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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 2010
 o
    
    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
    
    (IRS Employer Identification No.)incorporation or organization)9990 Park Meadows Dr., Lone Tree, CO
    
    80124(Address of principal executive offices)
    
    (Zip Code)
 (303) 703-4906
   o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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
    
    our dependence on the reimbursement from insurance companies and government (Medicare
and Medicaid) agencies for products sold or rented to our customers;
    
    our significant estimating risks associated with the amount of revenue, related refund
liabilities, accounts receivable and provider discounts that we recognize;
    
    our ability to meet financial covenants for our revolving line of credit;
    
    the need and availability of additional capital in order to grow our business;
    
    our ability to engage additional sales representatives;
    
    our need and ability to comply with regulatory requirements; including FDA clearance
and CE marking of new products and state licensure;
    
    the acceptance of new products as well as existing products by doctors, hospitals and
insurance providers;
    
    larger competitors with greater financial resources than us;
    
    our ability to keep pace with technological changes;
    
    our dependence upon third party manufacturers to produce our goods on time and to our
specifications;
    
    implementation of our sales strategy including a strong direct sales force;
    
    the uncertain outcome of pending material litigation; and
    
    other risks described in this report.
    2




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##### 



TABLE OF CONTENTS
 FORM 10-K ANNUAL REPORT  FISCAL YEAR 2010
 ZYNEX, INC.
 PagePART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    22Item 2. Properties
    
    
    22Item 3. Legal Proceedings
    
    
    22Item 4. Reserved
    
    
    23PART IIItem 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    23Item 6. Selected Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 8. Financial Statements and Supplementary Data
    
    
    31Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
    
    
    32Item 9A. Controls and Procedures
    
    
    32Item 9B. Other Information
    
    
    32PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    33Item 11. Executive Compensation
    
    
    36Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    40Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    42Item 14. Principal Accountant Fees and Services
    
    
    43PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    43Exhibit 21Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32.1
   3




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PART I
 
 ITEM 1.
    
    BUSINESS
 History
       Current Business
 Zynex Medical:
      4




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Zynex NeuroDiagnostics:
  Zynex Monitoring Solutions:
   5




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Products
   Zynex Medical:
 Product Name
    
    DescriptionOur ProductsIF 8000
    
    Combination IF and NMES device.IF 8100
    
    An easier to use, fixed program version of the IF8000.E-Wave
    
    Dual Channel NMES DeviceTruWave
    
    Dual Channel TENS DeviceTruWave Plus
    
    Dual Channel combination TENS, NMES and IF DeviceNexWave
    
    Dual Channel TENS Device (in development-not released)Private Labeled ProductsValuTENS
    
    Dual Channel TENS DeviceDCHT
    
    Cervical Traction DeviceLHT
    
    Lumbar Traction DeviceLSO
    
    Lumbar Support DeviceKnapp
    
    Knee BraceElectrodes
    
    Supplies, re-usable for delivery of electrical current to the bodyBatteries
    
    Supplies, for use in electrotherapy products
 Zynex NeuroDiagnostics:
 Product Name
    
    DescriptionOur ProductsNM 900
    
    NeuroMove. Electromyography (EMG) triggered Electrical Stimulation DevicePrivate Labeled ProductsElectrodes
    
    Supplies, re-usable for delivery of electrical current to the bodyBatteries
    
    Supplies, for use in electrotherapy products
  6




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Zynex Monitoring Solutions:
 Product Name
    
    DescriptionOur ProductsNon-Invasive Blood 
Volume Monitor
    
    Blood Volume Monitor (in development-not released)
 Product Uses
 Pain Management and Control
    Stroke and Spinal Cord Injury Rehabilitation
      7




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.
 Muscle related problems
   Post-op recovery
  Our Markets
 Zynex Medical
    
    
    Often, time for collection of initial payment from insurance carriers
can range from 30 days to many months and considerably longer for many
attorney, personal injury and workers compensation cases. Such
delayed payment impacts the Companys cash flow and can slow its
growth. Collections are also impacted by whether effective contacts
are made by our billing and collections department with the insurance
carriers.
    
    Prior to payment, the third party payors often make significant
payment adjustments or discounts. This can also lead to billing
disputes with third party payors.
    
    Some insurance companies do not, as a matter of policy, cover some of
our products, which can result in the denial of payment or a demand
for refund.
  8




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Zynex NeuroDiagnostics:
  Zynex Monitoring Solutions:
  Sales and Growth Strategies
  Manufacturing and Product Assembly
  
    
    At all times, comply with relevant legal and regulatory requirements.
    
    Use contract manufacturers as much as possible, thereby allowing us to
quickly respond to changes in volume and avoid large capital investments
for assembly and manufacturing equipment. Domestically and internationally,
there is a large pool of highly qualified contract manufacturers for the
type of devices we assemble.
    
    Utilize expanded in house manufacturing capabilities for certain TENS units.
    
    Develop and retain proprietary software for all products in house.
    
    Test all units 100% in a real-life, in-house environment to help ensure the
highest possible quality, patient safety, and reduce the cost of warranty
repairs.
   
  9




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Distribution and Revenue Streams
      Private Labeled Distributed Products
  Intellectual Property
     10




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Regulatory Approval And Process
      Government Regulation
   11




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
    
    Those that prohibit the filing of false or improper claims for federal payment.
    
    Those that prohibit unlawful inducements for the referral of business
reimbursable under federally funded health care programs.
   
    
    The referral of patients covered under Medicare, Medicaid and other federally-funded health care programs; or
    
    The purchasing, leasing, ordering, or arranging for any goods, facility, items or service reimbursable under
those programs.
 Employees
   12




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ITEM 1A.
    
