Unaudited Condensed Consolidated Financial Statements and Managements' Plans

9 Months Ended

Sep. 30, 2013

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), ZynexNeuroDiagnostics, 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 December31, 2012. Amounts as of December31, 2012 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 December31, 2012, 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 September30, 2013 and the results of operations and cash flows for the periods presented.All such adjustments are of a normal recurring nature.The results of operations for the three and nine months ended September30, 2013 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.

For the nine months ended September 30, 2013 and 2012, the Company reported negative cash flows from operations of $676 and $1,200, respectively. In addition, the Company’s line of credit increased from $5,906 at December 31, 2012 to $6,291 at September 30, 2013, primarily driven by the Company’s net loss and working capital requirements. Maximum borrowings under the line of credit are $7,000, subject to adjustments to its accounts receivable borrowing base. As of September 30, 2013, the Company did not have any additional availability under its line of credit. As of September 30, 2013, the Company was not in compliance with one of the financial covenants under the line of credit. As a result, all amounts due under the credit agreement are callable by the lender. 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 us from borrowing while in default, which could have a material adverse impact on our cash flow and liquidity.

Management developed the Company’s operating plans for 2013 to emphasize cash flow, and under which the Company is making operational billing changes to increase cash collections as well as implementing various cost modifications to reduce expenses. However, during the first nine months of 2013, the Company encountered industry challenges related to health care reform, including the Affordable Care Act and reimbursement changes from government and third party payors, which has caused uncertainty to exist at the medical practitioner level causing a delay and decline in demand for the Company’s ZMI electrotherapy products.  In an effort to minimize the impact of health care reform and changes in reimbursement, the Company has made reductions in its fixed expenses by cutting its annual employee costs by approximately $4,200 through headcount reductions. These headcount reductions were executed during the second and third quarters of 2013.  The Company also renegotiated its existing building lease, under which, among other things, base rent has been lowered and the Company is now operating in an approximate twelve month free rent period, which began May 1, 2013, whichis expected to result in cash savings of approximately $1,500.  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 the Company’s ZMI sales channel and is pursuing other opportunities, including the manufacturing and distribution of topical and transdermal pain creams. In ZND, the Company is distributing electroencephalography (EEG) sleep diagnostic products, mobile sleep diagnostic products and a sleep apnea treatment device 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 through the addition of medical practitioner billing contracts. The Company believes these actions will serve to diversify its product mix and further reduce dependency on insurance reimbursement. Management believes that as a result of the restructuring activities completed during the second and third quarters of 2013, the Company’s cash flows from operating activities and limited borrowing availability under the line of credit will be sufficient to fund cash requirements through the next twelve months.