Zynex - Chapter 11 Case Summary

Business Description

Headquartered in Englewood, CO, Zynex, Inc., along with its Debtor affiliates (collectively, the "Debtors”, "Zynex", or the "Company"), is a leading manufacturer, marketer, and distributor of medical devices designed for pain management and physical rehabilitation. Founded in 1996, the Company focuses on providing non-pharmacological alternatives to traditional pain management through electrotherapy.

• The Company employs approximately 400 full-time staff dedicated to the design, manufacture, and sale of its products, as well as patient support and billing operations.
• Zynex primarily serves the U.S. market, where its medical devices are subject to FDA regulation and require a prescription for dispensing.

The Company’s core product offerings utilize electrical stimulation modalities—including interferential current (IFC), neuromuscular electrical stimulation (NMES), and transcutaneous electrical nerve stimulation (TENS)—to manage acute and chronic pain. Zynex is positioned to address the growing demand for non-opioid pain management solutions in the underserved electrotherapy market.

In addition to its proprietary electrotherapy devices, Zynex distributes private-label rehabilitation products, including back, knee, and wrist braces, cervical and lumbar traction devices, and hot/cold therapy supplies, which complement its primary pain management portfolio.

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Corporate History

Zynex was established in 1996 by Thomas Sandgaard through the founding of two privately held companies that were eventually consolidated under Zynex, Inc., a Nevada corporation. Zynex, Inc. serves as the publicly traded parent company for its operating subsidiaries.

Subsidiary Structure and Expansion

• Zynex Medical, Inc. (ZMI): The Company’s primary operating subsidiary, ZMI generates substantially all of Zynex’s revenue through the design and marketing of home-use electrotherapy devices.
• Zynex Monitoring Solutions, Inc. (ZMS): Formed in 2011, ZMS was established to develop non-invasive patient monitoring devices.
  • In December 2021, ZMS acquired Kestrel Labs Inc., securing multiple patents and two pulse-oximeter products under development.

Strategic Shift and Restructuring

While ZMS successfully secured FDA 510(k) clearance for certain fluid monitoring devices (CM-1500 and CM-1600) and submitted an application for its NiCO™ CO-Oximeter in May 2025, the division did not achieve commercial-scale production or sales.

• In October 2025, Zynex announced a strategic shift to streamline offerings and reduce costs. The Company discontinued independent commercialization efforts for its monitoring devices, opting instead to seek a commercialization partner for the NiCO™ product.
• As a result of this pivot, Zynex downsized the staff associated with the NiCO™ project and currently has no remaining employees or active operations within its monitoring division.

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Operations Overview

Zynex’s operations are driven primarily by its electrotherapy division, which produces portable, battery-operated medical devices. These devices generate electrical pulses delivered to the body via electrodes to treat pain and assist in muscle rehabilitation.

Electrotherapy Portfolio

• NexWave: The Company’s flagship device is a multi-modality system combining IFC, TENS, and NMES. It is designed to provide symptomatic relief for chronic or post-surgical pain, prevent muscle disuse atrophy, and increase local blood circulation.
• M-Wave: Cleared by the FDA in February 2024, this device focuses on neuromuscular electrical stimulation (NMES) for muscle re-education. It features adjustable treatment timers and compliance meters, and is marketed to physicians and therapists.
• TENSWave: A device similar to the NexWave but limited exclusively to TENS functionality for pain relief.

Recurring Revenue Model

A critical component of Zynex’s business model is the sale of consumable supplies required for the ongoing operation of its devices. These supplies include electrodes, batteries, lead wires, and conductive garments.

• The sale of these consumables generates significant recurring revenue, representing over 50% of the Company’s gross revenue in both fiscal years 2023 and 2024.

Monitoring Device Development (Discontinued Operations)

Prior to its strategic shift in late 2025, the Company’s ZMS division focused on laser-based, non-invasive monitoring technologies designed to address inaccuracies in traditional pulse oximetry, such as skin pigmentation bias.

• Fluid Monitoring: The Zynex Fluid Monitoring System was designed to detect fluid loss and internal bleeding in surgical and recovery settings.
• Pulse Oximetry: The division developed the NiCO™ CO-Oximeter and HemeOx™, a total hemoglobin oximeter. Despite receiving clearances and submitting further FDA applications in 2025, these products are now subject to the Company’s search for a third-party commercialization partner.

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Prepetition Obligations

As of the Petition Date, the Debtors’ capital structure consists of approximately $60 million in aggregate principal of funded debt. The Company’s prepetition obligations are summarized below:

Convertible Notes

• The Debtors’ sole funded debt obligation is $60 million in aggregate principal outstanding under 5.00% Convertible Senior Notes due 2026, issued by Zynex, Inc. pursuant to a May 9, 2023 indenture with U.S. Bank Trust Company, National Association, as trustee.
  • The notes mature on May 15, 2026. The Company triggered an event of default by skipping the interest payment due November 15, 2025, and entering the subsequent 30-day grace period.

