# SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

---

# FORM 10-Q

---

# [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30,
2000

OR

# [  ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

---

Commission file number 0-10521

# ADVANCED NEUROMODULATION SYSTEMS, INC.

Incorporated pursuant to the Laws of the State of
Texas

---

Internal Revenue Service  Employer
Identification No. 75-1646002

6501 Windcrest Drive, Plano, Texas 75024

(972) 309-8000

---

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 [  ]

The total number of shares of the registrants Common
Stock, $.05 par value, outstanding on October 27, 2000 was 7,517,009

---

# Advanced Neuromodulation Systems, Inc. and
Subsidiaries

# Table of Contents

|Part I.    Financial
Information | 2
|-------------------------------- | -
|                                 |  

| | Item 1.    Financial
Statements
| | -------------------------------
| |                                

| | Condensed Consolidated Balance Sheets
    September 30, 2000 and December 31, 1999                                                                  | 3-4 
| | --------------------------------------------------------------------------------------------------------------------------------------------------- | ----
| |                                                                                                                                                     |     
| | Condensed Consolidated Statements of Operations    
For the Three Months and Nine Months Ended     September
30, 2000 and 1999                      | 5   
| |                                                                                                                                                     |     
| | Condensed Consolidated Statements of Cash Flows    
For the Nine Months Ended September 30, 2000 and 1999                                           | 6   
| |                                                                                                                                                     |     
| | Condensed Consolidated Statements of Stockholders' Equity  
  For the Year Ended December 31, 1999 and the   
 Nine Months Ended September 30, 2000 | 7   
| |                                                                                                                                                     |     
| | Notes to Condensed Consolidated     Financial
Statements                                                                                            | 8-11
| |                                                                                                                                                     |     

| | Item 2.    Management's Discussion
and Analysis of Financial Condition      
            and
Results of Operations | 12-17
| | ------------------------------------------------------------------------------------------------------------------ | -----
| |                                                                                                                   

| | Item 3.    Quantitative and
Qualitative Disclosures About Market Risk | 17
| | --------------------------------------------------------------------- | --
| |                                                                      

|Part II.   Other
Information | 18
|---------------------------- | --
|                             |   

| | Item 6.    Exhibits and Reports on Form 8-K | 18
| | ------------------------------------------- | --
| |                                            

|Signatures | 19
|---------- | --

Page 1

---

# PART I

# FINANCIAL INFORMATION

Page 2

---

Advanced Neuromodulation
Systems, Inc. and SubsidiariesCondensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999

`September 30,
                                                          2000      December 31,
Assets                                                (Unaudited)       1999
------                                               ------------- -------------
Current assets:
   Cash and cash equivalents                         $  6,307,629  $  8,353,658
   Marketable securities                                  602,560       398,208
   Certificates of deposit with maturities
     over 90 days at purchase                           1,425,000           ---
   Receivables:
    Trade accounts, less allowance for doubtful
      accounts of $138,698 in 2000
      and $140,824 in 1999                              3,769,684     3,785,719
   Note receivable-current portion                        100,000           ---
   Interest and other                                      72,875        70,965
                                                     ------------- -------------
      Total receivables                                 3,942,559     3,856,684
                                                     ------------- -------------
   Inventories:
    Raw materials                                       2,084,529     3,014,908
    Work-in-process                                       789,056       626,402
    Finished goods                                      2,878,218     2,357,907
                                                     ------------- -------------
      Total inventories                                 5,751,803     5,999,217
                                                     ------------- -------------

   Deferred income taxes                                  584,606       654,086
   Prepaid expenses and other current assets            1,551,959     1,107,380
                                                     ------------- -------------
      Total current assets                             20,166,116    20,369,233
                                                     ------------- -------------
Equipment and fixtures:
   Furniture and fixtures                               3,129,479     3,240,322
   Machinery and equipment                              3,950,573     3,599,338
   Leasehold improvements                                 716,080       711,271
                                                     ------------- -------------
                                                        7,796,132     7,550,931
   Less accumulated depreciation and amortization       2,516,416     1,862,361
                                                     ------------- -------------
      Net property, plant and equipment                 5,279,716     5,688,570
                                                     ------------- -------------

