===============================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-KSB


 Annual Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934
                   For the Fiscal Year Ended December 31, 2003

                         Commission File Number 0-13839



                            CAS MEDICAL SYSTEMS, INC.
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)


           Delaware                                              06-1123096
           --------                                              ----------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)



              44 East Industrial Road, Branford, Connecticut 06405
              ----------------------------------------------------
                    (Address of principal executive offices)


                                 (203) 488-6056
                ------------------------------------------------
                (Issuer's telephone number, including area code)



       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:


                          Common Stock, $.004 par value
                          -----------------------------
                                (Title of Class)

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 [_]

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, 2003 were
$16,849,478.

The aggregate market value of common equity held by non-affiliates of the
Registrant as of March 16, 2004 based upon the last sale price of such stock on
that date on the OTC Bulletin Board, was $12,579,555. The number of shares of
the Registrant's Common Stock outstanding as of March 16, 2004 was 9,732,573.

Transitional Small Business Disclosure format (check one):  Yes [_]    No [X]


                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on June 2, 2004 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>

INDEX                                                                       Page
-----                                                                       ----

PART I

Item 1.    Description of  Business                                           3
Item 2.    Description of Property                                            8
Item 3.    Legal Proceedings                                                  8
Item 4.    Submission of Matters to a Vote of Security Holders                8

PART II

Item 5.    Market for Common Equity, Related Stockholder Matters
             and Small Business Issuer Purchases of Equity Securities         8
Item 6.    Management's Discussion and Analysis of Financial
             Condition and Results of Operations                              9
Item 7.    Financial Statements                                              14

           Report of Independent Auditors                                    F-1
           Report of Independent Accountants-Copy                            F-2
           Balance Sheets as of December 31, 2003 and 2002                   F-3
           Statements of Operations for the Years Ended
              December 31, 2003, 2002 and 2001                               F-4
           Statements of Changes in Shareholders' Equity for the Years
             Ended December 31, 2003, 2002 and 2001                          F-5
           Statements of Cash Flows for the Years Ended
             December 31, 2003, 2002 and 2001                                F-6
           Notes to Financial Statements                             F-7 to F-16

Item 8.    Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure                             15
Item 8A    Controls and Procedures                                           15

PART III

Item 9.    Directors and Executive Officers of the Registrant                15
Item 10.   Executive Compensation                                            15
Item 11.   Security Ownership of Certain Beneficial Owners and
             Management and Related Stockholder Matters                      15
Item 12.   Certain Relationships and Related Transactions                    15
Item 13.   Exhibits, List and Reports of Form 8-K                            16
Item 14.   Principal Accountant Fees and Services                            16


Signatures                                                                   17



<PAGE>
                                                                          Page 3

                                     PART I

This report may contain information that includes or is based on forward-looking
statements within the meaning of the federal securities laws that are subject to
risks and uncertainties. These statements may be identified by the use of words
such as "anticipates," "expects," "estimates," "projects," "intends" and
"believes" and variations thereof and other terms of similar meaning. Factors
that could cause the Company's actual results and financial condition to differ
from the Company's expectations include, but are not limited to: price and
product competition; rapid technological changes; dependence on new product
development; the mix of products sold; supply and prices of raw materials and
products; customer demand for the Company's products; regulatory actions;
changes in reimbursement levels from third-party payors; product liability
claims; changes in economic conditions that adversely affect the level of demand
for the Company's products; changes in foreign exchange markets; changes in
financial markets; and changes in the competitive environment. While the Company
believes that the assumptions underlying such forward-looking statements are
reasonable, there can be no assurance that future events or developments will
not cause such statements to be inaccurate. All forward-looking statements
contained in this report are qualified in their entirety by this cautionary
statement.


Item 1. Description of Business
-------------------------------

The Company
-----------

CAS Medical Systems, Inc. ("CAS" or the "Company") is a Delaware corporation
that was organized in 1984 primarily to provide products for use in the neonatal
and pediatric units of hospitals. 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. The Company has several other products in various stages of
development that it believes will add to and complement its current product
lines.

Principal Products and Services
-------------------------------

Blood Pressure Monitors and Blood Pressure Measurement Technology
-----------------------------------------------------------------

CAS offers its non-invasive blood pressure technology in the form of both
stand-alone monitors that it has developed and manufactured and as modules for
inclusion into other manufacturers' multi-parameter monitoring systems.

The Company's blood pressure monitors use its proprietary non-invasive blood
pressure technology, MAXNIBP(R). The CAS MAXNIBP technology has been shown to be
more accurate, more reliable, and to produce a measurement result faster than
its competitors. These advantages give CAS a strong competitive position,
especially in clinical situations where measurements can be difficult. The
Company's most recent blood pressure monitor, the Model 740 vital signs monitor
introduced during early 2003, includes options for "best in class" third party
pulse oximetry and temperature measurement technologies, making it an ideal
monitor for a range of clinical settings including emergency medical services,
medical/surgical units, and routine hospital patient care.

The Company has entered into original equipment manufacturer ("OEM") agreements
to supply blood pressure modules to various companies throughout the world.
These modules are used in larger monitoring systems where non-invasive blood
pressure is but one measurement parameter. The Company's OEM agreements are
typically multi-year arrangements to supply products.

Cardio-Respiratory Monitors
---------------------------
In 1999 and 2000 respectively, the Company expanded its product offerings by
acquiring two apnea monitor product lines.

<PAGE>
                                                                          Page 4

     Event-Link(R) Monitoring System
     -------------------------------
     In October 1999, CAS acquired the Event-Link product line from a division
     of GE-Marquette Medical. The purchase included the infant and adult apnea
     monitors and accessories for hospital and home use, as well as the
     Event-Link 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 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.

     Apnea Product Line
     ------------------
     In November 2000, CAS purchased a complete line of apnea monitors from
     Mallinckrodt, Inc. The product line includes the Edentec Assurance(R)
     monitor, Edentrend(R) software, Aequitron 9500/9550 monitors, the AMI(R)
     and AMI(R) Plus monitors, and related report generating software programs.
     The acquisition of this product line further strengthened the Company's
     position in the apnea monitoring marketplace.

Neonatal Supplies
-----------------
The Company's specialty neonatal supplies are a foundation of the Company's
business. CAS has a long record of setting the industry standard for quality
products designed specifically to meet the unique needs of the neonatal
marketplace. The product line includes Klear-trace(R) ECG electrodes,
NeoGuard(R) skin temperature probes and adhesive covers and Pedisphyg(R)
neonatal blood pressure cuffs. CAS has recently added new products to the line,
including the unique BiliBottoms(TM) light permeable diapers for use during
phototherapy and the Premie Nestie(R) neonatal positioning device.

Klear-Trace Electrodes
----------------------

     Specifically designed for neonatal application, Klear-Trace electrodes use
a water-based gel adhesive that is gentle to delicate skin and can remain on the
patient for extended periods of time without causing skin irritation.

NeoGuardReflectors, Limboard(R) Arm Boards, Klear-Temp(R) Temperature Probes
----------------------------------------------------------------------------

     This product line includes a reflector to hold skin temperature probes in
place for accurate monitoring and arm boards that support IV sites. Klear-Temp
Temperature Probes are used to detect the skin temperature of infants being
cared for on a radiant warmer bed. The heater output of the warmer fluctuates
according to the infant's skin temperature. The NeoGuard Reflector serves two
purposes - to hold the temperature probe securely to the baby's abdomen and to
insulate and shield the probe from the heater output of the radiant warmer, so
it can accurately detect skin temperature.

Pedisphyg, Safe-Cuff(TM) and Tuff-Cuff(R) Blood Pressure Cuffs
--------------------------------------------------------------

     The Company has developed and sells a complete line of blood pressure cuffs
for the full range of patient population - neonate through adult. These cuffs
are based on design criteria developed from scientific studies to ensure the
highest degree of accuracy and ease of use. CAS cuffs can be used with any blood
pressure monitor currently available.

BiliBottoms Diapers
-------------------

     Phototherapy is used to reduce an infant's level of bilirubin; it is most
effective when the skin is exposed to the light. Physicians often request that
infants be placed naked under this light to maximize treatment. BiliBottoms
patented design uses a light permeable material allowing for maximum exposure of
skin surface to phototherapy. The diaper improves the use of nursing time by
containing urine and stool, reducing clean up and the need to change bedding.

Premie Nestie Supportive Positioning Aid
----------------------------------------

     The Premie Nestie is designed to provide supportive positioning for
premature infants. It accomplishes three goals: to provide continuity in
positioning and containment, which are essential components of effective
developmentally supportive care; to reduce caregiver time spent on positioning;
and to improve ease of use through its one-piece design.

