UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 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 practical date.
Common Stock, $.004 par value: 9,329,277 shares as of September 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 September
30, 1998 and December 31, 1997 and the results of its operations and its
cash flows for the three months and nine months ended September 30, 1998
and 1997 have been included.
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share data)
<CAPTION>
September 30, 1998 December 31, 1997
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $1,657,477 $2,190,345
Accounts receivable, net of allowance
for doubtful accounts 929,967 1,055,881
Inventory 956,514 725,121
Other current assets 196,823 182,339
---------- ---------
Total current assets 3,740,781 4,153,686
---------- ---------
Property and Equipment
Land and improvements 535,000 -
Furniture and equipment 1,172,961 1,048,430
Construction in progress 665,798 -
Leasehold improvements 58,079 58,079
----------- ---------
2,431,838 1,106,509
Less-Accumulated depreciation
and amortization 959,298 874,855
----------- ---------
1,472,540 231,654
Other Assets, net of accumulated
amortization 8,199 8,199
---------- ---------
Total assets $5,221,520 $4,393,539
__________ _________
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share data)
<CAPTION>
September 30, 1998 December 31, 1997
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 489,880 $ 239,172
Income taxes payable 311,195 247,392
Accrued payroll 108,752 198,639
Accrued professional fees 44,750 61,000
Accrued warranty 20,000 30,000
Other accrued expenses 210,761 94,000
---------- --------
Total current liabilities 1,185,338 870,603
---------- --------
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 1,301,501 788,255
---------- ---------
Total shareholders' equity 4,036,182 3,522,936
---------- ---------
Total liabilities and
shareholders' equity $ 5,221,520 $4,393,539
__________ _________
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE NINE MONTHS AND THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(Amounts in thousands, except per share data)
<CAPTION>
(Unaudited) (Unaudited)
Nine Months Ended Three Months
Ended
September 30, September
30,
1998 1997 1998
1997
________________
________________
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $5,210,630 $4,646,181 $1,724,165
$1,353,910
Licensing fees 222,373 201,943 81,564
52,939
--------- --------- ---------
- ---------
5,443,003 4,848,124 $1,805,729
1,406,849
OPERATING EXPENSES:
Cost of product sales 2,178,635 2,008,707 767,247
620,049
Selling, general & administrative 2,072,316 1,843,427 689,235
612,068
Research & development 410,463 375,528 139,226
131,819
--------- --------- ---------
- ---------
Operating Income 771,589 620,462 210,021
42,913
--------- ---------- ---------
- ---------
Interest Income, net 84,657 59,819 20,534
27,792
--------- --------- ---------
- ---------
Income Before Income Taxes 856,246 680,281 230,555
70,705
PROVISION FOR INCOME TAXES 343,000 272,000 93,000
26,000
--------- --------- ---------
- ---------
Net Income $ 513,246 $ 408,281 $ 137,555 $
44,705
_________ _________ _________
_________
Weighted average shares
outstanding: 9,329,277 9,329,277 9,329,277
9,329,277
Add: dilutive warrants & options 519,260 601,767 408,145
580,946
_________ _________ _________
_________
Total weighted average shares
and dilutive securities
outstanding 9,848,537 9,931,044 9,737,422
9,910,223
_________ __________ __________
__________
Net income per share:
Basic $0.06 $0.04 $0.01 $0.00
Assuming dilution $0.05 $0.04 $0.01 $0.00
_________ _________ _________
_________
<FN>
See Notes To Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 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
nine months - - - 408,281
--------- ------- ---------- ------------
Balance
September 30, 1997
(Unaudited) 9,329,277 $37,317 $2,697,364 $ 531,494
_________ _______ __________ ___________
<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
nine months - - - 513,246
--------- ------- ---------- ------------
Balance
September 30,
1998 9,329,277 $37,317 $2,697,364 $ 1,301,501
(Unaudited) _________ _______ __________ ____________
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(Amounts in thousands)
<CAPTION>
Nine Months Ended September 30,
1998 1997
___________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 513,246 $ 408,281
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 84,443 69,755
Decrease in accounts receivable 125,914 439,623
(Increase) in inventory (231,393) ( 37,490)
(Increase) Decrease in other current
assets ( 14,484) 45,247
Increase (Decrease) in accounts payable
and accrued expenses 314,735 ( 255,010)
_______ _______
Net cash provided by operating activities 792,461 670,406
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (1,325,329) ( 47,566)
_________ _______
Net cash (used in) investing activities (1,325,329) ( 47,566)
Net increase in cash and cash equivalents ( 532,868) 622,840
CASH AND CASH EQUIVALENTS, at beginning
of period 2,190,345 1,606,979
CASH AND CASH EQUIVALENTS, at end of period $1,657,477 $2,229,819
_________ _________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 34 $ -
Cash paid during the period for income taxes $277,262 $427,500
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
CAS MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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 September 30, 1998 and December 31, 1997, inventory
consisted of the following:
September 30, December 31,
1998 1997
Raw Material $607,413 $459,358
Work-In-Process 90,950 173,598
Finished Inventory 258,151 92,165
------- -------
$956,514 $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
dilultive 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 September 30, 1998, the Company had 1,180,100 options and
750,000 warrants to purchase shares of common stock outstanding.
