287
Weighted-average shares outstanding		34,768		34,486		34,805		33,564
Effect of dilutive securities - options and restricted stock		725		990		778		1,151
Diluted weighted-average shares outstanding		35,493		35,476		35,583		34,715

Diluted earnings per share	$	0.17	$	0.04	$	0.23	$	0.21

For both the three and nine months ended September 30, 2021, options to purchase 0.2 million shares of common stock were excluded from the dilutive stock calculation because their effect would have been anti-dilutive.

For both the three and nine months ended September 30, 2020, options to purchase 0.1 million shares of common stock were excluded from the dilutive stock calculation because their effect would have been anti-dilutive.

(4) STOCK-BASED COMPENSATION PLANS

In June 2017, our stockholders approved the 2017 Stock Incentive Plan (the “2017 Stock Plan”) with a maximum of 5 million shares reserved for issuance. Awards permitted under the 2017 Stock Plan include: Stock Options and Restricted Stock. Awards issued under the 2017 Stock Plan are at the discretion of the Board of Directors. As applicable, awards are granted with an exercise price equal to the closing price of our common stock on the date of grant and generally vest over four years. Restricted Stock Awards are issued to the recipient upon grant and are not included in outstanding shares until such vesting and issuance occurs.

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ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

During the three and nine months ended September 30, 2021, no stock option awards were granted under the 2017 Stock Plan. During the three months ended September 30, 2020, no stock option awards were granted under the 2017 Stock Plan. During the nine months ended September 30, 2020, 14,000 stock option awards were granted under the 2017 Stock Plan. At September 30, 2021, the company had 0.7 million stock options outstanding and 0.6 million exercisable under the following plans:


	Outstanding	Exercisable
	Number of Options	Number of Options
	(in thousands)	(in thousands)
Plan Category
2005 Stock Option Plan	295		295
Equity Compensation Plans not approved by Shareholders	25		25
2017 Stock Option Plan	388		268
Total	708		588

During the three and nine months ended September 30, 2021, 0.2 million and 0.3 million shares of restricted stock were granted to the Board of Directors and management under the 2017 Stock Plan, respectively. During the three and nine months ended September 30, 2020, 0.1 million and 0.3 million shares of restricted stock were granted to the Board of Directors and management under the 2017 Stock Plan, respectively. The fair market value of restricted shares for share-based compensation expensing is equal to the closing price of our common stock on the date of grant. The vesting on the Restricted Stock Awards typically occurs quarterly over three years for the Board of Directors and quarterly or annually over two to four years for management.

The following summarizes stock-based compensation expenses recorded in the consolidated statements of operations (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of revenue	$	12	$	13	$	42	$	22
Sales and marketing expense		48		13		78		45
General, and administrative		473		704		922		1,739
Total stock based compensation expense	$	533	$	730	$	1,042	$	1,806

The Company received minimal cash proceeds related to option exercises during the three months ended September 30, 2021. The Company received cash proceeds of $0.1 million related to option exercises during the nine months ended September 30, 2021. The Company received cash proceeds of $0.1 million and $0.6 million related to option exercises during the three and nine months ended September 30, 2020, respectively.

The Company did not grant any stock options during the three and nine months ended September 30, 2021, nor during the three months ended September 30, 2020. The Company used the Black Scholes option pricing model to determine the fair value of stock option grants, using the following assumptions for the nine months ended September 30, 2020:


Expected term (years)	6.79
Risk-free interest rate	1.59	%
Expected volatility	116.76	%
Expected dividend yield	—	%

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ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

A summary of stock option activity under all equity compensation plans for the nine months ended September 30, 2021, is presented below:


				Weighted-
		Weighted-		Average	Aggregate
	Number of	Average		Remaining	Intrinsic
	Shares	Exercise		Contractual	Value
	(in thousands)	Price		Term (Years)	(in thousands)
Outstanding at December 31, 2020	1,006	$	3.04	6.47	$	10,483
Forfeited	(198)	$	7.22
Exercised	(100)	$	5.31
Outstanding at September 30, 2021	708	$	1.55	4.97	$	6,963

Exercisable at September 30, 2021	588	$	1.04	4.52	$	6,088

A summary of restricted stock award activity under all equity compensation plans for the nine months ended September 30, 2021, is presented below:


		Number of
		Shares
		(in thousands)
Granted but not vested at December 31, 2020		268
Granted		317
Forfeited		(83)
Vested		(87)
Granted but not vested at September 30, 2021		415

As of September 30, 2021, the Company had approximately $5.9 million of unrecognized compensation expense related to stock options and restricted stock awards that will be recognized over a weighted average period of approximately 2.9 years.