Note receivable-excluding current portion               1,400,000           ---
Cost in excess of net assets acquired, net of
   accumulated amortization of $2,708,673 in 2000
   and $2,291,220 in 1999                               8,102,991     8,520,444
Patents, net of accumulated amortization of
   $622,579 in 2000 and $472,708 in 1999                4,118,510     4,071,196
Purchased technology from acquisitions, net of
   accumulated amortization of $1,466,667 in 2000
   and $1,266,667 in 1999                               2,533,333     2,733,333
Tradenames, net of accumulated amortization of
   $687,500 in 2000 and $593,750 in 1999                1,812,500     1,906,250
Other assets, net of accumulated amortization of
   $199,560 in 2000 and $137,985 in 1999                  300,006       265,748
                                                     ------------- -------------
                                                     $ 43,713,172  $ 43,554,774
                                                     ============= =============`

Page 3

---

Advanced Neuromodulation Systems, Inc. and
SubsidiariesCondensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999

`September 30,
                                                          2000     December 31,
Liabilities and Stockholders' Equity                  (Unaudited)      1999
------------------------------------                 ------------- -------------
Current liabilities:
   Accounts payable                                  $    731,687  $  1,765,377
   Accrued salary and employee benefit costs              597,487       793,275
   Accrued tax abatement liability                        969,204       969,204
   Income taxes payable                                   259,833       511,848
   Other accrued expenses                                 223,349       151,372
                                                     ------------- -------------
      Total current liabilities                         2,781,560     4,191,076
                                                     ------------- -------------

Deferred income taxes                                   2,225,527     2,325,403

Commitments and contingencies

Stockholders' equity:
   Common stock of $.05 par value. Authorized
      25,000,000 shares; issued 8,708,367 shares
      in 2000 and 1999                                    435,418       435,418
   Additional capital                                  40,134,323    40,423,457
   Retained earnings                                    6,371,692     5,694,422
   Cost of common shares in treasury; 1,196,858
      shares in 2000 and 1,316,558 in 1999             (8,128,670)   (9,273,452)
   Accumulated other comprehensive income (loss),
      net of tax benefit of $65,924 in 2000
      and $124,437 in 1999                               (106,678)     (241,550)
                                                     ------------- -------------
      Total stockholders' equity                       38,706,085    37,038,295


                                                     ------------- -------------
                                                     $ 43,713,172  $ 43,554,774
                                                     ============= =============`

See accompanying notes to condensed consolidated financial
statements.

Page 4

---

Advanced Neuromodulation Systems, Inc. and
 SubsidiariesCondensed Consolidated Statements of Operations (Unaudited)
For the Three Months and Nine Months Ended September 30, 2000 and 1999

`Three Months Ended       Nine Months Ended
                                     September 30,            September 30,
                                ----------------------- ------------------------
                                    2000        1999        2000         1999
                                ----------- ----------- ----------- ------------

Net revenue-product sales       $5,762,546  $5,488,479  $17,069,102 $15,253,331
Net revenue-contract research
  and development                      ---         ---          ---   8,900,000
                                ----------- ----------- ----------- ------------
     Total net revenue           5,762,546   5,488,479   17,069,102  24,153,331

Costs and expenses:
  Cost of product sales          1,884,465   2,074,531    5,593,106   5,020,346
  Research and development         856,183     913,001    2,625,740   2,703,141
  Marketing                      1,738,141   1,588,804    5,063,777   4,630,536
  Amortization of intangibles      308,368     305,751      922,648     899,801
  General and administrative       697,837     677,243    2,083,404   2,033,322
                                ----------- ----------- ----------- ------------
                                 5,484,994   5,559,330   16,288,675  15,287,146
                                ----------- ----------- ----------- ------------
     Earnings (loss) from
        operations                 277,552     (70,851)     780,427   8,866,185
                                ----------- ----------- ----------- ------------

Other income (expenses):
  Interest expense                     ---         ---          ---     (44,861)
  Interest and other income        148,065     168,609     413,102      609,642
                                ----------- ----------- ----------- ------------
                                   148,065     168,609     413,102      564,781
                                ----------- ----------- ----------- ------------
     Earnings before income
       taxes                       425,617      97,758   1,193,529    9,430,966
Income taxes (benefit)             186,260    (118,377)    516,259    3,545,979
                                ----------- ----------- ----------- ------------
     Net earnings               $  239,357  $  216,135  $  677,270  $ 5,884,987
                                =========== =========== =========== ============


Net earnings per share:         =========== =========== =========== ============
     Basic                      $      .03  $      .03  $      .09  $       .77
                                =========== =========== =========== ============
     Diluted                    $      .03  $      .03  $      .08  $       .73
                                =========== =========== =========== ============`

See accompanying notes to condensed consolidated financial
statements.

