<PAGE>
Filed pursuant to
Rule 424(b)(3)
Registration Statement
No.: 33-97722
Prospectus Supplement No. 1, dated October 31, 1996
(To the Prospectus dated September 30, 1996)
NEUROMEDICAL SYSTEMS, INC.
Common Stock
Par Value $.0001 Per Share
FDA Supplement Approval
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On October 24, 1996 the Company received FDA approval of a supplement
to its original pre-market approval application which permits the Company to
promote PAPNET(R) testing as a substitute for the random portion of the 10
percent manual quality control rescreening of cervical smears as required by
federal regulations. See "Business--Regulation of Cervical Pap Smear Analysis."
In addition, the Company received an additional claim for the performance of the
PAPNET(R) system. The Company may now claim that PAPNET(R) testing of presumed
negative Pap smears can be conservatively expected to identify at least 7.1
times more false negatives than routine manual reexamination of the same number
of smears. This new clinical claim is in addition to the claims approved in
November 1995.
Third Quarter 1996 Results
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On October 28, 1996, the Company reported the results for its third
quarter ending September 30, 1996. Revenues for the third quarter were
$1,286,000, an increase of 84% from $698,000 for the third quarter of 1995. Of
such revenues, $1,234,000 represented per slide charges for the screening of Pap
smears, and the balance of such revenues represented rental
<PAGE>
payments on PAPNET (R) Review Stations. The revenue increase over 1995 was due
primarily to a significant increase in both unit volume and unit pricing in the
United States market.
The Company reported a net loss for the third quarter of 1996 of
$9,588,000, or $.33 per share, compared to a net loss of $6,288,000, or $.37
per share (on a pro forma basis), for the third quarter of 1995. The increased
net loss during the third quarter of 1996 was due primarily to the increase in
marketing and sales expenses required to initiate the PAPNET (R) direct-to-
consumer campaign.
During the third quarter, the Company announced several initiatives
intended to increase awareness of the PAPNET (R) test, including a co-promotion
agreement with the Parke-Davis division of the Warner Lambert Company and an
agreement with MagnaCare/MagnaHealth that it provide PAPNET (R) testing as a
covered benefit with Pap smears when ordered through its physician network.
For the nine month period ended September 30, 1996, revenues were
$2,954,000, an increase of 67% from $1,765,000 during the corresponding period
of 1995. The Company reported a net loss for the first nine months of 1996 of
$23,813,000, or $.82 per share, compared to a net loss of $15,208,000, or $.90
per share (on a pro forma basis), for the corresponding period of 1995. As was
the case for the third quarter, the increased net loss during 1996 for the nine
months period was due primarily to an increase in marketing and sales expenses,
including the cost of the PAPNET (R) Testing System direct-to-consumer campaign.
The Company also increased its worldwide marketing and sales organization during
the quarter to a total of 57 persons.
During the third quarter, the Company increased the number of U.S.
laboratories offering PAPNET (R) testing by 55, bringing the total number of
U.S. facilities offering the test as of September 30, 1996 to 193. PAPNET (R)
testing is now available nationwide through a network of local, regional and
national laboratories throughout the United States.
The Company also continued to expand its international laboratory
distribution. PAPNET (R) testing is now available in 23 countries worldwide. By
the end of the third quarter,
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PAPNET (R) testing was available through 44 laboratories in European countries
and 10 laboratories were offering PAPNET (R) testing in Australia. In Asia, the
Company continued to expand its business in Hong Kong, Taiwan and mainland
China. During the third quarter, the Company received limited slide processing
revenue from 27 laboratories in mainland China.
Safe Harbor Statement
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Statements which are not historical facts, including statements about
the Company's confidence and strategies and its expectations about new and
existing products, technologies and opportunities, market growth, demand for and
acceptance of new and existing products (including the PAPNET (R) Testing
System) and returns on investments are forward-looking statements that involve
risks and uncertainties. These include, but are not limited to, the Company's
continuing negative operating cash flow, reliance on a single product,
competition, dependence on key personnel, the impact on the Company of
territorial license agreements, dependence on patents and proprietary
technology, government regulation, limited marketing and sales history, the
impact of third-party reimbursement decisions, the risk of litigation and other
risks detailed in the Company's Securities and Exchange Commission filings,
including its Annual Report on Form 10-K for the year ended 1995.
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NEUROMEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -------------
1996 1995
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and marketable securities $ 87,126,000 $ 114,143,000
Other current assets 4,227,000 1,601,000
Property, plant and equipment, net 15,256,000 11,216,000
Other assets 1,264,000 388,000
---------------- --------------
Total Assets $ 107,873,000 $ 127,348,000
================ ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $ 7,897,000 $ 6,631,000
Other liabilities 7,226,000 6,050,000
Stockholders' equity 92,750,000 114,667,000
Total Liabilities and ---------------- --------------
Stockholders' Equity $ 107,873,000 $ 127,348,000
================ ==============
</TABLE>
NEUROMEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- -------------------------------
1996 1995 1996 1995
----------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES $ 1,286,000 $ 698,000 $ 2,954,000 $ 1,765,000
COSTS AND EXPENSES
Costs of sales 2,085,000 1,741,000 5,709,000 4,635,000
Research and development 1,945,000 1,554,000 5,024,000 4,111,000
Marketing and sales 6,262,000 1,614,000 13,635,000 3,726,000
General and administrative 1,559,000 1,791,000 5,115,000 4,157,000
----------------- -------------- -------------- --------------
Total Costs and Expenses 11,851,000 6,700,000 29,483,000 16,629,000
----------------- -------------- -------------- --------------
Other income (expense), net 977,000 (286,000) 2,716,000 (344,000)
----------------- -------------- -------------- --------------
NET LOSS $ (9,588,000) $ (6,288,000) $ (23,813,000) $ (15,208,000)
================= ============== ============== ==============
NET LOSS PER SHARE (1) $ (0.33) $ (0.37) $ (0.82) $ (0.90)
================= ============== ============== ==============
WEIGHTED AVERAGE
SHARES OUTSTANDING 29,450,000 16,978,000 29,117,000 16,863,000
================= ============== ============== ==============
</TABLE>
1) 1995 on a pro forma basis