    RISK FACTORS
 RISKS RELATED TO OUR BUSINESS
        13




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
    
    shortfalls in anticipated revenues or increases in expenses;
    
    the development of new products; or
    
    the expansion of our operations, including the recruitment of additional sales
personnel.
   14




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15




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
    
    If customers conclude that the costs of these products exceed the cost savings
associated with the use of these products;
    
    If customers are financially unable to purchase these products;
    
    If adverse patient events occur with the use of these products, generating adverse
publicity;
    
    If we lack adequate resources to provide sufficient education and training to our
customers; and
    
    If frequent product malfunctions occur, leading clinicians to believe that the products
are unreliable.
  16




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17




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
    
    Cease selling, incorporating, or using products that incorporate the challenged
intellectual property,
    
    Obtain a license from the holder of the infringed intellectual property right, which
may not be available on reasonable terms, if at all, and
    
    Re-design Zynexs products excluding the infringed intellectual property.
   
    
    Contract with, hire and train sales and clinical specialists;
    
    Build a sales force, which may include a rapid increase in hiring direct sales
employees, and quickly increase the number of contract sales representatives in order to
meet internal projections for sales growth;
    
    Manage geographically dispersed operations;
    
    Explore potential reseller and original equipment manufacturer (OEM) relationships and
assure that reseller and OEMs provide appropriate educational and technical support;
    
    Promote frequent product use to increase sales of consumables: and,
    
    Enter into relationships with well-established distributors in foreign markets.
  18




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19




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
    
    Election of our board of directors;
    
    Removal of any of our directors;
    
    Amendment of our certificate of incorporation or bylaws;
    
    Approval of significant corporate transactions, such as a sale, merger or liquidation
of our Company;
    
    Adoption of measures that could delay or prevent a change in control or impede a
merger, takeover or other business combination involving us.
      20




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
    
    failure to properly comply with U.S. and foreign laws and regulations
applicable to our foreign activities including, without limitation, product approval,
healthcare and employment law requirements and the Foreign Corrupt Practices Act;
    
    difficulties in managing foreign operations and attracting and retaining
appropriate levels of senior management and staffing;
    
    longer cash collection cycles;
    
    proper compliance with local tax laws which can be complex and may result in
unintended adverse tax consequences;
    
    difficulties in enforcing agreements through foreign legal systems;
    
    fluctuations in exchange rates that may affect product demand and may
adversely affect the profitability in U.S. dollars of the products we provide in foreign
markets;
    
    the ability to efficiently repatriate cash to the United States and transfer
cash between foreign jurisdictions; and
    
    changes in general economic conditions or political circumstances in countries
where we operate.
   21




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RISKS RELATING TO OUR COMMON STOCK
     
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
 Marjorie and David Mishkin v. Zynex, Inc. et al
  22




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ITEM 4.
    
    RESERVED
 
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
   PERIOD
    
    HIGH
    
    
    LOWYear ended December 31, 2009First Quarter
    
    $
    1.69
    
    
    $
    1.00Second Quarter
    
    $
    1.18
    
    
    $
    0.46Third Quarter
    
    $
    1.05
    
    
    $
    0.89Fourth Quarter
    
    $
    1.74
    
    
    $
    1.04Year ended December 31, 2010First Quarter
    
    $
    1.20
    
    
    $
    0.80Second Quarter
    
    $
    1.00
    
    
    $
    0.45Third Quarter
    
    $
    0.60
    
    
    $
    0.38Fourth Quarter
    
    $
    0.65
    
    
    $
    0.42
   Unregistered sales of common stock
   
 ITEM 6.
    
    SELECTED FINANCIAL DATA
   23




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
   RESULTS OF OPERATIONS (amounts in thousands)
 Overview
  Revenue
      24




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Total Net Revenue (Net Rental and Net Sales)
 December 31,
    
    
    December 31,Total net revenue by quarter (in thousands)
    
    2010
    
    
    2009First quarter
    
    $
    4,875
    
    
    $
    4,232Second quarter
    
    
    5,742
    
    
    
    4,346Third quarter
    
    
    6,657
    
    
    
    4,691Fourth quarter
    
    
    6,811
    
    
    
    5,412Total Net Revenue
    
    $
    24,085
    
    
    $
    18,681
 December 31,
    
    
    December 31,Total net revenue by type (in thousands)
    
    2010
    
    
    2009Net Rental Revenue
    
    $
    8,533
    
    
    $
    10,534Sale of electrotherapy and other private labeled distributed products
    
    
    6,568
    
    
    
    1,858Sale of recurring consumable supplies
    
    
    8,984
    
    
    
    6,289Total Net Sales Revenue
    
    
    15,552
    
    
    
    8,147Total Net Revenue
    
    $
    24,085
    
    
    $
    18,681
    Net Rental Revenue
    25




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Net Sales Revenue
   Gross Profit
   Selling, General and Administrative (SG&A)
   % of Net
    
    
    
    
    
    
    % of NetSG&A expense by department
    
    2010
    
    
    Revenue
    
    
    2009
    
    
    RevenueSales & Marketing
    
    $
    6,331
    
    
    
    26
    %
    
    $
    4,475
    
    
    
    24
    %Reimbursement & Billing
    
    
    6,261
    
    
    
    26
    %
    
    
    3,236
    
    
    
    17
    %General & Administrative
    
    
    3,246
    
    
    
    13
    %
    
    
    2,328
    
    
    
    12
    %Engineering, Operations & Regulatory
    
    
    1,484
    
    
    
    6
    %
    
    
    1,035
    
    
    
    6
    %Total SG&A expenses
    
    $
    17,322
    
    
    
    
    
    
    $
    11,074
  26




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Other Income (Expense)
      Income Tax Expense
   LIQUIDITY AND CAPITAL RESOURCES (amounts in thousands)
 Line of Credit
    27




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Limited Liquidity
         28




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Contractual Obligations
    
    Total
    
    
    1 Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    5+ YearsLine of credit
    
    $
    1,270
    
    
    $
    1,270
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations (including interest)
    
    
    535
    
    
    
    143
    
    
    
    283
    
    
    
    109
    
    
    
    Operating leases
    
    
    8,465
    
    
    
    1,659
    
    
    
    3,525
    
    
    
    3,281
    
    
    
    Total contractual cash obligations
    
    $
    10,270
    
    
    $
    3,072
    
    
    $
    3,808
    
    
    $
    3,390
    
    
    $
    
     Use of Estimates
  29




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Revenue Recognition and Allowances for Provider Discounts and Collectability
    Share-based Compensation
  30




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Income Taxes
  
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
   31




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ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES.
 Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
   Changes in Internal Control Over Financial Reporting
  
 ITEM 9B.
    
