10QSB/A 1 zynex10qsba1qtr1_12182006.htm AMENDMENT #1 TO FORM10QSB FOR QUARTER ENDED 3/31/2006

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

Commission File Number: 33-26787-D

Zynex Medical Holdings, Inc.

(Exact name of small business issuer as specified in its charter)

Nevada	33-26787-D	90-0214497
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

8100 Southpark Way, Suite A-9

Littleton, Colorado 80120

Address of Principal Executive Offices Zip Code

(303) 703-4906

Registrant's Telephone Number,

Including Area Code

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

As of April 28, 2006 23,243,923 shares of common stock were outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

As reported in our amended Annual Report on Form 10-KSB/A for the year ended December 31, 2005 and filed with the Securities and Exchange Commission on December 18, 2006 we have restated our consolidated financial statements for the year ended December 31, 2005. The restatement reflects adjustments concerning primarily inventory valuation in terms of the cost and quantity of inventory items. The adjustments result from a detailed inventory analysis made in connection with the preparation of the financial statements of the Company for the quarter ended September 30, 2006. As part of that filing we also indicated that we would amend our previously filed quarterly reports for the quarters ended March 31, 2006 and June 30, 2006. This Amendment on Form 10-QSB/A to our Quarterly Report on Form 10-QSB for the quarter ended March 31, 2006, filed originally with the SEC May 16, 2006, is being filed for the purpose of restating our condensed consolidated financial statements and related financial information and disclosures for the quarter ended March 31, 2006. This Form 10-QSB/A also includes related changes to Part I, Item 2 concerning Management’s Discussion and Analysis or Plan of Operations.

A material weakness in our disclosure controls and procedures of March 31, 2006 has been identified and reported to our Board of Directors. Please see Part I, Item 3 below for a description of these matters and of certain remedial measures we have implemented to date.

This Amendment does not reflect events occurring after the filing of the original Quarterly Report on Form 10-QSB on May 16, 2006, or modify or update the disclosures presented in the original Quarterly Report on Form 10-QSB, except to reflect the revisions as described above.

ZYNEX MEDICAL HOLDINGS, INC.

FORM 10-QSB

INDEX

		Page Number
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheet (unaudited) - March 31, 2006 - restated	3
	Condensed Consolidated Statements of Operations (unaudited) -
	Quarters Ended March 31, 2006 and 2005 - restated	4
	Condensed Consolidated Statements of Cash Flows (unaudited) -
	Three Months Ended March 31, 2006 and 2005 - restated	5
	Condensed Consolidated Statement of Stockholders'	6
	Equity (unaudited) - Three Months Ended March 31, 2006 - restated
	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management's Discussion and Analysis or Plan of Operations	15

Item 3.	Controls and Procedures	17

PART II: OTHER INFORMATION

Item 1.	Legal Proceedings	18
Item 2.	Unregistered Sales of Equity Securities and Use of
	Proceeds	18
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders	18
Item 5.	Other Information	18
Item 6.	Exhibits	18

SIGNATURES		19

Item 1. Financial Statements

Zynex Medical Holdings, Inc.

Condensed Consolidated Balance Sheet

March 31, 2006

(unaudited)

(As restated, Note 6)

Current Assets:
Cash and cash equivalents	$	143,609
Receivables, less allowance for uncollectible
accounts of $828,959		814,267
Inventory		522,880
Deferred consulting fees and other		18,416
Prepaid expenses		22,463
Other current assets		1,068

Total current assets		1,522,703

Property and equipment, less accumulated
depreciation of $185,060		255,097
Deposits		10,940

Total assets	$	1,788,740

Current liabilities:
Notes payable	$	214,240
Capital lease		14,691
Loans from stockholder		65,290
Accounts payable		239,867
Accrued payroll and payroll taxes		47,824
Other accrued liabilities		91,671
Total current liabilities		673,583

Long term liabilities:
Notes payable, less current maturities		415,905
Loans from stockholder		26,864
Capital lease, less current maturities		41,092
Total liabilities		1,157,444

Stockholders' Equity:
Preferred stock, $0.001 par value,
10,000,000 shares authorized, no shares
issued and outstanding		--

Common stock, $0.001 par value,
100,000,000 shares authorized,
23,232,018 shares
issued and outstanding		23,232

Additional paid-in capital		1,484,845

Accumulated deficit		(876,781	)

Total stockholders' equity		631,296

	$	1,788,740

See accompanying notes to financial statements.

