Unaudited Condensed Consolidated Financial Statements and Managements' Plans	3 Months Ended
Mar. 31, 2014
Unaudited Condensed Consolidated Financial Statements and Managements' Plans	(1) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENTS’ PLANS Zynex, Inc. (a Nevada corporation) and its subsidiaries, Zynex Medical, Inc. (ZMI) (a Colorado corporation, wholly-owned), Zynex NeuroDiagnostics, Inc. (ZND) (a Colorado corporation, wholly-owned), Zynex Monitoring Solutions Inc. (ZMS) (a Colorado corporation, wholly-owned), Zynex Billing and Consulting, LLC (ZBC) (a Colorado limited liability company, 80% majority-owned) and Zynex Europe, ApS (ZEU) (a Denmark corporation, wholly-owned), are collectively referred to as the “Company”. The unaudited condensed 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, 2013. Amounts as of December 31, 2013 are derived from those audited consolidated financial statements. These interim condensed 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, 2013, which has previously been filed with the SEC. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2014 and the results of its operations and its cash flows for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2014 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. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. For the three months ended March 31, 2014 and the twelve months ended December 31, 2013, the Company reported negative cash flows from operations of $3 and $382, respectively. In addition, the Company reported a net loss of $1,444 for the three months ended March 31, 2014 and $7,301 for the year ended December 31, 2013, and has no available borrowings as of March 31, 2014 under its line of credit. As a result of the Company losses from operations, negative operating cash flow, and limited liquidity, the Company’s independent registered public accounting firm’s report on the Company’s consolidated financial statements as of and for the year ended December 31, 2013 includes an explanatory paragraph discussing that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. During 2013 and the first quarter of 2014, the Company encountered industry challenges related to health care reform, including the Affordable Care Act and coverage and reimbursement changes from government and Third-party Payors (as defined below), which has caused uncertainty to exist at the medical practitioner level causing a delay and decline in demand for the Company ZMI electrotherapy products. In an effort to minimize the impact of health care reform and changes in reimbursement, during the second and third quarters of 2013, the Company made reductions in the its fixed expenses by cutting the Company’s annual employee costs by approximately $4,200 through headcount reductions. In 2013, the Company also renegotiated its existing building lease, under which, among other things, base rent has been lowered. The Company is monitoring the demand for its ZMI electrotherapy products and will make additional expense adjustments as necessary in future periods. Additionally, the Company recently added new products that are less impacted by insurance reimbursement to its ZMI sales channel and are pursuing other opportunities, including the compound and sale of topical and transdermal pain creams. In ZND, the Company is distributing electroencephalography (EEG) sleep diagnostic products in the US, which are all capital goods that are not subject to insurance reimbursement. The Company is also investing in its ZBC division where increased service based revenue is expected going forward. The Company believes these actions will serve to diversify the Company’s product mix and further reduce its dependency on insurance reimbursement. The Company developed its operating plans for 2014 to emphasize cash flow, under which the Company is focusing on its topical pain cream sales, which the Company believes will yield high margins, streamlining the Company’s electrotherapy products sales process and continuing to implement various cost modifications to reduce the Company’s expenses. Due to the Company’s negative cash flows, there is no guarantee that the Company will be able to meet the requirements of its 2014 budget and limit the use of the Company’s cash. The Company’s line of credit decreased from $5,820 at December 31, 2013 to $5,608 at March 31, 2014, primarily driven by expense reductions made during the latter part of 2013. Maximum borrowings under the line of credit are $7,000, with zero available to borrow as of March 31, 2014 considering the Company’s asset borrowing base. The Company’s long-term business plan contemplates organic growth in revenues, through the addition of new products to the Company’s sales channel that could mitigate the decline in its ZMI electrotherapy products, and through possible acquisitions. Therefore, in order to support growth in revenue, the Company requires, among other things, funds for the purchase of equipment (primarily for rental inventory), funds for the purchase of inventory and the payment of commissions to sales representatives, funds for the expansion of the Company’s compound pharmacy, and creation of other new product lines. There is no assurance that the Company’s operations and available borrowings, if any, will provide enough cash for operating requirements including payment of key Company suppliers or for increases in the Company’s inventory of products, as needed, for growth. In addition, the Company is not currently in compliance with its financial covenants under the line of credit, and may not be in compliance in the future which could limit the Company’s ability to draw on its credit line now or in the future, or lead to a default under the line of credit. A default under the line of credit would generally require the immediate repayment of all outstanding borrowings, which would likely cause the Company to be insolvent. The Company is currently in discussions with the lender and expects to receive a waiver; however, no assurance can be given. If a waiver is not obtained, in addition to demanding immediate payment of amounts outstanding under the line of credit, the lender can restrict or prevent the Company from borrowing while in default, which could have a material adverse impact on the Company’s cash flow and liquidity and could cause the Company to be insolvent or force the Company into bankruptcy. The Company is actively seeking external financing through the issuance of debt or sale of equity, and the Company is not certain whether any such financing would be available to the Company on acceptable terms, or at all. Any additional debt would require the approval of Doral Healthcare Finance, the lender under the Company’s line of credit. The Company’s dependence on operating cash flow means that risks involved in the Company’s business can significantly affect the Company’s liquidity. Contingencies such as unanticipated shortfalls in revenues or increases in expenses could affect the Company projected revenue, cash flows from operations and liquidity which may force the Company to curtail its operating plan or impede the Company’s growth.

