SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 1 to
FORM S-2
Registration Statement Under The Securities Act of 1933
CAS MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1123096
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
21 Business Park Drive
Branford, Connecticut 06405
(203) 488-6056
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
LOUIS P. SCHEPS
President and Chief Executive Officer
CAS MEDICAL SYSTEMS, INC.
21 Business Park Drive
Branford, Connecticut 06405
(203) 488-6056
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies of all communications, including all communications sent to the
agent for service, should be sent to:
TERENCE JONES, ESQ.
WIGGIN & DANA
One Century Tower
New Haven, Connecticut 06508
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [ X ]
If the registrant elects to deliver its latest annual report to
security-holders, or a complete and legible facsimile thereof, pursuant to
Item 11 (a)(1) of this form, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
PROSPECTUS
1,960,000 Shares Common Stock
CAS MEDICAL SYSTEMS, INC.
This Prospectus relates to 1,960,000 shares (the "Shares") of Common
Stock, par value $0.004 per share (the "Common Stock") of CAS Medical
Systems, Inc. ("CAS" or the "Company") which are being offered for sale by
certain selling stockholders (the "Selling Stockholders"). See "Selling
Stockholders." The Company will not receive any of the proceeds from sales
of the Shares by the Selling Stockholders although the Company will receive
proceeds from the exercise of certain options and warrants which are
exercisable by the Selling Stockholders into the Shares. If all of such
options and warrants are exercised by the Selling Stockholders, the Company
will receive proceeds of $708,545. The Company intends to use such proceeds
for general corporate purposes. The Shares may be offered from time to time
by the Selling Stockholders through ordinary brokerage transactions, in
negotiated transactions or otherwise, at market prices prevailing at the
time of sale or at negotiated prices. See "Plan of Distribution." The
Company's Common Stock is traded on the over-the-counter market commonly
referred to as the "pink sheets". On January 26, 1998 the closing bid price
of the Common Stock was $0.75 per share.
The Selling Stockholders may be deemed to be "Underwriters" as defined
in the Securities Act of 1933, as amended (the "Securities Act"). If any
broker-dealers are used to effect sales, any commissions paid to
broker-dealers and, if broker-dealers purchase any of the Shares as
principals, any profits received by such broker-dealers on the resale of the
Shares may be deemed to be underwriting discounts or commissions under the
Securities Act. In addition, any profits realized by the Selling
Stockholders may be deemed to be underwriting commissions. All costs,
expenses and fees in connection with the registration of the Shares will be
borne by the Company. Brokerage commissions, if any, attributable to the
sale of the Shares will be borne by the Selling Stockholders.
For information concerning certain factors that should be considered
by prospective investors, see "Risk Factors" beginning on page 3 of this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 14, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed with the
Commission may be inspected and copied at the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at 500 West Madison Street,
Chicago, Illinois 60661, and Seven World Trade Center, New York, New York
10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at prescribed rates by writing to the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, reports,
proxy materials and other information concerning the Company may be
inspected at the offices of NASDAQ, 1735 K Street N.W., Washington, D.C.
20006. The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants such as the Company that file
electronically with the Commission.
This Prospectus constitutes a part of a Registration Statement on Form
S-2 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Shares, reference is hereby
made to the Registration Statement. Statements contained herein concerning
the provisions of any document are not necessarily complete, and in each
instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission. Each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which are on file with the Commission (File No.
2-96271-B), are incorporated in this Prospectus by reference and made a part
hereof:
(a) The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997.
(b) The Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended March 31, 1998.
(c) The Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended June 30, 1998.
This Prospectus is accompanied by a copy of all of the foregoing
documents incorporated herein by reference and such documents are an
integral part hereof.
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the Shares offered hereby.
Dependence on Key Distributor. Effective October 1, 1997, the Company
entered into a non-exclusive Marketing and Distribution Agreement (the "GC
Agreement") with Graphic Controls Corporation ("Graphic Controls"), pursuant
to which Graphic Controls will sell certain of the Company's neo-natal
specialty products solely to specific large hospital purchasing groups.
Although it is premature to estimate what percentage of the Company's sales
will be to Graphic Controls, the Company anticipates that sales to Graphic
Controls will constitute a material portion of the Company's revenues during
the term of the GC Agreement. Due in part to the increasing purchaser
consolidation in the medical instrument marketplace, the termination of the
GC Agreement may have a material adverse effect on the Company's business.
See "- Competition." There can be no assurance that the GC Agreement will
not be terminated in accordance with its terms or that it will be renewed
upon expiration.
Competition. The Company is engaged in a rapidly evolving field.
Competition from other medical device companies, diversified healthcare
companies and research and academic institutions is intense and expected to
increase. Many companies engaged in the medical device sector have
substantially greater financial and other resources and development
capabilities than the Company and have substantially greater experience in
testing of products, obtaining regulatory approvals and manufacturing and
marketing medical devices. Accordingly, certain of the Company's
competitors may succeed in obtaining approval for products more rapidly than
the Company. Other companies may succeed in developing and commercializing
products earlier than the Company. In addition to competing with
universities and other research institutions in the development of products,
technologies and processes, the Company may compete with other companies in
acquiring rights to products or technologies from universities.
Furthermore, the medical device market is experiencing increasing customer
concentration, due to the emergence of large purchasing groups. There can
be no assurance that the Company will develop products that are more
effective or achieve greater market acceptance than competitive products, or
that the Company's competitors will not succeed in developing products and
technologies that are more effective than those being developed by the
Company or that would render the Company's products and technologies less
competitive or obsolete. In addition, there can be no assurance that the
Company will be able to successfully sell to large purchasing groups, which
are increasingly looking to suppliers which can provide a broader range of
products than that offered by the Company.
Product Liability Exposure. As a manufacturer of medical diagnostic
equipment, the Company could face product liability claims. The Company has
no pending product liability claims to date and maintains product liability
insurance in an aggregate amount of $5 million. There can be no assurance
that such coverage will be adequate to cover any product liability claims
which arise in the future or that product liability insurance will continue
to be available at reasonable prices. Any product liability judgments or
settlements in excess of insurance coverage could have a material adverse
effect on the Company.
<PAGE>
Government Regulation. The Company's business is subject to varying
degrees of governmental regulation in the countries in which it operates.
In the United States, the Company's products are subject to regulation as
medical devices by the United States Food and Drug Administration (the
"FDA"), as well as by other federal and state agencies. These regulations
pertain to the manufacturing, labeling, development and testing of the
Company's devices as well as to the maintenance of required records. An FDA
regulation also requires prompt reporting by all medical device
manufacturers of an event or malfunction involving a medical device where
such device caused or contributed to death or serious injury or is likely to
do so.
Federal law provides for several routes by which the FDA reviews medical
devices prior to their entry into the marketplace. 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 thereunder. Under the 1976 Amendments, the Company must be a
registered device manufacturer and must comply with Good Manufacturing
Practice Regulations for Medical Devices. 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 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 Class II
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 primarily Class II devices. Several
of them have required FDA notification under Section 510(k) of the FDA Act.
Satisfaction of clearance or approval requirements may take up to
several years or more and varies substantially based upon the type,
complexity and novelty of the product. The effect of government regulation
may be to delay marketing of new products for a considerable or indefinite
period of time, to impose costly procedures upon the Company's activities
and to furnish a competitive advantage to larger companies that compete with
the Company. There can be no assurance that FDA or other regulatory
clearance or approval for any products developed by the Company will be
granted on a timely basis, if at all, or, once granted, that clearances or
approvals will not be withdrawn or other regulatory action taken which might
limit the Company's ability to market its proposed products. Any such delay
in obtaining or failure to obtain such clearances or approvals would
adversely affect the manufacturing and marketing of the Company's products
and the ability to generate additional product revenue.
<PAGE>
In foreign countries, the degree of government regulation affecting the
Company varies considerably among countries, ranging from stringent testing
and approval procedures in certain locations to simple registration
procedures in others, while in some countries there is virtually no
regulation of the sale of the Company's products. In general, the Company
has not encountered material delays or unusual regulatory impediments in
marketing its products internationally. Establishment of uniform
regulations for European Community nations took place on January 1, 1995.
The Company believes it will be subject to a single regulatory scheme for
all the participating countries and has taken the necessary steps to assure
ongoing compliance with these new, more rigorous regulations, including
obtaining International Standards Organization certification for its
manufacturing operations which will allow the Company to market products in
Europe with a single registration applicable to all participating countries.
Challenges to Patents and Proprietary Rights. The Company relies on a
combination of patents, trade secrets, trademarks and non-disclosure
agreements to protect its proprietary rights. There can be no assurance
that patent applications filed by the Company will result in the issuance of
patents or that any patents now or hereafter owned by the Company will
afford protection against competitors which develop similar technology.
There can also be no assurance that the Company's non-disclosure agreements
will provide meaningful protection for the Company's trade secrets or other
proprietary information. Moreover, in the absence of patent protection, the
Company's business may be adversely affected by competitors who
independently develop substantially equivalent or superior technology.
It is possible that the Company may need to acquire licenses to, or to
contest the validity of, issued or pending patents of third parties relating
to the Company's technology or to products presently marketed or under
development by the Company. In addition, there can be no assurance that any
license required under any such patent would be made available to the
Company on acceptable terms, if at all, or that the Company would prevail in
any such contest.
Risks of Technological Obsolescence. The areas in which the Company is
developing, distributing, and/or licensing products involve rapidly
developing technology. Others may develop products which may render
products being developed, distributed or licensed by the Company obsolete or
uneconomical or result in products superior to the Company's products.
Risks Associated with International Sales. Since fiscal 1994, the
Company's international sales have grown faster than its sales to any other
market, and accounted for 30.1% of the Company's total net sales for the
1996 fiscal year. The Company expects that international sales will
continue to constitute a significant portion of its business. Although the
Company sells its products in United States dollars and is not subject to
significant currency risks, an increase in the value of the United States
dollar relative to foreign currencies in the Company's international markets
could make the Company's products less price competitive in such markets.
