UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
Commission File Number 2-96271-B
CAS MEDICAL SYSTEMS, INC.
(Name of Small Business Issuer as specified in its charter)
Delaware 06-1123096
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21 Business Park Drive
Branford, Connecticut 06405
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (203) 488-6056
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Title_of_Each_Class
Units
Common Stock, $.004 par value
Preferred Stock $.001 par value
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this form 10-KSB [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of December 31, 1996 was based upon the last sale price of such
stock on that date as reported by the NASDAQ SmallCapSM Market was 7,162,996.
The number of shares of the Registrant's common Stock outstanding as of
December 31, 1996 was 9,279,47
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on June 11, 1997 are incorporated by reference in Part
III of this Report. Except as expressly incorporated by reference,
registrant's Proxy Statement shall not be deemed to be part of this Form
10-KSB.
<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 full time 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,
1996 1995 1994
Domestic Sales $4,816,108 $4,273,483 $3,431,374
Export (Including
Licensing Revenues) 2,371,007 2,155,748 1,463,974
_________ _________ _________
$7,187,115 $6,429,231 $4,895,348
_________ _________ _________
<PAGE>
Competition
The Company competes in the hospital market where there are many suppliers
with greater financial and personnel resources which sells a broad line of
commodity products and have a dedicated selling capability. The Company's
products are targeted to the neonatal and pediatric intensive care units
segment of the hospital market. The Company has been supplying competitively
priced, uniquely designed products responsive to this segment 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 1996, 1995 and 1994, the Company had sales to one customer which in
the aggregate accounted for approximately 13%, 12% and 13% of sales,
respectively.
Research and Development
In 1996, 1995 and 1994, the Company spent approximately $396,000, $405,000
and $335,000, 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, 1996, 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, dental 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 1996.
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 in Branford, Connecticut.
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.
ISO 9001
In September 1996, the quality system at CAS was certified to ISO 9001/EN
46001 by the accredited notified body, BSI Inc. This certification recognizes
CAS for its achievement in implementing and maintaining a world class quality
system and prepares CAS for the use of the "CE" mark. The CE mark will be
required in 1998 for medical devices to gain access to the European Union
common market.
<PAGE>
The FDA, recognizing the value of a universally accepted quality system, has
patterened its new version of the Good Manufacturing Practices after ISO 9001.
CAS is poised to easily adopt the new regulations which are set to become
mandatory in June 1997.
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, 1996, the
Company had a backlog of orders from customers for products with requested
ship dates in 1997 totaling approximately $434,000, deliverable throughout
1997, as compared to $880,000 as of December 31, 1995. During the first
quarter of 1997, the Company will fulfill approximately $228,000 of this
backlog.
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, which expires on December 31, 1998,
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:
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 in the over-the-counter
market, commonly referred to as the "pink sheets". 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 reflect inter-dealer
prices and may not represent actual transactions and do not include retail
mark-ups, mark-downs or commissions.
Period Ended High Low
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
March 31, 1996 1 1/4 1 1/16
June 30, 1996 1 1/2 1 1/4
September 30, 1996 15/16 7/8
December 31, 1996 7/8 3/4
(b) The following table sets forth the approximate number of
holders of record of Common Stock of the Company on December 31,
1996.
Title of Class Number of Shareholders
Common Stock, $.004 par value 400
Preferred Stock, $.001 par value 0
(c) No cash dividends have been declared on the Company's common
stock for 1996, 1995 and 1994.
(d) On January 1, 1996 and July 1, 1995 3,000 shares and 2,000
shares, respectively of the Company's Series C preferred stock were
redeemed at $100 per share plus all dividends. Dividends in the
amount of $40,000 and $50,000 were paid on these shares in 1995 and
1994, respectively.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources
As of December 31, 1996, the Company's cash and cash equivalents totaled
$1,606,979, compared to $1,082,003 at December 31, 1995 (an increase of 49%),
and the Company's working capital totaled $2,663,685 on December 31, 1996,
compared to $2,087,287 on December 31, 1995. The Company's increased cash
position is due to cash provided by operating activities in 1996. As a result
of improved liquidity in 1996, the Company was able to internally finance
approximately $84,000 of property and equipment additions and paid its
outstanding debt in full.
<PAGE>
The Company's working capital ratio decreased from 4.23 at December 31,
1995 to 3.98 at December 31, 1996.
