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ZYNEX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

(unaudited)

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

Organization

Zynex, Inc. (a Nevada corporation) has its headquarters in Englewood, Colorado.  We operate in one primary business segment, medical devices which include Electrotherapyelectrotherapy and Pain Management Products.pain management products. As of September 30, 2019,March 31, 2020, the Company’s only active subsidiary is Zynex Medical, Inc. (“ZMI,” a wholly-owned Colorado corporation) through which the Company conducts most of its operations. One other subsidiary, Zynex Europe, ApS (“ZEU,” a wholly-owned Denmark corporation), did not generate material revenues during the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 from international sales and marketing. Zynex Monitoring Solutions, Inc. (“ZMS,” a wholly-owned Colorado corporation) has developed a blood volume monitoring device but it is awaiting approvalwhich was approved by the U.S. Food and Drug Administration (“FDA”) as well as Certificate European (“CE”)in February 2020 and is awaiting approval by the CE Marking in Europe,Europe; therefore, ZMS has achieved no revenues to date. Its inactive subsidiaries include Zynex NeuroDiagnostics, Inc. (“ZND,” a wholly-owned Colorado corporation), Zynex Billing and Consulting, LLC (“ZBC,” an 80% owned Colorado limited liability company) and Pharmazy, Inc. (“Pharmazy”), which was incorporated in June 2015 as a wholly-owned Colorado corporation. The Company’s compound pharmacy operated as a division of ZMI doing business as Pharmazy through January 2016.

The term “the Company” refers to Zynex, Inc. and its active and inactive subsidiaries.

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 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”). OurAll our medical devices are designed for home use and to be patient friendly.friendly and designed for home use. Our devices are small, portable, battery-operatedbattery operated and include an electrical pulse generator which is connected to the body via electrodes. OurAll 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, which 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,March 31, 2020 and 2019, and 2018, the Company generated substantially all of its revenue (99.99%) in North America 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, 2018.2019. Amounts as of December 31, 2018,2019, 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, 2018,2019, which has previously been filed with the SEC.

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, 2019March 31, 2020 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, 2019March 31, 2020 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.

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.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Non-controlling Interest

Non-controlling interest in the equity of a subsidiary is accounted for and reported as stockholders’ equity. Non-controlling interest represents the 20% ownership in the Company’s majority-owned (but currently inactive) subsidiary, Zynex Billing and Consulting, LLC (“ZBC”).

Reclassifications

During 2019, the Company began reporting costs related to its selling and marketing activities separate from its general and administrative costs. As a result, reclassifications between selling and marketing costs and general and administrative costs have been made to the results of operations for the three and nine month periods ending September 30, 2018 to conform to the consolidated 2019 financial statement presentation. These reclassifications had no effect on net earnings, retained earnings or cash flows as previously reported.

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.

Revenue Recognition, Allowance for Billing Adjustments and CollectabilityLeases

On January 1, 2018The 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 adopteduses the new accounting standard on revenue recognition issued byimplicit rate to determine the Financial Accounting Standards Board (“FASB”). Pursuant to the revenue from contracts with customers standardpresent value of future lease payments. For our operating leases that do not provide an implicit rate, the Company recognizes revenueuses 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 transfers promised goodsis reasonably certain to customers inexercise such options. The Company recognizes leases with an amount that reflectsinitial term of 12 months or less as lease expense over the consideration to whichlease term and those leases are not recorded on our Consolidated Balance Sheets. For additional information on our leases where the Company expects to be entitled, known asis the transaction price.lessee, see Note 8- Leases.

Revenue is generated primarily from sales in the United StatesA significant portion of our electrotherapydevice revenue is derived from patients who obtain our devices and associated supplies. Sales are primarily made with, and shipped, directly to the patient with a small amount of revenue generated from sales to distributors. Device sales can be in the form of a purchase or a lease.under month-to-month lease arrangements. Revenue related to purchased devices are recognized in accordance with ASU No. 2014-09—“Revenue from Contracts with Customers” (ASC 606) and is recognized when the device, which has been prescribed by a doctor, is delivered to the patient which is when control is deemed to have transferred to the customer.