Zynex Medical Holdings, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

	Quarter Ended March 31,
	2006			2005
	(As restated,			(As restated,
	Note 6)			Note 6)


Net sales and rental income	$	505,091		$	544,943
Cost of sales and rentals		16,393			16,976

Gross profit		488,698			527,967

Operating expenses:

Selling, general and administrative		477,618			389,007

Depreciation		20,197			16,027

Total operating expenses		497,815			405,034

Income (loss) from operations		(9,117	)		122,933

Interest and other income (expense)		(13,318	)		(3,684	)

Net income (loss)	$	(22,435	)	$	119,249

Net income (loss) per common and common
equivalent share

Basic	$	--		$	0.01

Diluted	$	--		$	0.01

Weighted average number of shares outstanding
Basic		23,208,748			23,070,377

Diluted		23,208,748			23,136,558

See accompanying notes to financial statements.

Zynex Medical Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Quarter Ended March 31,
	2006			2005
	(As restated,			(As restated
	Note 6)			Note 6)

Net income (loss)	$	(22,435	)	$	119,249
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operations:
Depreciation		20,197			16,027
Issuance of stock for consulting services		15,000			--
Amortization of deferred consulting fees and other		13,873			--
Employee stock option expense		4,854			--
Changes in operating assets and liabilities:
Accounts receivable		(119,375	)		(149,956	)
Inventory		(33,649	)		(103,079	)
Refundable income taxes		7,586			3,847
Other current assets		364			(1,359	)
Prepaid assets		(9,339	)		--
Deposits		--			3,532
Accounts payable		(42,178	)		120,322
Accrued liabilities		17,360			21,515
Net cash (used in) provided by operating activities		(147,742	)		30,098


Cash flows from investing activities:
Purchase of equipment		(5,516	)		(42,800	)
Net cash (used in) investing activities		(5,516	)		(42,800	)

Cash flows from financing activities:
Payments on notes payable and capital lease		(39,040	)		(28,568	)
Proceeds from loan payable		240,000
Proceeds from loans from stockholder		107,000			12,000
Repayment of loans from stockholder		(29,826	)		--
Bank overdraft		--			26,192


Net cash provided by financing activities		278,134			9,624


Increase (decrease) in cash and cash equivalents		124,876			(3,078	)

Cash and cash equivalents at beginning of period		18,733			3,078
Cash and cash equivalents at end of period	$	143,609		$	--
Supplemental cash flow information:
Interest paid	$	14,055		$	5,144

See accompanying notes to financial statements.

Zynex Medical Holdings, Inc.

Condensed Consolidated Statement of Stockholders' Equity

Quarter Ended March 31, 2006

(unaudited)



					Additional
	Number				Paid in		Accumulated
	of Shares		Amount		Capital		Deficit			Total
December 31, 2005, as		23,199,421	$	23,199	$	1,465,024	$	(1,047,454	)	$	440,769
originally reported

Prior period adjustment (Note 6)								193,108			193,108

Balances at December 31, 2005,
as restated		23,199,421		23,199		1,465,024		(854,346	)		633,877

Issuance of common stock for
consulting services		32,597		33		14,967		--			15,000

Employee stock
option expense		--		--		4,854		--			4,854

Net income (As restated, Note 6)		--		--		--		(22,435	)		(22,435	)

March 31, 2006 (As restated, Note 6)		23,232,018	$	23,232	$	1,484,845	$	(876,781	)	$	631,296

See accompanying notes to financial statements

ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of Business

Zynex Medical Holdings, Inc. ("Zynex" or the "Company") engineers, manufactures, markets and sells its own design of FDA cleared (1) standard electrotherapy medical devices for pain relief / pain management, and (2) the NeuroMove(TM) medical device for stroke and spinal cord injury ("SCI") rehabilitation.

2. Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles for interim financial information. In the opinion of management, these condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the financial position of the Company as of March 31, 2006 and the results of its operations for the quarters ended March 31, 2006 and 2005, and its cash flows for the quarters ended March 31, 2006 and 2005.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Furthermore, these financial statements should be read in conjunction with Zynex Medical Holdings, Inc.'s audited financial statements at December 31, 2005 (as restated ) included in the Company's Form 10-KSB/A filed December 20, 2006.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.

