10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 33-26787-D

Zynex, Inc.

(Exact name of registrant as specified in its charter)

NEVADA	90-0214497
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
9990 PARK MEADOWS DRIVE LONE TREE, COLORADO	80124
(Address of principal executive offices)	(Zip Code)

(303) 703-4906

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Shares Outstanding as of November 4 , 2014
Common Stock, par value $0.001	31,271,234

ZYNEX, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

PART I—FINANCIAL INFORMATION

		Page
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013	3
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013	4
	Unaudited Condensed Consolidated Statement of Stockholders’ (Deficit) Equity for the nine months ended September 30, 2014	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	6
	Unaudited Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 4.	Controls and Procedures	21
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities And Use of Proceeds	23
Item 5.	Other Information	23
Item 6.	Exhibits	25
SIGNATURES		26

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ZYNEX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)

	September 30,			December 31,
	2014			2013
	(UNAUDITED)
ASSETS
Current Assets:
Cash	$	319		$	323
Accounts receivable, net		4,460			7,033
Inventory, net		2,483			5,002
Prepaid expenses		37			346
Deferred tax assets, net		72			72
Income tax receivable		219			893
Other current assets		-			35
Total current assets		7,590			13,704
Property and equipment, net		1,833			2,891
Deposits		3			400
Deferred financing fees, net		—			48
Intangible assets, net		142			178
Total assets	$	9,568		$	17,221
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current Liabilities:
Line of credit	$	4,541		$	5,820
Current portion of notes payable and other obligations		82			92
Accounts payable		2,745			2,743
Income taxes payable		78			96
Accrued payroll and payroll taxes		654			607
Current portion of contingent consideration		4			7
Deferred revenue		109			—
Other accrued liabilities		137			319
Total current liabilities		8,350			9,684
Notes payable and other obligations, less current portion		78			150
Deferred rent		2,845			2,454
Deferred tax liabilities, net		72			72
Warranty liability		12			13
Total liabilities		11,357			12,373
Stockholders’ (Deficit) Equity:
Preferred stock; $.001 par value, 10,000,000 shares authorized, no    shares issued or outstanding		—			—
Common stock, $.001 par value, 100,000,000 shares authorized,    31,271,234 (2014) and 31,171,234 (2013) shares issued and outstanding		31			31
Paid-in capital		5,683			5,586
Accumulated deficit		(7,459	)		(735	)
Total Zynex, Inc. stockholders’ (deficit) equity		(1,745	)		4,882
Noncontrolling interest		(44	)		(34	)
Total stockholders’ (deficit) equity		(1,789	)		4,848
Total liabilities and stockholders’ (deficit) equity	$	9,568		$	17,221

See accompanying notes to unaudited condensed consolidated financial statements.

3

ZYNEX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

	Three months ended						Nine months ended
	September 30,						September 30,
	2014			2013			2014			2013
Net revenue:
Rental	$	389		$	1,284		$	1,713		$	4,606
Sales		4,015			3,907			7,208			13,725
		4,404			5,191			8,921			18,331
Operating expenses:
Cost of revenue - rental		172			257			575			956
Cost of revenue - sales		1,211			1,289			2,976			4,664
Cost of revenue - write-off of noncore inventory		-			—			2,655			—
Selling, general and administrative expense		2,609			4,713			9,012			16,699
Income (loss) from operations		412			(1,068	)		(6,297	)		(3,988	)
Other income (expense):
Interest expense		(169	)		(136	)		(471	)		(480	)
Other income		25			-			34			72
		(144	)		(136	)		(437	)		(408	)
Income (loss) before income taxes		268			(1,204	)		(6,734	)		(4,396	)
Income tax benefit		—			455			—			1,610
Net income  (loss)		268			(749	)		(6,734	)		(2,786	)
Plus: Net (income) loss – noncontrolling interest		(10	)		11			10			28
Net income (loss) – attributable to Zynex, Inc.	$	258		$	(738	)	$	(6,724	)	$	(2,758	)
Net income (loss) per share – attributable to Zynex, Inc.
Basic	$	0.01		$	(0.02	)	$	(0.22	)	$	(0.09	)
Diluted	$	0.01		$	(0.02	)	$	(0.22	)	$	(0.09	)
Weighted - average number of common shares outstanding:
Basic		31,215,799			31,148,234			31,186,252			31,148,234
Diluted		31,215,799			31,148,234			31,186,252			31,148,234

See accompanying notes to unaudited condensed consolidated financial statements.

4

ZYNEX, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

	Common Stock				Paid-in		Retained			Noncontrolling
	Shares		Amount		Capital		Deficit			Interest			Total
January 1, 2014		31,171,234	$	31	$	5,586	$	(735	)	$	(34	)	$	4,848
Employee stock-based    compensation expense		—		—		74		—			—			74
Shares issued for services		100,000				23								23
Net loss		—		—		—		(6,724	)		(10	)		(6,734	)
September 30, 2014		31,271,234	$	31	$	5,683	$	(7,459	)	$	(44	)	$	(1,789	)

See accompanying notes to unaudited condensed consolidated financial statements.

5

ZYNEX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, AMOUNTS IN THOUSANDS)

	Nine months ended
	September 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(6,734	)	$	(2,786	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		433			608
Warranty expense		(1	)		(6	)
Writeoff of noncore inventory		2,005			—
Write-off rental units		650			—
Change in the value of contingent consideration		—			(70	)
Change in provision for losses on accounts receivable		(901	)		442
Amortization of intangible assets		36			39
Impairment of intangible assets		—			100
Impairment of goodwill		—			39
Amortization of financing fees		48			38
Issuance of common stock for services		23
Change in obsolete inventory		336			293
Deferred rent		391			1,033
Employee stock-based compensation expense		74			98
Gain on asset disposal		33			(6	)
Changes in operating assets and liabilities:
Accounts receivable		3,474			2,959
Inventory		186			(265	)
Income tax receivable		674			—
Prepaid expenses		309			65
Deposits and other current assets		44			(2,057	)
Accounts payable		2			232
Accrued liabilities		(135	)		(1,048	)
Deferred revenue		109			—
Income taxes payable		(17	)		(384	)
Net cash provided by (used in) operating activities		1,039			(676	)
Cash flows from investing activities:
Sales (purchases) of equipment		216			(501	)
Change in inventory used for rental		106			550
Payments on contingent consideration		(4	)		(3	)
Net cash provided by investing activities		318			46
Cash flows from financing activities:
Net (repayments) borrowings on line of credit		(1,279	)		385
Payments on notes payable and capital lease obligations		(82	)		(110	)
Net cash (used in) provided by financing activities		(1,361	)		275
Net decrease in cash		(4	)		(355	)
Cash at the beginning of the period		323			823
Cash at the end of the period	$	319		$	468
Supplemental cash flow information:
Interest paid	$	133		$	449
Income taxes paid (including interest and penalties)	$	2		$	384
Supplemental disclosure of non-cash investing and financing activities:
Equipment acquired through note payable and capital lease	$	—		$	137
Deposit used to purchase equipment	$	388		$	—

See accompanying notes to unaudited condensed consolidated financial statements.

6

ZYNEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(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 September 30, 2014 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, 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.

The Company reported a net loss of $6,734 for the nine months ended September 30, 2014 and $7,340 for the year ended December 31, 2013, and has no available borrowings as of September 30, 2014 under its line of credit, which had an outstanding balance of $4,541 at September 30, 2014.  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.  

Over the last two years, 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’s ZMI electrotherapy products. In an effort to minimize the impact of health care reform and changes in reimbursement, beginning in the second quarter of 2013, the Company made reductions in its annual operating expenses by cutting the Company’s annual employee costs by approximately $7,000 through headcount reductions. In October 2014, the Company negotiated a Termination Agreement for its existing building lease and a new Lease Agreement for a reduced space at its current headquarters. Under the terms of the Termination Agreement, among other things, the Company agreed to consolidate its operations into approximately one-third of the total square footage it occupied previously; monthly base rental payments were reduced from approximately $129 to $43 for the period from September 1, 2014 through December 31, 2014; all future rental payments and deferred rent amounts will be forgiven as of December 31, 2014; and, the terms of the new lease will take effect on January 1, 2015. The terms of the new lease include, among other things, a term of two years, fixed monthly base rental payments of approximately $49 for the full term of the lease; and, the right for either party to terminate the lease without future liability upon six months written notice to the Company or three months written notice to the landlord. Refer to Note 13. Additionally, the Company recently added new products to its ZMI sales channel, including the compound and sale of topical and transdermal pain creams, which typically have more certainty as to reimbursement because all orders are preauthorized by the insurance company prior to shipment. 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.

7

ZYNEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

During the second quarter of 2014, the Company narrowed its focus to NexWave, InWave and NeuroMove electrotherapy products and continued to build the sales representative group for its TENS and compound pain cream solutions. As part of that effort, it restructured internal operations, including manufacturing, billing and customer service. As a result of these activities, the Company recorded a charge to cost of revenue – write-off of noncore inventory in the amount of $2,655, which included $2,005 of inventory and $650 of rental units in the quarter ended June 30, 2014. Refer to Note 2.

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 operating plan.  The amount outstanding on the Company’s line of credit (the “Triumph Agreement”) decreased from $5,820 at December 31, 2013 to $4,541 at September 30, 2014, primarily driven by collection of accounts receivable. On July 14, 2014, the Company received notice from Triumph Healthcare Finance (the “Lender”) of an event of default under the Triumph Agreement. The notice relates to the Company’s default under the minimum debt service coverage ratio for the quarter ended March 31, 2014 and certain other alleged defaults. The Lender notified the Company that it was exercising its default remedies under the Triumph Agreement, including, among others, accelerating the repayment of all outstanding obligations under the Triumph Agreement (outstanding principal and accrued interest) and collecting the Company’s bank deposits to apply towards the outstanding obligations. The Company and the Lender are negotiating the terms of an accelerated repayment of the amounts outstanding under the Triumph Agreement and the Lender has continued to make additional loans to the Company under the facility. However, no assurance can be given that the Lender will continue to make such additional loans or that the parties will agree on a repayment plan acceptable to the Company. If the Lender insists upon immediate repayment, the Company will be insolvent and may be forced to seek protection from creditors.    This default under the Triumph Agreement and potential remedies the Lender can demand, raises substantial doubt about the Company’s ability to continue as a going concern. 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 add more revenue as well as growth in its ZMI electrotherapy products. 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 the potential creation of other new product lines. There is no assurance that the Company’s operations and future access to new capital, 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.

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 the Lender. 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’s projected revenues, cash flows from operations and liquidity which may force the Company to curtail its operating plan or impede the Company’s ability to grow.

(2) SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Zynex, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

NONCONTROLLINGINTEREST

Noncontrollinginterestin the equity of a subsidiary is accounted for and reported as stockholders’ (deficit) equity. Noncontrolling interest represents the20% ownership in the Company’s majority-owned subsidiary, ZBC.  

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 condensed consolidated financial statements are associated with the allowance for contractual adjustments and uncollectible accounts receivable, the reserve for obsolete and damaged inventory, stock-based compensation, valuation of long-lived assets, and income taxes.

8

ZYNEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

REVENUE RECOGNITION, ALLOWANCE FOR CONTRACTUAL ADJUSTMENTS AND COLLECTIBILITY

The Company recognizes revenue when each of the following four conditions are met: 1) a contract or sales arrangement exists, 2) products have been shipped and title has transferred, or rental services have been rendered, 3) the price of the products or services is fixed or determinable, and 4) collectability is reasonably assured. Accordingly, the Company recognizes revenue, both rental and sales, when products have been delivered to the patient and the patient’s insurance (if the patient has insurance) has been verified. For medical products that are sold from inventories consigned at clinic locations, the Company recognizes revenue when it receives notice that the product has been prescribed and delivered to the patient and the patient’s insurance coverage has been verified or preauthorization has been obtained from the insurance company, when required. Revenue from the rental of products is normally on a month-to-month basis and is recognized ratably over the products’ rental period. Revenue from sales to distributors is recognized when the Company ships its products, which fulfills its order and transfers title. Revenue is reported net, after adjustments for estimated insurance company or governmental agency (collectively “Third-party Payors”) reimbursement deductions. The deductions are known throughout the health care industry as “contractual adjustments” whereby the Third-party Payors unilaterally reduce the amount they reimburse for the Company’s products.

A significant portion of the Company’s revenues are derived, and the related receivables are due, from Third-party Payors. The nature of these receivables within this industry has typically resulted in long collection cycles. The process of determining what products will be reimbursed by Third-party Payors and the amounts that they will reimburse is complex and depends on conditions and procedures that vary among providers and may change from time to time. The Company maintains an allowance for contractual adjustments and records additions to the allowance to account for the risk of nonpayment. Contractual adjustments result from reimbursements from Third-party Payors that are less than amounts claimed or where the amount claimed by the Company exceeds the Third-party Payors’ usual, customary and reasonable reimbursement rate. The Company determines the amount of the allowance, and adjusts it at the end of each reporting period, based on a number of factors, including historical rates of collection, the aging of the receivables, trends in the historical rates of collection and current relationships and experience with the Third-party Payors. If the rates of collection of past-due receivables recorded for previous fiscal periods changes, or if there is a trend in the rates of collection on those receivables, the Company may be required to change the rate at which it provides for additions to the allowance. A change in the rates of the Company’s collections 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, or changes in industry rates of reimbursement. Accordingly, changes to the allowance for contractual adjustments, which are recorded in the income statement as a reduction of revenue, have historically fluctuated and may continue to fluctuate significantly from quarter to quarter.

Due to the nature of the industry and the reimbursement environment in which the Company operates, estimates are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of third-party billing arrangements and the uncertainty of reimbursement amounts for certain products or services from payors 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 reimbursement, as well as changes in our billing practices to increase cash collections, it is possible that management’s estimates could change in the near term, which could have an impact on our results of operations and cash flows. Any differences between estimated settlements and final determinations are reflected as an increase or a reduction to revenue in the period when such final determinations are known.

The Company frequently receives refund requests from insurance providers relating to specific patients and dates of service. Billing and reimbursement disputes are very common in the Company’s industry. 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 that insurance provider. 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 insurance providers. 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.

As of September 30, 2014, the Company believes it has an adequate allowance for contractual adjustments relating to all known insurance disputes and refund requests. However, no assurances can be given with respect to such estimates of reimbursements and offsets or the ultimate outcome of any refund requests.

In addition to the allowance for contractual adjustments, the Company records an allowance for uncollectible accounts receivable. Uncollectible accounts receivable are primarily a result of non-payment from patients who have been direct billed for co-payments or

9

ZYNEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

deductibles, lack of appropriate insurance coverage and disallowances of charges by Third-party Payors. If there is a change to a material insurance provider contract or policy, application by a provider, a decline in the economic condition of providers or a significant turnover of Company billing personnel resulting in diminished collection effectiveness, the estimate of the allowance for uncollectible accounts receivable may not be adequate and may result in an increase in the future. At September 30, 2014 and December 31, 2013, the allowance for uncollectible accounts receivable is $936 and $1,837, respectively.

At September 30, 2014, the Company recorded a liability for deferred revenue in the amount of $109 which represents amounts paid by Third-party Payors for consumable supplies that were not shipped to patients as of September 30, 2014. This liability was reduced to zero in October 2014. There was no such liability at December 31, 2013.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments at September 30, 2014 include cash, accounts receivable and accounts payable, for which current carrying amounts approximate fair value due to their short-term nature. Financial instruments at September 30, 2014 also include the line of credit and notes payable, 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.

INVENTORY

Inventories, which primarily represent finished goods, are valued at the lower of cost (average) or market. In the second quarter of 2014,the Company narrowed its focus to the NexWave, InWave and NeuroMove electrotherapy products and building the sales representative group for its TENS and compound pain cream solutions.  As a result, the Company wrote-off all inventory unrelated to those specific product lines and recorded a charge to cost of revenue – write-off of noncore inventory in the amount of $2,005 during the nine month period ended September 30, 2014. Finished goods include products held at the Company’s headquarters and at different locations by health care providers or other parties for rental or sale to patients. Total (gross) inventories at September 30, 2014 included $2,506 of finished goods, $247 of parts, and $390 of supplies.

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 equal to the difference between the costs of inventories on hand and the estimated market value based upon assumptions about future demand. If future demand is less favorable than currently projected by management, additional inventory write-downs may be required. To fulfill orders faster, the Company places a large amount of its inventory with field sales representatives. This increases the sensitivity of these products to obsolescence reserve estimates. As this inventory is not in the Company’s possession, management maintains additional reserves for estimated shrinkage of these inventories based on the Company’s aging. At September 30, 2014, the Company had an allowance for obsolete and damaged inventory of approximately $660. The allowance for obsolete and damaged inventory was approximately $1,278 at December 31, 2013. The decrease from December 31, 2013 is due primarily to the write-off of noncore inventory discussed above. In addition, in the second quarter of 2014, the Company changed its method of estimation for determining allowances for obsolete and damaged inventory. The Company now estimates that finished units held for sale will be reserved beginning in year three and fully reserved after four years compared to five years previously. This change in estimate had the effect of increasing the allowances for obsolete and damaged inventory by approximately $414 at September 30, 2014 and increasing cost of revenue – sales by approximately $168 ($0.01 per share) and $414 ($0.02 per share) for the three and nine months ended September 30, 2014 respectively. The Company had $107 of open purchase commitments at September 30, 2014.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Products on rental contracts are placed in property and equipment and depreciated over their estimated useful life. The Company removes the cost and the related accumulated depreciation from the accounts of assets sold or retired, and the resulting gains or losses are included in the results of operations. Depreciation is computed using the straight-line method over the useful life of the asset. As rental inventory contributes directly to the revenue generating process, the Company classifies the depreciation of rental inventory in cost of revenue. As a result of the Company’s change in product focus discussed above, the Company wrote-off all rental inventory unrelated to those specific product lines and recorded a charge to cost of revenue – write-off of noncore inventory of $650 in the second quarter of 2014.

Repairs and maintenance costs are charged to expense as incurred.

10

ZYNEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

INTANGIBLE ASSETS

Intangible assets with estimable lives are amortized in a pattern consistent with the asset’s identifiable cash flows or using a straight- line method over their remaining estimated benefit periods if the pattern of cash flows is not estimable. The Company reviews the carrying value of intangible and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of their carrying amounts to the undiscounted cash flows that the asset or asset group is expected to generate. If the carrying amount of the assets exceeds the undiscounted cash flows the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Intangible assets primarily include capitalized software. The Company capitalizes software development costs incurred during the application development stage related to new software or major enhancements to the functionality of existing software that is developed solely to meet the entity’s internal operational needs and when no substantive plans exist or are being developed to market the software externally. Costs capitalized include external direct costs of materials and services and internal payroll and payroll-related costs. Any costs during the preliminary project stage or related to training or maintenance are expensed as incurred. Capitalization ceases when the software project is substantially complete and ready for its intended use. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.  When the projects are ready for their intended use, the Company amortizes such costs over their estimated useful lives of five years.

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.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB)  issued Accounting Standards Update (ASU) No. 2014-09—“Revenue from Contracts with Customers” (Topic 606) which amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.  This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2018 using one of two prescribed retrospective methods.  Early adoption is not permitted.  The Company is evaluating the impact of the amended revenue recognition guidance on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” Under ASU 2013-11, an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance affects presentation only and, therefore, did not have a material impact on the Company's financial condition, results of operations or cash flows.

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.

11

ZYNEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(3) PROPERTY AND EQUIPMENT

Property and equipment as of September 30, 2014 and December 31, 2013 consist of the following:

	September 30, 2014			December 31, 2013			Useful lives
	(UNAUDITED)
Office furniture and equipment	$	1,752		$	2,073			3-7 years
Rental inventory		1,342			2,142			5 years
Vehicles		76			76			5 years
Leasehold improvements		874			486			2-6 years
Assembly equipment		125			171			7 years
		4,169			4,948
Less accumulated depreciation		(2,336	)		(2,057	)
	$	1,833		$	2,891

(4) INTANGIBLE ASSETS

Intangible assets as of September 30, 2014 and December 31, 2013, consist of software development costs of $345 and $325, respectively. Accumulated amortization was $203 and $147, respectively.

(5) 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, calculated using the treasury-stock method.

The calculation of basic and diluted loss per share for the three and nine months ended September, 2014 and 2013 is as follows:

	Three months ended					Nine months ended
	September 30,					September 30,
	2014		2013			2014			2013
Basic:
Net income (loss) applicable to common stockholders	$	258	$	(738	)	$	(6,724	)	$	(2,758	)
Weighted average shares outstanding – basic		31,215,799		31,148,234			31,186,252			31,148,234
Net loss per share – basic	$	0.01	$	(0.02	)	$	(0.22	)	$	(0.09	)
Diluted:
Net Income (loss) applicable to common stockholders	$	258	$	(738	)	$	(6,724	)	$	(2,758	)
Weighted average shares outstanding – basic		31,215,799		31,148,234			31,186,252			31,148,234
Dilutive securities	—		—			—			—
Weighted average shares outstanding – diluted		31,215,799		31,148,234			31,186,252			31,148,234
Net income (loss) per share – diluted	$	0.01	$	(0.02	)	$	(0.22	)	$	(0.09	)

  The effects of potential common stock equivalents, related to certain outstanding options for the three and nine months ended September 30, 2014 and 2013 were excluded from the computation of diluted net income (loss) per share as their inclusion would have an antidilutive effect.

12

ZYNEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(6) STOCK-BASED COMPENSATION PLANS

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

In the three months ended September 30, 2014 and 2013, the Company recorded compensation expense related to stock options of $18 and $29, respectively. Stock-based compensation recorded in the accompanying condensed consolidated statement of operations for the three months ended September 30, 2014 and 2013 included $2 and $2, respectively, in cost of goods sold and $16 and $27, respectively, in selling, general and administrative expenses.

In the nine months ended September 30, 2014 and 2013, the Company recorded compensation expense related to stock options of $74 and $98, respectively. Stock-based compensation recorded in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2014 and 2013 included $6 and $9, respectively, in cost of goods sold and $68 and $89, respectively, in selling, general and administrative expenses.

In the nine months ended September 30, 2014, the Company granted options to purchase up to 400,000 shares of common stock to employees at a weighted average exercise price of $0.25. The options have a ten year life and vest over four years.

The Company used the Black Scholes option pricing model to determine the fair value of stock option grants, using the following assumptions during the three and nine months ended September 30, 2014:

	2014
Weighted average expected term	6.25 years
Weighted average volatility	113% to 121%
Weighted average risk-free interest rate	1.4% to 1.7%
Dividend yield	0%

A summary of stock option activity under the Option Plan for the nine months ended September 30, 2014 is presented below:

	Shares Under Option			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at January 1, 2014		2,472,216		$	0.57
Granted		400,000		$	0.25
Exercised		—
Forfeited		(1,146,697	)	$	0.42
Outstanding at September 30, 2014		1,725,519		$	0.59		7.5 years	$	-
Exercisable at September 30, 2014		608,917		$	1.06		4.9 years	$	-

A summary of status of the Company’s non-vested share awards as of and for the nine months ended September 30, 2014 is presented below:

	Nonvested Shares Under Option			Weighted Average Grant Date Fair Value
Non-vested at January 1, 2014		1,663,593		$	0.29
Granted		400,000		$	0.22
Vested		(120,294	)	$	0.71
Forfeited		(826,697	)	$	0.25
Non-vested at September 30, 2014		1,116,602		$	0.29

13

ZYNEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

As of September 30, 2014, the Company had approximately $174 of unrecognized compensation expense related to stock options that will be recognized over a weighted average period of approximately 3.19 years.

(7) FAIR VALUE MEASUREMENTS

The Company measures certain assets and liabilities pursuant to accounting guidance which establishes a three-tier fair value hierarchy and prioritizes the inputs used in measuring fair value. These tiers include:

— Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

— Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

— Level 3: Unobservable inputs are used when little or no market data is available.

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2014, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

	September 30, 2014		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent consideration	$	4	$	4

The fair value of the contingent consideration was determined using a discounted cash flow model at the acquisition date and is revalued at each reporting date or more frequently if circumstances dictate based on changes in the discount periods and rates, changes in the timing and amount of the revenue estimates and changes in probability assumptions with respect to the likelihood of achieving the obligations. Contingent payments of $4 were made in April 2014 related to 2013.

Changes in the fair value of these obligations are recorded as income or expense within the line item “Other income (expense)” in the Company’s consolidated statements of operations. Accretion expense related to the increase in the net present value of the contingent liabilities is also included in the line item “Other income (expense)” in the Company’s consolidated statements of operations. The fair value measurement is based on significant inputs not observable in the market, which are referred to as Level 3 inputs.

Changes in the fair value of the Level 3 liabilities for the three and nine months ended September 30, 2014 were not significant.

