Zynex (ZYXI) 10QSB/A 2006 Q2 Quarterly report (small business) (amended)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedJune 30, 2006

Commission File Number:33-26787-D

Zynex Medical Holdings, Inc.

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

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

8100 Southpark Way, Suite A-9

Littleton, Colorado 80120

Address of Principal Executive Offices Zip Code

(303) 703-4906

Registrant's Telephone Number,

Including Area Code

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

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

As of June 30, 2006, 23,690,993 shares of common stock were outstanding. Subsequently 326,666 shares were issued. (see Note 7 to the Financial Statement). As of August 10, 2006 24,017,659 shares of common stock were outstanding.

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

As reported in our amended Annual Report on Form 10-KSB/A for the year ended December 31, 2005 and filed with the Securities and Exchange Commission on December 20, 2006 we have restated our consolidated financial statements for the year ended December 31, 2005. The restatement reflects adjustments concerning primarily inventory valuation in terms of the cost and quantity of inventory items. The adjustments result from a detailed inventory analysis made in connection with the preparation of the financial statements of the Company for the quarter ended September 30, 2006.   As part of that filing we also indicated that we would amend our previously filed quarterly reports for the quarters ended March 31, 2006 and June 30, 2006. This Amendment on Form 10-QSB/A to our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006, filed originally with the SEC August 18, 2006, is being filed for the purpose of restating our condensed consolidated financial statements and related financial information and disclosures for the quarters ended June 30, 2006 and 2005.  This Form 10-QSB/A also includes related changes to Part I, Item 2 concerning Management’s Discussion and Analysis or Plan of Operations.

A material weakness in our disclosure controls and procedures of June 30, 2006 has been identified and reported to our Board of Directors. Please see Part I, Item 3 below for a description of these matters and of certain remedial measures we have implemented to date.

This Amendment does not reflect events occurring after the filing of the original Quarterly Report on Form 10-QSB on August 18, 2006, or modify or update the disclosures presented in the original Quarterly Report on Form 10-QSB, except to reflect the revisions as described above.

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ZYNEX MEDICAL HOLDINGS, INC.

FORM 10-QSB

INDEX

	Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet (unaudited) - June 30, 2006 - restated	4
Condensed Consolidated Statements of Operations (unaudited) -  Three Months Ended June 30, 2006 and 2005 and Six  Months ended June 30, 2006 and 2005 - restated	5
Condensed Consolidated Statements of Cash Flows (unaudited) -  Six Months Ended June 30, 2006 and 2005 - restated	6
Condensed Consolidated Statement of Stockholders' Equity (unaudited) -  Six Months Ended June 30, 2006 - restated	7
Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2. Management's Discussion and Analysis or Plan of Operations	16
Item 3. Controls and Procedures	18
PART II: OTHER INFORMATION
Item 1. Legal Proceedings	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3. Defaults Upon Senior Securities	20
Item 4. Submission of Matters to a Vote of Security Holders	20
Item 5. Other Information	20
Item 6. Exhibits	21
SIGNATURES	22

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Zynex Medical Holdings, Inc.

Condensed Consolidated Balance Sheet

June 30, 2006

(unaudited)

As restated, Note 8

ASSETS
Current Assets:
Cash and cash equivalents	$	76,823
Receivables, less allowance for uncollectible accounts of $977,986		958,454
Inventory		499,636
Deferred consulting fees and other		16,575
Prepaid expenses		27,314
Other		1,000
Total current assets		1,579,802
Property and equipment, less accumulated depreciation of $207,097		267,683
Deposits		10,940
Total assets	$	1,858,425
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Notes payable	$	216,147
Capital lease		15,112
Loans from stockholder		63,398
Accounts payable		360,118
Accrued payroll and payroll taxes		43,395
Other		81,770
Total current liabilities		779,940
Notes payable, less current maturities		360,216
Capital lease, less current maturities		35,911
Loans from stockholder, less current maturties		20,850
Total liabilities		1,196,917
Stockholders' Equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued or outstanding		-
Common stock, $0.001 par value, 100,000,000 shares authorized, 23,690,993 issued and outstanding		23,691
Additional paid-in capital		1,607,805
Accumulated deficit		(969,988	)
		661,508
	$	1,858,425

See accompanying notes to financial statements.

