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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 the Quarterly Period Ended March 31, 2004
Commission File Number 0-13839
CAS MEDICAL SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 06-1123096
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(State or other jurisdiction of (I.R.S. employer
incorporation of organization) identification no.)
44 East Industrial Road, Branford, Connecticut 06405
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(Address of principal executive offices)
(203) 488-6056
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(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the 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 [_]
State 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
9,766,073 shares as of May 1, 2004.
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Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
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Form 10-QSB
March 31, 2004
Page 2
INDEX
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PART 1 FINANCIAL INFORMATION Page No.
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Item 1 Financial Statements
Condensed Balance Sheets as of March 31, 2004
and December 31, 2003 .................................... 4
Condensed Statements of Income for the Three
Months Ended March 31, 2004 and 2003 ..................... 6
Condensed Statements of Cash Flow for the Three
Months Ended March 31, 2004 and 2003 ..................... 7
Notes to Condensed Financial Statements .................. 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 11
Item 3 Controls and Procedures .................................. 13
PART II OTHER INFORMATION
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Item 6 Exhibits and Reports on Form 8-K ......................... 14
Signatures ........................................................ 15
Form 10-QSB
March 31, 2004
Page 3
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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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. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
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,
2003.
In the opinion of the Company, all adjustments necessary to present fairly
the financial position of CAS Medical Systems, Inc. as of March 31, 2004, and
the results of its operations and its cash flows for the three months ended
March 31, 2004 and 2003 have been included in the accompanying unaudited
financial statements. The results of operations for the three months ended March
31, 2004 are not necessarily indicative of the expected results for the full
year 2004.
Form 10-QSB
March 31, 2004
Page 4
CAS Medical Systems, Inc.
Condensed Balance Sheets
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(Unaudited)
MARCH 31, DECEMBER 31,
ASSETS 2004 2003
------ ------------ ------------
Current Assets:
Cash and cash equivalents $ 1,406,587 $ 881,087
Accounts receivable, net of allowance
for doubtful accounts 2,931,148 3,307,059
Inventories 2,542,395 2,270,616
Deferred tax assets 347,155 347,155
Other current assets 283,589 489,451
------------ ------------
Total current assets 7,510,874 7,295,368
Property and Equipment:
Land and improvements 535,000 535,000
Building and improvements 1,472,162 1,472,162
Machinery and equipment 2,510,100 2,504,313
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4,517,262 4,511,475
Less accumulated depreciation (2,369,228) (2,287,978)
------------ ------------
Property and equipment, net 2,148,034 2,223,497
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Intangible and other assets, net 206,290 209,210
Deferred tax assets 182,652 182,652
------------ ------------
Total assets $ 10,047,850 $ 9,910,727
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The accompanying notes are an integral part of these financial statements
Form 10-QSB
March 31, 2004
Page 5
CAS Medical Systems, Inc.
Condensed Balance Sheets
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(Unaudited)
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2004 2003
------------------------------------ ------------ ------------
Current Liabilities:
Current portion of long-term debt $ 475,185 $ 475,185
Notes payable 116,571 219,619
Accounts payable 1,014,057 1,007,617
Accrued expenses 527,241 434,963
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Total current liabilities 2,133,054 2,137,384
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Long-term debt, less current portion 1,418,308 1,534,523
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Stockholders' Equity:
Common stock, $.004 par value per share;
19,000,000 shares authorized; 9,732,573
and 9,712,577 shares issued and
outstanding, respectively 38,931 38,851
Additional paid-in capital 2,879,088 2,870,769
Retained earnings 3,578,469 3,329,200
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Total stockholders' equity 6,496,488 6,238,820
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Total liabilities and stockholders' equity $ 10,047,850 $ 9,910,727
============ ============
The accompanying notes are an integral part of these financial statements
Form 10-QSB
March 31, 2004
Page 6
CAS Medical Systems, Inc.