<PAGE>
                                                                          Page 5

Sales and Marketing
-------------------

The Company markets its products throughout North America, through hospital,
alternate site, homecare and emergency medical distribution channels.

Domestic sales are conducted by nineteen exclusive specialty distributors
working in conjunction with nine full time Company field managers. International
sales are conducted through exclusive distributors in the European, Pacific Rim
and Latin American regions working together with regional sales consultants and
one employee located outside of the United States.

The Company also sells its non-invasive blood pressure technology, in the form
of sub-assemblies to be joined to multi-parameter hospital monitors, to various
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.

                       Financial Information Relating to Sales

                               Year Ended December 31

                       2003              2002              2001
                       ----             -----             -----

Domestic Sales    $ 13,328,720      $ 12,406,418      $ 11,861,727
Export Sales         3,520,758         2,618,573         2,955,460
                  ------------      ------------      ------------
                  $ 16,849,478      $ 15,024,991      $ 14,817,187
                  ============      ============      ============

Competition
-----------

The Company competes in the medical equipment 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 primarily 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 substantial resources.

In both the hospital and emergency medical service markets, the Company's line
of non-invasive blood pressure and apnea monitoring equipment competes with
other monitoring products. The Company's 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 and promptness of delivery and customer service.

Customers
---------

During 2003, 2002 and 2001 the Company had sales to one customer which in the
aggregate accounted for approximately 18%, 20% and 16% of net sales,
respectively.

Research and Development
------------------------

During 2003 and 2002, the Company incurred approximately $1,301,000 and
$1,541,000, respectively, on activities relating to research, the development of
new products and the improvement of existing products. These amounts are before
consideration of reimbursements received from the National Institutes of Health
("NIH") further explained under Grant Awards below. Net research and development
("R&D") expenses after reimbursements from the NIH approximated $929,000 for
2003 and $1,257,000 for 2002.

<PAGE>
                                                                          Page 6

The Company's 2003 R&D efforts focused on the support of the new 740 series of
vital signs monitors and accessories; the design and development of the new
Model 750 series cardio-respiratory vital signs monitors; advancements in OEM
non-invasive blood pressure technology including a new low cost module; apnea
product development; neonatal product support and near-infrared spectroscopy
research into cerebral oximetry.

The Company continues to develop and expand its patient monitoring capability by
adding new complimentary physiological parameters. This will allow the Company
to attempt to significantly increase sales penetration into key markets for the
Company's products. In addition, the Company continues to focus its research
efforts into the emerging market of cerebral oximetry.

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 has received various grants under this program including an $836,000
award received during September 2000. Other miscellaneous grants for research in
various applications of NIRS cerebral oximetry have been received by the Company
including $200,000 awarded during 2003.

Reimbursements were approximately $372,000 for 2003 and $284,000 for 2002.
Funding provided to the Company is being recorded as a reduction in R&D
expenses. The Company is pursuing additional NIH grants to support its NIRS
research.

Employees
---------

As of December 31, 2003, the Company had 84 employees, of which 80 were
full-time. The Company has no collective bargaining agreements and believes that
relations with its employees are good.

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
"FDC Act") and numerous acts and amendments such as the new Quality System
Regulations (QSR) which replace the regulations formerly called Good
Manufacturing Practices (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.

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 510(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 FDC Act.
--------------------------------------------------------------

<PAGE>
                                                                          Page 7

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. The FDA completed a
factory audit of the Company in March 2002. There were no material
non-conformities.

Manufacturing and Quality Assurance
-----------------------------------

The Company assembles its products at its facilities 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 have any
long-term contracts with its suppliers and believes that needed components are
available from alternative sources if needed. While the Company has not
experienced any sustained interruption in production or the supply of components
and does not anticipate any difficulties in obtaining the components necessary
to manufacture its products, there can be no assurance that the Company will
continue to receive its components as needed and would be able to readily find
alternative sources.

Quality control procedures are performed by the Company at its facilities and
occasionally at its suppliers' facilities to standards set forth in the FDA's
"Quality System Regulations." These procedures include the inspection of
components and full testing of finished goods. The Company has a controlled
clean room environment where the final assembly of single-patient-use products
is conducted.

ISO 9001 and 13485
------------------

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 patterned
its Quality System Regulations after ISO 9001 and ISO 13485. CAS maintains full
compliance with the FDA Quality System Regulations. In 2003, CAS became
certified to another universal Quality System Standard, ISO 13485, meeting a
requirement for sales in Canada, and in preparation for the termination of the
1994 version of ISO 9001 which ended August 31, 2003.

Backlog
-------

The Company's backlog includes orders pursuant to long-term OEM agreements as
well as orders for products shippable on a current basis. Total backlog,
therefore, is not a meaningful indicator of future sales. As of December 31,
2003, approximately $1,314,000 of total backlog was shippable within the first
quarter of 2004 as compared to $890,000 shippable for the first quarter of the
prior year.

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(R), Pedisphyg(R), OscilloMate(R), NeoGuard(R), Tuff-Cuff(R),
Limboard(R), Klear-Trace(R), Premie Nestie(R), MAXNIBP(R), and the heart shaped
mark for use as a thermal reflector and the Company's corporate logo. The
Company continues to use the Safe-Cuff(TM), BiliBottoms(TM) and CAS Express(TM)
common law trademarks. The Company also holds trademarks for the Event-Link(R)
monitoring system, the Edentec Assurance(R) monitor, Edentrend(R) software and
the AMI(R) and AMI(R) Plus monitors.

The Company holds various patents for its blood pressure measurement technology
which it believes provide it with a competitive market advantage. In addition,
it has patents with respect to apnea monitor technology and its near-infrared
spectroscopy technology. Although the Company holds such patents and has patents
pending related to certain of its products, it does not believe that its
business as a whole is significantly dependent upon patent protection. However,
the Company will continue to seek patents as it deems advisable to protect the
market for its products and its R&D efforts.

<PAGE>
                                                                          Page 8

The Company has copyright protection for the software used in its blood pressure
and apnea monitors.

Item 2. Description of Property
-------------------------------

The Company's corporate facilities in Branford, Connecticut are situated on
approximately 4.6 acres and comprise 24,000 square feet of office, laboratory
and manufacturing space designed and constructed for the Company in 1998 at a
total cost of approximately $1.9 million. The Company relocated to this facility
during November 1998 and is the sole occupant. During January 1999, the Company
entered into a nineteen-year, $1,310,000 mortgage obligation. The payments are
approximately $9,750 per month. The mortgage, as amended, is secured by a first
mortgage lien on the property.

The Company leased approximately 7,300 square feet of warehouse and office space
at an adjacent facility under an agreement which expired December 2003. Minimum
annual rental expense was approximately $51,000 excluding apportioned real
estate taxes and certain utility costs. The Company has realized efficiencies in
warehousing and as a result has relocated to smaller facilities under a one year
agreement effective April 2004 for approximately 1,700 square feet of warehouse
space for approximately $11,000 of minimum annual rental expense.

The Company believes that its premises are adequately insured.


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 Common Equity, Related Stockholder Matters and Small Business
--------------------------------------------------------------------------------
Issuer Purchases of Equity Securities
-------------------------------------

     (a) The Common Stock of the Company is traded on the OTC Bulletin Board,
     under the symbol "CAMY.OB." The following table shows the high and low
     bid quotations for the Company's Common Stock during 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, 2002                           $  .68          $ .52
     June 30, 2002                            $  .62          $ .52
     September 30, 2002                       $  .70          $ .37
     December 31, 2002                        $  .50          $ .30

     March 31, 2003                           $  .60          $ .34
     June 30, 2003                            $  .85          $ .34
     September 30, 2003                       $ 1.40          $ .65
     December 31, 2003                        $ 1.48          $ .80

<PAGE>
                                                                          Page 9

     (b) The following table sets forth the approximate number of holders of
     record of Common Stock of the Company on December 31, 2003.

     Title of Class                               Number of Shareholders
     --------------                               ----------------------

     Common Stock, $.004 par value                          274

     (c) No cash dividends have been declared on the Company's common stock
     during 2002 or 2003.

