Delaware
|
06-1123096
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
Title of Each Class
|
Name of Each Exchange on Which
Registered
|
Common
Stock, $.004 par value
|
The
NASDAQ Global Market
|
Large accelerated
filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
(Do not check if a smaller
reporting company)
|
Smaller
reporting company x
|
INDEX
|
Page
|
|
PART
I
|
||
Item
1
|
Business
|
3
|
Item
1A
|
Risk
Factors
|
11
|
Item
1B
|
Unresolved
Staff Comments
|
15
|
Item
2
|
Properties
|
15
|
Item
3
|
Legal
Proceedings
|
15
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
16
|
PART
II
|
||
Item
5
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
16
|
Item
6
|
Selected
Financial Data
|
17
|
Item
7
|
Management’s
Discussion and Analysis of Financial Condition
and Results of Operations
|
17
|
Item
7A
|
Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
Item
8
|
Financial
Statements and Supplementary Data
|
23
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
F-2
|
|
Consolidated
Statements of Operations for the Years Ended December 31, 2008,
2007 and 2006
|
F-3
|
|
Consolidated
Statements of Changes in Shareholders’ Equity for the Years
Ended December 31, 2008, 2007 and 2006
|
F-4
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008,
2007 and 2006
|
F-5
|
|
Notes
to Consolidated Financial Statements
|
F-6
to F-18
|
|
Item 9 |
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
24
|
Item
9A(T)
|
Controls
and Procedures
|
24
|
Item
9B
|
Other
Information
|
24
|
PART
III
|
||
Item
10
|
Directors,
Executive Officers and Corporate Governance
|
25
|
Item
11
|
Executive
Compensation
|
25
|
Item
12
|
Security
Ownership of Certain Beneficial Owners and
|
|
Management
and Related Stockholder Matters
|
25
|
|
Item
13
|
Certain
Relationships and Related Transactions, and Director
Independence
|
25
|
Item
14
|
Principal
Accountant Fees and Services
|
25
|
PART
IV
|
||
Item
15
|
Exhibits
and Financial Statement Schedules
|
26
|
Signatures
|
29
|
·
|
Critical
care monitoring – includes sales of the FORE-SIGHT cerebral oximeter
monitors, sensors and accessories.
|
·
|
Bedside
monitoring– includes sales of the Company’s vital signs monitors and
accessories incorporating various combinations of measurement parameters
for both human and veterinary use. Parameters found in these
monitors include pulse oximetry, electro-cardiography, temperature,
non-invasive blood pressure, and capnography. Also included in
the bedside monitoring category are products developed and manufactured by
Analogic Corporation, or otherwise supplied through Analogic, including
vital signs monitors utilizing parameters as described above and
additional monitors which measure non-invasive cardiac output and
hemodynamic status, and maternal/fetal monitors. These vital
signs monitors allow for connectivity to a central
station. Additionally, the Company’s cardio-respiratory
monitors and accessories used to monitor apnea in home-based and hospital
settings are also included in this
category.
|
·
|
Blood
pressure measurement technology – includes sales to Original Equipment
Manufacturers (“OEM”) of the Company’s proprietary non-invasive blood
pressure technology (MAXNIBP), blood pressure cuffs and accessories for
the OEM market, and related license
fees.
|
·
|
Supplies
and service – includes sales of blood pressure cuffs and rapid infusor
cuffs, neonatal intensive care supplies including electrodes and skin
temperature probes, and service repair
revenues.
|
·
|
In
September 2004 a retrospective, blinded intervention 2,279-patient
published as Scott Goldman, M.D., et al., “Optimizing Intraoperative
Cerebral Oxygen Delivery Using Noninvasive Cerebral Oximetry Decreases the
Incidence of Stroke for Cardiac Surgical Patients”, in the Heart Surgery
Forum #2004-1062 showed a significant reduction in permanent stroke
when information from cerebral oximetry was used to help manage regional
brain blood oxygen saturation in cardiac surgery
patients.
|
·
|
In
January 2007, a 200-patient study, published as John M. Murkin, M.D., et
al., “Monitoring Brain
Oxygen Saturation During Coronary Bypass Surgery: A Randomized,
Prospective Study”, in Anesthesia and
Analgesia showed a statistically significant reduction in
incidences of major organ dysfunction when cerebral oximetry was used to
provide information to help manage regional brain blood oxygen saturation
in coronary artery bypass surgery
patients.
|
·
|
In
March 2008, a review paper published as Gregory W. Fischer, M.D.,
Co-Director of Cardiac Anesthesia at Mount Sinai Medical Center in New
York “Recent Advances in
the Application of Cerebral Oximetry in Adult Cardiovascular
Surgery”, in Seminars in
Cardiothoracic and Vascular Anesthesia detailed the benefits of
absolute cerebral oximetry in patients undergoing Deep Hypothermic Cardiac
Arrest (“DHCA”) aortic arch
surgery.
|
·
|
In
June 2008, a paper published as Thomas Hemmerling M.D., et al., “Cerebral desaturation during
single lung ventilation correlates with postoperative morbidity”,
in Canadian
Journal of Anesthesia Supplement detailed the benefits of
monitoring absolute cerebral oximetry in patients undergoing single lung
ventilation (SLV) and showed a positive correlation between the decrease
of SctO2 during SLV and postoperative non-pulmonary organ
failure.
|
·
|
An
NIH-funded major multi-center study researching cognitive decline and
delirium in elderly patients undergoing major general
surgery. The study, which began in 2008, involves seven key
medical institutions throughout the U.S. Approximately five
million elderly patients have surgery in the U.S. each
year. These surgeries are generally considered high risk due to
a variety of factors. The Company believes that monitoring
cerebral oximetry using FORE-SIGHT can also significantly benefit this
population of patients.