(8) INCOME TAXES

The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. The Company’s effective income tax rate was 0%for both the three and nine months ended September 30, 2014 and was approximately 37% for the corresponding 2013 periods. During the three and nine months ended September 30, 2014 the Company generated approximately $0 and $2,484, respectively, of deferred tax assets relating primarily to net operating loss carryforwards. However, as realization of these deferred tax assets is not more likely than not, a full valuation allowance was provided against the net deferred tax assets as of September 30, 2014. The Company paid income taxes of $0 and $2 during the three and nine months ended September 30, 2014, respectively, and received $674 of its income tax receivable of $893 during the nine month period.

(9) LINE OF CREDIT

The Company has an asset-backed revolving credit facility under a Loan and Security Agreement as amended, (the “Triumph Agreement”) with Triumph Healthcare Finance, a division of Triumph Community Bank. The Triumph Agreement contains certain customary restrictive and financial covenants for asset-backed credit facilities. As of September 30, 2014, the Company was not in compliance with the financial covenants under the Triumph Agreement. On July 14, 2014, the Company received notice from Triumph of an event of default under the Triumph Agreement. The notice relates to the Company’s default under the minimum debt service coverage ratio requirement for the quarter ended March 31, 2014 and certain other alleged defaults. The Lender notified the

14

ZYNEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

Company that it was exercising its default remedies under the Triumph Agreement, including, among others, accelerating the repayment of all outstanding obligations under the Triumph Agreement (outstanding principal and accrued interest) and collecting the Company’s bank deposits to apply towards the outstanding obligations. The Company and the Lender are negotiating the terms of an accelerated repayment of the amounts outstanding under the Triumph Agreement and the Lender has continued to make additional loans to the Company under the facility. However, no assurance can be given that the Lender will continue to make such additional loans or that the parties will agree on a repayment plan acceptable to the Company. If the Lender insists upon immediate repayment, the Company will be insolvent and may be forced to seek protection from creditors.   As of September 30, 2014, $4,541 was outstanding under the Triumph Agreement and zero was available for borrowing based on the default status and demand for accelerated payment. Borrowings under the Triumph Agreement bear interest at the default interest rate. As of September 30, 2014, the effective interest rate under the Triumph Agreement was 11.00% (6.75% interest rate plus 3% additional default interest rate and 1.25% fees). The Triumph Agreement requires monthly interest payments in arrears on the first date of each month. The Triumph Agreement will mature on December 19, 2014.

(10) CONCENTRATIONS

The Company sourced approximately 21% and 34% of components for its electrotherapy products from one vendor during the nine months ended September 30, 2014 and 2013, respectively. Management believes that its relationships with suppliers are good; however, the Company has delayed and extended payments to many of its vendors for cash flow reasons, which has caused many of its vendors to require pre-payment for products or services. If the relationships were to be replaced, there may be a short-term disruption to operations, a period of time in which products may not be available and additional expenses may be incurred.

The Company had receivables from a private health insurance carrier at September 30, 2014 and December 31, 2013 that made up approximately 5% and 7%, respectively, of the net accounts receivable balance.

(11) LITIGATION

From time to time, the Company may become party to litigation and other claims in the ordinary course of business. To the extent that such claims and litigation arise, management would provide for them if losses are determined to be both probable and estimable.

The Company is currently not a party to any material pending legal proceedings.

(12) SEGMENT REPORTING

At September 30, 2014, the Company determined that it has one reporting segment, the Electrotherapy and Pain Management segment, which includes the ZMI TENS units and compound pain creams that accounted for 95% of total net revenue for the nine months ended September 30, 2014. The determination was made based on the fact that the products are marketed through the same sales representatives and to the same medical providers whether the provider writes a prescription for a TENS device or compound pain cream. As discussed in Note 1, during the second quarter ended June 30, 2014, the Company narrowed it focus on these products. The revenue generated from the sale of other products and services is not significant.

Net revenue was primarily generated from sales in the United States.

(13) SUBSEQUENT EVENT

On October 31, 2014, the Company entered into a Lease Termination Agreement (“LTA”) and new Lease Agreement (“LA”) with its landlord relating to the Company’s headquarters location in Lone Tree, Colorado, under which the Company will reduce the amount of space leased at its headquarters. The following is a summary of the key terms of the LTA:

· Monthly rental payments of $43 from September 1, 2014 through December 31, 2014;

· The Company vacates the unleased portion property on or before December 31, 2014;

· The existing lease will terminate as of December 31, 2014;

· The Company will surrender to the Landlord substantially all of the furniture and fixtures and leasehold improvements in the portion of the building being vacated at no cost to the landlord; and

15

ZYNEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

· Effective upon termination of the existing lease, all amounts due to the landlord for deferred rent and any other charges will be forgiven.

The following is a summary of the key terms of the new LA:

· The term of the LA shall be two years to commence on January 1, 2015 and to end, unless sooner terminated on December 31, 2016;

· Fixed rental payments of $49 per month; and

· The Company and landlord shall each have the right to terminate the lease at any time, without liability to the other, with six months prior written notice to the Company and three months written notice to the Landlord.

At September 30, 2014, the estimated net book value of the furniture and fixtures that will be surrendered to the landlord was $56. In addition, upon vacating the property in the fourth quarter of 2014, the Company expects to write-off the net book value of its leasehold improvements which amounted to $549 at September 30, 2014. Also, included in the consolidated balance sheet at September 30, 2014 is a liability for deferred rent amounting to $2,845 which will be forgiven upon termination of the existing lease, which is expected to occur in the fourth quarter of 2014.

16

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Notice Regarding Forward-Looking Statements

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 the impact of reimbursement trends, 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 for additional capital in order to grow our business, our ability to avoid insolvency and engage effective sales representatives, the need to obtain U.S. Food and Drug Administration (“FDA”) clearance and Certificate European (“CE”) marking of new products, the acceptance of new products as well as existing products by doctors and hospitals, our dependence on the reimbursement from insurance companies for products sold or rented to our customers, acceptance of our products by health insurance providers for reimbursement, larger competitors with greater financial resources, the need to keep pace with technological changes, our dependence on third-party manufacturers to produce key components of our products on time and to our specifications, implementation of our sales strategy including a strong direct sales force, and other risks described herein and in our Annual Report on Form 10-K for the year ended December 31, 2013.

These interim financial statements should be read in conjunction with the annual audited consolidated financial statements, and notes to consolidated financial statements, included in the Company’s 2013 Annual Report on Form 10-K, which has previously been filed with the Securities and Exchange Commission.

The Company currently has five subsidiaries; Zynex Medical, Inc. (ZMI), Zynex NeuroDiagnostics, Inc. (ZND), Zynex Monitoring Solutions Inc. (ZMS), Zynex Billing and Consulting, LLC (ZBC) and Zynex Europe, Aps (ZEU). The Company operates in one primary business segment, Electrotherapy and Pain Management Products, which represents approximately 95% of total net revenue for the nine months ended September 30, 2014. ZBC services represented approximately 5% of total net revenue for the nine months ended September 30, 2014.

RESULTS OF OPERATIONS (Amounts in thousands):

Background

After more than a decade of consecutive double digit annual growth, Zynex had revenues of approximately $39.7 million in 2012. Revenue declined in 2013 to approximately $21.7 million and further declined to $8.9 million for the first nine months of 2014 compared to $18.3 million in the corresponding period in 2013. The primary reasons for the decline in revenue were the impact of Medicare and healthcare reform, and a shift in Zynex’s independent sales force to sell transdermal compounded pain cream from competing pharmacies rather than focusing on selling the Company’s TENS products.

In addition, in the latter part of 2012, Medicare eliminated reimbursement for TENS for low-back pain while still covering TENS for other indications. Medicare also continued increasing the requirements for paperwork and documentation. As a result, late in 2013 Zynex began declining orders for Medicare and Medicaid patients. Commercial and workers’ compensation insurance plans continue to reimburse at similar levels as in previous years and have not adopted Medicare’s limited coverage.

As a result, total net revenue has declined each quarter from December 31, 2012 through June 30, 2014.

Total net revenue by quarter (in thousands)
First quarter  2012	$	8,944
Second quarter 2012		10,026
Third quarter 2012		10,102
Fourth quarter 2012		10,594
First quarter  2013		7,668
Second quarter 2013		5,472
Third quarter 2013		5,191
Fourth quarter 2013		3,353
First quarter  2014		3,167
Second quarter  2014		1,349
Third quarter  2014		4,404

17

As noted above, many industry sales reps, including those representing Zynex, began offering prescription TransDermal Pain Creams (TDPC) to their accounts, a type of sale that pays much higher commissions with less paperwork than TENS devices and requires little interaction with patients. TDPC, like TENS, offers very effective, non-addictive pain management with minimal side effects.  Zynex did not offer a TDPC solution prior to 2014, which resulted in sales reps spending less time promoting Zynex TENS products as well as a significant number of sales reps dropping Zynex’s products due to the trend toward TDPC. In addition, the remaining sales reps are generally producing fewer orders for TENS than before the TDPC products were introduced.  In late 2013, Zynex made a decision to open its own compounding pharmacy. The new operation which operates within ZMI, trade name “Pharmazy”, was operational in November 2013 and the first state licenses were obtained in February 2014. To date Zynex’s pharmacy is licensed in 39 states across the US and is working with third party pharmacies in the states where it is not yet licensed. We are recruiting new sales reps and believe that Zynex offers them an attractive option since we believe that we are the only company in the market that currently offers both TENS and TDPC solutions on the same prescription pad. However, since we are new to the compounding pharmacy business, we need to build a sales force and credibility in the TDPC market and we can make no assurance that we will be successful in doing so.

In an effort to minimize the impact of the issues discussed above and the resulting slowdown in our orders, we made reductions to our operating expenses, particularly employee related costs through headcount reductions beginning in the middle of 2013. Headcount has been reduced from 153 employees at December 31, 2013 to 102 employees at September 30, 2014.

For the three months and nine months ended September 30, 2014, revenue from our pharmacy resulted in approximately 9% and 8% of total net revenue, respectively.

In an effort to drive revenue growth for the future, in the second quarter of 2014, we narrowed our focus to our NexWave, InWave and NeuroMove electrotherapy products and continued to build the sales representative group for our TENS and TDPC solutions. As a result of the new focus, we recorded a charge to cost of revenue – write-off of noncore inventory in the amount of $2,655 consisting of $2,005 of inventory and $650 of rental units in the quarter ended June 30, 2014.

We have restructured our internal operations, including manufacturing, billing and customer service to accommodate our lower sales volume and revised product focus. In addition, in October 2014, the Company negotiated a termination agreement for its existing building lease and a new lease agreement with its landlord relating to its headquarters located in Lone Tree, Colorado. Under the terms of the termination agreement, among other things,the existing headquarters building lease terminates on December 31, 2014; the Company agreed to consolidate its operations into approximately one-third of the total square footage it occupied previously; monthly base rental payments are reduced from approximately $129 to $43 for the period from September 1, 2014 through December 31, 2014; and, the terms of the new lease will take effect January 1, 2015. The terms of the new lease agreement include, among other things, a term of two years, fixed monthly base rental payments of approximately $48; and, the right for either party to terminate the lease without future liability with six months written notice. We began realizing the benefit of the lower monthly rental payments in September 2014.

As of September 30, 2014, we were not in compliance with the financial covenants under the terms of our line of credit. On July 14, 2014, Zynex received notice from the Lender of an event of default under the Company’s Loan and Security Agreement with the lender. The notice relates to the Company’s default under the minimum debt service coverage ratio for the quarter ended March 31, 2014 and certain other alleged defaults. The Lender notified the Company that it would no longer make additional loans under the Credit Agreement and was exercising its default remedies under the Credit Agreement, including, among others, accelerating the repayment of all outstanding obligations under the credit agreement and collecting the Company’s bank deposits to apply towards the outstanding obligations. As of October 28, 2014, the Company had approximately $4,765 of outstanding borrowings under the Credit Agreement. The Company and the Lender continue to negotiate the terms of an accelerated repayment of the amounts outstanding under the credit agreement and the Lender has continued to make additional loans to the Company. However, no assurance can be given that the Lender will continue to make such additional loans or that the parties will agree on a repayment plan acceptable to the Company.

Revenue

Our TENS products may be rented on a monthly basis (“Net Rental Revenue”) or purchased (“Net Sales Revenue”). Renters and purchasers are primarily patients and healthcare insurance providers on behalf of patients. Our TENS products may also be purchased by dealers. If a patient is covered by health insurance, the Third-party Payor typically determines whether the patient will rent or purchase a unit depending on the anticipated time period for its use. If contractually arranged, a rental continues until an amount equal to the purchase price is paid when we transfer ownership of the product to the patient and cease rental charges. We also sell consumable supplies, consisting primarily of surface electrodes and batteries that are used in conjunction with our electrotherapy products.

Revenue is reported net, after adjustments for estimated insurance company reimbursement deductions. The deductions are known throughout the health care industry as “contractual adjustments” whereby the healthcare insurers unilaterally reduce the amount they reimburse for our products as compared to the rental rates and sales prices charged by us. The deductions from gross revenue also take

18

into account the estimated denials of claims for our products placed with patients which may affect collectability. See Note 2 to the Unaudited Condensed Consolidated Financial Statements in this quarterly report for a more complete explanation of our revenue recognition policies.

Total net revenue decreased $787 or 15% to $4,404 for the quarter ended September 30, 2014, from $5,191 for the quarter ended September 30, 2013. For the nine months, total net revenue decreased $9,410 or 51% to $8,921 for the nine months ended September 30, 2014, from $18,331 for the comparable 2013 period. The decreases in each period were primarily due to reductions in prescriptions (orders) for our electrotherapy products as compared to the same periods in 2013. These decreases were partially offset by net revenues from sales of our compounded pain creams of $390 in the third quarter of 2014 and $758 for the first nine months of 2014, with no such revenue in the corresponding periods in 2013. Total net revenues also continues to suffer from the ongoing effects of the decline in our sales force and industry conditions driven by healthcare reform. The decline in orders for TENS devices and related revenues will also have a negative future impact on sales of our recurring consumable supplies, as less of our devices will be in the field for patient use.

Operating Expenses

Cost of revenue – rental declined $85 to $172 for the three months ended September 30, 2014 compared to $257 for the 2013 period.  For the nine months ended September 30, 2014 cost of revenue – rental was $575, a reduction of $381 from $956 in the 2013 period. The lower costs reflect the decline in net rental revenue from the decline in orders for our TENS devices.

Cost of revenue – sales declined $78 to $1,211 for the three months ended September 30, 2014 compared to $1,289 for the 2013 period.  For the nine months ended September 30, 2014 cost of revenue – sales was $2,976, a reduction of $1,688 from $4,664 in the 2013 period. The lower costs reflect the decline in net sales revenue and an increase in allowance for obsolete and damaged inventory which amounted to $322 and $336 for the three and nine months ended September 30, 2014, respectively.

Cost of revenue – write-off of noncore inventory represents the write-off of inventory and rental units as a result of our narrowed focus on the sale of our NexWave, InWave and NeuroMove electrotherapy products and building the sales representative group for our electrotherapy and pain cream solutions. As a result, we wrote off inventory of $2,005 and rental units of $650 in the second quarter of 2014.

Selling, General and Administrative (“SG&A”) expenses decreased $2,104, or 45%, to $2,609 for the quarter ended September 30, 2014 from $4,713 for the quarter ended September 30, 2013. Due to the significant decline in revenue beginning in 2013, we have reduced operating expenses through headcount reductions and renegotiated the base rent under our existing lease. In addition, in October 2014 we negotiated the termination of the existing lease agreement including lower base rental payments beginning September 1, 2014, and we reduced other discretionary spending. Items with significant reductions in SG&A expenses for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 consisted of employee related costs ($826), sales commissions ($277), facilities ($107), legal and professional fees ($113), and travel ($59).  For the nine months ended September 30, 2014, total SG&A expenses decreased $7,687, or 46%, to $9,012 from $16,699 for the period ended September 30, 2013. Items with significant reductions in SG&A expenses for the nine months ended September 30, 2014 compared to September 30, 2013 consisted of employee related costs ($3,622), sales commissions ($1,207), facilities ($325), legal and professional fees ($448), and travel ($287).

Other Expense

Other expense is comprised of interest expense and other income. Interest expense for the three months ended September 30, 2014 was $169, compared to $136 for the same period in 2013.  The increase in interest expense is the result of lower average borrowings in the 2014 period, offset by an increase to the interest rate of 3% per year as a result of our non-compliance with certain covenants under the Triumph loan agreement (as more fully described below). Interest expense for the nine months ended September 30, 2014 was $471, compared to $480 for the same period in 2013, reflecting lower average borrowings, mostly offset by anincrease in the interest rate due to the effects of the default rate under our revolving credit facility. The balance outstanding on the Triumph loan was as follows:

December 31, 2012	$	5,906
September 30, 2013	$	6,291
December 31, 2013	$	5,820
September 30, 2014	$	4,541

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Income Tax Benefit

For the three and nine month periods ended September 30, 2014, the Company did not report any income tax benefit, as compared to an income benefit of $455 and $1,610, respectively, for the corresponding periods in 2013. We recorded a valuation allowance against the deferred tax assets generated during the nine months ended September 30, 2014, as future utilization of such assets is not more likely than not to be utilized in the future. The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. The Company’s effective income tax rate for the three and nine months ended September 30, 2014 was 0% and for the three and nine months ended September 30, 2013, it was approximately 37%.

LIQUIDITY AND CAPITAL RESOURCES:

Line of Credit

The Company has an asset-backed revolving credit facility under a Loan and Security Agreement as amended, (the “Triumph Agreement”) with Triumph Healthcare Finance, a division of Triumph Community Bank (the “Lender”). The Triumph Agreement contains certain customary restrictive and financial covenants for asset-backed credit facilities. As of September 30, 2014, the Company was not in compliance with the financial covenants under the Triumph Agreement. Borrowings under the Triumph Agreement bear interest at the default interest rate. As of September 30, 2014, the effective interest rate under the Triumph Agreement was 11.00% (6.75% base interest rate plus 3% default interest rate plus 1.25% fees). The Triumph Agreement will mature on December 19, 2014.

As of September 30, 2014, we were not in compliance with the financial covenants under the Triumph Agreement. On July 14, 2014, Zynex received notice from the Lender of an event of default under the Triumph Agreement. The notice relates to the Company’s default under the minimum debt service coverage ratio for the quarter ended March 31, 2014 and certain other alleged defaults. The Lender notified the Company that it was exercising its default remedies under the Triumph Agreement, including, among others, accelerating the repayment of all outstanding obligations under the Triumph Agreement (outstanding principal and accrued interest) and collecting the Company’s bank deposits to apply towards the outstanding obligations. As of October 28, 2014, the Company had approximately $4,765 of outstanding borrowings under the Triumph Agreement. The Company and the Lender are continuing to negotiate the terms of an accelerated repayment of the amounts outstanding under the Triumph Agreement and the Lender has continued to make additional loans to the Company. However, no assurance can be given that the Lender will continue to make such additional loans or that the parties will agree on a repayment plan acceptable to the Company. If the Lender insists upon immediate repayment, the Company will be insolvent and may be forced to seek protection from its creditors.

Limited Liquidity

As a result of the losses we suffered in 2013, our recurring negative cash flows from operations, and limited liquidity, our independent registered public accounting firm has included an explanatory paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year ended December 31, 2013.

Limited liquidity may restrict our ability to carry out our current business plans and curtail our future revenue growth. This condition raises substantial doubt about our ability to continue as a going concern. Cash at September 30, 2014 was $319, compared to cash at December 31, 2013 of $323.

Cash provided by operating activities was $1,039 for the nine months ended September 30, 2014 compared to $676 of cash used in operating activities for the nine months ended September 30, 2013. The primary sources of cash from operations for the nine months ended September 30, 2014 was the result of decreases in accounts receivable and inventory, and receipt of amounts due from income tax refunds,which were offset primarily bythe net loss reported for the period. The primary uses of cash in operations for the nine months ended September 30, 2013 was the result of the net loss reported for the period, decreases in accrued expenses and income taxes payable, which were partially offset by a decrease in accounts receivable.

Cash provided by investing activities for the nine months ended September 30, 2014 was $318 compared to cash provided by investing activities of $46 for the nine months ended September 30, 2013. Cash provided by investing activities for the nine months ended September 30, 2014 primarily represents an increase in cash flows relating to the change in inventory held for rental and proceeds from the disposition of equipment. Cash used in investing activities for the nine months ended September 30, 2013 primarily represents an increase in cash flows relating to the change in inventory held for rental, offset by purchase of equipment.

Cash used by financing activities was $1,361 for the nine months ended September 30, 2014 compared with cash provided by financing activities of $275 for the nine months ended September 30, 2013. The primary financing uses of cash during the nine months ended September 30, 2014 were net payments on our line of credit and payments on notes payable and capital lease

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obligations. The primary sources of cash for the nine months ended September 30, 2013 were net borrowings under the line of credit, partially offset by payments on notes payable and capital lease obligations.

Our limited liquidity is primarily a result of (a) the significant reduction of revenue and the inability to cut costs at the same pace, (b) the high level of outstanding accounts receivable because of deferred payment practices of Third-party Payors, (c) the required high levels of inventory kept with sales representatives held at the offices of health care providers that are standard in the electrotherapy industry, (d) the potential need for expenditures to continue to enhance the Company’s internal billing processes, (e) the delayed cost recovery inherent in rental transactions, and (f) expenditures required for on-going product development; payments to suppliers and vendors; and investment in our compound pharmacy and sales force.

Due to our negative cash flows, there is no guarantee that we will be able to meet the requirements of our 2014 operating plan. The outstanding balance on our line of credit decreased from $5,820 at December 31, 2013 to $4,541 at September 30, 2014, primarily driven by collection of accounts receivable. We are in default of the terms of the Triumph Agreement and have no availability for additional borrowing. Although the Lender has continued to make advances, there can be no assurance it will continue to do so. If the Lender ceases to make advances, it will have a material adverse impact on our cash flow and liquidity, including causing us to be insolvent and force us to seek protection from creditors. The Lender’s insistence on repayment also limits the funds we have available to support our ongoing business. In order to support ongoing operations and growth in revenue, we require, 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 our compound pharmacy, and potential creation of other new product lines.

There is no assurance that our operations will provide enough cash for our operating requirements, including payment of our key suppliers or for increases in our inventory of products, if needed. We have revised and extended payment terms with most suppliers and vendors and if such parties cease doing business with us it may have a material adverse effect on our business.

We are actively seeking external financing through the issuance of debt or sale of equity, and we are not certain whether any such financing would be available to us on acceptable terms, or at all. Any additional debt would require the approval of Triumph Healthcare Finance. Our dependence on operating cash flow means that risks involved in our business can significantly affect our liquidity. Contingencies such as unanticipated shortfalls in revenues or increases in expenses could affect our projected revenue, cash flows from operations and liquidity which may force us to curtail our operating plan or impede our ability to grow.

We frequently receive, and expect to continue to receive, refund requests from insurance providers relating to specific patients and dates of service. Billing and reimbursement disputes are very common in our industry. These requests are sometimes related to a few patients and other times include a significant number of refund claims in a single request. We review and evaluate these requests and determine if any refund is appropriate. We also review claims where we are rebilling or pursuing additional reimbursement from that insurance provider. We frequently have significant offsets against such refund requests which may result in amounts that are due to us in excess of the amounts of refunds requested by the insurance providers. Therefore, at the time of receipt of such refund requests we are generally unable to determine if a refund request is valid and should be accrued as a liability.

As of September 30, 2014, we believe we have an adequate allowance for contractual adjustments relating to known insurance disputes and refund requests. However, no assurances can be given with respect to such estimates of reimbursements and offsets or the ultimate outcome of any refund requests.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

There are several accounting policies that involve management’s judgments and estimates and are critical to understanding our historical and future performance, as these policies and estimates affect the reported amounts of revenue and other significant areas in our reported financial statements.

Please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” located within our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission on March 28, 2014, and Note 2 to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report for further discussion of our “Critical Accounting Policies.”

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and

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procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. 

We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2014 due to the material weakness in our internal control over financial reporting, which is described below. A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected in a timely basis.

As a result of our assessment, management identified the following control deficiency that represents a material weakness as of September 30, 2014:

· We lack independent Board members necessary to maintain audit and other Board committees consistent with best practice corporate governance standards. We have not identified an audit committee financial expert on our Board of Directors, and at the present time we have no independent directors. As a result, oversight and monitoring responsibility pertaining to our financial reporting and related internal control is not sufficient. Considering the costs associated with procuring and providing the infrastructure to support additional qualified Board members that are independent, management has concluded that the risks associated with the lack of independent Board members are not sufficient to justify adding independent members at this time.  Management will periodically reevaluate this situation as circumstances change.

Notwithstanding the assessment that our internal control over financial reporting was not effective and that there was a material weakness as identified in this report, we believe that our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2014, fairly present our financial position, results of our operations and cash flows for the periods presented in all material respects.