     (d) Securities Authorized for Issuance Under Equity Compensation Plans

         The following table provides information regarding the Company's
         equity compensation plans as of December 31, 2003:
<TABLE><CAPTION>

                                   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
     ----------------------------------------------------------------------------------------------
<S>                                    <C>                     <C>                      <C>
     Equity compensation plans
       approved by security holders       693,800               $   0.63                  --

     Equity compensation plans
       not approved by security
       holders                          1,464,000                   0.51                  --
                                        ---------               --------
     Total                              2,157,800               $   0.54                  --
</TABLE>

     The equity compensation plans not approved by security holders consist of
     warrants granted to employees (including officers) and directors of the
     Company as compensation for services rendered to the Company. These
     warrants have no expiration date. The 1994 Employees' Incentive Stock
     Option Plan expired as of December 31, 2003 and, as such, there are no
     options available for issuance. See Note 7 to the Company's Financial
     Statements.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations
-------------

Results of Operations
---------------------

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

Net income for the year ended December 31, 2003 was $737,000 or $0.07 per common
share on a diluted basis compared to a loss of $325,000 or $0.03 per share for
the twelve months ended December 31, 2002. Net income for 2003 was favorably
affected by $500,000 ($0.05 per share) of proceeds from a life insurance policy
paid upon the death of Dr. Myron Cohen, the Company's founder and Executive
Vice-President. Net income was also favorably affected by the reversal of
certain income tax accruals following the completion of a tax audit. This
resulted in an income tax benefit of $106,000 ($0.01 per share) recorded for the
current year. Pre-tax income was adversely affected by $417,000 for inventory
related write downs due to the obsolescence of the Company's older family of
products as a result of the success of the Company's newer product offerings.
The pre-tax loss for the 2002 year included a $648,000 charge for unsaleable
inventory.

Revenues for the year ended December 31, 2003 increased 12.1% to $16,849,000
from $15,025,000 for the prior year. The overall increase was primarily led by
increases in vital signs monitoring sales of 92%, disposable products sales of
14% and OEM worldwide sales of 11%, which were partially offset by decreases in
apnea product sales of 5% and anticipated reductions in certain service program
revenues of 50%. Non-OEM related domestic sales

<PAGE>
                                                                         Page 10

increased 9.6% while non-OEM related international sales grew 59.6% over 2002
levels.

The Company expects sales of its products to increase in 2004 over 2003 levels.
During 2003, the Company was awarded a five year contract from the Department of
Veterans Affairs ("VA") to supply its vital signs monitors into VA medical
centers and hospitals. In addition, the Company signed a distribution agreement
with a leading national sales and rental company which provides equipment to
acute, long-term and alternate care facilities. The Company is also securing
additional distribution for its products within North America. It is also
securing OEM customers worldwide for its proprietary non-invasive blood pressure
technology. In addition, the Company is planning to launch its new
cardio-respiratory monitor during 2004.

Cost of products sold as a percentage of net sales increased to 60.9% for the
year ended December 31, 2003 compared to 59.9% for the prior year. Increases in
warranty costs and increased inventory related adjustments including provision
for obsolescence, physical inventory adjustments and inventory valuation, were
primarily responsible for the overall increase in cost of sales for 2003 as
compared to 2002. The Company is aggressively pursuing product cost reductions
through improved materials procurement procedures, manufacturing process
improvements, capital equipment expenditures, and improved inventory control.

Research & Development ("R&D") expenses for the year ended December 31, 2003
decreased 26.1%, or $328,000, to $929,000 from $1,257,000 for the prior twelve
months. The decrease was primarily the result of reduced salaries and fringe
benefit costs from headcount reductions initiated during late 2002 and an
increase in reimbursements from NIH grants. R&D expenses for 2003 and 2002 are
net of approximately $372,000 and $284,000, respectively, of reimbursements from
a Phase II Grant from the National Institutes of Health ("NIH") for the
Company's continued R&D efforts on near-infrared spectroscopy ("NIRS")
technology to non-invasively and continuously monitor brain oxygenation.

Selling, General and Administrative ("S,G&A") expenses increased $160,000 or
3.1% to $5,399,000 for the year ended December 31, 2003 from $5,239,000 for the
prior year. The increase was primarily caused by higher sales commissions on
increased revenues; fringe benefit costs; legal and accounting costs; and the
full year impact of the Company's directors and officers liability insurance for
2003 as compared to two months of insurance coverage for 2002. Offsetting these
costs were reductions in advertising and promotional expenses, and outside
professional services, primarily independent domestic sales consultants. S,G&A
expenses as a percentage of sales decreased to 32.0% for 2003 from 34.9% for
2003.

Interest expense decreased by 46.3% or $114,000 as a result of lower debt levels
and reduced interest rates. During 2003, the Company refinanced both of its
outstanding debt obligations with its bank lender as a result of the favorable
interest rate environment.

The Company recorded an income tax benefit for 2003 of $106,000 as a result of
the reversal of certain tax accruals approximating $150,000 due to the favorable
outcome of a tax audit completed during 2003. Other factors which reduced the
tax provision from that which would have been expected by applying the statutory
rate of 34% to pre-tax income were $500,000 of non-taxable income from a life
insurance policy paid upon the death of one of the Company's key employees, and
R&D tax credits. The income tax benefit of $398,000 recorded for 2002 resulted
from a pre-tax loss of $723,000 and differences of effective tax rate to
statutory rate as a result of federal and state R&D tax credits.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

For the year ended December 31, 2002, the Company reported a net loss of
$325,000, compared to net income of $174,000 reported for the same period of
2001. The net loss for 2002 was due primarily to the write off of slow moving
and excess inventory in the third and fourth quarter of 2002, resulting from a
slowdown in sales growth and the Company's decision in the fourth quarter of
2002 to discontinue the sale, service and repair of certain former Mallinkrodt
and other apnea monitors (including models 9500/9550 and A-2000).

<PAGE>
                                                                         Page 11

The Company generated revenues of $15,025,000 for the year ended December 31,
2002, a slight increase of $207,804 over the comparable period of 2001. The
increase in revenues during 2002 was primarily attributable to OEM sales, which
increased by $893,000 or 28.5 percent. This increase was offset primarily by
overall sales of our monitor products, which decreased by $381,000 or 7 percent.

Shortly after the November 2000 acquisition of certain assets and assumption of
certain liabilities related to the AMI(R) Plus home infant apnea monitor product
line from Mallinkrodt, Inc., the two companies concluded that certain apnea
monitors previously sold required modifications and associated upgrades to
address a design deficiency which existed prior to the acquisition. Under the
auspices of the FDA, the modifications and upgrades were started during December
2001 and were completed as of December 31, 2003. Mallinkrodt, Inc. agreed to
indemnify and reimburse the Company for related engineering costs to redesign
the upgrade, costs to administer the retrofit, the cost of the modifications and
upgrades, and a reasonable profit margin. The reimbursement received from
Mallinkrodt for the cost of the upgrade plus a reasonable profit margin has been
recorded as revenue, while the reimbursements received related to costs to
administer retrofit and costs to redesign the upgrade have been recorded as
reductions of expense as follows:


                                                      2002           2001
                                                      ----           ----

        Revenues                                   $ 840,592      $ 261,025
        Selling, general and administrative              --          60,507
        Research and development                     133,859        210,185
                                                   ---------      ---------

                                                   $ 974,451      $ 531,717
                                                   =========      =========


Cost of product sales for the year ended December 31, 2002, increased by
$816,000 to $9,005,000. Cost of product sales as a percentage of net product
sales was 59.9 percent for 2002, compared to 55.3 percent for the same period of
2001. The unfavorable impact for 2002 was due primarily to the write off of slow
moving and obsolete inventory. The write off of inventory resulted from the
build up of inventory in anticipation of sales growth which did not materialize,
the continued decrease in demand of certain AMI Plus monitors in light of the
product design deficiency described above, and the Company's decision to
discontinue the sale, service and repair of certain products. As a result, the
Company recorded $648,000 in inventory provisions, including $175,000 in the
third quarter and $473,000 in the fourth quarter to write off unsaleable
inventory. The unfavorable impact to cost of sales was also due to the service
and repair of certain apnea monitors, which have a lower gross profit margin.
The Company anticipated that the discontinued service and repair of the
9500/9550 and A-2000 monitors would stimulate an increase of sales on the
Company's new apnea software and increase sales of AMI Plus and 511 apnea
monitors.

Selling, General and Administrative (SG&A) aggregate expenses for the years
ended December 31, 2002 and 2001 were $5,239,000 and $5,632,000, respectively.
The decrease in SG&A expenses of $393,000 is due primarily to the reduction of
advertising and promotional expenses for the apnea product line that was heavily
promoted in 2001.