<PAGE>
Significant Influence of Insiders; Potential Anti-takeover Provisions.
The Company's directors, executive officers and other affiliates
beneficially own approximately 55% of the outstanding Common Stock of the
Company. As a result, such directors, officers and affiliates will be able
to significantly influence the election of all of the Company's directors
and otherwise influence control of the Company's operations. The Company's
Board of Directors is also authorized to issue from time to time, without
stockholder authorization, shares of preferred stock, in one or more
designated series or classes. The Company is also subject to a Delaware
statute regulating business combinations. Any of these provisions could
discourage, hinder or preclude an unsolicited acquisition of the Company and
could make it less likely that stockholders receive a premium for their
shares as a result of any such attempt.
Risks of Low-Priced Stock. Due to the low trading price of the
Company's Common Stock, it could in the future become subject to Rule 15g-9
under the Exchange Act, which imposes additional sales practice requirements
on broker-dealers that sell "penny stocks". Commission regulations define a
penny stock to be any non-exchange or NASDAQ entity security that has a
market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
The Company's Common Stock is currently exempted from penny stock regulation
by virtue of the fact that the Company has net tangible assets in excess of
$2 million. For transactions covered by penny stock regulations, a
broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the
transaction prior to sale. For any transaction by a broker-dealer involving
a penny stock, unless exempt, the rules require delivery, prior to any
transaction in a penny stock, of a disclosure schedule prepared by the
Commission relating to the penny stock market. Disclosure is also required
to be made about commissions payable to both the broker-dealer and the
registered representative and current quotations for the Common Stock.
Finally, monthly statements are required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. There can be no assurance that the
Company's Common Stock will continue to qualify for exemption from these
restrictions. If the Company's Common Stock were subject to the rules on
penny stocks, it may adversely affect the ability of broker-dealers to sell
the Company's Common Stock and may adversely affect the ability of
purchasers in this offering to resell any of the Common Stock acquired
hereby in the secondary market.
Effect of Current Offering on Stock Price. Sales of a substantial
number of shares of the Company's Common Stock in the public market
originally issued pursuant to options or warrants could adversely affect the
market price of the Common Stock and may also adversely affect the Company's
ability to raise additional capital. 1,960,000 shares of Common Stock will
have been registered hereby under the Securities Act for resale to the
public. The Common Stock registered hereby constitutes approximately 18.2%
of the Company's Common Stock. Historically, the Common Stock has been
thinly traded. This low trading volume may have had a significant effect on
the market price of the Common Stock, which may not be indicative of the
market price in a more liquid market.
<PAGE>
Dependence on Key Personnel. The Company believes that its future
success will depend to a significant extent on the efforts and abilities of
its senior management, in particular Louis P. Scheps, its President and
Chief Executive Officer and Myron L. Cohen, its Executive Vice President.
The loss of the services of Mr. Scheps or Dr. Cohen could have a material
adverse effect on the Company.
Limitation of Liability of Officers and Directors. The Company's
Certificate of Incorporation provides that officers and directors of the
Company will not be personally liable to the Company or its stockholders for
monetary damages resulting from breaches of duty owed to the Company or its
stockholders, including breaches which constitute negligence in the
performance of their duties. As a result, the rights of the Company and its
stockholders to obtain monetary damages for acts or omissions of officers
and directors will be more limited than they would be in the absence of such
provisions.
No Anticipated Dividends. The Company has not paid cash dividends on
its Common Stock since inception, and at this time does not anticipate that
it will pay cash dividends in the foreseeable future.
THE COMPANY
The Company was organized in 1984 and 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. The Company's executive offices are located at
21 Business Park Drive, Branford, Connecticut, 06405 and its telephone
number is (203) 488-6056.
RECENT DEVELOPMENTS
Agreement with Graphic Controls
Effective October 1, 1997, the Company entered into a non-exclusive
Marketing and Distribution Agreement (the "Agreement") with Graphic Controls
Corporation ("Graphic Controls"), pursuant to which Graphic Controls will
sell certain of the Company's neo-natal specialty products solely to
specific large hospital purchasing groups. The Company anticipates that
sales to Graphic Controls will constitute a material portion of the
Company's revenues during the term of the Agreement.
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information as of November 15,
1997 (except as otherwise indicated) and as adjusted to reflect the sale of
the Common Stock in the offering, as to the security ownership of the Selling
Stockholders. Except as set forth below, the addresses of each of the
Selling Stockholders is c/o CAS Medical Systems, Inc., 21 Business Park
Drive, Branford, CT 06405.
<TABLE>
<CAPTION> Shares of
Shares of Common Percentage of
Common Stock Shares of Stock Common Stock
Beneficially Common Owned Beneficially
Owned Prior Stock After Owned After
Name to Offering Being Sold Offering the Offering
____________________________________________________________________________
<C> <C> <C> <C>
Louis P. Scheps (1) 1,333,325 (2) 900,000 (3) 433,325 4.2%
Myron L. Cohen,
Ph.D. (4) 955,453 (5) 15,000 (6) 940,453 10.1%
Myra Josephson (7) 167,484 (8) 75,000 (9) 92,484 1.0%
Lawrence S.
Burstein (10) 251,875 (11) 150,000 (12) 101,875 1.1%
Jerome Baron (13) 1,675,200 (14) 200,000 (15) 1,475,200 15.5%
Jay M. Haft (16) 1,071,575 (17) 60,000 (18) 1,011,575 10.8%
Saul S. Milles, 60,000 (20) 60,000 (20) 0 -
M.D. (19)
J. Sanford Davis 500,000 500,000 0 -
(1)Mr. Scheps is President and Chief Executive Officer and a Director of the
Company.
(2)Includes warrants to purchase 819,000 shares and options to purchase
81,000 shares, each exercisable within 60 days.
(3)Consists of Common Stock underlying warrants to purchase 819,000 shares
and Common Stock underlying options to purchase 81,000 shares.
(4) Dr. Cohen is Executive Vice President and a Director of the Company.
(5)Includes options to purchase 15,000 shares exercisable within 60 days.
(6)Consists of Common Stock underlying options to purchase 15,000 shares.
(7)Mrs. Josephson's husband was a Director of the Company prior to his death
in July 1996.
(8)Includes warrants to purchase 75,000 shares exercisable within 60 days.
(9)Consists of Common Stock underling warrants to purchase 75,000 shares.
(10) Mr. Burstein is a Director of the Company.
<PAGE>
(11)Includes warrants to purchase 150,000 shares exercisable within 60
days. Also includes 9,375 shares owned directly and indirectly by a
family member and 92,500 shares held in Mr. Burstein's IRA rollover
account.
(12)Consists of Common Stock underlying warrants to purchase 150,000
shares.
(13) Mr. Baron is a Director of the Company.
(14)Includes warrants to purchase 200,000 shares exercisable within 60
days. Also includes 1,082,000 shares owned by Murdock & Co. and 369,000
shares
owned by Haulbowline Ltd., as to which shares Mr. Baron has voting and
dispositive power.
(15)Consists of Common Stock underlying warrants to purchase 200,000
shares.
(16) Mr. Haft was a Director of the Company until October 1996.
(17)Includes warrants to purchase 60,000 shares exercisable within 60 days.
Also includes 980,575 shares owned by Venture Capital Associates, Ltd.,
a limited partnership of which the general partner is a corporation in
which Mr. Haft is a controlling shareholder.
(18)Consists of Common Stock underlying warrants to purchase 60,000 shares.
(19) Dr. Milles is a Director of the Company.
(20)Consists of Common Stock underlying warrants to purchase 60,000 shares.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 19,000,000 shares of Common
Stock, $.004 par value, 9,329,277 shares of which were issued and
outstanding at November 5, 1997, and 1,000,000 shares of Preferred Stock,
$.001 par value, none of which are issued and outstanding at November 5,
1997.
Common Stock
Holders of Common Stock of the Company are entitled to one vote per
share on all matters submitted to a vote of the stockholders, including the
election of directors, and except as otherwise required by law or as
provided in any resolution adopted by the Board of Directors with respect to
any series of Preferred Stock, the holders of such shares will exclusively
possess all voting power. The Company's certificate of incorporation does
not provide for cumulative voting for the election of directors. Subject to
the preferential rights of any outstanding series of Preferred Stock, the
holders of Common Stock will be entitled to such dividends as may be
declared from time to time by the Board of Directors from funds legally
available therefor, and will be entitled to receive pro rata all assets of
the Company available for distribution to such holders upon liquidation. No
shares of the Common Stock have any preemptive, redemption or conversion
rights or the benefits of any sinking fund. All outstanding shares of
Common Stock are validly issued, fully paid and nonassessable.
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. All costs, expenses and fees in connection with the
registration of the Shares offered hereby will be borne by the Company.
Brokerage commissions, if any, attributable to the sale of Shares will be
borne by the Selling Stockholders.
Sales of Shares may be effected from time to time in transactions (which
may include block transactions) on the over-the-counter market, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices, at market prices prevailing at the time of sale, or at negotiated
prices. The Selling Stockholders have advised the Company that they have
not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities. The
Selling Stockholders may effect such transactions by selling Shares directly
to purchasers or to or through broker-dealers which may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Stockholder and/or
the purchasers of Shares for whom such broker-dealers may act as agents or
to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
Selling Stockholders and any broker-dealers that act in connection with the
sale of the Shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act and any commission received by them
and any profit on the resale of the Shares as principal might be deemed to
be underwriting discounts and commissions under the Securities Act. The
Selling Stockholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the
shares against certain liabilities, including liabilities arising under the
Securities Act. Liabilities under the federal securities laws cannot be
waived.
Because the Selling Stockholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling
Stockholders will be subject to prospectus delivery requirements under the
Securities Act. Furthermore, in the event of a "distribution" of the
shares, such Selling Stockholder, any selling broker or dealer and any
"affiliated purchasers" may be subject to Regulation M under the Exchange
Act, which Regulation would prohibit, with certain exceptions, any such
person from bidding for or purchasing any security which is the subject of
such distribution until his participation in that distribution is completed.