(5) STOCKHOLDERS’ EQUITY

Treasury Stock

On March 8, 2021, our Board of Directors approved a program to repurchase up to $10.0 million of our common stock at prevailing market prices either in the open market or through privately negotiated transactions through September 8, 2021. From the inception of the plan through September 8, 2021, the Company purchased 175,179 shares of our common stock for $2.7 million or an average price of $15.22 per share.

Warrants

A summary of stock warrant activity for the nine months ended September 30, 2021 is presented below:


				Weighted
		Weighted		Average		Aggregate
	Number of	Average		Remaining		Intrinsic
	Warrants	Exercise		Contractual		Value
	(in thousands)	Price		Life (Years)		(in thousands)
Outstanding at December 31, 2020	100	$	2.63		3.76	$	1,084
Granted	—	$	—
Exercised	(10)	$	2.50		3.02	$	192
Forfeited	—	$	—
Outstanding and Exercisable at September 30, 2021	90	$	2.64		3.02	$	788

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ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(6) INCOME TAXES

The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, primarily related to excess tax benefits on stock option exercises. For the three and nine months ended September 30, 2021 discrete items adjusted were $0.3 million and $0.8 million, respectively. At September 30, 2021 the Company is currently estimating an annual effective tax rate of approximately 25%. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to various factors.

Income taxes of $1.0 million and $0.7 million were paid during the nine months ended September 30, 2021 and 2020, respectively.

(7) LEASES

The Company categorize leases at their inception as either operating or financing leases. Leases include various office and warehouse facilities which have been categorized as operating leases while certain equipment is leased under financing leases.

The Company entered into a sublease agreement on April 9, 2021 with Cognizant Trizetto Software Group, Inc. for up to approximately 110,754 square feet of office space as its new corporate headquarters. The term of the sublease began on May 1, 2021 and will run through April 29, 2028. The Company is entitled to rent credits equal to twenty-one months of base rent at the initial rate. During the first thirty-three months of the sublease, the rent per square foot is $26.50. The price per square foot increases by an additional $0.50 during each subsequent twelve-month period of the sublease. Upon lease commencement, the Company recorded an operating lease liability and a corresponding right-of-use asset for $13.4 million each. The remaining lease term was 6.5 years at September 30, 2021.

The Company’s operating leases do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring the lease liability. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company’s weighted average borrowing rate was determined to be 4.12% for its operating lease liabilities. The Company’s equipment lease agreements have a weighted average rate of 9.37% which was used to measure its finance lease liability.

As of September 30, 2021, the maturities of the Company’s future minimum lease payments were as follows:


	Operating lease liability		Finance lease liability
	(in thousands)		(in thousands)
October 1, 2021 through December 31, 2021	$	599	$	38
2022		3,569		154
2023		2,982		143
2024		3,496		80
2025		3,567		76
2026 and thereafter		7,576		15
Total undiscounted future minimum lease payments	$	21,789	$	506
Less: Difference between undiscounted lease payments and discounted lease liabilities:		(2,672)		(44)
Total lease liabilities	$	19,117	$	462

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ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The components of lease expenses were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Lease cost:
Operating lease cost:
Total operating lease expense	$	1,072	$	419	$	2,415	$	1,181
Finance lease cost:
Total amortization of leased assets		29		16		78		44
Interest on lease liabilities		11		5		31		14
Total net lease cost	$	1,112	$	440	$	2,524	$	1,239

Operating lease costs related to our manufacturing and warehouse facility, which we began operating out of at the beginning of 2021, were included in cost of sales while all other operating lease costs were included in general and administrative expenses on the consolidated statement of operations.

(8) CONCENTRATIONS

For the three months ended September 30, 2021, the Company sourced approximately 51% of the supplies for its electrotherapy products from three significant vendors (defined as supplying at least 10%). For the same period in 2020, the Company sourced approximately 64% of the supplies from five significant vendors.

For the nine months ended September 30, 2021, the Company sourced approximately 36% of supplies for its electrotherapy products from two significant vendors. For the same period in 2020, the Company sourced approximately 31% of supplies from one significant vendor.

Management believes that its relationships with suppliers are good; however, if the relationships were to be replaced, there may be a short-term disruption to operations, a period of time in which products may not be available and additional expenses may be incurred.

The Company had receivables from two third-party payers at September 30, 2021 that made up approximately 37% of the net accounts receivable balance. The Company had receivables from one third-party payer at December 31, 2020, that made up approximately 26% of the net accounts receivable balance.