Research and Development ("R&D") aggregate expenses for the year ended December
31, 2002 were $1,675,000 compared to $1,102,000 from the same period of 2001.
The increase was primarily the result of increased headcount ($320,000), higher
salary and related payroll expense ($63,000) and increased clinical research and
outside consulting ($48,000). Approximately $284,000 and $242,000, respectively,
was received under grants from the National Institutes of Health (NIH), and
$134,000 and $210,000, respectively, was received from Mallinkrodt reducing
aggregate R&D expenses to $1,257,000 and $650,000 for the years ended December
31, 2002 and 2001.

The Company received $7,800 in interest income and incurred $254,000 of interest
expense during 2002, compared with interest income of $27,000 and interest
expense of $238,000 during the prior year.

 Income tax benefits of $398,000 and $39,000, respectively, were recorded by the
Company during the years ended December 31, 2002 and 2001, respectively. The
implied effective tax rate was 55.0% in 2002 and differed from the

<PAGE>
                                                                         Page 12

statutory rate as a result primarily of benefits from federal and state research
and development tax credits. During 2001, the tax benefit recorded was due to
foreign sales and the reversal of income tax reserves no longer required.

Financial Condition, Liquidity and Capital Resources
----------------------------------------------------

The Company's cash and cash equivalents were $881,000 as of December 31, 2003
compared to $326,000 at December 31, 2002. Working capital increased $550,000 to
$5,158,000 at December 31, 2003 from $4,608,000 at December 31, 2002. The
Company's current ratio improved to 3.4 to 1 from 3.2 to 1. The increase
resulted from the improvement in earnings for 2003.

Cash provided by operations for the twelve months ended December 31, 2003 was
$1,689,000 compared to $213,000 for the prior year. Net income before
depreciation and amortization, reductions in inventory and increases in accounts
payable and accrued expenses partially offset by increases in accounts
receivable were responsible for the improvement in cash provided by operations.
Net income included $500,000 of non-taxable proceeds received during February
2003 from an insurance policy held by the Company on Dr. Myron Cohen, the
Company's co-founder and Executive Vice-President. Dr. Cohen passed away during
January 2003.

Cash flows used in investing activities were $173,000 for 2003 as compared to
$334,000 for 2002 primarily as a result of reduced expenditures for capital
equipment and capitalized software development.

Net cash used in financing activities was $961,000 for 2003 as compared to
$109,000 provided for 2002. During 2003 the Company eliminated the outstanding
balance on its line-of-credit in the amount of $600,000 and repaid $423,000 of
outstanding bank debt. During 2003, the Company renewed its financing
arrangements for several insurance policies in the amount of $310,000 and repaid
related principal amounts of $284,000.

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 December 31, 2003) which may change from time to time. At December 31, 2003,
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.

During 2003, the Company refinanced its mortgage and note payables 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.

The Company believes that its sources of funds consisting of cash and cash
equivalents, projected positive cash flow from operating activities for 2004,
and funds available from the revolving credit facility will be sufficient to
meet its current and expected short-term and long-term requirements. 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.

The following table sets forth a summary of the Company's commitments as of
December 31, 2003:


Contractual                     One Year       2 - 4        5 - 7     More Than
Obligations         Total        or Less       Years        Years    Seven Years
-----------      ---------------------------------------------------------------

Long-term debt   $2,009,708     $475,185     $627,949     $219,957     $686,617
                 ----------     --------     --------     --------     --------
Total            $2,009,708     $475,185     $627,949     $219,957     $686,617
                 ==========     ========     ========     ========     ========

The Company has no off-balance sheet arrangements.

<PAGE>
                                                                         Page 13
Critical Accounting Policies
----------------------------

The Company's financial statements have been prepared in accordance with
generally accepted accounting principles in the United States. In preparing the
financial statements, the Company is required to make estimation judgments. Such
judgments are based upon historical experience and certain assumptions that are
believed to be reasonable in the particular circumstances. Those judgments
affect both balance sheet items and income statement categories. The Company
evaluates its assumptions on an ongoing basis by comparing actual results with
its estimates. Actual results may differ from the original estimates. The
following accounting policies are those that the Company believes to be most
critical in the preparation of its financial statements.

Inventory Valuation--The Company's inventories are stated at the lower of cost
or market. The Company provides reserves on inventory for any material that has
become obsolete or may become unsaleable based on 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.

Deferred Tax Assets--The Company has recorded deferred tax assets for the
estimated benefit of future tax deductions on inventory, fixed assets and
various tax credits. Based on the Company's projection of future taxable income
and certain prudent tax planning strategies, management has made a judgment that
no valuation allowance against these deferred tax assets is considered
necessary. Should circumstances change and the Company determine that some or
all of the deferred tax assets would not be realized, a valuation allowance
would be recorded resulting in a charge to income in the period the
determination is made.

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.

New Accounting Pronouncements
-----------------------------

In January 2003, the FASB issued EITF Issue No. 00-21, "Revenue Arrangements
with Multiple Deliverables." EITF Issue No. 00-21 addresses, for arrangements
with multiple deliverables, how the arrangement consideration should be
measured, whether the arrangement should be divided into separate units of
accounting and how the arrangement consideration should be allocated among the
separate units of accounting. The guidance in EITF issue No. 00-21 is effective
for revenue arrangements entered into in fiscal periods beginning after June 15,
2003. The adoption of EITF Issue No. 00-21 did not have a material effect on the
Company's results of operations in 2003. In December 2003, the SBC released SAB
No. 104, "Revenue Recognition." SAB 104 clarifies existing guidance regarding
revenues for contracts that contain multiple deliverables to make it consistent
with EITF Issue No. 00-21.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities" to improve financial reporting by enterprises involved with variable
interest entities. The Interpretation addresses how to identify variable
interest entities and how an enterprise assesses its interests in a variable
interest entity to decide whether to consolidate that entity. The Interpretation
is effective immediately for variable interest entities created after January
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The Company does not hold any investments
or interest that would be considered variable interest entities and,
accordingly, the adoption of FIN No. 46 did not have any impact on the Company's
operating results or financial position.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The standard is effective for transactions after June 30, 2003. The
adoption of SFAS No. 149 was not material to the Company's operating results or
financial position.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures financial
instruments. The standard is effective for new or modified financial instruments
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The Company does not currently
have any financial instruments within the scope of SFAS No. 150 and accordingly,
the adoption of SFAS No. 150 was not material to the Company's operating results
or financial position.

<PAGE>
                                                                         Page 14

Item 7. Financial Statements
----------------------------                                               PAGE

Report of Independent Auditors                                              F-1

Report of Independent Public Accountants - Copy                             F-2

Financial Statements

    Balance Sheets as of December 31, 2003 and 2002                         F-3

    Statements of Operations for the Years Ended
      December 31, 2003, 2002 and 2001                                      F-4

    Statements of Changes in Shareholders' Equity for
      the Years Ended December 31, 2003, 2002 and 2001                      F-5

    Statements of Cash Flows for the Years Ended
      December 31, 2003, 2002 and 2001                                      F-6

NOTES TO FINANCIAL STATEMENTS                                        F-7 to F-16

Schedules called for under Regulation S-X are not submitted because they are not
applicable or are not required, or because the required information is included
in the financial statements or notes thereto.











<PAGE>
                                                                             F-1

                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Shareholders
of CAS Medical Systems, Inc.:


In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of CAS Medical Systems, Inc. at
December 31, 2003 and 2002, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 2003 in conformity
with accounting principles generally accepted in the United States of America.
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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. The financial statements of the Company for
the year ended December 31, 2001 were audited by other independent accountants
who have ceased operations. Those independent accountants expressed an
unqualified opinion on those financial statements in their report dated February
8, 2002.





/S/ PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 17, 2004

<PAGE>
                                                                             F-2

The financial statements of the Company for the year ended December 31, 2001
were audited by Arthur Andersen LLP ("Andersen"). The following report is a copy
of a report previously issued by Arthur Andersen LLP and has not been reissued
by them. The Andersen report continues to be included in the 2003 annual report
as it includes 2001 financial data within the statements of operations,
statements of changes in shareholders' equity and statements of cash flows.

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, 2001* and 2000*, and the related
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2001. 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 auditing standards generally accepted
in the United States. 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, 2001* and 2000*, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.


/s/ ARTHUR ANDERSEN LLP


Hartford, Connecticut
February 8, 2002

* The 2001 balance sheet and 2000 financial statements are not required to be
presented in the 2003 annual report.

<PAGE>
                                                                             F-3
CAS MEDICAL SYSTEMS, INC.