    OTHER INFORMATION.
   32




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PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  DirectorName
    
    Age
    
    
    Since
    
    
    Position or OfficeThomas Sandgaard
    
    
    52
    
    
    
    1996
    
    
    President, Chief Executive Officer, Director and ChairmanTaylor Simonton
    
    
    66
    
    
    
    2008
    
    
    Director, Chair of Audit CommitteeMary Beth Vitale
    
    
    57
    
    
    
    2008
    
    
    Director, Member of Audit CommitteeMats Wahlstrom
    
    
    56
    
    
    
    2010
    
    
    Director, Member of Audit CommitteeAnthony Scalese
    
    
    37
    
    
    
    N/A
    
    
    Chief Financial Officer
  Thomas Sandgaard
 Qualifications
 Taylor Simonton
 Principal Occupation
 Other Directorships
  33




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Other Information
 Qualifications
 Mary Beth Vitale
 Principal Occupation
 Other Directorships
 Qualifications
 Mats Wahlström
 Principal Occupation
 Other Directorships
 Qualifications
  34




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Anthony Scalese
 Audit Committee
  Director Nominations by Shareholders
  Code of Ethics
   35




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ITEM 11.
    
    EXECUTIVE COMPENSATION
 Summary Compensation Table
  Option
    
    
    All OtherSalary
    
    
    Bonus
    
    
    Awards
    
    
    Compensation
    
    
    TotalName and Principal Position
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($) (5)
    
    
    ($)
    
    
    ($)Thomas Sandgaard
    
    
    2010
    
    
    
    324,000
    
    
    
    
    
    
    
    
    
    
    
    21,454
    (2)
    
    
    345,454Chief Executive Officer
    
    
    2009
    
    
    
    216,000
    
    
    
    210,000
    
    
    
    
    
    
    
    34,389
    (2)
    
    
    460,389Fritz G. Allison (1)
    
    
    2010
    
    
    
    112,000
    
    
    
    
    
    
    
    2,864
    
    
    
    59,719
    (3)
    
    
    174,583Former Chief Financial Officer
    
    
    2009
    
    
    
    152,500
    
    
    
    
    
    
    
    8,724
    
    
    
    6,576
    (4)
    
    
    167,800
 (1)
    
    On August 23, 2010, Fritz Allison resigned from his position as the Chief Financial
Officer of the Company. In connection with his resignation, the Company entered into a
separation agreement with Mr. Allison. The separation agreement provides that, among other
things, the Company will: (i) pay Mr. Allison $126,000 in nine monthly installments; and
(ii) accelerate the vesting of certain unvested options to purchase Company common stock and
allow such options to be exercised for one year following his resignation date.(2)
    
    We pay for 100% of Mr. Sandgaards health and dental insurance. In addition, two company
vehicles and two home telephone lines are provided to Mr. Sandgaard at our expense.(3)
    
    We paid for 100% of Mr. Allisons health and dental insurance through August 31, 2010 and
paid $56,000 according to the terms of Mr. Allisons separation agreement(4)
    
    We paid for 100% of Mr. Allisons health and dental insurance for 2009(5)
    
    The option awards represent the grant date fair value of stock options granted in
accordance with ASC Topic 718 (formerly FASB 123R). See Note 4 of the Consolidated
Financial Statements for additional information.
 Named Executive Officer Employment Agreements
 Thomas Sandgaard
   36




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Cash CollectionsMeeting Targeted
    
    Quarterly
    
    
    AnnualAmounts*
    
    Bonus
    
    
    Bonusat or >100%
    
    $
    15,000
    
    
    $
    20,000
 EBITDAMeeting Targeted
    
    Quarterly
    
    
    AnnualAmounts*
    
    Bonus
    
    
    Bonusat or >100%
    
    $
    15,000
    
    
    $
    20,000
 Net Revenue Meeting
    
    Quarterly
    
    
    AnnualTargeted Amounts*
    
    Bonus
    
    
    Bonusat or >100%
    
    $
    15,000
    
    
    $
    20,000
 *
    
    The Board may include or exclude amounts from cash collections, EBITDA or net revenue for purposes
of calculating the bonus if the Board deems such amounts to be unusual or infrequent
  Fritz G. Allison
    37




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Outstanding Equity Awards at 2010 Year End
  Option AwardsEquityIncentivePlan Awards:Number ofNumber of
    
    
    Number of
    
    
    SecuritiesSecurities
    
    
    Securities
    
    
    UnderlyingUnderlying
    
    
    Underlying
    
    
    UnexercisedUnexercised
    
    
    Unexercised
    
    
    UnearnedOptions
    
    
    Options
    
    
    Options
    
    
    Option
    
    
    OptionName
    
    (#) Exercisable
    
    
    (#) Unexercisable
    
    
    (#)
    
    
    Exercise Price
    
    
    Expiration DateThomas Sandgaard
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fritz G. Allison (1)
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    $
    0.45
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    0.85
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    1.32
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    1.28
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    1.48
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    1.70
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    $
    1.00
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    0.95
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    1.08
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    1.06
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    0.92
    