Revenue related to devices out on lease is recognized in accordance with ASC 842, (as defined below). These leases areLeases. Using the guidance in ASC 842, we concluded our transactions should be accounted for as operating leases based on the following criteria below:

Leased units still require a doctor’s prescription andLease commencement occurs upon delivery of the lease inception is dependent upon delivery.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 typically recognized monthly untilfor the customer returnsduration of the unit.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSperiod in which the patient retains the device.

Device sales between purchased, subject to ASC 606,Revenue Recognition and leased, subject to ASC 842, are broken down as following (in thousands):Accounts Receivable

SuppliesRevenue 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 to which 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 the customer. Supplies needed for the device can be set up as a recurring shipment, ordered through the customer support team or our online store as needed.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 patient’spatients’ behalf for purchased or leased devices and supplies.supplies. The terms of the separate arrangement impact certain aspects of the contracts, with patients covered by Third-party Payors (as defined below),third party payers, 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. The Company had deferred revenue of $0.9 million as of December 31, 2018 related to an insurance reimbursement claim that was de-recognized during the nine months ended September 30, 2019. For additional detail, see description below in Note 7. There are no substantial costs incurred through support or warranty obligations.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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):

Primarily all of the Company’s revenues are derived, and the related receivables are due from patients with privatecommercial or government health insurance carriersplans and workers compensation claims (collectively “Third-party Payors”), with a small portion related to private pay individuals, , attorney and auto claims. The transaction price isRevenues are estimated with variable consideration using the most likely amount techniqueportfolio approach by third party payer type based upon historical rates of collection, aging of receivables, trends in historical reimbursement rates by third-party payer types, and current relationships and experience with the third-party payers, which includes estimated constraints for Third-party Payors reimbursement deductions, known throughout the health care industry as “billing adjustments” whereby the Third-party Payors unilaterally reduce the amount they reimburse for the Company’s products,third-party payer refund requests, deductions and for the timing and values of amounts to be billed.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 Payorthird-party payer billing arrangements and the uncertainty of reimbursement amounts for certain products from Third-party Payorsthird-party payers 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 reimbursements, as well as changes in our billing practices to increase cash collections,third-party payer 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 settlements and final determinationsactual collectability are reflected as an increase or a reduction to revenue in the period when such final determinations are known.in which received. Historically these differences have been immaterial and the Company has not had to go back and reassess the adjustments inof future periods for past billing adjustments.

The basis of estimates includes historical rates of collection, the aging of the receivables, trends in the historical reimbursement rates by Third-party Payors, determined using the portfolio approach, and current relationships and experience with the Third-party Payors. A change in the way estimates are determined can result from a number of factors, including experience and training of billing personnel, changes in the reimbursement policies or practices of Third-party Payors,third-party payers, or changes in industry rates of reimbursement. The Company monitors the variability and uncertain timing over Third-party Payor groupsthird-party payer types in our portfolios. If there is a change in our Third-party Payorthird-party payer 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 Payors.third-party payer type. However, changes to the allowanceconstraints for billing adjustments which are recorded as a reduction of transaction price, have historically fluctuated and may continue to fluctuate significantly from quarter to quarter and year to year.

Billing and reimbursement disputes are very common in the Company’s industry. The Company frequently receives refund requests from Third-party Payors relating to specific patients and dates of service. These requests are sometimes related to a limited number of patients or products; at other times, they include a significant number of refund claims in a single request. The Company reviews and evaluates these requests and determines if any refund request is appropriate. The Company also reviews these refund claims when it is rebilling or pursuing reimbursement from Third-party Payors. The Company frequently has significant offsets against such refund requests, and sometimes amounts are due to the Company in excess of the amounts of refunds requested by the Third-party Payors. Therefore, at the time of receipt of such refund requests, the Company is generally unable to determine if a refund request is valid and should be accrued. Such refunds are recorded when the amount is fixed and determinable. However, management maintains an allowance for estimated future refunds which we believe is sufficient to cover future claims in connection with its estimates of variable consideration recorded at the time sales are recorded.

As of September 30, 2019, the Company believes its accounts receivable is reasonably stated at its net collectible value and has an adequate allowance for billing adjustments relating to all known Third-party Payor disputes, adjustments and refund requests.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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,included our operating and finance lease obligations, 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.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Inventory

Inventory, which primarily represents devices, parts and supplies,Inventories are valuedstated at the lower of cost (average) orand 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):

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 reserves or write-downs may be required.