Page 5

---

Advanced Neuromodulation
Systems, Inc. and SubsidiariesCondensed Consolidated Statements of Cash
Flows (Unaudited)For the Nine Months Ended September 30, 2000 and 1999

`Nine Months Ended
                                                             September 30,
                                                     ---------------------------
                                                          2000         1999
                                                     ------------- -------------

Cash flows from operating activities:
   Net earnings                                      $    677,270  $  5,884,987
                                                     ------------- -------------
   Adjustments to reconcile net earnings to net
     cash provided by operating activities
        Depreciation and amortization                   1,820,981     1,409,006
        Deferred income taxes                             (99,876)      405,745
        Changes in assets and liabilities:
          Receivables                                      14,125      (501,941)
          Inventories                                     247,414    (2,150,483)
          Prepaid expenses and other assets              (444,577)   (1,133,585)
          Deferred revenue                                    ---      (900,000)
          Income taxes payable                             32,830      (859,015)
          Accounts payable                             (1,033,690)    1,030,839
          Accrued expenses                               (123,811)     (413,300)
                                                     ------------- -------------
            Total adjustments                             413,396    (3,112,734)
                                                     ------------- -------------
            Net cash provided by operating
              activities                                1,090,666     2,772,253
                                                     ------------- -------------
Cash flows from investing activities:
  Purchase of certificates of deposit with
    maturities over 90 days                            (1,425,000)          ---
  Additions to equipment, fixtures, and
    patent licenses                                      (782,497)   (3,858,408)
  Net proceeds from sale of discontinued operations
    in 1999                                                   ---     6,354,965
                                                     ------------- -------------
            Net cash provided by (used in)
              investing activities                     (2,207,497)    2,496,557
                                                     ------------- -------------

Cash flows from financing activities:
  Exercise of stock options                               570,802       533,435
  Loan to third party                                  (1,500,000)          ---
  Purchase of treasury stock                                  ---    (1,673,762)
  Payment of short-term obligations                           ---    (3,633,475)
                                                     ------------- -------------
            Net cash provided by (used in)
              financing activities                       (929,198)   (4,773,802)
                                                     ------------- -------------
  Net increase (decrease) in cash and
    cash equivalents                                   (2,046,029)      495,008

Cash and cash equivalents at beginning of year          8,353,658    11,697,209
                                                     ------------- -------------
Cash and cash equivalents at September 30            $  6,307,629  $ 12,192,217
                                                     ============= =============

Supplemental cash flow information is presented
  below:

Income taxes paid                                    $    583,304  $  3,999,250
                                                     ============= =============

Interest paid                                        $        ---  $     44,861
                                                     ============= =============`

See accompanying notes to condensed consolidated financial
statements.

Page 6

---

# Advanced Neuromodulation Systems,
Inc. and SubsidiariesCondensed Consolidated Statements of
Stockholders Equity

`Other
                                                           Compre-                  Total
                                              Retained     hensive                  Stock-
                 Common Stock    Additional   Earnings     Income     Treasury    holders
               Shares    Amount    Capital    (Deficit)    (Loss)       Stock      Equity
              --------- -------- ----------- ----------- ---------- ------------ -----------
Balance at
December 31,  8,708,367 $435,418 $41,156,582 $ (308,859) $(130,760) $(7,848,634) $33,303,747
1998

 Net earnings       ---      ---         ---  6,003,281        ---          ---    6,003,281
 Adjustment
  to unrealized
  losses on
  marketable
  securities        ---      ---         ---        ---   (110,790)         ---     (110,790)
 Comprehensive                                                                   -----------
  Income                                                                           5,892,491
 Issuance                                                                        -----------
  of 162,068
  shares from
  treasury
  for stock
  option
  exercises         ---      ---    (954,221)       ---        ---    1,527,493      573,272
 Tax benefit
  from employee
  stock option
  exercise          ---      ---     221,096        ---        ---          ---      221,096
 Purchase
  of 404,875
  treasury
  shares,
  at cost           ---      ---         ---         ---       ---   (2,952,311)  (2,952,311)
              --------- -------- ----------- ----------- ---------- ------------ -----------
Balance at
December 31,  8,708,367  435,418  40,423,457  5,694,422   (241,550)  (9,273,452)  37,038,295
1999

 Net earnings       ---      ---         ---    677,270        ---           ---     677,270
 Adjustment
  to unrealized
  losses on
  marketable
  securities        ---      ---         ---        ---    134,872           ---     134,872
 Comprehensive                                                                   -----------
  Income                                                                             812,142
 Tax benefit                                                                     -----------
  from employee
  stock option
  exercise          ---      ---     284,846        ---        ---           ---     284,846
 Issuance
  of 119,700
  shares from
  treasury
  for stock
  option
  exercises         ---      ---    (573,980)       ---        ---    1,144,782      570,802
              --------- -------- ----------- ----------- ---------- ------------ -----------
Balance at
September 30,
2000          8,708,367 $435,418 $40,134,323 $6,371,692  $(106,678) $(8,128,670) $38,706,085
              ========= ======== =========== =========== ========== ============ ===========`

See accompanying notes to condensed consolidated financial
statements.