Condensed Statements of Income
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(Unaudited)
THREE MONTHS ENDED MARCH 31,
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2004 2003
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REVENUES:
Net product sales $ 4,515,880 $ 4,214,238
OPERATING EXPENSES:
Cost of product sales 2,426,510 2,382,071
Research & development 273,649 206,787
Selling, general & administrative 1,528,321 1,340,842
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Operating income 287,400 284,538
OTHER INCOME AND EXPENSES:
Proceeds from life insurance policy -- 500,000
Interest expense 27,780 26,804
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Income before income taxes 259,620 757,734
PROVISION FOR INCOME TAXES 10,351 68,000
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Net income $ 249,269 $ 689,734
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Weighted average number of
common shares outstanding:
Basic 9,724,002 9,645,077
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Diluted 11,012,856 9,781,830
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Earnings per common share:
Basic $ 0.03 $ 0.07
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Diluted $ 0.02 $ 0.07
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The accompanying notes are an integral part of these financial statements
Form 10-QSB
March 31, 2004
Page 7
CAS Medical Systems, Inc.
Condensed Statements of Cash Flow
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(Unaudited)
THREE MONTHS ENDED
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MARCH 31, MARCH 31,
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 249,269 $ 689,734
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 113,064 109,242
Changes in operating assets and liabilities:
Accounts receivable 375,911 (752,277)
Inventories (271,779) 353,460
Other current assets 205,862 85,094
Accounts payable and accrued expenses 98,718 139,023
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Net cash provided by operating activities 771,045 624,276
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,787) (6,088)
Purchase of intangible assets (28,894) (20,220)
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Net cash used in investing activities (34,681) (26,308)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under notes payable (103,048) --
Repayments under long-term debt (116,215) (101,715)
Proceeds from issuance of common stock 8,399 --
Repayments under line of credit, net -- (600,000)
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Net cash used in financing activities (210,864) (701,715)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 525,500 (103,747)
CASH AND CASH EQUIVALENTS, beginning of period 881,087 325,670
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,406,587 $ 221,923
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 30,648 $ 28,277
Cash (received) paid during the period for
income taxes, net $ (176,637) $ 7,267
The accompanying notes are an integral part of these financial statements
Form 10-QSB
March 31, 2004
Page 8
CAS Medical Systems, Inc.
Notes to Condensed Financial Statements
(Unaudited)
March 31, 2004
(1) The Company
CAS Medical Systems, Inc. ("CAS" or the "Company") is a Delaware
corporation organized in 1984. The Company designs, manufactures and markets
medical products, specifically blood pressure measurement equipment, apnea
monitoring equipment and products for a full range of patient applications,
including neonatal intensive care. The Company's products are designed to
improve the quality of patient care and provide exceptional value and
performance. Markets for the Company's products include hospital, alternate
site, emergency medical services and homecare. The Company's products are sold
through its direct sales force, via distributors and pursuant to Original
Equipment Manufacturer ("OEM") agreements both internationally and in the United
States. The Company has several other products in various stages of development
that it believes will add to and complement its current product lines. Certain
2003 balances have been reclassified to conform to current year presentation.
(2) Inventory
Inventory is stated at the lower of cost or market. The Company provides
inventory reserves for any material that has become obsolete or may become
unsaleable based upon estimates of future demand and sale price in the market.
Judgments with respect to saleability and usage of inventory, estimated market
value, and recoverability upon sale are complex and subjective. Such assumptions
are reviewed periodically and adjustments are made, as necessary, to reflect
changed conditions. At March 31, 2004 and December 31, 2003, inventory consisted
of the following:
MARCH 31, DECEMBER 31,
2004 2003
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Raw Material ........................... $ 1,303,581 $ 1,281,620
Work-In-Process ........................ 585,948 434,055
Finished Inventory ..................... 652,866 554,941
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$ 2,542,395 $ 2,270,616
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(3) Accrued Warranty Costs
The Company warranties its products for up to three years and records the
estimated cost of such product warranties at the time the sale is recorded.
Estimated warranty costs are based upon actual past experience of product
returns and the related estimated cost of labor and material to make the
necessary repairs. If actual future product return rates or the actual costs of
material and labor differ from the estimates, adjustments to the accrued
warranty liability would be made. During the three months ended March 31, 2004,
approximately $31,000 of warranty costs were charged to cost of sales. The
accrued warranty balance at March 31, 2004 was $122,000, unchanged from December
31, 2003.