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Zynex Medical Holdings, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
	As restated, Note 8			As restated, Note 8			As restated, Note 8			As restated, Note 8
Net sales and rental income	$	560,860		$	589,483		$	1,065,951		$	1,134,426
Cost of sales and rentals		107,610			17,814			124,003			41,756
Gross profit		453,250			571,669			941,948			1,092,670
Operating expenses:
Selling, general and administrative		506,686			417,784			984,304			799,824
Depreciation		22,037			16,801			42,233			32,828
Total operating expenses		528,723			434,585			1,026,537			832,652
Income (loss) from operations		(75,473)			137,084			(84,589	)		260,018
Interest and other expense		(17,735	)		(6,232	)		(31,053	)		(9,916	)
Net income (loss)	$	(93,208)		$	130,852		$	(115,642	)	$	250,102
Net income (loss) per common and common    equivalent share
Basic	$	0.00		$	0.01		$	0.00		$	0.01
Diluted	$	0.00		$	0.01		$	0.00		$	0.01
Weighted average number of shares outstanding
Basic		23,277,197			23,074,024			23,244,065			23,072,210
Diluted		23,277,197			23,237,948			23,244,065			23,230,567

See accompanying notes to financial statements.

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Zynex Medical Holdings, Inc.

Condensed Consolidated Statements of Cash Flow

(unaudited)

	Six Months Ended June 30,
	2006			2005
	As Restated, Note 8			As restated, Note 8
Cash flows from operating activities:
Net income (loss)	$	(115,642)		$	250,102
Adjustments to reconcile net income (loss) to net cash (used in) provided by operations:
Depreciation		42,233			16,801
Issuance of stock for consulting services		25,000			12,500
Amortization of deferred consulting fees and other		15,714
Employee stock compensation expense		9,710
Changes in operating assets and liabilities:
Accounts receivable		(263,562	)		(285,820	)
Inventory		(10,404	)		(168,501	)
Refundable income taxes		7,586			4,105
Other current assets		432			7,071
Prepaid expenses		(14,190	)
Deposits		-			3,532
Accounts payable		78,073			193,666
Accrued liabilities		3,029			7,981
Net cash (used in) provided by operating activities		(222,021	)		41,437
Cash flows from investing activities:
Purchase of equipment		(40,139	)		(38,374	)
Net cash used in investing activities		(40,139	)		(38,374	)
Cash flows from financing activities:
Payments of notes payable and capital leases		(97,581	)		(50,557	)
Proceeds from note payable		240,000
Proceeds from loans from stockholder		126,900			25,300
Payments of loans from stockholder		(57,632	)
Issuance of common stock		108,563
Bank overdraft		-			19,116
Net cash provided by (used in) financing activities		320,250			(6,141	)
Increase (decrease) in cash and cash equivalents		58,090			(3,078	)
Cash and cash equivalents at beginning of period		18,733			3,078
Cash and cash equivalents at end of period	$	76,823		$	-
Supplemental cash flow information:
Interest paid, including interest paid to stockholder of $3,735 in 2006	$	30,282		$	13,212

See accompanying notes to financial statements.

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Zynex Medical Holdings, Inc.

Condensed Consolidated Statement of Stockholders' Equity

Six Months Ended June 30, 2006

(unaudited)

	Number of Shares		Amount		Additional Paid in Capital		Accumulated Deficit			Total
December 31, 2005, as originally reported		23,199,421	$	23,199	$	1,465,024	$	(1,047,454	)	$	440,769
Prior period adjustment (Note 8)								193,108			193,108
Balances at December 31, 2005 , as restated		23,199,421		23,199		1,465,024		(854,346	)		633,877
Issuance of common stock for consulting services		55,613		56		24,944					25,000
Issuance of common stock in private placement offering		435,959		436		108,127					108,563
Employee stock compensation expense						9,710					9,710
Net loss (As restated, Note 8)								(115,642	)		(115,642	)
June 30, 2006 (As restated, Note 8)		23,690,993	$	23,691	$	1,607,805	$	(969,988)		$	661,508

See accompanying notes to financial statements.