In addition, Regulation M also prohibits any bid or purchase for the
purpose of pegging, fixing or stabilizing the price of Common Stock in
connection with this offering.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Shares offered
hereby have been passed upon for the Company by Wiggin & Dana, New Haven,
Connecticut.
<PAGE>
EXPERTS
The financial statements and schedules incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the Shares offered hereby, nor does it
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that the information contained herein is correct as
of any date subsequent to the date hereof.
1,960,000 Shares
Common Stock
TABLE OF CONTENTS
Page CAS MEDICAL SYSTEMS, INC.
Available Information . . . . . . . 2
Incorporation of Certain
Documents by Reference . . . . . . 2
Risk Factors . . . . . . . . . . . 3 PROSPECTUS
The Company . . . . . . . . . . . . 8
Recent Developments . . . . . . . . 8
Selling Stockholders . . . . . . . 9
Description of Capital Stock . . .10
Plan of Distribution . . . . . . .11 August 14, 1998
Legal Maggers . . . . . . . . . . .12
Experts . . . . . . . . . . . . . .12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of
the Shares:
Registration Fee - Securities and Exchange Commission $121.22
Legal fees and expenses $10,000*
Accounting fees and expenses $ 5,000*
Printing and engraving expenses $ 5,000*
Miscellaneous $ 78.78*
______
Total $20,200*
______
*estimate
ITEM 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware
permits indemnification of directors, officers and employees of a
corporation under certain conditions and subject to certain limitations.
The Company's Certificate of Incorporation states that the Company shall
indemnify officers and directors to the full extent permitted by the laws of
the State of Delaware.
ITEM 16. Exhibits.
5.1 - Opinion of Wiggin & Dana
10.1 Marketing and Distribution Agreement dated as of October 1, 1997
between the Registrant and Graphic Controls Corporation (confidential
treatment requested)
13.1 - Form 10-KSB for Year ended December 31, 1997
13.2 - Form 10-QSB for Quarter ended March 31, 1998
13.3 - Form 10-QSB for Quarter ended June 30, 1998
23.1 - Consent of Arthur Andersen LLP
23.2 - Consent of Wiggin & Dana (included in Exhibit 5)
24 - Power of Attorney (included on signature page)*
*Previously filed
<PAGE>
ITEM 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 15 above, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful
<PAGE>
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Branford, State of Connecticut on
August 14, 1998.
CAS MEDICAL SYSTEMS, INC.
(Registrant)
By:/s/ Louis P. Scheps
Name: Louis P. Scheps
Title: President and Chief Executive
Officer
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Myron L. Cohen, Ph.D.* Chairman of the Board , 1998
Myron L. Cohen, Ph.D. and Executive Vice
President
/s/ Louis P. Scheps President, Chief , 1998
Louis P. Scheps Executive Officer
and Director
(Principal Executive,
Financial and Accounting Officer)
/s/ Lawrence S. Burstein* Director , 1998
Lawrence S. Burstein
/s/ Jerome Baron* Director , 1998
Jerome Baron
/s/ Saul S. Milles, M.D.* Director , 1998
Saul S. Milles, M.D.
*By: /s/ Louis P. Scheps
Name: Louis P. Scheps
Attorney-in-fact
</TABLE>
August 13, 1998
CAS Medical Systems, Inc.
21 Business Park Drive
Branford, CT 06405
Ladies and Gentlemen:
We refer to Amendment No. 1 to the Registration Statement on Form S-2
(the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), by CAS
Medical Systems, Inc. (the "Company"), relating to 1,960,000 shares of the
company's Common Stock, $.004 par value per share (the "Shares"), to be
issued upon exercise of cetain options and warrants.
As counsel for the Company, we have examined such corporate records,
other documents, and such questions of law as we have considered necessary
or appropriate for the purposes of this opinion and, upon the basis of such
examination, advise you that in our opinion, the Shares being registered
pursuant to the Registration Sttement, when issued and paid for upon
exercise of the options or warrants in accordance with the terms thereof,
will be, when so issued and paid for, duly authorized, legally issued, fully
paid, and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Sttement. This consent is not to be construed as an admission
that we are a person whose consent is required to be filed with the
Registration Statement under the provision of the Act.
Very truly yours,
/s/ /Wiggin & Dana
Wiggin & Dana
EXHIBIT 10.1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
FOR THE PORTIONS OF THIS EXHIBIT.
CONFIDENTIAL PORTIONS ARE INDICATED BY BRACKETS.
MARKETING AND DISTRIBUTION AGREEMENT
This Agreement, effective as of this 1st day of October, 1997, by
and between CAS MEDICAL SYSTEMS, INC., a Delaware corporation with its
principal place of business at 21 Business Park Drive, Branford, Connecticut
06405 ("CAS") and GRAPHIC CONTROLS CORPORATION, a New York corporation with
its principal place of business at 189 Rensselaer Street, Buffalo, New York
14240 ("Graphic Controls").
RECITALS
WHEREAS, CAS manufactures and sells medical devices and equipment,
including without limitation certain devices and equipment used in
connection with the provision of neonatal medical care;
WHEREAS, Graphic Controls markets and distributes medical devices to
national purchasers, including devices and equipment used in connection with
neonatal medical care;
WHEREAS, CAS has agreed to manufacture and supply and Graphic Controls
has agreed to market and distribute CAS' neonatal products listed on
Schedule A, attached hereto (the "Products"), to certain national accounts
of Graphic Controls listed on Schedule B, attached hereto and the hospital
and other members thereof (the "Specified Accounts").
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. Appointment and Scope.
CAS appoints Graphic Controls as the non-exclusive marketer and
distributor for the Products solely to the Specified Accounts. The
territory in which Graphic Controls shall market and distribute the
Products to the Specified Accounts shall be the United States (the
"Territory").
<PAGE>
2. Term.
This Agrement shall be in effect for an initial term of three (3) years
from the effective date hereof (the "Initial Term"). This Agrement may be
cancelled by either party (i) upon six (6) months prior written notice, if
termination is to occur, during the first year of the Initial Term; and (ii)
upon twelve (12) months prior written notice, if termination is to occur,
during the second and third years of the Initial Term. This Agreement shall
be automatically renewed for consecutive one (1) year periods thereafter,
unless either party provides notice of its intent to terminate the Agreement
not less than twelve (12) months prior to the end of such consecutive term.
3. Manufacture and Sale By CAS.
3.1 Manufacture and Sale By CAS. CAS shall manufacture and sell to
Graphic Controls and Graphic Controls shall order and purchase from
CAS the Products at the prices set forth on Schedule A, attached
hereto. CAS shall notify Graphic Controls before making any
material changes to the labeling, artwork or packaging used in
connection with the Products.
3.2 Quality.
(a) CAS agrees to manufacture and distribute the Products in
accordance with all applicable Good Manufacturing Practices,
the requirements of the Food and Drug Administration (the
"FDA"), and all federal, state and local laws, rules and
regulations. CAS shall maintain an effective quality control
system for the design, manufacture and distribution of the
Products. CAS shall notify Graphic Controls of any changes to
any Product that may affect the safety or efficacy of such
Product. For "Medical Devices" (as defined under the U.S.
Food and Drug and Cosmetic Act), CAS shall provide Graphic
Controls with the information listed on Schedule C, attached
hereto. All such information shall be considered Confidential
to the extent provided for in Section 7.1.
(b) The Products shall be qualified in accordance with the Graphic
Controls' "Purchase Product Qualification Procedure
Documents," attached hereto as Exhibit A.
<PAGE>
3.3 Prices.
Prices for the Products shall be fixed for the Initial Term as set
forth in Schedule A. During the Initial Term, CAS shall have the
right to increase the prices of the Products only in the event that
(a) there is a material and unforeseen increase in the price of
matrials comprising the Products or (b) taxes or fees applicable to
the manufacture and sale of the Products (other than any presently
in effect) are imposed on CAS by any governmental authority,
provided, however, that prior to effectuating any such price
increase CAS shall provide Graphic Controls with evidence
supporting, and consult with Graphic Controls regarding, any price
increase permitted hereunder; and that no increase shall be
permitted under clause (b) of this Section 3.3 due to any increase
of any taxes or fees of the type currently imposed on CAS by any
governmental authority. Beginning on the third anniversary of the
effective date of this Agreement, the prices of the products may be
changed by written agreement of both parties. All price changes
shall be effective for orders received by CAS on or after the
effective date of such change. If one party requests a change and
the other party does not agree, then the pror year pricing remains
in effect. Any price discouns offered by CAS for prompt payment of
invoices by Graphic Controls shall be calculated by Graphic
Controls from the date of the invoice.
3.4 Minimum Purchase Obligations
(a)[ ] Failure to purchase such minimum amount shall constitute
amaterial breach of this Agreement and CAS may pursue its remedies at
law and equity, and further may , at is option, immediately terminate
the Agreement. The parties mutually agree to increase the minimum
annualpruchase amount as new Specified Accounts are added to tis
Agreement.
(b)If on account of force majeure as provided for in Section 16.3
hereof which affects CAS, Product production shortage or for any other
reason CAS is unable to supply and Products ordered by Graphic Controls
hereunder ("supply Failure"), then CAS shall notify Grpahic Controls
immediately. The minimum purchase obligations of Graphic Controls set
forth in this Section 3.4 shall be decreased equitably by the parties
based on the proportion of any twelve (12) month period during which a
Supply Failure should continue.
(c)[ ] Subject to existing confidentiality obligations set forth
in Section 7.1 of ths Agreement, CAS agrees to provide Graphic Controls
with all relevant customer information for such Specified Accounts
reasonably necessary for Graphic Controls to verify such representation
and warranty, promptly after the execution of this Agreement.