(4) Earnings per Common Share
The Company computes earnings per common share in accordance with SFAS No.
128, "Earnings Per Share." Under SFAS No. 128, basic earnings per share is
calculated by dividing net income by the weighted average number of shares of
common stock outstanding during the period. No dilution for any potentially
dilutive securities is included. Diluted earnings per share assumes the exercise
or conversion of dilutive securities using the treasury stock method. Certain
options and warrants to purchase 22,500 and 1,267,800 shares of the Company's
Common Stock outstanding at March 31, 2004 and 2003, respectively, were not
included in the computation of diluted earnings per share because their exercise
price was greater than the average market price of the common shares and,
therefore, their inclusion would have been anti-dilutive.
Form 10-QSB
March 31, 2004
Page 9
The following summarizes the Company's calculation of basic and diluted earnings
per share for the three-month periods ended March 31, 2004 and 2003:
MARCH 31, MARCH 31,
2004 2003
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Net income .................................. $ 249,269 $ 689,734
============ ============
Weighted average shares outstanding ......... 9,724,002 9,645,077
Add: dilutive effect of outstanding
warrants and options .................. 1,288,854 136,753
============ ============
Total weighted average shares of
dilutive securities outstanding ........... 11,012,856 9,781,830
============ ============
Earnings per share - basic .................. $ 0.03 $ 0.07
============ ============
Earnings per share - dilutive ............... $ 0.02 $ 0.07
============ ============
(5) Stock-Based Compensation
The Company primarily grants qualified stock options for a fixed number of
shares to employees with an exercise price equal to the fair market value of the
shares at the date of the grant. The Company has adopted the disclosure only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure." 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 where,
generally, when the exercise price of stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is recorded.
Had compensation cost for the stock option awards been determined to be
consistent with SFAS No. 123, the Company's net income and earnings per share
for the three month periods ended March 31, 2004 and 2003 would have been
changed to the following pro forma amounts:
MARCH 31, MARCH 31,
2004 2003
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Net income: As reported $ 249,269 $ 689,734
Compensation expense for stock
options based on fair value 1,686 22,056
Pro forma 250,955 667,678
Earnings per share: As reported - Basic $ 0.03 $ 0.07
Pro forma - Basic 0.03 0.07
As reported - Diluted 0.02 0.07
Pro forma - Diluted 0.02 0.07
(6) Financing Arrangements
During August 2003, the Company renewed its $3,000,000 line-of-credit with
its bank lender. The line is payable on demand and matures in September 2004.
Borrowings under the line-of-credit bear interest at the bank's base rate
Form 10-QSB
March 31, 2004
Page 10
(4.0% at March 31, 2004) which may change from time to time. At March 31, 2004,
there were no amounts outstanding under the line-of-credit facility. Under the
terms of the agreement, the Company is permitted to borrow against accounts
receivable and inventory according to pre-established criteria. The bank has a
first security interest in substantially all assets of the Company.
The Company has financed its directors and officer's insurance policy and
its property casualty insurance policy. The monthly installments are $12,275 and
$22,859, respectively, including interest at 4.13% and 3.58%, respectively. The
notes are scheduled to be repaid in full during August 2004.
During 2003, the Company refinanced its mortgage and notes payable with its
bank lender reducing the per annum fixed interest rates from 7.25% and 8.59%,
respectively, to 5.45% and 5.0%, respectively. The reduction in interest expense
had the effect of reducing aggregate monthly payments of principal and interest
by approximately $2,170. All other terms of the agreements remained unchanged.
(7) Grant Awards
The Company has been awarded various grants by the National Institute of
Neurological Disorders and Stroke of the NIH under its Small Business Innovative
Research Program. Grants under this program are being used to support
development of a new technology, Near-Infrared Spectroscopy ("NIRS") that can
non-invasively measure the brain oxygenation level of a neonatal patient. In
accordance with the terms of this grant, the Company is being reimbursed for
certain qualifying expenditures under the agreement. The Company is pursuing
additional NIH grants to support its NIRS research.