    
    August 23, 2011Fritz G. Allison (1)
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    0.60
    
    
    August 23, 2011
 (1)
    
    According to the terms of Mr. Allisons separation agreement, among other things, the
Company will: (i) pay Mr. Allison $126,000 in nine monthly installments; and (ii)
accelerate the vesting of certain unvested options to purchase Company common stock and
allow such options to be exercised for one year following his resignation date. Therefore,
All Mr. Allisons outstanding options immediately vested on August 23, 2010 and will expire
on August 23, 2011.
 Director Compensation
  Director Compensation for 2010Non-QualifiedNon-Equity
    
    
    DeferredFees Earned
    
    
    Stock
    
    
    Option
    
    
    Incentive Plan
    
    
    Compensation
    
    
    All Otheror Paid in Cash
    
    
    Awards
    
    
    Awards
    
    
    Compensation
    
    
    Earnings
    
    
    Compensation
    
    
    TotalName
    
    ($)
    
    
    ($) (1)
    
    
    ($) (1)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Taylor Simonton
    
    
    26,250
    
    
    
    30,000
    (2)
    
    
    1,415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,665Mary Beth Vitale
    
    
    20,750
    
    
    
    20,000
    (2)
    
    
    1,415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,165Mats Wahlstrom(3)
    
    
    3,500
    
    
    
    5,200
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,700
 (1)
    
    Amounts shown reflect the grant date fair value computed in accordance with ASC Topic
718. The stock awards reflect the market price on the date of the award.(2)
    
    Mr. Simonton as Chair of the Audit Committee received $30,000 of shares of Company
common stock for directors meetings held in 2010, Ms. Vitale received $20,000 in shares of
Company common stock for meetings during 2010 and Mr. Wahlstrom received $5,200 in shares
of Company common stock upon joining the Board.(3)
    
    Mr. Wahlstrom joined the Board in October 2010.
  38




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##### Table of Contents



Number of Securities
    
    
    Number of SecuritiesUnderlying Unexercised
    
    
    Underlying Unexercised
    
    
    OptionOptions
    
    
    Options
    
    
    Exercise
    
    
    Option#
    
    
    #
    
    
    Price
    
    
    ExpirationName
    
    Exercisable
    
    
    Unexercisable
    
    
    $
    
    
    DateTaylor Simonton
    
    
    12,000
    
    
    
    
    
    
    
    5.10
    
    
    October 5, 2018Taylor Simonton
    
    
    4,000
    
    
    
    
    
    
    
    0.68
    
    
    May 20, 2020Mary Beth Vitale
    
    
    12,000
    
    
    
    
    
    
    
    5.10
    
    
    October 5, 2018Mary Beth Vitale
    
    
    4,000
    
    
    
    
    
    
    
    0.68
    
    
    May 20, 2020
 Compensation Risk
   39




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##### Table of Contents



ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
  Number of Shares
    
    
    PercentBeneficially
    
    
    OfName
    
    Class of Stock
    
    
    Owned
    
    
    Class (4)Thomas Sandgaard
    
    Common
    
    
    18,146,000
    
    
    
    57.9
    %Taylor Simonton
    
    Common
    
    
    106,510
    (1)
    
    
    *Mary Beth Vitale
    
    Common
    
    
    76,341
    (1)
    
    
    *Mats Wahlstrom
    
    Common
    
    
    817,937
    (2)
    
    
    2.6
    %Fritz Allison
    
    Common
    
    
    126,000
    (3)
    
    
    *All Directors and
Named Executive Officers
As a Group
    
    Common
    
    
    19,272,788
    
    
    
    61.4
    %
 *
    
    Less than 1%.(1)
    
    Includes 16,000 stock options held by the director and exercisable within 60 days of
March 24, 2011.(2)
    
    Mr. Wahlstrom holds 817,937 shares through Leonard Capital, LLC, his investment
company.(3)
    
    Includes 126,000 stock options held by Mr. Allison that are exercisable within 60 days
of March 24, 2011.(4)
    
    Based on 31,363,731 shares outstanding on March 24, 2011.
  40




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##### Table of Contents



EQUITY COMPENSATION PLAN INFORMATION
  Number of SecuritiesNumber of
    
    
    
    
    
    
    Remaining AvailableSecurities to be
    
    
    Weighted
    
    
    for Future IssuanceIssued Upon
    
    
    Average Exercise
    
    
    Under EquityExercise of
    
    
    Price of
    
    
    Compensation PlansOutstanding
    
    
    Outstanding
    
    
    (excluding securitiesOptions, Warrants
    
    
    Options, Warrants
    
    
    reflected in columnPlan Category
    
    and Rights
    
    
    and Rights
    
    
    (a))(a)
    
    
    (b)
    
    
    (c)Equity Compensation
Plans Approved by
Shareholders (1)
    
    
    1,845,250
    
    
    $
    0.96
    
    
    
    1,037,500Equity Compensation
Plans not approved
by Shareholders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,845,250
    
    
    $
    0.96
    
    
    
    1,037,500
 (1)
    
    All of these securities are available for issuance under the Zynex, Inc. 2005 Stock Option
Plan, approved by the Board of Directors on January 3, 2005 and by our stockholders on
December 30, 2005.
  41




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##### Table of Contents



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  Option
    
    
    All OtherName and
    
    
    
    
    
    Salary
    
    
    Bonus
    
    
    Awards
    
    
    Compensation
    
    
    TotalPrincipal Position
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($) (1)
    
    
    ($)(2)
    
    
    ($)Birgitte Sandgaard(3)
    
    
    2010
    
    
    
    170,000
    
    
    
    
    
    
    
    3,409
    
    
    
    
    
    
    
    173,409VP of Billing
    
    
    2009
    
    
    
    152,500
    
    
    