We are committed to improving our internal control over financial reporting.  As part of this control improvement, we plan to (1) appoint outside independent directors to our Board of Directors and utilize an independent audit committee of the Board of Directors who will undertake oversight in the establishment and monitoring of required internal controls and procedures (when funds and/or additional resources are available to us), and (2) retain and utilize an outside independent consulting firm to assist us with assessing and testing the effectiveness of our internal control over financial reporting (when funds and/or additional resources are available to us).  We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal control over financial reporting on an ongoing basis, and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

Changes in Internal Control Over Financial Reporting

Except as described above, there was no change in our internal control over financial reporting during the three months ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except for the members of our Board of Directors and our audit committee who resigned in January 2014 and who oversaw our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any material pending legal proceedings.

ITEM 1A. RISK FACTORS

You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013 and set forth below, which could materially affect our business, financial condition, cash flows or future results. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2013 and noted below are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

If we are unable to improve our liquidity by raising additional capital or generating sufficient revenue to Pay our debt obligations and fund our operating expenses, we may become insolvent and be unable to continue as a Going Concern.

Our limited liquidity may restrict our ability to pay our debt obligations and to carry out our current business plans. For the nine months ended September 30, 2014 and the twelve months ended December 31, 2013, we reported a net loss of $6,724 and $7,301 respectively.  As a result of our losses from operations, negative cash flow, and limited liquidity, our independent registered public accounting firm’s report on our 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 our ability to continue as a going concern.  

We are in default under our line of credit and do not currently have sufficient funds to repay our lender. The lender has several remedies available to it including acceleration of outstanding borrowings and it is collateralized by substantially all of our assets. The outstanding balance of our line of credit at September 30, 2014 is $4,541, with no ability to currently draw any additional amounts as a result of our default status. Although the lender has continued to make advances, there can be no assurance it will continue to do so. If the lender ceases to make advances, it will have a material adverse impact on our cash flow and liquidity, including causing us to be insolvent. In addition, we have had to revise and extend the payment terms with many of our key supplier and vendors.  If our key suppliers and vendors cease doing business with us, it will have a material adverse effect on our business.

If we are unable to raise sufficient funds from additional borrowing or capital raising or generate sufficient revenues to meet our debt obligations and fund our operating expenses, we may be unable to pay our suppliers and vendors and otherwise be unable to fund our operations leaving us unable to continue our business as a going concern and may cause us to be insolvent and force us to seek protection from creditors.  These matters raise substantial doubt about our ability to continue as a going concern.  

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

On August 20, 2014 the Company issued 100,000 shares of its $0.001 par value common stock to Zacks Investment Research Inc., in exchange for services valued at $23,000. There were no cash proceeds to the Company. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended.

ITEM 5.  OTHER INFORMATION

On October 31, 2014, the Company entered into a Lease Termination Agreement (“LTA”) and new Lease Agreement (“LA”) with its landlord related to its corporate headquarters in Lone Tree, Colorado, under which the Company will reduce the amount of space leased at its headquarters. Pursuant to the LTA, among other things, the parties agreed to (i) monthly rental payments of $43 from September 1, 2014 to December 31, 2014, (ii) terminate the current lease as of December 31, 2014, (ii) vacate the unleased portion of the property on or before December 31, 2014, (iv) surrender to the landlord substantially all of the furniture and fixtures in the portion of the building being vacated at no cost to the landlord, and (v) effective upon termination of the current lease, forgive of all amounts due to the landlord for deferred rent and other charges.

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Under the LA, the Company will lease approximately one-third of the current space at its headquarters.  The term of the LA will begin on January 1, 2015 and end, unless sooner terminated on December 31, 2016, at a fixed rent of $49 per month.  Under the LA, the Company and landlord shall each have the right to terminate the lease at any time, without liability to the other, with six months prior written notice to the other party.  

All of the foregoing amounts are in thousands.

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ITEM 6.   EXHIBITS  

Exhibit Number	Description
3.1	Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 7, 2008)
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on October 7, 2008)
10.1	Employment Agreement, dated August 11, 2014, between Zynex, Inc. and Brian Alleman (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on August 15, 2014.
10.2*	Lease Termination Agreement
10.3*	Park Meadows Corporate Center III and IV Office Lease Between Public Credit Service Credit Union (Landlord) and Zynex Medical, Inc. (Tenant)
31.1*	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Calculation Linkbase Document
101.LAB *	XBRL Taxonomy Label Linkbase Document
101.PRE *	XBRL Presentation Linkbase Document
101.DEF *	XBRL Taxonomy Extension Definition Linkbase Document

* Filed herewith

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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, INC.
Dated: November 6, 2014	/s/ Thomas Sandgaard
	Thomas Sandgaard
	President, Chief Executive Officer and Treasurer

Dated: November 6, 2014	/s/ Brian P. Alleman
	Brian P. Alleman
	Chief Financial Officer

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EX-10.2

Exhibit 10.2

LEASE TERMINATION AGREEMENT

THIS LEASE TERMINATION AGREEMENT (this “Agreement”) is made as of the 31st day of October, 2014, by and between PUBLIC SERVICE CREDIT UNION, a Colorado nonprofit corporation (“Landlord”), ZYNEX MEDICAL, INC., a Colorado corporation (“Tenant”), and ZYNEX, INC., a Nevada corporation “Guarantor”).

RECITALS:

A. Landlord and Tenant entered into that certain Office Lease dated May 1, 2013, as amended by that certain First Amendment to Office Lease dated January 2, 2014, (collectively, the “Lease”), for the real property described as follows: 9990 Park Meadows Drive, Lone Tree, CO 80124, as more fully described in the Lease (the “Leased Property”).

B. The undersigned Guarantor executed and delivered to Landlord an Absolute Unconditional Lease Guaranty dated May 1, 2013 guaranteeing Tenant’s full and faithful performance of the Lease.

C. Tenant and Landlord now wish to enter into this Agreement to provide for the surrender by Tenant of the Leased Property and termination of the Lease, the transfer of all interests of Tenant in and to the improvements located on the Leased Property to Landlord, and the transfer of all interests of Tenant in and to all of the furniture presently located in the Leased Property, except the furniture listed on Exhibit 1 hereto (collectively, the “Property”), pursuant to the terms, conditions and provisions set forth below.

NOW, THEREFORE, in consideration of the premises and the agreements hereinafter contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.    Any capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings ascribed to them in the Lease.

2.    Deferred Rent. Tenant requested rent relief from Landlord upon Tenant surrendering possession of a portion of the Leased Premises, which rent relief Landlord is willing to accommodate in accordance with the terms and conditions of this Agreement. Landlord agrees that from an after September 1, 2014 through and including December 31, 2014, in lieu of timely payment by Tenant of the Base Rent and Additional Rent (as those terms are defined in the Lease) and Tenant may pay to Landlord the sum of $43,000 on the first day of each calendar month commencing September 1, 2014 through and including December 1, 2014, with Landlord agreeing to defer its demand for timely payment of the balance of the Base Rent and Additional Rent accruing during that period for so long as Tenant timely and fully performs all covenants, conditions and agreements herein. Upon Tenant timely and full performance of all covenants, conditions and agreements herein; upon Tenant otherwise timely and fully performing its obligations under the Lease, including payment of the deferred rent as provided for herein; upon Landlord and Tenant timely entering into a mutually acceptable, new lease as provided for in Section 10 below; upon Tenant vacating the Lease Premises on or before December 31, 2014 and delivering the same to Landlord in the condition as provided for in the Lease; and, upon Tenant timely and fully performing the covenants, agreements and other terms of the New Lease, Landlord shall forgive in full and discharge Tenant and Guarantor of any obligation to pay the Base Rent and Additional rent deferred hereunder.

3.    Termination. Landlord and Tenant agree that, subject to the satisfaction of contingencies in Section 10 below and Tenant not otherwise being in breach of the Lease or this Agreement as of the Termination Date, the Lease shall be terminated effective as of 12:00 midnight December 31, 2014 (“the Termination Date”).

From and after the termination on the Termination Date, the Lease, including all licenses, options and other rights granted therein, will be of no further force and effect, and Landlord and Tenant will be released from any further obligations under the Lease, except for those obligations that accrued prior to the Termination Date (including, without limitation, payment of the Base Rent and Additional Rent deferred hereunder but subject to the same being forgiven and discharged per the terms of this Agreement) and those obligations and indemnifications that survive termination according to the Lease, this Agreement, or by law, as such matters relate to the period of time during which Tenant was the tenant under the Lease.

4.    Surrender.

(a)   Upon termination of the Lease as provided for herein, Tenant will surrender possession of the Leased Property to Landlord pursuant to the terms of the Lease, except that Tenant will not remove from any the Leased Property any furniture from the Leased Property other than that listed on Exhibit 1 hereto. From and after the Termination Date, or upon earlier termination as provided for in

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the Lease, Tenant will have no further right to occupy the Leased Property, except to the extent that a portion of the same is a portion of the demised premises under the New Lease, as defined below.

(b)   From and after the Termination Date, ownership of the furniture in the Leased Premises as of the date of this Agreement, other than the furniture on Exhibit 1(“the Furniture”), will automatically be vested in Landlord, and this Agreement will be considered a bill of sale conveying all interest of Tenant and all interest of Guarantor, as their respective interests appear, the Furniture to Landlord; provided, however, Tenant and/or Guarantor, as either are requested by Landlord will execute any reasonable documents necessary to transfer the Furniture to Landlord, at Landlord’s request and in Landlord’s sole discretion, on or after the Termination Date.

5.    Default. Time is of the essence with respect to the payment obligations of Tenant in Section 2, above, and the other obligations of Tenant under this Agreement and the Lease. If Tenant fails to perform any such obligations, at Landlord’s election, the Lease will not terminate pursuant to this Agreement and Landlord may declare an incurable event of default of the Lease and pursue its remedies in Section 10 of the Lease, at equity, or at law, none being to the exclusion of the other.

6.    Release. Effective only upon the termination of the Lease as provided for herein and as of the Termination Date, Tenant releases and discharges Landlord and its partners, affiliates, subsidiaries, directors, officers, successors and assigns, agents, employees and representatives from any and all obligations, claims, actions, liability, of every kind or character, known or unknown, by reason of, growing out of, arising out of or existing with respect to the Lease or Tenant’s use and occupancy of the Leased Property thereunder or the termination and surrender of the Lease and surrender of the Leased Property, prior to and including the Termination Date; provided, however, this release does not include and does not release and discharge Landlord of and from (i) the obligations of Landlord set forth in this Agreement, and (ii) obligations of Landlord set forth in the Lease and/or this Agreement which expressly survive termination of the Lease, subject to the terms of this Agreement.

Effective only upon the termination of the Lease as provided for herein and as of the Termination Date, and subject to the satisfaction of contingencies in Section 10 below and Tenant not otherwise being in breach of the Lease or this Agreement as of the Termination Date, to the extent permitted by applicable law, Landlord releases and discharges Tenant, the undersigned Guarantor, and their respective partners, affiliates, subsidiaries, directors, officers, successors and assigns, agents, employees and representatives (collectively, the “Releasees”) from any and all obligations, claims, actions, liability, of every kind or character, known or unknown, by reason of, growing out of, arising out of or existing with respect to the Lease or Tenant’s use and occupancy of the Leased Property thereunder or the termination and surrender of the Lease and surrender of the Leased Property, prior to and including the Termination Date; provided, however, this release does not include and does not release and discharge the Releasees of and from: (i) the obligations of Tenant set forth in this Agreement; (ii) the obligation to pay the deferred Base Rent and Additional Rent and other charges under the Lease except upon the event that the same are forgiven and discharged as provided for in this Agreement; and (iii) obligations of Tenant set forth in the Lease and/or this Agreement which accrued prior to the Termination Date or which expressly survive termination of the Lease, subject to the terms of this Agreement.

7.    Indemnification. The obligations set forth in the Lease that by their terms survive the Lease will survive termination pursuant this Agreement, including without limitation all indemnifications of Landlord by Tenant (the “Surviving Lease Obligations”). Further, Tenant agrees to indemnify Landlord and to hold Landlord harmless from and against all injury, loss, claims, liability, damage, cost and expense (including attorneys’ fees, investigation costs and disbursements from the first notice that any claim or demand is to be made or may be made) to any person or property, arising from, relating to, or in connection with: (i) the use or occupancy of the Leased Property or the conduct or operation of business on the Leased Property by Tenant, (ii) any breach by Tenant of this Agreement, and (iii) the enforcement of this indemnity or this Agreement. The indemnity set forth in this Section 7 is in addition to the Surviving Lease Obligations.

8.    Representations by Tenant. Tenant represents and warrants that (a) it has not made any assignment, sublease, transfer, conveyance or other disposition of (i) the Lease or its interest in the Lease, other than the Subleases, or (ii) any claim, demand, obligation, liability, action or cause of action arising under the terms of the Lease, to any person or entity, (b) the execution and delivery of this Agreement will not violate and will not constitute a default under any agreements by which Tenant is bound, and (c) Tenant has full authority to execute and deliver this Agreement.

Tenant and Guarantor represent and warrant that, at the date hereof: (i) Either Tenant or Guarantor has title to each item of Property; (ii) Tenant or Guarantor has good right, full power and lawful authority to convey, transfer and assign all its rights, title and interest in and to each item of Property; (iii) that there are no leases of any portion of the Property, and (iv) that no party other than Tenant or Guarantory has any claim, lien, encumbrance or interest of any nature in and to any item of Property, except to the extent that Triumph Community Bank dba Triumph Healthcare Finance may claim a security interest in some or all of the Property (“the Triumph Lien”).

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9.    Representation by Landlord. Landlord represents and warrants that Landlord has full authority to execute and deliver this Agreement.

10.   Contingencies. Notwithstanding the foregoing, this Agreement is contingent upon, on or before October 31, 2014, Landlord and Tenant entering into a new lease of leasehold premises to be occupied by Tenant upon terms mutually agreeable to Landlord and Tenant and including the following general terms (the “New Lease”):

a.   Square footage: 22,000.

b.   Location: Portions of the first floors of the buildings commonly known as Park Meadows Corporate Center Ill, located at 10000 Park Meadows Drive, Lone Tree, Colorado 80124 (“Building III”) and Park Meadows Corporate Center IV, located at 9990 Park Meadows Drive, Lone Tree, Colorado 80124 (“Building IV”).

c.   Lease Rate: $26.50 per square foot, gross except tenant supplies its own janitorial.

d.   Lease Term: 2 years, subject to Landlord and Tenant three (3) month prior notice termination.

e.   Guarantors: same as Lease

f.   TI: new flooring per Exhibit C to the proposed lease draft and paint in Building III area.

If Landlord and Tenant do not mutually agree upon the terms of and execute and deliver a New Lease on or before October 31, 2014 for any reason whatsoever, this Agreement shall be null and void and the Lease and the Guarantor’s Absolute Unconditional Lease Guaranty shall continue in full force and effect.

In addition to the foregoing contingencies a.-f. in this Section 10, the continuing effectiveness of this Agreement is conditioned upon Tenant delivering to Landlord not later than November 30, 2014 evidence, reasonably satisfactory to Landlord, of the release of the Property from the Triumph Lien. In the event Tenant fails to timely and fully satisfy this condition, this Agreement shall terminate, be null and void, and Tenant shall be obligated to immediately pay to Landlord all rent deferred under this Agreement through and including November 30, 2014 and shall pay, commencing December 1, 2014, the full amount of rent provided for under the Lease without regard to this Agreement.

11.   Writ of Restitution. If Tenant does not vacate and surrender the Leased Premises on December 31, 2014 per the terms of this Agreement, Tenant hereby confesses judgment for the issuance by any court of competent jurisdiction, and on an ex parte basis upon affidavit of Landlord that Tenant has failed to vacate and surrender the Premises as required herein, of a writ of restitution to immediately restore possession of the Leased Property to Landlord and waives all right to any prior notice or right to cure.

12.   Miscellaneous.

a. This Agreement constitutes the entire understanding and agreement of Landlord and Tenant with respect to the matters covered by it and supersedes all prior agreements and understandings, written or oral, between Landlord and Tenant with respect to such matters.

b. This Agreement may not be modified or amended, except in a writing signed by the parties hereto, nor may any term or provision hereof be waived or discharged except in a writing signed by the party against whom the waiver or discharge is sought to be enforced.

c. The waiver by any party of any breach by another party of any provision of this Agreement will not constitute or operate as a waiver of any other breach of such provision or of any other provision by such party, nor will any failure to enforce any provision operate as a waiver of such provision or any other provision.

d. This Agreement will be construed in accordance with, and be governed by, the law of the State of Colorado.

e. In the event of litigation arising out of this Agreement, the prevailing party will be entitled to an award of reasonable attorneys’ fees and costs incurred in such litigation.

f. This Agreement may be executed in counterparts, in which case all such counterparts will constitute one and the same agreement; however, this Agreement will not become binding upon any party unless and until executed (whether or not in counterpart) by all the parties. Telecopy or facsimile signatures by the parties will be regarded as valid and binding signatures of the parties.

g. This Agreement will benefit and be binding upon the parties to it and their respective heirs, representatives, successors and assigns.

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This Agreement is executed as of the date first set forth above.

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EXHIBIT 1

(Excluded Furniture)

a.   30 cubicles and two refrigerators/ice makers presently located on the 2nd floor of the Leased Premises;

b.   8 office desks presently located on the 2nd or 3rd floors of the Leased Premises;

c.   Furniture presently located in Tenant’s CEO’s office; and,

d.   Furniture and cubicles presently located on the first floor.

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EX-10.3

Exhibit 10.3

PARK MEADOWS CORPORATE CENTER III AND IV OFFICE

LEASE BETWEEN

PUBLIC SERVICE CREDIT UNION

(LANDLORD) AND

ZYNEX MEDICAL, INC. (TENANT)

THIS LEASE (Lease) is made this 31st day of October, 2014, by and between PUBLIC SERVICE CREDIT UNION, a Colorado nonprofit corporation (“Landlord”) and ZYNEX MEDICAL, INC., a Colorado corporation (“Tenant”).

1.    Premises: Landlord hereby leases to Tenant those certain premises on the first (1st) floor of Building III (hereinafter defined) as depicted in Exhibit A-1 attached hereto and incorporated herein by this reference and those certain premises on the first (1st) floor of Building IV (hereinafter defined) as depicted in Exhibit A-2 attached hereto and incorporated herein by this reference consisting of a total of 22,000 rentable square feet of space (the “Premises”) located on the real property more particularly described on Exhibit B attached hereto and incorporated herein by this reference, together with a non- exclusive right, subject to the provisions hereof, to use all appurtenances thereunto, including, but not limited to, any areas designated by Landlord for use by tenants of Building III and Building IV (Building III, Building IV, the real property on which the same are situated, and appurtenances are hereinafter collectively sometimes called the “Building Complex”). Building III is commonly known as Park Meadows Corporate Center Ill and is located at 10000 Park Meadows Drive, Lone Tree, Colorado 80124 (“Building III”). Building IV is commonly known as Park Meadows Corporate Center IV and is located at 9990 Park Meadows Drive, Lone Tree, Colorado 80124 (“Building IV”). (Building III and Building IV are hereinafter collectively sometimes called the “Buildings”.) This Lease is subject to the terms, covenants and conditions set forth herein and Tenant and Landlord each covenant as a material part of the consideration for this Lease to keep and perform each and all of said terms, covenants and conditions to be kept and performed by them.

This Lease is conditioned upon Tenant’s full and timely performance of all contingencies, conditions, covenants and agreements in that certain Lease Termination Agreement by and between Landlord and Tenant dated October 31, 2014 concerning that certain Office Lease by and between Landlord and Tenant dated May 1, 2013, as amended by that certain First Amendment to Office Lease dated January 2, 2014, (collectively, the “Original Lease”), for the real property described as follows: 9990 Park Meadows Drive, Lone Tree, CO 80124, as more fully described in the Original Lease (the “Termination Agreement”). If Tenant does not fully and timely perform all contingencies, conditions, covenants and agreements in the Termination Agreement or otherwise is in breach of the Termination Agreement, this Lease shall be voidable at the sole and unfettered discretion of Landlord, and if voided Landlord shall not be liable to Tenant for any loss or damage resulting from the voiding of this Lease nor the failure to deliver possession of the Premises to Tenant, its servants, agents or independent contractors.

2.    Term and Possession:

(a)   The Term of this Lease shall be two (2) years to commence on January 1, 2015 (the “Commencement Date”) and to end, unless sooner terminated, at midnight on December 31, 2016.

(b)   Tenant is currently in possession of the portion of the Premises located in Building IV and accepts that portion of the Premises in its “as is” condition. Landlord will deliver possession of the portion of the Premises located in Building III on the Commencement Date. Prior to the Commencement Date, Landlord will paint the interior of and place new flooring in the portion of the Premises located in Building III with paint and flooring as depicted on Exhibit C (“Landlord’s Work). Other than Landlord’s Work, Landlord shall have no obligation for the completion of the Premises, and Tenant shall accept the Premises in its “as is” condition on the Commencement Date. Landlord shall not have any obligation for the repair or replacement of any portions of the interior of the Premises, including but not limited to carpeting, draperies, window coverings, wall coverings or painting, which are damaged or wear out during the term hereof, unless such damage is caused by Landlord or its agents or employees.

(c)   If Tenant occupies or begins to conduct business in all or any portion of the Premises located in Building Ill before the Commencement Date, such occupancy and conducting of its business by Tenant shall be subject to all provisions of this Lease which reasonably and logically apply thereto. Taking possession of all or any portion of the Premises by Tenant shall constitute Tenant’s acceptance of the Premises as being in satisfactory condition without any further work by Landlord.

(d)   This Lease shall not be void or voidable nor shall Landlord be liable to Tenant for any loss or damage resulting from any delay in delivering possession of the Premises to Tenant, its servants, agents or independent contractors.

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3.    Rent: Tenant shall pay to Landlord, rent for the Premises (“Base Rent”) in accordance with the following schedule:

	MONTHLY		ANNUAL		ANNUAL PRICE
PERIOD	BASE RENT		BASE RENT		PER SQUARE FOOT
Month 1-12	$	48,583.00	$	583,000.00	$	26.50
Months 13-24	$	48,583.00	$	583,000.00	$	26.50

Tenant and Landlord agree that Base Rent is based on the measurement of the Premises equaling 22,000 square feet and that the Premises is not subject to remeasurement except as specifically provided herein. All installments of Base Rent shall be payable in advance, on the first (1^st) day of each calendar month during the term hereof. Base Rent for any partial month during the term hereof shall be prorated based upon the number of days during each of said months that the Lease term was in effect. All Base Rent shall be paid without notice, demand, deduction or offset, at the office of Landlord or to such other person or at such other place as Landlord may designate in writing. Tenant shall pay to Landlord as “Additional Rent” all other sums due under this Lease. Late payments shall be subject to Interest and penalties as set forth in Section 16 hereof.

4.     Character of Occupancy:

(a)   The Premises are to be used for general office, compound pharmacy operations, storage, light assembly and testing, and uses incidental to such purposes, not inconsistent with the character and type of tenancy found in comparable first-class office buildings in the Denver metropolitan area and for no other purpose without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant shall be entitled to access to the Premises 24 hours per each day of the calendar year.

(b)   Tenant shall not suffer nor permit the Premises nor any part thereof to be used in any manner, nor anything to be done therein, nor suffer or permit anything to be brought into or kept therein, which would in any way (i) make void or voldable any fire or liability insurance policy then in force with respect to the Building Complex, (ii) make unobtainable from insurance companies authorized to do business in Colorado any fire insurance with extended coverage, or liability, elevator, boiler or other insurance required to be furnished by Landlord under the terms of any lease or mortgage to which this Lease is subordinate at standard rates, (iii) cause or in Landlord’s reasonable opinion be likely to cause physical damage to the Building Complex or any part thereof, (iv) constitute a public or private nuisance, (v) impair, in the reasonable opinion of Landlord, the appearance, character or reputation of the Building Complex, (vi) discharge objectionable fumes, vapors or odors into the Buildings air conditioning system or into the Buildings flues or vents not designed to receive them or otherwise in such manner as may unreasonably offend other occupants of the Buildings, (vii) impair or interfere with any of the Buildings services or impair or interfere with or tend to impair or interfere with the use of any of the other areas of the Buildings by, or occasion discomfort, or annoyance to Landlord or any of the other tenants or occupants of the Building Complex, any such impairment or interference to be based upon the judgment of Landlord, (viii) create waste in, on or around the Premises, Buildings, or Building Complex, or (ix) make any noise or set up any vibration which will disturb other tenants, except in the course of permitted repairs or alterations at times permitted by Landlord.

(c)   Tenant shall not use the Premises nor permit anything to be done in or about the Premises or Building Complex which will in any way conflict with any law, statute, ordinance, protective covenants affecting the Building Complex or governmental or quasi-governmental rules or regulations now in force or which may hereafter be enacted or promulgated. Tenant shall give written notice within five (5) days from receipt thereof to Landlord of any notice it receives of the violation of any law or requirement of any public authority with respect to the Premises or the use or occupation thereof. Landlord shall give written notice to Tenant within five (5) days from receipt thereof of any notice it receives relative to the violation by Tenant of any law or requirement of any public authority with respect to the Premises or the use or occupation thereof.

