As filed with the Securities and Exchange Commission on
November 24, 1999
Registration No. 333-88431
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)
44 East Industrial Road
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.
44 East Industrial Road
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
(203) 498-4324
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 ]
<PAGE>
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. [ ]
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
2,060,000 Shares Common Stock
CAS MEDICAL SYSTEMS, INC.
This Prospectus refers to the offer and sale of 2,060,000 shares of
our common stock by the selling stockholders named in this prospectus under
the heading "Selling Stockholders". We will not receive any of the proceeds
from sales of the shares by the selling stockholders although we will
receive proceeds from the exercise of options and warrants that are
exercisable by the selling stockholders into some of the shares being
offered in this prospectus. If all of these options and warrants are
exercised by the selling stockholders, we will receive proceeds of $808,545.
We intend to use those proceeds for general corporate purposes.
The selling stockholders may sell their CAS Medical shares in the open
market at prevailing market prices, or in private transactions at negotiated
prices. They may sell the shares directly, or may sell them through
underwriters, brokers or dealers. See "Plan of Distribution."
Our common stock is traded on the over-the-counter market commonly
referred to as the "pink sheets" under the symbol "CMRX". On November 18,
1999 the closing bid price of our common stock was $0.50 per share. Our
executive offices are located at 44 East Industrial Road, Branford,
Connecticut 06405 and our telephone number is (203) 488-6056.
_____________________________
See "Risk Factors" beginning on page 5 to read about certain risks you
should consider before buying shares of CAS Medical common stock.
_____________________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
The date of this Prospectus is November 24, 1999.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file
at the SEC's public reference rooms in Washington, D.C., New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also
available on the SEC's web site at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" information from other
documents that we file with them, which means that we can disclose important
information by referring to those documents. The information incorporated
by reference is considered to be part of this Prospectus and copies of these
filings will be delivered together with this Prospectus. We incorporate by
reference the documents listed below:
- - Our Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998;
- - Our Quarterly Report on Form 10-QSB for the quarter ended March 31,
1999;
- - Our Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999;
- - Our Quarterly Report on Form 10-QSB for the quarter ended September 30,
1999.
You may request additional copies of these filings, at no cost, by
writing or telephoning us at:
CAS Medical Systems, Inc.
44 East Industrial Road
Branford, CT 06405
Attention: Louis Celano
Telephone: (203) 488-6056
You should rely only on the information incorporated by reference or
provided in this Prospectus or any supplement. We have not authorized
anyone else to provide you with different information. The selling
shareholder may not make an offer of these shares in any state where the
offer is not permitted. You should not assume that the information in this
Prospectus or any supplement is accurate as of any date other than the date
on the front of those documents.
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertanties described below are not the
only ones facing our company. Additional risks and uncertanties of which we
are unaware or that we currently think are immaterial may also impair our
business operations. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected. This could cause the trading price of our common stock
to decline, and you could lose all or part of your investment.
COMPETITION. We are 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 we
do and have substantially greater experience in testing of products,
obtaining regulatory approvals and manufacturing and marketing medical
devices. Therefore, our competitors may succeed in obtaining approval for
products more rapidly than we can. Other companies may succeed in
developing and commercializing products earlier than we do. In addition to
competing with universities and other research institutions in the
development of products, technologies and processes, CAS Medical may compete
with other companies in acquiring rights to products or technologies from
universities. Also, the medical device market is experiencing increasing
customer concentration, due to the emergence of large purchasing groups. We
cannot assure you that we will develop products that are more effective or
achieve greater market acceptance than competitive products, or that our
competitors will not succeed in developing products and technologies that
are more effective than those being developed by us or that would render our
products and technologies less competitive or obsolete. Moreover, there can
be no assurance that we will be able to successfully sell to large
purchasing groups, which are increasingly looking to suppliers that can
provide a broader range of products than we currently offer.
PRODUCT LIABILITY EXPOSURE. As a manufacturer of medical diagnostic
equipment, we could face product liability claims. We have no pending
product liability claims and maintain product liability insurance in an
aggregate amount of $5 million. We cannot assure you that this insurance
coverage will be adequate to cover any product liability claims that occur
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 our business and results of operations.
<PAGE>
GOVERNMENT REGULATION. Our business is subject to varying degrees of
governmental regulation in the countries in which we operate. In the United
States, our 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 our 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 before their entry into the marketplace. Medical products of the
type currently being marketed and under development by us 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. Under
the 1976 Amendments, we must be a registered device manufacturer and must
comply with Good Manufacturing Practice Regulations for Medical Devices. In
addition, depending upon product type, we must also comply with those
regulations governing the Conduct of Human Investigations, Pre-Market
Approval Regulations and other requirements, as determined 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. Our 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 may vary 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
us. We cannot assure you that FDA or other regulatory clearance or approval
for any products we develop 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 our ability to market our
proposed products. Any delay in obtaining or failure to obtain such
clearances or approvals would adversely affect the manufacturing and
marketing of our products and the ability to generate additional product
revenue.
<PAGE>
In foreign countries, the degree of government regulation affecting our
business varies considerably among countries, ranging from stringent testing
and approval procedures in some locations to simple registration procedures
in others, while in some countries there is virtually no regulation of the
sale of our products. In general, we have not encountered material delays
or unusual regulatory impediments in marketing our products internationally.
Establishment of uniform regulations for European Union nations recently
took place. We believe that we will be subject to a single regulatory
scheme for all the participating countries and we have taken the necessary
steps to assure ongoing compliance with these new, more rigorous
regulations, including obtaining International Standards Organization
certification for our manufacturing operations. This will allow us to
market products in Europe with a single registration applicable to all
participating countries.
CHALLENGES TO PATENTS AND PROPRIETARY RIGHTS. We rely on a combination
of patents, trade secrets, trademarks and non-disclosure agreements to
protect our proprietary rights. We cannot assure you that our patent
applications will result in the issuance of patents or that any patents
owned by the Company now or in the future will afford protection against
competitors that develop similar technology. We also cannot assure that the
our non-disclosure agreements will provide meaningful protection for our
trade secrets or other proprietary information. Moreover, in the absence of
patent protection, our business may be adversely affected by competitors who
independently develop substantially equivalent or superior technology.
It is possible that we may need to acquire licenses to, or to contest
the validity of, issued or pending patents of third parties relating to our
technology or to products presently marketed or under development by us. In
addition, we cannot assure that any license required under a patent would be
made available to us on acceptable terms, if at all, or that we would
prevail in any patent litigation.
RISKS OF TECHNOLOGICAL OBSOLESCENCE. The areas in which we are
developing, distributing, and/or licensing products involve rapidly
developing technology. Others may develop products that might cause
products being developed, distributed or licensed by us to become obsolete
or uneconomical or result in products superior to our products.
RISKS ASSOCIATED WITH INTERNATIONAL SALES. In recent years, our
international sales have grown faster than our domestic sales, and accounted
for 30% of our total net sales for the 1998 fiscal year. We expect that
international sales will continue to constitute a significant portion of our
business. Although we sell our products in United States dollars and are
not subject to significant currency risks, an increase in the value of the
United States dollar relative to foreign currencies in our international
markets could make our products less price competitive in these markets.
<PAGE>
SIGNIFICANT INFLUENCE OF INSIDERS; POTENTIAL ANTI-TAKEOVER PROVISIONS.
Our directors, executive officers and other affiliates beneficially own
approximately 55% of the outstanding common stock of CAS Medical. As a
result, these directors, officers and affiliates will be able to
significantly influence the election of all of our directors and otherwise
influence control of the our operations. Our 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. We
are also subject to a Delaware statute regulating business combinations.
Any of these provisions could discourage, hinder or preclude an unsolicited
acquisition of CAS Medical and could make it less likely that stockholders
receive a premium for their shares as a result of any takeover attempt.
RISKS OF LOW-PRICED STOCK. Due to the low trading price of our common
stock, it could in the future become subject to Rule 15g-9 under the
Securities Exchange Act of 1934, which imposes additional sales practice
requirements on broker-dealers that sell "penny stocks". SEC regulations
define a penny stock to be any non-exchange or NASDAQ entity security that
has a market price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to some exceptions. Our common stock is
currently exempted from penny stock regulation by virtue of the fact that we
have 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 SEC 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. We cannot assure
that our common stock will continue to qualify for exemption from these
restrictions. If the our common stock were subject to the rules on penny
stocks, it may adversely affect the ability of broker-dealers to sell the
our common stock and may adversely affect the ability of purchasers in this
offering to resell any of the common stock they purchased in the secondary
market.
EFFECT OF CURRENT OFFERING ON STOCK PRICE. Sales of a substantial
number of shares of our common stock in the public market originally issued
through the exercise of options or warrants could adversely affect the
market price of our common stock and may also adversely affect our ability
to raise additional capital. 2,060,000 shares of CAS Medical common stock
are being registered in connection with this prospectus for resale to the
public. The CAS Medical common stock registered in connection with this
prospectus constitutes approximately 18.9% of our common stock.
Historically, our common stock has been thinly traded. This low trading
volume may have had a significant effect on the market price of our common
stock, which may not be indicative of the market price in a more liquid
market.