|
·
|
Two
studies to show the benefit of absolute cerebral oximetry monitoring
during shoulder surgery in the sitting or “beach chair”
position. In the summer of 2007, a newsletter of the Anesthesia Patient
Safety Foundation (“APSF”) described two patients with no
significant risk factors or evidence of cerebral vascular disease who both
developed permanent neurological deficits likely from global cerebral
hypo-perfusion while undergoing shoulder surgery in the beach chair
position. The beach chair position can cause significant
hemodynamic changes, the response to which are further blocked by the
combination of inhalation/intravenous drugs. The current
standard of care for these patients is to measure blood pressure using a
cuff laced on the opposite arm or either leg that automatically identifies
oscillometric blood pressure readings. The Company believes
that monitoring cerebral oximetry using FORE-SIGHT can significantly
benefit patients during these
procedures.
|
Financial
Information Relating to Sales
|
||||||||||||
Year
Ended December 31
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Domestic
Sales
|
$ | 30,031,921 | $ | 29,601,305 | $ | 27,518,584 | ||||||
International
Sales
|
10,617,136 | 8,631,100 | 7,683,427 | |||||||||
$ | 40,649,057 | $ | 38,232,405 | $ | 35,202,011 |
Quarter Ended
|
High
|
Low
|
|||||||
March
31, 2007
|
$ | 8.40 | $ | 6.26 | |||||
June
30, 2007
|
$ | 8.51 | $ | 6.27 | |||||
September
30, 2007
|
$ | 7.50 | $ | 4.25 | |||||
December
31, 2007
|
$ | 6.47 | $ | 4.76 | |||||
March
31, 2008
|
$ | 5.54 | $ | 4.05 | |||||
June
30, 2008
|
$ | 4.30 | $ | 2.81 | |||||
September
30, 2008
|
$ | 4.21 | $ | 2.72 | |||||
December
31, 2008
|
$ | 4.00 | $ | 1.66 |
Title of Class
|
Number of Shareholders
|
|
Common
stock, $.004 par value
|
1,862
|
For
Year Ended December 31,
|
2008(1)
|
|
2007(1)
|
2006(1)
|
2005(2)
|
2004
|
||||||||||||||
(amounts
in thousands, except per
|
||||||||||||||||||||
share
amounts)
|
||||||||||||||||||||
Net
sales
|
$ | 40,649 | $ | 38,232 | $ | 35,202 | $ | 26,884 | $ | 20,059 | ||||||||||
Cost
of sales
|
26,748 | 24,585 | 20,803 | 15,092 | 11,056 | |||||||||||||||
Gross
profit
|
13,901 | 13,647 | 14,399 | 11,792 | 9,003 | |||||||||||||||
Operating
expenses:
|
||||||||||||||||||||
Research
and development
|
$ | 2,028 | $ | 2,254 | $ | 2,762 | $ | 1,631 | $ | 1,033 | ||||||||||
Selling,
general and administrative
|
12,165 | 10,815 | 8,659 | 7,438 | 6,263 | |||||||||||||||
Total
operating expenses
|
14,193 | 13,069 | 11,421 | 9,069 | 7,296 | |||||||||||||||
Operating
(loss) income
|
(291 | ) | 579 | 2,978 | 2,723 | 1,707 | ||||||||||||||
(Loss)
income before income taxes
|
(564 | ) | 304 | 2,730 | 2,556 | 1,635 | ||||||||||||||
Net
(loss) income
|
(388 | ) | 306 | 1,747 | 1,815 | 1,205 | ||||||||||||||
Net
(loss) income per
|
||||||||||||||||||||
diluted
common share
|
$ | (0.04 | ) | $ | 0.03 | $ | 0.14 | $ | 0.15 | $ | 0.11 | |||||||||
Diluted
shares outstanding
|
11,032 | 12,212 | 12,147 | 11,729 | 11,128 | |||||||||||||||
At
Year End:
|
||||||||||||||||||||
Working
capital
|
$ | 10,819 | $ | 10,388 | $ | 9,096 | $ | 7,482 | $ | 5,369 | ||||||||||
Long-term
debt, less current portion
|
1,708 | 2,323 | 3,807 | 4,416 | 1,035 | |||||||||||||||
Total
assets
|
23,685 | 23,888 | 21,443 | 17,918 | 10,993 | |||||||||||||||
Stockholder’s
equity
|
$ | 14,900 | $ | 13,751 | $ | 12,625 | $ | 9,117 | $ | 7,156 |
(1)
|
Operating
income reduced by $410, $303 and $390 for 2008, 2007 and 2006,
respectively, from stock compensation expense. The Company adopted FAS
123R – Share-Based Payment, as of January 1,
2006.
|
(2)
|
2005
operating income includes $401 credit from curtailment gain of
post-retirement benefit plan.
2005 reflects the acquisition of Statcorp,
Inc. on May 15, 2005.