The Company has received various grants under this program including an
$836,000 award made during September 2000. Other miscellaneous grants for
research in various applications of NIRS cerebral oximetry have been awarded to
the Company including $200,000 awarded during 2003. During March 2004, the
Company was awarded a $100,000 grant for developing a new generation of
automated non-invasive blood pressure ("NIBP") monitors, which will incorporate
advanced NIBP algorithms that compensate for arterial stiffness.
During the three months ended March 31, 2004 and 2003, approximately
$29,000 and $97,000, respectively, of such research and development costs were
reimbursed under the grants. Funding provided to the Company is being recorded
as a reduction in R&D expenses. The Company recognizes the reimbursement on an
accrual basis as the qualifying costs are incurred.
(8) Guarantees
Pursuant to our certificate of incorporation and bylaws, we have agreed to
indemnify our officers and directors for certain events or occurrences while the
officer or director is or was serving, at our request, in such capacity. The
maximum potential amount of future payments we could be required to make
pursuant to these provisions is unlimited; however, we have a Director and
Officer insurance policy that limits our exposure and enables us to recover a
portion of any future amounts paid. As a result of our insurance policy
coverage, we believe the estimated fair value of these indemnification
obligations is minimal. We have no liabilities recorded for these obligations as
of March 31, 2004.
We enter into standard indemnification agreements in our ordinary course of
business. Pursuant to these agreements, we indemnify, hold harmless, and agree
to reimburse the indemnified parties for losses suffered or incurred by the
indemnified parties, generally our business partners or customers, in connection
with any U.S. patent, copyright or other intellectual property infringement
claim by any third party with respect to our products. The term of these
indemnification agreements is generally perpetual. The maximum potential amount
of future payments we could be required to make under these indemnification
agreements is unlimited. We have no liabilities recorded for these agreements as
of March 31, 2004.
Form 10-QSB
March 31, 2004
Page 11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Certain statements included in this report, including without limitation
statements in the Management's Discussion and Analysis of Financial Condition
and Results of Operations, which are not historical facts, are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements represent the Company's current expectations
regarding future events. The Company cautions that such statements are qualified
by important factors that could cause actual results to differ materially from
expected results which may be contained in the forward-looking statements. All
forward-looking statements involve risks and uncertainties, including, but not
limited to, the following: foreign currency fluctuations, regulations and other
economic and political factors which affect the Company's ability to market its
products internationally, new product introductions by the Company's
competitors, increased price competition, dependence upon significant customers,
availability and cost of components for the Company's products, marketplace
acceptance for the Company's new products, FDA and other governmental regulatory
and enforcement actions, and changes to federal research and development grant
programs presently utilized by the Company.
Results of Operations
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For the quarter ended March 31, 2004, the Company reported net income of
approximately $249,000 ($0.02 per common share on a diluted basis) compared to
$690,000 ($0.07 per common share on a diluted basis) reported for the same
period of 2003. Net income for the quarter ended March 31, 2003 was favorably
affected by $500,000, or $0.05 per diluted share, of non-taxable proceeds from a
life insurance policy paid upon the death of one of the Company's key employees.
Net income for the first quarter of 2004 was favorably affected by $80,000 of
income tax benefits, primarily from a refund pertaining to state research and
development tax credits that lowered the effective tax rate for the quarter. Net
income for the first quarter of 2004 was negatively impacted by $53,000 of
accrued severance costs expected to be paid throughout the second and third
quarters of 2004.
The Company generated revenue of $4,516,000 for the first quarter ended
March 31, 2004, an increase of $302,000 or 7% over sales of $4,214,000 for the
first quarter of 2003. Product sales increased 10% and were led primarily by
increases in blood pressure product sales of 15% and apnea product sales of 18%.
Increases in blood pressure sales were largely driven by sales to international
customers. Domestic blood pressure product sales were lower than expected due to
softer than expected demand from the Department of Veterans Affairs ("VA") under
the Company's five year contract. The Company expects orders from the VA for its
vital signs monitors to increase during the balance of the fiscal year as these
facilities begin to spend recently allocated funds. Apnea product sales were
largely driven by stronger than expected demand in the U.S. hospital market.