<PAGE>
DEPENDENCE ON KEY PERSONNEL. We believe that our future success will
depend to a significant extent on the efforts and abilities of our senior
management, in particular Louis P. Scheps, our President and Chief Executive
Officer and Myron L. Cohen, our Executive Vice President. The loss of the
services of Mr. Scheps or Dr. Cohen could have a material adverse effect on
our business and results of operations.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS. Our Certificate of
Incorporation provides that our officers and directors will not be
personally liable to CAS Medical or its stockholders for monetary damages
resulting from breaches of duty owed to CAS Medical or its stockholders,
including breaches which constitute negligence in the performance of their
duties. As a result, the rights of CAS Medical 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. We have not paid cash dividends on our common
stock since inception, and at this time we do not anticipate that we will
pay cash dividends in the foreseeable future.
THE COMPANY
CAS Medical Systems, Inc. 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. We have developed and are 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 us directly through our own
sales force via distributors and pursuant to original equipment manufacturer
(OEM) agreements in Europe and the United States. We have agreements to
supply our blood pressure monitors, cuffs and electrodes to companies for
distribution in major segments of the international market. We also have
OEM agreements to supply custom versions of its blood pressure measuring
technology in the form of plug-in modules for patient monitoring systems.
We have several other products in various stages of development which we
believe are applicable to both adult and neonatal/pediatric medicine. Our
executive offices are located at 44 East Industrial Road, Branford,
Connecticut, 06405 and our telephone number is (203) 488-6056.
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information as of April 30, 1999
(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., 44 East Industrial
Park Road, 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) 1,303,325 (2) 1,000,000 (3) 403,325 4.3%
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 15.8%
Jay M. Haft (16) 91,000 (17) 60,000 (18) 31,000 *
Saul S. Milles, 60,000 (20) 60,000 (20) 0 -
M.D. (19)
J. Sanford Davis 500,000 500,000 0 -
* Less than 1%.
(1)Mr. Scheps is President and Chief Executive Officer and a Director of the
Company.
(2)Includes warrants to purchase 919,000 shares and options to purchase
81,000 shares, each exercisable within 60 days. Information is as of
September 1, 1999.
(3)Consists of common stock underlying warrants to purchase 919,000 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.
<PAGE>
(9)Consists of common stock underling warrants to purchase 75,000 shares.
(10) Mr. Burstein is a Director of the Company.
(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.
(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
CAS Medical is authorized to issue up to 19,000,000 shares of common
stock, $.004 par value, 9,346,773 shares of which were issued and
outstanding at September 1, 1999, and 1,000,000 shares of Preferred Stock,
$.001 par value, none of which are issued and outstanding at September 1,
1999. See "Significant Influence of Insiders; Potential Anti-takeover
Provisions" in the section on Risk Factors to read about certain provisions
in the certificate of incorporation and bylaws of CAS Medical which could
have the effect of delaying or preventing a change in control of CAS
Medical.
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
We are registering the shares of common stock covered by this Prospectus
for the Selling Stockholders. We will pay the costs and fees of registering
the shares of common stock covered by this Prospectus, but the Selling
Stockholders will pay any brokerage commissions, discounts or other expenses
relating to the sale of such shares.
The Selling Stockholders may sell the shares of common stock in the
over-the-counter market or otherwise, at market prices prevailing at the
time of sale, at prices related to the prevailing market prices, or at
negotiated prices. In addition, the Selling Stockholders may sell some or
all of their shares of common stock covered by this Prospectus through:
- - a block trade in which a broker-dealer may resell a portion of the
block, as principal, in order to facilitate the transaction;
- - purchases by a broker-dealer, as principal, and resale by the
broker-dealer for its account; or ordinary brokerage transactions and
transactions in which a broker solicits purchasers.
The Selling Stockholder may negotiate and pay broker-dealers
commissions, discounts or concessions for their services, provided that no
such commissions, discounts or concessions are paid by CAS Medical.
Broker-dealers engaged by the Selling Stockholders may allow other
broker-dealers to participate in resales. However, the Selling Stockholders
and any broker-dealers involved in the sale or resale of the common shares
may qualify as "underwriters' within the meaning of Section 2(a)(11) of the
Securities Act of 1933 (the "1933 Act"). In addition, the broker-dealers'
commisions, discounts or concessions may qualify as underwriters'
compensation under the 1933 Act. If any of the Selling Stockholders
qualifies as an "underwriter," the Selling Shareholder wil be subject to the
prospectus delivery requirements of Section 5(b)(2) of the 1933 Act.
In addition to selling their shares of common stock under this
Prospectus, the Selling Stockholders may:
- - agree to indemnify any broker-dealer or agent against certain
liabilities related to the selling of the shares of common stock,
including liabilities arising under the 1933 Act;
- - transfer shares of common stock in other ways not involving market
makers or established trading markets, including directly by gift,
distribution, or other transfer; or
- - sell shares of common stock under Rule 144 of the 1933 Act rather than
under this Prospectus, if the transaction meets the requirements of Rule
144.
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
Selling Stockholders. If all of the options and warrants exercisable by the
Selling Stockholders into shares being offered in this Prospectus are
exercised by the Selling Stockholders, we will receive proceeds of $808,545.
We intend to use those proceeds for general corporate purposes.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for "forward-looking statements" (as defined in the
Act). This Prospectus may include or incorporate by reference
forward-looking statements which reflect our current view (as of the date
such forward-looking statement is made) with respect to future events,
prospects, projections or financial performance. These forward-looking
statements are subject to certain uncertainties and other factors that could
cause actual results to differ materialy from those made, implied or
projected in such statements. These uncertainties and other factors are set
forth in "Risk Factors' above. The words "believe", "expect", "anticipate",
"project", and similar expressions identify "forward-looking statements",
which speak only as of the date the statement was made. CAS Medical
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
othewise.
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.
EXPERTS
The audited financial statements included in this prospectus and related
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report thereon appearing elsewhere
herein and in the registration statement, and are included in reliance upon
such reports given upon the authority of such firms as experts in accounting
and auditing.
<PAGE>
Prospective investors may rely only on the information contained in this
Prospectus. Nether CAS Medical Systems, Inc. nor any selling stockholder
has authorized anyone to provide prospective investors with different or
additional information. This prospectus is not an offer to sell nor is it
seeking an offer to sell nor is it seeking an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted. The
information contained in this Prospectus is correct only as of the date of
this Prospectus, regardles of the time of delivery of this Prospectus or the
sale of any of these securities.
2,600,000 Shares
Common Stock
TABLE OF CONTENTS
Page CAS MEDICAL SYSTEMS, INC.
Incorporation of Certain
Documents by Reference . . . . . . 2
Risk Factors . . . . . . . . . . . 5 PROSPECTUS
The Company . . . . . . . . . . . . 9
Selling Stockholders . . . . . . .10
Description of Capital Stock . . .11
Plan of Distribution . . . . . . .12 November 24, 1999
Use of Proceeds . . . . . . . . . .13
Forward Looking Statements. . . . .13
Legal Matters . . . . . . . . . . .13
Experts . . . . . . . . . . . . . .13
<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 $ 12.42
Legal fees and expenses $10,000.00*
Accounting fees and expenses $ 5,000.00*
Printing and engraving expenses $ 5,000.00*
Miscellaneous $ . .00*
_________
Total $20,012.42*
_________
*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
13.1 - Form 10-KSB for Year ended December 31, 1998
13.2 - Form 10-QSB for Quarter ended March 31, 1999
13.3 - Form 10-QSB for Quarter ended June 30, 1999
13.4 - Form 10-QSB for Quarter ended September 30, 1999
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;
(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.
(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 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.
<PAGE>
(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.
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
November 23, 1999.
CAS MEDICAL SYSTEMS, INC.
(Registrant)
By:/s/ Louis P. Scheps
Name: Louis P. Scheps
Title: President and Chief Executive
Officer
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 November 23, 1999
Myron L. Cohen, Ph.D. and Executive Vice
President
/s/ Louis P. Scheps President, Chief November 23, 1999
Louis P. Scheps Executive Officer
and Director
(Principal Executive,
Financial and Accounting Officer)
<PAGE>
/s/ Lawrence S. Burstein* Director November 23, 1999
Lawrence S. Burstein
/s/ Jerome Baron* Director November 23, 1999
Jerome Baron
/s/ Saul S. Milles, M.D.* Director November 23, 1999
Saul S. Milles, M.D.
/s/ Louis P. Scheps November 23, 1999
*By: Louis P. Scheps
Attorney-in-fact
</TABLE>
November 23, 1999
CAS Medical Systems,Inc.
44 East Industrial Road
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 2,060,000 shares of the
Company's Common Stock, $.004 par value per share (the "Shares"), to be
issued upon exercise of certain 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 Statement, 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 Statement. 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 Staement under the provisions of the Act.
Very truly yours,
s/s Wiggin & Dana
Wiggin & Dana
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, 1998
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)
44 East Industrial Road
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, 1998 were
$7,019,942.