|
Year
Ended
|
Year
Ended
|
Increase
|
||||||||||
(amounts
in thousands)
|
December 31, 2008
|
December 31, 2007
|
(Decrease)
|
|||||||||
Bedside
Monitoring
|
$ | 15,889 | $ | 18,640 | $ | (2,751 | ) | |||||
Critical
Care Monitoring
|
2,258 | 315 | 1,943 | |||||||||
Blood
Pressure Measurement Technology
|
7,769 | 5,825 | 1,944 | |||||||||
Supplies/Service
|
14,733 | 13,452 | 1,281 | |||||||||
$ | 40,649 | $ | 38,232 | $ | 2,417 | |||||||
Domestic
Sales
|
$ | 30,032 | $ | 29,601 | $ | 431 | ||||||
International
Sales
|
10,617 | 8,631 | 1,986 | |||||||||
$ | 40,649 | $ | 38,232 | $ | 2,417 |
Year
Ended
|
Year
Ended
|
Increase
|
||||||||||
(amounts
in thousands)
|
December 31, 2007
|
December 31, 2006
|
(Decrease)
|
|||||||||
Bedside
Monitoring
|
$ | 18,640 | $ | 16,071 | $ | 2,569 | ||||||
Critical
Care Monitoring
|
315 | — | 315 | |||||||||
Blood
Pressure Measurement Technology
|
5,825 | 6,571 | (746 | ) |
|
||||||||||||
Supplies/Service
|
13,452 | 12,560 | 892 | |||||||||
$ | 38,232 | $ | 35,202 | $ | 3,030 | |||||||
Domestic
Sales
|
29,601 | 27,519 | 2,082 | |||||||||
International
Sales
|
8,631 | 7,683 | 948 | |||||||||
$ | 38,232 | $ | 35,202 | $ | 3,030 |
Contractual
|
|
One
Year
|
2 –
4
|
5 –
7
|
More
Than
|
|
||||||||||||||
Obligations
|
Total
|
or Less
|
Years
|
Years
|
Seven Years
|
|||||||||||||||
Long-term
debt
|
$ | 2,322,560 | $ | 614,067 | $ | 1,708,493 | $ | — | $ | — | ||||||||||
Operating
leases
|
3,379,000 | 472,235 | 1,289,557 | 1,169,208 | 448,000 | |||||||||||||||
$ | 5,701,560 | $ | 1,086,302 | $ | 2,998,050 | $ | 1,169,208 | $ | 448,000 |
Item 8. Financial Statements and
Supplementary Data
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
Financial
Statements
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
F-2
|
Consolidated
Statements of Operations for the Years Ended December 31, 2008, 2007 and
2006
|
F-3
|
Consolidated
Statements of Changes in Shareholders’ Equity for the Years Ended December
31, 2008, 2007 and 2006
|
F-4
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and
2006
|
F-5
|
Notes
to Consolidated Financial Statements
|
F-6
to F-18
|
ASSETS
|
2008
|
2007
|
||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 1,082,619 | $ | 666,722 | ||||
Accounts
receivable, less allowance of $150,000 in 2008
|
||||||||
and
$125,000 in 2007
|
3,681,355 | 4,947,300 | ||||||
Recoverable
income taxes
|
101,185 | 230,458 | ||||||
Other
receivable
|
715,769 | — | ||||||
Inventories
|
9,786,538 | 10,021,118 | ||||||
Deferred
income taxes
|
791,493 | 474,265 | ||||||
Other
current assets
|
411,938 | 414,204 | ||||||
Total
current assets
|
16,570,897 | 16,754,067 | ||||||
PROPERTY
AND EQUIPMENT:
|
||||||||
Leasehold
improvements
|
281,612 | 266,493 | ||||||
Equipment
at customers
|
1,132,422 | 272,360 | ||||||
Machinery
and equipment
|
5,326,735 | 4,788,902 | ||||||
6,740,769 | 5,327,755 | |||||||
Accumulated
depreciation and amortization
|
(4,013,900 | ) | (2,987,030 | ) | ||||
Property
and equipment, net
|
2,726,869 | 2,340,725 | ||||||
INTANGIBLE
AND OTHER ASSETS, net
|
757,378 | 846,602 | ||||||
GOODWILL
|
3,379,021 | 3,379,021 | ||||||
DEFERRED
INCOME TAXES
|
250,370 | 567,971 | ||||||
Total
assets
|
$ | 23,684,535 | $ | 23,888,386 |
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Current
portion of long-term debt
|
$ | 614,067 | $ | 577,453 | ||||
Notes
payable
|
— | 71,537 | ||||||
Line-of-credit
|
1,994,008 | 2,249,349 | ||||||
Accounts
payable
|
2,307,675 | 2,505,460 | ||||||
Accrued
expenses
|
835,868 | 962,154 | ||||||
Total
current liabilities
|
5,751,618 | 6,365,953 | ||||||
LONG-TERM
DEBT, less current portion
|
1,708,493 | 2,322,561 | ||||||
DEFERRED
GAIN ON SALE AND LEASEBACK OF PROPERTY
|
1,168,701 | 1,303,338 | ||||||
INCOME
TAXES PAYABLE
|
155,875 | 145,125 | ||||||
COMMITMENTS (Note
11)
|
— | — | ||||||
SHAREHOLDERS’
EQUITY:
|
||||||||
Series
A cumulative convertible preferred stock, $.001 par value per
share,
|
||||||||
1,000,000
shares authorized, no shares issued or outstanding
|
— | — | ||||||
Common
stock, $.004 par value per share, 40,000,000 shares
authorized,
|
||||||||
11,419,535
and 10,984,785 shares issued as of December 31, 2008
|
||||||||
and
2007, respectively, including shares held in treasury
|
45,675 | 43,575 | ||||||
Common
stock held in treasury, at cost – 86,000 shares
|
(101,480 | ) | (101,480 | ) | ||||