Certain reclassifications have been made to conform previously reported data to the current presentation. These reclassifications have no effect on net income (loss), financial position or cash flows as previously reported. During the quarter ended March 31, 2006 the Company changed its classification of freight out costs from cost of sales and rentals to selling, general and administrative expenses as management considers these costs to be part of its marketing program and thus they believe it is preferable to classify these costs as a component of selling, general and administrative expenses. Freight costs included in selling, general and administrative expenses during the three months ended March 31, 2006 and 2005 amounted to $8,942 and 6,967, respectively.

ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS 123R supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees" and amends SFAS No. 95, "Statement of Cash Flows". SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions and requires all share-based payments to employees, including grants of employee stock options, to be recognized as additional compensation expense in the financial statements based on the calculated fair value of the awards. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. We adopted this statement effective for our fiscal year beginning January 1, 2006. We have described the impact of adopting SFAS 123R in our condensed consolidated financial statements below.

Stock Based Compensation

The Company has a 2005 Stock Option Plan (the "Option Plan") and has reserved 3,000,000 shares of common stock for issuance under the Option Plan. Vesting provisions are determined by the Board of Directors. All stock options expire no later than ten (10) years from the date of grant.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), using the modified prospective method. SFAS 123R requires the recognition of the cost of employee services received in exchange for an award of equity

instruments in the financial statements and is measured based on the grant date fair value of the award. SFAS 123R also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period). Prior to our adopting SFAS 123R, we accounted for our stock-based compensation plans under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, generally no compensation expense is recorded when the terms of the award are fixed and the exercise price of the employee stock option equals or exceeds the fair value of the underlying stock on the date of grant. We adopted the disclosure-only provision of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").

In the first quarter of 2006, the Company recorded compensation expense related to stock options that increased the loss from operations by $4,854 and its net loss by $4,854. The stock option compensation expense was included in selling, general and administrative expenses in the accompanying condensed consolidated

statement of operations.

There were no options granted during the three months ended March 31, 2006. The fair value of stock options at the date of grant during the three months ended March 31, 2005 was $0.207. The Company used the following assumptions to determine the fair value of stock option grants during the three months ended March 31, 2005:

ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Expected life	2 years
Volatility	139%
Risk-free interest rate	4.95%
Dividend yield	0

The expected life of stock options represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends. The expected volatility is based on the historical price volatility of our common stock. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options. The dividend yield represents our anticipated cash dividend over the expected life of the stock options.

A summary of stock option activity for the three months ended March 31, 2006 is presented below:

			Weighed
		Weighted	Average
	Shares	Average	Remaining
	Under	Exercise	Contractual
	Option	Price	Life

Outstanding at January 1, 2006	520,670	$ 0.28	9 years
Granted	--	--	--
Exercised	--	--
Forfeited	(12,000)	0.40	9 years


Outstanding at March 31, 2006	508,670	$ 0.27	9 years

Exercisable at March 31, 2006	222,000	$ 0.23	9 years

The total fair value of stock options that vested during the three months ended March 31, 2006 and 2005 was $32,354 and $0.00, respectively. The average grant date fair value of options issued during the three months ended March 31, 2005 was $19,458. A summary of the status of the Company's nonvested shares as of

March 31, 2006, and changes during the period ended March 31, 2006 is presented below.

	Nonvested	Weighted
	Shares	Average
	Under	Grant Date
Nonvested Shares	Option	Fair Value

Nonvested at January 1, 2006	345,670	$ 0.26
Granted	--	--
Vested	(47,000)	0.17
Forfeited	(12,000)	0.26


Nonvested at March 31, 2006	286,670	$ 0.26

ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As of March 31, 2006, we had $34,365 of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of approximately 3.5 years.

Prior to January 1, 2006, we accounted for stock-based compensation plans under APB 25. We adopted the disclosure-only provision of SFAS 123. Had compensation expense for stock option grants been determined based on the fair value at the grant dates consistent with the method prescribed by SFAS 123, our net income and net income per share would have been adjusted to the pro forma amounts for the three months ended March 31, 2005, as indicated below:

	Three Months
	Ended
	March 31, 2005
	(As restated,
	Note 6)
Net income as reported	$	119,249

Deduct: Total stock-based
employee compensation
expense determined
under fair value based
method for all awards		1,216


Pro forma net income	$	118,033


Income per share:

Basic - as reported	$	0.01

Diluted - as reported	$	0.01


Basic - pro forma	$	0.01

Diluted - pro forma	$	0.01

ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Recent Events:

As reported in the December 31, 2005 Form 10-KSB, the Company executed a $400,000 term loan agreement with Silicon Valley Bank, Santa Clara, CA and Boulder, CO on September 29, 2005 and a Default Waiver and First Amendment for an additional $240,000 term loan with Silicon Valley Bank on March 6, 2006 (Note 4). The Company believes these loans, coupled with cash from operations and, if needed, additional loans from Mr. Thomas Sandgaard, Chairman, Chief Executive Officer and majority shareholder, will provide the funds necessary to continue its operations as a going concern.