Balance Sheets
As of December 31, 2003 and 2002

ASSETS                                                2003             2002
                                                  ------------     ------------

CURRENT ASSETS:
    Cash and cash equivalents                     $    881,087     $    325,670
    Accounts receivable, net of allowance
      for doubtful accounts of approximately
      $50,000 and $55,562 in 2003 and 2002,
      respectively                                   3,307,059        2,459,511
    Inventories                                      2,270,616        3,250,007
    Deferred tax assets                                347,155          370,411
    Other current assets                               489,451          336,767
                                                  ------------     ------------

         Total current assets                        7,295,368        6,742,366

PROPERTY AND EQUIPMENT:
    Land and improvements                              535,000          535,000
    Buildings and improvements                       1,472,162        1,472,162
    Machinery and equipment                          2,504,313        2,358,755
                                                  ------------     ------------

                                                     4,511,475        4,365,917

    Less accumulated depreciation                   (2,287,978)      (1,920,042)
                                                  -------------    -------------

      Property and equipment, net                    2,223,497        2,445,875

INTANGIBLE AND OTHER ASSETS, net                       209,210          258,161

DEFERRED TAX ASSETS                                    182,652          139,333
                                                  ------------     ------------

         Total assets                             $  9,910,727     $  9,585,735
                                                  ============     ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Current portion of long-term debt             $    475,185     $    419,995
     Notes payable                                     219,619          193,509
     Line-of-credit                                          -          600,000
    Accounts payable                                 1,007,617          415,613
    Accrued expenses                                   434,963          504,572
                                                  ------------     ------------

         Total current liabilities                   2,137,384        2,133,689
                                                  ------------     ------------

LONG-TERM DEBT, less current portion                 1,534,523        1,986,225

COMMITMENTS AND CONTINGENCIES (Note 12)

SHAREHOLDERS' EQUITY:
    Series A cumulative convertible
     preferred stock, $.001 par value per
     share, 1,000,000 shares authorized,
     no shares issued or outstanding in
     2003 and 2002                                         --               --
    Common stock, $.004 par value per share,
     19,000,000 shares authorized, 9,712,577
     and 9,645,077 shares issued and
     outstanding in 2003 and 2002, respectively         38,851           38,581
    Additional paid-in capital                       2,870,769        2,834,913
    Retained earnings                                3,329,200        2,592,327
                                                  ------------     ------------

    Total shareholders' equity                       6,238,820        5,465,821
                                                  ------------     ------------

    Total liabilities and shareholders' equity    $  9,910,727     $  9,585,735
                                                  ============     ============

   The accompanying notes are an integral part of these financial statements.

<PAGE>
                                                                             F-4
CAS MEDICAL SYSTEMS, INC.

Statements of Operations
For the Years Ended December 31, 2003, 2002 and 2001
<TABLE><CAPTION>

                                                     2003             2002             2001
                                                 ------------     ------------     ------------
<S>                                              <C>              <C>              <C>
REVENUES:                                        $ 16,849,478     $ 15,024,991     $ 14,817,187

OPERATING EXPENSES:
    Cost of product sales                          10,258,394        9,005,220        8,189,115
    Research and development                          929,050        1,257,151          650,065
    Selling, general and administrative             5,399,373        5,239,036        5,631,936
                                                 ------------     ------------     ------------

      Operating income (loss)                         262,661         (476,416)         346,071

OTHER INCOME AND EXPENSES:
    Proceeds from life insurance policy               500,000             --               --

    Interest expense                                  132,168          246,445          211,465
                                                 ------------     ------------     ------------

      Income (loss) before benefit from
        income taxes                                  630,493         (722,861)         134,606

BENEFIT FROM INCOME TAXES                            (106,380)        (397,775)         (39,000)
                                                 ------------     ------------     ------------

      Net income (loss)                          $    736,873     $   (325,086)    $    173,606
                                                 ============     ============     ============

WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING:
    Basic                                           9,657,529        9,645,077        9,603,954
                                                 ============     ============     ============

    Diluted                                        10,459,389        9,645,077       10,563,995
                                                 ============     ============     ============

EARNINGS (LOSS) PER COMMON SHARE:
    Basic                                        $       0.08     $      (0.03)    $       0.02
                                                 ============     ============     ============

    Diluted                                      $       0.07     $      (0.03)    $       0.02
                                                 ============     ============     ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

<PAGE>
                                                                             F-5
CAS MEDICAL SYSTEMS, INC.

Statements of Changes in Shareholders' Equity For the Years Ended December 31,
2003, 2002 and 2001
<TABLE><CAPTION>
                                                                        ADDITIONAL
                                                   COMMON STOCK          PAID-IN       RETAINED
                                            SHARES         AMOUNT        CAPITAL       EARNINGS          TOTAL
                                         -----------    -----------    -----------    -----------     -----------
<S>                                     <C>            <C>            <C>            <C>             <C>
BALANCE, December 31, 2000                 9,497,577    $    37,991    $ 2,754,304    $ 2,743,807     $ 5,536,102

    Net income                                  --             --             --          173,606         173,606
    Common stock issued upon
       exercise of stock options             147,500            590         80,609           --            81,199
                                         -----------    -----------    -----------    -----------     -----------

BALANCE, December 31, 2001                 9,645,077         38,581      2,834,913      2,917,413       5,790,907

     Net loss                                   --             --             --         (325,086)       (325,086)
                                         -----------    -----------    -----------    -----------     -----------


BALANCE, December 31, 2002                 9,645,077         38,581      2,834,913      2,592,327       5,465,821

     Net income                                 --             --             --          736,873         736,873
     Common stock issued upon
        exercise of stock options             67,500            270         35,856            --           36,126
                                         -----------    -----------    -----------    -----------     -----------

BALANCE, December 31, 2003                 9,712,577    $    38,851    $ 2,870,769    $ 3,329,200     $ 6,238,820
                                         ===========    ===========    ===========    ===========     ===========
</TABLE>










   The accompanying notes are an integral part of these financial statements.

<PAGE>
                                                                             F-6
CAS MEDICAL SYSTEMS, INC.

Statements of Cash Flows
For the Years Ended December 31, 2003, 2002 and 2001
<TABLE><CAPTION>
                                                                       2003            2002            2001
                                                                   -----------     -----------     -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                <C>             <C>             <C>
    Net income (loss)                                              $   736,873     $  (325,086)    $   173,606
    Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
        Depreciation and amortization                                  470,389         447,741         426,234
        Deferred income taxes                                          (20,063)       (353,244)          4,000
        Non-cash stock compensation                                       --              --             8,200
        Provision for doubtful accounts                                 41,073          65,000          15,000
    Changes in operating assets and liabilities:
        Accounts receivable                                           (888,621)        281,370         (92,567)
        Inventories                                                    979,391         441,804        (363,499)
        Other current assets                                          (152,684)       (142,257)       (107,438)
        Accounts payable and accrued expenses                          522,395        (202,041)       (307,634)
                                                                   -----------     -----------     -----------

        Net cash provided by (used in) operating activities          1,688,753         213,287        (244,098)
                                                                   -----------     -----------     -----------


CASH FLOWS FROM INVESTING ACTIVITIES:
    Capitalized software development                                   (25,020)       (107,200)           --
    Expenditures for property and equipment                           (147,556)       (226,417)       (353,529)
                                                                   -----------     -----------     -----------
                Net cash used in investing activities                 (172,576)       (333,617)       (353,529)
                                                                   -----------     -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Borrowing under notes payable                                      309,654         282,499            --
    Repayments under notes payable                                    (283,544)        (88,990)           --
    Repayments under long-term debt                                   (422,996)       (384,638)       (353,124)
    (Repayments) borrowings under line-of-credit, net                 (600,000)        300,000         300,000
    Proceeds from issuance of common stock                              36,126            --            72,999
                                                                   -----------     -----------     -----------
        Net cash (used in) provided by financing activities           (960,760)        108,871          19,875
                                                                   -----------     -----------     -----------

        Net increase (decrease) in cash and cash equivalents           555,417         (11,459)       (577,752)

CASH AND CASH EQUIVALENTS, beginning of year                           325,670         337,129         914,881
                                                                   -----------     -----------     -----------
CASH AND CASH EQUIVALENTS, end of year                             $   881,087     $   325,670     $   337,129
                                                                   ===========     ===========     ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
    INFORMATION:
     Cash paid during the year for interest                        $   140,582     $   254,293     $   250,140
     Cash paid during the year for income taxes, net of refunds        109,466          (5,720)          2,490
</TABLE>

   The accompanying notes are an integral part of these financial statements.

<PAGE>
                                                                             F-7

CAS MEDICAL SYSTEMS, INC.