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 23, 1999 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 $2,363,790. The number of shares of the Registrant's
Common Stock outstanding as of March 23, 1999 was 9,346,777.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on June 16, 1999 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 sole
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
Domestic sales are conducted by 18 specialty distributors across the country,
each of whom has exclusive sales rights in a limited geographic area and
covers either the hospital arena or emergency medical services. During 1998,
the Company had a non-exclusive Marketing and Distribution Agreement (the
"Agreement") with Graphic Controls Corporation ("Graphic Controls"), pursuant
to which Graphic Controls sold certain of the Company's neonatal specialty
products solely to specific large hospital purchasing groups. This Agreement
was mutually terminated by the parties in December 1998.
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,
1998 1997 1996
Domestic Sales $4,765,323 $4,649,474 $4,816,108
Export (Including
Licensing Revenues) 2,254,619 2,251,702 2,371,007
_________ _________ _________
$7,019,942 $6,901,176 $7,187,115
_________ _________ _________
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 1998, 1997 and 1996, the Company had sales to one customer which in
the aggregate accounted for approximately 13% of sales in each of the three
years reported.
Research and Development
In 1998, 1997 and 1996, the Company spent approximately $548,000, $519,000
and $396,000, respectively, on activities relating to the development of new
products and the improvement of existing products.
The Company wil continue to develop and expand its patient monitoring
capability, by adding new physiological parameters. In addition, plans are in
process to greatly improve information processing within the monitor, using
new screen and communication technology. This will allow the Company to
significantly increase sales penetration in the Acute and Intensive Care
market.
Employees
As of December 31, 1998, the Company had 58 employees of whom 55 were
full-time. The Company has no collective bargaining agreements and believes
that relations with its employees are good.
<PAGE>
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 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 is now required
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, 1998, the
Company had a backlog of orders from customers for products with requested
ship dates in 1999 totaling approximately $1,184,000 deliverable throughout
1999, as compared to $1,188,000 as of December 31, 1997. During the first
quarter of 1999, the Company will fulfill approximately $147,000 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,
issued under Patent Number 4,796,184, was 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
During November 1998, the Company relocated to a 24,000 square foot office,
laboratory and manufacturing facility owned by the Company in Branford,
Connecticut. Total cost of this new facility was approximately $1,933,000.
The Company is the sole tenant of this new facility.
During January 1999, the Company obtained a nineteen year, 7.25% fixed rate
$1,310,000 mortgage from a local bank. The mortgage is secured by a first
mortgage lien on the Company property consisting of 4.6 acres of land and the
24,000 square foot industrial building. The estimated payments are
approximately $10,600 per month. The Company believes that insurance on the
property is adequate.
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 EQUITY 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, 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
March 31, 1998 21/32 19/32
June 30, 1998 11/16 5/8
September 30, 1998 33/64 25/64
December 31, 1998 21/32 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, 1998.
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
during 1998 or 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources
As of December 31, 1998, the Company's cash and cash equivalents totaled
$1,442,342, compared to $2,190,345 at December 31, 1997 (a decrease of 34%),
and the Company's working capital totaled $1,974,600 on December 31, 1998,
compared to $3,283,083 on December 31, 1997. The Company's decreased cash
position is due to internally financing approximately $1,933,000 for the new
24,000 square foot office, laboratory and manufacturing facility, on 4.6 acres
of acquired land in Branford, Connecticut. Consequently, the Company's
working capital ratio decreased from 5.14 at December 31, 1997 to 2.31 at
December 31, 1998.
At December 31, 1998, the Company had a line of credit with a Connecticut
bank totaling $1,000,000. Borrowings under the line of credit bear interest
at prime plus 1.0%. At December 31, 1998, 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 $1,100,000 in license fees has
been received through December 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.
The Company believes that existing funds together with internally
generated funds from 1999 operations and its existing line of credit
arrangement will provide the Company with adequate liquidity and capital
resources to meet its 1999 financial requirements.
<PAGE>
Year 2000 Compliance
The Year 2000 ("Y2K") issue relates to the inability of information
systems to properly recognize and process date sensitive information beyond
January 1, 2000. Many computer systems and software products may not be able
to interpret dates after December 31, 1999 because such systems and products
allow only two digits to indicate the year in a date. As a result, these
systems and products are unable to distinguish January 1, 2000 from January 1,
1900, which could have adverse consequences on the operations of an entity and
the integrity of its information processing.
The Company's management has recognized the need to address the Year 2000
issue within its internal operational systems as well as with suppliers and
other third parties. As with many other companies, a significant number of
the Company's information systems have required and will require modification
to render these systems Y2K compliant. The company recognizes that failure by
the Company to timely resolve internal Y2K issues could result in an inability
of the Company to ship products, to receive raw materials, to pay for
materials received (which could delay delivery of undelivered materials), and
to otherwise process its daily business for an indeterminate period of time,
each of which could materially and adversely affect the Company's financial
conditions and results of operations. However, the Company's management
presently believes these scenarios are unlikely based on the progress the
Company has made in its Y2K compliance process.
The Company purchased a new Enterprise Resource Planning (ERP) software
to replace the existing software package and migrate its current MMPII package
onto IBM hardware running Microsoft NT. This total package is fully year 2000
compliant and the total cost is estimated under $50,000. The Company is also
surveying all suppliers to determine their compliance with the Y2K issue and
what impact, if any, their efforts will have on the Company's business.
However, if the Company and third parties, upon which it relies, are
unable to address this issue in a timely manner, it could result in a material
financial risk to the Company. In order to assure that this does not occur,
the Company plans to devote all resources required to resolve any significant
year 2000 issues in a timely manner.
<PAGE>
Results of Operations
1998 Compared to 1997
The Company earned $816,000 ($.08 per common share on a diluted basis) in
1998, compared to $665,000 ($.07 per common share on a diluted basis) in 1997.
The 1998 earnings performance was favorably impacted by revenues from a
one-time contract settlement and an increase in licensing fee revenues.
The Company's revenues for the year ended December 31, 1998 were
approximately $7,020,000 and exceeded the comparable period in 1997 by
approximately $119,000. Sales revenues for 1998 reflects a significant
increase of 22 percent for Klear-Trace disposable products, whereas diagnostic
equipment sales decreased by 21 percent. This is attributed to the loss of a
few key OEM accounts due to their corporate restructuring.
Total cost of product sales as a percentage of net product sales was 43.6
percent for 1998 compared to 42.7 percent for 1997. The slight increase in
cost is due primarily to product mix.
Research and development expenses increased by 6 percent during 1998 to
approximately $548,000 compared to approximately $519,000 for the same period
of 1997, primarily due to development cost of new products.
Selling, general and administrative expenses were approximately
$3,011,000 in the year ended December 31, 1998 compared to approximately
$2,502,000 in the prior year, an increase of 20 percent. The increase is due
to the continued growth in personnel in sales and marketing, both domestic and
international.
The Company currently invests its excess cash in low-risk, short-term
interest bearing instruments. During 1998, the Company earned approximately
$106,000 of interest income compared to approximately $76,000 for 1997.
1997 Compared to 1996
The Company earned $665,000 ($.07 per common share on a diluted basis) in
1997, compared to $906,000 ($.09 per common share on a diluted basis) 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.
<PAGE>
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.
ITEM 7. INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Balance Sheets - December 31, 1998 and 1997 F-2 to F-3
Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 F-4
Statements of Shareholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996 F-5
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 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.
<PAGE>
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 23, 1999 and filed with the Securities and Exchange Commission.
ITEM 10. EXECUTIVE COMPENSATION
Reference is made to the sections entitled "Compensation of Executive
Officers" and "Election of Directors" in the Registrant's definitive proxy
statement to be mailed to shareholders on or about April 23, 1999, 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 23, 1999, and filed with the
Securities and Exchange Commission.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Mr. Scheps have entered into an employment agreement
pursuant to which Mr. Scheps serves as President and Chief Excutive Officer of
the Company. As of September 1, 1998, the employment agreement was amended
(as amended, the "Employment Agreement") to extend its term through August 31,
2000 and provide for a base salary of $185,000 per year. The Employment
Agreement also provides that if a "Change of Control" (as defined below)
occurs, and upon such Change of Control occuring, the Employment Agreement is
not extended for a period of at least one year following the stated
termination date of the Employment Agreement, then Mr. Scheps shall be paid a
lump sum of $250,000 on such stated termination date. "Change of Control" is
defined in the Employment Agreement to mean (i) a sale of all or substantially
all of the Compay's assets, (ii) a merger involving the Company in which the
Company is not the survivor and the Company's stockholders prior to the merger
control less than fifty percent of the voting stock of the surviving entity,
(iii) a sale by the Company's stockholders to an acquiror or acquirors acting
in concert of more than a majority of the then outstanding stock of the
Company owned by the Company's stockholders, or (iv) any event similar to any
of the foregoing. In connection with the amendment of the Employment
Agreement, Mr. Scheps was granted a warrant to purchase 100,000 shares of the
Company common stock at an exercise price of $1.00 per share. This warrant is
exrcisable solely in the event of a Change of Control.
The Company also has an employment agreement with Dr. Cohen under which
he serves as Executive Vice President of the Company through December 31, 1999
at an annual base salary of $99,600. There are no benefits payable to Dr.
Cohen upon termination of the agreement.