Page 7

---

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



## (1)   Business/New
Accounting Standards

| | 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 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.                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), Accounting
for Derivative Instruments and Hedging Activities. SFAS 133 requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. SFAS 133 is effective for fiscal
years beginning after June 15, 2000. The adoption of SFAS 133 is not expected to
have a material impact on the financial position or results of operations of the
Company.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB
101), Revenue Recognition in Financial Statements. SAB 101
summarizes certain SEC views in applying generally accepted accounting
principles to revenue recognition in financial statements. It is effective not
later than the fourth quarter of fiscal years beginning after December 15, 1999.
The adoption of SAB 101 is not expected to have a material effect on the
Companys results of operations or financial condition.                                                                                                                                                                                                             

## (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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 8

---

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



| | 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, 1999 Annual Report on Form 10-K. The results of
operations for the period ended September 30, 2000 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 September 30, 2000:
| | ----------------------------------------------------------------------------------

`Gross       Gross
                                            Unrealized  Unrealized    Estimated
                                   Cost        Gains       Losses    Fair Value
                                ----------- ----------- ----------- ------------
Investment grade preferred
  securities                    $  554,596  $   24,936  $   89,933  $   489,599
Real estate investment trusts/
  other                            209,599         ---      96,638      112,961
                                ----------- ----------- ----------  ------------
                                $  764,195  $   24,936  $  186,571  $   602,560
                                =========== =========== =========== ============`

| | Estimated fair value is determined by the closing prices of the respective
available-for-sale securities as reported on the New York and NASDAQ stock
exchange markets at each financial reporting period.                             
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                        
| | At September 30, 2000, no individual security represented more than 40 percent
of the total portfolio or 1 percent of total assets. The Company did not have
any investments in derivative financial instruments at September 30, 2000.

## (4)   Commitments and Contingencies

| | On February 1, 1999, the Company sold its principal office and manufacturing
facility in Allen, Texas and leased space in the facility until May 1999 at the
rate of $48,125 per month. 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 and the rental period under the lease commenced on June 1, 1999.
Under the terms of the lease agreement, the Company received 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 $2.4 million in 1999 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 September 30, 2000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Page 9

---

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



| | 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.

## (5)   Income Taxes

| | The Company recorded income tax expense during the three months ended September
30, 2000 of $186,260, an overall effective tax rate of 43.3 percent. For the
three months ended September 30, 1999, the Company recorded a tax benefit of
$118,377 due to lower actual state income taxes that had been provided for in
the first quarter of 1999 from the January 1999 termination payment from Sofamor
Danek. For the nine months ended September 30, 2000 and 1999, respectively, the
Company recorded income tax expense of $516,259 and $3,545,979, an overall
effective tax rate of 43.3 percent in the 2000 period and 37.6 percent in the
1999 period. 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 for both the three month and nine month periods ended September 30, 2000
and the nine months ended September 30, 1999 compared to the U.S. statutory
rate for corporations of 34 percent.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## (6)   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:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Three Months Ended      Nine Months Ended
                                      September 30,           September 30,
                                ----------------------- ------------------------
                                   2000        1999        2000         1999
                                ----------- ----------- ----------- ------------
         Weighted-average shares
           outstanding (basic
           shares)               7,469,362   7,541,379   7,466,601    7,630,354
         Effect of dilutive
           instruments
              Stock options        816,545     508,444     771,303      399,865
              Warrants              63,298      29,202      59,384       18,320
                                ----------- ----------- ----------- ------------
              Dilutive potential
                common shares      879,843     537,646     830,687      418,185
                                ----------- ----------- ----------- ------------
              Diluted shares     8,376,205   8,079,025   8,297,288    8,048,539
                                =========== =========== =========== ============`

| | For the three months and nine months ended September 30, 2000 and 1999, 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. For the three months ended September 30, 2000
and 1999, all outstanding 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 respective three month
periods.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 10