At December 31, 1996, the Company had a line of credit with a Connecticut
bank totaling $500,000 which expires August 1, 1997. Borrowings under the
line bear interest at prime plus 1.0%. At December 31, 1996, 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 European 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. During
February 1997, the Company amended the original licensing agreement through
the year 2000. As part of this agreement, the Company will receive license
fees of $1,500,000 plus royalties, of which $650,000 has been received through
December 31, 1996. The manufacturer has the option to extend the license to
the year 2006 and only be liable for royalties. 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 1997 operations and its existing line of credit
arrangement will provide the Company with adequate liquidity and capital
resources to meet its 1997 financial requirements.
Results of Operations
1996 Compared to 1995
The Company earned $905,714 ($.09 per common share) in 1996, compared to
$848,891 ($.08 per common share) in 1995. The 1996 earnings performance was
favorably impacted by incremental gross margin generated by higher sales
volume and an increase in licensing fee revenues.
The Company's revenues for the year ended December 31, 1996 were
approximately $7,187,000 and exceeded the comparable period in 1995 by
approximately $758,000. Sales of non-invasive blood pressure modules to
Original Equipment Manufacturers ("OEM") who utilize the Company's technology
in their systems and Klear-Trace disposable products, were primarily
responsible for the growth in overall sales revenues.
Total cost of product sales decreased as a percentage of net product
sales from 45.9 percent to 43.7 percent when comparing 1996 to 1995. The
decrease in cost reflects an on-going quality and cost reduction efforts and a
more profitable product mix.
Selling, general and administrative expenses were approximately
$2,273,000 for the year ended December 31, 1995 and 1996. However, as a
percentage of net revenues, 1996 decreased to 31.6 percent from 35.3 percent
in 1995.
The Company's strong cash position enabled all outstanding debt to be
paid in full and resulted in excess cash. The Company earned approximately
$37,000 in 1996 from various investment accounts.
<PAGE>
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.
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.
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.
<PAGE>
ITEM 7. INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Balance Sheets - December 31, 1996 and 1995 F-2 to F-3
Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 F-4
Statements of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994 F-5
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-6 to F-7
Notes to Financial Statements F-8 to F-13
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 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Reference is made to the sections entitled "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Registrant's definitive proxy statement to be mailed to shareholders on or
about April 28, 1997 and filed with the Securities and Exchange Commission.
ITEM 10. 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 28, 1997, and filed
with the Securities and Exchange Commission.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 28, 1997, and filed with the
Securities and Exchange Commission.
ITEM 12. 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. On January 1, 1996, the Company
extended Dr. Myron L. Cohen's employment contract to December 31, 1997.
Compensation for 1996 is approximately $85,000.
<PAGE>
In September of 1996, the Company entered into a two year employment
agreement with Louis P. Scheps as President and Chief Executive Officer. On
September 1, 1996, the Company extended Mr. Scheps' employment contract to
August 31, 1998. Compensation is approximately $178,000 for 1996.
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.
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 1996 or 1995.
During 1994 royalties earned by the shareholder to the agreement totaled
$78,181. The Company recognized revenue on a straight-line basis over the
agreement period ($20,000 per year). Net royalty expenses were $58,181 during
1994.
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(A) 1. (a) Certificate of Incorporation of Registrant*
(b) By-Laws of Registrant*
2. Financial Data Schedule
* Incorporated by reference from the Exhibits filed in the Registrant's
Registration Statement 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
Page
Report of Independent Public Accountants F-1
Balance Sheets -- December 31, 1996 and 1995 F-2 to F-3
Statements of Income for the Years Ended December 31, F-4
1996, 1995 and 1994
Statements of Shareholders' Equity for the Years Ended F-5
December 31, 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended December
31, 1996, 1995 and 1994 F-6 to F-7
Notes to Financial Statements F-8 to F-13
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, 1996
and 1995, and the related statements of income, shareholders'
equity and cash flows for each of the three years in the period
ended December 31, 1996. 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, 1996 and 1995,
and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
January 21, 1997
<PAGE>
<TABLE>
F-2
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,606,979 $1,082,003
Accounts receivable, net of allowance for
doubtful accounts of $26,125 and $28,819
in 1996 and 1995, respectively 1,112,517 733,875
Inventories (Note 3) 759,762 843,304
Deferred tax asset 112,000 25,000
Other current assets 78,229 74,440
Total current assets 3,669,487 2,758,222
PROPERTY AND EQUIPMENT (Note 2):
Furniture and equipment 921,509 837,175
Leasehold improvements 47,181 47,181
968,690 884,356
Less-accumulated depreciation 782,680 705,712
186,010 178,644
Other assets 8,199 8,199
Total Assets $3,863,696 $2,945,465
<FN>
The accompanying notes to financial statements are an integral part of these
statements
</TABLE>
<PAGE>
<TABLE>
F-3
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
(continued)
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 206,644 $ 164,341
Income taxes payable 317,623 21,452
Accrued payroll 255,880 179,570
Accrued professional fees 67,729 54,500
Accrued warranty 45,000 45,000
Other accrued expenses 112,926 206,072
Total current liabilities 1,005,802 670,935
DEFERRED REVENUE (Note 5) - 44,444
SHAREHOLDERS' EQUITY (Notes 2, 6 and 7):
Preferred stock, $.001 par value, 1,000,000
shares authorized, stated at redemption
value, Series C cumulative preferred stock,
0 and 3,000 shares issued and outstanding
in 1996 and 1995, respectively - 300,000
Common stock, $.004 par value per share,
19,000,000 shares authorized, 9,329,277 and
9,279,477 shares issued and outstanding in
1996 and 1995, respectively 37,317 37,118
Additional paid-in capital 2,697,364 2,675,469
Retained earnings (deficit) 123,213 (782,501)
Total shareholders' equity 2,857,894 2,230,086
Total liabilities and shareholders' equity $3,863,696 $2,945,465
<FN>
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
F-4
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
REVENUES:
Net product sales $6,910,827 $6,163,848 $4,674,515
Licensing fees (Note 5) 276,288 265,383 220,833
7,187,115 6,429,231 4,895,348
OPERATING EXPENSES:
Cost of product sales 3,019,282 2,831,369 2,311,304
Selling, general and administrative 2,272,602 2,272,329 1,898,039
Research and development 396,234 405,022 334,729
Operating income 1,498,997 920,511 351,276
INTEREST INCOME (EXPENSE), net 36,717 13,380 (29,869)
Income before income taxes 1,535,714 933,891 321,407
PROVISION FOR INCOME TAXES (Note 8) 630,000 85,000 20,000
Net income $ 905,714 $ 848,891 $ 301,407
--------- -------- --------
PER SHARE DATA:
Net income per common share (Note 2) $ .09 $ .08 $ .03
--------- --------- ---------
Weighted average number of
common shares outstanding 10,254,265 9,858,916 9,239,785
__________ _________ _________
<FN>
The accompanying nots 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, 1996, 1995 AND 1994
<CAPTION>
Preferred Stock Common Stock
Additional Retained
---------------- ------------------
Paid-In Earnings/
Shares Amount Shares Amount
Capital (Deficit)
______ ________ ______ ______
__________ _________
<S> <C> <C> <C> <C>
<C> <C>
BALANCE, December 31, 1993 5,000 $500,000 9,239,477 $36,958
$2,664,728 $(1,842,799)
Net income - - - -
- 301,407
Preferred dividends - - - -
- (50,000)
------ ------- --------- ------
- --------- ----------
BALANCE, December 31, 1994 5,000 500,000 9,239,477 36,958
2,664,728 (1,591,392)
Common stock issued - - 40,000 160
10,741 -
Redemption of Preferred
Stock (2,000) (200,000) - -
- -
Net income - - - -
- 848,891
Preferred dividends - - - -
- (40,000)
------ ------- --------- ------
- ---------- ----------
BALANCE, December 31, 1995 3,000 300,000 9,279,477 37,118
2,675,469 (782,501)
Common stock issued - - 49,800 199
21,895 -
Redemption of Preferred
Stock (3,000) (300,000) - -
- -
Net income - - - -
- 905,714
------ ------- --------- ------
- --------- ----------
BALANCE, December 31, 1996 - - 9,329,277 $37,317
$2,697,364 $ 123,213
<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, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $905,714 848,891 301,407
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 76,968 79,089 104,683
Loss on sale of equipment - - 4,824
(Increase) decrease in accounts receivable (378,642) 60,684 106,601
(Increase) decrease in inventory 83,542 (32,316) (19,204)
Increase in deferred tax asset (87,000) (25,000) -
(Increase) decrease in other current assets (3,789) 641 22,249
Increase (decrease) in accounts
payable and accrued expenses 334,867 339,578 (85,186)
Increase in other assets - - (8,199)
Decrease in deferred revenue (44,444) (47,778) (67,778)
------- --------- -------
Net cash provided by operating activities 887,216 1,223,789 359,397
------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (84,334) (69,748) (35,109)
Proceeds from sale of equipment - - 550
Net cash used in investing activities (84,334) (69,748) (34,559)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment under line of credit - - (5,000)
Preferred dividends - (40,000) (50,000)
Repayment of debt to related parties - (144,411) (183,293)
Repayment of debt to unrelated - - (46,526)
Proceeds from issuance of common stock 22,094 10,901 -
Redemption of shares of preferred stock (300,000) (200,000) -
------- ------- -------
Net cash used in financing activities (277,906) (373,510) (284,819)
------- ------- -------
Net increase in cash and cash
equivalents 524,976 780,531 40,019
CASH AND CASH EQUIVALENTS, beginning of
year 1,082,003 301,472 261,453
CASH AND CASH EQUIVALENTS, end of year $1,606,979 $1,082,003 $ 301,472
--------- --------- -------
</TABLE>
<PAGE>
<TABLE>
F-7
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Continued)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for interest 1,555 5,458 31,510
Cash paid during the year for taxes $ 424,175 $ 52,650 $ 25,500
<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, 1996
(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
1996, 1995 and 1994, the Company had sales to one customer which in the
aggregate accounted for approximately 13%, 12% and 13% of sales,
respectively, and had export sales principally to Europe, including
licensing fee revenues, of $2,371,007, $2,155,748 and $1,463,974,
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 5).
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.
<PAGE>
F-9
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.
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:
1996 1996
Raw materials $472,761 $505,159
Work in process 135,955 160,215
Finished goods 151,046 177,930
_______ _______
$759,762 $843,304
(4) Debt:
At December 31, 1996, 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, 1997 and bears interest
at the prime rate (8.25% at December 31, 1996) plus 1%. During 1996,
1995 and 1994, the maximum month end borrowings outstanding under
this line were $100,000, $50,000 and $200,000, the weighted average
borrowings were $8,333, $4,167 and $92,100, and the weighted average
interest rates on amounts outstanding were 9.52%, 10.3% and 8.3%,
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, 1996).
(5) License Agreements:
On July 27, 1994, the Company entered into a four year licensing
agreement (subsequently amended through the year 2000) with a major
European manufacturer of medical equipment, canceling and superseding a
prior licensing agreement with this company. 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
<PAGE>
F-10
receive $1,500,000 plus royalties through the year 2000, of which $650,000
has been received through December 31, 1996. The manufacturer has the
option to extend the license to 2006. License fees from thisagreement and
deferred revenue of $140,000 from the prior license agreement are being
recognized over the new contract period.
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
1996 or 1995. During 1994 , royalties earned by the Shareholder pursuant
to this agreement totaled $78,181. 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 during 1994.
(6)Capital Stock:
Holders of the Series C cumulative preferred stock were entitled to a
cumulative dividend, payable quarterly, at the annual rate of $10 per
share. On July 1, 1995, 2,000 shares of the Company's Series C preferred
stock were redeemed at $100 per share plus dividends accrued. On January
17, 1996, the remaining 3,000 shares of the Company's Series C preferred
stock were redeemed at $100 per share plus accrued dividends. Preferred
dividends of $40,000 and $50,000 were paid on these shares in 1995 and
1994, respectively. No dividends may be paid on common stock unless all
accumulated dividends have been paid on the Series C cumulative preferred
stock.
(7)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 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.
<PAGE>
F-11
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.
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock issued to
Employees," and related interpretations. Accordingly, had compensation
cost for these plans been determined consistent with FASB Statement No.
123, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
1996 1995
Net income: As reported $905,714 $848,891
Pro Forma 782,890 833,891
Primary and Fully
Diluted EPS As reported .09 .08
Pro Forma .08 .08
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
In 1993, the Company granted a warrant to purchase 750,000 shares of
common stock to an officer of the Company. The exercise price ($.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.
<PAGE>
<TABLE>
F-11 continued
A summary of the Company's stock option plans at December 31, 1996, 1995 and
1994 and
changes during the years then ended is presented in the table and narrative
below:
<CAPTION>
Weighted Weighted
Weighted
Average Average
Average
Exercise Exercise
Exercise
Shares Price Shares Price Shares
Price
<S> <C> <C> <C> <C> <C>
<C>
Outstanding at
Beginning of year 980,900 $.49 990,900 $.48 920,900
$.49
Granted 256,500 .96 75,000 .52 120,000
.31
Exercised ( 39,800) .29 ( 40.000) .27 -
-
Cancelled ( 17,500) .31 ( 45,000) .44 ( 50,000)
.25
_________ _______ _______
Outstanding at
end of year 1,180,100 $.58 980,900 $.49 990,900
$.48
Exercisable at
end of year 1,105,100 895,900 870,900
</TABLE>
<PAGE>
F-12
495,600 of the 1,180,100 options outstanding at December 31, 1996 have
exercise prices between $.25 and $.375, with a weighted average exercise
price of $.34 and a weighted average remaining contractual life of 5.3
years. All of these options are exercisable. 659,500 of the 1,180,100
options outstanding have exercise prices between $.625 and $.93, with a
weighted average exercise price of $.78 and a weighted average remaining
contractual life of 6.4 years. 609,500 of these options are exercisable;
their weighted average exercise price is $.77. The remaining 25,000
shares have an exercise and weighted average exercise price of $1.25 and a
weighted average remaining contractual life of 9.5 years. None of these
options are exercisable. The weighted average fair value of options
granted during the year was $.80 and $.43 for 1996 and 1995, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995: risk-free
interest rates of 6.06 and 6.94 percent; expected lives of 10 years;
expected volatility of 74 percent.
Life Insurance-
During 1996, 1995 and 1994, 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.
401(k) Plan-
The Company maintains 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 1996 and 1995
contributions were $31,512 and $28,166, respectively. The Company did not
make discretionary contributions in 1994.
The Company does not provide other post-retirement or other
post-employment benefits.
(8) Income Taxes:
The Company follows 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.
<PAGE>
F-13
The 1996 provision for income taxes of $630,000 consists of federal and
state taxes of $535,000 and $95,000, respectively. The provision relates
primarily to current income taxes. The 1995 and 1994 provisions for
income taxes of $85,000 and $20,000, respectively, represent state income
taxes, and in 1994, federal alternative minimum taxes, and are net of tax
benefits of net operating loss carryforwards utilized in 1995 and 1994 of
$874,000 and $104,000, respectively. As of December 31, 1995, the Company
had utilized substantially all of its net operating loss carryforwards.
The effective tax rate differs from the federal statutory rate of 34%
principally because of state income taxes and, in 1995 and 1994, the
utilization of net operating loss carryforwards. The deferred tax assets
relate primarily to certain inventories and accruals which are not
currently deductible for income tax purposes.
(10) Commitments and Contingencies:
Employment Agreements-
The Company is committed under employment agreements with certain officers
aggregating $260,000 which expire beginning in 1997.
Other Commitments-
Minimum annual rentals under the Company's non-cancelable lease agreement
covering its principal office space, which expires on December 31, 1998
and includes escalations for real estate taxes, are as follows:
1997 $104,000
1998 110,000
_______
$214,000
Rent expense was approximately $108,000, $102,000 and $105,000 for the
years ended December 31, 1996, 1995 and 1994, 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, 1997 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, 1997 Myron L. Cohen
Date Myron L. Cohen
Executive Vice President
March 25, 1997 Lawrence Burstein
Date Lawrence Burstein
Director
March 25, 1997 Jerome Baron
Date Jerome Baron
Director
March 25, 1997 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,606,979
<SECURITIES> 0
<RECEIVABLES> 1,112,517
<ALLOWANCES> 0
<INVENTORY> 759,762
<CURRENT-ASSETS> 3,669,487
<PP&E> 968,690
<DEPRECIATION> 782,680
<TOTAL-ASSETS> 3,863,696
<CURRENT-LIABILITIES> 1,005,802
<BONDS> 0
<COMMON> 37,317
0
0
<OTHER-SE> 123,213
<TOTAL-LIABILITY-AND-EQUITY> 3,863,696
<SALES> 6,910,827
<TOTAL-REVENUES> 7,187,115
<CGS> 3,019,282
<TOTAL-COSTS> 2,668,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (36,717)
<INCOME-PRETAX> 1,535,714
<INCOME-TAX> 630,000
<INCOME-CONTINUING> 905,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 905,714
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