    50,000
    
    
    
    8,724
    
    
    
    
    
    
    
    211,224Joachim Sandgaard
    
    
    2010
    
    
    
    64,500
    
    
    
    
    
    
    
    3,409
    
    
    
    5,578
    
    
    
    73,487Information Services
    
    
    2009
    
    
    
    54,584
    
    
    
    
    
    
    
    8,724
    
    
    
    6,576
    
    
    
    69,884Martin Sandgaard
    
    
    2010
    
    
    
    30,115
    
    
    
    
    
    
    
    852
    
    
    
    5,578
    
    
    
    36,545Payment Specialist/Website/graphic design
    
    
    2009
    
    
    
    19,613
    
    
    
    
    
    
    
    8,724
    
    
    
    
    
    
    
    28,337
 (1)
    
    The option awards represents fair value on the grant date of stock options granted to
each of the named related parties in accordance with ASC Topic 718. See Note 4 of
Consolidated Financial Statements for more information.(2)
    
    Includes health and dental insurance provided by the Company.(3)
    
    On February 1, 2011, Ms. Sandgaard retired from the Company. Ms. Sandgaard signed a
retirement agreement, which provided her with a $90,000 lump sum payment, title to a
Company automobile and immediate vesting on all outstanding stock options (with expiration
on February 1, 2012). The terms of the retirement agreement also included a release of
claims and non-compete. Concurrently, Ms. Sandgaard also entered into a 24 month
consulting agreement with the Company, which provides for ongoing consulting by Ms.
Sandgaard in exchange for monthly cash payments of $7,800. The consulting agreement can be
cancelled at anytime, provided that a 30 day notice is given, by Ms. Sandgaard or the
Company.
 Director Independence
   42




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##### Table of Contents



ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  GHP Horwath, P.C.2010
    
    
    2009Audit Fees
    
    $
    98,500
    
    
    $
    118,100Audit Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    8,000All Other Fees
    
    
    
    
    
    
    Total
    
    $
    98,500
    
    
    $
    126,100
    
 PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Consolidated Financial Statements:Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2010 and 2009
    
    
    F-3Consolidated Statements of Operations for the years ended December 31, 2010 and 2009
    
    
    F-4Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009
    
    
    F-5Consolidated Statements of Stockholders Equity for the years ended December 31, 2010 and 2009
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
  43




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##### Table of Contents



ExhibitNumber
    
    Description3.1
    
    
    Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 10.1 of the 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)4.1
    
    
    Form of Warrant (incorporated by reference to Exhibit 10.4 of the
Companys Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2006)10.1
    
    
    Employment Agreement, dated February 1, 2004, between Zynex
Medical, Inc. and Thomas Sandgaard (incorporated by reference to
Exhibit 10.2 of the Companys Registration Statement on Form SB-2
(File No. 333-117175) filed on July 6, 2004)10.2
    
    
    Amendment Employment Agreement, dated July 1, 2009, among the
Company, Zynex Medical, Inc. and Thomas Sandgaard (incorporated by
reference to Exhibit 10.2 of the Companys Quarterly Report on
Form 10-Q for the quarter ended June 30, 2009)10.3
    
    
    Amendment to Employment Agreement, dated April 1, 2010, among the
Company, Zynex Medical, Inc. and Thomas Sandgaard (incorporated by
reference to Exhibit 10.1 of the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2010)10.4
    
    
    Offer Letter, dated August 16, 2010, between the Company and
Anthony Scalese (incorporated by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K filed on August 24, 2010)10.5
    
    
    Separation Agreement and Release, dated August 23, 2010, among the
Company, Zynex Medical, Inc. and Fritz G. Allison (incorporated by
reference to Exhibit 10.1 of the Companys Current Report on Form
8-K filed on August 24, 2010)10.6
    
    
    2005 Stock Option Plan (incorporated by reference to Exhibit 10.5
of the Companys Annual Report on Form 10-KSB for the year ended
December 31, 2004)10.7
    
    
    Form of Indemnification Agreement for directors and executive
officers (incorporated by reference to Exhibit 10.3 of the
Companys Current Report on Form 8-K filed on October 7, 2008)10.8
    
    
    Premise Lease, dated November 12, 2009, between Zynex Medical,
Inc. and Spiral Lone Tree, LLC (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on Form 8-K filed on
November 13, 2009)10.9
    
    
    Absolute Unconditional Lease Guaranty, dated November 12, 2009,
between the Company and Spiral Lone Tree, LLC (incorporated by
reference to Exhibit 10.2 of the Companys Current Report on Form
8-K filed on November 13, 2009)10.10
    
    
    Revolving Credit and Security Agreement, dated March 19, 2010,
among the Company, Zynex Medical, Inc. and CapitalSource Bank
(incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed on March 23, 2010)10.11
    
    
    Waiver, Joinder and First Amendment to Revolving Credit and
Security Agreement, dated February 11, 2011, among the Company,
Zynex Medical, Inc., Zynex NeuroDiagnostic Inc., Zynex Monitoring
Solutions Inc. and CapitalSource Bank (incorporated by reference
to Exhibit 10.1 of the Companys Current Report on Form 8-K filed
on February 16, 2011)
  44




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##### Table of Contents



ExhibitNumber
    
    Description21
    *
    
    Subsidiaries of the Company23
    *
    
    Consent of GHP Horwath, P.C.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.
 
