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 March 31, 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 March 31, 1998.
<PAGE>
PART I
ITEM 1. 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 March 31,
1998 and the results of its operations and its cash flows for the three
months ended March 31, 1998 and 1997 have been included.
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<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
<CAPTION>
March 31, 1998 December 31, 1997
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $2,036,832 $2,190,345
Accounts receivable, net of allowance
for doubtful accounts 921,190 1,055,881
Inventory 860,839 725,121
Deferred tax assets 112,000 112,000
Other current assets 110,245 70,339
---------- ---------
Total current assets 4,041,106 4,153,686
---------- ---------
Property and Equipment
Furniture and equipment 1,104,677 1,048,430
Leasehold improvements 58,079 58,079
---------- ---------
1,162,756 1,106,509
Less-Accumulated depreciation
and amortization 901,090 874,855
---------- ---------
261,666 231,654
Other Assets, net of accumulated
amortization 8,199 8,199
---------- ---------
Total assets $4,310,971 $4,393,539
__________ _________
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
<CAPTION>
March 31, 1998 December 31, 1997
(unaudited) (audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 198,831 $239,172
Income taxes payable 290,246 247,392
Accrued payroll 42,445 198,639
Accrued professional fees 20,750 61,000
Accrued warranty 30,000 30,000
Other accrued expenses 23,300 94,400
---------- --------
Total current liabilities 605,572 870,603
---------- --------
Shareholders' Equity:
Common stock, $.004 par value per
share, 19,000,000 shares authorized,
9,329,277 shares issued and outstand-
ing in 1998 and 1997. 37,317 37,317
Additional paid-in capital 2,697,364 2,697,364
Retained earnings 970,718 788,255
---------- ---------
Total shareholders' equity 3,705,399 3,522,936
---------- ---------
Total liabilities and
shareholders' equity $ 4,310,971 $4,393,539
__________ _________
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
REVENUES:
Net product sales $1,677,450 $1,738,996
Licensing fees 77 525 91,555
--------- ---------
1,754,975 1,830,551
OPERATING EXPENSES:
Cost of product sales 665,863 734,958
Selling, general and
administrative 687,673 564,849
Research and development 119,355 119,221
--------- ---------
Operating Income 282,084 411,523
--------- ---------
INTEREST INCOME, Net 20,379 23,353
--------- ---------
Income Before Income Taxes 302,463 434,876
PROVISION FOR INCOME TAXES 120,000 174,000
--------- ---------
Net Income 182,463 260,876
_________ _________
Weighted average number of common
shares outstanding:
Basic 9,329,277 9,329,277
_________ _________
Assuming dilution 9,938,616 9,960,817
_________ _________
Earnings per common share:
Basic $ .02 $ .03
_________ _________
Assuming dilution $ .02 $ .03
_________ _________
<FN>
See Notes To Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 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
three months - - - 288,397
--------- ------- ---------- ------------
Balance
March 31, 1997
(Unaudited) 9,329,277 $37,317 $2,697,364 $ 384,089
_________ _______ __________ ____________
<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
three months - - - 182,463
--------- ------ --------- ----------
Balance,
March 31, 1998
(Unaudited) 9,329,277 $37,317 $2,697,364 $ 970,718
_________ _______ _________ __________
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<CAPTION>
Three Months Ended March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $182,463 $ 260,876
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 26,235 23,212
Decrease in accounts receivable 134,691 76,864
(Increase) in inventory (135,718) ( 9,956)
(Increase) Decrease in other
current assets ( 39,906) 13,188
(Decrease) in accounts payable
and accrued expenses (265,031) (264,123)
_________ _________
Net cash used in operating
activities ( 97,266) 100,061
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures ( 56,247) ( 46,921)
_________ _________
Net cash used in investing activities ( 56,247) ( 46,921)
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used in financing
activities - -
Net (decrease) increase in cash and
cash equivalents (153,513) 53,140
_________ _________
CASH AND CASH EQUIVALENTS, at beginning
of period 2,190,345 1,606,979
_________ _________
CASH AND CASH EQUIVALENTS, at end of period $2,036,832 $1,660,119
_________ _________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ - $ -
Cash paid during the period for income
taxes $ 81,500 $125,000
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
CAS MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(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.