---

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



## (7)   
Comprehensive Income

| | Total comprehensive income for 1999 and for the nine months ended September 30,
2000 is reported in the Condensed Consolidated Statements of Stockholders
Equity. Comprehensive income for the three months and nine months ended
September 30, 2000 and 1999 is as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Three Months Ended      Nine Months Ended
                                     September 30,           September 30,
                                ----------------------- ------------------------
                                   2000        1999        2000         1999
                                ----------- ----------- ----------- ------------
         Net earnings           $  239,357  $  216,135  $  677,270  $ 5,884,987
         Other comprehensive
           income (loss)            21,286     (70,617)    134,872      (50,701)
                                ----------- ----------- ----------- ------------
         Comprehensive income   $  260,643  $  145,518  $  812,142  $ 5,834,286
                                ----------- ----------- ----------- ------------`

## (8)   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 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 January 1999
and is included in the Statements of Operations for the nine month period ended
September 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 payments due the
Company in the amount of $8 million and the Company agreed to release Sofamor
Danek from further contractual obligations. The Company received the $8 million
payment from Sofamor Danek on January 28, 1999, the day after the completion of
the merger. The $8 million payment was recognized into revenue during January
1999 and is included in the Statements of Operations for the nine month period
ended September 30, 1999.                                                                                                                                                                                                       

Page 11

---

# MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONAND 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

In June 1998, we entered into an agreement with Sofamor Danek
under which we would develop and manufacture for Sofamor Danek, products and
systems for use in Deep Brain Stimulation (DBS). See Note 8 - 
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 being 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. In December 1998,
Sofamor Danek and we agreed to terminate the agreement due to the impending
merger of Sofamor Danek and Medtronic, Inc., the Companys only competitor
in the DBS market. The termination was effective upon the merger of Sofamor
Danek and Medtronic in January 1999. Accordingly, the remaining $900,000 was
recognized into income as revenue during January 1999 and is included in this
report in our Statement of Operations for the nine month period ended September
30, 1999. In connection with the termination, we also received an additional
payment of $8 million from Sofamor Danek, which was recognized into income as
revenue during January 1999 and is included in this report in our Statement of
Operations for the nine month period ended September 30, 1999.

The former agreement with Sofamor Danek fits with our strategy
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
chronic pain segment of the neuromodulation market. We cannot assure you,
however, that we will be successful in negotiating and consummating research
and development agreements with other strategic partners.

In September 1999, the Neurological Devices Panel of the
Medical Devices Advisory Committee recommended that the FDA reclassify Totally
Implanted Spinal Cord Stimulators (IPGs) for treatment of pain of the trunk
and/or limbs from a Class III device to a Class II device. Class III devices
typically require a Pre-Market Approval (PMA), supplemented with clinical trials
to prove safety and effectiveness of the device, while Class II devices
typically require a Pre-Market Notification (510(k)) to demonstrate substantial
equivalence to an existing legally marketed device prior to receiving market
clearance by the FDA. The 510(k) process is typically faster and easier than the
PMA process, as a result.

We expected to receive a final reclassification decision from
the FDA in January 2000 but experienced a delay that we believe was related, in
part, to the FDAs workload and in part to opposition from our only
competitor in the IPG market, Medtronic, Inc. On September 6, 2000, the FDA
published a notice of reclassification recommendation in the Federal Register to
accept the September 1999 Panel recommendation to reclassify the IPG device and
established a 30day public comment period regarding the reclassification.
The FDA extended the comment period by 28 days until November 3, 2000 at
Medtronic's request. We remain optimistic that after the comment period
is completed, the FDA will publish the final reclassification rule in the
Federal Register. If and when the final reclassification rule is published, we
will file the 510(k) Pre-Market Notification for clearance to market the IPG in
the United States.

Page 12

---

## Results of Operations

Comparison of the Three Months and Nine Months Ended September 30, 2000
and 1999

We reported net earnings of $239,000 or $.03 per diluted share
for the three months ended September 30, 2000, compared to $216,000 or $.03 per
diluted share in the same 1999 period. For the nine months ended September 30,
2000, we reported net earnings of $677,000 or $.08 per diluted share compared to
$5.88 million or $.73 per diluted share in the same 1999 period. Net earnings in
the 1999 nine-month period benefited from $8.9 million of revenue recorded in
connection with our former agreement with Sofamor Danek.

Total net revenue was $5.76 million for the three months ended
September 30, 2000 compared to $5.49 million in the comparable 1999 period, an
increase of 5.0 percent. This increase in net revenue for the three-month period
in 2000 compared to 1999 was the result of higher unit sales volume of our
radio-frequency stimulation systems used to treat complex pain patterns,
primarily in the United States. Excluding the $8.9 million of net revenue
associated with the Sofamor Danek development agreement, net revenue from ANS
product sales increased 11.9 percent to $17.07 million during the nine months
ended September 30, 2000, from $15.25 million in the same 1999 period. This
increase in net revenue from product sales was again the result of higher unit
sales volume of ANS radio-frequency stimulation systems used to treat
complex pain patterns, primarily in the United States. For the nine months ended
September 30, 2000, total net revenue decreased to $17.07 million from $24.15
million for the same period in 1999, reflecting the Sofamor Danek revenue in
1999.