 *
    
    Filed herewith
    
    Denotes management contract or compensatory plan or arrangement
  45




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##### Table of Contents



ZYNEX, INC.Date: March 28, 2011
    By:
    
    /s/ Thomas SandgaardThomas SandgaardPresident, Chairman and Chief Executive Officer  Date
    
    Name and Title
    
    SignatureMarch 28, 2011
    
    Thomas Sandgaard, 
Director, 
President and Chief Executive Officer
    
    /s/ Thomas SandgaardMarch 28, 2011
    
    Anthony A. Scalese, 
Chief Financial Officer
(Principal Accounting & Financial Officer)
    
    /s/ Anthony A. ScaleseMarch 28, 2011
    
    Taylor Simonton,
Director
    
    /s/ Taylor SimontonMarch 28, 2011
    
    Mary Beth Vitale,
Director
    
    /s/ Mary Beth VitaleMarch 28, 2011
    
    Mats Wahlstrom,
Director
    
    /s/ Mats Wahlstrom
  46




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##### Table of Contents



Zynex, Inc.




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ GHP Horwath, P.C.GHP Horwath, P.C.Denver, ColoradoMarch 28, 2011
  F-2




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##### Table of Contents



ZYNEX, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)
 December 31,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent Assets:Cash
    
    $
    602
    
    
    $
    863Accounts receivable, net
    
    
    7,309
    
    
    
    5,039Inventory
    
    
    3,641
    
    
    
    2,140Prepaid expenses
    
    
    145
    
    
    
    139Deferred tax asset
    
    
    794
    
    
    
    864Other current assets
    
    
    41
    
    
    
    77Total current assets
    
    
    12,532
    
    
    
    9,122Property and equipment, net
    
    
    2,906
    
    
    
    2,612Deposits
    
    
    174
    
    
    
    166Deferred financing fees, net
    
    
    89
    
    
    
    30$
    15,701
    
    
    $
    11,930LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Line of credit
    
    $
    1,270
    
    
    $
    Current portion of capital lease obligations
    
    
    93
    
    
    
    95Accounts payable
    
    
    1,313
    
    
    
    1,127Income taxes payable
    
    
    1,103
    
    
    
    905Accrued payroll and payroll taxes
    
    
    572
    
    
    
    426Deferred rent
    
    
    221
    
    
    
    Other accrued liabilities
    
    
    980
    
    
    
    788Total current liabilities
    
    
    5,552
    
    
    
    3,341Capital lease obligations, less current portion
    
    
    327
    
    
    
    20Deferred rent
    
    
    1,452
    
    
    
    544Deferred tax liability
    
    
    188
    
    
    
    539Total liabilities
    
    
    7,519
    
    
    
    4,444Stockholders 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,
30,604,167 (2010) and 30,497,318 (2009) shares issued and outstanding
    
    
    31
    
    
    
    30Paid-in capital
    
    
    4,702
    
    
    
    4,357Retained earnings
    
    
    3,449
    
    
    
    3,099Total stockholders equity
    
    
    8,182
    
    
    
    7,486$
    15,701
    
    
    $
    11,930
   F-3




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##### Table of Contents



ZYNEX, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 YEARS ENDED DECEMBER 31,
 2010
    
    
    2009Net revenue:Rental
    
    $
    8,533
    
    
    $
    10,534Sales
    
    
    15,552
    
    
    
    8,14724,085
    
    
    
    18,681Cost of revenue:Rental
    
    
    802
    
    
    
    1,564Sales
    
    
    4,400
    
    
    
    2,2295,202
    
    
    
    3,793Gross profit
    
    
    18,883
    
    
    
    14,888Selling, general and administrative expense
    
    
    17,322
    
    
    
    11,074Income from operations
    
    
    1,561
    
    
    
    3,814Other income (expense):Interest income
    
    
    5
    
    
    
    4Interest expense and loss on extinguishment of debt
    
    
    (215
    )
    
    
    (165
    )Other expense
    
    
    (16
    )
    
    
    (1
    )Gain on value of derivative liability
    
    
    
    
    
    
    171(226
    )
    
    
    9Income before income taxes
    
    
    1,335
    
    
    
    3,823Income tax expense
    
    
    985
    
    
    
    1,441Net income
    
    $
    350
    
    
    $
    2,382Net income per share:Basic
    
    $
    0.01
    
    
    $
    0.08Diluted
    
    $
    0.01
    
    
    $
    0.08Weighted average number of common
shares outstanding:Basic
    
    
    30,546,070
    
    
    
    30,122,486Diluted
    
    
    30,704,737
    
    
    
    30,374,360
   F-4




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##### Table of Contents



ZYNEX, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (AMOUNTS IN THOUSANDS)
 YEARS ENDED DECEMBER 31,
 2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    350
    
    
    $
    2,382Adjustments to reconcile net income to net cash (used in) provided by
operating activities:Depreciation expense
    
    
    774
    
    
    
    677Provision for losses on accounts receivable
    
    
    317
    
    
    
    149Amortization of deferred consulting and financing fees
    
    
    71
    
    
    
    61Gain on value of derivative liability
    
    
    
    
    
    
    (171
    )Issuance of stock for services
    
    
    79
    
    
    
    188Provision for obsolete inventory
    
    
    23
    
    
    
    267Deferred rent expense
    
    
    1,129
    
    
    
    44Loss on disposal of equipment
    
    
    18
    
    
    
    Employee stock-based compensation expense
    
    
    267
    
    
    
    169Deferred tax benefit
    
    
    (281
    )
    
    
    (105
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,586
    )
    
    
    427Inventory
    
    
    (1,559
    )
    
    
    (91
    )Prepaid expenses
    
    
    (6
    )
    
    
    (66
    )Other current assets
    
    
    17
    
    
    
    (17
    )Accounts payable
    
    
    186
    
    
    
    89Accrued liabilities
    
    
    338
    
    
    
    (590
    )Income taxes payable
    
    
    198
    
    
    
    235Net cash (used in) provided by operating activities
    
    
    (665
    )
    
    
    3,648Cash flows from investing activities:Proceeds received in lease termination
    
    
    108
    
    
    
    Deposits
    
    
    
    
    
    
    11Purchases of equipment
    
    
    (672
    )
    