(9) LITIGATION

From time to time, the Company may become party to litigation and other claims in the ordinary course of business. To the extent that such claims and litigation arise, management would accrue the estimated exposure for such events when losses are determined to be both probable and estimable.

The Company is currently not a party to any material pending legal proceedings.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Notice Regarding Forward-Looking Statements

This quarterly report contains statements that are forward-looking, such as statements relating to plans for future organic growth and other business development activities, as well as the impact of reimbursement trends, 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 ability to engage effective sales representatives, the need to obtain U.S. Food and Drug Administration (“FDA”) clearance and Certificate European (“CE”) marking of new products, the acceptance of new products as well as existing products by doctors and hospitals, our dependence on the reimbursement from third-party payors for products sold or leased to our patients, acceptance of our products by health third-party payors for reimbursement, larger competitors with greater financial resources, the need to keep pace with technological changes, our dependence on third-party manufacturers to produce key components of our products on time and to our specifications, implementation of our sales strategy including a strong direct sales force, the impact of COVID-19 on our business, and other risks described herein and in our Annual Report on Form 10-K for the year ended December 31, 2020.

These interim financial statements and the information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the annual audited consolidated financial statements, and notes to consolidated financial statements, included in the Company’s 2020 Annual Report on Form 10-K and subsequently filed reports, which have previously been filed with the Securities and Exchange Commission.

General

Zynex, Inc. (a Nevada corporation) has its headquarters in Englewood, Colorado. We operate one primary business segment: medical devices which include electrotherapy and pain management products. As of September 30, 2021, the Company’s only active subsidiaries are Zynex Medical, Inc. (“ZMI,” a wholly-owned Colorado corporation) through which the Company conducts most of its operations and Zynex Monitoring Solutions, Inc. (“ZMS,” a wholly-owned Colorado corporation). ZMS has developed a blood volume monitoring device, which was approved by the U.S. Food and Drug Administration (“FDA”) during 2020 and is awaiting CE Marking approval in Europe. ZMS has achieved no revenues to date. One other subsidiary, Zynex Europe, ApS (“ZEU,” a wholly-owned Denmark corporation), did not generate material revenues during the three or nine months ended September 30, 2021 and 2020 from international sales and marketing.

RESULTS OF OPERATIONS

Summary

Net revenue was $34.8 million and $20.0 million for the three months ended September 30, 2021 and 2020, respectively, and $89.9 million and $54.5 million for the nine months ended September 30, 2021 and 2020, respectively. Net revenue increased 74% and 65% for the three and nine months ended September 30, 2021, respectively. Net income was $6.1 million for the three months ended September 30, 2021 compared with $1.3 million during the same period in 2020. Net income was $8.2 million for the nine months ended September 30, 2021 compared with $7.3 million during the same period in 2020. Cash used in operating activities was $0.6 million during the nine months ended September 30, 2021. Working capital at September 30, 2021 was $59.6 million, an increase of 13% from $52.9 million as of December 31, 2020.

Net Revenue

Net revenues are comprised of device and supplies sales, constrained by estimated third-party payor reimbursement deductions and estimated uncollectible amounts. Product device revenue is primarily comprised of sales and rentals of our electrotherapy products and other complimentary products.

Supplies revenue is primarily comprised of sales of our consumable supplies to patients using our electrotherapy products, consisting primarily of surface electrodes and batteries.

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Revenue related to both devices and supplies is reported net, after adjustments for estimated third-party payor reimbursement deductions and estimated uncollectible amounts. Estimates for third-party payor reimbursement deductions and uncollectible accounts are adjusted on an ongoing basis in conjunction with the processing of third-party payor insurance claims and other customer collection history. Billing allowance adjustments are common in our industry whereby third-party payors unilaterally reduce the amount they reimburse for our products as compared to the sales price charged by us. These deductions from gross revenue take into account the estimated denials, net of resubmitted billings of claims for products placed with patients which may affect collectability. See our Significant Accounting Policies in Note 1 to the Consolidated Financial Statements for a more complete explanation of our revenue recognition policies.

We occasionally receive, and expect to continue to receive, refund requests from insurance providers relating to specific patients and dates of service. Billing and reimbursement disputes are very common in our industry. These requests are sometimes related to a few patients and other times include a significant number of refund claims in a single request. We review and evaluate these requests and determine if any refund is appropriate. We also review claims that have been resubmitted or where we are pursuing additional reimbursement from that insurance provider. We frequently have significant offsets against such refund requests which may result in amounts that are due to us in excess of the amounts of refunds requested by the insurance providers. Therefore, at the time of receipt of such refund requests we are generally unable to determine if a refund request is valid.