Receivables Factoring Agreement

• While the Debtors have no other on-balance sheet funded debt, Debtor ZMI is party to a receivables factoring agreement under which it periodically sells certain medical receivables to Lienstar, LLC.

Unsecured and Contingent Claims

• The Debtors estimate they have approximately $6.7 million in trade claims and have sought authority to pay certain critical vendors.
• Additionally, the Company is subject to numerous litigations and government investigations that may give rise to significant contingent unsecured claims, including:
  • Government Investigations: The Debtors are in negotiations with the DOJ, HHS, DHA, California Department of Insurance, and the Colorado Attorney General to resolve potential claims related to alleged fraudulent over-billing and consumer protection practices.
  • SEC Investigation: The Company is in discussions with the SEC following a voluntary request for documents received in June 2025 as part of an investigation into potential violations of federal securities laws.
  • Allstate Litigation: Allstate Insurance Company filed a suit in September 2025 alleging violations of RICO, fraud, and unjust enrichment.
  • Shareholder Litigation: The Company is a defendant in a securities class action (Tuncel v. Zynex, Inc.) and a shareholder derivative lawsuit (Ayers v. Sandgaard), both of which allege wrongdoing in connection with the Company's Tricare revenue suspension.

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Events Leading to Bankruptcy

Regulatory Crisis and Liquidity Strain

• The Company’s path to Chapter 11 was precipitated by a severe regulatory crisis that began in the first quarter of 2025 when Tricare, a government-sponsored insurance network, suspended all payments and reimbursements to Zynex. The suspension was triggered by a Defense Health Agency (DHA) investigation into the Company’s historical billing practices, including allegations of misrepresenting claims and diagnoses.
• The financial impact of the Tricare suspension was immediate and severe, as the network historically accounted for 20-25% of the Company’s annual revenue, contributing approximately $48.8 million in 2024 alone. The situation created an untenable cash drain, as Zynex was required to continue fulfilling orders for Tricare patients without receiving any corresponding payments.
• This regulatory issue spurred additional lawsuits and investigations, creating a litigation overhang that crushed the Company with significant legal defense costs and made out-of-court financing unattainable. The confluence of these pressures led to a dramatic liquidity decline, with the Company’s cash balance plummeting from over $39 million at the start of the year to approximately $2.3 million, forcing it to miss a November 15, 2025, coupon payment on its Convertible Notes.

Operational Restructuring and Governance Changes

• In response to the mounting financial pressure, the Company implemented aggressive cost-cutting measures, including significant layoffs of its sales force and other critical support staff. These actions, intended to conserve liquidity, negatively impacted performance by disrupting institutional relationships and operational processes, causing a further erosion of sales and profitability. Consequently, the Company projects a negative EBITDA for FY 2025, a stark reversal from its $10.7 million EBITDA in FY 2024.
• To navigate the crisis, Zynex overhauled its leadership, appointing Steven Dyson, a specialist in healthcare turnarounds, as Chief Executive Officer in the second quarter of 2025. The new management team, along with a newly established Special Committee of the board, was tasked with evaluating restructuring strategies and hired advisors, including Province, LLC, Simpson Thacher & Bartlett LLP, and Reed Smith LLP, in October 2025 to explore strategic alternatives.

Negotiations with Noteholders and DIP Financing Agreement

• In August 2025, an ad hoc group of noteholders (the “Ad Hoc Group”), holding approximately 80% of the Company’s 5% Senior Convertible Notes, was formed to engage in restructuring discussions. While the Company initially sought an out-of-court bridge loan, the Ad Hoc Group and other potential financiers were unwilling to provide capital without the protections of a Chapter 11 proceeding due to the Company’s challenging litigation and regulatory profile.
• Negotiations for a debtor-in-possession (“DIP”) financing facility with the Ad Hoc Group proved contentious and nearly collapsed over the December 13th weekend when the group “paused” its final commitment. Recognizing that the only alternative was an immediate liquidation, CEO Steven Dyson intervened to salvage the deal by personally committing $2 million to the facility.
• Mr. Dyson’s commitment bridged the funding gap and provided the necessary assurance for the Ad Hoc Group to finalize the total $22.3 million DIP Financing. Safeguards were implemented to manage potential conflicts, including granting all decision-making authority to the Special Committee and recusing Mr. Dyson from any Board decisions that could impact the DIP loan.

Path Forward Through a Pre-Negotiated Chapter 11 Plan

• With financing secured, the Company and the Ad Hoc Group executed a Restructuring Support Agreement (RSA) to guide the Chapter 11 process. The strategy centers on a swift and value-maximizing sale of the business, with the Ad Hoc Group serving as the stalking horse bidder via a credit bid of its DIP claims.
• The Chapter 11 filing is designed to stabilize the business, facilitate a competitive sale process, and provide a centralized forum to settle outstanding regulatory claims with the Department of Justice and the Securities and Exchange Commission. The Company anticipates an expedited case timeline, targeting an exit from Chapter 11 within 105 days of the petition date.

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