<PAGE>
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*
23.1 Consent of Independent Public Accountants
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, 1998 and 1997 F-2 to F-3
Statements of Income for the Years Ended December 31, F-4
1998, 1997 and 1996
Statements of Shareholders' Equity for the Years Ended F-5
December 31, 1998, 1997 and 1996
Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996 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, 1998
and 1997, and the related statements of income, shareholders'
equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997,
and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
January 22, 1999
<PAGE>
<TABLE>
F-2
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS -- DECEMBER 31, 1998 AND 1997
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,442,342 $2,190,345
Accounts receivable, net of allowance for
doubtful accounts of $16,838 and $27,289
in 1998 and 1997, respectively 859,699 1,055,881
Inventories 948,293 725,121
Deferred tax asset 94,599 112,000
Other current assets 79,711 70,339
Total current assets 3,460,545 4,153,686
PROPERTY AND EQUIPMENT:
Land and improvements 535,000 -
Buildings and improvements 1,379,590 -
Machinery and equipment 1,151,946 1,048,430
Leasehold improvements - 58,079
Less-accumulated depreciation 704,849 874,855
2,361,687 231,654
OTHER ASSETS 2,901 8,199
Total Assets $5,825,133 $4,393,539
<FN>
The accompanying notes to financial statements are an integral part of these
statements
</FN>
</TABLE>
<PAGE>
<TABLE>
F-3
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS -- DECEMBER 31, 1998 AND 1997
(continued)
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 614,355 $ 239,172
Income taxes payable 444,720 247,392
Accrued payroll 259,697 198,639
Accrued professional fees 90,500 61,000
Accrued warranty expense 20,000 30,000
Other accrued expenses 56,673 94,400
Total current liabilities 1,485,945 807,603
SHAREHOLDERS' EQUITY:
Common stock, $.004 par value, 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 1 604,507 788,255
Total shareholders' equity 4,339,188 3,522,936
Total liabilities and shareholders' equity $5,825,133 $4,393,539
<FN>
The accompanying notes to financial statements are an integral part of these
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
F-4
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
REVENUES:
Net product sales $6,726,764 $6,620,328 $6,910,827
Licensing fees 293,178 280,848 276,288
6,901,176 7,187,115
OPERATING EXPENSES:
Cost of product sales 2,933,512 2,826,718 3,019,282
Selling, general and administrative 3,010,884 2,501,894 2,272,602
Research and development 547,718 519,227 396,234
Operating income 527,828 1,053,337 1,498,997
OTHER INCOME 725,000 - -
INTEREST INCOME, net 106,424 75,706 36,717
Income before income taxes 1,359,252 1,129,043 1,535,714
PROVISION FOR INCOME TAXES 543,000 464,000 630,000
Net income $ 816,252 $ 665,043 $ 905,714
--------- -------- --------
Weighted average number of common
shares outstanding:
Basic 9,329,277 9,329,277 9,316,202
--------- --------- ---------
Assuming dilution 9,839,689 9,979,489 10,228,275
--------- ---------- ---------
Earnings per common share:
Basic $.09 $.07 $.10
--------- ---------- ---------
Assuming dilution $.08 $.07 $.09
--------- ---------- ---------
<FN>
The accompanying nots to financial statements are an integral part of these
statements
</FN>
</TABLE>
<PAGE>
<TABLE>
F-5
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<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, 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
Net income - - - -
- 816,252
------ ------- --------- ------
- --------- ---------
BALANCE, December 31, 1998 - - 9,329,277 $37,317
$2,697,364 $1,604,507
<FN>
The accompanying notes to financial statements are an integral part of these
statements
</FN>
</TABLE>
<PAGE>
<TABLE>
F-6
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 816,252 $665,043 $ 905,714
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 124,066 92,175 76,968
Decrease (increase) in deferred tax asset 17,500 - (87,000)
Decrease (increase) in accounts receivable 160,182 56,636 (378,642)
(Increase) decrease in inventory (223,172) 34,641 83,542
(Increase) decrease in other current assets ( 4,074) 7,890 (3,789)
Increase (decrease) in accounts
payable and accrued expenses 615,342 (135,199) 290,423
--------- ------ -------
Net cash provided by operating activities 1,506,096 721,186 887,216
--------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (2,254,099) (137,820) (84,334)
Net cash used in investing activities (2,254,099) (137,820) (84,334)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - - 22,094
Redemption of shares of preferred stock - - (300,000)
--------- -------- -------
Net cash used in financing activities - - (277,906)
--------- -------- -------
Net (decrease) increase in cash and
cash equivalents ( 748,003) 583,366 524,976
CASH AND CASH EQUIVALENTS, beginning of
year 2,190,345 1,606,979 1,082,003
CASH AND CASH EQUIVALENTS, end of year $1,442,342 $2,190,345 $1,606,979
--------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
F-6 continued
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Continued)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for interest $ 1,040 $ 765 $ 1,555
Cash paid during the year for taxes $329,000 $543,000 $424,175
<FN>
The accompanying notes to financial statements are an integral part of these
statements
</FN>
</TABLE>
<PAGE>
F-7
CAS MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) The Company:
CAS Medical Systems, Inc. (the "Company")operates in one business
segment and 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 1998, 1997 and 1996, the
Company had sales to one customer which in the aggregate accounted for
approximately 13% of sales, in each of the three years reported, and
had export sales principally to Europe, including licensing fee
revenues, of $2,254,619, $2,251,702, and $2,371,007, 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. Property 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 and the
building which has a life of 20 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-8
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, Basic Earnings Per Share
is calculated by dividing net income by the weighted average nunmber of
shares of common stock outstanding during the year. No dilution for
any potentially dilutive securities is included. Diluted Earnings Per
Share assumes the conversion of all potentially dilutive securities
using the treasury stock method. The Company adopted SFAS No. 128 in
1997 and, as required, applied it retroactively to the 1996 financial
statements.
As of December 31, 1998, the Company had 650,100 options and 1,295,000
warrants to purchase shares of common stock outstanding.
Under SFAS No. 128, the Company's Basic and Diluted EPS are as follows:
1998 1997 1996
Net income $ 816,252 665,043 905,714
Weighted average shares outsanding 9,329,277 9,329,277 9,316,202
Add: dilutive warrants and options 510,412 650,212 912,073
--------- --------- ---------
Total weighted average shares and
dilutive securities outstanding 9,839,689 9,979,489 10,228,275
--------- ---------- ---------
Net income per share - Basic $.09 $.07 $.10
--------- ---------- ---------
Net income per share - Assuming
Dilution $.08 $.07 $.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:
1998 1997
Raw materials $622,501 $459,358
Work in process 89,866 173,598
Finished goods 235,926 92,165
_______ _______
$948,293 $725,121
(4) Debt:
At December 31, 1998, the Company's line of credit arrangement allowed
for maximum borrowings of $1,000,000, all of which was available. The
line of credit arrangement expires on August 1, 1999 and bears interest
at the prime rate (8.5% at December 31, 1999) plus 1%. During 1997 and
1996, the maximum month end borrowings outstanding under this line were
$100,000, the weighted average borrowings were $8,333, and the weighted
average interest rates on amounts outstanding were 9.5%. There were no
borrowings against the line of credit during 1998. The bank has a
first security interest in all assets of the Company and requires a
compensating balance equal to 10% of the line of credit ($100,000 at
December 31, 1998).
(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 grants a
nonexclusive license to use the Company's blood pressure technology for
a specific application. As part of this agreement, the Company will
receive $1,500,000 plus royalties through the year 2000, of which
$1,100,000 has been received through December 31, 1998. 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 Company's Series C cumulative preferred stock were
entitled to a cumulative dividend, payable quarterly, at the annual
rate of $10 per share. On July 17, 1996, the final 3,000 shares of the
Company's Series C preferred stock were redeemed at $100 per share plus
accrued dividends.
<PAGE>
F-10
(7) Employee Benefit Programs:
Stock Options-
In December 1984, the Board of Directors and stockholders adopted the
1984 Employee Incentive Stock Option Plan (the "1984 Plan"). The
exercise price for common stock issued under the 1984 Plan is to be no
less than the fair market value of the stock at the grant date of the
options. Pursuant to the 1984 Plan, 750,000 shares of common stock
have been reserved for employee (including officers and directors)
purchase. An option granted under the 1984 Plan becomes exercisable in
two equal annual installments, commencing one year from the date of the
grant of the option. Options begin to expire between five and ten
years from the date of grant, depending on the optionholder's
percentage of ownership of the Company. In the event employment is
terminated, the employee no longer has the right to exercise his or her
options unless expressly permitted by the Board of Directors.
In June 1994, the Board of Directors and stockholders adopted the 1994
Employees' Incentive Stock Option Plan (the "1994 Plan"). Pursuant to
the 1994 Plan, 250,000 shares of common stock have been reserved for
employee (including officers and directors) purchase. The 1994 Plan is
the successor to the 1984 Plan and contains provisions which are
similar to those of the 1984 Plan.
