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 JUNE 30, 1999


            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 0-10521

                     ADVANCED NEUROMODULATION SYSTEMS, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

            Texas                                        75-1646002
-------------------------------             ------------------------------------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
 Incorporation or Organization)

                    6501 Windcrest Drive, Plano, Texas 75024
               ---------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

                                 (972) 309-8000
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

Indicate by check whether the registrant:(1)has filed all reports required to be
filed by Section 13 or 15(d) of the  Securities  Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days. YES [X] NO [ ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
                                              Number of Shares Outstanding at
            Title of Each Class                        August 6, 1999
         ------------------------             ---------------------------------
         <S>                                             <C>
         Common stock, $.05 Par Value                    7,541,379
</TABLE>

<PAGE>

             ADVANCED NEUROMODULATION SYSTEMS, INC. AND SUBSIDIARIES
             -------------------------------------------------------

                                TABLE OF CONTENTS
                                -----------------

<TABLE>
<S>                                                                        <C>
PART I.     Financial Information                                              2

     Item 1.     Financial Statements

                      Condensed Consolidated Balance Sheets
                           June 30, 1999 and December 31, 1998               3-4


                      Condensed Consolidated Statements of Operations
                           For the Three Months Ended and Six Months Ended
                           June 30, 1999 and 1998                              5


                      Condensed Consolidated Statements of Cash Flows
                           For the Six Months Ended
                           June 30, 1999 and 1998                              6


                      Condensed Consolidated Statements of Stockholders'
                           Equity For the Year Ended December 31, 1998
                           and the Six Months Ended June 30, 1999              7


                      Notes to Condensed Consolidated
                           Financial Statements                             8-13

     Item 2.     Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                  14-20

PART II.    Other Information                                                 21

     Item 4.     Submission of Matters to a Vote of Security Holders          21

     Item 6.     Exhibits and Reports on Form 8-K                             21

SIGNATURES                                                                    22
</TABLE>

                                      -1-
<PAGE>















                                     PART I


                              FINANCIAL INFORMATION





                                      -2-
<PAGE>

             Advanced Neuromodulation Systems, Inc. and Subsidiaries
                      Condensed Consolidated Balance Sheets
                       June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
                                                       June 30,
                                                         1999      December 31,
Assets                                                (Unaudited)      1998
------                                               ------------- -------------
<S>                                                  <C>           <C>
Current assets:
  Cash and cash equivalents                          $ 13,285,900 $  11,697,209
  Marketable securities                                   596,246       566,072
  Receivables:
   Trade accounts, less allowance for
      doubtful accounts of $161,939 in 1999
      and $249,607 in 1998                              3,293,711     3,135,615
   Interest and other                                      57,992       124,511
                                                     ------------- -------------
      Total receivables                                 3,351,703     3,260,126
                                                     ------------- -------------

  Inventories:
   Raw materials                                        1,725,429     1,010,865
   Work-in-process                                        738,569       415,442
   Finished goods                                       1,222,053     1,216,955
                                                     ------------- -------------
      Total inventories                                 3,686,051     2,643,262
                                                     ------------- -------------

   Net assets of building and land sold in 1999           ---         6,310,985
   Deferred income taxes                                  548,850       887,609
   Prepaid expenses and other current assets              847,871       852,025
                                                     ------------- -------------
      Total current assets                             22,316,621    26,217,288
                                                     ------------- -------------

Property, plant and equipment:
   Leasehold improvements                                 532,667       ---
   Furniture and fixtures                               2,885,252       882,968
   Machinery and equipment                              3,099,758     2,066,514
                                                     ------------- -------------
                                                        6,517,677     2,949,482
   Less accumulated depreciation and amortization       1,353,852     1,060,890
                                                     ------------- -------------
      Net property, plant and equipment                 5,163,825     1,888,592
                                                     ------------- -------------

Cost in excess of net assets acquired, net of
  accumulated amortization of $2,012,919 in 1999
  and $1,734,617 in 1998                                8,798,745     9,077,047
Patents, net of accumulated amortization of
  $387,699 in 1999 and $302,281 in 1998                 2,968,865     3,054,283
Purchased technology from acquisitions, net of
  accumulated amortization of $1,133,334 in 1999
  and $1,000,000 in 1998                                2,866,666     3,000,000
Tradenames, net of accumulated amortization of
  $531,250 in 1999 and $468,750 in 1998                 1,968,750     2,031,250
Other assets, net of accumulated amortization of
  $103,489 in 1999 and $68,993 in 1998                    606,482       216,908
                                                     ============= =============
                                                     $ 44,689,954 $  45,485,368
                                                     ============= =============
</TABLE>

                                      -3-
<PAGE>

             Advanced Neuromodulation Systems, Inc. and Subsidiaries
                      Condensed Consolidated Balance Sheets
                       June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
                                                       June 30,
                                                          1999      December 31,
Liabilities and Stockholders' Equity                  (Unaudited)       1998
------------------------------------                 ------------- -------------
<S>                                                  <C>           <C>
Current liabilities:
   Accounts payable                                  $    894,689 $     904,899
   Short-term notes payable and current maturities
      of long-term notes payable                          ---         3,633,475
   Deferred revenue                                       ---           900,000
   Accrued salary and employee benefit costs              484,712       562,618
   Income taxes payable                                 2,029,845     2,276,655
   Other accrued expenses                               1,082,010     1,513,499
                                                     ------------- -------------
      Total current liabilities                         4,491,256     9,791,146
                                                     ------------- -------------

Deferred income taxes                                   2,323,891     2,390,475

Commitments and contingencies

Stockholders' equity:
   Common stock of $.05 par value. Authorized
      25,000,000 shares; issued 8,708,367 shares
      in 1999 and 8,708,367 in 1998                       435,418       435,418
   Additional capital                                  40,335,284    41,156,582
   Retained earnings (deficit)                          5,359,993      (308,859)
   Cost of common shares in treasury; 1,168,988
      shares in 1999 and 1,073,751 in 1998            (8,145,044)   (7,848,634)
   Accumulated other comprehensive income (loss),
      net of tax benefit of $57,105 in 1999
      and $67,363 in 1998                                (110,844)     (130,760)
                                                     ------------- -------------

      Total stockholders' equity                       37,874,807    33,303,747



                                                     ------------- -------------
                                                     $ 44,689,954 $  45,485,368
                                                     ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                      -4-
<PAGE>