5.    Services and Utilities:

(a)   Landlord agrees, without charge except as provided herein, to furnish; (i) Hot and cold tap water for drinking and toilet purposes. Tenant shall pay Landlord for water furnished for any other purpose as Additional Rent at rates reasonably fixed by Landlord. Tenant shall not permit water to be wasted; (ii) During Ordinary Business Hours (hereinafter defined) to furnish such heated or cooled air to the Premises as may, in the reasonable judgment of Landlord, be required for the comfortable use and occupancy of the Premises provided that Tenant complies with the recommendations of Landlord’s engineer or other duly authorized representative, regarding occupancy and use of the Premises; (iii) During Ordinary Business Hours to cause electric current to be supplied for lighting the Premises and public halls; and, (iv) To furnish such snow removal services to the Building Complex as may, in the judgment of Landlord, be reasonably required for safe access to the Building Complex.

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(b)   Landlord shall have no obligation to provide janitorial services for the Premises. Tenant shall provide its own janitorial services for the Premises and shall keep the Premises in a clean and neat condition and, at a minimum, follow the cleaning specifications adopted by the Landlord for the Building Complex.

(c)   Landlord shall provide sufficient electricity to operate normal office lighting and equipment. This does not include special lighting in excess of building standard, or any other item of electrical equipment that singularly requires a voltage that exceeds other than one hundred twenty (120) volts (plus/minus ten percent) single phase. Tenant shall not install or operate in the Premises any electrically operated equipment or other machinery, other than business machines and equipment normally employed for general office use which do not require high electricity consumption for operation, without obtaining the prior written consent of Landlord. If any or all of Tenant’s equipment requires electricity consumption in excess of that which is necessary to operate normal office equipment, such consumption shall be submetered by Landlord or otherwise reasonably estimated, at Tenant’s expense, and Tenant shall reimburse Landlord as Additional Rent for the cost of its submetered or estimated consumption based upon Landlord’s average cost of electricity. Tenant shall not, without the prior written consent of Landlord, use any apparatus or device in or about the Premises which shall cause any substantial noise or vibration or which will increase the amount of electricity or water, if any, usually furnished or supplied for use of the Premises as general office space. Tenant shall not connect with electric current or water pipes, except through existing electrical or water outlets already in the Premises, any apparatus or device for the purposes of using electric current or water, except Tenant is permitted to arrange for a licensed electrician to install, at Tenant’s expense, 220-volt service for Tenant’s Xerox machine.

(d)   Tenant agrees that Landlord shall not be liable for failure to supply any heating, air conditioning, elevator, electrical, janitorial, lighting or other services during any period when Landlord uses reasonable diligence to supply such services, or during any period Landlord is required to reduce or curtail such services pursuant to any applicable laws, rules or regulations, now or hereafter in force or effect, it being understood and agreed to by Tenant that Landlord may discontinue, reduce or curtail such services, or any of them at such times as it may be necessary by reason of accident, repairs, alterations, improvements, strikes, lockouts, riots, acts of God, application of applicable laws, statutes, rules and regulations, or due to any other happening beyond the reasonable control of Landlord and not due to an act or omission of Landlord or its agents or employees. In the event of any such interruption, reduction or discontinuance of Landlord’s services. Landlord shall not be liable for damages to persons or property as a result thereof, nor shall the occurrence of any such event in any way be construed as an eviction of Tenant or cause or permit an abatement, reduction or setoff of rent, or operate to release Tenant from any of Tenant’s obligations hereunder. Notwithstanding anything to the contrary contained in this Section 5(d) if: (i) Landlord ceases to furnish any service in the Building for a period in excess of ten (10) consecutive business days after Tenant notifies Landlord of such cessation; (ii) such cessation does not arise as a result of act or omission of Tenant; (iii) such cessation is not caused by a fire or other casualty (in which case Section 13 shall control); (iv) the restoration of such service is reasonably within the control of Landlord; and (v) as a result of such cessation, the Premises, or a material portion thereof, is rendered untenantable (meaning that Tenant is unable to use the Premises or such portion in the normal course of its business) and Tenant in fact ceases to use the Premises, or material portion thereof, then Tenant, as its sole remedy, shall be entitled to receive an abatement of Base Rent payable hereunder during the period beginning on the eleventh (11th) consecutive business day of such cessation and ending on the day when the service in question has been restored. In the event the entire Premises has not been rendered untenantable by the cessation in service, the amount of abatement that Tenant is entitled to receive shall be prorated based upon the percentage of the Premises so rendered untenantable and not used by Tenant.

(e)   Whenever heat generating machines or equipment are used by Tenant in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises in the event Landlord’s independent consulting engineer determines same are necessary as a result of Tenant’s use of lights or equipment which generate heat loads in excess of those for which the HVAC system is designed and the cost therefor, including the cost of installation, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord.

(f)   In the event that Tenant has any special or additional electrical or mechanical requirements related to its use of the Premises, any such electrical or mechanical equipment must be located within the Premises. Such electrical or mechanical requirements, for the purposes hereof, shall include by way of example, but not limitation, any internal telephone system. The foregoing shall in no way be construed as granting to Tenant additional rights to use any such special or additional electrical or mechanical equipment in its Premises without the prior written consent of Landlord. Any additional cost or expense related to or resulting from such electrical or mechanical requirements shall be the sole obligation of Tenant.

(g)   If Tenant requires HVAC service beyond Ordinary Business Hours (hereafter “After Hours Usage”), such service shall be metered and Tenant shall reimburse Landlord on a monthly basis, as Additional Rent, for all costs and expenses for Tenant’s After Hours Usage including Landlord’s actual cost for electric service without markup. Ordinary Business Hours shall mean 6:00 A.M. to 6:00 P.M., Monday through Friday and 8:00 A.M. to 1:00 P.M. on Saturday, except Holidays.

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6.    Quiet Enjoyment: Subject to the provisions of this Lease, Landlord covenants that Tenant, on paying the rent and performing the covenants of this Lease on its part to be performed, shall and may peacefully and quietly have, hold and enjoy the Premises for the term of this Lease. Landlord shall not be responsible for the acts or omissions of any other tenant or third party which may interfere with Tenant’s use and enjoyment of the Premises.

7.    Maintenance and Repairs:

(a)   Notwithstanding any other provisions of this Lease, Landlord shall repair and maintain the structural portions of the Buildings, including the elevators, plumbing, air conditioning, heating and electrical systems installed or furnished by Landlord, unless such maintenance and repairs are caused in part or in whole by the act, neglect, fault or omission of Tenant, its agents, servants, employees, licensees or invitees, in which case Tenant shall pay to Landlord, on demand, the cost of such maintenance and repairs less the amount of any Insurance proceeds received by Landlord on account thereof, if applicable. Landlord shall also maintain and keep in good order and repair the Building exterior and roof; all exterior doors, including any exterior plate glass within the Building; the Building ventilating systems; and public portions of the Building or Building Complex, including but not limited to the parking areas (including maintaining parking space line striping on an ongoing basis as necessary) landscaping and interior portions of the Building above and below grade which are not covered by leases and are otherwise under the control of Landlord.

(b)   Tenant, at Tenant’s sole cost and expense, except for services furnished by Landlord pursuant to Section 5 hereof, shall maintain, in good order, condition and repair, the Premises in their condition as of date or dates of Tenant’s actual possession of the Premises including, without limitation, the interior surfaces of the ceiling (if damaged or discolored due in whole or in part to the act, neglect, omission or fault of Tenant), walls and floors, subject to the provisions of Section 12 hereof. In the event Tenant fails to so maintain the Premises in good order, condition and repair, Landlord shall give Tenant notice to do such acts as are reasonably required to maintain the Premises. In the event Tenant fails to promptly commence such work and diligently pursue it to completion, then Landlord shall have the right, but shall not be required, to do such acts and expend such funds at the expense of the Tenant as are reasonably required to perform such work. Landlord shall have no liability to Tenant for any damage, inconvenience or interference with the use of the Premises by Tenant as a result of performing any such work.

(c)   Tenant shall do all acts required to comply with all applicable laws, ordinances, regulations, rules and orders of any public authority relating directly to Tenant’s operations.

(d)   Whenever a special HVAC System is installed in all or part of the Premises, Tenant shall enter into a regularly scheduled preventative maintenance and service contract, at Tenant’s sole cost and expense, with an experienced maintenance and service contractor for servicing all such heating, air conditioning and ventilation systems and equipment, and shall provide Landlord with a copy of the same. The contractor and contract are both subject to Landlord’s prior approval, which approval will not be unreasonably withheld or delayed. Such contract shall include, at a minimum, all services recommended by the equipment manufacturer and must be effective within thirty (30) days of the Commencement Date hereof. Landlord shall retain all manufacturers’ warranty information, if any, and will cooperate with the Tenant to the extent warranty repairs are required.

8.    Alterations and Additions:

(a)   Tenant shall make no alterations, additions or improvements to the Premises or any part thereof without obtaining the prior written consent of Landlord, which consent may be withheld in Landlord’s sole discretion. Landlord may impose, as a condition to such consent, such requirements as Landlord may deem necessary in its reasonable judgment, including without limitation, the manner in which the work is done, a right of approval of the contractor by whom the work is to be performed and the times during which the work is to be accomplished, approval of all plans and specifications and the procurement of all licenses and permits. Landlord shall be entitled to post notices on and about Premises with respect to Landlord’s non-liability for mechanics’ liens and Tenant shall not permit such notices to be defaced or removed. Tenant further agrees not to connect any apparatus, machinery or device to the Building systems, including electric wires, water pipes, fire safety, heating and mechanical systems, without the prior written consent of Landlord, may be withheld in Landlord’s sole discretion. Upon completion Tenant shall furnish Landlord “as-built” plans, contractor’s affidavits and full and final lien waivers and receipted bills covering all labor and materials. Tenant shall reimburse Landlord upon demand as Additional Rent for all reasonable sums, if any, incurred by Landlord for examination of Tenant’s architectural, mechanical, electrical and plumbing plans and construction supervision for any such alterations, additions or improvements.

All alterations, improvements and additions to the Premises by Tenant, including, by way of illustration but not by limitation, all counters, screens, grilles, special cabinetry work, partitions, paneling, carpeting, drapes or other window coverings and light fixtures, shall be deemed a part of the real estate and the property of Landlord and shall remain upon and be surrendered with the Premises as a part thereof without molestation, disturbance or injury at the end of the Lease term, whether by lapse of time or otherwise. Any installation of equipment by Tenant on the roof (along with the use of any spare riser space) including, but not limited

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to, satellite dish(es) and related equipment, shall be removed by Tenant at the end of the Lease term, whether by lapse of time or otherwise, and the areas of removal on the roof shall be returned to their condition prior to such installation or installations, ordinary wear and tear excepted, all at Tenants own cost and expense.

(b)   All movable partitions, machines and equipment which are installed in the Premises by or for Tenant, without expense to Landlord, and can be removed without structural damage to or defacement of the Buildings or the Premises, and all furniture, furnishings and other articles of personal property owned by Tenant and located in the Premises (all of which are herein called “Tenant’s Property”) shall be and remain the property of Tenant and may be removed by it at any time during the term of this Lease. However, if any of Tenant’s Property is removed, Tenant shall repair or pay the cost of repairing any damage to the Buildings or the Premises resulting from such removal, including any holes or damages to the drywall. All additions or improvements which are to be surrendered with the Premises shall be surrendered with the Premises, as a part thereof, at the end of the term or the earlier termination of this Lease.

(c)   If Landlord permits persons requested by Tenant to perform any alterations, repairs, modifications or additions to the Premises, then prior to the commencement of any such work, Tenant shall deliver to Landlord certificates issued by insurance companies qualified to do business in the State of Colorado evidencing that worker’s compensation, commercial general public liability insurance and property damage insurance, all in amounts, with companies and on forms satisfactory to Landlord, are in force and maintained by all such contractors and subcontractors engaged by Tenant to perform such work. All such policies shall name Landlord as an additional Insured and shall provide that the same may not be canceled or modified without thirty (30) days prior written notice to Landlord.

(d)   Tenant, at its sole cost and expense, shall cause any permitted alterations, decorations, installations, additions or improvements in or about the Premises to be performed in compliance with all applicable codes, ordinances, laws (including the Americans with Disabilities Act), regulations and requirements of governmental bodies having jurisdiction and insurance companies insuring the Building, and in such manner as not to interfere with, delay, or impose any additional expense upon Landlord in the construction, maintenance or operation of the Buildings, and so as to maintain harmonious labor relations in the Buildings.

Entry by Landlord: Landlord and its agents shall have the right to enter the Premises during business hours upon reasonable notice to Tenant (except in the case of an emergency), for the purpose of examining or inspecting the same, to supply any services to be provided by Landlord hereunder, to show the same to prospective purchasers of the Buildings, to make such alterations, repairs, improvements or additions to the Premises or to the Buildings as Landlord may deem necessary or desirable, so long as such activities do not interfere with Tenant’s or Tenant’s guests and invitee’s access to the Premises, and to show the Premises to prospective tenants of the Premises. Landlord and its agent may enter the Premises at all times and without advance notice for the purpose of responding to an actual or apparent emergency. Landlord may in the case of an emergency enter the Premises by means of a master key without liability to Tenant and without affecting this Lease. If, during the last sixty (60) days of the term hereof, Tenant shall have removed substantially all of its property from the Premises and stopped operating its business in the Premises, Landlord may immediately enter and alter, renovate and redecorate the Premises without elimination or abatement of rent or incurring liability to Tenant for any compensation.

9.    Mechanic’s Liens: Tenant shall pay or cause to be paid all costs for work done by or on behalf of Tenant or caused to be done by or on behalf of Tenant on the Premises of a character which will or may result in liens against Landlord’s interest in the Premises, Buildings or Building Complex and Tenant will keep the Premises, Buildings and Building Complex free and clear of all mechanic’s liens and other liens on account of work done for or on behalf of Tenant or persons claiming under Tenant. Tenant hereby agrees to indemnify, defend and save Landlord harmless of and from all liability, loss, damages, costs or expenses, including attorneys’ fees, incurred in connection with any claims of any nature whatsoever for work authorized by Tenant and performed for, or materials or supplies furnished to, Tenant, including lien claims of laborers, materialmen or others. Should any such liens be filed or recorded against the Premises, Buildings or Building Complex with respect to work done for or materials supplied to or on behalf of Tenant or should any action affecting the title thereto be commenced, Tenant shall cause such liens to be released of record within five (5) days after notice thereof. If Tenant desires to contest any such claim of lien, Tenant shall nonetheless cause such lien to be released of record by the posting of adequate security within said five (5) day period with a court of competent jurisdiction as may be provided by Colorado’s mechanic lien statutes. If Tenant shall be in default in paying any charge for which such a mechanic’s lien or suit to foreclose such a lien has been recorded or filed and shall not have caused the lien to be released as aforesaid, Landlord may (but without being required to do so) pay such lien or claim and any costs associated therewith, and the amount so paid, together with reasonable attorneys’ fees incurred in connection therewith, shall be immediately due from Tenant to Landlord as Additional Rent.

Nothing in this section 9. is intended to, nor shall be construed to, create any obligation or liability on the part of Tenant with respect to work performed, or labor or materials furnished, which was authorized by Landlord whether such work is performed or the labor or materials are supplied in the Premises, in the Building, or on the Building Complex, unless such work, labor provided or materials supplied was expressly authorized by Tenant.

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10.   Damage to Property, Injury to Persons:

(a)   Tenant, as a material part of the consideration to be rendered to Landlord under this Lease, hereby waives all claims of liability that Tenant or Tenant’s legal representatives, successors or assigns may have against Landlord, and Tenant hereby indemnifies and agrees to hold Landlord harmless from any and all claims of liability for any injury or damage to any person or property whatsoever: (1) occurring in, on or about the Premises or any part thereof; and (2) occurring in, on or about the Building Complex, when such injury or damage is caused in part or in whole by the act, neglect, fault or omission of Tenant, its agents, contractors, employees, licensees or invitees. Tenant further agrees to indemnify and to hold Landlord harmless from and against any and all claims arising from any breach or default in the performance of any obligation on Tenant’s part to be performed under the terms of this Lease, or arising from any act or negligence of Tenant, or any of its agents, contractors, employees, licensees or invitees. Such Indemnities shall include by way of example, but not limitation, all costs, reasonable attorneys’ fees, expenses and liabilities incurred in or about any such claim, action or proceeding.

(b)   Landlord shall not be liable to Tenant for any damage by or from any act or negligence of any co-tenant or other occupant of the Building Complex, or by any owner or occupant of adjoining or contiguous property. Landlord shall not be liable for any injury or damage to persons or property resulting in whole or in part from the criminal activities of others besides Landlord, Its agents or employees. To the extent not covered by normal fire and extended coverage insurance, Tenant agrees to pay for all damage to the Building Complex, as well as all damage to persons or property of other tenants or occupants thereof, caused by the misuse, neglect, act, omission or negligence of Tenant or any of its agents, contractors, employees, licensees or invitees.

(c)   Neither Landlord nor its agents or employees shall be liable for any damage to property entrusted to Landlord, its agents or employees, or employees of the building manager, if any, nor for the loss or damage to any property occurring by theft or otherwise, nor for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water of rain which may leak from any part of the Building Complex or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place or resulting from dampness, or any other cause whatsoever, provided, however, nothing contained herein shall be construed to relieve Landlord from liability for any personal injury resulting from its or its agents’ or employees’ gross negligence or willful misconduct. Neither Landlord nor its agents or employees shall be liable for interference with the lights, view or other incorporeal hereditament, nor shall Landlord be liable for any latent defect in the Premises or in the Buildings or Building Complex. Tenant shall give prompt notice to Landlord in case of fire or accidents in or about the Premises or the Buildings or of defects therein or in the fixtures or equipment located therein.

(d)   In case any claim, demand, action or proceeding is made or brought against Landlord, its agents or employees, by reason of any obligation on Tenant’s part to be performed under the terms of this Lease, or arising from any act or negligence of Tenant, its agents or employees, or which gives rise to Tenant’s obligation to indemnify Landlord, Tenant shall be responsible for all costs and expenses, including but not limited to reasonable attorneys’ fees incurred in defending or prosecution of the same, as applicable.

11.    Insurance:

(a)   Landlord agrees to secure and maintain the following insurance during the term of this Lease and any extension hereof: commercial general public liability insurance against claims for bodily injury, personal injury and property damage in or about the Premises, the Buildings and the Building Complex (excluding Tenant’s Property), such insurance to be in amounts sufficient to provide reasonable protection for the Building Complex. Landlord shall also secure and maintain “all risk” property insurance on the Buildings and Building Complex. Such insurance may expressly exclude property paid for by tenants or paid for by Landlord for which tenants have reimbursed Landlord located in or in, or constituting a part of the Building or the Building Complex. All such insurance shall be procured from a responsible insurance company or companies authorized to do business in Colorado and may be obtained by Landlord by endorsement on its blanket insurance policies.

(b)   Upon execution of this Lease, Tenant (with respect to the Premises, the Buildings and the Building Complex) shall secure and maintain, at its own expense, a policy or policies of commercial general liability insurance, protecting Tenant and naming Landlord, Its property manager and their respective agents as additional insured against claims for bodily injury, personal injury, advertising injury and property damaged based upon, involving or arising out of the Tenant’s use, occupancy or maintenance of the Premises, the Buildings and the Building Complex. Such insurance shall afford a combined single limit of not less than One Million Dollars ($1,000,000) per occurrence and aggregate of Two Million Dollars ($2,000,000). The coverage required to be carried shall include blanket contractual liability, personal injury liability (libei, slander, false arrest and wrongful eviction), and broad form property damage liability and the policy shall contain an exception to any pollution exclusion which insures damage or injury arising out of heat, smoke or fumes from a hostile fire. Such insurance shall be written on an occurrence basis and contain a standard separation of insureds provision. In addition, Tenant shall secure and maintain workers’ compensation and employer’s liability insurance with limits as may be required by applicable law. Tenant shall provide Landlord with a certificate evidencing such insurance

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coverage. The certificate shall indicate that the insurance provided specifically recognizes the liability assumed by Tenant under this Lease and that Tenant’s insurance is primary to and not contributory with any other insurance available to Landlord, whose insurance shall be considered excess insurance only. Not more frequently than every three (3) years, if, in the reasonable opinion of any mortgagee of Landlord or of the insurance broker retained by Landlord, the amount of liability insurance coverage at that time is not adequate, then Tenant shall increase its liability insurance coverage as required by either any mortgagee of Landlord or Landlord’s insurance broker.

(c)   Tenant shall secure and maintain, at Tenant’s expense, special form fire and extended coverage insurance on all of Tenant’s fixtures and personal property in the Premises and on any improvements or alterations, additions or improvements made by Tenant, upon the Premises, all for the full replacement cost thereof (or such other form of property insurance then available in the insurance market that is most comparable or equivalent to “all risk”). Tenant shall use the proceeds from such insurance for the replacement of fixtures and personal property and for the restoration of tenant improvements or alterations, additions or improvements to the Premises. Landlord shall be named as loss payee as its interests may appear. Tenant shall provide Landlord with certificates of all such insurance. Tenant shall, at least thirty (30) days prior to the expiration of any policy of insurance required to be maintained by Tenant under this Lease, furnish Landlord with an “insurance binder” or other satisfactory evidence of renewal thereof.

(d)   All policies required to be carried by Tenant hereunder shall be issued by and binding upon an insurance company licensed to do business in the State of Colorado with a rating of at least A-:VIII, or such other rating as may be required by a lender having a lien on the Building as set forth in the then most current issue of “Best’s Insurance Reports.” Tenant shall not do or permit anything to be done that would invalidate the insurance policies referred to in this Section II. Evidence of insurance provided to Landlord shall include an endorsement showing that Landlord and its representatives are included as additional insureds on general liability insurance, and as loss payees for property insurance, and an endorsement whereby the insurer agrees not to cancel, non-renew or reduce coverage of the policy without at least thirty (30) days prior written notice to Landlord and its representatives.

(e)   In the event that Tenant fails to provide evidence of insurance required to be provided by Tenant hereunder, prior to commencement of the Term, and thereafter during the Term, within ten (10) days following Landlord’s request therefor, and thirty (30) days prior to the expiration date of any such coverage, Landlord shall be authorized (but not required) to procure such coverage in the amounts stated with all costs thereof (plus a fifteen percent [15%] administrative fee) to be chargeable to Tenant and payable upon written invoice therefor.

(f)   The limits of insurance required by this Lease, or as carried by Tenant, shall not limit the liability of Tenant nor relieve Tenant of any obligation hereunder.

(g)   Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each waives all rights of recovery, claim, action or cause of action against the other, its agents (including partners, both general and limited), trustees, officers, directors, and employees, for any loss or damage that may occur to the Premises, or any improvements thereto, or the Building or any personal property of such party therein, by reason of any cause required to be insured against under this Lease, regardless of cause or origin, including negligence of the other party hereto; and each party covenants that, to the fullest extent permitted by law, no insurer shall hold any right to subrogation against such other party. Tenant shall advise its insurers of the foregoing and such waiver shall be a part of each policy maintained by Tenant which applies to the Premises, any part of the Building or Tenant’s use and occupancy of any part thereof.

(h)   Any Building employee to whom property shall be entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant’s agent with respect to such property and neither Landlord, the Building manager, if any, nor their respective agents shall be liable for any damage to the property of Tenant or others entrusted to employees of the Building, nor for the loss of or damage to any property of Tenant by theft or otherwise and Tenant shall indemnify Landlord of and from any loss or damages, costs or actions Landlord may suffer or incur as a result of such loss or damage to Property.