In 1993, the Company granted a warrant to purchase 750,000 shares of
common stock to an officer of the Company. The exercise price ($.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 1998, 1997
and 1996 net income and earnings per share would have been reduced to
the following pro forma amounts:
1998 1997 1996
Net income: As reported $816,252 $665,043 $905,714
Pro Forma 795,584 639,074 891,776
Earnings per share: As reported-Basic .09 .07 .10
Pro Forma-Basic .09 .07 .10
As reported-Diluted .08 .07 .09
Pro Forma-Diluted .08 .06 .09
<PAGE>
<TABLE>
F-11
A summary of the Company's stock option plans at December 31, 1998, 1997 and
1996 and
changes during the years then ended is presented in the table and narrative
below:
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------
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 625,100 $.57 625,100 $.57 580,900 $
.49
Granted 25,000 .50 - 111,500
1.05
Exercised - - ( 39,800)
.29
Cancelled - - ( 27,500)
.46
_________ _________ _______
Outstanding at
end of year 650,100 $.57 625,100 $.57 625,100 $
.62
Exercisable at
end of year 650,100 .57 569,350 560,121
.59
The following table summarizes information about stock options outstanding at
December
31, 1998:
<CAPTION>
Options Outstanding Options
Exercisable
__________________________________________________________
_______________________
Number Number
Outstanding Weighted Weighted Exercisable
Weighted
at Average Average at
Average
Range of December 31, Remaining Exercise December 31,
Exercise
Exercise Prices 1998 Contractual Life Price 1998
Price
<C> <C> <C> <C> <C>
<C>
$.25 to $.38 343,100 3.06 years $.32 343,100 $
.32
.50 to .75 170,500 4.04 .71 145,500
.75
.82 to .93 111,500 7.02 .91 111,500
.91
1.25 25,000 7.50 1.25 25,000
1.25
____________ _______ __________ ____ _______
_____
$.25 to $1.25 650,100 4.17 years $.57 625,100 $
.57
</TABLE>
<PAGE>
F-12
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 1998 and 1996: risk-free interest rates of
5.08% and 6.06%; expected lives of 10 years; expected volatility of 75%
and 74%, respectively.
(8) Life Insurance-
During 1998, 1997 and 1996, the Company paid life insurance premiums of
approximately $23,000, $20,000 and $17,000, 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.
(9) 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 1998, 1997 and 1996
contributions by the Company were $48,553, $32,260 and $31,512,
respectively.
The Company does not provide other post-retirement or other
post-employment benefits.
(10) Income Taxes:
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes ("SFAS No. 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 No. 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.
The components of the Company's deferred tax assets at December 31, 1998
and 1997 are as follows:
1998 1997
____ ____
Inventories $33,000 $ 25,500
Obsolescense reserve 19,200 29,900
Warranty reserve 7,400 11,100
Bad debt reserve 6,700 10,100
Other 28,200 35,400
______ ______
$94,500 $112,000
<PAGE>
F-13
<TABLE>
The 1998, 1997 and 1996 provisions are comprised of the following:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $446,700 $392,000 $609,500
State 78,800 72,000 107,500
_______ _______ _______
Total 525,500 464,000 717,000
Deferred (Benefit):
Federal 15,300 - ( 74,500)
State 2,200 - ( 12,500)
_______ _______ _______
Total 17,500 - ( 87,000)
Provision for income taxes
$543,000 $464,000 $630,000
</TABLE>
The effective tax rate differs for the federal statutory rate of 34% in
ech year principally due to state income taxes.
(11) Other Income
During 1998, the Company and a third party distributor terminated a sales
contract. The Company received a $725,000 settlement from the third party
and has recorded this amount in other income due to its non-recurring
nature.
(12) Commitments and Contingencies:
Employment Agreements-
The Company is committed under employment agreements with two officers for
payments aggregating approximately $281,000 which expire on December 31,
1999 and August 31, 2000.
(13) Subsequent Event
In February 1999, the Company obtained a nineteen year, 7.25% fixed rate
$1,310,000 mortgage from a bank. The mortgage is secured by a first
mortgage lien on the Company's property consisting of a 4.627 acre parcel
of land and the 24,000 square foot industrial building and associated
improvements on it. The interest rate will be subject to a rate
adjustment ten years from the anniversary date. The interest rate will be
adjusted to 2.50% over the weekly average yield on United States Treasury
Securities in affect 45 days prior to the adjustment date. Monthly
installment payments of $11,000, which includes interest, are required.
<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, 1999 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, 1999 Myron L. Cohen
Date Myron L. Cohen
Director
March 25, 1999 Lawrence Burstein
Date Lawrence Burstein
Director
March 25, 1999 Jerome Baron
Date Jerome Baron
Director
March 25, 1999 Saul Milles
Date Saul Milles
Director
March 25, 1999 Louis P. Scheps
Date Louis P. Scheps
Director
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, 1999
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.)
44 East Industrial Road, 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: 9,346,777 shares as of March 31, 1999.
<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, 1998.
In the opinion of the Company, all adjustments necessary to present
fairly the financial position of CAS Medical Systems, Inc. as of March 31,
1999 and the results of its operations and its cash flows for the three
months ended March 31, 1999 and 1998 have been included.
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
<CAPTION>
March 31, 1999 December 31, 1998
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $2,002,387 $1,442,342
Accounts receivable, net of allowance
for doubtful accounts 828,218 895,699
Inventory 889,478 948,293
Deferred tax assets 94,500 94,500
Other current assets 71,568 79,711
---------- ---------
Total current assets 3,886,151 3,460,545
---------- ---------
Property and Equipment
Land and improvements 535,000 535,000
Buildings and improvements 1,379,590 1,379,590
Machinery and equipment 1,196,311 1,151,946
Construction in progress 17,795 -
---------- ---------
3,128,696 3,066,536
Less-Accumulated depreciation 758,966 704,849
---------- ---------
2,369,730 2,361,687
Other Assets 2,900 2,901
---------- ---------
Total assets $6,258,781 $5,825,133
__________ _________
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
<CAPTION>
March 31, 1999 December 31, 1998
(unaudited) (audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 195,155 $614,355
Income taxes payable 237,531 444,720
Accrued payroll 20,374 259,697
Accrued professional fees 28,580 90,500
Accrued warranty 20,000 20,000
Other accrued expenses 39,422 56,673
---------- --------
Total current liabilities 541,062 1,485,945
---------- --------
Long-term Debt 1,271,616 -
Shareholders' Equity:
Common stock, $.004 par value per
share, 19,000,000 shares authorized,
9,346,777 shares issued and outstand-
ing in 1999 and 9,329,277 shares
issued and outstanding in 1998. 37,387 37,317
Additional paid-in capital 2,703,369 2,697,364
Retained earnings 1,705,347 1,604,507
---------- ---------
Total shareholders' equity 4,446,103 4,339,188
---------- ---------
Total liabilities and
shareholders' equity $ 6,258,781 $5,825,133
__________ _________
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
REVENUES:
Net product sales $1,715,948 $1,677,450
Licensing fees 80,645 77,525
--------- ---------
1,796,593 1,754,975
OPERATING EXPENSES:
Cost of product sales 774,300 665,863
Selling, general and
administrative 733,540 687,673
Research and development 127,674 119,355
--------- ---------
Operating Income 161,079 282,084
--------- ---------
INTEREST (EXPENSE) INCOME, Net ( 1,239) 20,379
--------- ---------
Income Before Income Taxes 159,840 302,463
PROVISION FOR INCOME TAXES 59,000 120,000
--------- ---------
Net Income 100,840 182,463
_________ _________
Weighted average number of common
shares outstanding:
Basic 9,335,888 9,329,277
_________ _________
Assuming dilution 9,732,035 9,938,616
_________ _________
Earnings per common share:
Basic $ .01 $ .02
_________ _________
Assuming dilution $ .01 $ .02
_________ _________
<FN>
See Notes To Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999 and 1998
<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
_________ _______ __________ ____________
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital (Deficit)
<S> <C> <C> <C> <C>
Balance,
December 31,
1998 (Audited) 9,329,277 $37,317 $2,697,364 $ 1,604,507
Issuance of Common
stock 17,500 70 6,005 -
Net income for
three months - - - 100,840
--------- ------ --------- ----------
Balance,
March 31, 1999
(Unaudited) 9,346,777 $37,387 $2,703,369 $ 1,705,347
_________ _______ _________ __________
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<CAPTION>
Three Months Ended March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $100,840 $ 182,463
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 54,117 26,235
Decrease in accounts receivable 67,481 134,691
Decrease (Increase) in inventory 58,815 (135,718)
Decrease (Increase) in other
current assets 8,144 ( 39,906)
(Decrease) in accounts payable
and accrued expenses (944,883) (265,031)
_________ _________
Net cash (used in) provided by
operating activities (655,486) ( 97,266)
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures ( 62,160) ( 56,247)
_________ _________
Net cash used in investing activities ( 62,160) ( 56,247)
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable 1,271,616 -
Proceeds from issuance of common stock 6,075 -
Net cash used in financing _________ _________
activities 1,277,691 -
_________ _________
Net (decrease) increase in cash and
cash equivalents 560,045 (153,513)
_________ _________
CASH AND CASH EQUIVALENTS, at beginning
of period 1,442,342 2,190,345
_________ _________
CASH AND CASH EQUIVALENTS, at end of period $2,002,387 $2,036,832
_________ _________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 15,883 $ -
Cash paid during the period for income
taxes $ 258,900 $ 81,500
<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, 1999 and December 31, 1998, inventory consisted of the
following:
March 31, December 31,
1999 1998
Raw Material $551,338 $622,501
Work-In-Process 121,333 89,866
Finished Goods 216,807 235,926
-------- -------
$889,478 $948,293
________ _______
Property and Equipment
Property and equipment are stated at cost. Property 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 and the building which has a
life of 20 years.