Notes to Financial Statements

(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 both internationally and in the United
     States. The Company's operations and manufacturing facilities are located
     in the United States. During 2003, 2002 and 2001, the Company had sales to
     one customer which, in the aggregate, accounted for approximately 18%, 20%
     and 16% of revenues, respectively. The Company generated revenues from
     international sales of approximately $3.5 million, $2.6 million and $3.0
     million in 2003, 2002, and 2001, respectively.


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States 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. Such estimates that are particularly
     sensitive to change in the near term are inventory valuation, capitalized
     software development costs, allowance for doubtful accounts and warranty
     accrual. Actual results could differ from those estimates.

     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 for machinery and
     equipment, and twenty years for building and improvements. Maintenance and
     repairs are charged to expense when incurred. Depreciation expense on
     property and equipment totaled $369,934, $379,592, and $354,970 in 2003,
     2002 and 2001, respectively.

     LONG-LIVED ASSETS

     Impairments of long-lived assets are accounted for in accordance with the
     provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
     "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
     to be Disposed of." SFAS No. 144 requires a company to review long-lived
     assets for impairment whenever events or changes in circumstances indicate
     that the carrying amount of an asset may not be recoverable. The Company
     believes that long-lived assets are fully recoverable, and accordingly, no
     impairment is reflected in the Company's reported results of operations for
     the years ended December 31, 2003, 2002 and 2001.

<PAGE>
                                                                             F-8
     INTANGIBLE AND OTHER ASSETS

     Intangible and other assets consist of:
                                                        2003         2002
                                                     ---------    ---------

     Intangible assets and purchased technology      $ 337,011    $ 337,011
     Deferred finance charges                           26,484          --
     Capitalized software                              132,220      107,200
                                                     ---------    ---------
                                                       495,715      444,211

     Accumulated amortization                         (286,505)    (186,050)
                                                     ---------    ---------
                                                     $ 209,210    $ 258,161
                                                     =========    =========

     The purchased intangible assets and licensed technology acquired in
     connection with the product line acquisitions in 2000 and 1999 are being
     amortized over five years on the straight-line basis. Amortization expense
     of approximately $67,000 per year has been recorded for the three years
     ended December 31, 2003 for such purchased intangibles. Costs associated
     with the development of new external use software products are expensed as
     incurred until technological feasibility has been established in accordance
     with SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold,
     Leased or Otherwise Marketed." Technological feasibility is demonstrated by
     the completion of a detailed design plan. Capitalization ceases when the
     product is available for general release to customers. During 2002 and
     early 2003, the Company capitalized $132,220 of costs related to the
     development of new apnea monitor software, assigned such capitalized
     software a useful life of three years, and amortized $33,055 of such costs
     during the year ended December 31, 2003. During 2003, the Company
     refinanced its mortgage payable and incurred related finance charges in the
     amount of $26,484, which are being amortized over the remaining life of the
     mortgage, or fourteen years.

     Scheduled amortization expenses of intangible assets over the next five
     years are as follows:

        2004                 $ 107,117
        2005                    68,373
        2006                    12,910
        2007                     1,892
        2008                     1,892
                             ---------
                             $ 192,184
                             =========

     REVENUE RECOGNITION

     Revenues from product sales are recognized when evidence of an arrangement
     exists, delivery has occurred based on shipping terms (which are generally
     FOB shipping point), the selling price is fixed and determinable, and
     collectibility is reasonably assured. We provide for an estimate of product
     returns based upon historical experience. The Company follows the guidance
     of SAB 101, Revenue Recognition in Financial Statements.

     WARRANTY COSTS

     The Company warrants some of its products against defects and failures 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 experiences of product returns and the related estimated cost
     of labor and material to make the necessary repairs.

                                      2003                 2002
                                   ---------            ---------
     Beginning balance             $  95,000            $  60,000
     Additions to reserve            183,465              150,010
     Warranty costs incurred        (156,465)            (115,010)
                                   ---------            ---------
     Ending balance                $ 122,000            $  95,000
                                   =========            =========

<PAGE>
                                                                             F-9

     During November 2000, the Company acquired certain assets and assumed
     certain liabilities related to the AMI(R) Plus Home Infant Apnea Monitor
     product line from a third party for $1.9 million, which was financed with
     the proceeds from a note payable to a bank. This product line includes
     apnea monitors, accessories and related data retrieval software programs
     for hospital and home use. The acquisition included inventories, related
     manufacturing equipment, and intangible assets and accrued expenses.
     Shortly after the November 2000 acquisition of certain assets and
     assumption of certain liabilities related to the AMI(R) Plus home infant
     apnea monitor product line from Mallinkrodt, Inc., the two companies
     concluded that certain apnea monitors previously sold required
     modifications and associated upgrades to address a design deficiency which
     existed prior to the acquisition. Under the auspices of the FDA, the
     modifications and upgrades were started during December 2001 and were
     completed in 2003. Mallinkrodt, Inc. has agreed to indemnify and reimburse
     the Company for related engineering costs to redesign the upgrade, costs to
     administer the retrofit, the cost of the modifications and upgrades, and a
     reasonable profit margin. The reimbursement received from Mallinkrodt for
     the cost of the upgrade plus a reasonable profit margin is being recorded
     as revenue, while the reimbursements received related to costs to
     administer retrofit and costs to redesign the upgrade have been recorded as
     reductions of expense as follows:

                                               2003         2002         2001
                                            ---------    ---------    ---------

     Revenues                               $ 133,078    $ 840,592    $ 261,025
     Selling, general and administrative          --           --        60,507
     Research and development                  20,919      133,859      210,185
                                            ---------    ---------    ---------
                                            $ 153,997    $ 974,451    $ 531,717
                                            =========    =========    =========


     RESEARCH AND DEVELOPMENT COSTS

     The Company expenses all research and development costs as incurred.
     Research and development expense includes direct costs for salaries,
     employee benefits, materials, facility related expenses and depreciation.

     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 year. 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. Under SFAS 128, diluted EPS equals basic EPS in
     periods of net loss, as the inclusion of any outstanding options or
     warrants would be anti-dilutive.

     As of December 31, 2003, the Company had outstanding options and warrants
     allowing for the purchase of 693,800 and 1,464,000 shares of common stock,
     respectively.

     Under SFAS No. 128, a summary of the Company's basic and diluted earnings
     (loss) per share is as follows:
<TABLE><CAPTION>
                                                   2003           2002           2001

<S>                                            <C>            <C>            <C>
     Net income (loss)                         $   736,873    $  (325,086)   $   173,606
                                               ===========    ===========    ===========

     Weighted average shares outstanding         9,657,529      9,645,077      9,603,954
     Add: Dilutive effect of outstanding
       warrants and options                        801,860            --         960,041
                                               -----------    -----------    -----------

     Total weighted average shares of
       dilutive securities outstanding          10,459,389      9,645,077     10,563,995
                                               ===========    ===========    ===========

     Earnings (loss) per share - basic         $      0.08    $     (0.03)   $      0.02
                                               ===========    ===========    ===========

     Earnings (loss) per share - dilutive      $      0.07    $     (0.03)   $      0.02
                                               ===========    ===========    ===========
</TABLE>

<PAGE>
                                                                            F-10

     Certain options and warrants to purchase 292,045, 1,257,800 and 50,000
     shares of the Company's Common Stock outstanding in 2003, 2002 and 2001,
     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
     antidilutive.

     RECLASSIFICATIONS

     Certain prior year balances have been reclassified to conform to the
     current year presentation.

     SEGMENT REPORTING

     SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
     Information," establishes annual and interim reporting standards for an
     enterprise's operating segments and related disclosures about its products,
     services, geographic areas and major customers. The Company operates in
     only one segment. In addition, all long-lived assets are maintained in the
     United States.

     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, "Accounting for Stock-Based Compensation," 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 been determined consistent with
     SFAS No. 123, the Company's 2003, 2002 and 2001 net income (loss) and
     earnings (loss) per share would have been changed to the following pro
     forma amounts:
<TABLE><CAPTION>
                                                      2003         2002         2001
                                                   ---------    ---------    ---------
<S>                                                <C>          <C>          <C>
     Net income (loss): As reported                $ 736,873    $(325,086)   $ 173,606
                        Compensation expense for
                        stock options based on
                        fair value                    97,224      118,652      142,537
                        Pro forma                  $ 639,649    $(443,738)   $  31,069
     Earnings (loss)
        per share:      As reported - Basic        $    0.08    $   (0.03)   $    0.02
                        Pro forma - Basic               0.07        (0.05)        0.00
                        As reported - Diluted           0.07        (0.03)        0.02
                        Pro forma - Diluted             0.06        (0.05)        0.00
</TABLE>

     During the year ended December 31, 2001, the Company recorded stock-based
     compensation of $8,200 based upon the fair value of 10,000 shares of common
     stock issued to a service provider.