<PAGE>
4. Marketing and Sale By Graphic Controls
Graphic Controls shall market, distribute and sell the Products solely
to the Specified Accounts. In marketing, distributing and selling the
Products and in its contracts with the Specified Accounts, Graphic
Controls shall, at all times, promote CAS' reputation and goodwill,
reference each Product's trademark(s) and indicate that such Product is
manufactured and the trademarks are owned by CAS. Graphic Controls
shall use its best efforts to sell the Products to the Specified
Accounts and each of the members thereunder and to increase the
compliance of the members of the Specified Accounts. No Specified
Account shall be added to this Agreement except by written agreement
signed by both parties. Graphic Controls shall be responsible for
working with the materials management departments of each member of a
Specified Account for conversion and contract compliance as well as the
distribution relationship with each member of a Specified Account,
including without limitation, stocking and shipment of the Products and
the issuance and collection of invoices. CAS shall provide Graphic
Controls with reasonable service and sales support during CAS' normal
business hours.
<PAGE>
5. Orders, Warehousing, and Terms and Conditions of Sale.
5.1 Orders. Beginning as of the effective date of this Agreement
and continuing for six (6) months thereafter, each order for
Products ("Order") placed by Graphic Controls shall be
submitted to CAS not less than eight (8) weeks prior to the
requested shipment date in such a format and containing such
information as may be mutually agreed upon by the parties.
After such six (6) month period, each Order shall be submitted
to CAS not less than four (4) weeks prior to the requested
shipment date.
5.2 Minimum Orders. The minimum order that may be placed by
Graphic Controls at any one time is for one hundred (100) cases
of electrodes (assorted part numbers) and twenty five (25)
cases for each line item Product group, as listed in Schedule
A.
5.3 Warehousing. CAS shall, when necessary, warehouse all of the
Products it manufactures prior to shipment to Graphic Controls
at no cost to Graphic Controls. Graphic Controls shall be
responsible for the warehousing of all Products shipped by CAS
to Graphic Controls at no cost to CAS. Warehousing conditions
shall be such that the quality and appearance of the Products
is not adversely affected and the safety and efficacy of the
Products is not impaired.
5.4 Shipping. Products shall be shipped to Graphic Controls F.O.B.
CAS. After the first six (6) months of the Initial Term, CAS
shall ship the Products no later than four (4) weeks after the
date CAS receives an Order. In the event that the Products
require special shipping, handling, storage, security and
safety, CAS shall notify Graphic Controls of such requirements.
Shipments will be made in exact order quantities unless
otherwise agreed to in writing by the parties. Graphic
Controls' acceptance of a shipment does not imply acceptance of
the entire lot. Graphic Controls shall notify CAS of
discrepancies in shipment or pricing within thirty (30) days
following receipt of invoice. Subject to applicable lead times
set forth herein, if CAS anticipates, at the time it receives
an Order, that it will be unable to deliver a Product by the
requested shipment date, CAS will promptly request consent from
Graphic Controls to an extension of time for shipment, which
consent shall not be unreasonably withheld. If CAS does not
make such request, Graphic Controls may cancel the Order
without any liability to Graphic Controls. Any premium freight
charges, required by any late shipment, are CAS'
responsibility.
<PAGE>
5.5 Product Marking and Packaging.
(a) Marking. If applicable, CAS will mark either a lot code
or a serial number on any Product or packaging and
document the procedure to allow for ease in traceability.
If applicable, CAS shall also mark the expiration date
on each Product. CAS shall notify Graphic Controls of
the procedure detailing the assignment and control of
this process.
(b) Packaging. CAS shall use its standard packaging and
labels with all of the Products. Such packaging and
labels shall comply with applicable requirements of
common carriers. Graphic Controls may request CAS'
consent to modifications or additions to such standard
packaging and labels (e.g. bar codes), which consent
shall not be unreasonably withheld. Any such
modifications or additions to the packaging and labels
shall be made by CAS at the sole expense of Graphic
Controls. Any material damage to any Products not
packaged as such, will be charged to CAS, provided such
packaging is not altered or modified by Graphic Controls
or a third party prior to shipment to a member hospital
of a Specified Account.
5.6 Payment Terms. Contemporaneously with the delivery of the
Products pursuant to an Order, CAS will invoice Graphic
Controls for the total price of such Products and corresponding
freight charges with CAS' standard discount option (1.0% 10
day/net 30). Graphic Controls will pay the amount invoiced
within thirty (30) days of receipt of invoice. Interest shall
accrue on all past due invoices at the lesser of: (a) 1.5% per
month (or any part thereof), or (b) at the highest rate allowed
by U.S. law. Invoices shall be mailed to Accounts Payable,
Attention: Diane Wetzel, Graphic Controls Corporation, P.O. Box
1271, Buffalo, NY 14240. All invoices shall contain reference
to applicable purchase order number, CAS part numbers, Graphic
Controls' part numbers, quantity, price and date shipped.
5.7 Other Terms and Conditions. Except as provided in this
Agreement, all purchases hereunder shall be subject to CAS'
then current standard written terms and conditions as set forth
in Exhibit B, attached hereto. Where such terms and conditions
conflict in any way with any terms and conditions contained in
this Agreement, the terms and conditions of this Agreement
shall prevail.
<PAGE>
6. Trademarks
Graphic Controls acknowledges that any goodwill or other benefit
arising from the prior use or continued use in the future of any CAS
trademarks has inured and will continue to solely inure to the
benefit of CAS. Neither Graphic Controls, any affiliates or any of
their directors, officers, employees or agents shall at any time,
either during the term of this Agreement or at any time hereafter,
directly or indirectly contest, or aid others in contesting, or do
anything which might impair the validity of, any or all of the CAS
trademarks or the exclusive use thereof by CAS. Graphic Controls
shall not remove or otherwise impair any CAS trademarks displayed on
the packages and labels of the Products. Graphic Controls shall not
acquire any right to or under any trademark, patent, copyright,
design, goodwill or other intellectual property rights of CAS. If
any such rights should become vested in Graphic Controls by operation
of law or otherwise, Graphic Controls agrees that it will, on CAS'
request, forthwith assign any or all such rights to CAS. Graphic
Controls shall immediately notify CAS of any unauthorized use of CAS'
trademarks and any adverse uses of marks which are confusingly
similar to any CAS trademarks.
7. Confidential Information.
7.1 Nondisclosure. Each party agrees not to disclose to any third
party or to use any information obtained from the other party
concerning the Products (including their design, manufacture
and operation) and the business, operations, intellectual
property or financial status of the other party (including
without limitation, sales forecasts, customer information,
manufacturing processes, orders and financial statements),
without the prior written consent of the other party, except
(i) information generally available to the public without
breach of this Agreement, (ii) information developed
<PAGE>
independently by the receiving party, (iii) information
obtained from a third party not under any obligation of
nondisclosure, and (iv) information required to be disclosed by
law or governmental regulation; provided, however, that before
making any use or disclosure in reliance on (iv), the party
that intends to use or disclose such information shall give at
least fifteen (15) days prior written notice to the other party
specifying the circumstances giving rise thereto. Each party
shall protect all information received from the other party and
marked as "Confidential" in a manner similar to the protection
it provides to its own confidential information. Each party
shall make commercially reasonable efforts to insure that all
affiliates as well as directors, officers, employees, agents
and representatives of the party and its affiliates comply with
this section 7.1. To the extent possible, each party shall
disclose the information obtained from the other party to only
those directors, officers, employees and agents that have a
need to know and that have agreed to be bound by the terms of
this section 7.1. In the event of the termination or
expiration of this Agreement, each party agrees to return or
destroy all information received from the other party that is
marked as "Confidential," and each party shall certify in
writing that it has complied with this obligation.
7.2 Equitable Relief. Either party may obtain permanent and
preliminary injunctive or other equitable relief to remedy an
actual or threatened unauthorized disclosure of confidential
information, or any unauthorized use of such party's
proprietary rights. Both parties agree that such unauthorized
disclosure or use of such information or proprietary rights
will cause injury that cannot adequately be compensated through
money damages. Both parties agree to the entry of an order for
equitable remedies in the event of the unauthorized disclosure
or use of such confidential information or proprietary rights
or the design and specifications of the Products by the other
party. The remedies afforded the parties in this section 7.2
are cumulative and in addition to those provided by law or
equity.
8. Noncompetition.
Except for those goods and products which Graphic Controls is
marketing, selling and distributing on the effective date of this
Agreement as set forth in Schedule D, attached hereto, Graphic
Controls represents and warrants that it does not currently market
neonatal medical care products and that it shall not, or permit any
person or entity affiliated with it to, directly or indirectly,
market, distribute or sell any goods orproducts that are the same or
similar to or competitive with the Products, without CAS' prior
written consent. Except as permitted by the preceding sentence of
this Section 8 and to the extent permitted by law, during the term of
this Agreement, Graphic Controls shall not manufacture or sell in the
<PAGE>
Territory any goods or products that are the same or similar to or
competitive with the Products, acquire the right to market,
distribute, or license any such goods or products within the
Territory, or take any action that is adverse to CAS' interests,
Products, market, goodwill or reputation; provided, however, that if
Graphic Controls acquires the business or product line of any third
party which sells products which are similar to or competitive with
the Products, which are not already listed on Schedule D
("Acquisition"), Graphic Controls shall not be in violation of this
Agreement by virtue of such Acquisition or continuing the sale of
such products. In the event of any such Acquisition, CAS shall have
the right to terminate this Agreement upon six (6) months prior
notice to Graphic Controls. Graphic Controls represents and warrants
to CAS that it has no other actual or potential conflicts of
interests with CAS nor with its obligations under this Agreement and
it shall avoid any such other conflicts during the term of this
Agreement.
9. Publicity.
Without limiting the confidentiality or nondisclosure provisions of
this Agreement or any purchase order, sales contract, or other
document, either party may, with the prior consent of the other
party, advertise or publish the fact that Graphic Controls has sold
or has contracted to sell the Products pursuant to this Agreement.
