================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2000
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: 9,475,077 shares as of September 30, 2000.
-----------------------------------------
================================================================================
<PAGE>
Form 10-QSB
September 30, 2000
Page 2
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, 1999.
In the opinion of the Company, all adjustments necessary to present fairly
the financial position of CAS Medical Systems, Inc. as of September 30, 2000,
and the results of its operations and its cash flows for the three months and
nine months ended September 30, 2000 and 1999 have been included.
<PAGE>
Form 10-QSB
September 30, 2000
Page 3
CAS Medical Systems, Inc.
Balance Sheets as of September 30, 2000 and December 31, 1999
-------------------------------------------------------------
Assets
------ September 30, December 31,
2000 1999
---- ----
(unaudited) (audited)
Current Assets:
Cash and cash equivalents $1,155,017 $1,255,450
Accounts receivable, net of allowance
for doubtful accounts 1,839,313 1,624,676
Inventory 1,757,190 1,429,692
Deferred tax assets 137,500 137,500
Other current assets 125,622 61,810
---------- ----------
Total current assets 5,014,642 4,509,128
---------- ----------
Property and Equipment
Land and improvements 535,000 535,000
Building and improvements 1,392,837 1,392,837
Machinery and equipment 1,505,117 1,414,141
---------- ----------
3,432,954 3,341,978
Less-Accumulated depreciation 1,106,022 891,493
---------- ----------
2,326,932 2,450,485
---------- ----------
Other Assets 187,900 221,650
---------- ----------
Total assets $7,529,474 $7,181,263
========== ==========
See Notes to Financial Statements
<PAGE>
Form 10-QSB
September 30, 2000
Page 4
CAS Medical Systems, Inc.
Balance Sheets as of September 30, 2000 and December 31, 1999
-------------------------------------------------------------
September 30, December 31,
Liabilities and Shareholders' Equity 2000 1999
------------------------------------ ---- ----
(unaudited) (audited)
Current Liabilities:
Current portion of long-term debt $ 35,560 35,560
Accounts payable 218,842 286,533
Income taxes payable 185,252 321,870
Accrued payroll 88,291 147,087
Accrued professional fees 33,211 73,816
Accrued warranty 30,000 30,000
Other accrued expenses 226,618 165,861
---------- ----------
Total current liabilities 817,774 1,060,727
---------- ----------
Long-term Debt 1,217,560 1,244,005
---------- ----------
Shareholders' Equity:
Common stock, $.004 par value per share,
19,000,000 shares authorized, 9,475,077 and
9,457,577 shares issued and outstanding in
2000 and 1999, respectively 37,901 37,831
Additional paid-in capital 2,736,469 2,730,626
Retained earnings 2,719,770 2,108,074
---------- ----------
Total shareholders' equity 5,494,140 4,876,531
---------- ----------
Total liabilities and shareholders' equity $7,529,474 $7,181,263
========== ==========
See Notes to Financial Statements
<PAGE>
Form 10-QSB
September 30, 2000
Page 5
CAS Medical Systems, Inc.
Statements of Income
--------------------
For the Nine Months and Three Months Ended
------------------------------------------
September 30, 2000 and 1999
---------------------------
<TABLE><CAPTION>
(Unaudited) (Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------------------------------------------------
REVENUES:
<S> <C> <C> <C> <C>
Net product sales $ 8,645,916 $ 5,628,241 $ 2,683,238 $ 1,933,842
Licensing fees 199,332 202,373 56,444 56,444
------------ ------------ ------------ ------------
8,845,248 5,830,614 $ 2,739,682 1,990,286
OPERATING EXPENSES:
Cost of product sales 4,067,305 2,496,648 1,267,990 838,875
Selling, general & administrative 3,215,821 2,378,185 1,074,432 836,222
Research & development 534,270 425,810 156,702 158,762
------------ ------------ ------------ ------------
Operating income 1,027,852 529,971 240,558 156,427
------------ ------------ ------------ ------------
INTEREST (EXPENSE) INCOME, net (26,156) (6,257) (5,856) 5,948
------------ ------------ ------------ ------------
Income before income taxes 1,001,696 523,714 234,702 162,375
PROVISION FOR INCOME TAXES 390,000 204,000 85,000 63,000
------------ ------------ ------------ ------------
Net income $ 611,696 $ 319,714 $ 149,702 $ 99,375
============ ============ ============ ============
Weighted average number of
common shares outstanding:
Basic 9,475,077 9,343,147 9,475,077 9,346,777
============ ============ ============ ============
Assuming dilution 10,391,799 9,754,671 10,691,634 9,696,005
============ ============ ============ ============
Earnings per common share:
Basic $ 0.06 $ 0.03 $ 0.02 $ 0.01
============ ============ ============ ============
Assuming dilution $ 0.06 $ 0.03 $ 0.01 $ 0.01
============ ============ ============ ============
</TABLE>
See Notes To Financial Statements
<PAGE>
Form 10-QSB
September 30, 2000
Page 6
CAS Medical Systems, Inc.