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ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.  Nature of Business

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

2.  Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles for interim financial information. In the opinion of management, these condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the financial position of the Company as of June 30, 2006 and the results of its operations for the quarters and six months ended June 30, 2006 and 2005, and its cash flows for the six months ended June 30, 2006 and 2005.

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

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

Certain reclassifications have been made to conform previously reported data to the current presentation. These reclassifications have no effect on net income (loss), financial position or cash flows as previously reported. During the quarter ended March 31, 2006 the Company changed its classification of freight out costs from cost of sales and rentals to selling, general and administrative expenses as management considers these costs to be part of its marketing program and thus they believe it is preferable to classify these costs as a component of selling, general and administrative expenses. Freight costs included in selling, general and administrative expenses during the three months ended June 30, 2006 and 2005 are $11,419 and $6,220 respectively, and for the six months ended June 30, 2006 and 2005 are $20,361 and $13,187 respectively. 

3. Recent Accounting Pronouncements

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

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ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

4.  Stock Based Compensation

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

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), using the modified prospective method. SFAS 123R requires the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. SFAS 123R also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period). Prior to our adopting SFAS 123R, we accounted for our stock-based compensation plans under Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, generally no compensation expense is recorded when the terms of the award are fixed and the exercise price of the employee stock option equals or exceeds the fair value of the underlying stock on the date of grant. We adopted the disclosure-only provision of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").

In the second quarter of 2006, the Company recorded compensation expense related to stock options that decreased the net income from operations by $4,855 and its net income by $4,855. The stock option compensation expense was included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

For the three months and six months ended June 30, 2006, the Company recorded compensation expense related to stock options that decreased both net income from operations and net income by $4,855 and $9,710, respectively. The stock option compensation expense was included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

There were no options granted during the three months ended, June 30, 2006. The fair value of stock options at the date of grant during the three months ended June 30, 2006 and June 30, 2005 was $0.00 and $51,147. The Company used the following assumptions to determine the fair value of stock option grants during the three months ended June 30, 2005:

 Expected life     2 years

 Volatility 125%

 Risk-free interest rate   4.95

 Dividend yield        0

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

A summary of stock option activity for the six months ended June 30, 2006 is presented below:

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ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

	Shares Under Option		Weighted Average Exercise Price	Weighed Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1, 2006
Stock option plan	176,670		$0.40
Granted	--		--
Exercised	--		--
Forfeited	(28,000	)	$0.38
Outstanding at June 30, 2006	148,670		$0.40	8.95 Years	$980
Exercisable at June 30, 2006	24,500		$0.29	8.65 Years	$245

A summary of the status of the Company's non-vested shares as of and for the six months ended June 30, 2006, is presented below.

	Nonvested Shares Under Option			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2006		176,670		$	0.26
Granted		--			--
Vested		(24,500	)		0.20
Forfeited		(28,000	)		0.25
Nonvested at June 30, 2006		124,170		$	0.27

As of June 30, 2006, we had $29,510 of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of approximately 2 years.

Prior to January 1, 2006, we accounted for stock-based compensation plans under APB 25. We adopted the disclosure-only provision of SFAS 123. Had compensation expense for stock option grants been determined based on the fair value at the grant dates consistent with the method prescribed by SFAS 123, our net income and net income per share would have been adjusted to the pro forma amounts for the three and six months ended June 30, 2005, as indicated below:

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ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

	Three Months Ended June 30, 2005		Six Months Ended June 30, 2005
	(as restated, Note 6)		(as restated, Note 6)
Net income as reported	$	130,852	$	250,102
Deduct: total stock-based employee compensation expense determined    under fair value based method for all awards		1,796		3,593
Pro forma net income	$	129,056	$	246,509
Income per share:
Basic - as reported	$	0.01	$	0.01
Diluted - as reported	$	0.01	$	0.01
Basic - pro forma	$	0.01	$	0.01
Diluted - pro forma	$	0.01	$	0.01

5.  Earnings Per Share

The Company computes net earnings (loss) per share in accordance with SFAS No. 128, "Earnings per Share", which establishes standards for computing and presenting net earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding and the number of dilutive potential common share equivalents during the period. For the three and six months ended June 30, 2006, the basic and diluted loss per share is the same, as the impact of potential dilutive common shares is anti-dilutive.