3. Earnings Per Share

The Company computes net earnings (loss) per share in accordance with SFAS No. 128, "Earnings per Share", which establishes standards for computing and presenting net earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding and the number of dilutive potential common share equivalents during the period. For the three months ended March 31, 2006, the basic and diluted loss per share is the same, as the impact of potential dilutive common shares is anti-dilutive.

ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The calculation of basic and diluted earnings per share for the three months ended March 31, 2005 is as follows:

BASIC
	Three Months Ended
	March 31, 2005
	(As restated,
	Note 6)
Net income applicable to
common stockholders	$	119,249


Weighted average shares outstanding - basic		23,070,377


Net income per share - basic	$	0.01


DILUTED

Net income applicable to common
stockholders	$	119,249


Weighted average shares outstanding - basic		23,070,377


Dilutive securities		66,181


Weighted average shares outstanding - diluted		23,136,558


Net income per share - diluted	$	0.01

ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

4. Borrowings

Notes Payable:

On March 15, 2006 Zynex received a loan in the amount of $240,000 under a Default Waiver and First Amendment to Loan and Security Agreement with Silicon Valley Bank dated September 29, 2005. The new loan bears interest at a per annum fixed rate of 8.48%. Zynex will repay the loan in 36 equal monthly payments of principal and interest, beginning April 1, 2006. All other terms and conditions are as stated in the September 29, 2006 loan agreement. The new loan is also guaranteed by Zynex Chairman, President, Chief Executive Officer and major shareholder Thomas Sandgaard and is collateralized by a first security interest in accounts, inventory, chattel paper, equipment, fixtures, general intangibles, including intellectual property and other assets.

Loans from stockholder:

Effective March 1, 2006, a previously non interest bearing loan by Thomas Sandgaard in the amount of $14,980 was converted to a 24 month, 8.25% term loan, with equal monthly payments of principal and interest commencing April 1, 2006.

During the three months ended March 31, 2006, Mr. Sandgaard loaned the Company $108,400, of which $50,000 was converted to a 24 month, 8.25% term loan, with equal monthly payments of principal and interest commencing April 1, 2006. The remaining $58,400 was represented by 8.25% demand notes and will be repaid as the Company's cash position and its financing covenants allow. At March 31, 2006, $92,154 loans from stockholder remained outstanding.

5. Stockholders' Equity

For the quarter ended March 31, 2006, the Company issued 32,597 shares of common stock to investor relations consultants for services performed, at prices ranging from $0.44 to $0.4825 per share.

6. Restatement

On November 13, 2006, the Board of Directors of the Company concluded that (1) the Company’s financial statements for the year ended December 31, 2005, included in its annual report on Form 10-KSB for the fiscal year ended December 31, 2005 and (2) the Company’s financial statements for the quarters ended September 30, 2005, March 31, 2006 and June 30, 2006, included in its quarterly reports on Form 10-QSB for those quarters, should be revised to reflect adjustments to the Company’s inventory as of such dates. The adjustments result from a detailed inventory analysis made in connection with the preparation of the financial statements of the Company for the quarter ended September 30, 2006.

The Company discovered errors in its accounting for inventory that understated both the value and quantity of its finished goods and the value of its rented inventory. Accordingly, accumulated deficit at the beginning of 2006 has been adjusted to correct the errors and an adjustment was recorded to decrease accumulated deficit and increase inventory at January 1, 2006 by $193,108. Additionally, the Company concluded that the Company's financial statements for the quarters ended March 31, 2005, and June 30, 2005, included in its quarterly reports on Form 10-QSB for those quarters, should also be revised to reflect adjustments to the Company's inventory as of those dates.

ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The effect of the adjustment resulted in the following changes as of March 31, 2006 and March 31, 2005:


	As previously
	reported			As restated
Balance Sheet

Inventory	$	377,850		$	522,880
Total current assets	$	1,377,673		$	1,522,703
Property and equipment, net	$	164,629		$	255,097
Total assets	$	1,553,242		$	1,788,740
Accumulated deficit	$	(1,112,279	)	$	(876,781	)
Total stockholders’ equity	$	395,798		$	631,296

Statement of Operations 2006 - Quarter ended March 31, 2006

Cost of sales and rentals	$	63,827		$	16,393
Gross profit	$	441,264		$	488,698
Depreciation	$	15,153		$	20,197
Total operating expenses	$	492,771		$	497,815
Income (loss) from operations	$	(51,507	)	$	(9,117	)
Net income (loss)	$	(64,825	)	$	(22,435	)


Statement of Operations 2005 - Quarter ended March 31, 2005
Cost of Sales and rentals	$	80,145		$	16,976
Gross profit	$	464,798		$	527,967
Income (loss) from operations	$	59,764		$	122,933
Net income (loss)	$	56,080		$	119,249
Net income (loss) per common and common equivalent share
Basic	$	0.00		$	0.01
Diluted	$	0.00		$	0.01

Statement of Cash Flows - Quarter ended March 31, 2006

Net income (loss)	$	(64,825	)	$	(22,435	)
Depreciation	$	15,153		$	20,197
Inventory	$	8,269		$	(33,649	)
Net cash (used in) provided by operating activities	$	(153,258	)	$	(147,742	)
Purchase of equipment	$	0		$	(5,516	)
Net cash (used in) investing activities	$	0		$	(5,516	)

Statement of Cash Flows - Quarter ended March 31, 2005

Net income	$	56,080		$	119,249
Inventory	$	(65,472	)	$	(103,079	)
Net cash provided by operating activities	$	30,728		$	30,098
Purchase of equipment	$	(17,238	)	$	(42,800	)
Net cash (used in) investing activities	$	(17,238	)	$	(42,800	)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

The following information should be read in conjunction with the Company's condensed consolidated financial statements and related footnotes contained in this report.

Restatement (Note 4)

See Note 4 to the unaudited condensed consolidated financial statements in this report regarding adjustments to the Company’s financial statements for the three months ended March 31, 2006 and 2005. This Form 10-QSB/A includes related changes to Item 2 concerning Management's Discussion and Analysis or Plan of Operations.

Results of Operations

Gross and Net Sales and Rental Income. Gross sales and rental income for the quarters ended March 31, 2006 and 2005 were $877,504 and $865,395, respectively, an increase of $12,109, or 1.4%. Net sales and rental income for the quarters ended March 31, 2006 and 2005 were $505,091 (as restated) and $544,943, respectively, a decrease of $39,853, or 7.3%. The increase in gross sales and rental income for the quarter ended March 31, 2006 compared to the quarter ended March 31, 2005 was due primarily to greater awareness of the Company's products by end users and physicians because of the Company's 2005 and 2006 marketing investments, growing market penetration and increased rental income from the greater number of Zynex products placed in use during the prior periods. The decrease in net revenue for the quarter ended March 31, 2006 compared to the quarter ended March 31, 2005 was primarily due to a $67,457 increase in the reserve for contractual adjustments (i.e., estimated insurance company adjustments) for the quarter ended March 31, 2006, coupled with a first quarter 2005 reduction of $69,000 to an accounts receivable reserve for NeuroMove Medicare accounts. Both the reserve and the NeuroMove Medicare accounts were eliminated September 30, 2005.

Gross Profit. Gross profit for the quarter ended March 31, 2006 was $488,698 or 96.8% of net revenue, a decrease of $39,269, or 7.4%, from the gross profit of $527,967 or 96.9% of net revenue for the quarter ended March 31, 2005. The decrease in gross profit for the quarter ended March 31, 2006, as compared with the same period last year, is due to the reduction in net sales and rental income resulting from an increase in contractual adjustments as discussed above.

Selling, General and Administrative. Selling, general and administrative expenses for the quarter ended March 31, 2006 were $497,815, an increase of $92,781 or 22.9%, compared to $405,034 for the same period last year. The increase was primarily due to increases in commissions, in part because of certain adjustments for commissions paid in 2005 for sales made in 2004, public company and consulting expenses, and a small payroll increase, offset by decreases in advertising, marketing and promotion, insurance, and temporary services expenses.

Interest and other income (expense). Interest and other income (expense) were ($13,318) for the quarter ended March 31, 2006, an increase of $9,634 compared to ($3,684) for the same period last year. The increase resulted primarily from an increase in the Company's debt during the period.