Statements of Shareholders' Equity
----------------------------------
For the Nine Months Ended September 30, 2000 and 1999
-----------------------------------------------------
<TABLE><CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998
(Audited) 9,329,277 $ 37,317 $2,697,364 $1,604,507 $4,339,188
Issuance of common stock 17,500 70 6,005 -- 6,075
Net income for nine months -- -- -- 319,714 319,714
---------- ---------- ---------- ---------- ----------
Balance, September 30, 1999
(Unaudited) 9,346,777 $ 37,387 $2,703,369 $1,924,221 $4,664,977
========== ========== ========== ========== ==========
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
Balance, December 31, 1999
(Audited) 9,457,577 $ 37,831 $2,730,626 $2,108,074 $4,876,531
Issuance of common stock 17,500 70 5,843 -- 5,913
Net income for nine months -- -- -- 611,696 611,696
---------- ---------- ---------- ---------- ----------
Balance, September 30, 2000
(Unaudited) 9,475,077 $ 37,901 $2,736,469 $2,719,770 $5,494,140
========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
<PAGE>
Form 10-QSB
September 30, 2000
Page 7
CAS Medical Systems, Inc.
Statements of Cash Flows
------------------------
For the Nine Months Ended September 30, 2000 and 1999
-----------------------------------------------------
<TABLE><CAPTION>
(Unaudited)
September 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 611,696 $ 319,714
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 214,529 124,678
Accounts receivable (214,637) (350,710)
Inventory (327,498) 55,466
Other current assets (30,062) 45,895
Accounts payable and accrued expenses (242,953) (449,094)
----------- -----------
Net cash provided by (used in) operating activities 11,075 (254,051)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (90,976) (74,062)
----------- -----------
Net cash used in investing activities (90,976) (74,062)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under long-term debt (26,445) (21,932)
Note payable - long term -- 1,310,000
Proceeds from issuance of common stock 5,913 6,075
----------- -----------
Net cash (used in) provided by financing activities (20,532) 1,294,143
----------- -----------
Net (decrease) increase in cash and
cash equivalents (100,433) 966,030
CASH AND CASH EQUIVALENTS, at beginning
of period 1,255,450 1,442,342
----------- -----------
CASH AND CASH EQUIVALENTS, at end of period $ 1,155,017 $ 2,408,372
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 73,435 $ 62,927
Cash paid during the period for income taxes $ 515,941 $ 163,850
</TABLE>
See Notes to Financial Statements
<PAGE>
Form 10-QSB
September 30, 2000
Page 8
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.
During October 1999, the Company acquired the Event-Line(R) product line
from a third party. The purchase includes the infant and adult apnea monitors
and accessories for hospital and home use, as well as the Event-Link(R) Software
for data retrieval and display. The Event-Link system offers options that
combine cardio-respiratory monitoring, pulse oximetry and event recording to
provide complete, objective documentation and monitoring of all age groups. The
Event-Link(R) Monitoring system is a natural extension for both the neonatal
specialty and diagnostic monitoring product lines, as CAS builds its hospital
monitoring business and expands into the homecare marketplace. The purchase
price was allocated to the assets acquired based upon their estimated fair
values at the date of acquisition as follows:
Inventory $370,000
Equipment 130,000
Licensed technology 225,000
--------
$725,000
========
(2) Summary of Significant Accounting Policies:
Inventory
Inventory is stated at the lower of first-in, first-out (FIFO) cost or
market. At September 30, 2000 and December 31, 1999, inventory consisted of the
following:
September 30, December 31,
2000 1999
---------------------------------
Raw Material $ 946,858 $ 916,837
Work-In-Process 406,018 256,402
Finished Inventory 404,314 256,453
---------- ----------
$1,757,190 $1,429,692
========== ==========
<PAGE>
Form 10-QSB
September 30, 2000
Page 9
New Accounting Pronouncements
In December 1999, Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition," was issued. SAB 101 will require a company to defer revenue
recognition on product shipments until contractual terms of customer acceptance,
including inspection and installation requirements, are met. The Company will be
required to adopt this new accounting principle through a cumulative charge to
retained earnings through the statement of income in accordance with the
provisions of APB Opinion No. 20 no later than the fourth quarter of fiscal
2000. The Company does not believe that the adoption of this standard will have
a material impact on its operating results.