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.
<PAGE>
Notes to Financial Statements - (Continued)
The following tables summarize the Company's calculation of Basic and
Diluted Earnings per Share ("EPS") for the three month periods ended March
31, 1998 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
_____________________________________
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $100,840 9,335,888 $.01
Effective of Dilutive Securities:
Options - 108,126
Warrants - 288,021
_______ _________
Diluted EPS $100,840 9,732,035 $.01
_______ _________ ___
Three Months Ended
March 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
____________________________________
Basic EPS
Income available to common
stockholders $182,463 9,329,277 $.02
Effective of Dilutive Securities:
Options - 171,735
Warrants - 437,604
_______ _________
Diluted EPS $182,463 9,938,616 $.02
_______ _________ ___
</TABLE>
For the three month periods ended March 31, 1999 and 1998, 307,000 and
282,000 options and 445,000 and 245,000 warrants, respectively, were
excluded from the denominator in the calculation of Diluted EPS as the
effect would be antidilutive.
<PAGE>
Notes to Financial Statements - (Continued)
(3) Debt
At March 31, 1999, the Company had a line of credit with a Connecticut
bank totaling $1,000,000. Borrowings under the line of credit bear
interest at the prime rate plus 1.0%. At March 31, 1999, 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 10% 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 $1,100,000 in license fees has been received
through March 31, 1999. 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) Long-Term Debt
During November 1998, the Company relocated to a 24,000 square foot
office, laboratory and manufacturing facility owned by the Company in
Branford, Connecticut. Total cost of this new facility was
approximately $1,933,000. The Company is the sole tenant of this new
facility.
During January 1999, the Company obtained a nineteen year, 7.25% fixed
rate $1,310,000 mortgage from a local bank. The mortgage is secured by
a first mortgage lien on the Company property consisting of 4.6 acres
of land and the 24,000 square foot industrial building. The monthly
payments, including interest, are approximately $11,000.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of March 31, 1999, the Company's cash and cash equivalents
totaled $2,002,387 compared to $1,442,342 at December 31, 1998, and the
Company's working capital totaled $3,345,089 on March 31, 1999,
compared to $1,974,600 on December 31, 1998. The Company's increased
cash position is primarily due to the $1,310,000 mortgage obtained
during January, 1999.
<PAGE>
Notes to Financial Statements - (Continued)
At March 31, 1999, the Company had a line of credit with a Connecticut
bank totaling $1,000,000. Borrowings under the line of credit bears interest
at the prime rate plus 1.0%. At March 31, 1999, 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
$101,000 ($.01 per common share on a diluted basis), compared to $182,000
($.02 per common share on a diluted basis), reported for the first quarter of
1998. The 1999 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, 1999
were approximately $1,797,000 as compared to approximately $1,755,000 for the
comparable period in the prior year. The small increase in 1999 is due
primarily by softness in sales of certain disposable products whereas
diagnostic equipment reflected a significant increase of 54 percent for the
same period of 1998.
Total cost of product sales as a percent of net product sales was 45.1
percent for 1999 compared to 39.7 percent for 1998. The unfavorable impact is
due primarily to product mix during the first quarter of 1999.
Selling, general administrative, research and development expenses were
approximately $861,000 for the first quarter of 1999, compared to
approximately $807,000 for the same period of 1998, an increase of $54,000 or
7 percent. The overall increase in 1999 is the result of additional personnel
for the selling and marketing departments.
The provision for income taxes of $59,000 and $120,000 for the three
month period ended March 31, 1999 and 1998, respectively, represents state and
federal income taxes.
These factors resulted in net income of approximately $101,000 for the
first quarter of 1999, as compared to net income of approximately $182,000 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, 1999 Louis P. Scheps
Date Louis P. Scheps
President and Chief Executive Officer
and Chief Financial Officer
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, 1999
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.)
44 East Industrial Road, 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: 9,346,777 shares as of June 30, 1999.
<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, 1998.
In the opinion of the Company, all adjustments necessary to present
fairly the financial position of CAS Medical Systems, Inc. as of June 30,
1999, and the results of its operations and its cash flows for the three
months and six months ended June 30, 1999 and 1998 have been included.
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS
<CAPTION>
(Unaudited) (Audited)
June 30, 1999 December 31, 1998
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $2,040,887 $1,442,342
Accounts receivable, net of allowance
for doubtful accounts 965,404 895,699
Inventory 873,552 948,293
Deferred tax assets 94,500 94,500
Other current assets 34,567 79,711
---------- ---------
Total current assets 4,008,910 3,460,545
---------- ---------
Property and Equipment
Land and improvements 535,000 535,000
Building and improvements 1,379,590 1,379,590
Machinery and equipment 1,226,734 1,151,946
Construction in progress 5,052 -
----------- ---------
3,146,376 3,066,536
Less-Accumulated depreciation 817,040 704,849
----------- ---------
2,329,336 2,361,687
Other Assets 2,900 2,901
---------- ---------
Total assets $6,341,146 $5,825,133
__________ _________
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS
<CAPTION>
(Unaudited) (Audited)
June 30, 1999 December 31, 1998
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 246,588 $614,355
Income taxes payable 163,341 444,720
Accrued payroll 19,478 259,697
Accrued professional fees 41,480 90,500
Accrued warranty 20,000 20,000
Other accrued expenses 21,241 56,673
---------- --------
Total current liabilities 512,128 1,485,945
---------- --------
Long-term debt 1,263,416 -
Shareholders' Equity:
Common stock, $.004 par value per share,
19,000,000 shares authorized, 9,346,777
shares issued and outstanding in 1999 and
9,329,277 shares issued and outstanding
in 1998. 37,387 37,317
Additional paid-in capital 2,703,369 2,697,364
Retained earnings 1,824,846 1,604,507
---------- ---------
Total shareholders' equity 4,565,602 4,339,188
---------- ---------
Total liabilities and
shareholders' equity $ 6,341,146 $5,825,133
__________ _________
<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, 1999 AND 1998
(Unaudited)
<CAPTION>
Six Months Ended Three Months
Ended
June 30, June 30,
1999 1998 1999
1998
________________
________________
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $3,694,399 $3,486,465 $1,978,451
$1,809,015
Licensing fees 145,929 140,809 65,284
63,284
--------- --------- ---------
- ---------
3,840,328 3,627,274 $2,043,735
1,872,299
OPERATING EXPENSES:
Cost of product sales 1,657,773 1,411,388 883,473
745,525
Selling, general & administrative 1,541,963 1,383,081 808,423
695,408
Research & development 267,048 271,237 139,374
151,882
--------- --------- ---------
- ---------
Operating income 373,544 561,568 212,465
279,484
--------- --------- ---------
- ---------
INTEREST (EXPENSE) INCOME, net ( 12,205) 64,123 ( 10,966)
43,742
--------- --------- ---------
- ---------
Income Before Income Taxes 361,339 625,691 201,499
323,226
PROVISION FOR INCOME TAXES 141,000 250,000 82,000
130,000
--------- --------- ---------
- ---------
Net Income $ 220,339 $ 375,691 $ 119,499 $
193,226
_________ _________ _________
_________
Weighted average number of
common shares outstanding:
Basic 9,341,333 9,329,277 9,346,777
9,329,277
_________ _________ _________
_________
Assuming dilution 9,774,033 9,931,044 9,796,770
9,910,223
_________ _________ _________
_________
Earnings per common share:
Basic $0.02 $0.04 $0.01
$0.02
_________ _________ _________
_________
Assuming Dilution $0.02 $0.04 $0.01
$0.02
_________ _________ _________
_________
<FN>
See Notes To Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<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) _________ _______ __________ ___________
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital (Deficit)
______________ __________ ___________
<S> <C> <C> <C> <C>
Balance,
December 31,
1998 (Audited) 9,329,277 $37,317 $2,697,364 $1,604,507
Issuance of Common
Stock 17,500 70 6,005 -
Net income for
six months - - - 220,339
--------- ------- ---------- ----------
Balance
June 30, 1999 9,346,777 $37,387 $2,703,369 $1,824,846
(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, 1999 AND 1998
(Unaudited)
<CAPTION>
1999 1998
__________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 220,339 $ 375,691
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 112,191 55,283
(Increase)/decrease in accounts
receivable ( 69,705) 31,559
Decrease/(increase) in inventory 74,741 (151,120)
Decrease in other current assets 45,145 50,218
(Decrease) in accounts payable and
accrued expenses (973,817) (278,028)
________ _______
Net cash (used in) provided by
operating activities (591,106) 83,603
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures ( 79,840) (743,330)
________ _______
Net cash used in investing activities ( 79,840) (743,330)
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable 1,263,416 -
Proceeds from issuance of common stock 6,075 -
_________ _______
Net cash used in financing activities 1,269,491
Net increase (decrease) in cash and
cash equivalents 598,545 (659,727)
CASH AND CASH EQUIVALENTS, at beginning
of period 1,442,342 2,190,345
_________ _________
CASH AND CASH EQUIVALENTS, at end of period $2,040,887 $1,530,618
__________ _________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 39,480 $ -
Cash paid during the period for income taxes $ 161,700 $ 188,700
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
CAS MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
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, 1999 and December 31, 1998, inventory
consisted of the following:
June 30, December 31,
1999 1998
Raw Material $554,237 $622,501
Work-In-Process 137,001 89,866
Finished Inventory 182,314 235,926
------- -------
$873,552 $948,293
_______ _______
Property and Equipment
Property and equipment are stated at cost. Property 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
and the building which has a life of 20 years.