Additional
paid-in capital
|
7,423,340 | 5,889,007 | ||||||
Retained
earnings
|
7,532,313 | 7,920,307 | ||||||
Total
shareholders’ equity
|
14,899,848 | 13,751,409 | ||||||
Total
liabilities and shareholders’ equity
|
$ | 23,684,535 | $ | 23,888,386 |
2008
|
2007
|
2006
|
||||||||||
NET
SALES
|
$ | 40,649,057 | $ | 38,232,405 | $ | 35,202,011 | ||||||
COST
OF SALES
|
26,747,590 | 24,584,807 | 20,802,677 | |||||||||
Gross
profit
|
13,901,467 | 13,647,598 | 14,399,334 | |||||||||
OPERATING
EXPENSES:
|
||||||||||||
Research
and development
|
2,027,747 | 2,253,512 | 2,762,269 | |||||||||
Selling,
general and administrative
|
12,164,974 | 10,815,248 | 8,658,812 | |||||||||
Total
operating expenses
|
14,192,721 | 13,068,760 | 11,421,081 | |||||||||
OPERATING
(LOSS) INCOME
|
(291,254 | ) | 578,838 | 2,978,253 | ||||||||
Interest
expense, net
|
272,471 | 274,977 | 248,404 | |||||||||
(LOSS) INCOME BEFORE INCOME
TAXES
|
(563,725 | ) | 303,861 | 2,729,849 | ||||||||
Income
taxes (benefit)
|
(175,731 | ) | (2,599 | ) | 983,148 | |||||||
NET
(LOSS) INCOME
|
$ | (387,994 | ) | $ | 306,460 | $ | 1,746,701 | |||||
NET
(LOSS) INCOME PER COMMON SHARE:
|
||||||||||||
Basic
|
$ | (0.04 | ) | $ | 0.03 | $ | 0.17 | |||||
Diluted
|
$ | (0.04 | ) | $ | 0.03 | $ | 0.14 | |||||
WEIGHTED
AVERAGE NUMBER OF COMMON
|
||||||||||||
SHARES
OUTSTANDING:
|
||||||||||||
Basic
|
11,031,855 | 10,696,217 | 10,373,225 | |||||||||
Diluted
|
11,031,855 | 12,211,694 | 12,147,373 |
Common
Stock
|
||||||||||||||||||||||||||||
Issued
|
Held
in Treasury
|
Paid-in
|
Retained
|
|||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
Total
|
||||||||||||||||||||||
BALANCE,
December 31, 2005
|
10,113,860 | $ | 40,456 | 86,000 | $ | (101,480 | ) | $ | 3,176,911 | $ | 6,001,521 | $ | 9,117,408 | |||||||||||||||
Net
income
|
1,746,701 | 1,746,701 | ||||||||||||||||||||||||||
Common
stock issued upon exercise of stock options and
warrants
|
493,425 | 1,973 | 401,349 | 403,322 | ||||||||||||||||||||||||
Common
stock issued under stock purchase plan
|
25,022 | 100 | 101,341 | 101,441 | ||||||||||||||||||||||||
Tax
benefit from exercise of warrants
|
865,842 | 865,842 | ||||||||||||||||||||||||||
Restricted
stock issued under equity incentive
plans
|
47,000 | 188 | (188 | ) | - | |||||||||||||||||||||||
Stock
compensation
|
|
|
|
|
390,283 |
|
390,283 | |||||||||||||||||||||
BALANCE,
December 31, 2006
|
10,679,307 | 42,717 | 86,000 | (101,480 | ) | 4,935,538 | 7,748,222 | 12,624,997 | ||||||||||||||||||||
Adoption
of FIN 48
|
(134,375 | ) | (134,375 | ) | ||||||||||||||||||||||||
Net
income
|
306,460 | 306,460 | ||||||||||||||||||||||||||
Common
stock issued upon exercise of stock options and
warrants
|
192,824 | 771 | 116,391 | 117,162 | ||||||||||||||||||||||||
Common
stock issued under stock
purchase plan
|
21,654 | 87 | 114,543 | 114,630 | ||||||||||||||||||||||||
Tax
benefit from exercise of warrants
|
419,399 | 419,399 | ||||||||||||||||||||||||||
Restricted
stock issued under equity incentive
plans
|
91,000 | — | — | — | ||||||||||||||||||||||||
Stock
compensation
|
|
|
|
|
303,136 |
|
303,136 | |||||||||||||||||||||
BALANCE,
December 31, 2007
|
10,984,785 | 43,575 | 86,000 | (101,480 | ) | 5,889,007 | 7,920,307 | 13,751,409 | ||||||||||||||||||||
Net
loss
|
(387,994 | ) | (387,994 | ) | ||||||||||||||||||||||||
Common
stock issued upon exercise of stock options and
warrants
|
29,300 | 118 | 40,847 | 40,965 | ||||||||||||||||||||||||
Common
stock issued under stock
purchase plan
|
26,417 | 106 | 99,690 | 99,796 | ||||||||||||||||||||||||
Private
placement
|
333,333 | 1,333 | 998,667 | 1,000,000 | ||||||||||||||||||||||||
Tax
benefit from exercise of warrants
|
(14,730 | ) | (14,730 | ) | ||||||||||||||||||||||||
Restricted
stock issued under equity incentive
plans, net of cancellations
|
45,700 | 543 | (543 | ) | — | |||||||||||||||||||||||
Stock
compensation
|
|
|
|
|
410,402 |
|
410,402 | |||||||||||||||||||||
BALANCE,
December 31, 2008
|
11,419,535 | $ | 45,675 | 86,000 | $ | (101,480 | ) | $ | 7,423,340 | $ | 7,532,313 | $ | 14,899,848 |
2008
|
2007
|
2006
|
||||||||||
OPERATING
ACTIVITIES:
|
||||||||||||
Net
(loss) income
|
$ | (387,994 | ) | $ | 306,460 | $ | 1,746,701 | |||||
Adjustments
to reconcile net (loss) income to net cash
|
||||||||||||
provided
(used) by operating activities:
|
||||||||||||