10. Right of Inspection.
10.1 By Graphic Controls. Graphic Controls, or an authorized
representative or agent of Graphic Controls, may, upon five (5)
business days advance notice to CAS and during CAS' normal
business hours, conduct inspections of CAS' nonproprietary
facilities and/or Product audits, to insure that the Product
specifications are being met and that CAS continues to maintain
an effective quality control system, provided that such
inspections may not be conducted more than twice in any twelve
(12) month period commencing on the effective date of this
Agreement. When requested by Graphic Controls, CAS will
provide a "Certificate of Compliance," for each shipment. CAS
shall inform Graphic Controls of any Product recall, market
withdrawal, stock recovery, or any field corrective action of
Products supplied to Graphic Controls. If Graphic Controls
requests corrective action as a result of an inspection or
incident, CAS shall respond (acknowledgement is sufficient)
within three (3) business days.
10.2 By CAS. CAS, or an authorized representative or agent of CAS,
may, upon five (5) business days advance notice to Graphic
Controls and during Graphic Controls' normal business hours,
conduct inspections of Graphic Controls' facilities, to insure
<PAGE>
that storage and distribution requirements are being met
regarding the safety and efficacy of the Products, provided
that such inspections may not be conducted more than twice in
any twelve (12) month period commencing on the effective date
ofthis Agreement. Graphic Controls shall inform CAS of any
Product recall, market withdrawal, stock recovery, or any field
corrective action of CAS products. If CAS requests corrective
action as a result of an inspection or incident, Graphic
Controls shall respond (acknowledgement is sufficient) within
three (3) business days.
10.3 By the FDA. In the event that an agency or branch of the
federal government, which is seeking to purchase the Products
from Graphic Controls, requests an inspection by the FDA of the
manufacturing facilities and records relative to the Products,
CAS will permit such an inspection, provided that it receives
reasonable prior notice and that the inspection is conducted
during CAS' normal business hours. Graphic Controls also
agrees to any FDA inspections of its facilities and records.
10.4 Product Action and Costs. Graphic Controls may initiate or
direct a Product recall, market withdrawal, stock recovery or
other field corrective action of the Products ("Product
Action"), provided it has given CAS written notice of its
intent to initiate or direct such Product Action no later than
48 hours prior to the initiation or directing of such Product
Action. In the event that CAS agrees to indemnify Graphic
Controls in full for all direct costs associated with any
Product Action, Graphic Controls shall not initiate or direct
any such Product Action. In the event that CAS does not agree
to provide Graphic Controls with full indemnification and
Graphic Controls initiates or directs such Product Action, CAS
shall pay or reimburse Graphic Controls no more than fifty
(50%) percent of all direct out-of-pocket costs and expenses,
(excluding lost profits, lost sales or other consequential
damages as set forth in Section 12.3), incurred by Graphic
Controls in connection with any Product Action, except if, and
to the extent that, the negligence or action of Graphic
Controls with respect to the storage, marketing, distribution,
sale and shipment of Products shall give rise to the Product
Action.
10.5 FDA Product Action and Costs. In the event the United States
Food and Drug Administration ("FDA") initiates or directs a
Product recall, market withdrawal, stock recovery or other
field corrective action of the Products ("FDA Product Action"),
CAS agrees to indemnify Graphic Controls in full for all direct
costs associated with any such FDA Product Action unless, and
to the extent that, the negligence or action of Graphic
Controls with respect to the storage, marketing, distribution,
sale and shipment of Products gave rise to the FDA Product
Action.
<PAGE>
11. Books and Records.
11.1 Maintenance of Books and Records. While this Agreement is in
effect, both parties will maintain accurate records and
accounts from which their respective obligations to the other
hereunder may be determined.
11.2 Graphic Controls' Reports. Within thirty (30) days after the
end of each month during the term of this Agreement, Graphic
Controls shall provide CAS with such reports as CAS may
reasonably request including a sales and inventory report with
respect to the period showing:
(i) the quantities of each Product sold by Graphic Controls
during the period.
(ii) the quantities of each Product remaining in Graphic
Controls' inventory at the end of the period.
(iii)the hospital purchases during the period, indicating the
name and address of the hospital, type of Products purchased,
quantity of Products purchased and revenues received by Graphic
Controls as a result of such purchases.
12. Warranty.
12.1 Warranty. CAS warrants that the Products will be free from
defects in materials and workmanship upon initial application
only. Any Products which fail to conform with CAS' Product
specifications are considered defective. Graphic Controls has
no obligation to pay for any defective Products. Any Product
defective in material or workmanship will be repaired or
replaced at no charge to Graphic Controls. The obligation of
CAS hereunder shall be limited solely to repair or replacement
of defective Products and shall be conditioned upon receipt by
CAS of written notice of any alleged defects or deficiency
promptly after discovery by Graphic Controls. CAS shall have
no obligation to repair or replace Products damaged by misuse
by Graphic Controls or a third party or failure of Graphic
Controls or a third party to provide appropriate customary
storage and maintenance.
12.2 Limitation of Warranty. THE LIMITED WARRANTY EXPRESSED IN
SECTION 12.1 ABOVE IS IN LIEU OF ALL OTHER WARRANTIES EITHER
EXPRESS OR IMPLIED, WHETHER ARISING BY STATUTE, CUSTOM, TRADE,
OR OTHERWISE, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
12.3 Limitation of Damages and Remedies. IN NO EVENT SHALL CAS BE
LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL, DIRECT OR
INDIRECT DAMAGES INCLUDING BUT NOT LIMITED TO LOST REVENUES,
PROFITS, BUSINESS OR ANTICIPATED SAVINGS, HOWEVER CAUSED AND
<PAGE>
WHETHER ARISING UNDER CONTRACT, TORT OR OTHER THEORY OF
LIABILITY. CAS SHALL NOT BE LIABLE FOR ANY DAMAGES IN EXCESS
OF THE PAYMENTS CAS RECEIVED IN CONNECTION WITH THE SALE OF THE
PRODUCTS. THE LIMITATIONS SET FORTH IN THIS SECTION 12.3 SHALL
IN NO WAY LIMIT THE REPAIR OR REPLACE REMEDIES EXPRESSLY
SPECIFIED IN SECTION 12.1 OF THIS AGREEMENT, SUBJECT TO SECTION
15.1 HEREOF.
12.4 Return of Products. Products may be returned to CAS for only
the following reasons: (a) CAS Order entry error and (b)
defective Product. Any returns due to Order entry error by CAS
shall be handled in accordance with CAS' returned goods policy
set forth in Exhibit B. Graphic Controls shall immediately
notify CAS upon discovery of a defective Product. Graphic
Controls will accumulate defective Products discovered by
Graphic Controls or any member of a Specified Account.
Disposition of the defective Product will be arranged between
CAS and Graphic Controls. CAS shall pay directly or reimburse
Graphic Controls for all costs associated with defective
Products, including premium freight charges incurred to ship
the returned defective Products or the replacement Products, if
mutually agreed to be necessary. If a member of a Specified
Account discovers a Product defect, CAS shall be responsible
for the costs of such defective Product and correcting such
defect.
13. Termination.
13.1 Termination in the Event of Default. In addition to each
party's ability to terminate this Agreement in accordance with
Section 2 of this Agreement and with CAS' ability to terminate
in accordance with Section 3.4(a) of this Agreement, either
party may terminate this Agreement upon the occurrence of any
Event of Default, in accordance with the terms of Section 13.2.
13.2 Events of Default.
The following are "Events of Default" hereunder:
(a) Except as provided in subsection (b) below, a party
commits any material breach of any of the obligations or
agreements on its part contained in this Agreement,
provided (i) the defaulting party shall have ninety (90)
days to cure such breach after receipt of written notice
thereof, or, if such default is not of the type
susceptible to being cured with diligent effort within
ninety (90) days, then within a reasonable time period
and provided the defaulting party commences promptly and
proceeds diligently to cure such default within such
ninety (90) day period.
(b) Notwithstanding the foregoing subsection (a), there shall
be no opportunity to cure for any breach of either
party's obligations under Sections 6, 7 and 8, and in the
<PAGE>
event of any such breach, termination shall be effective
immediately upon receipt of the nonbreaching party's
notice to the other.
(c) This Agreement shall terminate immediately upon either
party ceasing to conduct its business, or making an
involuntary assignment of all or a material portion of
its assets or its business for the benefit of its
creditors, or if a trustee, receiver or administrator is
appointed to administer or conduct its assets or business
affairs, or if it is adjudged in any legal proceedings to
be bankrupt, or if any insolvency proceedings are
commenced against it.
13.3 Effect of Termination. In the event of termination of this
Agreement for any reason, in addition to any other obligations
contained herein:
(a) Graphic Controls shall immediately stop selling,
advertising and distributing the Products, except as
provided in subsection (c) below, and it shall notify all
Specified Accounts of such termination;
(b) Graphic Controls shall furnish CAS with a list of any
orders placed by member hospitals of the Specified
Accounts for the Products and accepted by Graphic
Controls prior to such termination date. Such list will
be furnished within ten (10) days after the termination
date.
(c) Graphic Controls shall have the right to fill all such
orders from its existing inventory of the Products:
(i) for sixty (60) days following such termination
date; and
(ii) as to the balance or any of Graphic Controls'
inventory of the Products after such orders have
been filled, CAS shall have the option to buy the
whole or any part thereof from Graphic Controls at
Graphic Controls' cost or market value, whichever
is lower; and
(iii) if CAS fails to exercise such option within ten
(10) days after receiving written notice of Graphic
Controls having filled all such orders, Graphic
Controls shall be free to sell any of its existing
inventory of the Products. After such inventory is
sold, Graphic Controls shall have no further right
to sell any of the Products.
<PAGE>
14. Meetings.
The parties agree to meet at least four times per year, at dates and
times and in places mutually agreed upon, to discuss any issues that
have arisen, including without limitation, progress in the sales of
the Products to Specified Accounts, the addition of new accounts and
the potential for international sales and distribution of the
Products. Each party shall bear its respective costs incurred to
attend such meetings.