             Advanced Neuromodulation Systems, Inc. and Subsidiaries
           Condensed Consolidated Statements of Operations (Unaudited)
        For the Three Months and Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
                                  Three Months Ended        Six Months Ended
                                       June 30,                June 30,
                                ----------------------- ------------------------
                                    1999        1998        1999         1998
                                ----------- ----------- ----------- ------------
<S>                             <C>         <C>         <C>         <C>
Net revenue-product sales       $5,169,614  $4,730,672  $9,764,852  $ 9,154,127
Net revenue-contract research
  and development                  ---         600,000   8,900,000      600,000
                                ----------- ----------- ----------- ------------
     Total net revenue           5,169,614   5,330,672  18,664,852    9,754,127

Costs and expenses:
  Cost of product sales          1,585,635   1,237,569   2,945,815    2,495,201
  Research and development         903,872     606,534   1,790,140    1,070,482
  Marketing                      1,538,550   1,118,202   3,041,732    2,237,862
  Amortization of intangibles      298,206     291,504     594,050      583,006
  General and administrative       681,470     720,303   1,356,079    1,239,613
                                ----------- ----------- ----------- ------------
                                 5,007,733   3,974,112   9,727,816    7,626,164
                                ----------- ----------- ----------- ------------
     Earnings from operations      161,881   1,356,560   8,937,036    2,127,963
                                ----------- ----------- ----------- ------------

Other income (expenses):
  Interest expense                 ---         (79,346)    (44,861)    (175,738)
  Interest and other income        213,501     243,054     441,033      415,416
  Gain (loss) on sale of assets
   and marketable securities       ---             (81)    ---              (81)
                                ----------- ----------- ----------- ------------
                                   213,501     163,627     396,172      239,597
                                ----------- ----------- ----------- ------------
     Earnings from continuing
      operations before income
      taxes                        375,382   1,520,187   9,333,208    2,367,560
Income taxes                       152,888     598,999   3,664,356      944,728
                                ----------- ----------- ----------- ------------
     Net earnings from
      continuing operations        222,494     921,188   5,668,852    1,422,832
                                ----------- ----------- ----------- ------------

Discontinued Operations:
  Loss from discontinued
    operations, net of income
    tax benefits of $129,711
    in 1998                        ---         ---         ---         (211,634)

  Gain on sale of assets of
    discontinued operations,
    net of income tax expense
    of $3,037,968                  ---         ---         ---        5,200,575
                                ----------- ----------- ----------- ------------
     Net earnings from
      discontinued operations      ---         ---         ---        4,988,941
                                ----------- ----------- ----------- ------------
     Net earnings               $  222,494  $  921,188  $5,668,852  $ 6,411,773
                                =========== =========== =========== ============

Basic earnings per share:
     Continuing operations      $      .03  $      .11  $      .74  $       .16
                                =========== =========== =========== ============
     Discontinued operations    $      ---  $      ---  $      ---  $       .58
                                =========== =========== =========== ============
     Net earnings               $      .03  $      .11  $      .74  $       .74
                                =========== =========== =========== ============
Diluted earnings per share:
     Continuing operations      $      .03  $      .10  $      .71  $       .16
                                =========== =========== =========== ============
     Discontinued operations    $      ---  $      ---  $      ---  $       .56
                                =========== =========== =========== ============
     Net earnings               $      .03  $      .10  $      .71  $       .72
                                =========== =========== =========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                      -5-
<PAGE>

             Advanced Neuromodulation Systems, Inc. and Subsidiaries
           Condensed Consolidated Statements of Cash Flows (Unaudited)
                 For the Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
                                                      Six Months Ended June 30,
                                                     ---------------------------
                                                          1999         1998
                                                     ------------- -------------
<S>                                                  <C>           <C>
Cash flows from operating activities:
   Net earnings from continuing operations           $  5,668,852 $   1,422,832
                                                     ------------- -------------
   Adjustments to reconcile net earnings from
     continuing operations to net cash
     provided by operating activities
        Depreciation and amortization                     902,596       876,932
        Loss on sale of assets and marketable
          securities                                      ---                81
        Deferred income taxes                             261,916    (1,307,584)
        Changes in assets and liabilities:
          Receivables                                     (91,577)     (281,235)
          Inventories                                  (1,042,789)      189,648
          Prepaid expenses and other assets              (420,846)       55,520
          Deferred revenue                               (900,000)    3,400,000
          Income taxes payable                           (246,810)    2,224,512
          Accounts payable                                (10,210)      276,361
          Accrued expenses                               (568,028)       82,945
                                                     ------------- -------------
            Total adjustments                          (2,115,748)    5,517,180
                                                     ------------- -------------
            Net cash provided by continuing
              operations                                3,553,104     6,940,012
            Net cash provided by discontinued
              operations                                  ---            59,049
                                                     ------------- -------------
            Net cash provided by operating activities   3,553,104     6,999,061
                                                     ------------- -------------

Cash flows from investing activities:
  Proceeds from sales of marketable securities            ---          459,419
  Additions to property, plant and equipment-
    continuing operations                              (3,568,195)     (696,996)
  Additions to property, plant and equipment-
    discontinued operations                               ---           (12,060)
  Net proceeds from sale of discontinued operations     6,354,965    21,754,179
                                                     ------------- -------------
            Net cash provided by investing activities   2,786,770    21,504,542
                                                     ------------- -------------

Cash flows from financing activities:
  Exercise of stock options                               556,054       461,069
  Purchase of treasury stock                           (1,673,762)   (3,341,165)
  Payment of short-term obligations                    (3,633,475)   (8,081,763)
  Payment of long-term debt                               ---           (86,775)
                                                     ------------- -------------
            Net cash used in financing activities      (4,751,183)  (11,048,634)
                                                     ------------- -------------
  Net increase in cash and cash equivalents             1,588,691    17,454,969

Cash and cash equivalents at beginning of year         11,697,209       747,828
                                                     ============= =============
Cash and cash equivalents at June 30                 $ 13,285,900  $ 18,202,797
                                                     ============= =============

Supplemental cash flow information is presented below:

Income taxes paid                                    $  3,649,250  $     27,800
                                                     ============= =============

Interest paid                                        $     44,861  $    214,582
                                                     ============= =============

</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                      -6-
<PAGE>

             ADVANCED NEUROMODULATION SYSTEMS, INC. and SUBSIDIARIES
            Condensed Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
                                                                     Retained        Other                      Total
                                Common Stock          Additional     Earnings    Comprehensive   Treasury    Stockholders'
                             Share         Amount       Capital      (Deficit)   Income (Loss)     Stock        Equity
                         ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S>                      <C>           <C>           <C>           <C>           <C>           <C>           <C>
Balance at
December 31, 1997           8,635,509  $    431,775  $ 40,780,717  $ (7,268,061) $    (38,494)          ---  $ 33,905,937