Because neuromodulation devices have gained acceptance as a
viable, efficacious and cost-effective treatment alternative for relieving
chronic intractable pain and improving neurological function, we are continuing
our efforts to expand our product offerings in the high growth market of
neuromodulation. Today, ANS is a market share and technology leader in the $42
million radio-frequency stimulation segment of the neuromodulation market. In
1999 and the first nine months of 2000, to position us to participate in the
other larger and more rapidly growing segments of the neuromodulation market,
we continued to aggressively invest in development projects including the IPG
for spinal cord stimulation, an implantable pulse generator for deep brain
stimulation and a constant-rate intrathecal drug pump.

Gross profit from product sales increased to $3.88 million
during the three months ended September 30, 2000 from $3.41 million in the
comparable 1999 period, due to the increase in net revenue from product sales
discussed above and an improvement in gross profit margin. Gross profit margin
from product sales for the three months ended September 30, 2000 compared to the
same period in 1999, increased to 67.3 percent in 2000 compared to 62.2 percent
in 1999 due to additional costs we incurred in the 1999 period from a product
transition and unexpected lower manufacturing yields. For the nine months ended
September 30, 2000, gross profit from product sales increased to $11.48 million
compared to $10.23 million in the comparable period in 1999 due to the increase
in net revenue from product sales discussed above. Gross profit margin from
product sales remained approximately the same at 67.2 percent during the
nine-month period in 2000 compared to 67.1 percent in the same 1999 period.

Page 13

---

Total operating expenses (the aggregate of research and
development, marketing, amortization of intangibles and administrative expenses)
increased to $3.60 million for the three months ended September 30, 2000 from
$3.48 million in the same period during 1999 primarily due to higher marketing
expense. As a percentage of net revenue from product sales, however, total
operating expenses during the three-month period in 2000 decreased to 62.5
percent from 63.5 percent in the same 1999 period. For the nine months ended
September 30, 2000, total operating expenses increased to $10.70 million from
$10.27 million in the same 1999 period again due for the most part to higher
marketing expense. As a percentage of net revenue from product sales, however,
these expenses during the nine-month period in 2000 decreased to 62.7 percent
from 67.3 percent in the same 1999 period.

Research and development expense decreased to $856,000 during
the three months ended September 30, 2000, or 14.9 percent of net revenue from
product sales during the period, from $913,000 during the same period in 1999,
or 16.6 percent of net revenue from product sales during the prior year period.
This decrease in the absolute dollar amount in 2000 compared to 1999 was the
result of lower consulting and test material expense. For the nine months ended
September 30, 2000, research and development expense decreased to $2.63 million,
or 15.4 percent of net revenue from product sales during the period, from $2.70
million, or 17.7 percent of net revenue from product sales during the prior year
nine-month period. This decrease in the absolute dollar amount in 2000 compared
to 1999 was the result of lower consulting expense. The expenditures for
research and development during the first nine months of 2000 were directed
toward development of our next generation radio-frequency stimulation systems,
a silastic spring constant rate intrathecal drug pump, an IPG stimulation system
for spinal cord stimulation and an IPG stimulation system for Deep Brain
Stimulation. We have completed the development of our IPG stimulation system for
spinal cord stimulation and are prepared to submit for 510(k) pre-market
approval if the FDA approves reclassification of the device. In addition, we
expect to receive CE mark approval for the IPG system by year-end 2000 and
expect to launch it in European markets in the first quarter of 2001. We also
expect to complete the development of our silastic spring constant rate
intrathecal drug pump and begin clinical trials in the United States when we
receive the necessary clearance from the FDA to initiate the clinical trials,
which we expect to receive by the end of 2000 or early in 2001. Similarly, we
expect to receive CE mark approval on the constant-rate intrathecal drug pump
by year-end 2000 and expect to launch it in European markets during the first
quarter of 2001.

Marketing expense increased to $1.74 million during the three
months ended September 30, 2000 from $1.59 million during the same period in
1999 and as a percentage of net revenue from product sales increased to 30.2
percent in the 2000 period from 29.0 percent during 1999. The increase in the
absolute dollar amount for the three months ended September 30, 2000 compared to
the same period in 1999 was primarily the result of higher commission expense
and convention expense. For the nine months ended September 30, 2000, marketing
expense increased to $5.06 million from $4.63 million in the same 1999
nine-month period, although as a percentage of net revenue from product sales
marketing expense decreased to 29.7 percent for the 2000 nine-month period from
30.4 percent in the same 1999 period. The increase in the absolute dollar amount
during the nine-month period in 2000 compared to the same period in 1999 was
attributable to higher commission expense, higher expense for education and
training of new implanters and higher convention expense.