Options to purchase 727,000 shares of common stock at an average
price of $.79 per share were outstanding during the first nine months
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 to current year presentation.
Note 3. Debt:
At September 30, 1998, the Company had a line of credit with a
Connecticut bank totaling $1,000,000. Borrowings under the line of
credit bear interest at the prime rate plus 1.0%. At September 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 27, 1994, the Company entered into a 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 license agreement through the year 2000. As part of the
agreement, the Company will receive license fees of $1,500,000 plus
royalties, of which $1,221,000 has been received through September 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 $2,200,000.
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 September 30, 1998, the Company's cash and cash equivalents
totaled $1,657,477 compared to $2,190,345 at December 31, 1997. The
Company's working capital totaled $2,555,443 on September 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 September 30, 1998, the Company had a line of credit with a
Connecticut bank totaling $1,000,000. Borrowing under the line bears
interest at the prime rate plus 1.0%.
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 nine month period ended September 30, 1998 was
approximately $513,000 ($0.05 per share assuming dilution), compared to
approximately $408,000 ($0.04 per share assuming dilution), reported for
the same period of 1997. Net income for the third quarter of the current
year was approximately $138,000 compared to $45,000 reported for the third
quarter of 1997. The 1998 earnings performance was impacted by increased
sales of certain of the Company's product lines.
The Company's revenues for the third quarter ended September 30, 1998
were approximately $1,806,000 as compared to approximately $1,407,000 for
the comparable period in the prior year. Revenues for the nine month
period ended September 30, 1998 reached approximately $5,433,000, an
increase of approximately $585,000 from the comparable period of 1997.
Revenues for 1998 reflects a significant increase of 36 percent for
Klear-Trace disposable products, whereas diagnostic equipment sales
decreased by 12 percent.
<PAGE>
Notes to Financial Statements (Continued)
Total cost of product sales as a percentage of net product sales was
41.8 percent for 1998 compared to 43.2 percent for 1997. The favorable
impact reflects on going quality and cost-reduction efforts and a more
profitable product mix.
Selling, general and administrative, research and development expenses
were approximately $2,483,000 for the nine month period ended September 30,
1998 as compared to approximately $2,219,000 for the same period of 1997, an
increase of $264,000 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 nine month period ended September
30, 1998, the Company earned approximately $85,000 of interest income
compared to approximately $60,000 for the same period of 1997.
The provision for income taxes of $343,000 and $272,000 for the nine
month period ended September 30, 1998 and 1997, respectively, represents
state and federal income taxes.
These factors and licensing revenues resulted in net income of
approximately $513,000 for the period ending September 30, 1998, as compared
to net income of approximately $408,000 for the comparable period in the
prior year.
PART II
ITEM 6 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
November 5, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,657,477
<SECURITIES> 0
<RECEIVABLES> 929,967
<ALLOWANCES> 0
<INVENTORY> 956,514
<CURRENT-ASSETS> 3,740,781
<PP&E> 2,431,838
<DEPRECIATION> 959,298
<TOTAL-ASSETS> 5,221,520
<CURRENT-LIABILITIES> 1,185,338
<BONDS> 0
<COMMON> 37,317
0
0
<OTHER-SE> 1,301,501
<TOTAL-LIABILITY-AND-EQUITY> 5,221,520
<SALES> 5,210,630
<TOTAL-REVENUES> 5,443,003
<CGS> 2,178,635
<TOTAL-COSTS> 2,072,316
<OTHER-EXPENSES> 410,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (84,657)
<INCOME-PRETAX> 856,246
<INCOME-TAX> 343,000
<INCOME-CONTINUING> 513,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513,246
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
