UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
Commission File Number 2-96271-B
CAS MEDICAL SYSTEMS, INC.
(Exact name of Registrant as specified in charter)
Delaware 06-1123096
(State or other jurisdiction of (I.R.S. employer
incorporation of organization) identification No.)
21 Business Park Drive, Branford, Connecticut 06405
(Address of principal executive offices)
(Zip Code)
(203) 488-6056
(Registrant's telephone number, including area code)
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 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.
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.004 par value Preferred Stock, $.001 par value
The aggregate market value of the Common Stock held by non-affiliates of
the registrant was $7,162,996 on December 31, 1995.
The registrant had 9,279,479 shares of Common Stock outstanding as of
December 31, 1995.
<PAGE>
PART I
ITEM 1. BUSINESS
The Company
CAS Medical Systems, Inc. (CAS) was organized in 1984 primarily to serve
neonatal and pediatric units in hospitals. Today, CAS is engaged in the
business of developing, manufacturing and distributing diagnostic equipment
and medical products for use by adults and children in many areas of the
health care industry.
The Company has developed and is manufacturing a full line of non-invasive
blood pressure monitors, blood pressure cuffs for both adult and neonatal
patients, silver/silver chloride electrodes for neonatal hospital intensive
care units, and a line of disposable products for neonatal use. These
products are being sold by the Company directly through its own sales force
via distributors and pursuant to original equipment manufacturer (OEM)
agreements in Europe and the United States. The Company has agreements to
supply its blood pressure monitors, cuffs and electrodes to companies for
distribution in major segments of the international market. The Company also
has OEM agreements to supply custom versions of its blood pressure measuring
technology in the form of plug-in modules for patient monitoring systems. The
Company has several other products in various stages of development which it
believes are applicable to both adult and neonatal/pediatric medicine.
Narrative Description of Business
Principal Products and Services
OscilloMate Blood Pressure Monitors
The Company manufactures a complete line of state-of-the-art blood pressure
monitors which it has developed. Distribution is to the hospital and
professional markets through its sales force and distributors, and through
international distributors and OEM agreements.
Pedisphyg, Safe-Cuff, Tuff-Cuff and PAPERCUFF Blood Pressure Cuffs
The Company manufactures and sells complete lines of disposable and multi-use
blood pressure cuffs for hospital use. These cuffs are based on design
criteria developed from scientific studies to ensure the highest degree of
accuracy. They can be used with all of the blood pressure monitors currently
available in hospitals, thus permitting hospitals to standardize with one
company for blood pressure cuffs.
Klear-Trace Electrodes
The Company manufactures and sells prewired, X-ray translucent
electrocardiographic electrodes. They utilize a conductive solid-gel adhesive
that allows them to remain on the patient for extended periods of time without
causing skin irritation.
<PAGE>
NeoGuard Reflectors, Klear-Temp Disposable Temperature Probes
The Company manufactures and sells thermal reflectors to shield temperature
probes while in use within radiant warmers. They perform an important role in
maintaining the proper thermal environment for neonates while assuring that no
skin irritation takes place. Klear-Temp disposable skin temperature probes
are designed to be a standard replacement part in all incubators and radiant
warmers.
NeoGuard Limboard Arm Boards
The Company manufactures and sells a line of neonatal arm boards used to
immobilize and support intravenous sites with minimal patient skin trauma.
The electrodes, arm boards, and reflectors utilize a polymeric solid gel
adhesive to minimize damage to neonatal skin.
Sales and Marketing
The Company conducts its sales in the domestic hospital market by means of
exclusive distributors managed by full time sales managers. Sales to
emergency medical services are managed nationwide by a single company sales
manager. OEM sales and international sales are conducted by personnel located
within the Company.
Domestic sales are conducted by 25 distributors across the country each of
whom has exclusive sales rights in a limited geographic area.
The Company has sales agreements with several distributors internationally.
These agreements provide for distribution of products within an assigned
territory. Other agreements are being negotiated to allow for expanded
international distribution.
The Company sells its non-invasive blood pressure technology, in the form of
sub-assemblies to be joined to multi-parameter hospital monitors, to several
firms operating on both a domestic and international basis. The Company is in
the process of negotiating other agreements for the use of its technology as
components in other medical monitoring systems.
Financial Information Relating to Sales
Year Ended December 31,
1995 1994 1993
Domestic Sales $4,273,483 $3,431,374 $3,529,335
Export (Including
Licensing Revenues) 2,155,748 1,463,974 1,516,524
_________ _________ _________
$6,429,231 $4,895,348 $5,045,859
_________ _________ _________
<PAGE>
Competition
The Company competes in the hospital market where there are many suppliers
with greater financial and personnel resources with full service commodity
products and dedicated selling capability. Neonatal and pediatric intensive
care units are such areas. Here, the Company has been supplying competitively
priced, uniquely designed products responsive to this market in which no major
company currently focuses its total effort.
In both the hospital and emergency medical service markets, the Company's
line of non-invasive blood pressure monitoring equipment has significant
advantages over competitive products. It is compact, portable, lightweight
and user-friendly. The monitors maintain a high professional standard of
accuracy and quality in demanding environments such as those encountered in
hospital and transport situations.
With respect to all of its products, the Company competes on the basis of
price, features, product quality, promptness of delivery and customer service.
Customers
During 1995, 1994 and 1993, the Company had sales to one customer which in
the aggregate accounted for approximately 12%, 13% and 13% of sales,
respectively.
Research and Development
In 1995, 1994 and 1993, the Company spent approximately $405,000, $335,000
and $329,000, respectively, on activities relating to the development of new
products and the improvement of existing products.
The Company is building on its base of non-invasive blood pressure technology
by developing a family of next-generation patient-monitoring equipment.
Employees
As of December 31, 1995, the Company had 46 employees of whom 44 were
full-time. The Company has no collective bargaining agreements and believes
that relations with its employees are good. The Company maintains employee
benefit plans providing for disability income, life insurance and medical and
hospitalization coverage. The Company sponsors a 401(K) benefit plan for its
employees which generally allows participants to make contributions by salary
deductions up to allowable internal revenue service limits on tax-deferred
basis and discretionary contributions by the Company. The Company did make
discretionary contributions in 1995.
Government Regulation
Medical products of the type currently being marketed and under development
by the Company are subject to regulation under the Food, Drug and Cosmetic Act
(the "FDA Act") as amended in the Medical Device Amendments of 1976 (the "1976
Amendments") and the 1990 "Safe Medical Devices Act", as well as additional
regulations promulgated thereto. Under the 1976 Amendments, the Company must
be a registered device manufacturer and must comply with Good Manufacturing
Practice Regulations for Medical Devices.
<PAGE>
In addition, depending upon product type, the Company must also comply with
those regulations governing the Conduct of Human Investigations, Pre-Market
Approval Regulations and other requirements, as promulgated by the Food and
Drug Administration (FDA). The FDA is authorized to inspect a device, its
labeling and advertising, and the facilities in which it is manufactured in
order to ensure that the device is not manufactured or labeled in a manner
which could cause it to be injurious to health.
Under the 1976 Amendment and the Safe Medical Device Act, the FDA has adopted
regulations which classify medical devices based upon the degree of regulation
it believes is necessary to assure safety and efficacy. A device is
classified as a Class I, II, or III device. Class I devices are subject only
to general controls. Class II devices, in addition to general controls, are
or will be subject to "performance standards." Most devices are subject to
the 501(K) pre-market notification provision. In addition, some Class III
devices require FDA pre-market approval before they may be marketed
commercially because their safety and effectiveness cannot be assured by the
general controls and performance standards of Class I or II devices. The
Company's products are mostly Class II devices. Several of them have required
FDA notification under Section 510(k) of the FDA Act.
The FDA has the authority to, among other things: deny marketing approval
until all regulatory protocols are deemed acceptable; halt the shipment of
defective products; and seize defective products sold to customers. Adverse
publicity from the FDA, if any, could have a negative impact upon sales. To
date, the Company has had no FDA oversight problems, and none are pending to
its knowledge.
Manufacturing and Quality Assurance
The Company assembles its products at its facility. The various components
for the products, which include plastic sheeting, plastic moldings, wire,
semi-conductor circuits, electronic and pneumatic components and power
supplies are obtained from outside vendors. The Company does not anticipate
any difficulties in obtaining the components necessary to manufacture its
products.
Quality control procedures are performed by the Company at its facility and
occasionally at its suppliers' facilities to standards set forth in the "Good
Manufacturing Practices". These procedures include the inspection of
components and full testing of finished goods. The Company has a controlled
clean environment where the final assembly of single-patient-use products is
conducted. The Company has charted a course to becoming certified to ISO 9000
and relevent European Union Directives in order to broaden European markets
and make domestic quality system improvements.
Backlog
The Company's practice is to ship its products upon receipt of a customer's
order or pursuant to customer-requested ship dates. On December 31, 1995, the
Company had a backlog of orders from customers for products with requested
ship dates in 1996 totaling approximately $880,000, deliverable throughout
1996, as compared to $691,000 as of December 31, 1994. During the first
quarter of 1996, the Company will fulfill approximately $273,000 of this
backlog.
<PAGE>
Trademarks, Patents and Copyrights
Certificates of Registration have been issued to the Company by the United
States Department of Commerce Patent and Trademark Office for the following
marks: CAS (Registered trademark), Pedisphyg (Registered trademark),
OscilloMate (Registered trademark), NeoGuard (Registered trademark), Tuff-Cuff
(Registered trademark), Limboard (Registered trademark), Klear-Trace
(Registered trademark), and the heart shaped mark for use as a thermal
reflector and the Company's corporate logo. The Company continues to use the
PAPERCUFF (Trademark) and Safe-Cuff (Trademark) trademark.
The Company filed a patent application on behalf of an employee covering the
method of operation of its blood pressure measurement monitor. This patent
was issued under Patent Number 4,796,184 and assigned to the Company. The
Company also holds Patent Number 4,966,992 which covers the design of a blood
pressure monitor for use with hyperbaric chambers. The Company holds Patent
Number 5,101,830 which covers the design of a blood pressure cuff.
The Company has copyright protection for the software used in its blood
pressure monitors.
ITEM 2. PROPERTIES
The Company has leased new facilities comprising approximately 17,500 square
feet of office, laboratory and assembly space, including a controlled clean
environment, located at 21 Business Park Drive, Branford, Connecticut 06405.
Minimum annual rentals under the Company's lease agreement are:
1996 $101,000
1997 $104,000
1998 $110,000
These amounts are in addition to the Company's share of increases in real
estate taxes and certain utility costs.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings involving the Company are pending at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) The Common Stock of the Company is traded over-the-counter.
The following table shows the high and low bid quotations for the
Company's Common Stock for each quarterly period for the last three
years. These prices do not represent actual transactions and do not
include retail mark-ups, mark-downs or commissions.
Period Ended High Low
March 31, 1993 5/8 1/2
June 30, 1993 3/8 1/4
September 30, 1993 5/16 1/8
December 31, 1993 1/4 1/8
March 31, 1994 3/8 1/4
June 30, 1994 5/16 1/4
September 30, 1994 1/4 1/8
December 31, 1994 1/4 3/16
March 31, 1995 9/32 1/8
June 30, 1995 19/32 9/32
September 30, 1995 15/32 19/32
December 31, 1995 1 5/8 15/16
(b) The following table sets forth the approximate number of
holders of record of Common Stock of the Company on December 31,
1995.
Title of Class Number of Shareholders
Common Stock, $.004 par value 400
Preferred Stock, $.001 par value 1
(c) No cash dividends have been declared on the Company's common
stock for 1995, 1994 and 1993.
(d) Cash dividends were declared and paid during 1995, 1994 and
1993, in the amount of $40,000, $50,000 and $50,000 respectively, on
the Series C cumulative preferred stock.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL INFORMATION
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992
----------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues $6,429,231 $4,895,348 $5,045,859 $4,464,618
Operating income 920,511 351,276 526,069 313,562
Interest income
(expense), net 13,380 ( 29,869) ( 33,721) ( 60,775)
Net income 848,891 301,407 475,348 241,787
Net income per share (1) .08 .03 .05 .02
BALANCE SHEET DATA:
Working capital 2,087,687 1,506,332 1,400,198 1,204,886
Total assets 2,920,465 2,178,284 2,314,660 2,186,944
Deferred revenue 44,444 92,222 160,000 120,000
Long-term liabilities 0 0 144,244 389,354
Shareholders' equity 2,230,086 1,610,294 1,358,887 933,539
</TABLE>
(1) Based on weighted average number of shares outstanding during the years.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources
As of December 31, 1995, the Company's cash and cash equivalents totaled
$1,082,003, compared to $301,472 at December 31, 1994 (an increase of 359%),
and the Company's working capital totaled $2,087,687 on December 31, 1995,
compared to $1,506,332 on December 31, 1994. The Company's increased cash
position is due to cash provided by operating activities in 1995. As a result
of improved liquidity in 1995, the Company was able to internally finance
approximately $70,000 of property and equipment additions and paid the
outstanding debt in full.
The Company's working capital ratio improved from 4.17 at December 31,
1994 to 4.23 at December 31, 1995.
At December 31, 1994, the Company had a line of credit with a Connecticut
bank totaling $500,000. On August 1, 1995, this line was extended through
August 1, 1996. Borrowings under the line bears interest at prime plus 1.5%.
At December 31, 1995, there were no borrowings outstanding under this line.
On July 27, 1994, the Company entered into a new four year licensing
agreement with a major manufacturer of patient monitors, granting a
nonexclusive license to use the Company's blood pressure technology for a
specific application, and allowing the exchange of technical know-how. Under
this agreement, the Company will receive $750,000 over the initial four year
<PAGE>
term, plus royalties. The manufacturer has the option to extend the license
for an additional three year period upon payment of an additional $600,000
plus royalties over the extended term. This agreement replaces a prior
licensing agreement with the manufacturer. License fees are being recognized
on a straight line basis over the contract period.
The Company believes that existing funds together with internally
generated funds from 1996 operations and its existing line of credit
arrangement will provide the Company with adequate liquidity and capital
resources to meet its 1996 financial requirements.
Results of Operations
1995 Compared to 1994
The Company earned $849,000 ($.08 per common share) in 1995, compared to
$301,000 ($.03 per common share) in 1994. The 1995 earnings performance was
favorably impacted by incremental gross margin generated by higher sales
volume and an increase in licensing fee revenues partially offset by
additional sales support costs.
The Company's revenues increased by 31 percent to approximately
$6,429,000 for 1995 compared to revenues of approximately $4,895,000 for the
previous year. Sales of NIBP modules to Original Equipment Manufacturers
("OEM") who utilize the Company's technology in their systems, were
responsible for approximately $862,000 of the growth in overall sales
revenues. Sales of our blood pressure monitors were 33 percent higher than
the same period in 1994. The Company expects continued improvement in overall
sales next year.
Total cost of product sales decreased as a percentage of net product
sales from 49.5 percent to 45.9 percent when comparing the current year to
1994. The decrease in cost reflects an on-going quality and cost reduction
efforts and a more profitable product mix.
Research and development expenses increased by 21 percent during 1995 to
approximately $405,000 compared to $335,000 for the same period of 1994,
primarily due to development cost of new products.
Selling, general and administrative expenses increased to approximately
$2,272,000 for the year ended December 31, 1995 compared to the prior year of
approximately $1,898,000, an increase of 20 percent. However, as a percentage
of net revenues, 1995 decreased to 35 percent from 39 percent in 1994. The
increase in expenses was primarily due to salaries and related expenses, legal
fees for patent applications for new product and telemarketing expenses for
various products.
The Company's strong cash position enabled all outstanding debt to be
paid in full and resulted in excess cash. The Company earned approximately
$19,000 from various investment accounts.
<PAGE>
During 1995, the Company utilized approximately $874,000 of net operating
loss carryforwards to reduce its provision for taxes for financial reporting
purposes. The tax benefit associated with this utilization of net operating
loss carryforwards was approximately $297,000 or $.03 per common share. As of
December 31, 1995, the company has utilized substantially all of its net
operating loss carryforwards.
1994 Compared to 1993
The Company earned $301,000 ($.03 per common share) in 1994, compared to
$475,000 ($.05 per common share) in 1993. The 1994 earnings performance was
impacted by softness in sales of certain of the Company's product lines
partially offset by an increase in licensing fee revenues.
The Company's revenues decreased from $5,045,859 in 1993 to $4,895,348 in
1994, a decrease of $150,511. The decrease in revenues reflects a decrease in
international product sales attributed primarily to delays in shipments of
non-invasive blood pressure modules and declines in domestic sales of
disposable products due to increased competition. This decrease in product
revenues was partially offset by an increase in licensing fee revenues from
$40,000 in 1993 to $220,833 in 1994 as a result of a new licensing agreement.
Cost of product sales increased as a percent of net product sales from 45
percent in 1993 to 49 percent in 1994. This increase mainly reflects under
absorption of overhead expenses due to decreased sales and production.
Selling, general and administrative expenses decreased to $1,898,039 in
1994 from $1,934,808 in 1993, a decrease of $36,769. The decrease is due
primarily to a reduction in payroll costs beginning in the second quarter of
1994, and reimbursement of certain professional fees and expenses upon signing
of the license agreement previously discussed.
Net interest expense decreased in 1994 to $29,869 from $33,721 in 1993.
The decrease was due to net debt principal reductions of approximately
$130,500 during 1994.
During 1994, the Company utilized approximately $290,000 of net operating
loss carryforwards to reduce its provision for taxes for financial reporting
purposes. The tax benefit associated with this utilization of net operating
loss carryforwards was approximately $104,000 or $.01 per common share.
ITEM 8. INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Balance Sheets - December 31, 1995 and 1994 F-2 to F-3
Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993 F-4
Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 F-5
<PAGE>
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 F-6 to F-7
Notes to Financial Statements F-8 to F-12
Schedules called for under Regulation S-X are not submitted because they are
not applicable or not required, or because the required information is
included in the financial statements or notes thereto.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the section entitled "Election of Directors" in the
Registrant's definitive proxy statement to be mailed to shareholders on or
about April 22, 1996, and filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the sections entitled "Compensation of Executive
Officers" and "Election of Directors" in the Registrant's definitive proxy
statements to be mailed to shareholders on or about April 22222996, and filed
with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND STOCKHOLDERS
Reference is made to the sections entitled "Principal Stockholders" and
"Election of Directors" in the Registrant's definitive proxy statements to be
mailed to shareholders on or about April 22, 1996, and filed with the
Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 17, 1990, by agreement, the Company and Dr. Myron L. Cohen
amended Dr. Cohen's employment contract and provided that he shall be employed
as Executive Vice President of the Company until December 31, 1995 in
accordance with the terms of the agreement. Compensation for 1995 is
approximately $165,862. On January 1, 1996, the Company extended Dr. Myron L.
Cohen's employment contract to December 31, 1996.
In September of 1993, the Company entered into a three year employment
agreement with Louis P. Scheps as President and Chief Executive Officer.
Compensation is approximately $175,000 for 1995.
Deferred Revenue from Related Party
In June 1989, the Company and a majority preferred shareholder, (the
"Shareholder"), entered into an agreement, whereby the Shareholder agreed to
fund $100,000 for the Company's purchase of certain components needed to
establish an electrode manufacturing facility ("the System"). In exchange,
the Company agreed to pay the Shareholder an amount equal to five percent of
the net invoice price of all electrodes manufactured and sold by the Company
using the System, during a period of five years.
<PAGE>
The System became fully operational and the five year period commenced on
January 8, 1990. The agreement expired as of December 31, 1994, there fore
there were no earning expenses relating to royalties during 1995. During 1994
and 1993, royalties earned by the shareholder to the agreement totaled $78,181
and $91,807, respectively. The Company recognized revenue on a straight-line
basis over the agreement period ($20,000 per year). Net royalty expense was
$58,181 and $71,807 during 1994 and 1993, respectively.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1.The financial statements and schedules listed in the accompanying
index to financial statements are filed as a part of this report.
2. See (a) 1 above.
3. (a) Certificate of Incorporation of Registrant*
(b) By-Laws of Registrant*
* Incorporated by reference from the Exhibits filed in the Registrant's
Prospectus, dated April 15, 1985, filed with the Securities and Exchange
Commission.
(B) Reports on Form 8-K
None filed.
<PAGE>
CAS MEDICAL SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Balance Sheets -- December 31, 1995 and 1994 F-2 to F-3
Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993 F-4
Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 F-5
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 F-6 to F-7
Notes to Financial Statements F-8 to F-12
Schedules called for under Regulation S-X are not submitted because they are
not applicable or not required, or because the required information is
included in the financial statements or notes thereto.
<PAGE>
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
CAS Medical Systems, Inc.:
We have audited the accompanying balance sheets of CAS Medical Systems, Inc.
(a Delaware corporation) as of December 31, 1995 and 1994, and the related
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CAS Medical Systems, Inc. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
January 23, 1996
<PAGE>
<TABLE>
F-2
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS -- DECEMBER 31, 1995 AND 1994
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,082,003 $ 301,472
Accounts receivable, net of allowance for
doubtful accounts of $28,819 and $14,600
in 1995 and 1994, respectively 733,875 794,559
Inventories (Note 3) 843,304 810,988
Other current assets 74,440 75,081
---------- ----------
Total current assets 2,733,622 1,982,100
---------- ----------
PROPERTY AND EQUIPMENT (Note 2):
Furniture and equipment 837,175 768,036
Leasehold improvements 47,181 46,572
---------- ----------
884,356 814,608
Less- accumulated depreciation 705,712 635,623
---------- ----------
178,644 178,985
---------- ----------
Other assets, net of accumulated 8,199 17,199
amortization
---------- ----------
Total assets $2,920,465 $2,178,284
__________ __________
<FN>
The accompanying notes to financial statements are an integral part of these
balance sheets.
</TABLE>
<PAGE>
<TABLE>
F-3
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS -- DECEMBER 31, 1995 AND 1994
(continued)
<CAPTION>
1995 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 185,793 $150,928
Accrued payroll 179,570 32,587
Accrued professional fees 54,500 35,000
Accrued warranty 45,000 20,000
Other accrued expenses 181,072 92,842
Payables to related party (Note 5) - 144,411
---------- ----------
Total current liabilities 645,935 475,768
---------- ----------
DEFERRED REVENUE (Note 6) 44,444 92,222
---------- ----------
SHAREHOLDERS' EQUITY (Notes 2, 7 and 8):
Preferred stock, $.001 par value, 1,000,000
shares authorized, stated at redemption
value, Series C cumulative preferred
stock, 3,000 and 5,000 shares issued and
outstanding in 1995 and 1994,
respectively 300,000 500,000
Common stock, $.004 par value per share,
19,000,000 shares authorized, 9,279,479
and 9,239,479 shares issued and
outstanding in 1995 and 1994,
respectively 37,121 36,963
Additional paid-in capital 2,675,466 2,664,723
Accumulated deficit (782,501) (1,591,392)
---------- ----------
Total shareholders' equity 2,230,086 1,610,294
---------- ----------
Total liabilities and shareholders'
equity $2,920,465 $2,178,284
_________ _________
<FN>
The accompanying notes to financial statements are an integral part of these
balance sheets.
</TABLE>
<PAGE>
<TABLE>
F-4
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
REVENUES:
Net product sales $6,163,848 $4,674,515 $5,005,859
Licensing fees (Note 6) 265,383 220,833 40,000
---------- ---------- ---------
6,429,231 4,895,348 5,045,859
---------- ---------- ---------
OPERATING EXPENSES:
Cost of product sales 2,831,369 2,311,304 2,255,891
Selling, general and
administrative 2,272,329 1,898,039 1,934,808
Research and development 405,022 334,729 329,091
---------- ---------- ---------
Operating income 920,511 351,276 526,069
INTEREST INCOME (EXPENSE), net 13,380 (29,869) (33,721)
---------- ---------- ---------
Income before income taxes 933,891 321,407 492,348
PROVISION FOR INCOME TAXES 85,000 20,000 17,000
(Note 9)
---------- --------- ---------
Net income $ 848,891 $ 301,407 $ 475,348
_________ _________ _________
PER SHARE DATA:
Net income per common share $ .08 $ .03 $ .05
(Note 2) _________ _________ _________
Weighted average number of
shares outstanding 9,858,916 9,239,785 9,362,508
<FN>
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
F-5
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
Preferred Stock Common Stock
------------------ ------------------
Additional Accumulated
Shares Amount Shares Amount Paid-In
Capital Deficit
<S> <C> <C> <C> <C> <C>
<C>
BALANCE, December 31, 1992 5,000 $500,000 9,239,479 $36,963
$2,664,723 $(2,268,147)
Net Income - - - -
- 475,348
Preferred Dividends - - - -
- (50,000)
------ -------- --------- -------
- ---------- ----------
BALANCE, December 31, 1993 5,000 500,000 9,239,479 36,963
2,664,723 (1,842,799)
Net income - - - -
- 301,407
Preferred dividends - - - -
- (50,000)
------ -------- --------- -------
- ---------- ----------
BALANCE, December 31, 1994 5,000 500,000 9,239,479 36,963
2,664,723 (1,591,392)
Common stock issued - - 40,000 158
10,743 -
Redemption of Preferred
Stock (2,000) (200,000) - -
- -
Net income - - - -
- 848,891
Preferred dividends
(40,000)
------ -------- --------- -------
- ---------- -----------
BALANCE, December 31, 1995 3,000 $300,000 9,279,479 $37,121
$2,675,466 $ (782,501)
______ _______ _________ ______
_________ __________
<FN>
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
F-6
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 848,891 $ 301,407 $ 475,348
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 79,089 104,683 107,001
Loss on sale of equipment - 4,824 -
Decrease (increase) in accounts
receivable 60,684 106,601 (160,060)
(Increase) in inventory (32,316) (19,204) (36,195)
Decrease (increase) in other
current assets 641 22,249 (75,904)
Increase (decrease) in accounts
payable and accrued expenses 314,578 (85,186) (94,189)
(Increase) in other assets - (8,199) -
(Decrease) increase in deferred
revenue (47,778) (67,778) 40,000
--------- --------- ---------
Net cash provided by operating
activities 1,223,789 359,397 256,001
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (69,748) (35,109) (139,427)
Proceeds from sale of equipment - 550 -
Proceeds from sale of long-term
investment - - 7,500
--------- --------- ---------
Net cash used in investing
activities (69,748) (34,559) (131,927)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment under line of credit - (5,000) -
Preferred dividends (40,000) (50,000) (50,000)
Repayment of debt to related
parties (144,411) (183,293) (188,973)
Repayment of debt to unrelated
parties - (46,526) (113,994)
Proceeds from financing agreement - - 59,524
Proceeds from issuance of common
stock 10,901 - -
Redemption of shares of preferred
stock (200,000) - -
--------- --------- ---------
Net cash used in financing
activities (373,510) (284,819) (293,443)
--------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
F-7
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Continued)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net increase (decrease) in cash
and cash equivalents 780,531 40,019 (169,369)
CASH AND CASH EQUIVALENTS, at
beginning of year 301,472 261,453 430,822
--------- --------- ---------
CASH AND CASH EQUIVALENTS, at end
of year $1,082,003 $ 301,472 $ 261,453
_________ _________ _________
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for
interest $ 5,458 $ 31,510 $ 70,092
Cash paid during the year for
taxes 52,650 25,500 6,028
<FN>
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
F-8
CAS MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) The Company:
CAS Medical Systems, Inc. (the "Company") is engaged in the business of
developing, manufacturing and distributing diagnostic equipment and
medical products for use in the healthcare and medical industry. These
products are sold by the Company through its own sales force, via
distributors and pursuant to original equipment manufacturer agreements
internationally and in the United States. The Company's operations and
manufacturing facilities are located in the United States. During 1995,
1994 and 1993, the Company had sales to one customer which in the
aggregate accounted for approximately 12%, 13% and 13% of sales,
respectively, and had export sales principally to Europe, including
licensing fee revenues, of $2,155,748, $1,463,974 and $1,516,524,
respectively.
(2) Summary of Significant Accounting Policies:
Property and Equipment-
Property and equipment are stated at cost. Furniture and equipment are
depreciated using the straight-line method based on the estimated useful
lives of the assets, which range from two to five years. Leasehold
improvements are amortized over the life of the lease.
Revenue Recognition-
Revenues from product sales are recognized upon passage of title,
generally upon shipment. Revenues from licensing fees are recognized
over the term of the agreement (see Note 6).
Net Income per Common Share-
Net income per common share has been computed by dividing net income
available for common stock, after cumulative preferred dividends earned,
by the weighted average number of common shares outstanding. Weighted
average shares outstanding includes the common equivalent shares
calculated for outstanding stock options and warrants under the
treasury stock method.
Use of Estimates-
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 those
estimates.
<PAGE>
F-9
Recently Issued Accounting Pronouncements-
The Company does not believe any recently issued accounting standards
will have a material impact on its financial condition or results of
operations. The Company plans to continue to apply the recognition and
measurement provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and adopt the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("FAS 123"), beginning in
1996. Accordingly, the issuance of FAS 123 will not impact the
Company's consolidated financial statements.
Reclassifications-
Certain reclassifications were made to prior year amounts to conform to
current year presentation.
(3) Inventories:
Inventories include costs of materials, labor and manufacturing
overhead.
Inventories are stated at the lower of first-in, first-out (FIFO) cost
or market and consist of the following:
1995 1994
Raw materials $505,159 $575,915
Work in process 160,215 112,782
Finished goods 177,930 122,291
-------- --------
$843,304 $810,988
________ ________
(4) Debt:
At December 31, 1995, the Company's line of credit arrangement allowed
for maximum borrowings of $500,000, all of which was available. The
line of credit arrangement expires on August 1, 1996, and bears interest
at the prime rate (8.50% at December 31, 1995) plus 1.5%. During 1995,
1994 and 1993, the maximum month end borrowings outstanding under this
line were $50,000, $200,000 and $115,000, the weighted average
borrowings were approximately $4,167, $92,100 and $25,500, and the
weighted average interest rates on amounts outstanding were 10.3%, 8.3%
and 7.5%, respectively. The bank has a first security interest in all
assets of the Company and requires a compensating balance equal to 20%
of the line of credit ($100,000 at December 31, 1995).
(5) Debt to Related Parties:
During the fourth quarter of 1990, a majority preferred shareholder
exchanged a 10% convertible note for a new term note which matured and
was repaid in December 1995. The holder of the 10% term note was the
Series C preferred shareholder and had a security interest in all
tangible and intangible assets of the Company.
<PAGE>
F-10
(6) License Agreements:
In June 1989, the Company and a majority preferred shareholder (the
"Shareholder") entered into an agreement, whereby the Shareholder agreed
to fund $100,000 for the Company to purchase certain components needed
to establish an electrode manufacturing facility ("the System"). In
exchange, the Company agreed to pay the Shareholder an amount equal to
five percent of the net invoice price of all electrodes manufactured and
sold by the Company using the System for a period of five years. The
System became fully operational and the five year period commenced on
January 8, 1990. The agreement expired as of December 31, 1994, and,
accordingly, there were no related royalty revenues or expenses during
1995. During 1994 and 1993, royalties earned by the Shareholder
pursuant to this agreement totaled $78,181 and $91,807, respectively.
The Company recognized revenue on a straight-line basis over the
agreement period ($20,000 per year), and, accordingly, net royalty
expense was $58,181 and $71,807 during 1994 and 1993, respectively.
On July 27, 1994, the Company entered into a four year licensing
agreement with a major European manufacturer of medical equipment,
canceling and superseding a prior licensing agreement with this
customer. The agreement granted a nonexclusive license to use the
Company's blood pressure technology for a specific application. As part
of this agreement, the Company will receive $750,000 plus royalties over
the initial four year term, of which $300,000 has been received through
December 31, 1995. The manufacturer has the option to extend the
license for an additional three year period upon payment of an
additional $600,000 plus royalties over the extended term. License fees
from this agreement and deferred revenue of $140,000 from the prior
license agreement are being recognized on a straight line basis over the
new contract period.
(7) Capital Stock:
Holders of the Series C cumulative preferred stock are entitled to a
cumulative dividend, payable quarterly, at the annual rate of $10 per
share. The Company has the right to redeem the preferred stock in whole
or in part, at a price equal to $100 per share plus all accrued and
unpaid dividends. On July 1, 1995, 2,000 shares of the Company's
Series C preferred stock were redeemed at $100 per share plus all
dividends accrued at that time. Upon redemption, the shares were
retired and the Company filed with the State of Delaware a certificate
of reduction of stated capital. No dividends may be paid on common
stock unless all accumulated dividends have been paid on the Series C
cumulative preferred stock. Dividends in the amount of $40,000, $50,000
and $50,000 were paid on these shares in 1995, 1994 and 1993,
respectively.
On January 17, 1996, the remaining 3,000 shares of the Company's Series
C preferred stock were redeemed at $100 per share.
(8) Employee Benefit Programs: Stock Options-
In December 1984, the Board of Directors and stockholders adopted an
Employee Incentive Stock Option 1984 Plan (the "1984 Plan"). The
exercise price for common stock issued under the 1984 Plan is to be no
<PAGE>
F-11
less than the fair market value of the stock at the grant date of the
options. Pursuant to the 1984 Plan, 750,000 shares of common stock
have been reserved for employee (including officers and directors)
purchase. An option granted under the 1984 Plan becomes exercisable in
two equal annual installments, commencing one year from the date of the
grant of the option. Options begin to expire between five and ten years
from the date of grant, depending on the optionholder's percentage of
ownership of the Company. In the event employment is terminated, the
employee no longer has the right to exercise his or her options unless
expressly permitted by the Board of Directors.
In June 1994, the Board of Directors and stockholders adopted the 1994
Employees' Incentive Stock Option Plan (the "1994 Plan"). Pursuant to
the 1994 Plan, 250,000 shares of common stock have been reserved for
employee (including officers and directors) purchase. The 1994 Plan is
the successor to the 1984 Plan and contains provisions which are
similar to those of the 1984 Plan.
Transactions in stock options under the Plans are summarized as follows:
Exercise Price
Shares per Option
Outstanding at December 31, 1992 973,400 $.20 to $.75
Exercised (17,500) .25
Canceled (35,000) .375 to .75
--------
Outstanding at December 31, 1993 920,900 $.20 to $.75
Granted 120,000 .31
Canceled (50,000) .275
--------
Outstanding at December 31, 1994 990,900 $.20 to $.75
Granted 75,000 .82
Canceled/Exercised (85,000) .25 to .75
--------
Outstanding at December 31, 1995 980,900 $.20 to $.82
________
Exercisable at December 31, 1995 845,900 $.20 to $.75
________
In 1993, the Company granted a warrant to purchase 750,000 shares of
common stock to an officer of the Company. The exercise price ($.31 per
share) was equal to the fair market value of the stock at the grant date
of the warrant. The warrant has no expiration date.
Life Insurance-
During 1995, 1994 and 1993, the Company paid life insurance premiums of
approximately $10,000 for life insurance policies on the lives of two
officers of the Company. The policies are in the face amounts of
$1,000,000 and $650,000. The beneficiaries of $250,000 and $150,000,
respectively, of the policies are designated by the insured. The
Company is the beneficiary of the balance.
<PAGE>
F-12
401(k) Plan-
During 1992, the Company established a 401(k) benefit plan for its
employees which generally allows participants to make contributions by
salary deductions up to allowable Internal Revenue Service limits on a
tax-deferred basis and discretionary contributions by the Company. The
1995 contribution was $28,166. The Company did not make
discretionary contributions in 1994 or 1993.
The Company does not provide other post-retirement benefits.
(9) Income Taxes:
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109),
which requires the recognition of deferred tax assets and liabilities
for future tax consequences resulting from differences between the book
and tax basis of existing assets and liabilities. In addition, SFAS 109
requires the recognition of future tax benefits of net operating loss
carryforwards to the extent that realization of such benefit is more
likely than not. This change in accounting had no significant effect on
the Company's financial position or results of operations.
The 1995, 1994 and 1993 provisions for income taxes of $85,000, $20,000
and $17,000, respectively, represent state income taxes and in 1994 and
1993 federal alternative minimum taxes, and are net of tax benefits of
net operating loss carryforwards utilized in 1995, 1994 and 1993 of
$874,000, $104,000, and $253,000, respectively. As of December 31,
1995, the Company has utilized substantially all of its net operating
loss carryforwards. The 1995 provision for income taxes includes
deferred tax benefits of approximately $25,000 due to temporary
differences related primarily to certain accruals not currently
deductible for income tax purposes.
(10) Commitments and Contingencies:
Employment Agreements-
The Company is committed under employment agreements with certain
officers aggregating $175,000 and which expire in 1996.
Other Commitments-
Minimum annual rentals under the Company's noncancelable lease agreement
covering its principal office space, which expires on December 31, 1998
and includes escalations for real estate taxes, are as follows:
1996 $101,000
1997 104,000
1998 110,000
--------
$315,000
________
Rent expense was approximately $102,000, $105,000 and $62,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CAS MEDICAL SYSTEMS, INC.
(Registrant)
March 25, 1996 Louis P. Scheps
Date Louis P. Scheps
President and Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
March 25, 1996 Myron L. Cohen
Date Myron L. Cohen
Executive Vice President
March 25, 1996 Lawrence Burstein
Date Lawrence Burstein
Director
March 25, 1996 Stanley Josephson
Date Stanley Josephson
Director
March 25, 1996 Jerome Baron
Date Jerome Baron
Director
March 25, 1996 Jay Haft
Date Jay Haft
Director
March 25, 1996 Saul Milles
Date Saul Milles
Director
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000764579
<NAME> CAS MEDICAL SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,082,003
<SECURITIES> 0
<RECEIVABLES> 733,875
<ALLOWANCES> 0
<INVENTORY> 843,304
<CURRENT-ASSETS> 2,733,622
<PP&E> 884,356
<DEPRECIATION> 705,712
<TOTAL-ASSETS> 2,920,465
<CURRENT-LIABILITIES> 645,935
<BONDS> 0
<COMMON> 37,121
0
300,000
<OTHER-SE> ( 782,501)
<TOTAL-LIABILITY-AND-EQUITY> 2,920,465
<SALES> 6,163,848
<TOTAL-REVENUES> 6,429,231
<CGS> 2,831,369
<TOTAL-COSTS> 2,677,351
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13,380)
<INCOME-PRETAX> 933,891
<INCOME-TAX> 85,000
<INCOME-CONTINUING> 848,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 848,891
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