   Net earnings                   ---           ---           ---     6,959,202           ---           ---     6,959,202
   Adjustment to
     unrealized losses
     on marketable
     securities                   ---           ---           ---           ---       (92,266)          ---       (92,266)
                                                                                                             -------------
   Comprehensive Income                                                                                         6,866,936
                                                                                                             -------------
   Shares issued upon
     exercise of
     stock options             72,858         3,643       160,554           ---           ---           ---       164,197
   Tax benefit from
     employee stock
     option exercise              ---           ---       119,509           ---           ---           ---       119,509
   Compensation
     expense resulting
     from changes to
     stock options                ---           ---     1,004,654           ---           ---           ---     1,004,654
   Issuance of 184,874
     shares from
     treasury for stock
     option exercises             ---           ---      (908,852)          ---           ---     1,562,421       653,569
   Purchase of
     1,258,625 treasury
     shares, at cost              ---           ---           ---           ---           ---    (9,411,055)   (9,411,055)
                         ------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
December 31, 1998           8,708,367       435,418    41,156,582      (308,859)     (130,760)   (7,848,634)   33,303,747

   Net earnings                   ---           ---           ---     5,668,852           ---           ---     5,668,852
   Adjustment to
     unrealized
     losses on
     marketable
     securities                   ---           ---           ---           ---        19,916           ---        19,916
                                                                                                             -------------
   Comprehensive Income                                                                                         5,688,768
                                                                                                             -------------
   Issuance of
     146,138 shares
     from treasury
     for stock option
     exercises                    ---           ---      (821,298)          ---           ---     1,377,352       556,054
   Purchase of 241,375
     treasury shares,
     at cost                      ---           ---           ---           ---           ---    (1,673,762)   (1,673,762)
                         ------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
June 30, 1999              8,708,367   $    435,418  $ 40,335,284  $  5,359,993  $   (110,844) $ (8,145,044) $ 37,874,807
                         ============= ============= ============= ============= ============= ============= =============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                      -7-
<PAGE>

             Advanced Neuromodulation Systems, Inc. and Subsidiaries
              Notes to Condensed Consolidated Financial Statements

(1)      BUSINESS

         Continuing Operations

         Advanced Neuromodulation Systems, Inc. (the "Company" or "ANS")
         designs, develops, manufactures and markets implantable medical device
         systems used to manage chronic intractable pain and other disorders of
         the central nervous system. ANS revenues are derived primarily from
         sales throughout the United States, Europe and Australia.

         The business described above was acquired in March 1995. All other
         businesses of the Company were sold in January 1998 as described below
         under Discontinued Operations.

         The research and development, manufacture, sale and distribution of
         medical devices is subject to extensive regulation by various public
         agencies, principally the Food and Drug Administration and
         corresponding state, local and foreign agencies. Product approvals and
         clearances can be delayed or withdrawn for failure to comply with
         regulatory requirements or the occurrence of unforeseen problems
         following initial marketing.

         In addition, ANS products are purchased primarily by hospitals and
         other users who then bill various third party payers including
         Medicare, Medicaid, private insurance companies and managed care
         organizations. These third party payers reimburse fixed amounts for
         services based on a specific diagnosis. The impact of changes in third
         party payer reimbursement policies and any amendments to existing
         reimbursement rules and regulations that restrict or terminate the
         eligibility of ANS products could have an adverse impact on the
         Company's financial condition and results of operations.

         Discontinued Operations

         On January 30, 1998, the Company sold its cardiovascular and
         intravenous fluid product lines ("CVS Operations"), including its
         MPS(R) myocardial protection system product line, to Atrion Corporation
         (see Note 8 - "Sale of CVS Operations/Discontinued Operations"). The
         CVS Operations have been accounted for as discontinued operations in
         the Condensed Consolidated Financial Statements for the six months
         ended June 30, 1998. During October 1998, Atrion also exercised an
         option to acquire the Company's land, office and manufacturing facility
         for $6.5 million. The transaction was closed on February 1, 1999. Net
         assets of the land and facility have been presented on the Condensed
         Consolidated Balance Sheet at December 31, 1998, as net assets of
         building and land sold in 1999.

(2)      CONDENSED FINANCIAL STATEMENTS

         The unaudited consolidated financial information contained in this
         report reflects all adjustments (consisting of normal recurring
         accruals) considered necessary, in the opinion of management, for a
         fair presentation of results for the interim periods presented. The
         preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from these estimates.

         Certain information and footnote disclosures normally included in
         financial statements prepared in accordance with generally accepted
         accounting principles have been condensed or omitted. These financial
         statements should be read in conjunction with the financial statements
         and notes thereto included in the Company's December 31, 1998 Annual

                                      -8-
<PAGE>

         Report on Form 10-K. The results of operations for periods ended June
         30, 1999 are not necessarily indicative of operations for the full
         year.

         The consolidated financial statements include the accounts of Advanced
         Neuromodulation Systems, Inc. and subsidiaries. All significant
         intercompany balances and transactions have been eliminated in
         consolidation.

(3)      MARKETABLE SECURITIES

         The following is a summary of available-for-sale securities at June 30,
         1999:
<TABLE>
<CAPTION>
                                               Gross       Gross
                                            Unrealized  Unrealized    Estimated
                                   Cost        Gains       Losses    Fair Value
                                ----------- ----------- ----------- ------------
<S>                             <C>         <C>         <C>         <C>
Investment grade preferred
  securities                    $  557,596  $   ---     $  109,556  $   448,040
Publicly traded limited
  partnerships                      51,875      ---         16,250       35,625
Real estate investment trusts      141,590      ---         29,239      112,351
Other                               13,134      ---         12,904          230
                                ----------- ----------- ----------  ------------
                                $  764,195  $   ---     $  167,949  $   596,246
                                =========== =========== =========== ============
</TABLE>

At June 30, 1999, no individual security represented more than 33 percent of the
total portfolio or 1 percent of total assets. The Company did not have any
investments in derivative financial instruments at June 30, 1999.