Net revenue increased $14.8 million or 74% to $34.8 million for the three months ended September 30, 2021, from $20.0 million for the same period in 2020. Net revenue increased $35.4 million or 65% to $89.9 million for the nine months ended September 30, 2021, from $54.5 million for the same period in 2020. For the three and nine months ended September 30, 2021, the growth in net revenue from the same periods in 2020 is primarily related to a 70% and 134% growth in device orders, respectively, which led to an increased customer base and drove higher sales of consumable supplies.

Device Revenue

Device revenue is related to the sale or lease of our electrotherapy and complimentary products. Device revenue increased $3.8 million or 71% to $9.1 million for the three months ended September 30, 2021, from $5.3 million for the same period in 2020.

Device revenue increased $10.3 million or 79% to $23.3 million for the nine months ended September 30, 2020, from $13.0 million for the same period in 2020.

The increase in device revenue is primarily related to increased orders which are attributable to the growth of our sales force as well as an increase in the amount of revenue provided by each sales representative.

Supplies Revenue

Supplies revenue is related to the sale of supplies, primarily electrodes and batteries, for our electrotherapy products. Supplies revenue increased $11.0 million or 75% to $25.7 million for the three months ended September 30, 2021, from $14.7 million for the same period in 2020.

Supplies revenue increased $25.2 million or 61% to $66.7 million for the nine months ended September 30, 2021, from $41.5 million for the same period in 2020.

The increase in supplies revenue is primarily related to a larger customer base from increased device sales in 2020 and 2021.

Operating Expenses

Cost of Revenue – Device and Supply

Cost of Revenue – device and supply consist primarily of device and supply costs, facilities, operations labor and overhead, shipping and depreciation. Cost of revenue for the three months ended September 30, 2021 increased 59% to $6.8 million from $4.3 million for the same period in 2020. As a percentage of revenue, cost of revenue – device and supply decreased to 20% for the three months ended September 30, 2020 from 21% for the same period in 2020.

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Cost of revenue for the nine months ended September 30, 2021 increased 70% to $20.0 million from $11.8 million for the same period in 2020. As a percentage of revenue, cost of revenue – device and supply remained at 22% for the nine months ended September 30, 2021 compared to the same period in 2020.

The increase in cost of revenue is primarily due to an increase in overhead costs related to our new manufacturing and warehouse facility and freight costs, as well as an increase of 70% and 134% in device orders in the three and nine months ended September 30, 2021, respectively.

Sales and Marketing Expense

Sales and marketing expenses primarily consist of employee related costs, including commissions and other direct costs associated with these personnel including travel expenses and marketing campaign and related expenses.

Sales and marketing expense for the three months ended September 30, 2021 increased 39% to $13.1 million from $9.4 million for the same period in 2020. Sales and marketing expense for the nine months ended September 30, 2021 increased 86% to $40.7 million from $21.8 million for the same period in 2020. The increase in sales and marketing expense is primarily due to the expansion of our sales force and the related costs associated with increased headcount.

As a percentage of revenue, sales and marketing expense decreased to 38% for the three months ended September 30, 2021 from 47% for the same period in 2020 primarily due to decelerating our sales force expansion compared to the same period in 2020 during which we hired over 100 sales representatives. As a percentage of revenue, sales and marketing expense increased to 45% for the nine months ended September 30, 2021 from 40% for the same period in 2020. The increase as a percentage of revenue is primarily due to the related costs associated with increased headcount.

General and Administrative Expense

General and administrative expenses primarily consist of employee-related costs, and other direct costs associated with these personnel including facilities and travel expenses and professional fees, depreciation and amortization. General and administrative expense for the three months ended September 30, 2021 increased 39% to $6.8 million from $4.9 million for the same period in 2020. The increase in general and administrative expense for the three months is primarily due to increased compensation and benefit expense related to headcount growth and increased occupancy expense as a result of our corporate headquarters expansion. As a percentage of revenue, general and administrative expense decreased to 20% for the three months ended September 30, 2021 from 24% for the same period in 2020. The decrease as a percentage of revenue is primarily due to the increase in revenue during the period, partially offset by costs associated with increased headcount from the prior year.

General and administrative expense for the nine months ended September 30, 2021 increased 42% to $18.5 million from $13.0 million for the same period in 2020. The increase in general and administrative expense for the nine months is primarily due to increased compensation and benefit expense related to headcount growth. As a percentage of revenue, general and administrative expense decreased to 21% for the nine months ended September 30, 2021 from 24% for the same period in 2020. The decrease as a percentage of revenue is primarily due to the increase in revenue during the period, partially offset by costs associated with increased headcount from prior year.