Inventories, net of reserve, at September 30, 2019 were $2.1 million which was comprised of finished goods, work in progress, and parts and supplies as compared to December 31, 2018 of $0.8 million.

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 FinancialOperating Officer as our chief operating decision-makers (“CODM”).

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

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 useThe Company is subject to the provisions of the Financial Accounting Standards Board (“FASB”) ASC 740-10, Income Taxes, which requires that the effect on deferred tax assets and liabilities of a recognition threshold and a measurement attribute for the financial statement recognition and measurement ofchange in tax positions taken or expected to be taken in a tax return. For those benefits torates be recognized a tax position must be more likely than not to be sustained upon examination by taxing authorities. On December 22, 2017,in the U.S. government enacted comprehensive tax legislation (the “Tax Act”), which significantly revisesperiod the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35% to 21%, implementing a territorial tax system, imposing a one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs, among other things.change was enacted.

Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-based Payments. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The effective date for the standard is for interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. The Company determined that adoption did not have a material impact on its consolidated financial statements.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In February 2018, the FASB issued ASU 2018-02,Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”),which allows companies to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act (the Tax Act), from accumulated other comprehensive income to retained earnings. The new standard is effective for us beginning January 1, 2019, with early adoption permitted. The Company determined that the adoption did not have a material impact on its consolidated financial statements.

The Company adopted ASU 2016-02,Leases (Topic 842),as of January 1, 2019, with an effective date of January 1, 2018, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standards, which among other things, allowed us to carry forward the historical lease classification. We also elected the hindsight practical expedient to determine the lease term for existing leases. Our election of the hindsight practical expedient resulted in the lengthening of the lease term related to one of our financing leases.

Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $3.6 million and $3.9 million, respectively, as of January 1, 2018. The Company also recorded an adjustment to the opening balance of retained earnings of $6,000 on January 1, 2018. The difference between the additional lease assets and lease liabilities, net of our previously recorded deferred rent liability, was recorded as an adjustment to retained earnings. The standard did not have a material impact on our consolidated statement of operations and had no impact on our statement of cash flows. See Note 8, below, for further discussion regarding the Company’s operating and financing leases.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Effect of ASC 842 Adoption on the Company’s Consolidated Balance Sheets (in thousands, except share amounts)

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. ASU 2017-12 is effective for us in the first quarter of fiscal 2020, and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2017-12 on our consolidated financial statements.

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, 2019,2022, and interim periods therein.therein for smaller reporting companies. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. We areThe 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.

In December 2019, FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The amendments simplify the accounting for income taxes by removing certain exceptions to the general principals of Topic 740, “Income Taxes” and also improve consistent application by clarifying and amending existing guidance. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, with the amendments to be applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment. The Company is currently evaluating the impact of adopting this guidance.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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):

The Company monitors devices out on lease for potential loss and places an estimated reserve on the net book value based on historical loss rates.

Total depreciation expense related to our property and equipment was $0.1 million for botheach of the three months ended September 30, 2019March 31, 2020 and 2018. Depreciation expense for the nine-month periods ended September 30, 2019 and 2018 was $0.2 million and $0.1 million, respectively.2019.

Total depreciation expense related to devices out on lease was $0.1 million for both the three months ended September 30, 2019 and 2018. Depreciation expense related to devices out on lease was $0.4$0.2 million and $0.1 million for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. Depreciation on leased units is reflected on the income statement as cost of revenue.

(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.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The calculation of basic and diluted earnings per share for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 are as follows (in thousands, except per share data):

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For both the three and nine months ended September 30,March 31, 2020 and 2019, options to purchase0.3 million and 0.4 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, 2018, options to purchase 0.3 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 5,000,000 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 vesting and are not included in outstanding shares until such vesting and issuance occurs.  

During the three and nine months ended September 30, 2019, 0.2 million and 0.6 millionMarch 31, 2020, 14,000 stock option awards were granted under the 2017 Stock Plan, respectively.Plan. During the three and nine months ended September 30, 2018, 0.1March 31, 2019, 0.3 million stock option awards were granted under the 2017 Stock Plan. At September 30, 2019, there were 2.1 million stock option awards issued and 1.2 million stock option awards exercisable under all plans. As of September 30, 2019, 3.7March 31, 2020, the company had 1.3 million stock options remain reserved for issuanceoutstanding and 0.7 million exercisable under the 2017 Stock Plan.following plans:

During the three and nine months ended September 30, 2019, 35,000 and 45,000March 31, 2020, 165,000 shares of restricted stock were granted to the Board of Directors and management under the 2017 Stock Plan, respectively.Plan. During the three months ended March 31, 2019, 5,000 shares of restricted stock were granted. 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 ofon the Restricted Stock Awardsis typically occurreleased quarterly over three years for the Board of Directors and annually or quarterly over four years for management.