(2) Summary of Significant Accounting Policies:
Inventory
Inventory is stated at the lower of first-in, first-out (FIFO) cost or
market. At March 31, 1998 and December 31, 1997, inventory consisted of the
following:
March 31, December 31,
1998 1997
Raw Material 534,820 459,358
Work-In-Process 181,158 173,598
Finished Goods 144,861 92,165
-------- -------
$860,839 $725,121
________ _______
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.
Net Income Per Common Share
Net income per common share has been computed by dividing net income
available for common stock, by the weighted average number of common shares
outstanding. Weighted average shares outstanding include the common
equivalent shares calculated for the stock options and warrants under the
treasury stock method.
Reclassifications
Certain reclassifications were made to prior year amounts to conform to
current year presentation.
<PAGE>
Notes to Financial Statements - (Continued)
(3) Debt
At March 31, 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 March 31, 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.
(4) License Agreement:
On July 27, 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 special 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 $895,000 in license fees has been received through
March 31, 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.
(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 $1,800,000.
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
As of March 31, 1998, the Company's cash and cash equivalents
totaled $2,036,832 compared to $2,190,345 at December 31, 1997, and the
Company's working capital totaled $3,435,534 on March 31, 1998,
compared to $3,283,083 on December 31, 1997. The Company's decreased
cash position is due primarily to increased inventory levels from the
prior year.
<PAGE>
Notes to Financial Statements - (Continued)
At March 31, 1998, The Company had a line of credit with a Connecticut
bank totalling $750,000. Borrowings under the line bears interest at the
prime rate plus 1.0%. At March 31, 1998, there were no borrowings outstanding
under this line.
The Company believes that 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 first quarter of the current year was approximately
$182,000 or $.02 per common share assuming dilution, compared to $261,000 or
$.03 per common share assuming dilution, reported for the first quarter of
1997. The 1998 earnings performance was impacted by softness in sales of
certain of the Company's product lines and the increased expenses by
additional personnel in the selling department.
The Company's revenues for the three month period ended March 31, 1998
were approximately $1,755,000 as compared to approximately $1,831,000 for the
comparable period in the prior year. The small decrease in 1998 is due
primarily by softness in sales of certain (OEM) original equipment
manufacturer contracts, prompted by corporate acquisitons. The Company was
able to recover most of the loss by obtaining new contracts.
Total cost of product sales decreased as a percent of net product sales
from 42.3 percent to 39.7 percent when comparing 1998 and 1997. The decrease
in cost reflects on-going quality and cost reduction efforts and a more
profitable product mix.
Selling, general administrative, advertising and promotion expenses were
approximately $688,000 for the first quarter of 1998, compared to
approximately $565,000 for the same period of 1997, an increase of $123,000 or
22 percent. The overall increase in 1998 is the result of additional sales
personnel, which were placed during the second quarter of 1997 and increased
advertising and promotion expenses for 1998.
The Company currently invests its excess cash in low-risk, short term
interest bearing instruments. During the three month period ended March 30,
1998, the Company earned approximately $20,000 of interest income compared to
approximately $23,000 for the same period of 1997.
The provision for income taxes of $120,000 and $174,000 for the three
month period ended March 31, 1998 and 1997, respectively, represents state and
federal income taxes.
These factors and licensing revenues resulted in net income of
approximately $182,000 for the first quarter of 1998, as compared to net
income of approximately $261,000 for the comparable period in the prior year.
<PAGE>
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
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)
May 11, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,036,832
<SECURITIES> 0
<RECEIVABLES> 921,190
<ALLOWANCES> 0
<INVENTORY> 860,839
<CURRENT-ASSETS> 4,041,106
<PP&E> 1,162,756
<DEPRECIATION> 901,090
<TOTAL-ASSETS> 4,310,971
<CURRENT-LIABILITIES> 605,572
<BONDS> 0
<COMMON> 37,317
0
0
<OTHER-SE> 970,718
<TOTAL-LIABILITY-AND-EQUITY> 4,310,971
<SALES> 1,677,450
<TOTAL-REVENUES> 1,754,975
<CGS> 665,863
<TOTAL-COSTS> 687,673
<OTHER-EXPENSES> 119,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> ( 20,379)
<INCOME-PRETAX> 302,463
<INCOME-TAX> 120,000
<INCOME-CONTINUING> 182,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,463
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
