SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- --------
Commission File No. 33-97722
Neuromedical Systems, Inc.
- - -----------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3526980
- - -------------------------------------- -------------------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Two Executive Boulevard, Suffern, NY 10901-4164
- - -----------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number including area code: (914) 368-3600
----------------
- - -----------------------------------------------------------
(Former Name, Former Address and Former
Fiscal Year if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
--------- ------
As of April 30, 1996, an aggregate of 29,083,548 shares of common
stock were outstanding.
<PAGE>
NEUROMEDICAL SYSTEMS, INC.
Table of Contents
Form 10-Q for the Quarterly Period
Ended March 31, 1996
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets,
March 31, 1996 (unaudited) and December
31, 1995 4
Condensed Consolidated Statements of
Operations for the Three Months Ended
March 31, 1996 and 1995 (unaudited) 5
Statements of Cash Flows for the three
Months Ended March 31, 1996 and 1995
(unaudited) 6
Note to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings. 15
Item 2. Changes in Securities. 15
Item 3. Defaults upon Senior Securities. 15
Item 4. Submission of Matters to a Vote
of Security Holders. 15
Item 5. Other Information. 15
Item 6. Exhibits and Reports on Form 8-K. 16
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Neuromedical Systems, Inc. and Subsidiaries
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $105,809,000 $114,143,000
Accounts receivable, net of allowance 702,000 900,000
Prepaid expenses 409,000 596,000
Other current assets 297,000 105,000
------------ ------------
Total current assets 107,217,000 115,744,000
Property and equipment 13,372,000 11,216,000
Patent and patent application costs,
net of accumulated amortization
(1996-$367,000, 1995-$325,000) 291,000 333,000
Other assets 55,000 55,000
------------ ------------
$120,935,000 $127,348,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes and bank loans payable--short-term $ 594,000 $ 583,000
Current portion of capital lease
obligations 866,000 680,000
Accounts payable 1,603,000 2,045,000
Accrued liabilities 3,390,000 3,323,000
------------ ------------
Total current liabilities 6,453,000 6,631,000
Notes and bank loans payable--long-term 3,422,000 3,436,000
Notes payable--stockholder 600,000 600,000
Capital lease obligations, less current
portion 2,435,000 2,014,000
Commitments and contingencies
Stockholders' equity
Convertible preferred stock, $.0001
par value; authorized - 10,000,000
shares; none issued and outstanding _ _
Common stock, $.0001 par value;
authorized - 126,000,000 shares;
issued and outstanding 28,808,485
shares in 1996 and 28,804,828 shares
in 1995 3,000 3,000
Additional paid-in capital 175,238,000 175,237,000
Accumulated deficit (67,197,000) (60,350,000)
Foreign currency translation (19,000) (223,000)
------------ ------------
Total stockholders' equity 108,025,000 114,667,000
------------ ------------
$120,935,000 $127,348,000
============ ============
</TABLE>
See accompanying note.
<PAGE>
Neuromedical Systems, Inc. and Subsidiaries
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Revenues:
Slide processing $ 651,000 $ 504,000
--------------- --------------
Total revenues 651,000 504,000
--------------- --------------
Costs and Expenses:
Cost of sales 1,691,000 1,253,000
Marketing 3,517,000 891,000
Research and development 1,550,000 1,195,000
General and administrative 1,741,000 1,177,000
--------------- --------------
Total costs and expenses 8,499,000 4,516,000
--------------- --------------
Loss from operations (7,848,000) (4,012,000)
Other income (expense):
Interest income 1,483,000 39,000
Interest expense (248,000) (240,000)
Foreign exchange (234,000) 353,000
--------------- --------------
Other income (expense)-net 1,001,000 152,000
--------------- --------------
Net loss $ (6,847,000) $ (3,860,000)
=============== ===============
Net loss per share (1995 on a
pro forma basis) $ (0.24) $ (0.23)
=============== ==============
Shares used in computation of
net loss per share 28,808,000 16,763,000
=============== ==============
</TABLE>
See accompanying note.