    
    (955
    )Net cash used in investing activities
    
    
    (564
    )
    
    
    (944
    )Cash flows from financing activities:Decrease in bank overdraft
    
    
    
    
    
    
    (113
    )Net borrowings from (payments on) line of credit
    
    
    1,270
    
    
    
    (1,781
    )Deferred financing fees
    
    
    (120
    )
    
    
    (30
    )Payments on notes payable and capital lease obligations
    
    
    (182
    )
    
    
    (37
    )Repayments of loans from stockholder
    
    
    
    
    
    
    (25
    )Issuance of common stock
    
    
    
    
    
    
    145Net cash provided by (used in) financing activities
    
    
    968
    
    
    
    (1,841
    )Net (decrease) increase in cash
    
    
    (261
    )
    
    
    863Cash at the beginning of the period
    
    
    863
    
    
    
    Cash at the end of the period
    
    $
    602
    
    
    $
    863Supplemental cash flow information:Interest paid
    
    $
    112
    
    
    $
    103Income taxes paid (including interest and penalties)
    
    $
    1,068
    
    
    $
    1,311Supplemental disclosure of non-cash investing and financing activities:Equipment acquired through capital lease
    
    $
    441
    
    
    $
    Increase in deposit and deferred rent
    
    $
    
    
    
    $
    156Increase in leasehold improvements and deferred rent
    
    $
    
    
    
    $
    344
   F-5




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##### Table of Contents



ZYNEX, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
 Common Stock
    
    
    Paid-in
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    TotalJanuary 1, 2009
    
    
    29,871,041
    
    
    $
    29
    
    
    $
    3,677
    
    
    $
    1,068
    
    
    $
    4,774Cumulative effect of change in
accounting principle  January 1, 2009
reclassification of equity-linked
financial instrument to derivative
liability
    
    
    
    
    
    
    
    
    
    
    (87
    )
    
    
    (351
    )
    
    
    (438
    )Derecognition of derivative liability
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    266Issuance of common stock:for option exercise
    
    
    100,000
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    32for option exercise from 2005 plan
    
    
    23,750
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7for warrant amendment and services
    
    
    100,000
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    100for consulting services
    
    
    72,660
    
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    88for warrant exercise
    
    
    329,867
    
    
    
    1
    
    
    
    105
    
    
    
    
    
    
    
    106Employee stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    169
    
    
    
    
    
    
    
    169Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,382
    
    
    
    2,382December 31, 2009
    
    
    30,497,318
    
    
    
    30
    
    
    
    4,357
    
    
    
    3,099
    
    
    
    7,486Issuance of common stock for services
    
    
    106,849
    
    
    
    1
    
    
    
    78
    
    
    
    
    
    
    
    79Employee stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    267Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    350December 31, 2010
    
    
    30,604,167
    
    
    $
    31
    
    
    $
    4,702
    
    
    $
    3,449
    
    
    $
    8,182
   F-6




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##### Table of Contents



ZYNEX, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
 YEARS ENDED DECEMBER 31, 2010 AND 2009
 (1) ORGANIZATION AND NATURE OF BUSINESS
    (2) SIGNIFICANT ACCOUNTING POLICIES
        F-7




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (2) SIGNIFICANT ACCOUNTING POLICIES (continued)
      F-8




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (2) SIGNIFICANT ACCOUNTING POLICIES (continued)
          F-9




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (2) SIGNIFICANT ACCOUNTING POLICIES (continued)
    2010
    
    
    2009
    
    
    Useful livesOffice furniture and equipment
    
    $
    1,194
    
    
    $
    563
    
    
    3-7 yearsRental inventory
    
    
    2,179
    
    
    
    3,170
    
    
    5 yearsVehicles
    
    
    60
    
    
    
    60
    
    
    5 yearsLeasehold improvements
    
    
    370
    
    
    
    370
    
    
    2-6 yearsAssembly equipment
    
    
    11
    
    
    
    11
    
    
    7 years3,814
    
    
    
    4,174Less reserve for obsolete and damaged rental inventory
    
    
    (71
    )
    
    
    (106
    )Less accumulated depreciation
    
    
    (837
    )
    
    
    (1,456
    )$
    2,906
    
    
    $
    2,612
           F-10




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (2) SIGNIFICANT ACCOUNTING POLICIES (continued)
         Health Care Entities Presentation of Insurance Claims and
Related Insurance Recoveries
 Improving Disclosures about Fair Value
Measurements Fair Value Measurement and Disclosures.
  F-11




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (3) EARNINGS PER SHARE
   2010
    
    
    2009BASICNet income applicable to common stockholders
    
    $
    350
    
    
    $
    2,382Weighted average shares outstanding
    
    
    30,546,070
    
    
    
    30,122,486Net income per share
    
    $
    0.01
    
    
    $
    0.08DILUTEDNet income applicable to common stockholders
    
    $
    350
    
    
    $
    2,382Weighted average shares outstanding
    
    
    30,546,070
    
    
    
    30,122,486Dilutive securities
    
    
    158,667
    
    
    
    251,874Weighted average shares outstanding, diluted
    
    
    30,704,737
    
    
    
    30,374,360Net income per share, diluted
    
    $
    0.01
    
    
    $
    0.08
  (4) STOCK-BASED COMPENSATION PLANS
     F-12




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (4) STOCK-BASED COMPENSATION PLANS (continued)
  2010
    
    2009Expected term
    
    5-6.25 years
    
    6.25 yearsVolatility
    
    108-114%
    
    115-117%Risk-free interest rate
    
    1.9-3.4%
    
    2.8-3.4%Dividend yield
    
    0%
    
    0%
   WeightedWeighted
    
    
    AverageShares
    
    
    Average
    
    
    Remaining
    
    
    AggregateUnder
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicOption
    
    
    Price
    
    
    Life
    
    
    ValueOutstanding at January 1, 2009
    
    
    732,500
    
    
    $
    1.15Granted
    
    
    771,000
    
    
    $
    1.01Exercised
    
    
    (23,750
    )
    