General and administrative expense increased slightly from
$677,000 during the three months ended September 30, 1999 to $698,000 during the
same period in 2000, while as a percentage of net revenue from product sales,
this expense decreased to 12.1 percent in 2000 from 12.3 percent during 1999.
For the nine months ended September 30, 2000, general and administrative expense
increased slightly to $2.08 million from $2.03 million during the same period in
1999, while as a percentage of net revenue from product sales, this expense
decreased to 12.2 percent in 2000 from 13.3 percent during 1999. The increase
in the absolute dollar amounts during both periods in 2000 compared to the same
periods in 1999 was principally the result of higher investor relations and
property tax expense.

Page 14

---

Amortization of intangibles increased to $308,000 during the
three months ended September 30, 2000 from $306,000 in the same period in 1999
and for the nine months ended September 30, 2000 increased to $923,000 from
$900,000 in the 1999 nine-month period. This increase in both periods during
2000 compared to 1999 was due to expense from additional patents we have
licensed.

Other income decreased to $148,000 for the three months ended
September 30, 2000 from $169,000 during the same period in 1999 and for the nine
months ended September 30, 2000 decreased to $413,000 from $565,000 during the
same nine-month period a year ago. This decrease during both periods in 2000
compared to 1999 was primarily due to a reduction in interest income due to
lower funds available for investment.

Income tax expense increased to $186,000 during the three months
ended September 30, 2000 from a tax benefit of $118,000 during the same period a
year ago. A tax benefit was recorded in the 1999 three-month period due to lower
actual state income taxes that had been provided for in the first quarter of
1999 from the January 1999 termination payment from Sofamor Danek. Our effective
tax rate during the three months ended September 30, 2000 was 43.8 percent. For
the nine months ended September 30, 2000, income tax expense decreased to
$516,000 from $3.55 million during the same period in 1999 due to higher
earnings in the 1999 period from the $8.9 million of revenue recorded in
connection with our former agreement with Sofamor Danek. This represents
effective tax rates of 43.3 percent in 2000 and 39.6 percent in 1999. 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 2000 and
the nine-month period in 1999 compared to the U.S. statutory rate for
corporations of 34 percent.

## Liquidity and Capital Resources

At September 30, 2000 our working capital increased to $17.38
million from $16.18 million at year-end 1999. The ratio of current assets to
current liabilities was 7.25:1 at September 30, 2000, compared to 4.86:1 at
December 31, 1999. Cash, cash equivalents, marketable securities and
certificates of deposit totaled $8.34 million at September 30, 2000 compared to
$8.75 million at December 31, 1999.

During September 1999, the Board of Directors authorized
increasing our stock repurchase program by an additional 250,000 shares to a
total of 1,750,000 shares. During the year ended December 31, 1999, we
repurchased 404,875 shares of our common stock at an aggregate cost of
$2,952,311, or an average of $7.29 per share. During the nine months ended
September 30, 2000, we made no additional repurchases. In aggregate, we have
purchased 1,663,500 shares under the authorized repurchase programs and 86,500
shares are available for repurchase as of October 31, 2000. During the nine
months ended September 30, 2000 we issued 119,700 shares from our treasury upon
the exercise of stock options. At September 30, 2000, 1,196,858 shares remained
in the treasury.

We decreased our investment in inventories by $242,000 to $5.75
million at September 30, 2000, from $6.0 million at December 31, 1999.  We
estimate that our investment in inventory will decrease by year-end 2000 to a
total inventory level of about $5.5 million.

Page 15

---

We spent $783,000 during the nine months ended September 30,
2000 for capital expenditures and license fees for additional patents and
intellectual property we are licensing. Of such expenditures, approximately
$490,000 was for tooling and equipment primarily for the new products we are
developing. We also spent $293,000 during the first nine months of 2000 to
license additional patents and intellectual property. We expect capital
expenditures and patent license fees for the remainder of fiscal 2000 to
approximate $500,000.

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

## Cash Flows

Net cash provided by operations was $1.09 million for the nine
months ended September 30, 2000 compared to $2.77 million for the same period in
1999. This decrease related to the decrease in net earnings during the first
nine months of 2000 as compared to the same period a year earlier as a result of
the $8.9 million of revenue recorded in the 1999 period in connection with our
former agreement with Sofamor Danek.