<PAGE>
Neuromedical Systems, Inc. and Subsidiaries
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (6,847,000) $ (3,860,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 758,000 794,000
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable 198,000 (170,000)
(Decrease) increase in accounts payable
(442,000) 668,000
Increase (decrease) in accrued
liabilities 67,000 (225,000)
(Increase) decrease in prepaid expenses
and other assets (5,000) 355,000
------------- -------------
Net cash used in operating activities (6,271,000) (2,438,000)
------------- -------------
INVESTING ACTIVITIES
Purchases of property and equipment (2,958,000) (1,969,000)
------------- -------------
Net cash used in investing activities (2,958,000) (1,969,000)
------------- -------------
FINANCING ACTIVITIES
Restricted cash - (14,000)
Issuance of common stock 1,000 -
Issuance of convertible preferred
stock - 3,236,000
Repayments to licensees - (30,000)
Proceeds from notes and bank loans 399,000 935,000
Payment of notes and bank loans (398,000) (61,000)
Payments on capital leases (172,000) (153,000)
Proceeds from capital lease financing 822,000 1,272,000
------------- -------------
Net cash provided by financing
activities 652,000 5,185,000
------------- -------------
Effect of exchange rate changes
on cash 243,000 (6,000)
------------- -------------
Net increase (decrease) in cash and
cash equivalents (8,334,000) 772,000
Cash and cash equivalents, beginning
of period 114,143,000 1,235,000
------------- -------------
Cash and cash equivalents, end of
period $105,809,000 $2,007,000
============= =============
</TABLE>
See accompanying note.
<PAGE>
Neuromedical Systems, Inc. and Subsidiaries
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and in
accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the Neuromedical Systems, Inc. (the "Company" or
"NSI") Annual Report on Form 10-K for the year ended December 31,
1995 (the "1995 Form 10-K"). Operating results for the three month
period ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Overview
The Company's principal activities since its founding in 1988
have been research, product and organizational development. The
Company was established to develop, manufacture and market systems
for computer assisted screening of Pap smears and other cytological
specimens. The Company's revenues have been derived primarily from
(i) sales of PAPNET (registered trademark) testing services, (ii)
prior to 1992, sales of licensing agreements, and (iii) interest
income.
The PAPNET (registered trademark) Testing System was cleared by
the United States Food and Drug Administration (the "FDA") for
commercial use in the United States on November 8, 1995. Prior to
that time, the PAPNET (registered trademark) Testing System was
permitted to be utilized in the United States on an investigational
basis only, and the Company was permitted to derive revenue with
respect thereto only to recover certain of its costs. The Company,
however, initiated the introduction of PAPNET (registered trademark)
testing services outside of the United States in 1992. The Company
has established three designated facilities (the "Scanning Centers"),
one each in the United States, The Netherlands and Hong Kong. The
Netherlands operation has scanned slides from customers in Europe and
Canada, while the Hong Kong operation has scanned slides from Asia
and Australia. See Note 5 to the Company's consolidated financial
statements for the year ending December 31, 1995 in the 1995 Form 10-
K for information regarding the Company's revenues, net loss and
identifiable assets by geographic area.
The Company has incurred net losses since inception through
March 31, 1996 of approximately $67,197,000 and has to date generated
only limited commercial revenues. Because the PAPNET (registered
trademark) Testing System has now been cleared by the FDA, the
Company intends to increase the scale of its operations to commercial
levels in the United States. Management of the Company believes that
its current cash and cash equivalents will be sufficient to fund the
increase in the scale of the Company's operations and to meet its
cash requirements during the commercialization process. The
Company's past results of operations reflect its developmental and
early commercial stage and are not necessarily indicative of the
results from operations that may be expected as the scale of its
operations increase.
Statements in this discussion which are not historical facts,
including statements about the Company's confidence and strategies
and its expectations about demand for and acceptance of the PAPNET
(registered trademark) Testing System are forward looking statements
that involve risks and uncertainties. These include, but are not
limited to, the Company's reliance on a single product, competition,
dependence on key personnel, the impact on the Company of
<PAGE>
its territorial license agreements, dependence on patents and
propriety technology, government regulation of both products and
advertising, limited marketing and sales history, the impact of third-
party reimbursement decisions, risk of litigation and other risks
detailed in the Company's Security and Exchange Commission filings,
including its 1995 Form 10-K.
Results of Operations
The Company's results of operations have fluctuated
significantly from year to year and quarter to quarter, principally
due to variations in the level of expenditures relating to its
clinical trials, research projects, marketing programs and
international expansion. The Company's results of operations are
expected to continue to fluctuate significantly and may continue to
result in substantial losses.