(4)      NOTES PAYABLE

         Notes payable at June 30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
                                                        June 30,   December 31,
                                                          1999         1998
                                                     ------------- -------------
         <S>                                         <C>           <C>

         Mortgage notes                              $     ---     $  3,633,475
         Less current maturities                           ---        3,633,475
                                                     ------------- -------------
         Long-term notes payable                     $     ---     $    ---
                                                     ============= =============
</TABLE>

         In 1993, the Company entered into two mortgage notes relating to its
         principal office and manufacturing facility. The first note, in the
         amount of $2,825,332 at December 31, 1998, bore interest at 8.59
         percent and had a twenty-five year amortization. The Allen facility and
         land secured the note. The second note, in the amount of $808,143 at
         December 31, 1998, was related to equipment and furnishings and bore
         interest at 7.94 percent. The note had a ten-year amortization and was
         collateralized by the equipment and furnishings. On February 1, 1999,
         the Company repaid the two mortgage notes in connection with the sale
         of the land and facility to Atrion Corporation (see Note 8 - "Sale of
         CVS Operations/Discontinued Operations").

                                      -9-
<PAGE>

(5)      COMMITTMENTS AND CONTINGENCIES

         In February 1999, the Company entered into a sixty-three month lease
         agreement on 40,000 square feet of space located in the North Dallas
         area. The Company relocated its operations to the leased facility in
         May 1999. Under the terms of the lease agreement, the Company will
         receive three months free rent and the monthly rental rate for the
         remaining term of the lease is $48,308. The monthly rental rate
         includes certain operating expenses such as property taxes on the
         facility, insurance, landscape and maintenance and janitorial services.
         The Company also has a first right of refusal to acquire the facility.
         The Company spent approximately $2.3 million for furniture and
         equipment, leasehold improvements, computer systems, telephone systems
         and manufacturing clean room space for the leased facility. Other than
         the facility lease, the Company has no material commitments under
         noncancelable operating leases at June 30, 1999.

         The Company is a party to product liability claims related to ANS
         implantable stimulation devices. Product liability insurers have
         assumed responsibility for defending the Company against these claims.
         While historically product liability claims for ANS stimulation devices
         have not resulted in significant monetary liability for the Company
         beyond its insurance coverage, there can be no assurances that the
         Company will not incur significant monetary liability to the claimants
         if such insurance is inadequate or that the Company's stimulation
         business and future ANS product lines will not be adversely affected by
         these product liability claims.

         Except for such product liability claims and other ordinary routine
         litigation incidental or immaterial to its business, the Company is not
         currently a party to any other pending legal proceeding. The Company
         maintains general liability insurance against risks arising out of the
         normal course of business.

(6)      INCOME TAXES

         The Company recorded income tax expense from continuing operations
         during the six months ended June 30, 1999 and 1998, of $3,664,356 and
         $944,728, an overall effective tax rate of 39.3 percent and 39.9
         percent, respectively. The Company's expense for amortization of costs
         in excess of net assets acquired (goodwill) is not deductible for tax
         purposes, and, when combined with a provision for state taxes, results
         in the higher effective tax rate compared to the U.S. statutory rate
         for corporations of 34 percent. During the six months ended June 30,
         1998, the Company also recorded income tax expense from discontinued
         operations of $2,908,257 from the gain on the sale of the CVS
         Operations (see Note 8 - "Sale of CVS Operations/Discontinued
         Operations").

(7)      EARNINGS PER SHARE

         Basic earnings per share is computed based only on the weighted average
         number of common shares outstanding during the period. Diluted earnings
         per share is computed using the additional dilutive effect, if any, of
         stock options and warrants using the treasury stock method based on the
         average market price of the stock during the period. The following
         table presents the reconciliation of basic and diluted shares:

                                      -10-
<PAGE>
<TABLE>
<CAPTION>
                                   Three Months Ended        Six Months Ended
                                        June 30,                June 30,
                                ----------------------- ------------------------
                                   1999        1998        1999         1998
                                ----------- ----------- ----------- ------------
         <S>                    <C>         <C>         <C>         <C>

         Weighted-average shares
           outstanding (basic
           shares)               7,603,281   8,637,750   7,674,842    8,629,411
         Effect of dilutive
           instruments
              Stock options        341,376     256,257     345,570      236,097
              Warrants              12,210      29,045      12,885       21,875
                                ----------- ----------- ----------- ------------
              Dilutive potential
                common shares      353,586     285,302     358,455      257,972
                                ----------- ----------- ----------- ------------
              Diluted shares     7,956,867   8,923,052   8,033,297    8,887,383
                                =========== =========== =========== ============
</TABLE>
         For the three months and six months ended June 30, 1999 and 1998, the
         incremental shares used for dilutive earnings per share relate to stock
         options and warrants whose exercise price was less than the average
         market price in the underlying quarterly computations. Options to
         purchase 108,000 shares at an average price of $10.55 were outstanding
         at June 30, 1998 but were not included in the computation of diluted
         earnings per share for the three months ended June 30, 1998 because the
         options' exercise prices were greater than the average market price of
         the common shares and, therefore, the effect would be antidilutive. For
         the three months ended June 30, 1999, all options and warrants were
         included in the computation of diluted earnings per share since all
         exercise prices were less than the average market price of the common
         shares for the three month period in 1999.

 (8)     SALE OF CVS OPERATIONS/DISCONTINUED OPERATIONS

         On January 30, 1998, the Company sold its cardiovascular and
         intravenous fluid product lines, including its MPS(R) myocardial
         protection system product line, to Atrion Corporation. The Company
         received approximately $23 million from the sale and utilized $8.0
         million of the proceeds to retire debt and $1.2 million to pay expenses
         related to the transaction. The Company reported an after tax gain from
         the sale of $5.2 million during the six months ended June 30, 1998.
         This gain is net of $1 million of compensation expense recorded as a
         result of changes made to the stock options held by employees of the
         CVS Operations. These changes included accelerated vesting of the
         unvested portion of these terminated employee options as a result of
         the sale and extension of the normal 90-day exercise period subsequent
         to termination to one year for these options. The Company also reported
         an after tax loss of $212,000 during the six months ended June 30,
         1998, from operating losses of the CVS Operations prior to the sale to
         Atrion.

         As part of the sale of the CVS Operations to Atrion, the Company
         granted Atrion a nine-month option to acquire the Company's principal
         office and manufacturing facility for $6.5 million. During October
         1998, Atrion exercised its option to acquire the facility. When the
         facility was built in 1993, the Company entered a ten-year agreement
         with the City of Allen granting tax abatements to the Company if a
         minimum job base and personal property base was maintained in the City
         of Allen. The agreement provided for the repayment of abated taxes if
         the Company defaulted under the agreement. During the fourth quarter of
         1998 the Company recorded a pretax expense of $969,204 in connection
         with the abated taxes. In April 1999, the Company was successful in
         petitioning the City of Allen to assign the abatement agreement to
         Atrion. If Atrion meets the minimum requirements under the agreement
         until 2003, then there may be no payment required.