15. Indemnification.
15.1 Indemnification. CAS agrees, at its sole expense, to defend,
indemnify and hold Graphic Controls (its affiliates, and their
directors, officers and employees) harmless from and against
all costs (including reasonable attorneys' fees) and
liabilities in connection with any claim, suit or action for
(a) infringement of any U.S. trademarks, patents, copyrights,
or other proprietary rights associated with the marketing or
sale of the Products by Graphic Controls; (b) CAS' failure to
comply with all federal, state or local laws and regulations
relating the manufacture and distribution of the Products; (c)
a Product's failure to comply with any applicable federal,
state or local laws or regulations; and (d) personal injury or
property damage resulting from the use of a Product, provided
Graphic Controls promptly notifies CAS in writing of any such
claim, suit or action and cooperates in the defense thereof,
provided further CAS shall have no obligation to Graphic
Controls for such costs and liabilities relating to
representations and warranties made by Graphic Controls (its
affiliates and their directors, officers and employees) in
connection with the marketing, distribution and sale of the
Products, which exceed or differ from the representations and
warranties made by CAS with respect to the Products or any
tortious act(s) committed by Graphic Controls (its affiliates
and their directors, officers, employees and authorized
agents). Graphic Controls shall have the right to be
represented in any suit or action by advisory counsel of
Graphic Controls' selection at Graphic Controls' expense. CAS
shall control the defense of any such suit or action and has
the exclusive authority to settle, terminate or defend same,
provided that any such settlement or termination does not
directly and adversely impact Graphic Controls' trademarks,
patents, or copyrights. CAS may, in its sole discretion,
modify any infringing Product so as to make it non-infringing
or substitute another product for such infringing Product, so
long as there is no degradation to the safety or efficacy of
the Products.
15.2 Insurance. Each party shall obtain and maintain during the
Initial Term and any extensions, as well as for a period of
three (3) years after termination of this Agreement, sufficient
insurance, and in particular product liability insurance and
contractual liability insurance (including the indemnification
referred to in Section 15.1 above), with appropriate policy
<PAGE>
limits to cover all reasonable risks associated with the
performance of its obligations under this Agreement. Each
party agrees to name the other as a loss payee, as its
interests may appear, on all insurance policies contemplated by
this Agreement and that all policies shall require thirty (30)
days prior notice to the other party of cancellation. Each
party shall provide a Certificate of Insurance as written
evidence to the other of such coverage.
16. General Provisions
16.1 Notices. All notices and communications required by this
Agreement shall be in writing and shall be either delivered by
hand or by facsimile, or mailed, postage prepaid, by overnight
service, or certified or registered mail, return receipt
requested, to the addresses listed below:
If to CAS:
CAS Medical Systems, Inc.
21 Business Park Drive
Branford, CT 06405
Attn: Susan Carron
Facsimile (203) 488-9438
If to Graphic Controls:
Graphic Controls Corporation
189 Rensselaer Street
Buffalo, NY 14240
Attn: Deborah Monaco Wojciechowski
Facsimile: (716) 849-6404
Any such notice or communication shall be effective upon
receipt. Either party may change its address by giving thirty
(30) days written notice of such change to the other party as
provided above.
16.2 Titles and Headings. The titles and headings included in this
Agreement are inserted for convenience only and shall not be
deemed to be a part of this Agreement, or considered in
construing this Agreement.
16.3 Force Majeure. If the performance or observance by either
party of any of its obligations under this Agreement is
prevented or hindered, or any failure on the part of either
party to perform or observe its obligations is caused, by
government restrictions, fire, strike, or any other event or
cause outside the reasonable control of such party, then such
failure shall not constitute a breach of this Agreement,
provided that the party seeking to be excused shall notify the
other party of the beginning and end of any event of force
majeure, and shall make every reasonable effort to minimize the
consequences of such event.
<PAGE>
16.4 Severability. If any provision of this Agreement is found by
any competent authority to be invalid, illegal, or
unenforceable in any respect for any reason, the validity,
legality, and enforceability of any such provision in every
other respect and the remainder of this Agreement shall
continue in effect so long as it still expresses the intent of
the parties. If the intent of the parties cannot thereby be
preserved, the parties agree to substitute a legally valid
agreement to meet the same economic and technical objectives
of this Agreement.
16.5 Remedies. All rights and remedies of the parties hereunder
shall be in addition to all other legal and equitable rights
and remedies belonging to them and the same shall be deemed to
be cumulative and not in lieu of such other legal and
equitable rights and remedies.
16.6 Waiver. The failure of any party to enforce any provision of
this Agreement or exercise any right granted hereby shall not
be construed to be a waiver of such provision or right nor
shall it affect the validity of this Agreement or any part
thereof, nor limit, prevent, or impair in any way the right of
any party subsequently to enforce such provisions or to
exercise such right in accordance with its terms.
16.7 Compliance with Laws. The parties shall, during the term of
this Agreement, conduct their business in a highly ethical
manner and in accordance with all federal, state, and local
statutes, laws, regulations and customs of the United States,
including without limitation the requirements of the United
States anti-trust laws, the United States Export
Administration Regulations, the United States Foreign Corrupt
Practices Act, the North American Free Trade Agreement and the
United States Anti-Boycott Regulations, as amended during the
term of this Agreement and as they apply to the parties'
activities under this Agreement.
16.8 Assignment. Neither party may assign or sub-contract any of
its rights, obligations and interests under this Agreement
without the prior written consent of the other party, provided
that either party may assign this Agreement to any entity
acquiring all or substantially all of such party's assets.
16.9 Entire Understanding; Amendment. This Agreement forms the
entire understanding of the parties hereto with respect to the
subject matters described herein, and supersedes all previous
agreements, written or oral, and all previous and
contemporaneous discussions. The terms of this Agreement may
only be amended in writing signed by both parties.
16.10 No Third Party Beneficiaries. This Agreement shall be
construed to be for the benefit of and be binding upon the
parties only, and shall confer no right or benefit to any
other person or entity.
<PAGE>
16.11 Independent Contractor. Graphic Controls is an independent
contractor. Nothing in this Agreement shall constitute the
parties as joint venturers, partners, employees, agents or
legal representatives of each other. Each party expressly
acknowledges that it has no power or authority to create any
obligation for the other.
16.12 Effect of Termination; Survival of Certain Provisions. The
termination of this Agreement shall not affect any right or
claim that shall or may have accrued or arisen prior thereto.
The provisions of Sections 6, 7, 13, 15 and 16 shall survive
termination of this Agreement.
16.13 Choice of Law. This Agreement shall be construed in
accordance with the laws of the State of Connecticut without
regard to its conflicts of laws principles.
16.14 Arbitration of Disputes. Any controversy or claim arising out
of or relating to this Agreement shall be settled by
arbitration, in accordance with the Commercial Rules of the
American Arbitration Association, by a sole arbitrator. The
place of any arbitration shall be New Haven, Connecticut. Any
judgment upon the reward rendered by the arbitrator may be
entered by any court having competent jurisdiction thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representative as of the day and year first written
above.
CAS MEDICAL SYSTEMS, INC.
By:/s/ Louis P. Scheps
Name: Louis P. Scheps
Title: President & CEO
GRAPHIC CONTROLS CORPORATION
By:/s/ Jeffrey A. Blair
Name: Jeffrey A. Blair
Title: Vice President & COO
<PAGE>
SCHEDULE A
CAS Products
[ ]
<PAGE>
SCHEDULE B
Specified Accounts*
[ ]
<PAGE>
SCHEDULE C
Medical Device Information
CAS shall provide Graphic Controls with the following information for
Products which are classified as Medical Devices, by the Food and Drug
Administration ("FDA") under the U.S. Food and Drug and Cosmetic Act:
1) Proof of facility registration with the FDA;
2) Medical Device Classification;
3) Copies of existing 510k Approval to Market Notifications;
4) Copies of clinical trials or evaluations which support the safety and
efficacy of the Products;
5) All information regarding the Products for which there is a
reportable incident during the term of this Agreement under the
Medical Device Reporting Regulation of December 13, 1984, including
all reports sent to the FDA;
6) For sterilized Products, if any, certificate of sterilization with
each shipment of an Order; and
7) Statement of latex in Products.
<PAGE>
SCHEDULE D
Competing Products Currently Distributed by Graphic Controls
ECL 4103 - Meditrace
ECL 4105 - Meditrace
ECL BRS-50-K - Medicotest
ECL NF-50-K - Medicotest
ECL BR-50-K - Medicotest
<PAGE
EXHIBIT A
Graphic Controls' Purchase Product Qualification Procedure Documents*
1) Supplier Quality Survey
2) North American Free Trade Agreement Certificate of Origin
3) Supplier Profile
4) Requirements and Expectations For Purchased Products
* The terms and conditions contained in these documents are subject to
mutual agreement by the parties.
<PAGE>
EXHIBIT B
CAS Standard Terms and Conditions
ORDER ENTRY
All orders are subject to acceptance by shipment or otherwise by CAS and
should be addressed as follows:
CAS Medical Systems, Inc.
21 Business Park Drive
Branford, CT 06405
ORDERING INFORMATION
All items are to be ordered by catalog numbers. Ordering information may
be obtained from CAS Customer Service at (800) 227-4414 or (203) 488-6056.
Orders may also be sent by FAX: (203) 488-9438.
PAYMENT TERMS
1%-10 Days, Net 30 Days. A carrying charge will be assessed on late
payments at the rate of 1-1/2% per month (18% per annum).
SHIPPING TERMS
FOB Branford, CT. Buyer is expected to file all claims for damage or lost
shipments. CAS will select an appropriate method of shipment.
RETURNED GOODS POLICY
Approval (and a Return Goods Authorization number) must be obtained from
CAS Medical Systems, Inc. prior to return of unopened merchandise.
Unauthorized returns will not be accepted and will be returned to sender at
his expense. Returns other than for warranty reasons must be prepaid and
are made at the senders risk. Only items on the current price list will be
considered for credit. All credit will be issued based on original net
purchase price. All returned goods are subject to a 25% restocking charge.
The expiration date for gel products, including Klear-Trace (Registered)
Electrodes, NeoGuard (Registered) Reflectors and NeoGuard Limboard
(Registered) Arm Boards, is the lot number stamped on the package. Only
product with at least 6 months remaining before the expiration date (at the
time it is received at CAS) will be accepted for return. All requests for
an RGA number must include the lot number. No RGA will be issued without an
approved lot number.