From inception through March 31, 1996, the Company has
experienced negative gross margins due to the significant under
utilization of its scanning and manufacturing operations which has
occurred as a result of the need to establish these capabilities
prior to FDA clearance and the anticipated expansion of the Company's
marketing and sales activities.
As a result of receiving clearance of its application by the FDA
on November 8, 1995, costs and expenses have increased, and will
continue to increase significantly in 1996 as the Company expands its
commercial operations including marketing, sales, manufacturing,
slide processing, research and administrative activities to meet the
expected increased market demand.
Interest expense is expected to increase in the future as the
Company borrows to fund expansion of its manufacturing, slide
processing and marketing capabilities, including the installation of
additional PAPNET (registered trademark) Scanning Stations at the
Company's Scanning Centers. It is expected that this increase will
be substantially offset during 1996 by the increase in interest
income from the investment of the proceeds of the Company's initial
public offering of common stock in December 1995 (the "IPO").
The impact of inflation and changing prices on the Company's
revenues and costs has not been significant.
For the First Quarter Ending March 31, 1996 and 1995
Total revenues for the first quarter ending March 31, 1996 were
$651,000, an increase of 29% from $504,000 for the first quarter of
1995. This increase was due to the Company's ability to charge
higher slide processing fees, both in the United States and in
international markets, primarily because of clearance by the FDA of
the PAPNET (registered trademark) Testing System for commercial use
in the United States on November 8, 1995. Prior to
<PAGE>
that time, the PAPNET (registered trademark) Testing System was
permitted to be utilized in the United States on an investigational
basis only, and the Company was permitted to derive revenue with
respect thereto only to recover certain of its costs.
Revenue increased during the first quarter of 1996, compared to
the first quarter of 1995, in the United States, Europe, Australia,
Asia and South America while declining in Canada. The decline in
Canadian revenue was due primarily to a decision by NSI's client
laboratories in Ontario, Canada to begin processing slides only for
patients who would pay for the PAPNET (registered trademark) test,
rather than testing a specified minimum number of slides each month.
The Company's efforts during the first quarter of 1996 were
focused on building distribution for PAPNET (registered trademark)
testing in the United States, which involves training and equipping
laboratories and educating gynecologists in areas where there are
laboratories that can provide PAPNET (registered trademark) testing.
During the quarter ended March 31, 1996, PAPNET (registered
trademark) testing became available through 41 additional
laboratories, bringing the total number of sites offering the PAPNET
(registered trademark) test to 89 by the end of the quarter.
During the first quarter of 1996, the Company scanned Pap smears
from 55 different laboratories in 25 states. The Company increased
its world-wide marketing and sales headcount by seven to a total of
41 persons during the quarter. The Company expects to add as many as
eight marketing and sales personnel during the second quarter of
1996, which will increase the number of sales personnel calling on
both laboratories and clinicians.
To establish PAPNET (registered trademark) testing in the United
States as the standard of care in Pap smear analysis, the Company is
executing a three step sequential marketing approach that targets (i)
its direct clients, the clinical laboratories that perform Pap smear
testing, (ii) gynecologists and those primary care physicians and
other clinicians who take Pap smears and can order PAPNET (registered
trademark) testing, and (iii) women, to encourage them to request
PAPNET (registered trademark) testing or to agree to it if it is
recommended by a physician. The Company believes that effective
marketing to all three target audiences must occur before significant
revenue growth will occur in the United States. In addition, the
Company will not begin direct-to-consumer advertising until an
adequate distribution network of laboratories is established and that
clinician awareness of the PAPNET (registered trademark) test is
sufficiently high to motivate physicians to prescribe or recommend
the test. Because of these prerequisites, the Company does not
expect to initiate direct-to-consumer advertising before late in the
third quarter of 1996. The Company has also begun discussions with
insurers, managed care organizations and other third-party payers and
providers concerning reimbursement for PAPNET (registered trademark)
testing.