                                      -11-
<PAGE>

         Operating results of the CVS Operations have been reclassified and
         reported as discontinued operations. Summary operating results for the
         six months ended June 30, 1998 for the CVS Operations were as follows
         (the 1998 period included results until the sale on January 30, 1998):
<TABLE>
<CAPTION>
                                                     One Month Ended
                                                     January 30, 1998
                                                     ----------------
                  <S>                                <C>
                  Revenue                            $     1,111,992
                  Gross profit                               206,481
                  Earnings (loss) from operations           (307,120)
                  Interest expense                           (34,225)
                                                     ----------------

                  Loss before income tax benefit            (341,345)
                  Income tax benefit                         129,711
                                                     ----------------

                  Net loss                           $      (211,634)
                                                     ================
</TABLE>

         On February 1, 1999, the sale of the facility to Atrion was
         consummated. The Company repaid the mortgage debt on the facility at
         the closing of the transaction (see Note 4 - "Notes Payable"). After
         repayment of the mortgage debt and expenses related to the transaction,
         the Company received $2.7 million of net proceeds. No material gain or
         loss was recorded on the sale of the facility except related to the tax
         abatement liability described above. The Company moved its operations
         to a 40,000 square foot leased facility in the North Dallas area during
         May 1999. Until that time, the Company leased space and equipment from
         Atrion at a monthly expense of $48,175 and paid Atrion fifty percent of
         certain facility operating expenses. The expense of moving and
         transitioning into the new facility was immaterial.

(9)      COMPREHENSIVE INCOME

         Total comprehensive income for 1998 and for the six months ended June
         30, 1999 is reported in the Condensed Consolidated Statements of
         Stockholders' Equity. Comprehensive income for the three months and six
         months ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
                                   Three Months Ended        Six Months Ended
                                        June 30,                June 30,
                                ----------------------- ------------------------
                                   1999        1998        1999         1998
                                ----------- ----------- ----------- ------------
         <S>                    <C>         <C>         <C>         <C>
         Net earnings           $  222,494  $  921,188  $5,668,852  $ 6,411,773
         Other comprehensive
           income                   39,631     (49,255)     19,916      (85,754)
                                ----------- ----------- ----------- ------------
         Comprehensive income   $  262,125  $  871,933  $5,688,768  $ 6,326,019
                                ----------- ----------- ----------- ------------
</TABLE>

(10)     PRODUCT DEVELOPMENT AGREEMENT

         In June 1998, the Company entered an agreement with Sofamor Danek
         Group, Inc. ("Sofamor Danek") under which the Company agreed to develop
         and manufacture for Sofamor Danek, products and systems for use in Deep
         Brain Stimulation ("DBS"). DBS products provide electrical stimulation
         to certain areas of the brain and are intended to relieve the effects
         of various neurological disorders, such as Parkinson's Disease and
         Essential Tremor. Under terms of the agreement, the Company granted
         Sofamor Danek exclusive worldwide rights to use, market and sell the
         DBS products developed and manufactured by ANS. The Company received a
         cash payment of $4 million upon execution of the agreement that was

                                      -12-
<PAGE>

         being recognized into income as revenue based upon the estimated
         percentage of completion of the development project. During the year
         ended December 31, 1998, the Company recognized $3.1 million into
         income as revenue. Due to the termination of the agreement discussed
         below, the remaining $900,000 was recognized into income as revenue
         during the first quarter of 1999 and is included in the Statement of
         Operations for the six month period ended June 30, 1999. The agreement
         also called for ANS to receive four additional payments of $2 million
         each, to be recognized into income upon the satisfactory completion of
         certain domestic and international regulatory milestones over the next
         several years.

         In December 1998, the Company and Sofamor Danek agreed to terminate the
         June 1998 DBS agreement due to the impending merger of Sofamor Danek
         and Medtronic, the Company's sole competitor in the DBS market. Under
         the termination agreement, Sofamor Danek agreed to accelerate the $8
         million in payments due the Company and the Company agreed to release
         Sofamor Danek from further contractual obligations. The $8 million
         payment was made in January 1999 and recognized into income as revenue
         during the first quarter of 1999 and is included in the Statement of
         Operations for the six month period ended June 30, 1999.

                                      -13-
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Consolidated Financial
Statements of the Company and the related Notes.

OVERVIEW

On January 30, 1998, we sold the assets of our CVS Operations, including our
MPS(R) myocardial protection system product line, to Atrion Corporation
("Atrion"). See Note 8 - "Sale of CVS Operations/ Discontinued Operations" of
the Notes to Condensed Consolidated Financial Statements. We received
approximately $23 million in cash from the sale. We also granted Atrion a
nine-month option to acquire our principal office and manufacturing facility in
Allen, Texas for $6.5 million. Atrion exercised the option to acquire the
facility during October 1998 and the transaction closed on February 1, 1999. We
repaid the outstanding mortgage debt on the facility at closing and received net
proceeds of $2.7 million after paying expenses related to the transaction. No
material gain or loss was realized on the sale of the facility. Until May 1999,
we leased space, furniture and equipment from Atrion at the monthly rate of
$48,125 and paid Atrion fifty percent of certain operating expenses. During May
1999 we moved our operations to a 40,000 square foot leased facility in Plano,
Texas, a northeast suburb of Dallas. The expense of moving and transitioning
into the new facility was immaterial.

We have accounted for the CVS Operations as discontinued operations in the
Consolidated Financial Statements for the six months ended June 30, 1998.

In June 1998, we completed an agreement with Sofamor Danek Group, Inc. ("Sofamor
Danek") under which we would develop and manufacture for Sofamor Danek, products
and systems for use in Deep Brain Stimulation ("DBS"). See Note 10 - "Product
Development Agreement" of the Notes to Condensed Consolidated Financial
Statements. We received a payment of $4 million upon execution of the agreement
that was recognized into income as revenue based upon the estimated completion
of the development project. During the year ended December 31, 1998, we
recognized $3.1 million into income as revenue. The remaining $900,000 was
recognized into income as revenue during the first quarter of 1999 and is
included in the Statements of Operations for the six month period ended June 30,
1999. In January 1999, the agreement with Sofamor Danek was terminated in
conjunction with the merger of Sofamor Danek and Medtronic, Inc. In connection
with the termination, we received an additional payment of $8 million from
Sofamor Danek, which was recognized into income as revenue during the first
quarter of 1999 and is included in the Statements of Operations for the six
month period ended June 30, 1999.