12.    Damage or Destruction to Building:

(a)   In the event that the Premises or the Building are damaged by fire or other insured casualty and the insurance proceeds have been made available therefor by the holder or holders of any mortgages or deeds of trust covering the Building, the damage shall be repaired by and at the expense of Landlord to the extent of such insurance proceeds available therefor, provided such repairs and restoration can, in Landlord’s reasonable opinion, be made within one hundred eighty (180) days after the occurrence of such damage without the payment of overtime or other premiums, and until such repairs and restoration are completed, the Base Rent shall be abated in proportion to the part of the Premises which is unusable by Tenant in the conduct of its business, as may be reasonably determined by Landlord, (but there shall be no abatement of Base Rent by reason of any portion of the Premises being unusable for a period equal to one day or less). Landlord agrees to notify Tenant within sixty (60) days after such casualty if it estimates that it will be unable to repair and restore the Premises within said one hundred eighty (180) day period. Such notice shall

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set forth the approximate length of time Landlord estimates will be required to complete such repairs and restoration. Notwithstanding anything to the contrary contained herein, if Landlord cannot or estimates it cannot make such repairs and restoration within said one hundred eighty (180) day period, then Tenant may, by written notice to Landlord cancel this Lease, provided such notice is given to Landlord within fifteen (15) days after Landlord notifies Tenant in writing of the estimated time for completion of such repairs and restoration. Notwithstanding the preceding sentence, Tenant may not cancel this Lease as hereinabove stated if the damage to the Premises or the Building is in whole or in part the result of the act, omission, fault or gross negligence of Tenant, its agents, contractors, employees, licensees or invitees. Except as provided in this Section 12 there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business or property arising from the making of any such repairs, alterations or improvements in or to the Building, Premises or fixtures, appurtenances and equipment. Tenant understands that Landlord will not carry insurance of any kind on Tenant’s property, including furniture and furnishings, or on any fixtures or equipment removable by Tenant under the provisions of this Lease, or any improvement installed in the Premises by or on behalf of Tenant, and that Landlord shall not be obligated to repair any damage thereto or replace the same.

(b)   In case the Building Complex throughout shall be so injured or damaged, whether by fire or otherwise (though the Premises may not be affected, or if affected, can be repaired within said one hundred eighty (180) days) that Landlord, within sixty (60) days after the happening of such injury, shall decide not to reconstruct or rebuild, then notwithstanding anything contained herein to the contrary, upon notice in writing to that effect given by Landlord to Tenant within said sixty (60) days, this Lease shall terminate from the date Tenant was unable to occupy the Premises, and both parties hereto shall be released and discharged from all further obligations hereunder (except those obligations which expressly survive termination of the Lease term). If Landlord terminates the Lease in accordance with this Section 12, Tenant shall pay the rent, properly apportioned up to date of such casualty. A total destruction of the Buildings shall automatically terminate this Lease effective on the date of such total destruction.

13.   Condemnation:

(a)   If more than 20% of the Premises shall be taken under power of eminent domain or transferred under threat thereof, then this Lease, at the option of either Landlord or Tenant exercised by either party giving notice to the other of such election within thirty (30) days after such conveyance or taking possession, whichever is earlier, shall forthwith cease and terminate and the rent shall be duly apportioned as of the date of such taking or conveyance. No award for any partial or entire taking shall be apportioned and Tenant hereby assigns to Landlord any award which may be made in such taking or condemnation, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof. Notwithstanding the foregoing, Tenant shall be entitled to seek, directly from the condemning authority, an award for its removable trade fixtures, equipment and personal property and relocation expenses, if any, to the extent Landlord’s award is not diminished. In the event of a partial taking which does not result in a termination of this Lease, Base Rent shall be reduced in proportion to the reduction in the size of the Premises so taken and this Lease shall be modified accordingly. Promptly after obtaining knowledge thereof, Landlord or Tenant, as the case may be, shall notify the other of any pending or threatened condemnation or taking affecting the Premises or Buildings.

(b)   If during the Term part of Building III of Building IV is so taken or purchased as set out in Section 13(a), then:

(1)   If in the reasonable opinion of Landlord, substantial alteration or reconstruction of the Building is necessary or desirable as a result thereof, whether or not the Premises are or may be affected, Landlord shall have the right to terminate this Lease by giving the Tenant at least ninety (90) days’ written notice of such termination; and

(2)   If more than one-third (1/3) of the number of square feet in the Premises is included in such taking or purchase and such reduction in square footage of the Premises renders the Premises unusable, in the reasonable estimation of Landlord, for the permitted use hereunder as conducted by Tenant, Landlord and Tenant shall each have, the right to terminate this Lease by giving the other at least ninety (90) days’ written notice thereof.

If either party exercises Its right to termination hereunder, this Lease shall terminate on the date stated in the notice; provided, however, that no termination pursuant to notice hereunder may occur later than one hundred and twenty (120) days after the date of such taking.

14.   Prohibition on Assignment and Subletting:

(a)   Tenant shall not voluntarily, by operation of law, or otherwise, assign, transfer, sublease or encumber this Lease or any interest herein or part with possession of all or any part of the Premises (any and all of which shall hereinafter be referred to as “Transfer”). Any Transfer and resulting subletting or assignment shall not relieve Tenant of its primary obligations hereunder, including the obligation for payment of all rents due hereunder. Any Transfer shall constitute a default hereunder and shall be void and shall confer no rights upon any third party, notwithstanding Landlord’s acceptance of rent payments from any purported transferee.

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(b)   In the event of any Transfer of this Lease or any portion thereof, Landlord shall have the following remedies, in addition to any other remedies hereunder or at law or equity: (I) to give Tenant written notice of Landlord’s intention to terminate this Lease on the date such notice is given or on any later date specified therein, whereupon, on the date specified in such notice, Tenant’s right to possession of the Premises shall cease and this Lease shall thereupon be terminated, except as to any uncompleted obligations of Tenant; (2) to re-enter and take possession of the Premises or the part thereof subject to such Transfer, and to enforce all rights of Tenant, and receive and collect all rents and other payments due to Tenant, in accordance with such sublet or assignment of the Premises, or any part thereof, as if Landlord was the subiessor or assignor, and to do whatever Tenant is permitted to do pursuant to the terms of such sublease or assignment; or, (3) Landlord, at its option and from time to time, may collect the rent from the subtenant or assignee, and apply the net amount collected to the rent herein reserved without any obligation to pay over to or credit Tenant for any amounts so collected by Landlord.

15.   Estoppel Certificate: Tenant further agrees at any time and from time to time on or before ten (10) days after written request by Landlord, to execute, acknowledge and deliver to Landlord an estoppel certificate certifying (to the extent it believes the same to be true) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified, and stating the modifications), that to the knowledge of Tenant there have been no defaults thereunder by Landlord or Tenant (or if there have been defaults, setting forth the nature thereof), the date to which the rent and other charges have been paid, if any, Tenant claims no present charge, lien, claim or offset against rent, the rent is not prepaid for more than one month in advance and such other matters as may be reasonably required by Landlord, Landlord’s mortgagee, or any potential purchaser of the Building, it being intended that any such statement delivered pursuant to this section may be relied upon by any prospective purchaser of all or any portion of Landlord’s interest herein, or a holder of any mortgage or deed of trust encumbering any portion of the Building Complex. Tenant’s failure to deliver such statement within such time shall be a default under this Lease. Notwithstanding the foregoing, in the event that Tenant does not execute the statement required by this Section, Tenant hereby grants to Landlord a power of attorney coupled with an interest to act as Tenant’s attorney In fact for the purpose of executing such statement or statements required by this Section.

16.   Default:

(a)   The following events (herein referred to as an “event of default”) shall constitute a default by Tenant hereunder;

(1)   Tenant shall fail to pay within five (5) business days after the date due of any installment of Base Rent, Additional Rent or any other amounts payable hereunder, however Tenant shall have the opportunity to cure the foregoing non-payment twice in any twelve month rolling time period by making payment within five (5) business days of written notice from Landlord notifying Tenant of non-receipt such Base Rent, Additional Rent or any other amounts payable hereunder;

(2)   Tenant shall fail to perform any of the other non-monetary agreements, terms, covenants or conditions hereof on Tenant’s part to be performed, and such nonperformance shall continue for a period of thirty (30) days after written notice thereof by Landlord to Tenant; provided, however, that if Tenant cannot reasonably cure such nonperformance within thirty (30) days, Tenant shall not be in default if it commences cure within said thirty (30) days and diligently and continuously pursues the same to completion;

(3)   This Lease or the estate of Tenant hereunder shall be transferred to or shall pass to or devolve upon any other person or party in violation of the provisions of this Lease

(4)   This Lease or the Premises or any part thereof shall be taken upon execution or by other process of law directed against Tenant, or shall be taken upon or subject to any attachment at the instance of any creditor or claimant against Tenant, and said attachment shall not be discharged or disposed of within fifteen (15) days after the levy thereof;

(5)   Tenant shall file a petition in bankruptcy or insolvency or for reorganization or arrangement under the bankruptcy laws of the United States or under any Insolvency act of any state, or shall voluntarily take advantage of any such law or act by answer or otherwise, or shall be dissolved or shali make an assignment for the benefit of creditors;

(6)   Involuntary proceeding under any such bankruptcy law or insolvency act or for the dissolution of Tenant shall be instituted against Tenant, or a receiver or trustee shall be appointed of all or substantially all of the property of Tenant, and such proceedings shall not be dismissed or such receivership or trusteeship vacated within sixty (60) days after such institution or appointment;

(7)   Tenant shall fail to occupy the Premises within thirty (30) days of the Commencement Date;

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(8)   Tenant shall fail to continuously operate it business within the Premises for a period of thirty (30) consecutive days;

(9)   Tenant shall fail to obtain a release of any mechanic’s lien or post a bond, as required herein;

(10)  A guarantor of this Lease, if any, or a general partner of Tenant (if Tenant is a general or limited partnership), becomes a debtor under any state or federal bankruptcy proceedings, or becomes subject to receivership or trusteeship proceedings, whether voluntary or involuntary; except in the case of a guarantor, Tenant shall not be In default if a substitute guarantor, with acceptable creditworthiness and financial abilities in light of the responsibilities of Tenant hereunder, and otherwise acceptable to Landlord, is provided to Landlord within fifteen (15) days; and

(11)  All or a substantial part of the personal property of Tenant is seized, subject to levy or attachment, or similarly repossessed or removed from the Premises, or a receiver is appointed for all or substantially all of Tenant’s assets.

(b)   Upon the occurrence of an event of default, Landlord shall have the right, at its election, then or at any time thereafter and while any such event of default shall continue, to pursue any one or more of the following remedies without notice or demand whatsoever:

(1)   Except as otherwise provided in C.R.S. § 13-40-104(1)(e) and (e.5), as amended, give Tenant written notice of Landlord’s intent to terminate this Lease on the date of such notice or on any later date as may be specified herein, whereupon, Tenant’s right to possession of the Premises shall cease and this Lease, except as to Tenant’s liability, shall be terminated.

In the event this Lease is terminated in accordance with the provisions of this Section, Tenant shall remain liable to Landlord for damages in an amount equal to the Base Rent, Additional Rent and other sums which would have been owing by Tenant hereunder for the balance of the Term had this Lease not been terminated, less the net proceeds, if any, of any reletting of the Premises by Landlord subsequent to such termination, deducting from such proceeds all Landlord’s expenses including, without limitations, all repossession costs, brokerage commissions, legal expenses, attorneys’ fees, expenses of employees, alteration and repair costs and expenses of preparation for such reletting. Landlord shall be entitled to collect such damages from Tenant monthly on the days on which the Base Rent and other charges would have been payable hereunder if this Lease had not been terminated. Alternatively, at the option of the Landlord, in the event this Lease is so terminated, Landlord shall be entitled to recover forthwith against Tenant as damages for loss of the bargain and not as a penalty an aggregate sum, which at the time of such termination of this Lease, represents the excess, if any, of the aggregate of the Base Rent, Additional Rent and all other charges payable by Tenant hereunder that would have accrued for the balance of the Term over the aggregate fair market rental value of the Premises (such rental value to be computed on the basis of Tenant paying not only a Base Rent and Additional Rent to Landlord for the use and occupation of the Premises, but also such other charges as are required to be paid by Tenant under the terms of this Lease) for the balance of such Term, both discounted to present worth at the rate of four percent (4%) per annum.

(2)   Reenter and take possession of the Premises or any part thereof, and repossess the same as of Landlord’s former estate and expel Tenant and those claiming through and under Tenant, and remove the effects of both or either, using such force for such purposes as may be necessary, without being liable for prosecution thereof, without being deemed guilty of any manner of trespass, and without prejudice to any remedies for arrears of Base Rent, Additional Rent and other charges payable or preceding breach of covenants or conditions. Should Landlord elect to reenter as provided in this subsection, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for by law, Landlord from time to time, without terminating this Lease, relet the Premises or any part thereof in Landlord’s or Tenant’s name, but for the account of Tenant, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term of this Lease) and on such conditions and upon other terms (which may include concessions of free Base Rent and alteration and repair of the Premises) as Landlord, in its sole discretion, may determine, and Landlord may collect and receive the Base Rents therefor. Landlord shall in no way be responsible or liable for any failure to relet the Premises, or any part thereof, or forany failure to collect any Base Rent due upon such reletting. No such reentry or taking possession of the Premises by Landlord shall be construed as an election on Landlord’s part to terminate this Lease unless a written notice of such intention is given to Tenant. No notice from Landlord hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Landlord to terminate this Lease unless such notice specifically so states. Landlord reserves the right following any such reentry and/or reletting to exercise its right to terminate this Lease by giving Tenant such written notice, in which event the Lease will terminate as specified in said notice.

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In the event that Landlord does not elect to terminate this Lease but takes possession as provided for in this subsection, Tenant shall pay to Landlord (i) the Base Rent, Additional Rent and other charges as herein provided which would be payable hereunder if such repossession had not occurred, less (ii) the net proceeds, if any, of any reletting of the Premises after deducting all Landlord’s reasonable expenses including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys’ fees, expenses of employees, alteration and repair costs and expense of preparation for such reletting. Tenant shall pay such Base Rent, Additional Rent and other sums to Landlord monthly on the days on which the Base Rent would have been payable hereunder if possession had not been retaken.

Landlord acknowledges that regardless of which remedy Is selected, it shall have a duty to mitigate the damages in accordance with Colorado law,

(c)   No failure by Landlord to insist upon the strict performance of any agreement, term, covenant or condition hereof or to exercise any right or remedy consequent upon a breach thereof, and no acceptance of full or partial rent during the continuance of any such breach, shall constitute a waiver of any such breach of such agreement, term, covenant or condition. No agreement, term, covenant or condition hereof to be performed or complied with by Tenant, and no breach thereof, shall be waived, altered or modified except by written instrument executed by Landlord. No waiver of any breach shall affect or alter this Lease, but each and every agreement, term, covenant and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. Notwithstanding any unilateral termination of this Lease, this Lease shall continue in force and effect as to any provisions hereof which require observance or performance of Landlord or Tenant subsequent to termination.

(d)   Any rents or other amounts owing to Landlord hereunder which are not paid within ten (10) days of the date they are due, shall thereafter bear interest from the due date at the rate of eighteen percent (18%) per annum (“Interest Rate”) until paid. Similarly, any amounts paid by Landlord to cure any default of Tenant or to perform any obligation of Tenant, shall, if not repaid by the Tenant within five (5) days of demand by Landlord, thereafter bear interest from the date paid by Landlord at the interest Rate until paid. In addition to the foregoing, Tenant shall pay to Landlord whenever any Base Rent, Additional Rent or any other sums due hereunder at the time of default remain unpaid more than ten (10) days after the due date thereof, a late charge equal to ten percent (10%) of the amount due. Further, in the event of default by Tenant, in addition to all other rights and remedies, Landlord shall be entitled to receive from Tenant all sums, the payment of which may previously have been waived or abated by Landlord, or which may have been paid by Landlord pursuant to any agreement to grant Tenant a rental abatement or other monetary inducement or concession, including but not limited to any tenant finish allowance, moving allowance, and leasing commissions, together with interest thereon from the date or dates such amounts were paid by Landlord or would have been due from Tenant but for the abatement, at the Interest Rate, until paid; it being understood and agreed that such concession or abatement was made on the condition and basis that Tenant fully perform all obligations and covenants under the Lease for the entire term.

Notwithstanding anything in this Section 16 to the contrary, it is Landlord’s and Tenant’s understanding that in the event of default, Landlord should be made whole for any loss or damage it sustains as a result of the event of default, but that it should not be entitled to recover amounts for which it will otherwise be paid.

(e)   Each right and remedy provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease now or hereafter existing at law or in equity or by statute or otherwise, including, but not limited to, suits for injunctive or declaratory relief and specific performance. The exercise or commencement of the exercise by Landlord of any one or more of the rights or remedies provided for in this Lease now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or subsequent exercise by Landlord of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statue or otherwise. All costs incurred by Landlord in connection with collecting any amounts and damages owing by Tenant pursuant to the provisions of this Lease or to enforce any provision of this Lease, including by way of example, but not limitation, reasonable attorneys’ fees from the date any such matter is turned over to an attorney, shall also be recoverable by Landlord from Tenant.

(f)   The Tenant and Landlord each hereby expressly, irrevocably, fully and forever release, waive and relinquish any and all right to trial by jury and all right to receive punitive, exemplary and consequential damages from the other (or any past, present or future director, officer, member, partner, employee, agent, representative, or advisor of the other) In any claim, demand, action, suit, proceeding or cause of action in which the Tenant and Landlord are parties, which In any way (directly or Indirectly) arises out of, results from, or relates to, any of the following, in each case whether now existing or hereafter arising and whether based on contract or tort or any other legal basis; this Lease; any past, present or future act, omission, conduct or activity with respect to this Lease; any transactions, event or occurrence contemplated by this Lease; the performance of any obligation or the exercise of any right under this Lease; or the enforcement of this Lease. The Tenant and Landlord each agree that this Agreement constitutes written consent that trial by jury shall be waived in any such claim, demand, action, suit, proceeding or other cause of action and agree that the Tenant and Landlord each shall have the right at any time to file this Lease with the clerk or judge of any court in which any such claim, demand, action, suit, proceeding or other cause of action may be pending as written consent to waiver of trial by jury.

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17.   Security Deposit. Tenant, no later than the Commencement Date will deposit with Landlord the sum of $55,208.33 as security for the payment by Tenant of the Base Rent and all other sums herein agreed to be paid and for the faithful performance of all the terms, conditions and covenants of this Lease. If, at any time during the term hereof, Tenant shall be in default in the performance of any provisions of this Lease, then without limiting Landlord’s other remedies for such default, Landlord shall have the right, but not the obligation, to use said deposit, or so much thereof as necessary, in payment of any rent in default, reimbursement of any expense Incurred by Landlord, (including without limitation reasonable attorney’s fees), and in payment of any damages incurred by Landlord by reason of Tenant’s default. In such event, Tenant shall, on written demand of Landlord, forthwith remit to Landlord a sufficient amount in cash to restore said deposit to its original amount. In the event said deposit has not been utilized as aforesaid, said deposit, or as much thereof as has not been utilized for such purposes, shall be refunded to Tenant, without interest, within sixty (60) days after the termination of this Lease upon full performance of this Lease by Tenant and vacation of the Premises by Tenant. Landlord shall have the right to commingle said deposit with other funds of Landlord. Landlord may deliver the funds deposited herein by Tenant to any purchaser or transferee of Landlord’s Interest in the Premises in the event such interest is sold or transferred, and thereupon Landlord shall be discharged from further liability with respect to such deposit. If the claims of Landlord exceed the amount of said deposit, Tenant shall remain liable for the balance of such claims.

18.   Removal of Tenant’s Property: All movable furniture and personal effects of Tenant not removed from the Premises upon the vacation or abandonment thereof or upon the termination of this Lease for any cause whatsoever shall conclusively be deemed to have been abandoned and may be appropriated, sold, stored, destroyed or otherwise disposed of by Landlord without notice to Tenant and without obligation to account therefor, and Tenant shall reimburse Landlord for all expenses incurred in connection with the disposition of such property.

19.   Holdover: Should Tenant, without Landlord’s consent, holdover after the termination of this Lease and continue to pay rent, Tenant shall become a tenant from month to month only upon each and all of the terms herein provided as may be applicable to such month to month tenancy and any such holdover shall not constitute an extension of this Lease. During such holdover, without Landlord’s consent, Tenant shall pay monthly Base Rent equal to one hundred fifty percent (150%) of the Base Rent and Additional Rent due for the last month of the Term of the Lease, plus the other monetary charges as provided herein. In the event of Tenant holdover after the termination of this Lease with Landlord’s consent all other terms of this Section 20 shall apply, however, Tenant shall pay Landlord monthly Base Rent equal to one hundred fifty percent (150%) of the Base Rent and Additional Rent due for the last month of the Term of the Lease. Such tenancy (whether with or without Landlord’s consent) shall continue until terminated by Landlord, as provided by law, or until Tenant shall have given to Landlord at least thirty (30) days written notice prior to the last day of the calendar month intended as the date of termination of such month to month tenancy.

20.   Common Areas and Management: Except the Premises and as otherwise specifically provided herein, all access roads, other areas of the Building Complex and the facilities or improvements furnished by Landlord are for the general and nonexclusive use in common of all tenants of the Building, and those persons invited upon the land upon which the Buildings are situated and shall be subject to the exclusive control and management of Landlord, and Landlord shall have the right, without obligation to establish, modify and enforce such rules and regulations, which the Landlord may deem reasonable and/or necessary. An affiliate of Landlord or an institutional quality third party management company (“Manager”) shall manage the Buildings. The Manager shall have a local representative whose office Is in reasonably close proximity to the Buildings, The Manager shall operate the Buildings in a first- class institutional quality manner.

21.   Surrender and Notice: Upon the expiration or earlier termination of this Lease, Tenant shall promptly quit and surrender to Landlord the Premises broom clean, in good order and condition, ordinary wear and tear and loss by fire or other casualty excepted, and Tenant shall remove all of its movable furniture and other effects and such alterations, additions and improvements as Landlord shall require Tenant to remove pursuant to Section 8 hereof. In the event Tenant fails to so vacate the Premises on a timely basis as required, Tenant shall be responsible to Landlord for all Costs and damages, including but not limited to any amounts required to be paid to third parties who were to have occupied the Premises, incurred by Landlord as a result of such failure, plus interest thereon at the Interest Rate on all amounts not paid by Tenant within five (5) days of demand, until paid in full.

22.   Sales. Conveyance and Assignment: Nothing In this Lease shall restrict the right of Landlord to sell, convey, assign or otherwise deal with its interest in the Buildings subject only to the rights of Tenant under this Lease. In the event Landlord conveys Its interest In the Buildings, Tenant shall, if requested by Landlord, execute an Estoppel Certificate for the benefit of the new owner.

23.   Subordination and Attornment:

(a)   Conditioned upon any current or future mortgagee entering into a nondisturbance agreement with Tenant In a form satisfactory to Tenant, based upon Tenant’s exercise of commercially reasonable discretion, this Lease is and shall be subject and subordinate in all respects to any and all mortgages and deeds of trust now or hereafter placed on the Buildings, the Building Complex or the land on which it is situated, and to all renewals, modifications, consolidations, replacements and extensions thereof.

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(b)   Subject to subsection (c), if the interest of Landlord is transferred to any person (herein called (“Purchaser”) by reason of foreclosure or other proceedings for enforcement of any mortgage or deed of trust, or by delivery of a deed in lieu of such foreclosure or other proceedings, Tenant shall immediately and automatically attorn to Purchaser.

(c)   Upon attornment under subsection (b), this Lease shall continue in full force and effect as a direct Lease between Purchaser and Tenant, upon all of the same terms, conditions and covenants as are set forth in this Lease except that, after such attornment, Purchaser shall not be liable for any act of omission of any previous Landlord.

(d)   The subordination and attornment provisions of this Section 23 shall be self- operating and except as set out in subsection (a), no further instrument shall be required. Nevertheless Tenant, on request by and without cost to Landlord or any successor in interest, shall execute and deliver any and all reasonable instruments further evidencing such subordination and (where applicable hereunder) attornment. Tenant hereby irrevocably appoints Landlord as attorney-In-fact of Tenant to execute, delivery and record any such documents and instruments in the name and on behalf of Tenant if Tenant fails to do so.

24.   Payments After Termination: No payments of money by Tenant to Landlord after the termination of this Lease, in any manner, or after giving of any notice (other than a demand for payment of money) by Landlord to Tenant, shall reinstate, continue or extend the term of this Lease or affect any notice given to Tenant prior to the payment of such money, it being agreed that after the service of notice of the commencement of a suit or other final judgment granting Landlord possession of the Premises, Landlord may receive and collect any sums of rent due, or any other sums of money due under the terms of this Lease or otherwise exercise its rights and remedies hereunder. The payment of such sums of money, whether as rent or otherwise, shall not waive said notice or in any manner affect any pending suit or judgment theretofore obtained.

25.   Authorities for Action and Notice:

(a)   Except as otherwise provided herein, Landlord may, for any matter pertaining to this Lease, act by and through its building manager or any other person designated in writing from time to time.