Liquidity and Capital Resources. We expect that our cash requirements will increase as our operations expand. Based on the Company's results for the first three months of 2006, our projected revenue through 2006, our $400,000 in 2005 and $240,000 in 2006 working capital bank loans and working capital loans from Thomas Sandgaard, of which $92,154 are outstanding as of March 31, 2006, we believe available cash will be adequate to meet our requirements for at least the balance of 2006. However, to fully implement our business plan through 2006 and subsequent periods, we need to raise additional equity or debt financing. To achieve this objective we are in discussions with potential investors and investment bankers that may provide long term funding to further assist in executing our business plan. There can be no assurance that we will be able to raise such additional financing or do so on terms that are acceptable to the Company.

Contingencies such as unanticipated shortfalls in revenues or increases in expenses could affect our projected revenue, cash resulting from operations and liquidity and thus we could possibly be in need of additional external financing

Cash used in operating activities was $147,742 for the three months ended March 31, 2006 compared to $30,098 cash provided by operating activities for the three months ended March 31, 2005. The primary reasons for the decrease in cash flow were the first quarter operating loss and utilization of bank loans and loans from Mr. Sandgaard to reduce accounts payable compared to net income and an increase in accounts payable in 2005.

Cash used in investing activities was $5,516 for the three months ended March 31, 2006 compared to $42,800 for the same period in 2005. Cash used in investing activities represents the purchase of equipment and inventory rented to customers.

Cash provided by financing activities was $278,134 for the three months ended March 31, 2006 compared with cash used in financing activities of $9,624 for the three months ended March 31, 2005. During the three months ended March 31, 2006 the Company received net working capital of $200,960 in bank financing and $75,300 in loans from Thomas Sandgaard.

To conserve and most efficiently and effectively use our financial resources we do now and will continue to closely monitor our actual and projected revenue, costs and cash flow, and will take appropriate action as circumstances require.

For information regarding borrowings from Silicon Valley Bank and Mr. Sandgaard, see Note 4 to our Condensed Consolidated Financial Statements in this Report and Item 6 in our Form 10-KSB for the year ended December 31, 2005.

Recently issued accounting pronouncements:

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included in this quarterly report contains statements that are forward-looking, such as statements relating to plans for future expansion and other business development activities, as well as other capital spending and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks include the need to obtain additional capital in order to grow our business, larger competitors with greater financial resources, the need to keep pace with technological changes, our dependence on the reimbursement from insurance companies for products sold or rented to our customers, our dependence on third party manufacturers to produce our goods on time and to our specifications, the acceptance of our products by hospitals and clinicians, implementation of our sales strategy including a strong direct sales force and other risks described in our 10-KSB Report for the year ended December 31, 2005.

ITEM 3. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, because of a material weakness in internal control over financial reporting relating to inventory as discussed in Note 6 to the Condensed Consolidated Financial Statements, the Company’s disclosure controls and procedures were not effective as of March 31, 2006. The material weakness has been substantially corrected in the fourth quarter of 2006 as noted below, and the Company’s management believes that the consolidated financial condition, results of operations and cash flows are fairly presented in this Form 10-QSB/A Report.

Remediation Efforts

In the fourth quarter of 2006, we implemented systems, procedures and controls relating to the cost and quantity of our inventory and in particular our rental products and finished goods. These systems and procedures include a comprehensive inventory tracking by serial number throughout our organization and on rental with our customers. The Company will continue to review its internal controls and procedures and will take further action as appropriate.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the first quarter of 2006 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

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

See Note 3 to the Notes to the Condensed Consolidated Financial Statements for Information regarding the issuance of common stock to investor relations consultants. In the issuances, we made no general solicitation, and we believe that the investor relations consultants met the standards for a purchaser in a non-public offering. We relied upon an exemption from securities registration for a non-public offering in issuing these securities to the investor relations consultants.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS.

(a) Exhibits

18	Preferability letter from GHP Horwath, P.C. regarding the reclassification of certain costs.*

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350

* Previously filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ZYNEX MEDICAL HOLDINGS, INC.
Date: December 20, 2006	By:	/s/ Thomas Sandgaard
		Thomas Sandgaard,
		Chief Executive Officer, Treasurer



	By:	/s/ Peter J. Leveton
		Peter J. Leveton,
		Principal Financial Officer

INDEX TO EXHIBITS

Exhibit Number	Description
18	Preferability letter from GHP Horwath, P.C. regarding the reclassification of certain costs.*

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350

* Previously filed.