<PAGE>
Total costs and expenses for the first quarter of 1996 were
$8,499,000 compared to $4,516,000 during the first quarter of 1995,
an increase of $3,983,000. This increase was primarily the result of
higher sales and marketing expenses, which increased to $3,517,000
from $891,000 in the first quarter of 1995. The increase in sales
and marketing expense of $2,626,000 was primarily due to costs
associated with the launch of the PAPNET (registered trademark)
Testing System in the United States and other countries, including
salaries for additional personnel, and advertising and promotion
costs. In addition, the Company's cost of sales, research and
development and general and administrative expenses also increased
during the first quarter of 1996 as compared to the first quarter of
1995, although at a slower rate than sales and marketing expense.
These increases were due primarily to the need to expand the
administrative and technical infrastructure of the Company to support
commercial activities, both in the United States and overseas.
General and administrative expenses were also impacted by the need to
meet the added requirements of being a public company following the
Company's IPO.
Interest income for the first quarter of 1996 was $1,483,000
compared to $39,000 in the first quarter of 1995. This increase was
due primarily to the Company's significantly higher levels of cash
and cash equivalent balances in 1996 as a result of the Company's
IPO, equity sales to private investors during the second half of 1995
and the exercise of certain warrants by investors in December 1995.
Interest expense for the first quarter of 1996 was $248,000
compared to $240,000 during the first quarter of 1995. There were no
material changes to the level of debt and capital lease obligations
between the two periods.
The Company incurred an unfavorable foreign exchange loss of
$234,000 during the first quarter of 1996 compared to a foreign
exchange gain of $353,000 during the first quarter of 1995. Both
the 1996 loss and the 1995 gain were caused by fluctuations in
exchange rates on dollar-denominated intercompany loans.
The Company incurred a net loss during the first quarter of 1996
of $6,847,000 compared to a net loss of $3,860,000 during the first
quarter of 1995. The increased net loss was due primarily to the
increase in marketing and sales expenses and to the expansion of the
administrative and technical infrastructure relating to the
commercial launch of the PAPNET (registered trademark) Testing System
in the United States.
Liquidity and Capital Resources
The Company has financed its operations since its inception
primarily by the issuance of equity securities, funds received for
territorial license agreements, sales of PAPNET (registered
trademark) Testing System services, interest earned on cash, cash
equivalents and short-
<PAGE>
term investments and proceeds from notes payable, bank loans and
equipment leasing arrangements.
The Company's combined cash and cash equivalents totaled
$105,809,000 at March 31, 1996, a decrease of $8,334,000 from
December 31, 1995. During the first quarter of 1996, the Company
used $6,271,000 for operating activities and $2,958,000 for investing
activities, while generating $652,000 from financing activities,
primarily proceeds from capital lease financing arrangements, notes
and bank loans.
The primary uses of cash and cash equivalents during the first
quarter of 1996 were $6,847,000 (inclusive of $758,000 of non-cash
expenses) to finance the Company's net loss, $2,958,000 to purchase
capital equipment, primarily for the manufacture of PAPNET
(registered trademark) Scanning Stations to support the expansion of
the Company's commercial activities, $570,000 to repay notes, bank
loans and capital lease obligations, and a $442,000 reduction in
accounts payable balances. The primary sources of cash and cash
equivalents during the first quarter of 1996 were $822,000 from
proceeds of lease finance transactions (sale/lease-backs) and
$399,000 of proceeds from notes and bank loans. Changes to the
components of working capital and other items accounted for the
remainder of the net change in cash and cash equivalents.
The Company anticipates that its use of cash will be substantial
for the foreseeable future. In particular, the Company anticipates
that expenditures will continue to increase significantly in 1996 due
to the cost of the marketing launch of the PAPNET (registered
trademark) Testing System in the United States and the expansion of
research and development programs for additional clinical indications
and claims. The Company estimates that during 1996, it will invest
approximately $8.0 million for working capital purposes and
approximately $17.0 million for capital expenditures and leasehold
improvements, primarily associated with the manufacture or purchase
of PAPNET (registered trademark) Scanning Stations and related
equipment, PAPNET (registered trademark) Review Stations and facility
leasehold improvements. Although funding for these capital
expenditures is expected to be available out of the net proceeds of
the IPO, management of the Company believes that it may be desirable
for the Company to finance certain of such capital expenditures
through additional debt or capital lease obligations. There can be
no assurance, however, that such financing can be obtained by the
Company on reasonable terms.