(1) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENTS’ PLANS

Zynex, Inc. (a Nevada corporation) and its subsidiaries, Zynex Medical, Inc. (ZMI) (a Colorado corporation, wholly-owned), Zynex NeuroDiagnostics, Inc. (ZND) (a Colorado corporation, wholly-owned), Zynex Monitoring Solutions Inc. (ZMS) (a Colorado corporation, wholly-owned), Zynex Billing and Consulting, LLC (ZBC) (a Colorado limited liability company, 80% majority-owned) and Zynex Europe, ApS (ZEU) (a Denmark corporation, wholly-owned), are collectively referred to as the “Company”.

The unaudited condensed 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, 2013. Amounts as of December 31, 2013 are derived from those audited consolidated financial statements. These interim condensed 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, 2013, which has previously been filed with the SEC.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2014 and the results of its operations and its cash flows for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2014 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.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business.

For the three months ended March 31, 2014 and the twelve months ended December 31, 2013, the Company reported negative cash flows from operations of $3 and $382, respectively. In addition, the Company reported a net loss of $1,444 for the three months ended March 31, 2014 and $7,301 for the year ended December 31, 2013, and has no available borrowings as of March 31, 2014 under its line of credit.

As a result of the Company losses from operations, negative operating cash flow, and limited liquidity, the Company’s independent registered public accounting firm’s report on the Company’s consolidated financial statements as of and for the year ended December 31, 2013 includes an explanatory paragraph discussing that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

During 2013 and the first quarter of 2014, the Company encountered industry challenges related to health care reform, including the Affordable Care Act and coverage and reimbursement changes from government and Third-party Payors (as defined below), which has caused uncertainty to exist at the medical practitioner level causing a delay and decline in demand for the Company ZMI electrotherapy products. In an effort to minimize the impact of health care reform and changes in reimbursement, during the second and third quarters of 2013, the Company made reductions in the its fixed expenses by cutting the Company’s annual employee costs by approximately $4,200 through headcount reductions. In 2013, the Company also renegotiated its existing building lease, under which, among other things, base rent has been lowered. The Company is monitoring the demand for its ZMI electrotherapy products and will make additional expense adjustments as necessary in future periods. Additionally, the Company recently added new products that are less impacted by insurance reimbursement to its ZMI sales channel and are pursuing other opportunities, including the compound and sale of topical and transdermal pain creams. In ZND, the Company is distributing electroencephalography (EEG) sleep diagnostic products in the US, which are all capital goods that are not subject to insurance reimbursement. The Company is also investing in its ZBC division where increased service based revenue is expected going forward. The Company believes these actions will serve to diversify the Company’s product mix and further reduce its dependency on insurance reimbursement. The Company developed its operating plans for 2014 to emphasize cash flow, under which the Company is focusing on its topical pain cream sales, which the Company believes will yield high margins, streamlining the Company’s electrotherapy products sales process and continuing to implement various cost modifications to reduce the Company’s expenses.

Due to the Company’s negative cash flows, there is no guarantee that the Company will be able to meet the requirements of its 2014 budget and limit the use of the Company’s cash. The Company’s line of credit decreased from $5,820 at December 31, 2013 to $5,608 at March 31, 2014, primarily driven by expense reductions made during the latter part of 2013. Maximum borrowings under the line of credit are $7,000, with zero available to borrow as of March 31, 2014 considering the Company’s asset borrowing base. The Company’s long-term business plan contemplates organic growth in revenues, through the addition of new products to the Company’s sales channel that could mitigate the decline in its ZMI electrotherapy products, and through possible acquisitions. Therefore, in order to support growth in revenue, the Company requires, among other things, funds for the purchase of equipment (primarily for rental inventory), funds for the purchase of inventory and the payment of commissions to sales representatives, funds for the expansion of the Company’s compound pharmacy, and creation of other new product lines.

There is no assurance that the Company’s operations and available borrowings, if any, will provide enough cash for operating requirements including payment of key Company suppliers or for increases in the Company’s inventory of products, as needed, for growth. In addition, the Company is not currently in compliance with its financial covenants under the line of credit, and may not be in compliance in the future which could limit the Company’s ability to draw on its credit line now or in the future, or lead to a default under the line of credit. A default under the line of credit would generally require the immediate repayment of all outstanding borrowings, which would likely cause the Company to be insolvent. The Company is currently in discussions with the lender and expects to receive a waiver; however, no assurance can be given. If a waiver is not obtained, in addition to demanding immediate payment of amounts outstanding under the line of credit, the lender can restrict or prevent the Company from borrowing while in default, which could have a material adverse impact on the Company’s cash flow and liquidity and could cause the Company to be insolvent or force the Company into bankruptcy.

The Company is actively seeking external financing through the issuance of debt or sale of equity, and the Company is not certain whether any such financing would be available to the Company on acceptable terms, or at all. Any additional debt would require the approval of Doral Healthcare Finance, the lender under the Company’s line of credit. The Company’s dependence on operating cash flow means that risks involved in the Company’s business can significantly affect the Company’s liquidity. Contingencies such as unanticipated shortfalls in revenues or increases in expenses could affect the Company projected revenue, cash flows from operations and liquidity which may force the Company to curtail its operating plan or impede the Company’s growth.