    $
    0.28Forfeited
    
    
    (92,500
    )
    
    $
    1.13Outstanding at December 31, 2009
    
    
    1,387,250
    
    
    $
    1.10
    
    
    7.0 Years
    
    
    $
    213Exercisable at December 31, 2009
    
    
    283,750
    
    
    $
    1.15
    
    
    3.1 Years
    
    
    $
    112Outstanding at January 1, 2010
    
    
    1,387,250
    
    
    $
    1.10Granted
    
    
    589,500
    
    
    $
    0.66Exercised
    
    
    
    
    
    $
    Forfeited
    
    
    (131,500
    )
    
    $
    1.07Outstanding at December 31, 2010
    
    
    1,845,250
    
    
    $
    0.96
    
    
    7.2 Years
    
    
    $
    86Exercisable at December 31, 2010
    
    
    649,500
    
    
    $
    1.05
    
    
    4.5 Years
    
    
    $
    53
  F-13




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (4) STOCK-BASED COMPENSATION PLANS (continued)
  Nonvested
    
    
    WeightedShares
    
    
    AverageUnder
    
    
    Grant DateOption
    
    
    Fair ValueNon-vested at January 1, 2010
    
    
    1,103,500
    
    
    $
    0.94Granted
    
    
    589,500
    
    
    $
    0.58Vested
    
    
    (384,750
    )
    
    $
    0.88Forfeited
    
    
    (112,500
    )
    
    $
    0.90Non-vested at December 31, 2010
    
    
    1,195,750
    
    
    $
    0.79
  (5) INCOME TAXES
  2010
    
    
    2009Current tax expense:Federal
    
    $
    910
    
    
    $
    1,340State
    
    
    99
    
    
    
    193Penalties and interest
    
    
    257
    
    
    
    131,266
    
    
    
    1,546Deferred tax benefit:Federal
    
    
    (258
    )
    
    
    (90
    )State
    
    
    (23
    )
    
    
    (15
    )(281
    )
    
    
    (105
    )$
    985
    
    
    $
    1,441
  F-14




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (5) INCOME TAXES (continued)
  2010
    
    
    2009Statutory rate
    
    
    34
    %
    
    
    34
    %State taxes
    
    
    4
    
    
    
    4Permanent differences
    
    
    8
    
    
    
    Penalties and interest
    
    
    19
    
    
    
    Other
    
    
    9
    
    
    
    Effective rate
    
    
    74
    %
    
    
    38
    %
  2010
    
    
    2009Current deferred tax assets:Accrued expenses
    
    $
    68
    
    
    $
    95Deferred rent
    
    
    82
    
    
    
    16Accounts receivable
    
    
    468
    
    
    
    532Inventory
    
    
    230
    
    
    
    221Prepaid expenses
    
    
    (54
    )
    
    
    Net current deferred tax assets
    
    $
    794
    
    
    $
    864Long-term deferred tax liabilities:Property and equipment
    
    $
    (598
    )
    
    $
    (539
    )Deferred Rent
    
    
    410
    
    
    
    Net deferred tax liabilities
    
    $
    (188
    )
    
    $
    (539
    )
 (6) LINE OF CREDIT
 CapitalSource
    F-15




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (6) LINE OF CREDIT (continued)
      F-16




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (6) LINE OF CREDIT (continued)
   Marquette
  (7) LEASES
      F-17




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (7) LEASES (continued)
  Capital
    
    
    OperatingLeases
    
    
    Leases2011
    
    $
    143
    
    
    $
    1,6592012
    
    
    143
    
    
    
    1,7252013
    
    
    140
    
    
    
    1,8002014
    
    
    75
    
    
    
    1,8752015
    
    
    34
    
    
    
    1,406Thereafter
    
    
    
    
    
    
    Total future minimum lease payments
    
    
    535
    
    
    $
    8,465Less amount representing interest
    
    
    (115
    )Present value of net minimum lease payments
    
    
    420Less current portion
    
    
    (93
    )Long-term capital lease obligation
    
    $
    327
  (8) DERIVATIVE WARRANT LIABILITY AND FAIR VALUE MEASUREMENTS
    September 17, 2009
    
    January 1, 2009Expected term
    
    2.00 years
    
    2.75 yearsVolatility
    
    115.3%
    
    115.7%Risk-free interest rate
    
    3.0%
    
    1.9%Dividend yield
    
    0%
    
    0%
  F-18




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (8) DERIVATIVE WARRANT LIABILITY AND FAIR VALUE MEASUREMENTS (continued)
    (9) STOCKHOLDERS EQUITY
   OtherClass B
    
    
    Class C
    
    
    WarrantsJanuary 1, 2009
    
    
    228,572
    
    
    
    7,619
    
    
    
    703,015Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    (429,867
    )Forfeited
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (228,572
    )
    
    
    (7,619
    )
    
    
    (110,000
    )December 31, 2009
    
    
    
    
    
    
    
    
    
    
    163,148Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    (80,833
    )December 31, 2010
    
    
    
    
    
    
    
    
    
    
    82,315
  Price
    
    
    ExpirationNumber
    
    per share
    
    
    Date50,000
    
    $
    0.71
    
    
    September 29, 201232,315
    
    $
    0.39
    
    
    April 11, 201182,315
      F-19




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (9) STOCKHOLDERS EQUITY (continued)
     (10) CONCENTRATIONS
   (11) EMPLOYMENT AGREEMENTS
   F-20




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##### Table of Contents



ZYNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (12) LITIGATION
 Marjorie and David Mishkin v. Zynex, Inc. et al
    (13) SUBSEQUENT EVENTS
   F-21