<PAGE>
Notes to Financial Statements (Continued)
Note 3. Net Income Per Common Share:
The following tables summarize the Company's calculation of Basic and
Diluted Earnings per Share ("EPS") for the six month periods ended June 30,
1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1999
____________________________________
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
____________________________________
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $119,499 9,346,777 $.01
Effective of Dilutive Securities:
Options - 123,678
Warrants - 326,315
_______ _________
Diluted EPS $119,499 9,796,770 $.01
_______ _________ ___
Six Months Ended
June 30, 1999
____________________________________
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
____________________________________
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $220,339 9,341,333 $.02
Effective of Dilutive Securities:
Options - 118,450
Warrants - 314,250
_______ _________
Diluted EPS $220,339 9,774,033 $.02
_______ _________ ___
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1998
___________________________________
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
___________________________________
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $193,226 9,329,277 $.02
Effective of Dilutive Securities:
Options - 165,252
Warrants - 415,694
_______ _________
Diluted EPS $193,226 9,910,223 $.02
_______ _________ ___
Six Months Ended
June 30, 1998
___________________________________
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
___________________________________
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $375,691 9,329,277 $.04
Effective of Dilutive Securities:
Options - 170,078
Warrants - 431,689
_______ _________
Diluted EPS $375,691 9,931,044 $.04
_______ _________ ___
</TABLE>
For the six month periods ended June 30, 1999 and 1998, 307,000 and
282,000 options and 445,000 and 245,000 warrants, respectively, were
excluded from the denominator in the calculation of Diluted EPS as the
effect would be antidilutive.
<PAGE>
Note 4. Debt:
At June 30, 1999, the Company had a line of credit with a Connecticut
bank totalling $1,000,000. Borrowings under the line of credit bear
interest at the prime rate plus 1.0%. At June 30, 1999 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 10% of the line of credit.
Note 5. 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 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 $1,100,000 in license
fees has been received through June 30, 1999. 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.
Note 6. Long-Term Debt
During November 1998, the Company relocated to a 24,000 square foot
office, laboratory and manufacturing facility owned by the Company in
Branford, Connecticut. Total cost of this new facility was approximately
$1,933,000. The Company is the sole tenant of this new facility.
On January 19, 1999, the Company obtained a nineteen year, 7.25% fixed
rate $1,310,000 mortgage from a local bank. The mortgage is secured by a
first mortgage lien on the Company property consisting of 4.6 acres of
land and the 24,000 square foot industrial building. The monthly
payments, including interest, are approximately $11,000.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At June 30, 1999, the Company's cash and cash equivalents totaled
$2,040,887 compared to $1,442,342 at December 31, 1998. The Company's
working capital totaled $3,496,782 on June 30, 1999, compared to
$1,974,600 on December 31, 1998. The Company's increased cash position is
primarily due to the $1,310,000 mortgage obtained during January, 1999.
<PAGE>
Notes to Financial Statements (continued)
At June 30, 1999, the Company had a line of credit with a Connecticut
bank totaling $1,000,000. Borrowings under the line bear interest at the
prime rate plus 1.0%. At June 30, 1999, there were no borrowings
outstanding 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, 1999 was
approximately $220,000 ($0.02 per share assuming dilution), compared to
approximately $376,000 ($0.04 per share assuming dilution), for the same
period of 1998. Net income for the second quarter of the current year was
approximately $119,000 ($.01 per share assuming dilution), compared to
approximately $193,000 ($0.02 per share assuming dilution), reported for
the second quarter of 1998. The 1999 earnings performance was impacted by
the investments incurred to increase personnel in the selling and
marketing departments.
The Company's revenues for the three month period ended June 30,
1999 were approximately $2,044,000 as compared to approximately $1,872,000
for the comparable period in the prior year. Revenues for the six month
period ended June 30, 1999 reached approximately $3,840,000, compared to
approximately $3,627,000 of the comparable period of 1998. Revenues for
1999 reflect a significant increase of approximately $436,000 for
non-invasive blood pressure equipment, whereas Klear-Trace and disposable
products decreased by approximately $223,000.
Cost of product sales as a percentage of net product sales was 44.9
percent for 1999 compared to 40.5 percent for 1998. The unfavorable
impact is due primarily to product mix.
Selling, general and administrative expenses were approximately
$1,542,000 for the six month period ended June 30, 1999 as compared to
approximately $1,383,000 for the same period of 1998, an increase of
$159,000 or 11 percent. This increase in expenses for 1999 is due
primarily to additional personnel both in the selling and marketing
departments.
The provision for income taxes of $141,000 and $250,000 for the six
month period ended June 30, 1999 and 1998, respectively, represents state
and federal income taxes.
These factors and licensing revenues resulted in net income of
approximately $220,000 for the period ended June 30, 1999, as compared to
net income of approximately $376,000 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
August 4, 1999 Louis P. Scheps
Date Louis P. Scheps
President and Chief Executive Officer
and Chief Financial Officer
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 September 30, 1999
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.)
44 East Industrial Road, 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: 9,346,777 shares as of September 30,
1999.
<PAGE>
PART I. - FINANCIAL INFORMATION
The 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, 1998.
In the opinion of the Company, all adjustments necessary to present
fairly the financial position of CAS Medical Systems, Inc. as of September
30, 1999, and the results of its operations and its cash flows for the
three months and nine months ended September 30, 1999 and 1998 have been
included.
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS
<CAPTION>
(Unaudited) (Audited)
September 30, 1999 December 31, 1998
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $2,408,372 $1,442,342
Accounts receivable, net of allowance
for doubtful accounts 1,246,409 895,699
Inventory 892,827 948,293
Deferred tax assets 94,500 94,500
Other current assets 33,817 79,711
---------- ---------
Total current assets 4,675,925 3,460,545
---------- ---------
Property and Equipment
Land and improvements 535,000 535,000
Building and improvements 1,379,590 1,379,590
Machinery and equipment 1,199,662 1,151,946
Construction in progress 26,346 -
----------- ---------
3,140,598 3,066,536
Less-Accumulated depreciation 829,527 704,849
----------- ---------
2,311,071 2,361,687
Other Assets 2,900 2,901
---------- ---------
Total assets $6,989,896 $5,825,133
__________ _________
<FN>
The accompanying notes to financial statements
are an integral part of these statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
BALANCE SHEETS
<CAPTION>
(Unaudited) (Audited)
September 30, 1999 December 31, 1998
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 257,817 $614,355
Income taxes payable 216,293 444,720
Accrued payroll 10,250 259,697
Accrued professional fees 21,480 90,500
Accrued warranty 20,000 20,000
Current portion of long-term debt 33,000 10,000
Line of credit 400,000 -
Other accrued expenses 111,012 46,673
---------- --------
Total current liabilities 1,069,852 1,485,945
---------- --------
Long-term debt 1,255,067 -
Shareholders' Equity:
Common stock, $.004 par value per share,
19,000,000 shares authorized, 9,346,777
shares issued and outstanding in 1999 and
9,329,277 shares issued and outstanding
in 1998. 37,387 37,317
Additional paid-in capital 2,703,369 2,697,364
Retained earnings 1,924,221 1,604,507
---------- ---------
Total shareholders' equity 4,664,977 4,339,188
---------- ---------
Total liabilities and
shareholders' equity $ 6,989,896 $5,825,133
__________ _________
<FN>
The accompanying notes to financial statements
are an integral part of these statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE NINE MONTHS AND THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<CAPTION>
Nine Months Ended Three Months
Ended
September 30, September
30,
1999 1998 1999
1998
________________
________________
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $5,628,241 $5,210,630 $1,933,842
$1,724,165
Licensing fees 202,373 222,373 56,444
81,564
--------- --------- ---------
- ---------
5,830,614 5,433,003 $1,990,286
1,805,729
OPERATING EXPENSES:
Cost of product sales 2,496,648 2,178,635 838,875
767,247
Selling, general & administrative 2,378,185 2,072,316 836,222
689,235
Research & development 425,810 410,463 158,762
139,226
--------- --------- ---------
- ---------
Operating income 529,971 771,589 156,427
210,021
--------- --------- ---------
- ---------
INTEREST (EXPENSE) INCOME, net ( 6,257) 84,657 5,948
20,534
--------- --------- ---------
- ---------
Income Before Income Taxes 523,714 856,246 162,375
230,555
PROVISION FOR INCOME TAXES 204,000 343,000 63,000
93,000
--------- --------- ---------
- ---------
Net Income $ 319,714 $ 513,246 $ 99,375 $
137,555
_________ _________ _________
_________
Weighted average number of
common shares outstanding:
Basic 9,343,147 9,329,277 9,346,777
9,329,277
_________ _________ _________
_________
Assuming dilution 9,754,671 9,864,743 9,696,005
9,737,421
_________ _________ _________
_________
Earnings per common share:
Basic $0.03 $0.06 $0.01
$0.01
_________ _________ _________
_________
Assuming Dilution $0.03 $0.05 $0.01
$0.01
_________ _________ _________
_________
<FN>