Our strategy is to strengthen and broaden our neuromodulation technology
platforms and to ally ourselves with strategic partners who can help us leverage
ANS' core technology into other significant market segments beyond our focus on
the pain management market. We are continuing to evaluate potential strategic
partners for DBS to replace the terminated relationship with Sofamor Danek.

                                      -14-
<PAGE>

RESULTS OF OPERATIONS

Comparison of the Three Months and Six Months Ended June 30, 1999 and 1998
--------------------------------------------------------------------------

We reported net earnings of $222,000 or $.03 per diluted share for the three
months ended June 30, 1999, compared to $921,000 or $.10 per diluted share in
the same 1998 period. Net earnings for the three-month period in 1998 include
$600,000 of revenue recorded in connection with our former agreement with
Sofamor Danek. For the six months ended June 30, 1999, we reported net earnings
of $5.67 million or $.71 per diluted share compared to $6.41 million or $.72 per
diluted share in the same 1998 period. The 1998 six month results included net
earnings of $4.99 million from the net gain on the sale of the discontinued CVS
Operations, or $.56 per diluted share. Net earnings for the six-month period in
1999 include $8.9 million of revenue recorded in connection with our former
agreement with Sofamor Danek.

Total net revenue from continuing ANS operations was $5.17 million for the three
months ended June 30, 1999 compared to $5.33 million in the comparable 1998
period. The 1998 period includes $600,000 of net revenue associated with our
former development agreement for DBS products with Sofamor Danek. Net revenue
from ANS product sales increased 9.3 percent to $5.17 million during the
three-month period ended June 30, 1999 compared to $4.73 million in the same
1998 period. This increase in net revenue from product sales was the result of
higher unit sales volume of ANS' radio-frequency stimulation systems to treat
complex pain patterns, primarily in the United States. In early June 1999, we
launched in the United States our enhanced radio-frequency stimulation systems,
the Renew(TM) System. We expect to receive CE Mark approval in Europe for the
Renew System during the fourth quarter of 1999 and plan to begin selling the
Renew System in Europe in the first quarter of 2000. For the six months ended
June 30, 1999, total net revenue from continuing ANS operations was $18.66
million compared to $9.75 million in the comparable 1998 period. The 1999 period
includes $8.9 million of net revenue associated with our former development
agreement with Sofamor Danek. Net revenue from ANS product sales increased 6.7
percent to $9.76 million during the 1999 period compared to $9.15 million in the
comparable 1998 period. This increase in net revenue from product sales was the
result of higher unit sales volume of ANS' radio-frequency stimulation systems
used to treat complex pain patterns, primarily in the United States. Our
strategy is to expand our product offerings to all segments of the
neuromodulation market and therefore we have increased our investment in
research and development. These development projects include an implantable
pulse generator for spinal cord stimulation, an implantable pulse generator for
deep brain stimulation and a low-cost constant rate intrathecal drug pump.
Through a strategic alliance with Tricumed, a German corporation, we are also
developing a programmable rate intrathecal drug pump that we intend to market in
the United States and internationally after receiving the appropriate regulatory
approvals.

Gross profit from product sales increased to $3.58 million during the three
months ended June 30, 1999 compared to $3.49 million in 1998 due to the increase
in net revenue from product sales discussed above. Gross profit margin from
product sales however, decreased to 69.3 percent in 1999 compared to 73.8
percent in 1998 due, for the most part, to an increase in manufacturing overhead
expense in quality assurance and manufacturing engineering, production downtime
associated with our move to our new leased facility in May 1999 and
inefficiencies in the start-up manufacturing of the Renew System. For the six
months ended June 30, 1999, gross profit from product sales increased to $6.82
million compared to $6.66 million in the comparable 1998 six-month period. Gross
profit margin from product sales decreased to 69.8 percent during the six-month
period in 1999 compared to 72.7 percent in the same period in 1998. Again, this

                                      -15-
<PAGE>

decrease in gross profit margin during the 1999 six-month period compared to the
same period in 1998 was due, for the most part, to an increase in manufacturing
overhead expense in quality assurance and manufacturing engineering, production
downtime associated with our move to our new leased facility in May 1999 and
inefficiencies in the start-up manufacturing of the Renew System.

Total operating expenses (the aggregate of research and development, marketing,
amortization of intangibles and administrative expenses) increased to $3.42
million for the three months ended June 30, 1999 compared to $2.74 million in
the same 1998 period. For the six months ended June 30, 1999, total operating
expenses increased to $6.78 million compared to $5.13 million in the same 1998
period. This increase during both periods in 1999 compared to 1998 reflects our
accelerated investments in research and development and marketing.

Research and development expense increased to $904,000 during the three months
ended June 30, 1999 from $607,000 during the same period in 1998, reflecting our
stepped up commitment to develop products that can expand our presence into all
market segments of the neuromodulation market. For the six months ended June 30,
1999, research and development expense increased to $1.79 million from $1.07
million during the same period in 1998. This increase during both 1999 periods
compared to the same periods in 1998 was the result of higher salary and benefit
expense from staffing additions and higher expenditures for consulting and test
materials. During 1999 we have continued to direct these expenditures toward
development of our enhanced radio-frequency stimulation systems (which we
introduced to the U.S. market in the second quarter of 1999), a low-cost
constant rate intrathecal drug pump, an implantable pulse generator stimulation
system for spinal cord stimulation and an implantable pulse generator system for
deep brain stimulation. We expect to complete the development of our implantable
pulse generator stimulation system for spinal cord stimulation during the fourth
quarter of 1999, approximately three months later than anticipated, and upon
completion will seek FDA approval to initiate clinical trials in the United
States. We will also seek the CE mark (European) approval for the implantable
pulse generator stimulation system for spinal cord stimulation with market
introduction expected internationally in the first half of 2000. We also expect
to complete development of our low-cost constant rate intrathecal drug pump
during the fourth quarter of 1999, approximately three months later than
anticipated, and expect to seek approval from the FDA to initiate clinical
trials at that time. During February 1999, we received conditional approval from
the FDA to initiate a pilot clinical study to evaluate the use of our advanced
radio-frequency stimulation systems to treat interstitial cystitis, an extremely
painful bladder disease that affects an estimated 500,000 people worldwide. We
began the pilot study in May 1999. If the pilot study is successful, we would
seek approval from the FDA to initiate further clinical studies in the process
to receive clearance from the FDA to begin marketing in the United States. We
also are continuing to evaluate strategic partners to replace our former
relationship with Sofamor Danek for deep brain stimulation.