Net cash used in investing activities was $2.21 million for the
nine months ended September 30, 2000, while investing activities for the same
period in 1999 provided cash of $2.50 million. During the first nine months of
2000, we used $1,425,000 to purchase certificates of deposit with maturities
greater than ninety days from the date of purchase and $783,000 for capital
expenditures and license fees related to additional patents and intellectual
property we are licensing. During the same nine-month period in 1999, we
received $6.35 million of net proceeds from the sale of our facility. We used
$3.86 million in the 1999 period for additions to equipment and fixtures
($2.3 million of these expenditures were for equipment and furnishings for our
new leased facility, which we relocated to in May 1999).

Net cash used in financing activities was $929,000 for the nine
months ended September 30, 2000 compared to $4.77 million for the same period in
1999. During the first nine months of 2000, we received $571,000 upon the
exercise of stock options and used $1.5 million that we loaned under a five-year
promissory note to one of our key suppliers. During the first nine months of
1999, we received $553,000 upon the exercise of stock options while we used
$3.63 million to repay our mortgage debt due to the sale of our facility and
$1.67 million to repurchase 241,375 shares of our common stock.

## Year 2000

We believe our computer software programs, operating systems
and manufacturing equipment are Year 2000 compliant and ready for use beyond the
Year 2000.

We are not currently aware of any material Year 2000 problems
relating to any of our material internal software programs, operating systems
and manufacturing equipment. Our internal operations and business are also
dependent upon the computer-controlled systems of third parties such as our

Page 16

---

suppliers, customers and other service providers. We believe
that absent a systemic failure outside our control, such as a prolonged loss of
electrical or telecommunications service, Year 2000 problems at third parties
will not have a material impact on our operations. However, the failure of our
internal systems or the systems of third parties to be Year 2000 compliant could
result in disruptions to our operations, including, among other things, a
temporary inability to process transactions, send invoices, manufacture products
or engage in similar normal business activities. Therefore, depending on the
scope and nature of the problems, we could be required to devote significant
resources to correcting such problems. The costs associated with remediating any
Year 2000 problems have not been material to date and although we do not
anticipate that these costs will be material in the future, we cannot assure you
that these costs will not be material.

## 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.

## Forward-Looking Statements

The following is a safe harbor statement under the
Private Securities Litigation Reform Act of 1995: Certain 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 may regard 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
- domination of the market for stimulation systems and implantable intrathecal
drug pumps by Medtronic, Inc.
- reclassification of IPG stimulation systems for spinal cord stimulation by
the FDA
- 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
- Year 2000 issues arising at a later date
- general economic risks
- other risks detailed from time to time in our SEC public filings.

## Quantitative and Qualitative
Disclosures About Market Risk

For the period ended September 30, 2000, the Company did not
experience any material changes in market risk exposures that affect the
quantitative and qualitative disclosures presented in the Company's Annual
Report on Form 10K for the year ended December 31, 1999.

Page 17

---

# PART II

# OTHER INFORMATION

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

|(a)      | Exhibit 3.1- Articles of Incorporation,
as amended and restated (1)                   
|-------- | --------------------------------------------------------------------------------------
|         |                                                                                       
|         | Exhibit 3.2- ByLaws (2)                                                               
|        
|         | Exhibit 4.1- Rights
Agreement dated as of August 30, 1996, between Quest Medical, Inc.
|         | and KeyCorp ShareholderServices, Inc. as
Rights Agent (3)                             
|         |                                                                                       
|        
|         | Exhibit 27.1- Financial Data
Schedule (filed herewith)                                
|         |                                                                                       
|(b)      | No reports on Form 8-K have been filed during the
quarter ended September 30, 2000.   
|-------- | -----------------                                                                     
|(1)      | Filed as an Exhibit to the Company's Registration  Statement on Form SB-2,            
|         | Registration No. 33-62991, and incorporated herein
by reference.                      
|(2)      | Filed as an Exhibit to the
Company's  Registration  Statement on Form S-18,           
|         | Registration No.  2-71198-FW, and incorporated herein by reference.                   
|(3)      | Filed as an Exhibit to the report of the Company on Form
8-K dated                    
|         | September 3, 1996, and incorporated herein
by reference.                              

Page 18

---

# 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.                          
|---------------------- | ----------------------------------------------------------------
|                       | By: /s/ F. Robert Merrill III
----------------------------------
|Date: November 7, 2000 | F. Robert Merrill III                                           
|                       | Executive Vice President,
Finance                               
|                       | Chief Financial Officer
and Treasurer                           

Page 19

---

# EXHIBIT 27.1