Depreciation
and amortization
|
1,169,335 | 816,286 | 516,150 | |||||||||
Deferred
income taxes
|
373 | (537,167 | ) | 37,813 | ||||||||
Provision
for doubtful accounts
|
25,000 | 50,000 | — | |||||||||
Stock
compensation
|
410,402 | 303,136 | 390,283 | |||||||||
Amortization
of gain on sale and leaseback
|
(134,637 | ) | (43,035 | ) | — | |||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Accounts
receivable
|
1,240,945 | (90,997 | ) | (1,687,340 | ) | |||||||
Other
receivable
|
(715,769 | ) | — | — | ||||||||
Recoverable
income taxes
|
129,273 | 90,485 | (320,943 | ) | ||||||||
Inventories
|
234,580 | (3,212,925 | ) | (1,215,386 | ) | |||||||
Other
current assets
|
2,266 | (6,033 | ) | 86,011 | ||||||||
Accounts
payable and accrued expenses
|
(324,071 | ) | (865,377 | ) | 1,097,560 | |||||||
Income
taxes payable
|
10,750 | 10,750 | (18,999 | ) | ||||||||
Retirement
benefit obligation
|
— | — | (349,567 | ) | ||||||||
Net
cash provided (used) by operating activities
|
1,660,453 | (3,178,417 | ) | 282,283 | ||||||||
INVESTING
ACTIVITIES:
|
||||||||||||
Purchases
of intangible assets
|
(53,241 | ) | (479,543 | ) | (157,561 | ) | ||||||
Proceeds
from sale of property
|
— | 2,791,529 | — | |||||||||
Contingent
consideration for business purchased
|
— | — | (300,000 | ) | ||||||||
Purchases
of property and equipment
|
(1,413,014 | ) | (1,188,030 | ) | (1,042,143 | ) | ||||||
Net
cash (used) provided by investing activities
|
(1,466,255 | ) | 1,123,956 | (1,499,704 | ) | |||||||
FINANCING
ACTIVITIES:
|
||||||||||||
Borrowings
under notes payable
|
298,704 | 410,639 | 312,182 | |||||||||
Repayments
of notes payable
|
(370,241 | ) | (408,343 | ) | (449,300 | ) | ||||||
(Repayments)
borrowings under line-of-credit, net
|
(255,341 | ) | 2,249,349 | — | ||||||||
Repayments
of long-term debt
|
(577,454 | ) | (1,516,188 | ) | (574,115 | ) | ||||||
Tax
benefit (reversal) from exercise of warrants
|
(14,730 | ) | 419,399 | 865,842 | ||||||||
Proceeds
from issuance of common stock
|
1,140,761 | 231,792 | 504,763 | |||||||||
Net
cash provided by financing activities
|
221,699 | 1,386,648 | 659,372 | |||||||||
Net
change in cash and cash equivalents
|
415,897 | (667,813 | ) | (558,049 | ) | |||||||
Cash
and cash equivalents, beginning of year
|
666,722 | 1,334,535 | 1,892,584 | |||||||||
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
$ | 1,082,619 | $ | 666,722 | $ | 1,334,535 | ||||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW
|
||||||||||||
INFORMATION:
|
||||||||||||
Cash
paid during the year for interest
|
$ | 282,056 | $ | 263,732 | $ | 247,663 | ||||||
Cash
(collected) paid during the year for income taxes, net
|
$ | (301,398 | ) | $ | 13,934 | $ | 417,710 |
(1)
|
THE
COMPANY
|
(2)
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
2008
|
2007
|
||||||||
Patents
and other assets
|
$ | 628,273 | $ | 555,446 | |||||
Patents
pending
|
204,510 | 161,249 | |||||||
Purchased
technology
|
123,893 | 254,393 | |||||||
Capitalized
software
|
177,813 | 170,063 | |||||||
Deferred
finance charges
|
71,938 | 12,035 | |||||||
1,206,427 | 1,153,186 | ||||||||
Accumulated
amortization
|
(449,049 | ) | (306,584 | ) | |||||
$ | 757,378 | $ | 846,602 |
|
Expected
amortization expense of intangible assets as of December 31, 2008 over the
next five years follows:
|
2009
|
$ | 126,000 | |||
2010
|
86,000 | ||||
2011
|
53,000 | ||||
2012
|
25,000 | ||||
2013
|
13,000 | ||||
$ | 303,000 |
2008
|
2007
|
|||||||
Beginning
balance
|
$ | 50,000 | $ | 50,000 | ||||
Provision
|
188,775 | 185,962 | ||||||
Warranty
costs incurred
|
(188,775 | ) | (185,962 | ) | ||||
Ending
balance
|
$ | 50,000 | $ | 50,000 |
2008
|
2007
|
2006
|
||||||||||
Weighted
average shares outstanding, net of restricted
|
||||||||||||
shares
– used to compute basic earnings (loss) per share
|
11,031,855 | 10,696,217 | 10,373,225 | |||||||||
Dilutive
effect of restricted shares, and outstanding
|
||||||||||||
warrants
and options
|
— | 1,515,477 | 1,774,148 | |||||||||
Weighted
average shares of dilutive securities
|
||||||||||||
outstanding
– used to compute diluted
|
||||||||||||
earnings
(loss) per share
|
11,031,855 | 12,211,694 | 12,147,373 |
(3)
|
ALLOWANCE
FOR DOUBTFUL ACCOUNTS
|
2008
|
2007
|
|||||||
Balance
at beginning of year
|
$ | 125,000 | $ | 75,000 | ||||
Provision
|
25,350 | 58,000 | ||||||
Accounts
written off
|
(350 | ) | (8,000 | ) | ||||
Balance
at end of year
|
$ | 150,000 | $ | 125,000 |
(4)
|
INVENTORIES
|
2008
|
2007
|
|||||||
Raw
materials
|
$ | 7,560,332 | $ | 7,481,065 | ||||
Work
in process
|
24,560 | 187,134 | ||||||
Finished
goods
|
2,201,646 | 2,352,919 | ||||||
$ | 9,786,538 | $ | 10,021,118 |
(5)
|
FINANCING
ARRANGEMENTS
|
|
2008
|
2007
|
||||||
Note
payable to a bank in monthly installments
|
||||||||
of
$61,533, including interest at 6.0%
|
||||||||
to
May 2012
|
$ | 2,322,560 | $ | 2,900,014 | ||||
Less
current portion
|
614,067 | 577,453 | ||||||
$ | 1,708,493 | $ | 2,322,561 |
2009
|
614,067 | |||
2010
|
652,482 | |||
2011
|
693,300 | |||
2012
|
362,711 | |||
$ | 2,322,560 |
(6)
|
ACCRUED
EXPENSES
|
2008
|
2007
|
|||||||
Payroll
|
$ | 327,239 | $ | 212,716 | ||||
Professional
fees
|
174,529 | 119,681 | ||||||
Warranty
|
50,000 | 50,000 | ||||||
Contract
fees
|
— | 130,500 | ||||||
Bonuses
|
— | 146,110 | ||||||
Travel
and entertainment
|
53,270 | 54,701 | ||||||
Other
|
230,830 | 248,446 | ||||||
$ | 835,868 | $ | 962,154 |
(7)
|
SHARE-BASED
PAYMENT PLANS
|
2008
|
2007
|
|||||||||||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||||||||||
Average
|
Aggregate
|
Average
|
Aggregate
|
|||||||||||||||||||||
Option
|
Exercise
|
Intrinsic
|
Option
|
Exercise
|
Intrinsic
|
|||||||||||||||||||
Shares
|
Price
|
Value
|
Shares
|
Price
|
Value
|
|||||||||||||||||||
Outstanding
at
|
||||||||||||||||||||||||
beginning
of year
|
524,425 | $ | 2.11 | 537,650 | $ | 1.98 | ||||||||||||||||||
Granted
|
125,000 | 3.89 | 15,000 | 5.64 | ||||||||||||||||||||
Exercised
|
(29,300 | ) | 1.40 | (28,225 | ) | 1.54 | ||||||||||||||||||
Canceled
|
(30,000 | ) | 4.00 | - | 0.00 | |||||||||||||||||||
Outstanding
at end of year
|
590,125 | 2.43 | $ | 0.37 | 524,425 | 2.11 | $ | 3.39 | ||||||||||||||||
Exercisable
at end of year
|
461,791 | 2.00 | 0.47 | 509,425 | 2.01 | 3.49 | ||||||||||||||||||
Vested
or expected to vest at end of year
|
589,125 | 2.43 | $ | 0.37 | 514,425 | 2.06 | $ | 3.39 | ||||||||||||||||
Weighted
average grant-date fair value of options granted during the
year
|
$ | 2.90 | $ | 5.11 | ||||||||||||||||||||
Weighted
|
||||||||||||||||||||||
Remaining
|
Average
|
Average
|
||||||||||||||||||||
Range
of
|
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
|||||||||||||||||
Exercise Prices
|
Outstanding
|
Life in Years
|
Price
|
Exercisable
|
Price
|
|||||||||||||||||
$ | 0.53 - $ 0.82 | 124,700 | 2.9 | $ | 0.67 | 124,700 | $ | 0.67 | ||||||||||||||
1.40 - 2.81 | 215,425 | 6.0 | 1.87 | 190,425 | 1.75 | |||||||||||||||||
3.10 - 4.65 | 225,000 | 8.5 | 3.61 | 145,000 | 3.42 | |||||||||||||||||
5.02 - 6.93 | 25,000 | 9.2 | 5.40 | 1,666 | 6.93 | |||||||||||||||||
$ |
0.53
- $ 6.93
|
590,125
|
6.1
|
$ |
2.43
|
461,791
|
$ | 2.00 |
(8)
|
BENEFIT
PLANS
|
2006
|
||||
Interest
cost
|
$ | 216 | ||
Amortization
of prior service cost
|
(195,921 | ) | ||
Amortization
of unrecognized gain
|
(145,710 | ) | ||
Net
periodic benefit income
|
$ | (341,415 | ) |
(9)
|
INCOME
TAXES
|
2008
|
2007
|
2006
|
||||||||||
Current
(benefit):
|
||||||||||||
Federal
|
$ | (28,597 | ) | $ | 657,438 | $ | 914,089 | |||||
State
|
(147,508 | ) | (133,620 | ) | 31,246 | |||||||
(176,105 | ) | 523,818 | 945,335 | |||||||||
Deferred
(benefit):
|
||||||||||||
Federal
|
(155,637 | ) | (507,348 | ) | 79,527 | |||||||
State
|
156,011 | (19,069 | ) | (41,714 | ) | |||||||
374 | (526,417 | ) | 37,813 | |||||||||
Income
taxes (benefit)
|
$ | (175,731 | ) | $ | (2,599 | ) | $ | 983,148 |
2008
|
2007
|
2006
|
||||||||||
Income
taxes at the statutory rate
|
$ | (191,667 | ) | $ | 103,313 | $ | 928,148 | |||||
State
income taxes, net of federal effect
|
5,612 | (100,774 | ) | (6,910 | ) | |||||||
R&D
and other tax credits
|
(25,021 | ) | (80,700 | ) | (134,642 | ) | ||||||
Stock
options
|
3,523 | 33,424 | 116,522 | |||||||||
Other
|
31,822 | 42,138 | 80,030 | |||||||||
Income
taxes (benefit)
|
$ | (175,731 | ) | $ | (2,599 | ) | $ | 983,148 |
2008
|
2007
|
|||||||
Inventories
|
$ | 545,930 | $ | 319,115 | ||||
Warranty
accrual
|
17,495 | 17,495 | ||||||
Allowance
for doubtful accounts
|
52,492 | 43,738 | ||||||
Tax
credits
|
163,830 | 196,232 | ||||||
Property
and equipment
|
— | 8,835 | ||||||
Deferred
gain on sale and leaseback
|
408,928 | 455,262 | ||||||
Other
|
155,884 | 138,571 | ||||||
1,344,559 | 1,179,248 | |||||||
Prepaid
expenses
|
(144,137 | ) | (137,012 | ) | ||||
Property
and equipment
|
(158,559 | ) | — | |||||
$ | 1,041,863 | $ | 1,042,236 |
2008
|
2007
|
|||||||
Balance
at beginning of year
|
$ | 107,500 | — | |||||
Adoption
of FIN 48
|
— | $ | 107,500 | |||||
Tax
positions taken in current year
|
— | — | ||||||
Settlements
|
— | — | ||||||
Lapse
of applicable statute of limitation
|
— | — | ||||||
Balance
at end of year
|
$ | 107,500 | $ | 107,500 |
(10)
|
GRANT
AWARDS
|
(11)
|
SALE
AND LEASEBACK OF PROPERTY
|
(12)
|
COMMITMENTS
|
(13)
|
UNAUDITED
QUARTERLY INFORMATION
|
First
|
Second
|
Third
|
Fourth
|
Total
|
||||||||||||||||
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Year
|
||||||||||||||||
Year
ended December 31, 2008
|
||||||||||||||||||||
Net
sales
|
$ | 8,961,551 | $ | 10,542,919 | $ | 11,708,082 | $ | 9,436,505 | $ | 40,649,057 | ||||||||||
Cost
of sales
|
6,281,396 | 7,051,041 | 7,407,603 | 6,007,550 | 26,747,590 | |||||||||||||||
Gross
profit
|
2,680,155 | 3,491,878 | 4,300,479 | 3,428,955 | 13,901,467 | |||||||||||||||
Net
(loss) income
|
(529,891 | ) | (32,008 | ) | 328,866 | (154,961 | ) | (387,994 | ) | |||||||||||
Net
(loss) income per common share (1):
|
||||||||||||||||||||
Basic
|
$ | (0.05 | ) | $ | (0.00 | ) | $ | 0.03 | $ | (0.01 | ) | $ | ( 0.04 | ) | ||||||
Diluted
|
$ | (0.05 | ) | $ | (0.00 | ) | $ | 0.03 | $ | (0.01 | ) | $ | (0.04 | ) | ||||||
Year
ended December 31, 2007
|
||||||||||||||||||||
Net
sales
|
$ | 9,289,332 | $ | 7,962,396 | $ | 10,663,435 | $ | 10,317,242 | $ | 38,232,405 | ||||||||||
Cost
of sales
|
5,747,621 | 5,447,781 | 6,634,787 | 6,754,618 | 24,584,807 | |||||||||||||||
Gross
profit
|
3,541,711 | 2,514,615 | 4,028,648 | 3,562,624 | 13,647,598 | |||||||||||||||
Net
income (loss)
|
79,439 | (300,618 | ) | 539,194 | (11,555 | ) | 306,460 | |||||||||||||
Net
income (loss) per common share (1):
|
||||||||||||||||||||
Basic
|
$ | 0.01 | $ | (0.03 | ) | $ | 0.05 | $ | (0.00 | ) | $ | 0.03 | ||||||||
Diluted
|
$ | 0.01 | $ | (0.03 | ) | $ | 0.05 | $ | (0.00 | ) | $ | 0.03 | ||||||||
Number
of securities
|
|
Number
of securities
|
||||||||||
to
be issued upon
|
Weighted-average
|
remaining
available
|
||||||||||
exercise
of
|
exercise
price of
|
for
future issuance
|
||||||||||
outstanding
options
|
outstanding
options
|
under
equity
|
||||||||||
Plan Category
|
and warrants
|
and warrants
|
compensation plans
|
|||||||||
Equity
compensation plans
|
||||||||||||
approved
by security holders
|
590,125 | $ | 2.43 | 203,050 | ||||||||
Equity
compensation plans
|
||||||||||||
not
approved by security holders
|
1,064,401 | 0.50 | — | |||||||||
Total
|
1,654,526 | $ | 1.19 | 203,050 |
2.1
|
Stock
Purchase Agreement dated May 15, 2005 between CAS Medical Systems, Inc.,
Statcorp, Inc., and the Stockholders of Statcorp Inc.
(1)
|
3.1
|
Certificate
of Incorporation of Registrant (2)
|
3.2
|
Amended
and Restated Bylaws of Registrant
(14)
|
10.1*
|
Employment
Agreement dated September 1, 1993 between Louis P. Scheps and CAS Medical
Systems, Inc. (4)
|
10.2*
|
Amendment
Number One to Employment Agreement between Louis P. Scheps andCAS
Medical Systems, Inc. (4)
|
10.3*
|
Amendment
Number Two to Employment Agreement between Louis P. Scheps and CAS Medical
Systems, Inc. (4)
|
10.4*
|
Amendment
Number Three to Employment Agreement between Louis P. Scheps and CAS
Medical Systems, Inc. (4)
|
10.5*
|
Amendment
Number Four to Employment Agreement between Louis P. Scheps and CAS
Medical Systems, Inc. (3)
|
10.6*
|
Amendment
Number Five to Employment Agreement between Louis P. Scheps and CAS
Medical Systems, Inc. (5)
|
10.7*
|
Amendment
Number Six to Employment Agreement between Louis P. Scheps and CAS Medical
Systems, Inc. (6)
|
10.8*
|
1994
Employees’ Incentive Stock Option Plan
(7)
|
10.9*
|
CAS
Medical Systems, Inc. Employee Stock Purchase Plan
(8)
|
10.10*
|
CAS
Medical Systems, Inc. 2003 Equity Incentive Plan
(9)
|
10.11*
|
Form
of Option Agreement (5)
|
10.12
|
Commercial
Line of Credit Note and Loan Agreement with NewAlliance Bank
(10)
|
10.13
|
Security
Agreement with NewAlliance Bank
(10)
|
10.14
|
Commercial
Loan and Security Agreement between CAS Medical Systems, Inc., NewAlliance
Bank and Statcorp Inc. (1)
|
10.15
|
Modification
to Agreement between CAS Medical Systems, Inc. and NewAlliance Bank.