(b)   All notices or demands required or permitted to be given hereunder shall be in writing, and shall be deemed delivered when received by the addressee, if hand delivered or delivered by overnight courier, or three (3) days after the same is deposited in the United States mail, with proper postage prepaid, certified or registered mail, return receipt requested, addressed to Landlord or Tenant, as applicable, at the following addresses:

Landlord:	Public Service Credit Union
	7055 East Evans Avenue
	Denver, CC 80224
	Att: Facilities Manager
cc:	Hensley & Kennedy, P.C.
	1790 30th St., Suite 435
	Boulder, CO 80301
	Att: John F.
	Hensley
Tenant:	Zynex Medical, Inc.
	9990 Park Meadows
	Drive Lone Tree,
	Colorado 80124 Att:
	Thomas Sandgaard

Either party shall have the right to designate in writing served as above provided, a different address to which notice is to be provided, which address change shall be effective thirty (30) days after delivery of notice of the same. The foregoing shall in no event prohibit notice from being given as provided in Rule 4 of the Colorado Rules of Civil Procedure, as the same may be amended from time to time. The failure to provide a courtesy copy of any notice required to be given hereunder shall not vitiate an otherwise validly given notice

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26.   Liability of Landlord: Landlord’s liability under this Lease shall be limited to Landlord’s estate and interest in the Buildings (or to the proceeds thereof) and no other property or other assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder or Tenant’s use and occupancy of the Premises. Nothing contained in this section shall be construed to permit Tenant to offset against rents due a successor landlord, a judgment (or other judicial process) requiring the payment of money by reason of any default of a prior landlord, except as otherwise specifically set forth herein.

27.   Brokerage: Tenant represents and warrants that it has dealt with no brokers and agrees to defend, hold harmless and indemnity Landlord against any and all claims by any other person or entity claiming entitlement to any commission or other compensation as a result of a claim that such person or entity assisted Tenant in any manner with respect to the Lease. Additionally, Tenant acknowledges and agrees that Landlord shall have no obligation for payment of any brokerage fee or similar compensation to any person with whom Tenant has dealt or may in the future deal with respect to leasing of any additional or expansion space in the Buildings or renewals or extensions of this Lease.

28.   Tenant’s Taxes:

(a)   Tenant shall be liable for and shall pay at least ten (10) days before delinquency and Tenant hereby agrees to indemnify and hold Landlord harmless from and against any liability in connection with, all taxes levied against any personal property, fixtures, machinery, equipment, apparatus, systems and appurtenances placed by or on behalf of Tenant in or about or utilized by Tenant in, upon or in connection with the Premises (“Equipment Taxes”). If any Equipment Taxes are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such personal property, fixtures, machinery, equipment, apparatus, systems or appurtenances of Tenant, and if Landlord, after written notice to Tenant, pays the Equipment Taxes or taxes based upon such an increased assessment (which Landlord shall have the right to do regardless of the validity of such levy, but under proper protest if requested by Tenant prior to such payment and if payment under protest is permissible), Tenant shall pay to Landlord upon demand, as Additional Rent hereunder, the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment; provided, however, that in any such event, Tenant shall have the right, on behalf of Landlord and with Landlord’s full cooperation, but at no cost to Landlord, to bring suit in any court of competent jurisdiction to recover the amount of any such tax so paid under protest, and any amount so recovered shall belong to Tenant (provided Tenant has previously paid such amount to Landlord). Notwithstanding the foregoing to the contrary, Tenant shall cooperate with Landlord to the extent reasonable necessary to cause the fixtures, furnishings, equipment and other personal property to be assessed and billed separately from the real property of which the Premises form a part, and Landlord shall use reasonable efforts to treat all other Tenants on the same basis.

(b)   Tenant shall pay to Landlord, as Additional Rent, any excise, sales, privilege, gross receipts or other tax, assessment or other charge (other than income or franchise taxes) Imposed, assessed or levied by any governmental or quasi-governmental authority or agency upon Landlord on account of this Lease, the rent or other payments made by Tenant hereunder, any other benefit received by Landlord hereunder, Landlord’s business as a lessor hereunder, or other in respect of or as a result of the agreement or relationship of Landlord and Tenant hereunder.

29.   Rights Reserved to Landlord:

(a)   All portions of the Buildings are reserved to Landlord except the Premises and the inside surfaces of all walls, windows and doors bounding in the Premises, but including exterior building walls, core corridor walls and doors and any core corridor entrance. Landlord also reserves any space in or adjacent to the Premises used for shafts, stacks, plpes, conduits, fan rooms, ducts, electric or other utilities, sinks or other building facilities, and the use thereof, as well as the right to access thereto through the Premises for the purposes of operation, maintenance and repair, upon reasonable notice, except in the event of emergencies or apparent emergencies, when no prior notice shall be required.

(b)   Landlord shall have the following rights without liability to Tenant for damage or injury to property, person or business (all claims for damage being hereby waived and released), and without effecting an eviction or disturbance of Tenant’s use or possession of the Premises or giving rise to any claim for setoffs or abatement of rent:

(1)   To enter the Premises as more fully provided in this Lease.

(2)   To install and maintain signs on the exterior and interior of the Buildings, except within the Premises, provided the signs do not block either completely or partially the exterior windows of the Premises.

(3)   To have pass keys to the entry of the Premises.

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(4)   To decorate, remodel, repair, alter or otherwise prepare the Premises for re-occupancy during the last sixty (60) days of the term hereof if, during or prior to such time, Tenant has vacated the Premises, or at any time after Tenant abandons the Premises.

30.   Force Majeure Clause: Wherever there is provided in this Lease a time limitation for performance by Landlord of any obligation, including but not limited to obligations related to construction, repair, maintenance or service, the time provided for shall be extended for as long as and to the extent that delay in compliance with such limitation is due to an act of God, governmental control or other factors beyond the reasonable control of Landlord.

31.   Signage: No sign, advertisement or notice shall be erected, constructed or affixed on any part of the inside or outside of the Buildings or Premises or upon any part of the Building Complex unless of such color, size and style and in such place as shall be first designated by Landlord, in Landlord’s sole discretion. Notwithstanding anything to the contrary herein, Landlord reserves the right to require Tenant to remove any sign in the Premises that interfere with other tenants of the Buildings as reasonably determined by Landlord. Landlord shall have the right, without prior notice to Tenant and at the expense of Tenant, to remove all signs installed by or at the direction of Tenant which were not approved by Landlord prior to installation.

32.   Attorneys’ Fees: In the event of any dispute hereunder, or any default in the performance of any term or condition of this Lease, the prevailing party shall be entitled to recover all costs and expenses associated therewith, including reasonable attorneys’ fees.

33.   Miscellaneous:

(a)   The Landlord reserves the right to, from time to time, promulgate rules and regulations for the safety, care and cleanliness of the Premises and the Building and the preservation of good order thereon, are hereby expressly made a part hereof, and Tenant agrees to obey all such rules and regulations. The violation of any of such rules and regulations by Tenant shall be deemed a breach of this Lease by Tenant affording Landlord all the remedies set forth herein. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Building of any of said rules and regulations. Landlord reserves the right from time to time to amend and modify the rules and regulations. Such amendments or modifications shall be effective upon delivery to Tenant.

(b)   This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant shall not be entitled to any setoff of the rent or other amounts owing hereunder against Landlord, If Landlord fails to perform its obligations set forth herein, except as herein specifically set forth; provided, however, the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building Complex or any portion thereof whose address Tenant has been notified in writing and so long as an opportunity has been granted to Landlord and such holder to correct such violation as provided in subsection (g) hereof.

(c)   If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws effective during the term of this Lease, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there shall be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable, provided such addition does not increase or decrease the obligations of or derogate from the rights or powers of either Landlord or Tenant.

(d)   The captions of each section are added as a matter of convenience only and shall not be considered of no effect in the construction of any provision or provisions of this Lease.

(e)   Except as herein specifically set forth, all terms, conditions and covenants to be observed and performed by the parties hereto shall be applicable to and binding upon their respective heirs, administrators, executors, successors and assigns. The terms, conditions and covenants hereof shall also be considered to be covenants running with the land.

(f)   If there is more than one entity or person which or who are the Tenants under this Lease, the obligations imposed upon Tenant under this Lease shall be joint and several.

(g)   No act or thing done by Landlord or Landlord’s agent during the term hereof, including but not limited to any agreement to accept surrender of the Premises or to amend or modify this Lease, shall be deemed to be binding upon Landlord unless such act or things shall be by an officer of Landlord, or a party designated in writing by Landlord as so authorized to act. The delivery

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of keys to Landlord, or Landlord’s agent, employees or officers shall not operate as a termination of this Lease or a surrender of the Premises. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance or such rent or pursue any other remedy available to Landlord.

(h)   Landlord shall have the right to construct other buildings or improvements in any plaza or any other area designated by Landlord for use by tenants or to change the location, character or make alterations of or additions to any of said plazas or other areas. Landlord, during the entire term of this Lease, shall have the right to change the number and name of the Building at any time without liability to Tenant.

(i)   Tenant acknowledges and agrees that it has not relied upon any statements, representations, agreements or warranties, except such as are expressed in this Lease.

(j)   Time is of the essence hereof.

(k)   The word “Holidays” as used herein shall mean those days celebrated each Landlord shall not be required to furnish services on the following “Holidays”: New Year’s Day, Presidents’ Day, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, Christmas Day, any other national holiday promulgated by a Presidential Executive Order or Congressional Act and any other holiday generally recognized as such by landlords of office space in the metropolitan Denver office market, as determined by Landlord In good faith. If, in the case of any specific holiday mentioned in the preceding sentence, a different day shall be observed than the respective day mentioned, then that day which constitutes the day observed by national banks in Denver, Colorado on account of said holiday shall constitute the Holiday under this Lease.

(l)   Tenant and Landlord and the party executing this Lease on behalf of each of them represent to each other that such party is authorized to do so by requisite action of the board of directors, members or partners, as the case may be, and agree upon request to deliver to each other a resolution or similar document to that effect.

(m) This Lease shall be governed by and construed in accordance with the laws of the State of Colorado.

(n)   This Lease and the Guaranty, together with Exhibits A-1, A-2, B, and C attached hereto, contains the entire agreement of the parties and may not be amended or modified in any manner except by an instrument In writing signed by both parties. Tenant shall not record this Lease or a memorandum hereof.

(o)   Tenant shall not use the name of the Buildings, the Building Complex or the development in which the Buildings are situated as part of its legal or trade name, nor for any purpose other than as an address for the business to be conducted by Tenant in the Premises.

(p)   The submission or delivery of this document for examination and review does not constitute an option, an offer to lease space in the Buildings or an agreement to lease. This document shall have no binding effect on the parties unless and until executed by both Landlord and Tenant.

34.     Hazardous Materials:

(a)   Tenant shall at all times and in all respects comply with all federal, state and local laws, ordinances, rules and regulations (“Hazardous Materials Laws”) relating to industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any Hazardous Materials (as hereinafter defined).

(b)   Tenant shall not cause or permit any Hazardous Materials to be brought upon, kept, stored, generated, treated, manufactured, produced, disposed of, discharged, released, spilled or used in, on or about the Premises by Tenant or Tenant’s affiliates, agents, employees, contractors, invitees, sublessees or assignees (collectively, the “Tenant Parties”). If Tenant or any Tenant Party breaches the obligation slated in the preceding sentence or if the presence of Hazardous Materials on the Premises caused or permitted by Tenant results in contamination of the Premises, the Building or any adjacent property, then Tenant shall indemnify, defend and hold harmless Landlord from and against any and all claims, judgments, actions, damages, penalties, fines, forfeitures, costs, expenses, liabilities or losses (including, without limitation, diminution in value of the Premises, the Building and/or adjacent property, damages for the loss or restriction on use of rentable or usable space of any amenity of the Premises, the building and/or adjacent property, damages arising from any adverse impact on marketing of the Premises, the Building and/or adjacent property, and sums paid in settlement of claims, attorneys’ fees, consultant fees and expert fees and court costs) which arise during or after the Lease

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Term or any extension hereof, as a result of such breach. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of any Hazardous Material present in the soil or ground water on or under the Premises, the Building and/or adjacent property. Without limiting the foregoing, if the presence of any Hazardous Material on the Premises caused or permitted by Tenant or any of the Tenant Parties results in any contamination of the Premises, the Building and/or adjacent property, Tenant shall promptly take all actions at its sole cost and expense as are necessary to return the Premises, the Building and/or adjacent property to the condition existing prior to the introduction of any such Hazardous Material to the Premises, the Building and/or adjacent property; provided that Tenant shall not take any remedial action in or about the Premises or the Building, nor enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to Hazardous Materials in any way connected with the Premises or the Building, without first notifying Landlord of Tenant’s intention to do so and affording Landlord the opportunity to appear, intervene or otherwise appropriately assert and protect Landlord’s interest with respect thereto.

(c)   As used in this Lease, the term “Hazardous Material” means any flammable item, explosive, radioactive material, hazardous or toxic substance, material or waste or related materials, including any substance defined as or included in the definition of “hazardous substances”, “hazardous wastes”, “infectious wastes”, “hazardous materials” or “toxic substances” now or subsequently regulated under any federal, state or local laws, regulations or ordinances including, without limitation, oil, petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other chemical products, chemicals known to cause cancer or reproductive toxicity, asbestos, polychlorinated biphenyls (PCBs) and similar compounds, and including any other products and materials which are subsequently found to have adverse effects on the environment or the health and safety of persons, Notwithstanding the foregoing, Hazardous Material shall not include cleaning supplies in amounts customarily stored or used by a commercial tenant occupying space for office purposes, nor ink or toner in such quantities.

(d)   Tenant immediately shall notify Landlord in writing of: (i) any spill, release, discharge or disposal of any Hazardous Material in, on, under, around or about the Premises, the Building or any portion thereof of which Tenant has knowledge; (ii) any enforcement, cleanup, removal or other governmental or regulatory action instituted, contemplated, or threatened pursuant to any Hazardous Materials Laws and relating to the Premises or the Building of which Tenant has knowledge; (iii) any claim made or threatened by any person against Tenant, any of the Tenant Parties, the Premises, or the Building relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials of which Tenant has knowledge; and (iv) any reports made to any governmental agency or entity arising out of or in connection with any Hazardous Materials in, on, under, around or about or removed from the Premises or the Building of which Tenant has knowledge, including any complaints, notices, warnings, reports or asserted violations in connection therewith. Tenant also shall supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first receives or sends the same, copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, the Building or the use or occupancy thereof by Tenant or any of the Tenant Parties. Upon any termination of this Lease, whether by lapse of time, cancellation pursuant to an election provided for herein, forfeiture or otherwise, Tenant shall immediately surrender possession of the Premises (and all improvements to the Premises which Tenant is not required to remove from the Premises pursuant to this Lease) to Landlord in full compliance with all Hazardous Materials Laws free of any Hazardous Material.

(e)   Any failure of Tenant to comply with the provisions of this Section 34 shall be a material default under this Lease enabling Landlord to exercise any of the remedies set forth in this Lease. The provisions of this Section 35 shall survive the expiration or earlier termination of the Lease Term.

35.   Parking: Tenant, its customers and other invitees, employees, and agents shall have a have a revocable, limited, non-exclusive license, for the reasonable use of the parking lot of the Buildings. Tenant shall use no more than one hundred (100) spaces at any time and shall not park in any spaces that are designated by Landlord for the use of other tenants. No vehicles may be parked overnight in excess of two consecutive nights.

36.   Termination Right: Notwithstanding anything to the contrary herein, Landlord shall have the right to terminate this Lease at any time, without liability to Tenant, effective on a date stated in a written notice of such termination, provided such date is not less than six (6) months after the date of delivery of such notice of termination to Tenant, pursuant to section 25.b. above. In addition, for so long Tenant is not in default under this Lease, Tenant shall have the right to terminate this Lease at any time, without liability to Landlord, effective on a date stated in a written notice of such termination, provided such date is not less three (3) months after the date of delivery to Landlord, pursuant to section 25.b. above, of the notice of such termination. Notwithstanding the termination of the lease pursuant to the terms of this Section 36, such termination shall not relieve Tenant of its obligation to make payment in full of all sums due or to become due by Tenant as a result of Tenant’s tenancy under the Lease through and including the date of termination stated in the notice.

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day and year first above written.

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ABSOLUTE UNCONDITIONAL GUARANTY

As a special inducement to Public Service Employees Credit Union, a Colorado nonprofit corporation, as Landlord, to enter into that certain PARK MEADOWS CORPORATE CENTER III AND IV OFFICE LEASE dated October 31, 2014 (the “Lease”), with Zynex Medical, Inc., a Colorado corporation as Tenant, concerning Premises located at 9990 and 10000 Park Meadows Drive, Lone Tree, CO 80124, and in consideration of Guarantor’s interest in the Lease, the undersigned Guarantor, Zynex, Inc., a Nevada corporation, duly authorized to conduct business in Colorado (“Guarantor”), whose address is 9990 Park Meadows Drive, Lone Tree, CO 80124, and whose telephone number and email address are (303) 703-4906, and tsandgaard@zynex.com does hereby absolutely, unconditionally and irrevocably covenant and agree with landlord as follows:

1.   Guarantor hereby guaranties to Landlord the payment by Tenant of all rent and other sums due to Landlord from Tenant and the full performance and observance by Tenant of all covenants and conditions contained in the Lease, and undertakes that in case of default in such payment or in the performance or observance of such covenants and conditions, Guarantor will pay upon demand all sums due under the Lease and perform all covenants, agreements and undertaking of the Tenant pursuant to the Lease.

2.   Landlord shall not be first required to enforce against Tenant or any other person any liability, obligation or duty guarantied before seeking enforcement against the Guarantor.

3.   Landlord may bring suit against Guarantor to enforce any liability, obligation or duty guaranteed without joinder of Tenant or any other person.

4.   The liability of the Guarantor shall not be affected by reason of:

a. Landlord’s delay, waiver, forbearance or neglect in enforcing any covenant against Tenant or Guarantor;

b. Landlord’s failure to notify Guarantor of any default by Tenant;

c. Any amendment, variation, extension or renewal of the lease agreed to by Landlord and Tenant with the notice to or knowledge of Guarantor;

d. Any assignment or termination of the Lease or any subleasing or abandonment by Tenant of all or part of the leased Premises;

e. Any other security which Landlord may now or hereafter possess or obtain with respect to the Lease, or the surrender or release by Landlord of any portion thereof; or,

f. Any termination of the Lease, to the extent that Tenant thereafter continues to be liable to Landlord.

5.   Miscellaneous Provisions

a. Authority. Guarantor represents and warrants to Landlord that the party executing this Guaranty on Guarantor’s behalf has been duly authorized by all necessary corporate action to execute this Guaranty and bind Guarantor to its obligations under the Guaranty.

b. Governing Law. This Guaranty shall be governed by and construed under the laws of the State of Colorado without giving effect to any conflict of laws that would require application of the laws of any other jurisdiction.

c. Venue. Venue for any court proceeding brought to enforce the terms of this Agreement shall be proper only in the courts located in Arapahoe County or Denver County, Colorado.

d. Succession. This Guaranty shall be binding upon Guarantor, its successors, assigns and legal representatives, and shall insure to the benefit of the Landlord, its successors, assigns and legal representatives.

e. Entireties. This Guaranty constitutes the entire agreement between the parties and supersedes and replaces any and all prior oral or written agreements or understandings between the parties concerning its subject matter. No modification of this Agreement shall be binding unless in writing and signed by both parties.

f. Severability. If any provision of this Guaranty is found to be illegal, or unenforceable for any reason whatsoever, the Guaranty shall be interpreted and construed without reference to such provision, and the balance of the Guaranty shall remain in full force and effect.

g. Remedies - Attorneys’ Fees. Guarantor agrees to pay any and all costs, including but not limited to attorneys’ fees incurred by Landlord in any action by Landlord against Guarantor or Tenant to enforce the terms of the Lease or this Guaranty.

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h. Section Headings. The section headings are inserted in this Guaranty for convenience only and are not intended to affect the terms of this Agreement.

i. Consideration. Guarantor acknowledges and agrees that its interest in the Lease is good and sufficient consideration for its obligations under this Guaranty.

j. Cooperation. Guarantor agrees to execute and deliver to Landlord such further instruments as Landlord may reasonably request to effectuate the intent of this Guaranty.

k. Notice. All notices and other communications between the parties concerning this Guaranty and the Lease shall be in writing and telecopled, sent by confirmed electronic transmission, delivered by overnight courier or by hand to the parties at the addresses set forth above.

l. Negotiated Provisions. Guarantor acknowledges and agrees that each and every provision of this Guaranty has been Independently, separately and freely negotiated as if this Guaranty were drafted by both parties. Guarantor, therefore, waives any statutory or common law presumption which would serve to have this document construed in its favor or against Landlord.

m. Counterparts: Telecopy Execution. This Guaranty may be executed in counterparts each of which, when taken together, shall constitute one original document. The execution of this Guaranty may be evidenced by the transmission of telecopied or electronic signatures, which shall have the same effect as original signatures.

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EXHIBIT A-1

EXHIBIT A-2

Exhibit B

Parcel 1:

Lot 14B-1, Park Meadows Filing No. 2, 7th Amendment, County of Douglas, State of Colorado.

Parcel 2:

Lot 14C, Park Meadows Filing No. 2, 7th Amendment, County of Douglas, State of Colorado.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Thomas Sandgaard, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Zynex, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:   November 6, 2014

/s/  THOMAS SANDGAARD 

Thomas Sandgaard

President and Chief Executive Officer

Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Brian P. Alleman, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Zynex, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:   November 6, 2014

/s/  BRIAN P. ALLEMAN 

Brian P. Alleman

Chief Financial Officer

Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, for the purposes of Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Zynex, Inc. (“Zynex”), that to his knowledge:

1.	Zynex’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (the “10-Q Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of Zynex for the period covered by the 10-Q Report.

Dated:   November 6, 2014

/s/  Thomas Sandgaard 

Thomas Sandgaard

President and Chief Executive Officer

/s/  Brian P. Alleman 

Brian P. Alleman

Chief Financial Officer

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Segment Reporting (Details Textual)	9 Months Ended
	Sep. 30, 2014 Segment
Segment Reporting Information [Line Items]
Number of reporting segments	1
Total net revenue | ZMI Tens units and compound pain creams
Segment Reporting Information [Line Items]
Concentration Risk, Percentage	95.00%

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Stock-Based Compensation Plans (Details 2) (USD $)	9 Months Ended
	Sep. 30, 2014
Summary of status of the Company's non-vested share awards
Nonvested shares under option at January 1, 2014	1,663,593
Nonvested share under option, granted	400,000
Nonvested share under option, vested	(120,294)
Nonvested share under option, forfeited	(826,697)
Nonvested shares under option at September 30, 2014	1,116,602
Weighted average grant date fair value at January 1, 2014	$ 0.29
Weighted average grant date fair value, granted	$ 0.22
Weighted average grant date fair value, vested	$ 0.71
Weighted average grant date fair value, forfeited	$ 0.25
Weighted average grant date fair value at September 30, 2014	$ 0.29

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Unaudited Condensed Consolidated Financial Statements and Managements' Plans (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended			9 Months Ended		12 Months Ended	15 Months Ended	9 Months Ended		1 Months Ended
	Sep. 30, 2014	Jun. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014	Sep. 30, 2014 Current Lease Agreement	Sep. 30, 2014 Revised from September 1, 2014 through December 31, 2014	Oct. 31, 2014 Revised from September 1, 2014 through December 31, 2014 Subsequent Event
Condensed Financial Statements Captions [Line Items]
Percentage of limited liability				80.00%
Net loss	$ 268		$ (749)	$ (6,734)	$ (2,786)	$ (7,340)
Line of credit current borrowing capacity	0			0			0
Line of credit	4,541			4,541		5,820	4,541
Operating expenses reduced by cutting annual employee costs through headcount reduction							7,000
Monthly base rental payments				129
Future monthly base rental payments								43	49	49
Lease term									2 years	2 years
Lease commencement date									Jan. 01, 2015	Jan. 01, 2015
Lease agreement description								Under the terms of the Termination Agreement, among other things, the Company agreed to consolidate its operations into approximately one-third of the total square footage it occupied previously; monthly base rental payments were reduced from approximately $129 to $43 for the period from September 1, 2014 through December 31, 2014	The terms of the new lease will take effect January 1, 2015. The terms of the new lease include, among other things, a term of two years, fixed monthly base rental payments of approximately $48,000 for the full term of the lease; and, the right for either party to terminate the lease without future liability with six months written notice.
Cost of revenue - write-off of noncore inventory				2,655
Writeoff of noncore inventory				2,005
Write-off rental units		$ 650		$ 650

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Line of Credit (Details Textual) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Line of Credit Facility [Abstract]
Outstanding amount on the Credit Agreement	$ 4,541	$ 5,820
Date of Maturity	Dec. 19, 2014
Revolving Credit Facility
Line of Credit Facility [Abstract]
Outstanding amount on the Credit Agreement	4,541
Remaining amount available for borrowing	$ 0
Effective interest rate under the Credit Agreement	11.00%
Interest rate	6.75%
Additional default interest rate	3.00%
Fees include in effective interest rate under the credit agreement	1.25%

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Property and Equipment

9 Months Ended

Sep. 30, 2014

Property Plant And Equipment [Abstract]

Property and Equipment

(3) PROPERTY AND EQUIPMENT

Property and equipment as of September 30, 2014 and December 31, 2013 consist of the following:

	September 30, 2014			December 31, 2013			Useful lives
	(UNAUDITED)
Office furniture and equipment	$	1,752		$	2,073			3-7 years
Rental inventory		1,342			2,142			5 years
Vehicles		76			76			5 years
Leasehold improvements		874			486			2-6 years
Assembly equipment		125			171			7 years
		4,169			4,948
Less accumulated depreciation		(2,336	)		(2,057	)
	$	1,833		$	2,891

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Earnings (Loss) Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Basic:
Net income (loss) applicable to common stockholders	$ 258	$ (738)	$ (6,724)	$ (2,758)
Weighted average shares outstanding – basic	31,215,799	31,148,234	31,186,252	31,148,234
Net loss per share – basic	$ 0.01	$ (0.02)	$ (0.22)	$ (0.09)
Diluted:
Net income (loss) applicable to common stockholders	$ 258	$ (738)	$ (6,724)	$ (2,758)
Weighted average shares outstanding – basic	31,215,799	31,148,234	31,186,252	31,148,234
Dilutive securities	0	0	0	0
Weighted average shares outstanding – diluted	31,215,799	31,148,234	31,186,252	31,148,234
Net income (loss) per share – diluted	$ 0.01	$ (0.02)	$ (0.22)	$ (0.09)

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Intangible Assets (Details Textual) (Software development costs, USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Software development costs
Finite Lived Intangible Assets [Line Items]
Intangible assets, gross	$ 345	$ 325
Accumulated amortization	$ 203	$ 147

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Stock-Based Compensation Plans (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Stock-based compensation plans [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	3,000,000		3,000,000
Stock Options Under Option Plan Maximum Expiry Period			10 years
Stock Based Compensation Plans (Additional Textual) [Abstract]
Employee stock-based compensation expense	$ 18	$ 29	$ 74	$ 98
Granted options to purchase of common stock			400,000
Granted options to purchase of common stock, weighted average exercise price			$ 0.25
Granted options expiration period			10 years
Granted options vesting period			4 years
Unrecognized compensation expense related to stock options	174		174
Weighted-average period of unrecognized compensation expense related to stock option			3 years 2 months 9 days
Cost of Sales
Stock Based Compensation Plans (Additional Textual) [Abstract]
Employee stock-based compensation expense	2	2	6	9
Selling, General and Administrative Expenses
Stock Based Compensation Plans (Additional Textual) [Abstract]
Employee stock-based compensation expense	$ 16	$ 27	$ 68	$ 89

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Stock-Based Compensation Plans (Details)	9 Months Ended
	Sep. 30, 2014
Fair value of stock option grants
Weighted average expected term	6 years 3 months
Dividend yield	0.00%
Maximum
Fair value of stock option grants
Weighted average volatility	121.00%
Weighted average risk-free interest rate	1.70%
Minimum
Fair value of stock option grants
Weighted average volatility	113.00%
Weighted average risk-free interest rate	1.40%

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Significant Accounting Policies

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Significant Accounting Policies

(2) SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Zynex, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

NONCONTROLLINGINTEREST

Noncontrollinginterestin the equity of a subsidiary is accounted for and reported as stockholders’ (deficit) equity. Noncontrolling interest represents the20% ownership in the Company’s majority-owned subsidiary, ZBC.  