Partially offsetting these increases were reductions in neonatal sales of 24%
and service related sales of 40%. Neonatal sales were particularly strong during
the first quarter of 2003 for a variety of factors including the effects of
initial sales to new distributors and orders to replenish dealer inventories.
Service related sales decreased as expected primarily from the Company's
discontinuance of service support on older apnea products no longer supported by
the Company. This has generated customer demand for the Company's newer apnea
monitoring devices which is expected to continue for the balance of 2004.
The cost of product sold as a percentage of net product sales was 53.7%
for the three month period ended March 31, 2004, compared to 56.5% for the same
period of 2003. The improvement in cost of sales results primarily from
reductions in manufacturing production costs and purchased component costs
realized during the latter part of 2003 and the first quarter of 2004. The
Company is continuing to work aggressively toward lowering its cost of products
sold during 2004 through manufacturing efficiencies and capital equipment
purchases.
Research and Development ("R&D") expenses increased $67,000, or 32%, to
$274,000 for the three months ended March 31, 2004 compared to $207,000 for the
first three months of 2003. Reductions in amounts reimbursed from the National
Institutes of Health (NIH) under established grant programs of $69,000 compared
Form 10-QSB
March 31, 2004
Page 12
to prior year were primarily responsible for the increase in R&D expenses for
this period along with increased salaries and related fringe benefit costs of
$8,000 partially offset by reductions in project material expenditures. The
Company has ongoing grant programs with the NIH and anticipates continued
reimbursements under these programs during the remainder of 2004.
Selling, general and administrative expenses ("S,G&A") increased
$187,000, or 14%, to $1,528,000 for the three months ended March 31, 2004,
compared to $1,341,000 for the first three months of 2003. Approximately 44% of
the increase in S,G&A expense, or $82,000, was due to increased sales and
marketing expenses including increased sales commissions on additional sales
volume; increased international sales representation costs and increased sales
meeting and convention expenses. These increases were partially offset by
decreased travel and entertainment expenses. General and administrative ("G&A")
expenses for the first quarter of 2004 increased 21%, or $105,000, from the
first quarter of the prior year and accounted for the balance of the increase in
S,G&A expenses. Increased salaries and related benefits including $53,000 of
accrued severance costs, higher insurance costs and increased outside accounting
fees were responsible for the increase in G&A expenses for the first quarter of
2004 partially offset by reduced spending for outside professional services,
legal fees and dues and subscriptions.
Interest expense of $28,000 for the first quarter of 2004 was relatively
consistent with interest expense of $27,000 for the first quarter of 2003.
The provision for income taxes of $10,000 for the first quarter of 2004
reflects an expected effective rate of approximately 35% for 2004 offset by an
$80,000 income tax benefit resulting primarily from a refund pertaining to state
research and development tax credits. The combined estimated federal and state
effective tax rate is lower than the statutory rate as a result of anticipated
R&D tax credits. The income tax provision for the first quarter of the prior
year of $68,000 reflected an effective tax rate of approximately 26% excluding
the effect of the non-taxable life insurance proceeds, and was less than the
expected statutory rate due to the exclusion of qualifying foreign trade income
and expected benefits from R&D tax credits.
Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
At March 31, 2004, the Company's cash and cash equivalents totaled
$1,407,000 compared to $881,000 at December 31, 2003. Working capital increased
by $220,000 to $5,378,000 at March 31, 2004, from $5,158,000 on December 31,
2003. The Company's current ratio improved to 3.5 to 1 from 3.4 to 1.
Cash provided by operations for the three months ended March 31, 2004 was
$771,000 compared to $624,000 for the first three months of the prior year.
Decreases in accounts receivable and other current assets, partially offset by
increases in inventory, were primarily responsible for improvement in cash
provided by operations. Cash provided by operations for the first quarter of
2003 was primarily generated by $500,000 of non-taxable life insurance proceeds
resulting from the death of one of the Company's key employees. Increases in
inventory resulted primarily from the Company's build up of vital signs monitors
in excess of orders received under the VA contract.
Cash used in investing activities was $35,000 for the first quarter of
2004 compared to $26,000 for the first quarter of the prior year.