Marketing expense increased from $1.12 million during the three months ended
June 30, 1998 to $1.54 million during the same period in 1999. For the six
months ended June 30, 1999, marketing expense increased to $3.04 million from
$2.24 million during the same period in 1998. This increase in expense during
both periods of 1999 compared to 1998 was attributable to higher commissions
from increased product sales and a change from distributors to commissioned
sales agents in certain United States territories, higher salary and benefit
expense from staffing additions, higher expenses for recruiting and training new
implanters and expenses related to the launch of the Renew System.

General and administrative expense decreased from $720,000 during the three
months ended June 30, 1998 to $681,000 during the same period in 1999. This

                                      -16-
<PAGE>

decrease in expense during 1999 compared to 1998 was principally the result of
lower legal expense due to the 1998 period including legal expenses associated
with the June 1998 development agreement with Sofamor Danek. For the six months
ended June 30, 1999, general and administrative expense increased to $1.36
million from $1.24 million during the same 1998 period. This increase in expense
during the six-month period in 1999 compared to 1998 was principally the result
of higher salary and benefit expense from staffing additions, including a new
Chief Executive Officer hired in April 1998 and higher investor and public
relations expense.

Amortization of ANS intangibles increased from $292,000 during the three months
ended June 30, 1998 to $298,000 during the same period in 1999, mostly due to
amortization expense for licensed patents related to sacral nerve stimulation,
which we licensed in August 1998. Amortization of ANS intangibles increased from
$583,000 during the six months ended June 30, 1998 to $594,000 during the same
period in 1999, again mostly due to amortization expense for the licensed
patents related to sacral nerve stimulation.

Other income increased to $214,000 for the three months ended June 30, 1999 from
$164,000 during the same period in 1998 due to no interest expense during the
1999 period due to the repayment of our mortgage debt on February 1, 1999. For
the six months ended June 30, 1999, other income increased to $396,000 from
$240,000 during the same period a year ago. This increase in other income during
the six-month period in 1999 compared to 1998 was the result of two factors.
First, interest expense decreased by $131,000 during 1999 compared to 1998 due
to the repayment of our mortgage debt on February 1, 1999. Second, interest
income increased by $26,000 in 1999 compared to 1998 due to higher funds
available for investment.

Income tax expense from continuing operations decreased to $153,000 for the
three months ended June 30, 1999 from $599,000 during the same period a year ago
due to lower earnings from ANS operations. This represents effective tax rates
of 40.7 percent in 1999 and 39.4 percent in 1998. For the six months ended June
30, 1999, income tax expense from continuing operations increased to $3.66
million from $945,000 during the same period in 1998 due to higher earnings from
ANS operations. This represents effective tax rates of 39.3 percent in 1999 and
39.9 percent in 1998. Our expense for amortization of costs in excess of net
assets acquired (goodwill) is not deductible for tax purposes, and, when
combined with a provision for state taxes results in the higher effective tax
rate during both periods in 1999 and 1998 compared to the U.S. statutory rate
for corporations of 34 percent.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1999 our working capital increased from $16.43 million at year-end
1998 to $17.83 million. The ratio of current assets to current liabilities was
4.97:1 at June 30, 1999, compared to 2.68:1 at December 31, 1998. Cash, cash
equivalents and marketable securities totaled $13.9 million at June 30, 1999
compared to $12.3 million at December 31, 1998.

In January 1999, we received the $8 million payment in connection with the
termination of the DBS agreement with Sofamor Danek.

During February 1999, we completed the sale of our corporate facility to Atrion
for $6.5 million. After we repaid the mortgage debt on the facility and paid
expenses related to the transaction, we realized net proceeds of $2.7 million.

During the second quarter of 1999, we repurchased an additional 241,375 shares
of our common stock under our share repurchase program at a cost of $1,673,672,
or $6.93 per share. These repurchases completed our authorized stock repurchase
program of 1,500,000 shares.

                                      -17-
<PAGE>

In total, the cost of repurchasing the 1,500,000 shares was $11,085,000, or
$7.39 per share.

We spent $3.57 million on capital expenditures during the first six months of
1999. Of the $3.57 million in expenditures, approximately $2.3 million was for
new furniture and equipment, computer systems, telephone system, manufacturing
clean room and leasehold improvements for our new leased facility. The remaining
expenditures primarily related to manufacturing tooling and equipment for the
Renew System and other products we are developing. We anticipate capital
expenditures for the remainder of 1999 to approximate $500,000, primarily for
additional tooling and equipment for the new products we are currently
developing.

We believe our current cash, cash equivalents and marketable securities and cash
generated from our operations will be sufficient to fund all of our operating
and capital expenditure needs for the foreseeable future.

CASH FLOWS

Net cash provided by continuing operations was $3.55 million for the six months
ended June 30, 1999 compared to $6.94 million during the comparable period in
1998, a decrease of $3.39 million primarily due to changes in components of
working capital. During 1999 we used cash to increase our investment in
inventories by $1.04 million in preparation for our move to our new facility and
for inventories for our Renew System. In addition, we used cash during 1999 to
reduce our level of payables by $825,000 relating to income taxes payable,
accounts payable and accrued expenses. During the 1998 period, however, we
increased our level of payables for income taxes, accounts payable and accrued
expenses by $2.58 million (which provided cash) principally due to $2.22 of
income taxes payable not required to be paid until March 1999. Net cash provided
by discontinued operations was $59,000 for the six months ended June 30, 1998,
which included only one month of results until the sale in January 1998.

Net cash provided by investing activities was $2.79 million for the three months
ended June 30, 1999 compared to $21.50 million during the comparable period in
1998. The 1998 period reflects net proceeds from the sale of our discontinued
operations of $21.75 million and the 1999 period reflects $6.35 million of net
proceeds from the sale of our facility in February 1999. During 1999, we spent
$3.57 million for additions to property, plant and equipment compared to
$697,000 during the same period in 1998, an increase of $2.87 million. Of this
increase in capital expenditures, approximately $2.3 million was for a new
computer system, office furniture and equipment, telephone system, manufacturing
clean room and leasehold improvements for our relocation to our new leased
facility in May 1999. The remainder of the increase was related to additional
manufacturing tooling and equipment for the Renew System products launched
during June 1999.

Net cash used in financing activities was $4.75 million for the three months
ended June 30, 1999 compared to $11.05 million during the comparable period in
1998. During 1999, we received cash of $556,000 from the exercise of stock
options while we used $3.63 million to repay our mortgage debt when we sold our
facility to Atrion in February 1999 and $1.67 million to repurchase 241,375
shares of our common stock. During the six months ended June 30, 1998, we
received cash of $461,000 from the exercise of stock options while we used $8.17
million to repay borrowings under short-term and long-term notes and $3.34
million to repurchase 373,600 shares of our common stock.