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ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The calculation of basic and diluted earnings (loss) per share for the three and six months ended June 30, 2006 and 2005 is as follows:

Basic	Three Months Ended June 30, 2006 (as restated, Note 6)		Three Months Ended June 30, 2005 (as restated, Note 6)		Six Months Ended June 30, 2006 (as restated, Note 6)			Six Months Ended June 30, 2005 (as restated, Note 6)
Net  income (loss) applicable to common stockholders	$	(93,208)	$	130,852	$	(115,642	)	$	250,102
Weighted average shares outstanding - basic		23,277,197		23,074,024		23,444,065			23,072,210
Net income (loss) per share
Basic	$	0.00	$	0.01	$	0.00		$	0.01
Diluted
Net income (loss) applicable to common stockholders	$	(93,208)	$	130,852	$	(115,642	)	$	250,102
Weighted average shares outstanding - basic		23,277,197		23,074,024		23,244,065			23,072,210
Dilutive securities, treasury stock method		--		163,924		--			158,357
Weighted average shares outstanding - diluted		23,277,197		23,237,948		23,244,065			23,230,567
Net income (loss) per share - diluted	$		$	0.01	$	0.00		$	0.01

6.Loans from stockholder

Effective March 1, 2006, a previously non interest bearing loan from Thomas Sandgaard in the amount of $14,476 was converted to a 15 month, 8.25% term loan of $14,980, including accrued interest, with equal monthly payments of principal and interest commencing March 31, 2006. Payments were made for March, April and May, 2006. The June 2006 payment has not been made.

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ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

During the six months ended June 30, 2006, Mr. Sandgaard loaned the Company $126,900, of which $50,000 was converted to a 24 month, 8.25% term loan of $50,454, including accrued interest, with equal monthly payments of principal and interest commencing March 31, 2006. Payments were made for March, April, and May 2006. The June payment has not been made. The balance of $76,900 was represented by 8.25% demand notes, of which $54,636 has been repaid. The remaining $22,264 plus $739 accrued interest will be repaid as the Company’s cash position and its bank covenants allow.  At June 30, 2006, $84,248 in loans from Mr. Sandgaard remained outstanding.

At January 1, 2006 the Company owed Mr. Sandgaard $2,845 as an account payable for monies advanced by Mr. Sandgaard on the Company’s behalf for operating expenses incurred by the Company. During the six months ended June 30, 2006 Mr. Sandgaard advanced an additional $34,593 for operating expenses incurred by the Company and was paid back $10,579, leaving a June 30, 2006 accounts payable balance owing to Mr. Sandgaard of $26,859.

7. Stockholders' Equity

For the quarter ended June 30, 2006, the Company issued 23,016 shares of common stock to investor relations consultants for services performed at prices ranging from $0.42 to $0.45 per share.  In addition, 390,625 shares of common stock were sold in a non public offering to accredited investors at $0.32 a share. The Company also issued warrants to purchase 312,500 shares to the investors in the non-public offering; these warrants have an exercise price of $0.39 per share and a term expiring June 30, 2011. Additionally, the Company issued 45,351 shares of common stock to the broker-dealer and an investment banker responsible for the non public offering. Subsequent to the quartered ended June 30, 2006 the company issued 326,666 shares of common stock to investor relations consultants for services to be performed at $0.30 per share.

At December 31, 2005, the Company had outstanding warrants and non-employee options to purchase 3,245,121 shares of common stock at a weighted average exercise price of $0.83. During the six months ended June 30, 2006, the Company issued warrants and non-employee options to purchase 312,500 shares of common stock with a weighted average exercise price of $0.39. At June 30, 2006, the Company had outstanding warrants and non-employee options to purchase 3,557,621 shares of common stock at a weighted average exercise price of $0.78.