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 condensed consolidated financial statements are associated with the allowance for contractual adjustments and uncollectible accounts receivable, the reserve for obsolete and damaged inventory, stock-based compensation, valuation of long-lived assets, and income taxes.

REVENUE RECOGNITION, ALLOWANCE FOR CONTRACTUAL ADJUSTMENTS AND COLLECTIBILITY

The Company recognizes revenue when each of the following four conditions are met: 1) a contract or sales arrangement exists, 2) products have been shipped and title has transferred, or rental services have been rendered, 3) the price of the products or services is fixed or determinable, and 4) collectability is reasonably assured. Accordingly, the Company recognizes revenue, both rental and sales, when products have been delivered to the patient and the patient’s insurance (if the patient has insurance) has been verified. For medical products that are sold from inventories consigned at clinic locations, the Company recognizes revenue when it receives notice that the product has been prescribed and delivered to the patient and the patient’s insurance coverage has been verified or preauthorization has been obtained from the insurance company, when required. Revenue from the rental of products is normally on a month-to-month basis and is recognized ratably over the products’ rental period. Revenue from sales to distributors is recognized when the Company ships its products, which fulfills its order and transfers title. Revenue is reported net, after adjustments for estimated insurance company or governmental agency (collectively “Third-party Payors”) reimbursement deductions. The deductions are known throughout the health care industry as “contractual adjustments” whereby the Third-party Payors unilaterally reduce the amount they reimburse for the Company’s products.

A significant portion of the Company’s revenues are derived, and the related receivables are due, from Third-party Payors. The nature of these receivables within this industry has typically resulted in long collection cycles. The process of determining what products will be reimbursed by Third-party Payors and the amounts that they will reimburse is complex and depends on conditions and procedures that vary among providers and may change from time to time. The Company maintains an allowance for contractual adjustments and records additions to the allowance to account for the risk of nonpayment. Contractual adjustments result from reimbursements from Third-party Payors that are less than amounts claimed or where the amount claimed by the Company exceeds the Third-party Payors’ usual, customary and reasonable reimbursement rate. The Company determines the amount of the allowance, and adjusts it at the end of each reporting period, based on a number of factors, including historical rates of collection, the aging of the receivables, trends in the historical rates of collection and current relationships and experience with the Third-party Payors. If the rates of collection of past-due receivables recorded for previous fiscal periods changes, or if there is a trend in the rates of collection on those receivables, the Company may be required to change the rate at which it provides for additions to the allowance. A change in the rates of the Company’s collections 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, or changes in industry rates of reimbursement. Accordingly, changes to the allowance for contractual adjustments, which are recorded in the income statement as a reduction of revenue, have historically fluctuated and may continue to fluctuate significantly from quarter to quarter.

Due to the nature of the industry and the reimbursement environment in which the Company operates, estimates are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of third-party billing arrangements and the uncertainty of reimbursement amounts for certain products or services from payors 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 reimbursement, as well as changes in our billing practices to increase cash collections, it is possible that management’s estimates could change in the near term, which could have an impact on our results of operations and cash flows. Any differences between estimated settlements and final determinations are reflected as an increase or a reduction to revenue in the period when such final determinations are known.

The Company frequently receives refund requests from insurance providers relating to specific patients and dates of service. Billing and reimbursement disputes are very common in the Company’s industry. 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 that insurance provider. 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 insurance providers. 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.

As of September 30, 2014, the Company believes it has an adequate allowance for contractual adjustments relating to all known insurance disputes and refund requests. However, no assurances can be given with respect to such estimates of reimbursements and offsets or the ultimate outcome of any refund requests.

In addition to the allowance for contractual adjustments, the Company records an allowance for uncollectible accounts receivable. Uncollectible accounts receivable are primarily a result of non-payment from patients who have been direct billed for co-payments or deductibles, lack of appropriate insurance coverage and disallowances of charges by Third-party Payors. If there is a change to a material insurance provider contract or policy, application by a provider, a decline in the economic condition of providers or a significant turnover of Company billing personnel resulting in diminished collection effectiveness, the estimate of the allowance for uncollectible accounts receivable may not be adequate and may result in an increase in the future.At September 30, 2014 and December 31, 2013, the allowance for uncollectible accounts receivable is $936 and $1,837, respectively.

At September 30, 2014, the Company recorded a liability for deferred revenue in the amount of $109 which represents amounts paid by Third-party Payors for consumable supplies that were not shipped to patients as of September 30, 2014. This liability was reduced to zero in October 2014. There was no such liability at December 31, 2013.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments at September 30, 2014 include cash, accounts receivable and accounts payable, for which current carrying amounts approximate fair value due to their short-term nature. Financial instruments at September 30, 2014 also include the line of credit and notes payable, 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.

INVENTORY

Inventories, which primarily represent finished goods, are valued at the lower of cost (average) or market. In the second quarter of 2014,the Company narrowed its focus to the NexWave, InWave and NeuroMove electrotherapy products and building the sales representative group for its TENS and compound pain cream solutions.  As a result, the Company wrote-off all inventory unrelated to those specific product lines and recorded a charge to cost of revenue – write-off of noncore inventory in the amount of $2,005 during the nine month period ended September 30, 2014. Finished goods include products held at the Company’s headquarters and at different locations by health care providers or other parties for rental or sale to patients. Total (gross) inventories at September 30, 2014 included $2,506 of finished goods, $247 of parts, and $390 of supplies.

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 equal to the difference between the costs of inventories on hand and the estimated market value based upon assumptions about future demand. If future demand is less favorable than currently projected by management, additional inventory write-downs may be required. To fulfill orders faster, the Company places a large amount of its inventory with field sales representatives. This increases the sensitivity of these products to obsolescence reserve estimates. As this inventory is not in the Company’s possession, management maintains additional reserves for estimated shrinkage of these inventories based on the Company’s aging. At September 30, 2014, the Company had an allowance for obsolete and damaged inventory of approximately $660. The allowance for obsolete and damaged inventory was approximately $1,278 at December 31, 2013. The decrease from December 31, 2013 is due primarily to the write-off of noncore inventory discussed above. In addition, in the second quarter of 2014, the Company changed its method of estimation for determining allowances for obsolete and damaged inventory. The Company now estimates that finished units held for sale will be reserved beginning in year three and fully reserved after four years compared to five years previously. This change in estimate had the effect of increasing the allowances for obsolete and damaged inventory by approximately $414 at September 30, 2014 and increasing cost of revenue – sales by approximately $168 ($0.01 per share) and $414 ($0.02 per share) for the three and nine months ended September 30, 2014 respectively. The Company had $107 of open purchase commitments at September 30, 2014.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Products on rental contracts are placed in property and equipment and depreciated over their estimated useful life. The Company removes the cost and the related accumulated depreciation from the accounts of assets sold or retired, and the resulting gains or losses are included in the results of operations. Depreciation is computed using the straight-line method over the useful life of the asset. As rental inventory contributes directly to the revenue generating process, the Company classifies the depreciation of rental inventory in cost of revenue. As a result of the Company’s change in product focus discussed above, the Company wrote-off all rental inventory unrelated to those specific product lines and recorded a charge to cost of revenue – write-off of noncore inventory of $650 in the second quarter of 2014.

Repairs and maintenance costs are charged to expense as incurred.

INTANGIBLE ASSETS

Intangible assets with estimable lives are amortized in a pattern consistent with the asset’s identifiable cash flows or using a straight- line method over their remaining estimated benefit periods if the pattern of cash flows is not estimable. The Company reviews the carrying value of intangible and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of their carrying amounts to the undiscounted cash flows that the asset or asset group is expected to generate. If the carrying amount of the assets exceeds the undiscounted cash flows the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Intangible assets primarily include capitalized software. The Company capitalizes software development costs incurred during the application development stage related to new software or major enhancements to the functionality of existing software that is developed solely to meet the entity’s internal operational needs and when no substantive plans exist or are being developed to market the software externally. Costs capitalized include external direct costs of materials and services and internal payroll and payroll-related costs. Any costs during the preliminary project stage or related to training or maintenance are expensed as incurred. Capitalization ceases when the software project is substantially complete and ready for its intended use. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.  When the projects are ready for their intended use, the Company amortizes such costs over their estimated useful lives of five years.

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.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB)  issued Accounting Standards Update (ASU) No. 2014-09—“Revenue from Contracts with Customers” (Topic 606) which amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.  This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2018 using one of two prescribed retrospective methods.  Early adoption is not permitted.  The Company is evaluating the impact of the amended revenue recognition guidance on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” Under ASU 2013-11, an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance affects presentation only and, therefore, did not have a material impact on the Company's financial condition, results of operations or cash flows.

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.

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Stock-Based Compensation Plans (Details 1) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Summary of stock option activity under the option Plan
Shares under option outstanding beginning balance	2,472,216
Shares under option, granted	400,000
Shares under option, exercised	0
Shares under option, forfeited	(1,146,697)
Shares under option outstanding ending balance	1,725,519
Shares under option, exercisable ending balance	608,917
Weighted average exercise price outstanding beginning balance	$ 0.57
Weighted average exercise price, granted	$ 0.25
Weighted average exercise price, exercised
Weighted average exercise price, forfeited	$ 0.42
Weighted average exercise price outstanding ending balance	$ 0.59
Weighted average exercise price, exercisable ending balance	$ 1.06
Outstanding, weighted average exercise remaining contractual life	7 years 6 months
Exercisable, weighted average exercise remaining contractual life	4 years 10 months 24 days
Outstanding aggregate intrinsic value	$ 0
Exercisable aggregate intrinsic value	$ 0

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Subsequent Event (Details Textual) (USD $) In Thousands, unless otherwise specified					9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Office furniture and equipment	Sep. 30, 2014 Leasehold improvements	Sep. 30, 2014 Revised from September 1, 2014 through December 31, 2014	Sep. 30, 2014 Revised from September 1, 2014 through December 31, 2014 Maximum	Sep. 30, 2014 Current Lease Agreement
Subsequent Event [Line Items]
Lease Initiation Date					Oct. 31, 2014
Future monthly base rental payments					$ 49		$ 43
Lease termination date						Dec. 31, 2016	Dec. 31, 2014
Lease commencement date					Jan. 01, 2015
Lease term					2 years
Lease agreement written notice to company, terms					6 months
Lease aggrement written notice to landlord, terms					3 months
Estimated net book value of furniture and fixtures			56
Expected writeoff net book value of leasehold improvements				549
Deferred rent	$ 2,845	$ 2,454

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Current Assets:
Cash	$ 319	$ 323
Accounts receivable, net	4,460	7,033
Inventory, net	2,483	5,002
Prepaid expenses	37	346
Deferred tax assets, net	72	72
Income tax receivable	219	893
Other current assets		35
Total current assets	7,590	13,704
Property and equipment, net	1,833	2,891
Deposits	3	400
Deferred financing fees, net		48
Intangible assets, net	142	178
Total assets	9,568	17,221
Current Liabilities:
Line of credit	4,541	5,820
Current portion of notes payable and other obligations	82	92
Accounts payable	2,745	2,743
Income taxes payable	78	96
Accrued payroll and payroll taxes	654	607
Current portion of contingent consideration	4	7
Deferred revenue	109	0
Other accrued liabilities	137	319
Total current liabilities	8,350	9,684
Notes payable and other obligations, less current portion	78	150
Deferred rent	2,845	2,454
Deferred tax liabilities, net	72	72
Warranty liability	12	13
Total liabilities	11,357	12,373
Stockholders’ (Deficit) Equity:
Preferred stock; $.001 par value, 10,000,000 shares authorized, no shares issued or outstanding
Common stock, $.001 par value, 100,000,000 shares authorized, 31,271,234 (2014) and 31,171,234 (2013) shares issued and outstanding	31	31
Paid-in capital	5,683	5,586
Accumulated deficit	(7,459)	(735)
Total Zynex, Inc. stockholders’ (deficit) equity	(1,745)	4,882
Noncontrolling interest	(44)	(34)
Total stockholders’ (deficit) equity	(1,789)	4,848
Total liabilities and stockholders’ (deficit) equity	$ 9,568	$ 17,221

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net loss	$ (6,734)	$ (2,786)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	433	608
Warranty expense	(1)	(6)
Writeoff of noncore inventory	2,005
Write-off rental units	650
Change in the value of contingent consideration		(70)
Change in provision for losses on accounts receivable	(901)	442
Amortization of intangible assets	36	39
Impairment of intangible assets		100
Impairment of goodwill		39
Amortization of financing fees	48	38
Issuance of common stock for services	23
Change in obsolete inventory	336	293
Deferred rent	391	1,033
Employee stock-based compensation expense	74	98
Gain on asset disposal	33	(6)
Changes in operating assets and liabilities:
Accounts receivable	3,474	2,959
Inventory	186	(265)
Income tax receivable	674
Prepaid expenses	309	65
Deposits and other current assets	44	(2,057)
Accounts payable	2	232
Accrued liabilities	(135)	(1,048)
Deferred revenue	109
Income taxes payable	(17)	(384)
Net cash provided by (used in) operating activities	1,039	(676)
Cash flows from investing activities:
Sales (purchases) of equipment	216	(501)
Change in inventory used for rental	106	550
Payments on contingent consideration	(4)	(3)
Net cash provided by investing activities	318	46
Cash flows from financing activities:
Net (repayments) borrowings on line of credit	(1,279)	385
Payments on notes payable and capital lease obligations	(82)	(110)
Net cash (used in) provided by financing activities	(1,361)	275
Net decrease in cash	(4)	(355)
Cash at the beginning of the period	323	823
Cash at the end of the period	319	468
Supplemental cash flow information:
Interest paid	133	449
Income taxes paid (including interest and penalties)	2	384
Supplemental disclosure of non-cash investing and financing activities:
Equipment acquired through note payable and capital lease		137
Deposit used to purchase equipment	$ 388

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Fair Value Measurements (Details Textual) (USD $) In Thousands, unless otherwise specified	0 Months Ended
	Apr. 30, 2014
Fair Value Measurements [Abstract]
Contingent payments	$ 4

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Earnings (Loss) Per Share (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Calculation of Basic and Diluted Earnings Per Share

The calculation of basic and diluted loss per share for the three and nine months ended September, 2014 and 2013 is as follows:

	Three months ended					Nine months ended
	September 30,					September 30,
	2014		2013			2014			2013
Basic:
Net income (loss) applicable to common stockholders	$	258	$	(738	)	$	(6,724	)	$	(2,758	)
Weighted average shares outstanding – basic		31,215,799		31,148,234			31,186,252			31,148,234
Net loss per share – basic	$	0.01	$	(0.02	)	$	(0.22	)	$	(0.09	)
Diluted:
Net Income (loss) applicable to common stockholders	$	258	$	(738	)	$	(6,724	)	$	(2,758	)
Weighted average shares outstanding – basic		31,215,799		31,148,234			31,186,252			31,148,234
Dilutive securities	—		—			—			—
Weighted average shares outstanding – diluted		31,215,799		31,148,234			31,186,252			31,148,234
Net income (loss) per share – diluted	$	0.01	$	(0.02	)	$	(0.22	)	$	(0.09	)

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Income Taxes (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Income Tax Disclosure [Abstract]
Statutory rate	0.00%	37.00%	0.00%	37.00%
Deferred tax assets related to net operating loss carryforwards	$ 0		$ 2,484
Income taxes paid (including interest and penalties)	0		2	384
State tax refunds			674
Income tax receivable	$ 219		$ 219		$ 893

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value of Assets and Liabilities on a Recurring Basis

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2014, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

	September 30, 2014		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent consideration	$	4	$	4

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Unaudited Condensed Consolidated Financial Statements and Managements' Plans

9 Months Ended

Sep. 30, 2014

Organization Consolidation And Presentation Of Financial Statements [Abstract]

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 September 30, 2014 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, 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.

The Company reported a net loss of $6,734 for the nine months ended September 30, 2014 and $7,340 for the year ended December 31, 2013, and has no available borrowings as of September 30, 2014 under its line of credit, which had an outstanding balance of $4,541 at September 30, 2014.  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.  

Over the last two years, 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’s ZMI electrotherapy products. In an effort to minimize the impact of health care reform and changes in reimbursement, beginning in the second quarter of 2013, the Company made reductions in its annual operating expenses by cutting the Company’s annual employee costs by approximately $7,000 through headcount reductions. In October 2014, the Company negotiated a Termination Agreement for its existing building lease and a new Lease Agreement for a reduced space at its current headquarters. Under the terms of the Termination Agreement, among other things, the Company agreed to consolidate its operations into approximately one-third of the total square footage it occupied previously; monthly base rental payments were reduced from approximately $129 to $43 for the period from September 1, 2014 through December 31, 2014; all future rental payments and deferred rent amounts will be forgiven as of December 31, 2014; and, the terms of the new lease will take effect on January 1, 2015. The terms of the new lease include, among other things, a term of two years, fixed monthly base rental payments of approximately $49 for the full term of the lease; and, the right for either party to terminate the lease without future liability upon six months written notice to the Company or three months written notice to the landlord. Refer to Note 13. Additionally, the Company recently added new products to its ZMI sales channel, including the compound and sale of topical and transdermal pain creams, which typically have more certainty as to reimbursement because all orders are preauthorized by the insurance company prior to shipment. 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.

During the second quarter of 2014, the Company narrowed its focus to NexWave, InWave and NeuroMove electrotherapy products and continued to build the sales representative group for its TENS and compound pain cream solutions. As part of that effort, it restructured internal operations, including manufacturing, billing and customer service. As a result of these activities, the Company recorded a charge to cost of revenue – write-off of noncore inventory in the amount of $2,655, which included $2,005 of inventory and $650 of rental units in the quarter ended June 30, 2014. Refer to Note 2.

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 operating plan.  The amount outstanding on the Company’s line of credit (the “Triumph Agreement”) decreased from $5,820 at December 31, 2013 to $4,541 at September 30, 2014, primarily driven by collection of accounts receivable. On July 14, 2014, the Company received notice from Triumph Healthcare Finance (the “Lender”) of an event of default under the Triumph Agreement. The notice relates to the Company’s default under the minimum debt service coverage ratio for the quarter ended March 31, 2014 and certain other alleged defaults. The Lender notified the Company that it was exercising its default remedies under the Triumph Agreement, including, among others, accelerating the repayment of all outstanding obligations under the Triumph Agreement (outstanding principal and accrued interest) and collecting the Company’s bank deposits to apply towards the outstanding obligations. The Company and the Lender are negotiating the terms of an accelerated repayment of the amounts outstanding under the Triumph Agreement and the Lender has continued to make additional loans to the Company under the facility. However, no assurance can be given that the Lender will continue to make such additional loans or that the parties will agree on a repayment plan acceptable to the Company. If the Lender insists upon immediate repayment, the Company will be insolvent and may be forced to seek protection from creditors.    This default under the Triumph Agreement and potential remedies the Lender can demand, raises substantial doubt about the Company’s ability to continue as a going concern. 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 add more revenue as well as growth in its ZMI electrotherapy products. 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 the potential creation of other new product lines. There is no assurance that the Company’s operations and future access to new capital, 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.

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 the Lender. 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’s projected revenues, cash flows from operations and liquidity which may force the Company to curtail its operating plan or impede the Company’s ability to grow.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	31,271,234	31,171,234
Common stock, shares outstanding	31,271,234	31,171,234

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Litigation

9 Months Ended

Sep. 30, 2014

Commitments And Contingencies Disclosure [Abstract]

Litigation

(11) LITIGATION

From time to time, the Company may become party to litigation and other claims in the ordinary course of business. To the extent that such claims and litigation arise, management would provide for them if losses are determined to be both probable and estimable.

The Company is currently not a party to any material pending legal proceedings.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 04, 2014
Document And Entity Information [Abstract]
Entity Registrant Name	ZYNEX INC
Entity Central Index Key	0000846475
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Amendment Flag	false
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		31,271,234

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Segment Reporting

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Reporting

(12) SEGMENT REPORTING

At September 30, 2014, the Company determined that it has one reporting segment, the Electrotherapy and Pain Management segment, which includes the ZMI TENS units and compound pain creams that accounted for 95% of total net revenue for the nine months ended September 30, 2014. The determination was made based on the fact that the products are marketed through the same sales representatives and to the same medical providers whether the provider writes a prescription for a TENS device or compound pain cream. As discussed in Note 1, during the second quarter ended June 30, 2014, the Company narrowed it focus on these products. The revenue generated from the sale of other products and services is not significant.

Net revenue was primarily generated from sales in the United States.

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Net revenue:
Rental	$ 389	$ 1,284	$ 1,713	$ 4,606
Sales	4,015	3,907	7,208	13,725
Total net revenue	4,404	5,191	8,921	18,331
Operating expenses:
Cost of revenue - rental	172	257	575	956
Cost of revenue - sales	1,211	1,289	2,976	4,664
Cost of revenue - write-off of noncore inventory			2,655
Selling, general and administrative expense	2,609	4,713	9,012	16,699
Income (loss) from operations	412	(1,068)	(6,297)	(3,988)
Other income (expense):
Interest expense	(169)	(136)	(471)	(480)
Other income	25		34	72
Total other income (expense)	(144)	(136)	(437)	(408)
Income (loss) before income taxes	268	(1,204)	(6,734)	(4,396)
Income tax benefit		455		1,610
Net income (loss)	268	(749)	(6,734)	(2,786)
Plus: Net (income) loss – noncontrolling interest	(10)	11	10	28
Net income (loss) – attributable to Zynex, Inc.	$ 258	$ (738)	$ (6,724)	$ (2,758)
Net income (loss) per share – attributable to Zynex, Inc.
Basic	$ 0.01	$ (0.02)	$ (0.22)	$ (0.09)
Diluted	$ 0.01	$ (0.02)	$ (0.22)	$ (0.09)
Weighted - average number of common shares outstanding:
Basic	31,215,799	31,148,234	31,186,252	31,148,234
Diluted	31,215,799	31,148,234	31,186,252	31,148,234

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Stock-Based Compensation Plans

9 Months Ended

Sep. 30, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation Plans

(6) STOCK-BASED COMPENSATION PLANS

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

In the three months ended September 30, 2014 and 2013, the Company recorded compensation expense related to stock options of $18 and $29, respectively. Stock-based compensation recorded in the accompanying condensed consolidated statement of operations for the three months ended September 30, 2014 and 2013 included $2 and $2, respectively, in cost of goods sold and $16 and $27, respectively, in selling, general and administrative expenses.