Cash used in financing activities for the first quarter of 2004 was
$211,000 compared to $702,000 for the first quarter of the prior year. During
the first quarter of 2004, the Company repaid $219,000 of outstanding debt
obligations. During the first quarter of the prior year, the Company eliminated
the outstanding balance on its line-of-credit obligation in the amount of
$600,000 and repaid $102,000 of other debt obligations.
During August 2003, the Company renewed its $3,000,000 line-of-credit
with its bank lender. The line is payable on demand and matures in September
2004. Borrowings under the line-of-credit bear interest at the bank's base rate
(4.0% at March 31, 2004) which may change from time to time. At March 31, 2004,
there were no amounts outstanding under the line-of-credit facility. Under the
terms of the agreement, the Company is permitted to borrow against accounts
receivable and inventory according to pre-established criteria. The bank has a
first security interest in substantially all assets of the Company.
Form 10-QSB
March 31, 2004
Page 13
During 2003, the Company refinanced its mortgage and notes payable with
its bank lender reducing the per annum fixed interest rates from 7.25% and
8.59%, respectively, to 5.45% and 5.0%, respectively. The refinancing and
related reduction in interest rates had the effect of reducing aggregate monthly
payments of principal and interest by approximately $2,170. All other terms of
the agreements remained unchanged.
The Company believes that its source of funds consisting of cash and cash
equivalents, projected cash flow from operating activities for 2004, and funds
available from the revolving credit facility will be sufficient to meet its
current and expected requirements over the next twelve months. Although there
can be no assurance that the Company's revolving credit facility will be
renewed, management believes that, if needed, it would be able to find
alternative sources of funds on commercially acceptable terms.
Critical Accounting Judgments and Estimates
-------------------------------------------
The Company's discussion and analysis of financial condition and results
of operations are based upon the condensed financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and disclosure of contingent assets
and liabilities. The Company's estimates include those related to revenue
recognition, the valuation of inventory, and valuation of deferred tax assets
and liabilities, useful lives of intangible assets, warranty obligations and
accruals. The Company bases its estimates on historical experience and on
various other assumptions that management believes to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. For a complete description of accounting policies,
see Note 2 to our financial statements included in the Company's Form 10-KSB for
the year ended December 31, 2003.
ITEM 3 CONTROLS AND PROCEDURES
-------------------------------
As of March 31, 2004, an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures was conducted
under the supervision and with the participation of the Chief Executive Officer
and the Chief Financial Officer. Based on this evaluation, the Chief Executive
Officer and the Chief Financial Officer has concluded that the Company's
disclosure controls and procedures were adequate and designed to ensure that
information required to be disclosed by the Company in this report is recorded,
processed, summarized and reported in a timely manner, including that such
information is accumulated and communicated to management, including the Chief
Executive Officer and the Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
There have been no changes in the Company's internal control over
financial reporting during the quarter ended March 31, 2004 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Reference is made to the Certifications of the Chief Executive Officer
and the Chief Financial Officer about these and other matters attached as
Exhibits 31.1, 31.2 and 32.1 to this report.
Form 10-QSB
March 31, 2004
Page 14
PART II - OTHER INFORMATIION
----------------------------
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(A) Exhibits
11. See Notes to Condensed Financial Statements Note 4, regarding
computation of earnings per share.
31.1 Certification pursuant to Rule 13a-14(a) of Louis P. Scheps,
President and Chief Executive Officer
31.2 Certification pursuant to Rule 13a-14(a) of Jeffery A. Baird,
Chief Financial Officer
32.1 Certification of Periodic Financial Report of Louis P.
Scheps, President and Chief Executive Officer and Jeffery A.
Baird, Chief Financial Officer
(B) Reports on Form 8-K
On February 20, 2004, the Company filed a Current Report on Form 8-K
announcing the Company's financial results for the fiscal year ended December
31, 2003.
Form 10-QSB
March 31, 2004
Page 15
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
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: May 13, 2004
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By: Louis P. Scheps
Chairman of the Board, President
and Chief Executive Officer
/s/ Jeffery A. Baird Date: May 13, 2004
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By: Jeffery A. Baird
Chief Financial Officer