(6)
|
10.16
|
Commercial
Line of Credit Note and Loan Agreement dated October 27, 2006
(11)
|
10.17
|
Security
Agreement in favor of NewAlliance Bank dated October 27, 2006
(11)
|
10.18*
|
Employment
Agreement between Andrew E. Kersey and CAS Medical Systems, Inc. effective
April 1, 2007 (12)
|
10.19
|
Purchase
and Sale Agreement between CAS Medical Systems, Inc. and Davis Marcus
Partners, Inc. (13)
|
10.20
|
Lease
Agreement between CAS Medical Systems, Inc. and DMP New Branford, LLC
(13)
|
10.21
|
Commercial
Loan Agreement dated February 11, 2008 between CAS Medical Systems, Inc.
and NewAlliance Bank (15)
|
10.22
|
Commercial
Revolving Promissory Note dated February 11, 2008
(15)
|
10.23
|
Security
Agreement dated February 11, 2008 in favor of NewAlliance Bank
(15)
|
10.24
|
Subscription
Agreement dated May 9, 2008 with jVen Capital, LLC
(16)
|
10.25
|
First
Amendment to Employment Agreement with Andrew E. Kersey dated December 29,
2008 (17)
|
10.26
|
Amendment
No. 7 to Employment Agreement with Louis P. Scheps dated December 29, 2008
(17)
|
10.27
|
Amendment
to the CAS Medical Systems, Inc. 2003 Equity Incentive Plan
(17)
|
10.28
|
Debt
Modification Agreement dated December 31, 2008
(18)
|
10.29
|
Second
Modification Agreement dated April 3,
2009
|
21.1
|
Subsidiaries
of the Registrant
|
23.1
|
Consent
of Independent Registered Public Accounting
Firm
|
31.1
|
Certification
of CEO Pursuant to Rule 13a-14
|
31.2
|
Certification
of CFO Pursuant to Rule 13a-14
|
32.1
|
Certification
of CEO and CFO Pursuant to 18 U.S.C.
1350
|
(1)
|
Incorporated
by reference to the Company’s Form 8-K/A filed July 29,
2005
|
(2)
|
Incorporated
by reference to the Company’s Registration Statement, dated April 15,
1985, filed with the Securities and Exchange
Commission
|
(3)
|
Incorporated
by reference to the Company’s Form 10-KSB filed March 29,
2004
|
(4)
|
Incorporated
by reference to the Company’s Form 10-KSB filed March 28,
2003
|
(5)
|
Incorporated
by reference to the Company’s Form 10-KSB filed March 31,
2005
|
(6)
|
Incorporated
by reference to the Company’s Form 10-QSB filed November 14,
2005
|
(7)
|
Incorporated
by reference to the Company’s Form S-8 filed October 4,
2000
|
(8)
|
Incorporated
by reference to the Company’s Form S-8 filed June 10,
2004
|
(9)
|
Incorporated
by reference to the Company’s Form S-8 filed June 10,
2004
|
(10)
|
Incorporated
by reference to the Company’s Form 10-QSB filed November 12,
2004
|
(11)
|
Incorporated
by reference to the Company’s Form 8-K filed October 30,
2006
|
(12)
|
Incorporated
by reference to the Company’s Form 10-KSB filed March 19,
2007
|
(13)
|
Incorporated
by reference to the Company’s Form 8-K filed September 10,
2007
|
(14)
|
Incorporated
by reference to the Company’s Form 8-K filed November 30,
2007
|
(15)
|
Incorporated
by reference to the Company’s Form 8-K filed February 14,
2008
|
(16)
|
Incorporated
by reference to the Company’s Form 8-K filed May 14,
2008
|
(17)
|
Incorporated
by reference to the Company’s Form 8-K filed December 31,
2008
|
(18)
|
Incorporated
by reference to the Company’s Form 8-K filed January 6,
2009
|
/s/
Andrew E. Kersey
|
Date: April
3, 2009
|
|
By: Andrew
E. Kersey
|
||
President
and Chief Executive Officer
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
|
||
/s/
Louis P. Scheps
|
Date: April
3, 2009
|
|
Louis
P. Scheps, Chairman of the Board
|
||
/s/
Lawrence Burstein
|
Date: April
3, 2009
|
|
Lawrence
Burstein, Director
|
||
/s/
Jerome Baron
|
Date: April
3, 2009
|
|
Jerome
Baron, Director
|
||
/s/
Evan Jones
|
Date: April
3, 2009
|
|
Evan
Jones, Director
|
||
/s/
Andrew E. Kersey
|
Date: April
3, 2009
|
|
Andrew
E. Kersey, President, Chief Executive
|
||
Officer
and Director
|
||
/s/
Jeffery A. Baird
|
Date: April
3, 2009
|
|
Jeffery
A. Baird, Chief Financial Officer
|
||
(Chief
Financial and Accounting Officer)
|