The Company anticipates that its current cash and cash
equivalents will be sufficient to enable the Company to meet its
future operating requirements. The Company, however, does not expect
to generate a positive internal cash flow in the foreseeable future
due to the expected increases in capital expenditures, working
capital requirements and ongoing losses during the next year,
including the expected cost of commercializing the PAPNET (registered
trademark) Testing System. The Company may need to arrange
additional equity or debt financing for the future operation of its
business. There can be
<PAGE>
no assurance that such financing can be obtained or, if it is
obtained, that the terms thereof will be reasonable. The Company
plans to continue its policy of investing excess funds in short-term
investment-grade notes.
Since inception through March 31, 1996, the Company's sales of
PAPNET (registered trademark) testing services for commercial use
have been derived principally from foreign sources. The Company
anticipates that international sales will continue to represent a
significant portion of its net sales as it executes its plan to
establish commercial use of the PAPNET (registered trademark) Testing
System on a worldwide basis, including the United States.
Neuromedical Systems, Inc., the United States parent company, has
provided a significant portion of the financing required for its
Netherlands and Hong Kong Scanning Centers through United States
dollar-denominated intercompany loans. The Company also maintains
its PAPNET (registered trademark) Testing System manufacturing
facility in Israel. As a result of its international operations and
its current financing approach, the Company's operating results are
subject to the impact of fluctuations in exchange rates of the
currencies in which its foreign operations conduct business versus
the United States dollar. The Company is exposed to gains and losses
with respect to most European currencies and Australian dollars
because the Company's subsidiaries invoice for slide processing
services in the local currency of the country in which slide
processing services are provided. Certain of the Company's and its
subsidiaries' revenues and expenses are in Hong Kong dollars and
Israel shekels, the values of which are presently tied to United
States dollars and therefore, are not currently subject to material
fluctuations. There can be no assurance, however, that the exchange
rate between the U.S. dollar and these currencies will not change in
the future. During the first quarter ended March 31, 1996, the
Company's operating results reflect foreign exchange losses of
$234,000 and its financial position as of that date reflects a
foreign currency translation effect of ($19,000), both of which
relate principally to the aforementioned United States dollar-
denominated intercompany loans. Fluctuations in exchange rates have
not had a material impact on the Company's revenues or costs and
expenses. The Company may implement a hedge program if its exposure
to foreign currency increases.
On December 4, 1995, the Company was served with a Summons and
Complaint in an action entitled HERBST ET AL. V. NEUROMEDICAL
SYSTEMS, INC. ET AL., in the Supreme Court of the State of New York.
The plaintiffs in this suit allege, among other things, that pursuant
to written contracts, which they claim the Company has breached, they
were entitled to be issued warrants exercisable for the purchase of
approximately 128,000 shares of common stock at various prices. They
further allege that the Company and certain of its officers and
directors made fraudulent misrepresentations and took other allegedly
improper actions that diminished the value of the warrants they claim
they are entitled to under these contracts. On January 31, 1996, the
plaintiffs served the Company with an Amended Complaint alleging
legal claims similar to those in the original Summons and Complaint
served on the Company, but adding one of the Company's
<PAGE>
directors as a defendant and specifying that the plaintiffs are
seeking compensatory damages from the Company and certain of its
officers and directors totaling $114 million and punitive damages
totaling $175 million. The Company intends to vigorously defend this
action. The Company believes that in any event the damages claimed
bear no relation to the harm alleged and believes an adverse judgment
in this case would not have a material adverse effect on the
Company's operations, financial position or cash flows.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
See Management's Discussion and Analysis of Financial
Condition and Results of Operation in Part I herein for
disclosure concerning legal proceedings.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
The Company's three patents underwent re-examination by the
United States Patent and Trademark Office (the "Patent
Office") following the anonymous request of a third party
in May 1995 in an attempt to have the patented claims
invalidated. The Patent Office has informed the Company
that each re-examined claim of the Company's three patents
will be confirmed or found patentable. The majority of
such claims will be confirmed without amendment. However,
several claims have been amended at the Company's request
to clarify that they apply to the use of the applicable
technology to fixed cytological specimens. In addition,
the Patent Office has said that it will allow the addition
of certain other patent claims to one of the three re-
examined patents.