     See Note 7 for additional information about stock options, including the
     assumptions used to determine the fair value of options.

<PAGE>
                                                                            F-11
     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying value of long-term debt approximates its fair value based upon
     currently available debt instruments having similar interest rates and
     maturities. The carrying amounts of the Company's other financial
     instruments approximate their fair value.

     NEW ACCOUNTING PRONOUNCEMENTS

     In January 2003, the FASB issued EITF Issue No. 00-21, "Revenue
     Arrangements with Multiple Deliverables." EITF Issue No. 00-21 addresses,
     for arrangements with multiple deliverables, how the arrangement
     consideration should be measured, whether the arrangement should be divided
     into separate units of accounting and how the arrangement consideration
     should be allocated among the separate units of accounting. The guidance in
     EITF issue No. 00-21 is effective for revenue arrangements entered into in
     fiscal periods beginning after June 15, 2003. The adoption of EITF Issue
     No. 00-21 did not have a material effect on the Company's results of
     operations in 2003. In December 2003, the SBC released SAB No. 104,
     "Revenue Recognition." SAB 104 clarifies existing guidance regarding
     revenues for contracts that contain multiple deliverables to make it
     consistent with EITF Issue No. 00-21.

     In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
     Interest Entities" to improve financial reporting by enterprises involved
     with variable interest entities. The Interpretation addresses how to
     identify variable interest entities and how an enterprise assesses its
     interests in a variable interest entity to decide whether to consolidate
     that entity. The Interpretation is effective immediately for variable
     interest entities created after January 31, 2003, and otherwise is
     effective at the beginning of the first interim period beginning after June
     15, 2003. The Company does not hold any investments or interest that would
     be considered variable interest entities and, accordingly, the adoption of
     FIN No. 46 did not have any impact on the Company's operating results or
     financial position.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
     Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
     clarifies financial accounting and reporting for derivative instruments,
     including certain derivative instruments embedded in other contracts
     (collectively referred to as derivatives) and for hedging activities under
     FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
     Activities." The standard is effective for transactions after June 30,
     2003. The adoption of SFAS No. 149 was not material to the Company's
     operating results or financial position.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
     Financial Instruments with Characteristics of Both Liabilities and Equity."
     SFAS No. 150 establishes standards for how an issuer classifies and
     measures financial instruments. The standard is effective for new or
     modified financial instruments after May 31, 2003, and otherwise is
     effective at the beginning of the first interim period beginning after June
     15, 2003. The Company does not currently have any financial instruments
     within the scope of SFAS No. 150 and accordingly, the adoption of SFAS No.
     150 was not material to the Company's operating results or financial
     position.

(3) ACCOUNTS RECEIVABLE

     Accounts receivable are net of the allowance for doubtful accounts. The
     reconciliation of the allowance for doubtful accounts is as follows:


                                                   Year Ended December 31

                                                2003        2002         2001
                                              --------    --------     --------

        Balances at beginning of period       $ 55,562    $ 55,375     $ 61,800
        Doubtful accounts provision             41,073      65,000       15,000
        Accounts written off                   (46,635)    (64,813)     (21,425)
                                              --------    --------     --------
        Balance at end of period              $ 50,000    $ 55,562     $ 55,375
                                              ========    ========     ========

<PAGE>
                                                                            F-12
(4) INVENTORIES

     Inventories are stated at the lower of first-in, first-out (FIFO) cost or
     market and consist of the following:

                                              2003                  2002
                                          -----------           -----------
        Raw materials                     $ 1,281,620           $ 1,987,746
        Work in process                       434,055               438,047
        Finished goods                        554,941               824,214
                                          -----------           -----------
                                          $ 2,270,616           $ 3,250,007
                                          ===========           ===========

     In 2003, the Company recorded $417,000 in inventory provisions, including
     $250,000 in the third quarter and $167,000 in the fourth quarter to write
     off slow moving, excess and unsaleable inventory. The write-offs of
     inventory are related to the Company's older family of products which were
     obsoleted during the year as a result of the success of the Company's newer
     product offerings. During 2002, the Company recorded $648,000 in inventory
     provisions resulting from the build-up of certain apnea related inventory
     in anticipation of sales growth which did not materialize, the continued
     decrease in demand on certain AMI Plus monitors in light of the product
     design deficiency described under Warranty Costs in Note 2 and the
     Company's decision to discontinue the sale, service and repair of certain
     products.

(5) FINANCING ARRANGEMENTS

     LINE-OF-CREDIT

     During August 2003, the Company renewed its $3,000,000 line-of-credit with
     a Connecticut bank. The line is repayable upon demand and matures in
     September 2004. Borrowings under the line-of-credit bear interest at the
     bank's base rate, which may change from time to time (4.0% at December 31,
     2003). At December 31, 2003 and 2002, there were $0 and $600,000 of
     borrowings outstanding under this line. Under the terms of the agreement,
     the Company is permitted to borrow against accounts receivable and
     inventory according to pre-established criteria. Substantially all assets
     of the Company have been pledged as collateral under the line-of-credit.

     NOTES PAYABLE

     The Company has financed its directors and officers and property casualty
     insurance policies. The monthly installments are $12,275 and $22,850,
     respectively, including interest at 4.13% and 3.58%, respectively. The
     notes are scheduled to be repaid in full during August 2004.

     LONG-TERM DEBT

     Long-term debt consists of the following:             2003          2002
                                                       -----------   -----------

     Mortgage payable to a bank in monthly
      installments of $9,750, including interest
      at 5.45% per annum as amended, collateralized
      by the Company's primary operating facility
      (matures January 2018)                           $ 1,149,234   $ 1,160,940

     Note payable to a bank in monthly installments
      of approximately $37,700, including interest
      at 5.0% per annum as amended, collateralized
      by substantially all corporate assets
      (matures December 2005)                              860,474     1,245,280
                                                       -----------   -----------
                                                         2,009,708     2,406,220

     Less: current portion                                 475,185       419,995
                                                       -----------   -----------
                                                       $ 1,534,523   $ 1,986,225
                                                       ===========   ===========

<PAGE>
                                                                            F-13

     Scheduled maturities of principal under long-term debt over the next five
     years are as follows:

        2004                                                  $   475,185
        2005                                                      499,318
        2006                                                       62,932
        2007                                                       65,699
        2008                                                       69,370
        Thereafter                                                837,204
                                                              -----------
                                                              $ 2,009,708
                                                              ===========
(6) ACCRUED EXPENSES

     Accrued expenses consist of the following:
                                                           2003          2002
                                                        ---------     ---------

        Accrued payroll                                 $ 227,193     $ 191,662
        Accrued professional fees                          23,700        49,628
        Accrued warranty expenses                         122,000        95,000
        Other accrued expenses                             62,070       168,282
                                                        ---------     ---------
                                                        $ 434,963     $ 504,572
                                                        =========     =========


(7) STOCK-BASED COMPENSATION PROGRAMS

     STOCK OPTIONS

     In June 1994, the Board of Directors and shareholders adopted the 1994
     Employees' Incentive Stock Option Plan (the "1994 Plan"). The exercise
     price for common stock issued under the 1994 Plan is to be no less than the
     fair value of the stock at the grant date of the options. Pursuant to the
     1994 Plan, 1,250,000 shares of common stock were reserved for employee
     (including officers and directors) option exercises. An option granted
     under the 1994 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 option holder's percentage of ownership of the Company. In the event
     employment is terminated, the employee no longer has the right to exercise
     options unless expressly permitted by the Board of Directors. The 1994 Plan
     expired on December 31, 2003 and, as such, there are no further options
     available for issuance.