Income Taxes

The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. The Company’s effective income tax rate was 24% and 23% for the three and nine months ended September 30, 2021, respectively. Discrete items, primarily related to excess tax benefits related to stock option exercises, of $0.3 million and $0.8 million for the three and nine months ended September 30, 2021, respectively, are recognized as a benefit against income tax expense. For the three and nine months ended September 30, 2021 the Company had an income tax expense of approximately $1.9 million and $2.5 million, respectively. The Company recorded income tax expense of $0.1 million and $0.7 million for the three and nine months ended September 30, 2020.

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LIQUIDITY AND CAPITAL RESOURCES

We have historically financed operations through cash flows from operations, debt and equity transactions. At September 30, 2021, our principal source of liquidity was $35.4 million in cash and $24.2 million in accounts receivable.

Net cash used in operating activities for the nine months ended September 30, 2021 was $0.6 million compared with net cash provided by operating activities of $2.5 million for the nine months ended September 30, 2020. The decrease in cash provided by operating activities for the nine months ended September 30, 2021 was primarily due to an increase in inventory in 2021 as well as an increase in receivables balances. The increase in inventory is related to our order growth plus increased stockpiles in anticipation of possible supply chain shortages related to the COVID-19 virus. The increase in receivables is related to increased revenue and slightly longer collection cycles.

Net cash used in investing activities for the nine months ended September 30, 2021 and 2020 was $0.4 million and $0.8 million, respectively. Cash used in investing activities for the nine months ended September 30, 2021 was primarily related to leasehold improvements at our new manufacturing and warehouse facilities. Cash used in investing activities for the nine months ended September 30, 2020 was primarily related to the purchase of office equipment, IT infrastructure, and leasehold improvements related to our expansion into the second floor at our prior corporate headquarters.

Net cash used in financing activities for the nine months ended September 30, 2021 was $2.8 million compared with net cash provided by financing activities of $25.4 million for the same period in 2020. Net cash used in financing activities for the nine months ended September 30, 2021 was primarily due to purchases of treasury stock. Net cash provided by financing activities for the nine months ended September 30, 2020 was primarily due to proceeds of $25.2 million from our equity offering, which closed on July 17, 2020.

We believe our cash and cash equivalents, together with anticipated cash flow from operations will be sufficient to meet our working capital, and capital expenditure requirements for at least the next twelve months. In making this assessment, we considered the following:

●

Our cash and cash equivalents balance at September 30, 2021 of $35.4 million;

●

Our working capital balance of $59.6 million;

●

Our projected income and cash flows for the next 12 months.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

Please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and Note 2 to the Consolidated Financial Statements located within our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on February 25, 2021.

OFF BALANCE SHEET ARRANGEMENTS

The Company had no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

RISKS AND UNCERTAINTIES

In December 2019, a novel Coronavirus disease (“COVID-19”) was reported and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. While the Company did not incur significant disruptions to its operations during the three and nine months ended September 30, 2021 from COVID-19, it is unable at this time to predict the impact that COVID-19 will have on its

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business, financial position and operating results in future periods due to numerous uncertainties. The Company has been and continues to closely monitor the impact of the pandemic on all aspects of its business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the ordinary course of business, we are exposed to certain market risks, including changes in interest rates. Uncertainties that are either non-financial or non-quantifiable such as political, economic, tax, other regulatory, or credit risks, including healthcare reimbursement practices, are not included in the following assessment of market risks.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer (CEO) and chief financial officer (CFO), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of September 30, 2021, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (SEC), and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control Over Financial Reporting

During the three months ended September 30, 2021, there were no changes that materially affected or are reasonably likely to affect our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any material pending legal proceedings.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 25, 2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Items 2(a) and 2(b) are not applicable.

Issuer Purchases of Equity Securities


	(a)
	Total	(b)		(c)	(d)
	Number of	Average		Total Number of	Approximate Dollar
	Shares	Price Paid		Shares Purchased as Part of	Value (in thousands) of Shares that may
	Purchased	per Share		Publicly Announced Program	yet be Purchased under the Program
March 8 to September 8, 2021	175,179	$	15.22	175,179	$	—

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

N/A

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit Number		Description

31.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1**		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Calculation Linkbase Document

101.LAB *		XBRL Taxonomy Label Linkbase Document

101.PRE *		XBRL Presentation Linkbase Document

101.DEF *		XBRL Taxonomy Extension Definition Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Filed herewith

**Furnished herewith

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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, INC.

	/s/ Daniel J. Moorhead
Dated: November 2, 2021	Daniel J. Moorhead
	Chief Financial Officer
	(Principal Financial and Accounting Officer)