Exhibit 13.1
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, 1997
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 theExchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Title_of_Each_Class
Common Stock, $.004 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 Registrant's revenues for the fiscal year ended December 31, 1997 were
$6,901,176.
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of December 31, 1997 was based upon the last sale price of such
stock on that date on the over-the counter market commonly referred to as the
"pink sheets" was $3,132,973. The number of shares of the Registrant's Common
Stock outstanding as of December 31, 1997 was 9,329,277.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on June 10, 1998 are incorporated by reference in Part
III of this Report. Except as expressly incorporated by reference, the
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" or the "Company") 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 use the Company as a
sales supplier 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 neonatal patients 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, manufactured and sold by the Company, to minimize damage to neonatal
skin.
Sales and Marketing
The Company conducts its sales in the domestic hospital market by means of
exclusive distributors utilizing full time sales personnel. 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. Effective
October 1, 1997, the Company entered into a non-exclusive Marketing and
Distribution Agreement (the "Agreement") with Graphic Controls Corporation
("Graphic Controls"), pursuant to which Graphic Controls will sell certain of
the Company's neo-natal specialty products solely to specific large hospital
purchasing groups. The Company anticipates that sales to Graphic Controls
will constitute a material portion of the Company's revenues during the term
of the Agreement.
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.
<PAGE>
Financial Information Relating to Sales
Year Ended December 31,
1997 1996 1995
Domestic Sales $4,649,474 $4,816,108 $4,273,483
Export (Including
Licensing Revenues) 2,251,702 2,371,007 2,155,748
_________ _________ _________
$6,901,176 $7,187,115 $6,429,231
_________ _________ _________
Competition
The Company competes in the hospital market where there are many suppliers
with greater financial and personnel resources that sell 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 resources.
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. The equipment 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 1997, 1996 and 1995, the Company had sales to one customer which in
the aggregate accounted for approximately 13%, 13% and 12% of sales,
respectively.
Research and Development
In 1997, 1996 and 1995, the Company spent approximately $519,000, $396,000
and $405,000, 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, 1997, the Company had 53 employees of whom 50 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
<PAGE>
medical and hospitalization coverage. The Company sponsors a 401K 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 1997, 1996 and 1995 contributions were $32,260, $31,512 and $28,166,
respectively.
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") the 1990 "Safe Medical Devices Act", and most recently, the new
Quality System Regulation (QSR) which replaces the regulations formerly called
Good Manufacturing Practice (GMP's).
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 also 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 and 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.
<PAGE>
Quality control procedures are performed by the Company at its facility and
occasionally at its suppliers' facilities to standards set forth in the FDA's
"Quality System Regulation". 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 June, 1998 for medical devices to gain access to the European
Union common market. The FDA, recognizing the value of a universally accepted
quality system, has patterened its new Quality System Regulation after ISO
9001. CAS is in full compliance with the new Quality System Regulation.
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, 1997, the
Company had a backlog of orders from customers for products with requested
ship dates in 1998 totaling approximately $1,188,000 deliverable throughout
1998, as compared to $434,000 as of December 31, 1996. During the first
quarter of 1998, the Company will fulfill approximately $125,000 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) common law trademarks.
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.
<PAGE>
ITEM 2. PROPERTIES
The Company occupies leased facilities comprising approximately 17,500 square
feet of office, laboratory and assembly space, including a controlled clean
environment, located at 21 Business Park Drive, Branford, Connecticut 06405.
Minimum annual rentals under the Company's lease agreement, which expires on
December 31, 1998, are:
1998 $110,000
These amounts are in addition to the Company's share of increases in real
estate taxes and certain utility costs.
The Company does not intend to extend its current lease and is in the process
of building a 24,000 square foot office, laboratory and manufacturing
facility, on 4.6 acres in Branford, Connecticut. The total cost is extimated
to be $1,800,000. Present plans are to occupy the new facility in late 1998.
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.
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 two 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, 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
March 31, 1997 11/16 7/16
June 30, 1997 3/4 1/2
September 30, 1997 27/32 5/8
December 31, 1997 7/8 19/32
<PAGE>
(b) The following table sets forth the approximate number of holders of
record of Common Stock of the Company on December 31, 1997.
Title of Class Number of Shareholders
Common Stock, $.004 par value 400
(c) No cash dividends have been declared on the Company's common stock
for 1997 or 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources
As of December 31, 1997, the Company's cash and cash equivalents totaled
$2,190,345, compared to $1,606,979 at December 31, 1996 (an increase of 36%),
and the Company's working capital totaled $3,346,083 on December 31, 1997,
compared to $2,663,685 on December 31, 1996. The Company's increased cash
position is due to cash provided by operating activities in 1997. As a result
of improved liquidity in 1997, the Company was able to internally finance
approximately $138,000 of property and equipment additions as well as make
investments in short-term notes, earning approximately $76,000 for 1997.
The Company's working capital ratio increased from 3.65 at December 31,
1996 to 5.14 at December 31, 1997.
At December 31, 1997, the Company had a line of credit with a Connecticut
bank totaling $750,000. Borrowings under the line of credit bear interest at
prime plus 1.0%. At December 31, 1997, 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 $895,000 in license fees has been
received through December 31, 1997. 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 1998 operations and its existing line of credit
arrangement will provide the Company with adequate liquidity and capital
resources to meet its 1998 financial requirements.
The Company is currently evaluating new Enterprise Resource Planning
(ERP) software to replace the existing software package. All ERP software
being evaluated is year 2000 compliant and, if purchased, should be in
operation by November 1998.
<PAGE>
Results of Operations
1997 Compared to 1996
The Company earned $665,000 ($.07 per common share assuming dilution) in
1997, compared to $905,714 ($.09 per common share assuming dilution) in 1996.
The 1997 earnings performance was impacted by softness in sales of certain of
the Company's product lines and increased personnel in the sales and research
development departments.
The Company's revenues were approximately $6,901,000 for 1997, a decrease
of approximately $286,000 for the comparable period of 1996. The decrease in
1997 is due primarily by softness in sales of non-invasive blood pressure
modules to Original Equipment Manufacturers ("OEM") who utilize the Company's
technology in their systems.
Total cost of product sales as a percentage of net product sales was 42.7
percent for 1997 compared to 43.7 percent for 1996. The favorable impact of
product cost improvements is the result of added production efficiency and
product cost reductions.
Research and product development (R&D) expenses increased by 31 percent or
approximately $123,000 to approximately $519,000 for the year ended December
31, 1997. The increase during 1997 is due primarily to additional personnel
in conjunction with the Company's product development objectives.
Selling, general and administrative expenses were approximately
$2,502,000 in the year ended December 31, 1997 compared to approximately
$2,273,000 in the prior year, an increase of 10 percent. The overall increase
in 1997 is the result of additional sales personnel, both domestic and abroad.
The Company currently invests its excess cash in low-risk, short-term
interest bearing instruments. During 1997, the Company earned approximately
$76,000 of interest income compared to approximately $37,000 for 1996.
1996 Compared to 1995
The Company earned $905,714 ($.09 per common share assuming dilution) in
1996, compared to $849,000 ($.09 per common share assuming dilution) 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.
<PAGE>
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.
ITEM 7. INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Balance Sheets - December 31, 1997 and 1996 F-2 to F-3
Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-4
Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-5
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 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.
PART III
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, 1998 and filed with the Securities and Exchange Commission.
<PAGE>
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
statement to be mailed to shareholders on or about April 28, 1998, 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 "Stock Ownership" and
"Election of Directors" in the Registrant's definitive proxy statement to be
mailed to shareholders on or about April 28, 1998, 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. Since January 1, 1996, the
Company has extended Dr. Cohen's employment contract annually. Dr. Cohen's
employment contract has been extended to December 31, 1998. Compensation for
1997 was approximately $91,000.
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
through August 31, 1998. Compensation was approximately $185,000 for 1996.