(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, 2000 and 1999:
Three Months Ended
September 30, 2000
----------------------------------------
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------------------------------
Basic EPS
Income available to common
stockholders $149,702 9,475,077 $.02
Effect of Dilutive Securities:
Options -- 461,375
Warrants -- 755,182
-------- ---------- ----
Diluted EPS $149,702 10,691,634 $.01
-------- ---------- ----
Nine Months Ended
September 30, 2000
----------------------------------------
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------------------------------
Basic EPS
Income available to common
stockholders $611,696 9,475,077 $.06
Effect of Dilutive Securities:
Options -- 320,542
Warrants -- 596,180
-------- ---------- ----
Diluted EPS $611,696 10,391,799 $.06
-------- ---------- ----
<PAGE>
Form 10-QSB
September 30, 2000
Page 10
Three Months Ended
September 30, 1999
----------------------------------------
Weighted Average
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------------------------------
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
----------------------------------------
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
------- --------- ----
(4) Debt
In September 2000, the Company increased its line of credit with a Connecticut
bank to $2,000,000. The line is repayable upon demand and matures in September
2001. Borrowings under the line of credit bear interest at the rate of zero
percent above the bank's base rate which may change from time to time. (Base
rate as of September 30, 2000 is 9.50 percent.). At September 30, 2000, 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.
(5) Grant Award
On September 22, 2000 the Company was awarded a Phase II Grant by the National
Institute of Neurological Disorders and Stroke of the National Institutes of
Health (NIH) under its Small Business Innovative Research Program. This grant,
expected to be between $800,000 and $1,000,000, will be used to continue
development of a new technology that can non-invasively measure the brain
oxygenation level of a neonatal patient. In accordance with the terms of the
grant, the Company will be reimbursed for qualifying expenditures under the
agreement. Funding provided to the Company will be recorded as a reduction of
the related research expenses. No funds under this grant have been received as
of September 30, 2000.
<PAGE>
Form 10-QSB
September 30, 2000
Page 11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
---------------------
Net income for the nine month period ended September 30, 2000 was
approximately $612,000 ($0.06 per share assuming dilution), compared to
approximately $320,000 ($0.03 per share assuming dilution), reported for the
same period of 1999. Net income for the third quarter of the current year was
approximately $150,000 ($0.01 per share assuming dilution), compared to
approximately $99,000 ($0.01 per share assuming dilution), for the third quarter
of 1999. The favorable increase in earnings for the current year was impacted by
a significant increase in sales of certain of the Company's product lines.
The Company's revenues were approximately $8,845,000 for the nine month
period ended September 30, 2000 and exceeded the comparable period of the prior
year by approximately $3,015,000 or 51.7 percent. Revenues for the current
period reflected strong sales of non-invasive blood pressure monitors and NIBP
modules to Original Equipment Manufacturer's ("OEM") who utilize the Company's
technology in their systems. During 2000 and 1999, the Company had sales to one
customer, which in the aggregate accounted for approximately 26 percent and 12
percent, respectively.
Cost of product sales as a percentage of net product sales was 47.0 percent
for the nine month period ended September 30, 2000 compared to 44.4 percent for
the same period in 1999. The unfavorable impact is due primarily to an increase
in manufacturing overhead.
Selling, general and administrative expenses were approximately $3,216,000
as of September 30, 2000 as compared to approximately $2,378,000 for the same
period of 1999, an increase of approximately $838,000 or 35.2 percent. The
overall increase in 2000 is the result of additional personnel for the selling
and marketing departments, both domestic and abroad.
Research and development expenses increased by 25.5 percent to $534,000
during the period ended September 30, 2000 as compared to the comparable period
in the prior year. The increase is due to new product development, including a
non-invasive method to detect brain oxygenation in newborns and support for the
existing product lines.
The provision for income taxes of $390,000 and $204,000 for the nine month
period ended September 30, 2000 and 1999, respectively, represents state and
federal income taxes.
These factors and licensing revenues resulted in net income of
approximately $612,000 for the period ending September 30, 2000, as compared to
net income of approximately $320,000 for the comparable period in the prior
year.
Liquidity and Capital Resources
-------------------------------
At September 30, 2000, the Company's cash and cash equivalents totaled
$1,155,017 compared to $1,255,450 at December 31, 1999. The Company's working
capital totaled $4,196,868 on September 30, 2000, compared to $3,448,401 on
December 31, 1999. During the quarter ended September 30, 2000, the Company
invested in short-term notes, earning interest of approximately $47,000 as of
September 30, 2000.
<PAGE>
Form 10-QSB
September 30, 2000
Page 12
At September 30, 2000, the Company had a line of credit with a
Connecticut bank totaling $2,000,000. Borrowings under the line bear interest at
the base rate which may change from time to time. (Base rate as of September 30,
2000 is 9.5 percent.) At September 30, 2000, there were no borrowings
outstanding under this 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.
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
(C) Exhibit 27
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)
/s/ Louis P. Scheps Date: October 31, 2000
--------------------------------------- ----------------
Louis P. Scheps
(President and Chief Executive Officer
and Chief Financial Officer)