The accompanying notes to financial statements
are an integral part of these statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
______________ __________ ___________
<S> <C> <C> <C> <C>
Balance,
December 31,
1997 (Audited) 9,329,277 $37,317 $2,697,364 $ 788,255
Net income for
nine months - - - 513,246
--------- ------- ---------- ------------
Balance
September 30, 9,329,277 $37,317 $2,697,364 $ 1,301,501
1999 (Unaudited) _________ _______ __________ ___________
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
______________ __________ ___________
<S> <C> <C> <C> <C>
Balance,
December 31,
1998 (Audited) 9,329,277 $37,317 $2,697,364 $1,604,507
Issuance of Common
Stock 17,500 70 6,005 -
Net income for
nine months - - - 319,714
--------- ------- ---------- ----------
Balance
September 30, 9,346,777 $37,387 $2,703,369 $1,924,221
1999 (Unaudited) _________ _______ __________ __________
<FN>
The accompanying notes to financial statements
are an integral part of these statements
</TABLE>
<PAGE>
<TABLE>
CAS MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<CAPTION>
September 30,
1999 1998
__________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 319,714 $ 513,246
Adjustments to reconcile net income
to net cash (used in)/provided by
operating activities:
Depreciation and amortization 124,678 84,443
(Increase)/decrease in accounts
receivable (350,710) 125,914
Decrease/(increase) in inventory 55,466 (231,393)
Decrease in other current assets 45,895 ( 14,484)
(Decrease) in accounts payable and
accrued expenses (416,093) 314,735
________ _______
Net cash (used in)/provided by
operating activities (221,050) 792,461
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures ( 74,062) (1,325,329)
________ _______
Net cash (provided by) investing activities ( 74,062) (1,325,329)
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable 1,255,067 -
Proceeds from issuance of common stock 6,075 -
_________ _______
Net cash used in financing activities 1,261,142
Net increase (decrease) in cash and
cash equivalents 966,030 (532,868)
CASH AND CASH EQUIVALENTS, at beginning
of period 1,442,342 2,190,345
_________ _________
CASH AND CASH EQUIVALENTS, at end of period $2,408,372 $ 1,657,477
__________ _________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 62,927 $ 34
Cash paid during the period for income taxes $ 163,850 $ 277,262
<FN>
The accompanying notes to financial statements
are an integral part of these statements
</TABLE>
<PAGE>
CAS MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Note 1. The Company:
CAS Medical Systems, Inc., (the Company), was organized in 1984
primarily to serve neonatal and pediatric units in hospitals. Today,
the Company is engaged in the business of developing, manufacturing and
distributing diagnostic equipment and medical products for use in the
health care and medical industry. These products are sold by the
Company through its own sales force, via distributors and pursuant to
original equipment manufacturer agreements internationally and in the
United States.
Note 2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of first-in, first-out (FIFO)
cost or market. At September 30, 1999 and December 31, 1998, inventory
consisted of the following:
September 30, December 31,
1999 1998
Raw Material $522,394 $622,501
Work-In-Process 119,505 89,866
Finished Inventory 250,928 235,926
------- -------
$892,827 $948,293
_______ _______
Property and Equipment
Property and equipment are stated at cost. Property 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
and the building which has a life of 20 years.
<PAGE>
CAS Medical Systems, Inc.
Notes to Financial Statements - September 30, 1999
Note 3. Net Income Per Common Share:
The following tables summarize the Company's calculation of Basic and
Diluted Earnings per Share ("EPS") for the three and nine month periods
ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1999
____________________________________
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
____________________________________
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 99,375 9,346,777 $.01
Effective of Dilutive Securities:
Options 94,756
Warrants 253,472
_______ _________ ___
Diluted EPS $ 99,375 9,696,005 $.01
_______ _________ ___
Nine Months Ended
September 30, 1999
____________________________________
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
____________________________________
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $319,714 9,343,147 $.03
Effective of Dilutive Securities:
Options 112,416
Warrants 299,108
_______ _________ ___
Diluted EPS $319,714 9,754,671 $.03
_______ _________ ___
</TABLE>
<PAGE>
CAS Medical Systems, Inc.
Notes to Financial Statements - September 30, 1999
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1998
___________________________________
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
___________________________________
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $137,555 9,329,277 $.01
Effective of Dilutive Securities:
Options 115,048
Warrants 293,096
_______ _________ ___
Diluted EPS $137,555 9,737,421 $.01
_______ _________ ___
Nine Months Ended
September 30, 1998
___________________________________
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
___________________________________
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $513,246 9,329,277 $.06
Effective of Dilutive Securities:
Options 152,038
Warrants 383,428
_______ _________ ___
Diluted EPS $513,246 9,864,743 $.05
_______ _________ ___
</TABLE>
For the nine month periods ended September 30, 1999 and 1998, 307,000 and
198,000 options and 445,000 and 479,000 warrants, respectively, were
excluded from the denominator in the calculation of Diluted EPS as the
effect would be antidilutive.
<PAGE>
CAS Medical Systems, Inc.
Notes to Financial Statements - September 30, 1999
Note 4. Debt:
At September 30, 1999, the Company had a line of credit with a
Connecticut bank totalling $1,000,000. Borrowings under the line of
credit bear interest at the prime rate plus .50%. At September 30, 1999
the amount outstanding under this line was $400,000. The bank has a first
security interest in all assets of the Company and requires a compensating
balance equal to 10% of the line of credit.
Note 5. 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 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 $1,100,000 in license
fees has been received through September 30, 1999. 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.
Note 6. Long-Term Debt
During November 1998, the Company relocated to a 24,000 square foot
office, laboratory and manufacturing facility owned by the Company in
Branford, Connecticut. Total cost of this new facility was approximately
$1,933,000. The Company is the sole tenant of this new facility.
On January 19, 1999, the Company obtained a nineteen year, 7.25% fixed
rate $1,310,000 mortgage from a local bank. The mortgage is secured by a
first mortgage lien on the Company property consisting of 4.6 acres of
land and the 24,000 square foot industrial building. The monthly
payments, including interest, are approximately $11,000.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At September 30, 1999, the Company's cash and cash equivalents
totaled $2,408,372 compared to $1,442,342 at December 31, 1998. The
Company's working capital totaled $3,606,073 on September 30, 1999,
compared to $1,974,600 on December 31, 1998. The Company's increased cash
position is primarily due to the $1,310,000 mortgage obtained during
January, 1999.
<PAGE>
CAS Medical Systems, Inc.
At September 30, 1999, the Company had a line of credit with a
Connecticut bank totaling $1,000,000. Borrowings under the line bear
interest at the prime rate plus .50%. At September 30, 1999, the amount
outstanding under this line was $400,000.
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 nine month period ended September 30, 1999 was
approximately $320,000 ($0.03 per share assuming dilution), compared to
approximately $513,000 ($0.05 per share assuming dilution), for the same
period of 1998. Net income for the third quarter of the current year was
approximately $99,000 ($.01 per share assuming dilution), compared to
approximately $138,000 ($0.01 per share assuming dilution), reported for
the third quarter of 1998. The 1999 earnings performance was impacted by
the investments incurred to increase personnel in the selling and
marketing departments.
The Company's revenues for the third quarter ended September 30,
1999 were approximately $1,934,000 as compared to approximately $1,724,000
for the comparable period in the prior year. Revenues for the nine month
period ended September 30, 1999 reached approximately $5,628,000, compared
to approximately $5,211,000 reported for the same period of 1998.
Revenues for 1999 reflect a significant increase of 43 percent for
diagnostic equipment whereas disposable products decreased slightly from
the prior year.
Total cost of product sales as a percentage of net product sales was
44.3 percent for 1999 compared to 41.8 percent for 1998. The unfavorable
impact is due primarily to product mix.
Selling, general and administrative expenses were approximately
$2,378,000 for the nine month period ended September 30, 1999 as compared
to approximately $2,072,000 for the same period of 1998, an increase of
$306,000 or 15 percent. This increase in expenses for 1999 is due
primarily to additional personnel, both domestic and international.
The provision for income taxes of $204,000 and $343,000 for the nine
month period ended September 30, 1999 and 1998, respectively, represents
state and federal income taxes.
These factors and licensing revenues resulted in net income of
approximately $320,000 for the period ended September 30, 1999, as
compared to net income of approximately $513,000 for the comparable period
in the prior year.
<PAGE>
CAS Medical Systems, Inc.
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
November 11, 1999 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 of our report dated January 22,
1999 included in CAS Medical Systems, Inc. Form 10-KSB for the year ended
December 31, 1998 and to all references to our Firm included in this
Registration Statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Stamford, Connecticut
November 18, 1999