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(A) 3.1 (a) Certificate of Incorporation of Registrant*
(b) By-Laws of Registrant*
27.1 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, 1997 and 1996 F-2 to F-3
Statements of Income for the Years Ended December 31, F-4
1997, 1996 and 1995
Statements of Shareholders' Equity for the Years Ended F-5
December 31, 1997, 1996 and 1995
Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995 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, 1997
and 1996, and the related statements of income, shareholders'
equity and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1997 and 1996,
and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
January 23, 1998
<PAGE>
<TABLE>
F-2
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS -- DECEMBER 31, 1997 AND 1996
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,190,345 $1,606,979
Accounts receivable, net of allowance for
doubtful accounts of $27,289 and $26,125
in 1997 and 1996, respectively 1,055,881 1,112,517
Inventories (Note 3) 725,121 759,762
Deferred tax asset 112,000 112,000
Other current assets 70,339 78,229
Total current assets 4,153,686 3,669,487
PROPERTY AND EQUIPMENT (Note 2):
Furniture and equipment 1,048,430 921,509
Leasehold improvements 58,079 47,181
1,106,509 968,690
Less-accumulated depreciation 874,855 782,680
231,654 186,010
Other assets 8,199 8,199
Total Assets $4,393,539 $3,863,696
<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, 1997 AND 1996
(continued)
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 239,172 $ 206,644
Income taxes payable 247,392 317,623
Accrued payroll 198,639 255,880
Accrued professional fees 61,000 67,729
Accrued warranty 30,000 45,000
Other accrued expenses 88,512 112,926
Deferred revenue 5,888 -
Total current liabilities 807,603 1,005,802
SHAREHOLDERS' EQUITY (Notes 2, 6 and 7):
Common stock, $.004 par value, 19,000,000
shares authorized, 9,329,277 shares issued
and outstanding in 1997 and 1996 37,317 37,317
Additional paid-in capital 2,697,364 2,697,364
Retained earnings 788,255 123,213
Total shareholders' equity 3,522,936 2,857,894
Total liabilities and shareholders' equity $4,393,539 $3,863,696
<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, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUES:
Net product sales $6,620,328 $6,910,827 $6,163,848
Licensing fees (Note 5) 280,848 276,288 265,383
6,901,176 7,187,115 6,429,231
OPERATING EXPENSES:
Cost of product sales 2,826,718 3,019,282 2,831,369
Selling, general and administrative 2,501,894 2,272,602 2,272,329
Research and development 519,227 396,234 405,022
Operating income 1,053,337 1,498,997 920,511
INTEREST INCOME, net 75,705 36,717 13,380
Income before income taxes 1,129,042 1,535,714 933,891
PROVISION FOR INCOME TAXES (Note 8) 464,000 630,000 85,000
Net income $ 665,042 $ 905,714 $ 848,891
--------- -------- --------
Weighted average number of common
shares outstanding:
Basic 9,329,277 9,316,202 9,256,144
--------- --------- ---------
Assuming dilution 9,979,489 10,228,275 9,894,875
--------- ---------- ---------
Earnings per common share:
Basic $.07 $.10 $.09
--------- ---------- ---------
Assuming dilution $.07 $.09 $.09
--------- ---------- ---------
<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, 1997, 1996 AND 1995
<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, 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
Net income - - - -
- 665,042
------ ------- --------- ------
- --------- ---------
BALANCE, December 31, 1997 - $ - 9,329,277 $37,317
$2,697,364 $ 788,255
<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, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $665,043 905,714 848,891
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 92,175 76,968 79,089
(Increase) decrease in deferred tax asset - (87,000) (25,000)
(Increase) decrease in accounts receivable 56,636 (378,642) 60,684
(Increase) decrease in inventory 34,641 83,542 (32,316)
(Increase) decrease in other current assets 7,890 (3,789) 641
Increase (decrease) in accounts
payable and accrued expenses (141,087) 334,867 339,578
Increase (decrease) in deferred revenue 5,888 (44,444) (47,778)
------- ------- ---------
Net cash provided by operating activities 721,186 887,216 1,223,789
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (137,820) (84,334) (69,748)
Net cash used in investing activities (137,820) (84,334) (69,748)
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred dividends - - (40,000)
Repayment of debt to related parties - - (144,411)
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)
--------- ------- -------
Net increase in cash and cash
equivalents 583,366 524,976 780,531
CASH AND CASH EQUIVALENTS, beginning of
year 1,606,979 1,082,003 301,472
CASH AND CASH EQUIVALENTS, end of year $2,190,345 $1,606,979 $1,082,003
--------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
F-7
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Continued)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for interest $ 765 $ 1,555 $ 5,458
Cash paid during the year for taxes $543,000 $424,175 $52,650
<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, 1997
(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
1997, 1996 and 1995, the Company had sales to one customer which in the
aggregate accounted for approximately 13%, 13% and 12% of sales,
respectively, and had export sales principally to Europe, including
licensing fee revenues, of $2,251,702, $2,371,007, and $2,155,748,
respectively.
(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.
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).
Research and Development Costs
The Company expenses all research and development costs as incurred.
<PAGE>
F-9
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 nunmber of shares of
commonstock 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 and, as required, has applied it
retroactively to the 1996 and 1995 financial statements.
As of December 31, 1997, the Company had 1,180,100 options and 750,000
warrants to purchase shares of common stock outstanding.
Under SFAS No. 128, the Company's Basic and Diluted EPS are as follows:
1997 1996 1995
Net income 665,043 905,714 848,891
Weighted average shares outsanding 9,329,277 9,316,202 9,256,144
Add: dilutive warrants and options 650,212 912,073 638,731
--------- --------- ---------
Total weighted average shares and
dilutive securities outstanding 9,979,489 10,228,275 9,894,875
--------- ---------- ---------
Net income per share - Basic $.07 $.10 $.09
--------- ---------- ---------
Net income per share - Assuming
Dilution $.07 $.09 $.09
--------- ---------- ---------
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
<PAGE>
F-9
(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:
1997 1996
Raw materials $459,358 472,761
Work in process 173,598 135,955
Finished goods 92,165 151,046
_______ _______
$725,121 $759,762
(4) Debt:
At December 31, 1997, the Company's line of credit arrangement allowed
for maximum borrowings of $750,000, all of which was available. The
line of credit arrangement expires on August 1, 1998 and bears interest
at the prime rate (8.25% at December 31, 1997) plus 1%. During 1997,
1996 and 1995, the maximum month end borrowings outstanding under
this line were $100,000, $100,000 and $50,000, the weighted average
borrowings were $8,333, $8,333 and $4,167, and the weighted average
interest rates on amounts outstanding were 9.5%, 9.5% and 10.3%,
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 ($150,000 at December 31, 1997).
(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 $885,000
has been received through December 31, 1997. The manufacturer has the
option to extend the license to 2006 for which the Company will earn
royalties. License fees from this agreement and deferred revenue of
$140,000 from the prior license agreement are being recognized over the
life of the current agreement.
(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 $40,000 were paid on these shares in 1995.
(7)Employee Benefit Programs:
Stock Options-
In December 1984, the Board of Directors and stockholders adopted the 1984
Employee Incentive Stock Option Plan (the "1984 Plan"). The exercise
price for common stock issued under the 1984 Plan is to be no less than
the fair market value of the stock at the grant date of the options.
Pursuant to the 1984 Plan, 750,000 shares of common stock have been
reserved for employee (including officers and directors) purchase. An
option granted under the 1984 Plan becomes exercisable in two equal annual
installments, commencing one year from the date of the grant of the
option. Options begin to expire between five and ten years from the date
of grant, depending on the optionholder's percentage of ownership of the
Company. In the event employment is terminated, the employee no longer
has the right to exercise his or her options unless expressly permitted by
the Board of Directors.
<PAGE>
F-11
In June 1994, the Board of Directors and stockholders adopted the 1994
Employees' Incentive Stock Option Plan (the "1994 Plan"). Pursuant to the
1994 Plan, 250,000 shares of common stock have been reserved for employee
(including officers and directors) purchase. The 1994 Plan is the
successor to the 1984 Plan and contains provisions which are similar to
those of the 1984 Plan.
In 1993, the Company granted a warrant to purchase 750,000 shares of
common stock to an officer of the Company. The exercise price ($.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.
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation ("SFAS No. 123")," 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 SFAS No.
123, the Company's 1997 and 1996 net income and earnings per share would
have been reduced to the following pro forma amounts:
1997 1996
Net income: As reported $665,043 $905,714
Pro Forma 655,315 782,890
Earnings per share: As reported-Basic .07 .10
Pro Forma-Basic .07 .08
As reported-Diluted .07 .09
Pro Forma-Diluted .07 .08
<PAGE>
<TABLE>
F-11 continued
A summary of the Company's stock option plans at December 31, 1997, 1996 and
1995 and
changes during the years then ended is presented in the table and narrative
below:
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
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 1,180,100 $.58 980,900 $.49 990,900
$.48
Granted - 256,500 .96 75,000
.52
Exercised - ( 39,800) .29 ( 40.000)
.27
Cancelled - ( 17,500) .31 ( 45,000)
.44
_________ _________ _______
Outstanding at
end of year 1,180,100 $.58 1,180,100 $.58 980,900
$.49
Exercisable at
end of year 1,148,850 1,105,100 895,900
</TABLE>
<PAGE>
F-12
Of the 1,180,100 options outstanding at December 31, 1997, 495,600 have
exercise prices between $.25 and $.375, with a weighted average exercise
price of $.34 and a weighted average remaining contractual life of 3.86
years. All of these options are exercisable. 659,500 of the 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 5.81 years. 640,750 of these options are exercisable;
their weighted average exercise price is $.81. The remaining 25,000
options have an exercise and weighted average exercise price of $1.25 and
a weighted average remaining contractual life of 8.5 years. 12,500 of
these options are exercisable. The weighted average fair value of options
granted during 1996 was $.80. No options were granted in 1997.
The fair value of each option 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 1997, 1996 and 1995, the Company paid life insurance premiums of
approximately $20,000, $17,000 and $14,000, respectively, 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 1997, 1996 and 1995
contributions by the Company were $,32,260, $31,512 and $28,166,
respectively.
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 1997 provision for income taxes of $464,000 consists of federal and
state taxes of $392,000 and $72,000, respectively. The 1996 provision for
income taxes of $630,000 consists of federal and state taxes of $535,000
and $95,000, respectively. These provisions relate primarily to current
income taxes. The 1995 provision for income taxes of $85,000 represents
state income taxes and is net of tax benefits of net operating loss
carryforwards utilized of $874,000. 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, the utilization of
net operating loss carryforwards. The deferred tax assets relate
primarily to certain inventory related expenses and accured liabilities,
which are not currently deductible for income tax purposes.
(9) Commitments and Contingencies:
Employment Agreements-
The Company is committed under employment agreements with certain officers
for payments aggregating approximately $276,000 which expire in 1998.
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 $110,000. Rent
expense was approximately $116,000, $108,000 and $102,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Company hs entered into a contract to build a 24,000 square foot
office, laboratory and manufacturing facility. The total cost is estimated
to be approximately $1,800,000. Through January 23, 1998, approximately
$55,000 hs been incurred on this project.
<PAGE>
SIGNATURES
In accordance with 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
In accordance with 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, 1998 Myron L. Cohen
Date Myron L. Cohen
Director
March 25, 1998 Lawrence Burstein
Date Lawrence Burstein
Director
March 25, 1998 Jerome Baron
Date Jerome Baron
Director
March 25, 1998 Saul Milles
Date Saul Milles
Director
March 25, 1998 Louis P. Scheps
Date Louis P. Scheps
Director
Exhibit 13.2
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.
<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>
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) provided by
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:
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 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
$182,000 ($.02 per common share assuming dilution), compared to $261,000
($.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
Exhibit 13.3
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
__________ _________
</TABLE>
<PAGE>
<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
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CAS Medical Systems, Inc.:
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-2 of our report dated
January 21, 1998, included in the Company's Form 10-KSB for the year ended
December 31, 1997 and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Stamford, Connecticut
August 13, 1998