                                      -18-
<PAGE>

YEAR 2000

The Year 2000 issue results from computer programs being written using two
digits rather than four to define the applicable year. Computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the Year 1900 rather than the Year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, manufacture products or engage in similar normal business
activities.

We began our assessment of our computer software, hardware, manufacturing
equipment and other non-critical systems in early 1998 and are substantially
complete. The assessment determined that most of our computer hardware and
software and manufacturing equipment were Year 2000 compliant. Certain personal
computers, non-critical internal software programs and manufacturing equipment
will need modifications or replacement and we expect the costs associated with
the replacement and modifications to approximate $125,000.To date, we have spent
approximately $75,000 and anticipate the remaining $50,000 will be spent during
the third quarter of 1999. We estimate the costs incurred in the assessment of
our systems since early 1998 to be under $100,000, which have been expensed in
our current operations.

When we sold our facility to Atrion on February 1, 1999, Atrion also acquired
our mainframe computer and software applications. In moving to our new leased
facility in May 1999, we purchased new computer hardware and software that is
similar to our former systems. We also purchased a new telephone system. We
received assurances from the providers of the new systems that they are Year
2000 compliant. We spend approximately $500,000 for these new systems (in
addition to the $75,000 for modifications and replacements discussed above),
which is included in the $2.3 million we spent for the relocation. We funded
these costs from our current cash reserves and most of the costs were
capitalized.

Upon relocating to our new facility and installation of our new computer
hardware and software systems, we began testing the systems to ensure compliance
with Year 2000. We expect to complete the testing by the end of the third
quarter of 1999. We also plan to complete the modifications necessary to
non-critical software applications and manufacturing equipment by the end of the
third quarter of 1999.

We have contacted the third-party vendors and suppliers of products and services
that we consider critical to our operations to ascertain their level of Year
2000 readiness. We have no means of ensuring that all vendors and suppliers will
be Year 2000 compliant. The inability of these parties to complete their Year
2000 resolution process could materially impact us. As a result, we will
consider new business relationships with alternate providers of products and
services as necessary and to the extent alternatives are available.

Our goal is to ensure all critical systems and processes under our control
remain operational. However, because certain systems and processes may be linked
with systems outside our control, we cannot guarantee you that all
implementations will be successful. As a result, we are developing a contingency
plan to respond to any failures that may occur. We do not expect the costs of
our Year 2000 project to have a material adverse effect on our financial
position or results of operations. However, any unanticipated failures by
critical third party suppliers and vendors, as well as our own failure to
execute our Year 2000 plan, could have a material adverse impact on the Company.

                                      -19-
<PAGE>

FORWARD-LOOKING STATEMENTS

The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995: The matters discussed in this Quarterly Report on
Form 10-Q contain statements that constitute forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
The words "expect", "estimate", "anticipate", "predict", "believe", "plan",
"will", "should", "intend", "potential", "new market applications" and similar
expressions and variations thereof are intended to identify forward-looking
statements. Such statements appear in a number of places in this Quarterly
Report on Form 10-Q and include statements regarding our intent, belief or
current expectations with respect to, among other things: (i) trends affecting
our financial condition or results of operations; (ii) our financing plans; and
(iii) our business growth strategies. We caution our readers that any
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual results may differ materially from those
projected in the forward-looking statements as a result of various factors.
These risks and uncertainties include the following: completion of research and
development projects in an efficient and timely manner; obtaining regulatory
approvals on a timely and cost efficient basis to permit the introduction of new
products; entering into suitable strategic alliances (for example, with respect
to DBS) that enable us to leverage our technology into other markets; the
satisfactory completion of clinical trials and/or market tests prior to the
introduction of new products; the adequacy, acceptability and timeliness of
component supply; the approval of new products by reimbursement agencies like
insurance companies, HMOs, Medicare and Medicaid; the efficacy of our products
for new applications; the uncertainty that we will be able to negotiate and
consummate a new deep brain stimulation partnership agreement; timely completion
of our Year 2000 readiness efforts on budget; and other risks detailed from time
to time in our SEC public filings. Consequently, if our assumptions prove to be
incorrect or such risks or uncertainties materialize, anticipated results could
differ materially from those forecasted in forward-looking statements.

CURRENCY FLUCTUATIONS

Substantially all of our international sales are denominated in U.S. dollars.
Fluctuations in currency exchange rates in other countries could reduce the
demand for our products by increasing the price of our products in the currency
of the countries in which the products are sold, although we do not believe
currency fluctuations have had a material effect on the Company's results of
operations to date.

                                      -20-
<PAGE>

                                     PART II

                                OTHER INFORMATION

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

The Company held its 1999 Annual Meeting of Shareholders ("Annual Meeting") on
June 23, 1999 at the Company's corporate office in Plano, Texas. At the Annual
Meeting, the following matter was voted on and approved:
<TABLE>
<CAPTION>
                                                                      Votes
                                                                     Abstained
                                     Votes For      Votes Against    And Broker
         Proposal                Nominee/Proposal  Nominee/Proposal  Non-Votes
         --------                ----------------  ----------------  -----------
<S>                              <C>               <C>               <C>
1)  Election of six
     directors for a
     one-year term

     Christopher G. Chavez          6,674,512             5,874          --
     Robert C. Eberhart, Ph.D.      6,594,115            86,271          --
     Joseph E. Laptewicz            6,674,615             5,771          --
     Hugh M. Morrison               6,674,615             5,771          --
     Richard D. Nikolaev            6,674,615             5,771          --
     Michael J. Torma, M.D.         6,594,115            86,271          --
</TABLE>

There were present at the Annual Meeting in person or by proxy, shareholders
holding 6,680,386 shares, or approximately  88.7% of the eligible voting shares.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibit 27.1- Financial Data Schedule

         (b)      No reports on Form 8-K have been filed during the quarter
                  ended June 30, 1999.


                                      -21-
<PAGE>

                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




                                          ADVANCED NEUROMODULATION SYSTEMS, INC.



Date:  August 12, 1999                    By: /s/ F. Robert Merrill III
                                              --------------------------------
                                          F. Robert Merrill III
                                          Executive Vice President, Finance
                                          Chief Financial Officer and Treasurer


                                      -22-
<PAGE>
















                                  EXHIBIT 27.1


                                      -23-

<PAGE>