Additionally, at June 30, 2006, the Company had outstanding 350,000 options to an employee, granted in 2005, which were not issued pursuant to the Option Plan.  The options have an exercise price of $0.22 have a remaining term at June 30, 2006 of 8 ¾ years and have an intrinsic value of $28,000.

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ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

8. Restatement

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

The Company discovered errors in its accounting for inventory that understated both the value and quantity of its finished goods and the value of its rented inventory. Accordingly, accumulated deficit at the beginning of 2006 has been adjusted to correct the errors and an adjustment was recorded to decrease accumulated deficit and increase inventory at December 31, 2005 by $193,108.

The effect of the adjustment resulted in the following changes as of June 30, 2006 and June 30 2005:

Additionally, the Company concluded that the Company’s financial statements for the quarters ended March 31, 2005 and June 30, 2005, included in its quarterly reports on Form 10-QSB for those quarters, should also be revised to reflect adjustments to the Company’s inventory as of those dates.

The effect of the adjustment resulted in the following changes as of June 30, 2006 and June 30 2005:

	As previously
	reported			As restated
Balance Sheet
Inventory	$	476,875		$	499,636
Total current assets	$	1,557,041		$	1,579,802
Property and equipment, net	$	150,063		$	267,683
Total assets	$	1,718,044		$	1,858,425
Accumulated deficit	$	(1,110,369	)	$	(969,988	)
Total stockholders' equity	$	521,127		$	661,508
Total liabilities and stockholders' equity	$	1,718,044		$	1,858,425

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ZYNEX MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

	As previously reported					As restated
Statement of Operations -2006	3 Months		6 Months			3 Months			6 Months
Cost of sales and rentals	$	19,323	$	83,150		$	107,610		$	124,003
Gross profit	$	541,537	$	982,801		$	453,250		$	941,948
Depreciation	$	15,206	$	30,359		$	22,037		$	42,233
Total operating expenses	$	521,892	$	1,014,663		$	528,723		$	1,026,537
Income (loss) from operations	$	19,645	$	(31,862	)	$	(75,473	)	$	(84,589	)
Net income (loss)	$	1,910	$	(62,915	)	$	(93,208	)	$	(115,642	)

Statement of Operations -2005	3 Months		6 Months		3 Months		6 Months
Cost of sales and rentals	$	73,250	$	160,362	$	17,814	$	41,756
Gross profit	$	516,233	$	974,064	$	571,669	$	1,092,670
Income from operations	$	81,648	$	141,412	$	137,084	$	260,018
Net income	$	75,416	$	131,496	$	130,852	$	250,102
Net income per common and common equivalent share
Basic	$	0.00	$	0.01		0.01	$	0.01
Diluted	$	0.00	$	0.01	$	0.01	$	0.01

Statement of Cash Flows 2006
	As previously
	reported			As restated
Net loss	$	(62,915	)	$	(115,642	)
Depreciation	$	30,359		$	42,233
Inventory	$	(90,756	)	$	(10,404	)
Net cash (used in) operating activities	$	(261,520	)	$	(222,021	)
Purchase of equipment	$	(640	)	$	(40,139	)
Net cash (used in) investing activities	$	(640	)	$	(40,139	)
Statement of Cash Flows 2005
Net income	$	131,496		$	250,102
Inventory	$	(76,861	)	$	(168,501)
Net cash provided by operating activities	$	33,587		$	41,437
Purchase of equipment	$	(11,408	)	$	(38,374	)
Net cash (used in) investing activities	$	(11,408	)	$	(38,374	)

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

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

Restatement

See Note 8 to the unaudited condensed consolidated financial statements in this Report regarding adjustments to the Company's financial statements for the three and six months ended June 30, 2005 and 2006 because of changes to inventory, property and equipment.  This Form 10-QSB/A includes restated changes to Item 2 concerning Management's Discussion and Analysis or Plan of Operations.

Results of Operations

Net Sales and Rental Income. Net sales and rental income for the quarters and six months ended June 30, 2006 and 2005 were $560,860 and $589,483 and $1,065,951 and $1,134,426 respectively, a decrease of $28,623 or 4.9% and $68,475 or 6.0%. The decrease in net revenue for the quarter and six months ended June 30, 2006 compared to the quarter and six months ended June 30, 2005 was primarily due to a $221,099 second quarter and $290,252 six month increase in the reserve for contractual adjustments (i.e., estimated insurance company adjustments) and bad debt for the quarter and six months ended June 30, 2006, coupled with a second quarter 2005 reduction of $69,000 to an accounts receivable reserve for NeuroMove Medicare accounts. Following a practice throughout the healthcare industry, insurance companies regularly adjust unilaterally the amounts which they will pay for our products instead of rentals or prices charged by us.

Subsequent to the end of the second quarter and as part of our effort to grow our business we engaged 16 additional independent contractor sales representatives more than doubling our sales force.

Gross Profit. Gross profit for the quarter and six months ended June 30, 2006 were $ 453,250 or 80.8% and $941,948 or 88.4% of net revenue. For the quarter and six months ended June 30, 2006 this represents a decrease of $118,419 or 20.7% and $150,722 or 13.8 % from the gross profit of $571,669 or 97.0% of net revenue and $1,092,670 or 96.3% of net revenue for the quarter and six months ended June 30, 2005 respectively.  The decrease in gross profit for the quarter and six months ended June 30, 2006 as compared with the same periods in 2005 is due to the reduction in net sales and rental income resulting from an increase in contactual adjustments as discussed above.

Selling, General and Administrative. Selling, general and administrative expenses for the quarter and six months ended June 30, 2006 were $506,686, an increase of $88,902 or 21.3%, and $984,304, an increase of 184,480 or 23.1% respectively compared to $417,784 and $799,824 for the same periods in 2005.  The quarterly increase was primarily due to increases in commissions, advertising and marketing, audit and accounting fees, office and manufacturing supplies and design, utilities (primarily because the local utility billed incorrectly in 2004 and 2005 and recovered their billing shortfall in 2006), rent and a small payroll increase. The increases were in part offset by lower insurance premiums, consulting fees, travel & entertainment, depreciation and service charges. The six-month increase was primarily due to increases in the above items plus legal fees, property taxes, and research & development, and offset by the above decreases plus finance charges, bank service fees, and car allowances.

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Interest and other income (expense).  Interest and other income (expense) was ($17,735) for the quarter ended June 30, 2006, an increase of $11,503 compared to ($6,232) for the same period last year, and ($31,053) for the six months ended June 30,2006, an increase of $21,137 compared to ($9,916) for the same period last year. The increases resulted primarily from the Company's September 2005 and March 2006 increases in commercial bank debt as well as loans from stockholder, which is described in Note 6 to the unaudited consolidated financial statements in this Report.

Liquidity and Capital Resources. We have limited liquidity. During the second quarter of 2006, we sold in a non-public offering through a broker dealer 435,959 shares of common stock resulting in net proceeds to us of $108,563; this offering is on-going. We expect that our cash requirements will increase as our operations expand and to implement our Business Plan, and in order to continue as a going concern we will need to raise additional debt or equity financing in 2006 and future periods. To achieve this objective we are in discussions with potential investors and investment bankers that may provide short and long term funding to further assist in executing our business plan. There can be no assurance that we will be able to raise such additional financing or do so on terms that are acceptable to the Company.

Our limited liquidity is primarily a result of (a) the required high levels of consignment inventory, (b) the payment of commissions to salespersons based on sales or rentals prior to receipt of funds, (c) the high level of accounts receivable outstanding because of the deferred payment practices of third party health payers, and (d) the delayed cost recovery inherent in rental transactions.

Contingencies such as unanticipated shortfalls in revenues or increases in expenses could affect our projected revenue, cash resulting from operations and liquidity.

Cash used in operating activities was $222,021 for the six months ended June 30, 2006 compared to $41,437 cash provided by operating activities for the six months ended June 30, 2005. The primary reasons for the decrease in cash flow was the net loss in 2006 compared to net income in 2005, an increase in inventory to accommodate increased sales and rentals, and a slower build up in accounts payable made possible by additional bank loans and loans from our largest shareholder.

Cash used in investing activities for the six months ended June 30, 2006 was $40,139 compared to cash used in investing activities of $38,374 for the same period in 2005. Cash used in investing activities represents the purchase of equipment and inventory currently rented to customers.

Cash provided by financing activities was $320,250 for the six months ended June 30, 2006 compared with cash used in financing activities of $6,141 for the six months ended June 30, 2005. During the six months ended June 30, 2006 the Company received  working capital of $240,000 in bank financing and $22,264 in net loans from Thomas Sandgaard.

Our primary sources of capital for the quarter and six months ended June 30, 2006 have been collections from our sale and rental activities, borrowings from Silicon Valley Bank and from Thomas Sandgaard, and the non public offering described in the Liquidity and Capital Resources Section. For information regarding these borrowings from Silicon Valley Bank and Mr. Sandgaard, see Note 4 to our unaudited consolidated financial statements in this Report and Item 6 in our Form 10-KSB for the year ended December 31, 2005.

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Recently Issued Accounting Pronouncements:

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS 123R supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees" and amends SFAS No. 95, "Statement of Cash Flows". SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment

transactions and requires all share-based payments to employees, including grants of employee stock options, to be recognized as additional compensation expense in the financial statements based on the calculated fair value of the awards. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. We adopted this statement effective for our fiscal year beginning January 1, 2006. We have described the impact of adopting SFAS 123R in our condensed consolidated financial statements in Note 2, Stock Based Compensation.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

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

ITEM 3. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, because of a material weakness in internal control over financial reporting relating to inventory as discussed in Note 8 to the Condensed Consolidated Financial Statements, the Company’s disclosure controls and procedures were not effective as of June 30, 2006. The material weakness has been substantially corrected in the fourth quarter of 2006 as noted below, and the Company’s management believes that the consolidated financial condition, results of operations and cash flows are fairly presented in this Form 10-QSB/A Report.

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Remediation Efforts

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

Changes in Internal Control Over Financial Reporting

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

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

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

See Note 5 to the Notes to the Condensed Consolidated Financial Statements for Information regarding the issuance of common stock to investor relations consultants and sales of our common stock to new investors during the second quarter of 2006. In the issuances, we made no general solicitation, and we believe that the investor relations consultants and investors met the standards for a purchaser in a non-public offering. We relied upon an exemption from securities registration for a non-public offering in issuing these securities to the investor relations consultants and investors.

The sale to investors in the non-public offering pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated there under, was a sale to accredited investors of 390,625 shares of common stock at $.032 per share in cash. Such sales occurred on June 23, 2006. The shares were accompanied by warrants to purchase 312,500 shares of common stock. See Note 5 of Notes to Condensed Consolidated Financial Statements for additional information. The shares were offered through a broker-dealer who received commissions of $12,500 and 35,156 shares of our common stock (representing 9% of the number of shares of common stock sold by the broker). Additionally, an investment banker who introduced us to the broker dealer received a finder’s fee of $3,938 and 10,195 shares of common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

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

None.

ITEM 5. OTHER INFORMATION.

None

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ITEM 6. EXHIBITS.

(a) Exhibits

10.1	Promissory Note dated March 1, 2006 to Thomas Sandgaard*
10.2	Promissory Note dated March 1, 2006 to Thomas Sandgaard*
10.3	Promissory Note dated June 30, 2006 to Thomas Sandgaard*
10.4	Form of Warrant, Non-Public Offering*
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350

* Previously filed

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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 MEDICAL HOLDINGS, INC.
Dated December 20, 2006	/s/ Thomas Sandgaard
	Thomas Sandgaard
	President, Chief Executive Officer and Treasurer

Dated December 20, 2006	/s/ Peter J. Leveton
	Peter J. Leveton
	Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit Number	Description
10.1	Promissory Note dated March 1, 2006 to Thomas Sandgaard
10.2	Promissory Note dated March 1, 2006 to Thomas Sandgaard
10.3	Promissory Note dated June 30, 2006 to Thomas Sandgaard
10.4	Form of Warrant, Non-Public Offering
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350

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