The Company has received a Notice of Intent to Issue Re-
examination Certificates with respect to each of the three
patents. The Company has not yet received the final Re-
examination Certificates with respect to the patents
undergoing re-examination.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Exhibit
- - -------- -------
11.0 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for
which this report is filed.
<PAGE>
SIGNATURE
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, a duly authorized officer and the Company's
principal financial officer.
NEUROMEDICAL SYSTEMS, INC.
Dated: May 15, 1996 By: /s/ David Duncan, Jr.
David Duncan, Jr.
Vice President, Finance and
Administration, Chief Financial
Officer
<PAGE>
Exhibit 11.0
<TABLE>
Neuromedical Systems, Inc.
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995 (2)
------------- -------------
<S> <C> <C>
Weighted average number of common shares
outstanding 28,808,485 4,101,543
Common shares issued from October 1994
to completion of IPO (1) 0 57,599
Preferred stock issued from October 1994
to completion of IPO (1) 0 2,398,287
Assumed exercise of stock options and
warrants using the treasury stock
method (1) 0 316,980
Weighted average number of common shares
representing assumed conversion of
Series A through F Preferred Stock
from date of issuance
0 9,888,095
------------- -------------
Weighted average number of common and
common equivalent shares outstanding
28,808,485 16,762,504
============= =============
Net loss for period $ (6,847,000) $ (3,860,000)
------------- -------------
Net loss per share (1995 pro forma) $ (0.24) $ (0.23)
============= =============
<FN>
(1) Represents shares of common stock or common stock equivalents
issued between October 1994 and completion of the IPO at a price per
share less than the $15 per share price of common stock sold in the
IPO. Such shares are considered to be "cheap stock" and, accordingly,
reflected as outstanding for all periods presented prior to the IPO,
using the treasury stock method.
(2) On a pro forma basis, giving effect to the conversion of
convertible preferred stock to common.
</TABLE>
<PAGE>
Exhibit 11.0
<TABLE>
Neuromedical Systems, Inc.
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995 (2)
------------- -------------
<S> <C> <C>
Weighted average number of common shares
outstanding 28,808,485 4,101,543
Common shares issued from October 1994
to completion of IPO (1) 0 57,599
Preferred stock issued from October 1994
to completion of IPO (1) 0 2,398,287
Assumed exercise of stock options and
warrants using the treasury stock
method (1) 0 316,980
Weighted average number of common shares
representing assumed conversion of
Series A through F Preferred Stock
from date of issuance
0 9,888,095
Assumed exercise of stock options and
warrants using the treasury stock
method (2) 3,849,787 6,212,808
------------- -------------
Weighted average number of common and
common equivalent shares outstanding
32,658,272 22,975,312
============= =============
Net loss for period $(6,847,000) $(3,860,000)
------------- -------------
Net loss per share (1995 pro forma)(3) $ (0.21) $ (0.71)
============= =============
<FN>
(1) Represents shares of common stock or common stock equivalents
issued between October 1994 and completion of the IPO, at a price
per share less than the $15 per share price of common stock sold in
the IPO. Such shares are considered to be "cheap stock" and,
accordingly, reflected as outstanding for all periods presented
prior to the IPO, using the treasury stock method.
(2) For purposes of calculating the number of shares issuable upon
exercise of outstanding stock options and warrants, the closing
stock price of $9.40 per share was used for 1995, and $20.75 per
share was used for 1996.
(3) On a pro forma basis, giving effect to the conversion of
convertible preferred stock to common stock.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 105,809
<SECURITIES> 0
<RECEIVABLES> 878
<ALLOWANCES> (176)
<INVENTORY> 0
<CURRENT-ASSETS> 107,217
<PP&E> 20,536
<DEPRECIATION> (7,164)
<TOTAL-ASSETS> 120,935
<CURRENT-LIABILITIES> 6,453
<BONDS> 6,457
0
0
<COMMON> 3
<OTHER-SE> 108,022
<TOTAL-LIABILITY-AND-EQUITY> 120,935
<SALES> 0
<TOTAL-REVENUES> 651
<CGS> 0
<TOTAL-COSTS> 8,499
<OTHER-EXPENSES> 8,499
<LOSS-PROVISION> 62
<INTEREST-EXPENSE> 248
<INCOME-PRETAX> (6,847)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,847)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.21)
</TABLE>