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

During the three and nine months ended September 30, 2019,March 31, 2020, there were 14,000 options granted at a weighted average exercise price of $10.15 per share. The weighted-average grant date fair value of options granted during the three months ended March 31, 2020 was $8.88. The Company recorded compensation expense related to stock options andissued 165,000 shares of restricted stock of approximately $0.3 million and $0.6 million, respectively. to management during the three months ended March 31, 2020.

During the three and nine months ended September 30, 2018,March 31, 2019, there were 0.3 million options granted at a weighted average exercise price of $4.37 per share. The weighted-average grant date fair value of options granted during the Company recorded compensation expense of approximately $0.1 million and $0.2 million, respectively.three months ended March 31, 2019 was $3.86. The Company includes stock-based compensation expense in its in general and administrative expense onissued 5,000 shares of restricted stock to management during the accompanying consolidated statements of operations.three months ended March 31, 2019.

The Company received proceeds of approximately $34,000 and $0.2 million related to option exercises during three and nine months ended September 30, 2019, respectively. The Company received proceeds of approximately $21,000 and $0.2 million$8,000 related to option exercises during the three and nine months ended September 30, 2018,March 31, 2020 and 2019, respectively.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company used the Black ScholesBlack-Scholes option pricing model to determine the fair value of stock option grants, using the following assumptions for the three and nine months ended September 30, 2019March 31, 2020 and 2018.March 31, 2019.

A summary of stock option activity under all equity compensation plans for the ninethree months ended September 30, 2019,March 31, 2020, is presented below:

A summary of restricted stock award activity under all equity compensation plans for the ninethree months ended September 30,March 31, 2019, is presented below:

As of September 30, 2019,March 31, 2020, the Company had approximately $3.6$3.8 million of unrecognized compensation expense related to stock options and restricted stock awards that will be recognized over a weighted average period of approximately 3.02.5 years.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(5)STOCKHOLDERS’ EQUITY

Common Stock Dividend

Our Board of Directors declared a cash dividend of $0.07 per share on November 6, 2018. The dividend of $2.3 million was paid on January 18, 2019 to stockholders of record as of January 2, 2019.

Treasury Stock

From December 6, 2017 through March 6,On May 14, 2018, we had the ability through our stock purchaseBoard of Directors approved a new program to re-purchasebuy back an additional $2.0 million of our common stock at prevailing market prices either in the open market or through privately negotiated transactions up to $2.0 million. On March 6, 2018, we reached the limit of $2.0 million and share re-purchases were ceased. From the inception of the plan through March 6, 2018, we purchased 495,091 shares of our common stock for $2.0 million or an average price of $4.04 per share.

From May 14, 2018 through May 13, 2019, we had the ability through our stock purchase program to re-purchase our common stock at prevailing market rates either in the open market or through privately negotiated transactions up to $2.0 million.2019. For the ninethree months ending September 30,March 31, 2019, the Company purchased 52,000 shares of our common stock for $0.2 million for an average price of $3.29 per share, related to the new program. From May 14, 2018 through May 13,March 31, 2019, the Company purchased 576,129 shares of our common stock for $1.8 million or an average price $3.20 per share.

ZYNEX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Warrants

During the nine months ended September 30, 2019, 50,000 warrants were exercised. TheseIn October 2017, 150,000 common stock warrants were issued during October 2017 as paymentin exchange for professional services. The exercise was done pursuant

In connection with the agreement entered into on March 28, 2016, with Triumph Bank, we issued a common stock warrant to a net exercise provision and, as a result, 9,634purchase 50,000 shares of common stock were withheld to facilitate the payment of the exercise price which resulted in the issuance of 40,366 shares ofCompany’s common stock.

A summary of stock warrant activity for the ninethree months ended September 30, 2019March 31, 2020 is presented below (in thousands):below: