FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1998
Commission File Number 2-96271-B
CAS MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its 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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.004 par value: 9,329,277 shares as of June 30, 1998.
<PAGE>
PART I. - FINANCIAL INFORMATION
The condensed financial statements included herein have been prepared
by CAS Medical Systems, Inc. (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. While
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, the Company believes that the disclosures made herein are
adequate to make the information presented not misleading. It is
recommended that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report filed on Form 10-KSB for the year ended December
31, 1997.
In the opinion of the Company, all adjustments necessary to present
fairly the financial position of CAS Medical Systems, Inc. as of June 30,
1997, and the results of its operations and its cash flows for the three
months and six months ended June 30, 1998 and 1997 have been included.
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS
<CAPTION>
(Unaudited) (Audited)
June 30, 1998 December 31, 1997
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $1,530,618 $2,190,345
Accounts receivable, net of allowance
for doubtful accounts 1,024,322 1,055,881
Inventory 876,241 725,121
Other current assets 132,121 182,339
---------- ---------
Total current assets 3,563,302 4,153,686
---------- ---------
Property and Equipment
Land and improvements 535,000 -
Furniture and equipment 1,131,206 1,048,430
Construction in progress 125,554 -
Leasehold improvements 58,079 58,079
----------- ---------
1,849,839 1,106,509
Less-Accumulated depreciation
and amortization 930,138 874,855
----------- ---------
919,701 231,654
Other Assets, net of accumulated
amortization 8,199 8,199
---------- ---------
Total assets $4,491,202 $4,393,539
__________ _________
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<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS
<CAPTION>
(Unaudited) (Audited)
June 30, 1998 December 31, 1997
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 185,620 $239,172
Income taxes payable 233,673 247,392
Accrued payroll 69,916 198,639
Accrued professional fees 31,000 61,000
Accrued warranty 30,000 30,000
Other accrued expenses 42,366 94,400
---------- --------
Total current liabilities 592,575 870,603
---------- --------
Shareholders' Equity:
Common stock, $.004 par value per share,
19,000,000 shares authorized, 9,329,277
shares issued and outstanding in 1998
and 1997. 37,317 37,317
Additional paid-in capital 2,697,364 2,697,364
Retained earnings 1,163,946 788,255
---------- ---------
Total shareholders' equity 3,898,627 3,522,936
---------- ---------
Total liabilities and
shareholders' equity $ 4,491,202 $4,393,539
__________ _________
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE SIX MONTHS AND THREE MONTHS ENDED
JUNE 30, 1998 AND 1997
(Unaudited)
<CAPTION>
Six Months Ended Three Months
Ended
June 30, June 30,
1998 1997 1998
1997
________________
________________
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $3,486,465 $3,292,271 $1,809,015
$1,553,275
Licensing fees 140,809 149,004 63,284
57,449
--------- --------- ---------
- ---------
3,627,274 3,441,275 $1,872,299
1,610,724
OPERATING EXPENSES:
Cost of product sales 1,411,388 1,388,658 745,525
653,700
Selling, general & administrative 1,383,081 1,231,359 695,408
666,510
Research & development 271,237 243,709 151,882
124,488
--------- --------- ---------
- ---------
Operating income 561,568 577,549 279,484
166,026
--------- --------- ---------
- ---------
Interest income, net 64,123 32,027 43,742
8,674
--------- --------- ---------
- ---------
Income Before Income Taxes 625,691 609,576 323,226
174,700
PROVISION FOR INCOME TAXES 250,000 246,000 130,000
72,000
--------- --------- ---------
- ---------
Net Income $ 375,691 $ 363,576 $ 193,226 $
102,700
_________ _________ _________
_________
Weighted average shares
outstanding 9,329,277 9,329,277 9,329,277
9,329,277
Add: dilutive warrants and options 601,767 593,171 580,946
530,709
_________ _________ _________
_________
Total weighted average shares and
dilutive securities outstanding 9,931,044 9,922,448 9,910,223
9,859,986
_________ _________ _________
_________
Net income per share:
Basic $0.04 $0.04 $0.02
$0.01
_________ _________ _________
_________
Assuming Dilution $0.04 $0.04 $0.02
$0.01
_________ _________ _________
_________
<FN>
See Notes To Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital (Deficit)
______________ __________ ___________
<S> <C> <C> <C> <C>
Balance,
December 31,
1996 (Audited) 9,329,277 $37,317 $2,697,364 $ 123,213
Net income for
six months - - - 363,576
--------- ------- ---------- ------------
Balance
June 30, 1997 9,329,277 $37,317 $2,697,364 $ 486,789
(Unaudited) _________ _______ __________ ___________
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital (Deficit)
______________ __________ ___________
<S> <C> <C> <C> <C>
Balance,
December 31,
1997 (Audited) 9,329,277 $37,317 $2,697,364 $ 788,255
Net income for
six months - - - 375,691
--------- ------- ---------- ----------
Balance
June 30, 1998 9,329,277 $37,317 $2,697,364 $1,163,946
(Unaudited) _________ _______ __________ __________
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<CAPTION>
Six Months Ended June 30,
1998 1997
__________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 375,691 $ 363,576
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 55,283 46,344
Decrease in accounts receivable 31,559 374,393
(Increase) in inventory (151,120) ( 60,170)
Decrease in other current assets 50,218 54,697
(Increase) in accounts payable and
accrued expenses (278,028) (511,980)
________ _______
Net cash provided by operating
activities 83,603 266,860
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (743,330) ( 46,315)
________ _______
Net cash used in investing activities (743,330) ( 46,315)
Net increase (decrease) in cash and
cash equivalents (659,727) 220,545
CASH AND CASH EQUIVALENTS, at beginning
of period 2,190,345 1,606,979
_________ _________
CASH AND CASH EQUIVALENTS, at end of period $1,530,618 $1,827,524
__________ _________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ - $ -
Cash paid during the period for income taxes $ 188,700 $ 323,000
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
CAS MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
Note 1. The Company:
CAS Medical Systems, Inc., (the Company), was organized in 1984
primarily to serve neonatal and pediatric units in hospitals. Today,
the Company is engaged in the business of developing, manufacturing and
distributing diagnostic equipment and medical products for use in the
health care 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.
Note 2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of first-in, first-out (FIFO)
cost or market. At June 30, 1998 and December 31, 1997, inventory
consisted of the following:
June 30, December 31,
1998 1997
Raw Material $528,833 $459,358
Work-In-Process 154,984 173,598
Finished Inventory 192,424 92,165
------- -------
$876,241 $725,121
_______ _______
Property and Equipment
Property and equipment are stated at cost. Furniture and
equipment are depreciated, using the straight-line method over the
estimated useful lives of the assets which range from two to five
years. Leasehold improvements are amortized over the life of the
lease.
<PAGE>
Notes to Financial Statements (Continued)
Net Income Per Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share ("SFAS No. 128")." Under SFAS No. 128, primary earnings per
share ("EPS") has been replaced with Basic EPS, which is calculated by
dividing net income by the weighted average number of shares of common
stock outstanding during the year. No dilution for any potentially
dilutive securities is included. Fully diluted EPS has been replaced
with Diluted EPS and assumes the conversion of all potentially dilutive
securities using the treasury stock method. The Company adopted SFAS
No. 128 in 1997.
As of December 31, 1997, the Company had 1,180,100 options and
750,000 warrants to purchase shares of common stock outstanding.
Options to purchase 527,000 shares of common stock at an average
price of $.86 per share were outstanding during the first half of 1998
but were not included in the computation of diluted EPS because the
options exercise price was greater than the average market price of the
common shares.
Reclassifications
Certain reclassifications were made to prior year amounts to
conform the current year presentation.
Note 3. Debt:
At June 30, 1998, the Company had a line of credit with a Connecticut
bank totalling $750,000. Borrowings under the line of credit bears
interest at the prime rate plus 1.0%. At June 30, 1998 there were no
borrowings outstanding under this line. 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.
Note 4. License Agreement:
On July 1994, the Company entered into a four year licensing agreement
with a major European manufacturer of patient monitors, granting a
non-exclusive 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 the agreement,
the Company will receive license fees of $1,500,000 plus royalties, of
which $1,006,000 has been received through June 30, 1998. 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.
<PAGE>
Notes to Financial Statements (Continued)
Note 5. New Facility
The company has entered into a contract to build a 24,000 square foot
office, laboratory and manufacturing facility on 4.6 acres of land in
Branford, Connecticut. the total cost is estimated to be $2,100,000.
Present plans are to occupy the new facility in late 1998.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At June 30, 1998, the Company's cash and cash equivalents totaled
$1,530,618 compared to $2,190,345 at December 31, 1997 and the
Company's working capital totaled $2,970,727 on June 30, 1998, compared
to $3,283,083 on December 31, 1997. The Company's decreased cash
position is due to the acquisition of 4.6 acres of land to build the
new facility.
At June 30, 1998, the Company had a line of credit with a
Connecticut bank totaling $750,000. Borrowings under the line bears
interest at the prime rate plus 1.0%. At June 30, 1998, there were no
borrowings under the line.
The Company believes that the cash generated from operations and
its bank line of credit will be sufficient to meet the Company's
short-term liquidity needs.
Results of Operations
Net income for the six month period ended June 30, 1998 was
approximately $376,000($0.04 per share assuming dilution), compared to
approximately $364,000 ($0.04 per share assuming dilution), for the
same period of 1997. Net income for the second quarter of the current
year was approximately $193,000 ($.02 per share assuming dilution),
compared to approximately $103,000 ($0.01 per share assuming
dilution), reported for the second quarter of 1997. The 1998 earnings
performance was impacted by increased sales of certain of the Company's
product lines, Neoguard (TM), and increased expenses by additional
personnel, both in the selling and research development departments.
The Company's revenues for the three month period ended June 30,
1998 were approximately $1,872,000 as compared to approximately
$1,611,000 for the comparable period in the prior year. Revenues for
the six month period ended June 30, 1998 reached approximately
$3,627,000, compared to approximately $3,441,000 of the comparable
period of 1997. Revenues for 1998 reflects a significant increase of
43 percent for Klear-Trace disposable products whereas diagnostic
equipment sales decreased by 27 percent.
<PAGE>
Notes to Financial Statements (Continued)
Gross profit increased to 59.5 percent from 57.6 percent when
comparing 1998 to 1997. The increase in gross profit reflects on going
quality and cost reduction efforts and a more profitable product mix.
Selling, general and administrative, research and development expenses
were approximately $1,654,000 for the six month period ended June 30, 1998
as compared to approximately $1,475,000 for the same period of 1997, an
increase of $179,000 or 12 percent. This increase in expenses for 1998 is
due primarily to additional personnel both in the selling and research
development departments.
The Company currently invests its excess cash in low-risk, short term
interest bearing instruments. During the six month period ended June 30,
1998, the Company earned approximately $64,000 of interest income compared
to approximately $32,000 for the same period of 1997.
The provision for income taxes of $250,000 and $246,000 for the six
month period ended June 30, 1998 and 1997, respectively, represents state
and federal income taxes.
These factors and licensing revenues resulted in net income of
approximately $376,000 for the period ended June 30, 1989, as compared to
net income of approximately $364,000 for the comparable period in the prior
year.
PART II
ITEM 3 EXHIBITS AND REPORTS
(A) Exhibits
11. See Notes to Financial Statements Note 2, regarding
computation of earnings per Share.
(B) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities 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
August 1, 1997 Louis P. Scheps
Date Louis P. Scheps
President and Chief Executive Officer
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000764579
<NAME> CAS MEDICAL SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,530,618
<SECURITIES> 0
<RECEIVABLES> 1,024,322
<ALLOWANCES> 0
<INVENTORY> 876,241
<CURRENT-ASSETS> 3,563,302
<PP&E> 1,849,839
<DEPRECIATION> 930,138
<TOTAL-ASSETS> 4,491,202
<CURRENT-LIABILITIES> 592,575
<BONDS> 0
<COMMON> 37,317
0
0
<OTHER-SE> 1,163,946
<TOTAL-LIABILITY-AND-EQUITY> 4,491,202
<SALES> 3,486,465
<TOTAL-REVENUES> 3,627,274
<CGS> 1,411,388
<TOTAL-COSTS> 1,383,081
<OTHER-EXPENSES> 271,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (64,123)
<INCOME-PRETAX> 625,691
<INCOME-TAX> 250,000
<INCOME-CONTINUING> 375,691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 375,691
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