In the nine months ended September 30, 2014 and 2013, the Company recorded compensation expense related to stock options of $74 and $98, respectively. Stock-based compensation recorded in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2014 and 2013 included $6 and $9, respectively, in cost of goods sold and $68 and $89, respectively, in selling, general and administrative expenses.

In the nine months ended September 30, 2014, the Company granted options to purchase up to 400,000 shares of common stock to employees at a weighted average exercise price of $0.25. The options have a ten year life and vest over four years.

The Company used the Black Scholes option pricing model to determine the fair value of stock option grants, using the following assumptions during the three and nine months ended September 30, 2014:

	2014
Weighted average expected term	6.25 years
Weighted average volatility	113% to 121%
Weighted average risk-free interest rate	1.4% to 1.7%
Dividend yield	0%

A summary of stock option activity under the Option Plan for the nine months ended September 30, 2014 is presented below:

	Shares Under Option			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at January 1, 2014		2,472,216		$	0.57
Granted		400,000		$	0.25
Exercised		—
Forfeited		(1,146,697	)	$	0.42
Outstanding at September 30, 2014		1,725,519		$	0.59		7.5 years	$	-
Exercisable at September 30, 2014		608,917		$	1.06		4.9 years	$	-

A summary of status of the Company’s non-vested share awards as of and for the nine months ended September 30, 2014 is presented below:

	Nonvested Shares Under Option			Weighted Average Grant Date Fair Value
Non-vested at January 1, 2014		1,663,593		$	0.29
Granted		400,000		$	0.22
Vested		(120,294	)	$	0.71
Forfeited		(826,697	)	$	0.25
Non-vested at September 30, 2014		1,116,602		$	0.29

As of September 30, 2014, the Company had approximately $174 of unrecognized compensation expense related to stock options that will be recognized over a weighted average period of approximately 3.19 years.

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Earnings (Loss) Per Share

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Earnings (Loss) Per Share

(5) 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, calculated using the treasury-stock method.

The calculation of basic and diluted loss per share for the three and nine months ended September, 2014 and 2013 is as follows:

	Three months ended					Nine months ended
	September 30,					September 30,
	2014		2013			2014			2013
Basic:
Net income (loss) applicable to common stockholders	$	258	$	(738	)	$	(6,724	)	$	(2,758	)
Weighted average shares outstanding – basic		31,215,799		31,148,234			31,186,252			31,148,234
Net loss per share – basic	$	0.01	$	(0.02	)	$	(0.22	)	$	(0.09	)
Diluted:
Net Income (loss) applicable to common stockholders	$	258	$	(738	)	$	(6,724	)	$	(2,758	)
Weighted average shares outstanding – basic		31,215,799		31,148,234			31,186,252			31,148,234
Dilutive securities	—		—			—			—
Weighted average shares outstanding – diluted		31,215,799		31,148,234			31,186,252			31,148,234
Net income (loss) per share – diluted	$	0.01	$	(0.02	)	$	(0.22	)	$	(0.09	)

  The effects of potential common stock equivalents, related to certain outstanding options for the three and nine months ended September 30, 2014 and 2013 were excluded from the computation of diluted net income (loss) per share as their inclusion would have an antidilutive effect.

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Stock-Based Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Fair Value of Stock Options Grants

The Company used the Black Scholes option pricing model to determine the fair value of stock option grants, using the following assumptions during the three and nine months ended September 30, 2014:

	2014
Weighted average expected term	6.25 years
Weighted average volatility	113% to 121%
Weighted average risk-free interest rate	1.4% to 1.7%
Dividend yield	0%

Summary of Stock Option Activity Under the Option Plan

A summary of stock option activity under the Option Plan for the nine months ended September 30, 2014 is presented below:

	Shares Under Option			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at January 1, 2014		2,472,216		$	0.57
Granted		400,000		$	0.25
Exercised		—
Forfeited		(1,146,697	)	$	0.42
Outstanding at September 30, 2014		1,725,519		$	0.59		7.5 years	$	-
Exercisable at September 30, 2014		608,917		$	1.06		4.9 years	$	-

Summary of Status of the Company's Non-Vested Shares Under Option

A summary of status of the Company’s non-vested share awards as of and for the nine months ended September 30, 2014 is presented below:

	Nonvested Shares Under Option			Weighted Average Grant Date Fair Value
Non-vested at January 1, 2014		1,663,593		$	0.29
Granted		400,000		$	0.22
Vested		(120,294	)	$	0.71
Forfeited		(826,697	)	$	0.25
Non-vested at September 30, 2014		1,116,602		$	0.29

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Subsequent Event

9 Months Ended

Sep. 30, 2014

Subsequent Events [Abstract]

Subsequent Event

(13) SUBSEQUENT EVENT

On October 31, 2014, the Company entered into a Lease Termination Agreement (“LTA”) and new Lease Agreement (“LA”) with its landlord relating to the Company’s headquarters location in Lone Tree, Colorado, under which the Company will reduce the amount of space leased at its headquarters. The following is a summary of the key terms of the LTA:

· Monthly rental payments of $43 from September 1, 2014 through December 31, 2014;

· The Company vacates the unleased portion property on or before December 31, 2014;

· The existing lease will terminate as of December 31, 2014;

· The Company will surrender to the Landlord substantially all of the furniture and fixtures and leasehold improvements in the portion of the building being vacated at no cost to the landlord; and

· Effective upon termination of the existing lease, all amounts due to the landlord for deferred rent and any other charges will be forgiven.

The following is a summary of the key terms of the new LA:

· The term of the LA shall be two years to commence on January 1, 2015 and to end, unless sooner terminated on December 31, 2016;

· Fixed rental payments of $49 per month; and

· The Company and landlord shall each have the right to terminate the lease at any time, without liability to the other, with six months prior written notice to the Company and three months written notice to the Landlord.

At September 30, 2014, the estimated net book value of the furniture and fixtures that will be surrendered to the landlord was $56. In addition, upon vacating the property in the fourth quarter of 2014, the Company expects to write-off the net book value of its leasehold improvements which amounted to $549 at September 30, 2014. Also, included in the consolidated balance sheet at September 30, 2014 is a liability for deferred rent amounting to $2,845 which will be forgiven upon termination of the existing lease, which is expected to occur in the fourth quarter of 2014.

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Line of Credit

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Line of Credit

(9) LINE OF CREDIT

The Company has an asset-backed revolving credit facility under a Loan and Security Agreement as amended, (the “Triumph Agreement”) with Triumph Healthcare Finance, a division of Triumph Community Bank. The Triumph Agreement contains certain customary restrictive and financial covenants for asset-backed credit facilities. As of September 30, 2014, the Company was not in compliance with the financial covenants under the Triumph Agreement. On July 14, 2014, the Company received notice from Triumph of an event of default under the Triumph Agreement. The notice relates to the Company’s default under the minimum debt service coverage ratio requirement for the quarter ended March 31, 2014 and certain other alleged defaults. The Lender notified the Company that it was exercising its default remedies under the Triumph Agreement, including, among others, accelerating the repayment of all outstanding obligations under the Triumph Agreement (outstanding principal and accrued interest) and collecting the Company’s bank deposits to apply towards the outstanding obligations. The Company and the Lender are negotiating the terms of an accelerated repayment of the amounts outstanding under the Triumph Agreement and the Lender has continued to make additional loans to the Company under the facility. However, no assurance can be given that the Lender will continue to make such additional loans or that the parties will agree on a repayment plan acceptable to the Company. If the Lender insists upon immediate repayment, the Company will be insolvent and may be forced to seek protection from creditors.   As of September 30, 2014, $4,541 was outstanding under the Triumph Agreement and zero was available for borrowing based on the default status and demand for accelerated payment. Borrowings under the Triumph Agreement bear interest at the default interest rate. As of September 30, 2014, the effective interest rate under the Triumph Agreement was 11.00% (6.75% interest rate plus 3% additional default interest rate and 1.25% fees). The Triumph Agreement requires monthly interest payments in arrears on the first date of each month. The Triumph Agreement will mature on December 19, 2014.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

(7) FAIR VALUE MEASUREMENTS

The Company measures certain assets and liabilities pursuant to accounting guidance which establishes a three-tier fair value hierarchy and prioritizes the inputs used in measuring fair value. These tiers include:

— Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

— Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

— Level 3: Unobservable inputs are used when little or no market data is available.

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2014, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

	September 30, 2014		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent consideration	$	4	$	4

The fair value of the contingent consideration was determined using a discounted cash flow model at the acquisition date and is revalued at each reporting date or more frequently if circumstances dictate based on changes in the discount periods and rates, changes in the timing and amount of the revenue estimates and changes in probability assumptions with respect to the likelihood of achieving the obligations. Contingent payments of $4 were made in April 2014 related to 2013.

Changes in the fair value of these obligations are recorded as income or expense within the line item “Other income (expense)” in the Company’s consolidated statements of operations. Accretion expense related to the increase in the net present value of the contingent liabilities is also included in the line item “Other income (expense)” in the Company’s consolidated statements of operations. The fair value measurement is based on significant inputs not observable in the market, which are referred to as Level 3 inputs.

Changes in the fair value of the Level 3 liabilities for the three and nine months ended September 30, 2014 were not significant.

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Income Taxes

9 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

Income Taxes

(8) INCOME TAXES

The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. The Company’s effective income tax rate was 0%for both the three and nine months ended September 30, 2014 and was approximately 37% for the corresponding 2013 periods. During the three and nine months ended September 30, 2014 the Company generated approximately $0 and $2,484, respectively, of deferred tax assets relating primarily to net operating loss carryforwards. However, as realization of these deferred tax assets is not more likely than not, a full valuation allowance was provided against the net deferred tax assets as of September 30, 2014. The Company paid income taxes of $0 and $2 during the three and nine months ended September 30, 2014, respectively, and received $674 of its income tax receivable of $893 during the nine month period.

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Concentrations

9 Months Ended

Sep. 30, 2014

Risks And Uncertainties [Abstract]

Concentrations

(10) CONCENTRATIONS

The Company sourced approximately 21% and 34% of components for its electrotherapy products from one vendor during the nine months ended September 30, 2014 and 2013, respectively. Management believes that its relationships with suppliers are good; however, the Company has delayed and extended payments to many of its vendors for cash flow reasons, which has caused many of its vendors to require pre-payment for products or services. If the relationships were to be replaced, there may be a short-term disruption to operations, a period of time in which products may not be available and additional expenses may be incurred.

The Company had receivables from a private health insurance carrier at September 30, 2014 and December 31, 2013 that made up approximately 5% and 7%, respectively, of the net accounts receivable balance.

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Fair Value Measurements (Details) (Fair Value, Measurements, Recurring, USD $) In Thousands, unless otherwise specified	Sep. 30, 2014
Liabilities:
Contingent consideration	$ 4
Fair Value, Inputs, Level 3
Liabilities:
Contingent consideration	$ 4

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Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2014

Property Plant And Equipment [Abstract]

Property and Equipment

Property and equipment as of September 30, 2014 and December 31, 2013 consist of the following:

	September 30, 2014			December 31, 2013			Useful lives
	(UNAUDITED)
Office furniture and equipment	$	1,752		$	2,073			3-7 years
Rental inventory		1,342			2,142			5 years
Vehicles		76			76			5 years
Leasehold improvements		874			486			2-6 years
Assembly equipment		125			171			7 years
		4,169			4,948
Less accumulated depreciation		(2,336	)		(2,057	)
	$	1,833		$	2,891

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Significant Accounting Policies (Details Textual) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended			9 Months Ended			9 Months Ended	3 Months Ended	9 Months Ended
	Sep. 30, 2014	Jun. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 Software development costs	Sep. 30, 2014 Inventory Valuation and Obsolescence	Sep. 30, 2014 Inventory Valuation and Obsolescence	Oct. 31, 2014 Subsequent Event
Significant Accounting Policies [Abstract]
Equity and Noncontrolling interest	20.00%			20.00%
Allowance for uncollectible accounts receivable	$ 936			$ 936		$ 1,837
Deferred revenue	109			109		0				0
Writeoff of noncore inventory				2,005
Inventory finished goods	2,506			2,506
Inventory parts	247			247
Inventory supplies	390			390
Reserve for obsolete and damaged inventory	660			660		1,278
Increase in reserve for obsolete and damaged inventory				The Company now estimates that finished units held for sale will be reserved beginning in year three and fully reserved after four years compared to five years previously.
Increase in reserve for obsolete and damaged inventory	414			414
Cost of revenue - sales	1,211		1,289	2,976	4,664			168	414
Increase in cost of revenue per share								$ 0.01	$ 0.02
Open purchase commitments	107			107
Estimated useful lives							5 years
Write-off rental units		$ 650		$ 650

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Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (USD $) In Thousands, except Share data	Total	Common Stock	Paid-in Capital	Retained Deficit	Noncontrolling Interest
Balance at Dec. 31, 2013	$ 4,848	$ 31	$ 5,586	$ (735)	$ (34)
Balance, shares at Dec. 31, 2013	31,171,234	31,171,234
Employee stock-based compensation expense	74		74
Shares issued for services		100,000
Value, Issued for Services	23		23
Net loss	(6,734)			(6,724)	(10)
Balance at Sep. 30, 2014	$ (1,789)	$ 31	$ 5,683	$ (7,459)	$ (44)
Balance, shares at Sep. 30, 2014	31,271,234	31,271,234

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Intangible Assets

9 Months Ended

Sep. 30, 2014

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets

(4) INTANGIBLE ASSETS

Intangible assets as of September 30, 2014 and December 31, 2013, consist of software development costs of $345 and $325, respectively. Accumulated amortization was $203 and $147, respectively.

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Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Property Plant And Equipment [Line Items]
Property and Equipment, Gross	$ 4,169	$ 4,948
Less accumulated depreciation	(2,336)	(2,057)
Property and Equipment, Net	1,833	2,891
Office furniture and equipment
Property Plant And Equipment [Line Items]
Property and Equipment, Gross	1,752	2,073
Office furniture and equipment | Minimum
Property Plant And Equipment [Line Items]
Property and Equipment, Useful Life	3 years
Office furniture and equipment | Maximum
Property Plant And Equipment [Line Items]
Property and Equipment, Useful Life	7 years
Rental inventory
Property Plant And Equipment [Line Items]
Property and Equipment, Gross	1,342	2,142
Property and Equipment, Useful Life	5 years
Vehicles
Property Plant And Equipment [Line Items]
Property and Equipment, Gross	76	76
Property and Equipment, Useful Life	5 years
Leasehold improvements
Property Plant And Equipment [Line Items]
Property and Equipment, Gross	874	486
Leasehold improvements | Minimum
Property Plant And Equipment [Line Items]
Property and Equipment, Useful Life	2 years
Leasehold improvements | Maximum
Property Plant And Equipment [Line Items]
Property and Equipment, Useful Life	6 years
Assembly equipment
Property Plant And Equipment [Line Items]
Property and Equipment, Gross	$ 125	$ 171
Property and Equipment, Useful Life	7 years

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Concentrations (Details Textual)	9 Months Ended			12 Months Ended
	Sep. 30, 2014 Electrotherapy products	Sep. 30, 2013 Electrotherapy products	Sep. 30, 2014 Net accounts receivable	Dec. 31, 2013 Net accounts receivable
Concentration Risk [Line Items]
Concentration Risk, Percentage	21.00%	34.00%	5.00%	7.00%

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Principles of Consolidation

PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Zynex, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Noncontrolling Interest

NONCONTROLLINGINTEREST

Noncontrollinginterestin the equity of a subsidiary is accounted for and reported as stockholders’ (deficit) equity. Noncontrolling interest represents the20% ownership in the Company’s majority-owned subsidiary, ZBC.  

Use of Estimates

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 condensed consolidated financial statements are associated with the allowance for contractual adjustments and uncollectible accounts receivable, the reserve for obsolete and damaged inventory, stock-based compensation, valuation of long-lived assets, and income taxes.

Revenue Recognition and Allowances for Provider Discounts and Collectability

REVENUE RECOGNITION, ALLOWANCE FOR CONTRACTUAL ADJUSTMENTS AND COLLECTIBILITY

The Company recognizes revenue when each of the following four conditions are met: 1) a contract or sales arrangement exists, 2) products have been shipped and title has transferred, or rental services have been rendered, 3) the price of the products or services is fixed or determinable, and 4) collectability is reasonably assured. Accordingly, the Company recognizes revenue, both rental and sales, when products have been delivered to the patient and the patient’s insurance (if the patient has insurance) has been verified. For medical products that are sold from inventories consigned at clinic locations, the Company recognizes revenue when it receives notice that the product has been prescribed and delivered to the patient and the patient’s insurance coverage has been verified or preauthorization has been obtained from the insurance company, when required. Revenue from the rental of products is normally on a month-to-month basis and is recognized ratably over the products’ rental period. Revenue from sales to distributors is recognized when the Company ships its products, which fulfills its order and transfers title. Revenue is reported net, after adjustments for estimated insurance company or governmental agency (collectively “Third-party Payors”) reimbursement deductions. The deductions are known throughout the health care industry as “contractual adjustments” whereby the Third-party Payors unilaterally reduce the amount they reimburse for the Company’s products.

A significant portion of the Company’s revenues are derived, and the related receivables are due, from Third-party Payors. The nature of these receivables within this industry has typically resulted in long collection cycles. The process of determining what products will be reimbursed by Third-party Payors and the amounts that they will reimburse is complex and depends on conditions and procedures that vary among providers and may change from time to time. The Company maintains an allowance for contractual adjustments and records additions to the allowance to account for the risk of nonpayment. Contractual adjustments result from reimbursements from Third-party Payors that are less than amounts claimed or where the amount claimed by the Company exceeds the Third-party Payors’ usual, customary and reasonable reimbursement rate. The Company determines the amount of the allowance, and adjusts it at the end of each reporting period, based on a number of factors, including historical rates of collection, the aging of the receivables, trends in the historical rates of collection and current relationships and experience with the Third-party Payors. If the rates of collection of past-due receivables recorded for previous fiscal periods changes, or if there is a trend in the rates of collection on those receivables, the Company may be required to change the rate at which it provides for additions to the allowance. A change in the rates of the Company’s collections 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, or changes in industry rates of reimbursement. Accordingly, changes to the allowance for contractual adjustments, which are recorded in the income statement as a reduction of revenue, have historically fluctuated and may continue to fluctuate significantly from quarter to quarter.

Due to the nature of the industry and the reimbursement environment in which the Company operates, estimates are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of third-party billing arrangements and the uncertainty of reimbursement amounts for certain products or services from payors 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 reimbursement, as well as changes in our billing practices to increase cash collections, it is possible that management’s estimates could change in the near term, which could have an impact on our results of operations and cash flows. Any differences between estimated settlements and final determinations are reflected as an increase or a reduction to revenue in the period when such final determinations are known.

The Company frequently receives refund requests from insurance providers relating to specific patients and dates of service. Billing and reimbursement disputes are very common in the Company’s industry. 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 that insurance provider. 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 insurance providers. 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.

As of September 30, 2014, the Company believes it has an adequate allowance for contractual adjustments relating to all known insurance disputes and refund requests. However, no assurances can be given with respect to such estimates of reimbursements and offsets or the ultimate outcome of any refund requests.

In addition to the allowance for contractual adjustments, the Company records an allowance for uncollectible accounts receivable. Uncollectible accounts receivable are primarily a result of non-payment from patients who have been direct billed for co-payments or deductibles, lack of appropriate insurance coverage and disallowances of charges by Third-party Payors. If there is a change to a material insurance provider contract or policy, application by a provider, a decline in the economic condition of providers or a significant turnover of Company billing personnel resulting in diminished collection effectiveness, the estimate of the allowance for uncollectible accounts receivable may not be adequate and may result in an increase in the future.At September 30, 2014 and December 31, 2013, the allowance for uncollectible accounts receivable is $936 and $1,837, respectively.

At September 30, 2014, the Company recorded a liability for deferred revenue in the amount of $109 which represents amounts paid by Third-party Payors for consumable supplies that were not shipped to patients as of September 30, 2014. This liability was reduced to zero in October 2014. There was no such liability at December 31, 2013.

Fair Value of Financial Instruments

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments at September 30, 2014 include cash, accounts receivable and accounts payable, for which current carrying amounts approximate fair value due to their short-term nature. Financial instruments at September 30, 2014 also include the line of credit and notes payable, 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.

Inventory

INVENTORY

Inventories, which primarily represent finished goods, are valued at the lower of cost (average) or market. In the second quarter of 2014,the Company narrowed its focus to the NexWave, InWave and NeuroMove electrotherapy products and building the sales representative group for its TENS and compound pain cream solutions.  As a result, the Company wrote-off all inventory unrelated to those specific product lines and recorded a charge to cost of revenue – write-off of noncore inventory in the amount of $2,005 during the nine month period ended September 30, 2014. Finished goods include products held at the Company’s headquarters and at different locations by health care providers or other parties for rental or sale to patients. Total (gross) inventories at September 30, 2014 included $2,506 of finished goods, $247 of parts, and $390 of supplies.

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 equal to the difference between the costs of inventories on hand and the estimated market value based upon assumptions about future demand. If future demand is less favorable than currently projected by management, additional inventory write-downs may be required. To fulfill orders faster, the Company places a large amount of its inventory with field sales representatives. This increases the sensitivity of these products to obsolescence reserve estimates. As this inventory is not in the Company’s possession, management maintains additional reserves for estimated shrinkage of these inventories based on the Company’s aging. At September 30, 2014, the Company had an allowance for obsolete and damaged inventory of approximately $660. The allowance for obsolete and damaged inventory was approximately $1,278 at December 31, 2013. The decrease from December 31, 2013 is due primarily to the write-off of noncore inventory discussed above. In addition, in the second quarter of 2014, the Company changed its method of estimation for determining allowances for obsolete and damaged inventory. The Company now estimates that finished units held for sale will be reserved beginning in year three and fully reserved after four years compared to five years previously. This change in estimate had the effect of increasing the allowances for obsolete and damaged inventory by approximately $414 at September 30, 2014 and increasing cost of revenue – sales by approximately $168 ($0.01 per share) and $414 ($0.02 per share) for the three and nine months ended September 30, 2014 respectively. The Company had $107 of open purchase commitments at September 30, 2014.

Property and Equipment

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Products on rental contracts are placed in property and equipment and depreciated over their estimated useful life. The Company removes the cost and the related accumulated depreciation from the accounts of assets sold or retired, and the resulting gains or losses are included in the results of operations. Depreciation is computed using the straight-line method over the useful life of the asset. As rental inventory contributes directly to the revenue generating process, the Company classifies the depreciation of rental inventory in cost of revenue. As a result of the Company’s change in product focus discussed above, the Company wrote-off all rental inventory unrelated to those specific product lines and recorded a charge to cost of revenue – write-off of noncore inventory of $650 in the second quarter of 2014.

Repairs and maintenance costs are charged to expense as incurred.

Intangible Assets

INTANGIBLE ASSETS

Intangible assets with estimable lives are amortized in a pattern consistent with the asset’s identifiable cash flows or using a straight- line method over their remaining estimated benefit periods if the pattern of cash flows is not estimable. The Company reviews the carrying value of intangible and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of their carrying amounts to the undiscounted cash flows that the asset or asset group is expected to generate. If the carrying amount of the assets exceeds the undiscounted cash flows the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Intangible assets primarily include capitalized software. The Company capitalizes software development costs incurred during the application development stage related to new software or major enhancements to the functionality of existing software that is developed solely to meet the entity’s internal operational needs and when no substantive plans exist or are being developed to market the software externally. Costs capitalized include external direct costs of materials and services and internal payroll and payroll-related costs. Any costs during the preliminary project stage or related to training or maintenance are expensed as incurred. Capitalization ceases when the software project is substantially complete and ready for its intended use. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.  When the projects are ready for their intended use, the Company amortizes such costs over their estimated useful lives of five years.

Stock-based Compensation

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.

Recent Accounting Pronouncements

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB)  issued Accounting Standards Update (ASU) No. 2014-09—“Revenue from Contracts with Customers” (Topic 606) which amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.  This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2018 using one of two prescribed retrospective methods.  Early adoption is not permitted.  The Company is evaluating the impact of the amended revenue recognition guidance on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” Under ASU 2013-11, an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance affects presentation only and, therefore, did not have a material impact on the Company's financial condition, results of operations or cash flows.

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.