     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 2003, 2002 and 2001: risk-free interest
     rates of 4.3%, 5.5% and 5.3%; expected lives of 7 years; dividend yield of
     0% and expected volatility of 127%, 118% and 77%, respectively. A summary
     of the Company's stock option plans and changes during the years then ended
     is presented below:

<PAGE>
                                                                            F-14

<TABLE><CAPTION>
                                          2003                         2002                         2001
                                 ----------------------       -----------------------       ----------------------
                                               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      757,800       $0.62          946,400        $0.65         886,400        $0.57
               Granted               85,000        0.70          235,000         0.61         275,000         0.83
               Exercised            (67,500)       0.54             --            --         (137,500)        0.53
               Canceled             (81,500)       0.74         (424,100)        0.69         (77,500)        0.67
                                 ----------       -----       ----------        -----       ---------        -----
         Outstanding at end
             of year                693,800       $0.63          757,800        $0.62         946,400        $0.65
                                 ==========       =====       ==========        =====       =========        =====
         Exercisable at end
             of year                548,550       $0.61          482,300        $0.60         671,400        $0.57
                                 ==========       =====       ==========        =====       =========        =====

         Weighted average grant-date fair
             value of options granted
             during the year                      $0.64                         $0.58                        $0.71
</TABLE>


       The following table summarizes information about stock options
       outstanding at December 31, 2003:

<TABLE><CAPTION>
                                                  WEIGHTED
                                                   AVERAGE          WEIGHTED                            WEIGHTED
                                                  REMAINING          AVERAGE                             AVERAGE
          RANGE OF            NUMBER             CONTRACTUAL        EXERCISE             NUMBER         EXERCISE
       EXERCISE PRICES      OUTSTANDING         LIFE (YEARS)          PRICE            EXERCISABLE        PRICE
       ---------------      -----------         ------------          -----            -----------        -----
<S>    <C>                     <C>                    <C>            <C>                 <C>               <C>
       $0.31 - $0.47           32,500                 1.7            $0.33               27,500            $0.31
        0.53 -  0.65          463,800                 6.8             0.57              393,550             0.56
        0.70 -   0.93         197,500                 7.4             0.80              127,500             0.84
       --------------         -------                ----            -----              -------            -----

       $0.31 - $0.93          693,800                 6.8            $0.63              548,550            $0.61
       =============        =========                ====            =====            =========            =====
</TABLE>


       WARRANTS

       Warrants to purchase 1,464,000 shares of common stock at a weighted
       average exercise price of $0.51 per share remain outstanding at December
       31, 2003. These warrants have no specific expiration date and have an
       exercise price range of $0.31 to $1.00 per share.

(8)    LIFE INSURANCE

       During 2003, 2002 and 2001, the Company paid term-life insurance premiums
       of approximately $26,240, $45,600, and $40,700, 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,
       respectively. 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. In January 2003, one of the officers died
       and, during February 2003, the Company received proceeds of $500,000
       pursuant to the latter policy.
<PAGE>


                                                                            F-15
(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
       which are matched in part by discretionary contributions by the Company.
       The 2003, 2002 and 2001 expenses related to matching contributions by the
       Company were $60,439, $56,494, and $50,386, respectively.

       The Company does not provide any other post-retirement or other
       post-employment benefits.

(10)   INCOME TAXES

       The Company follows SFAS No. 109, "Accounting for Income Taxes", 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 to the extent that
       realization of such benefits are more likely than not.

       The (benefit) provision from income taxes consisted of the following for
       the year ended December 31:

<TABLE><CAPTION>
                                                   2003            2002            2001
                                                ----------      ----------      ----------
<S>                                             <C>             <C>             <C>
         Current:
             Federal                            $   29,401      $  (50,374)     $  (48,000)
             State                                (115,719)          5,843           5,000
                                                ----------      ----------      ----------

                  Subtotal                         (86,318)        (44,531)        (43,000)

         Deferred:
             Federal                                (2,894)       (284,515)          3,000
             State                                 (17,168)        (68,729)          1,000
                                                ----------      ----------      ----------

                  Subtotal                         (20,062)       (353,244)          4,000
                                                ----------      ----------      ----------

                  Benefit from income taxes     $ (106,380)     $ (397,775)     $  (39,000)
                                                ==========      ==========      ==========
</TABLE>

       For the year ended December 31, 2003, the effective tax rate was below
       the statutory rate primarily as a result of state tax benefits including
       the reversal of a tax accrual of approximately $150,000 due to the
       favorable outcome of a state tax audit; non-taxable proceeds of $500,000
       from a life insurance policy; and current year R&D credits. During the
       year ended December 31, 2002, the effective tax rate of 55% was greater
       than the federal statutory rate of 34% due to state tax benefits,
       recognition of prior year R&D tax credits, and R&D tax credits applicable
       to 2002. During 2001, the effective tax rate differed from the federal
       statutory rate of 34% principally due to state income taxes.

       The components of the Company's deferred tax assets at December 31 are
       approximately as follows:

<TABLE><CAPTION>
                                                         2003           2002
                                                      ----------     ----------
<S>                                                   <C>            <C>
         Inventories                                  $  265,278     $  317,729
         Warranty reserve                                 42,688         33,241
         Bad debt reserve                                 17,495         19,441
         Tax credits                                      87,205         50,098
         Depreciation/Amortization                        70,123         89,235
         Other                                            47,018           --
                                                      ----------     ----------
                                                      $  529,807     $  509,744
                                                      ==========     ==========
</TABLE>
<PAGE>

                                                                            F-16

(11)   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 a
       $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 the years ended December 31, 2003, 2002 and 2001, approximately
       $372,000, $284,000 and $242,000, 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.

(12)   COMMITMENTS AND CONTINGENCIES

       The Company is committed under an employment agreement with the Chief
       Executive Officer for payments aggregating approximately $250,000 per
       year, which expires on August 31, 2004.

       The Company's articles of incorporation provide that the Company will
       indemnify its directors to the full extent legally permissible, against
       all liabilities reasonably incurred in connection with any action in
       which such individual may be involved by reason of being or having been a
       director of the Company. Given the nature of this indemnification, the
       Company is unable to make a reasonable estimate of the maximum potential
       amount that the Company could be required to pay. Historically, the
       Company has not made any significant payments on the above
       indemnification and no amount has been accrued in the accompanying
       financial statements.
<PAGE>

                                                                         Page 15

Item 8.  Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
         Financial Disclosure
         --------------------

None.

Item 8A. Controls and Procedures
--------------------------------

As of December 31, 2003, 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 Chief Financial Officer. Based on this evaluation, the Chief Executive
Officer and Chief Financial Officer have 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 Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.

There was no change in the Company's internal controls over financial reporting
identified in connection with the evaluation described above that has materially
affected, or is reasonably likely to materially affect the Company's internal
control over financial reporting.

                                    PART III

Item 9.  Directors and Executive Officers of the Registrant
-----------------------------------------------------------

Reference is made to the sections entitled "Election of Directors",
"Management", and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Registrant's definitive proxy statement to be mailed to shareholders on or
about April 22, 2004, and to be 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 22, 2004, and to be filed with the
Securities and Exchange Commission.

Item 11. Security Ownership of Certain Beneficial Owners and Management and
---------------------------------------------------------------------------
         Related Stockholder Matters
         ---------------------------

Reference is made to the section entitled "Stock Ownership" in the Registrant's
definitive proxy statement to be mailed to shareholders on or about April 22,
2004, and to be filed with the Securities Exchange Commission. Information with
respect to securities authorized for issuance under equity compensation plans is
set forth in Part II, Item 5, above.

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

The Company and Louis P. Scheps have entered into an employment agreement
pursuant to which Mr. Scheps serves as President and Chief Executive Officer of
the Company. The employment agreement, dated September 1, 2000, has been amended
(as amended, the "Employment Agreement") to extend its term through August 31,
2004 and provides for a base salary of $250,000 per year. The Employment
Agreement also provides that if a "Change of Control" (as defined below) occurs,
and upon such Change of Control occurring, the Employment Agreement is not
extended for a period of at least one year following the stated termination date
of the Employment Agreement, 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 Company'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 acquirer or acquirers 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.
During October 1998, Mr. Scheps

<PAGE>

                                                                         Page 16

was granted a warrant to purchase 100,000 shares of the Company common stock at
an exercise price of $1.00 per share, the fair market value of the option at the
date of the grant. This warrant is exercisable solely in the event of a Change
of Control.

Item 13.  Exhibits, List and Reports on Form 8-K
------------------------------------------------

        (A)     3.1     Certificate of Incorporation of Registrant (1)

                3.2     Amended and Restated By-Laws of Registrant

                10.1    Employment Agreement dated September 1, 1993 between the
                        Company and Louis P. Scheps (2)

                10.2    Amendment Number One to Employment Agreement dated
                        September 1, 1998 between the Company and Louis P.
                        Scheps (2)

                10.3    Amendment Number Two to Employment Agreement dated
                        September 1, 2000 between the Company and Louis P.
                        Scheps (2)

                10.4    Amendment Number Three to Employment Agreement dated
                        September 1, 2002 between the Company and Louis P.
                        Scheps (2)

                10.5    Amendment Number Four to Employment Agreement dated
                        September 1, 2003 between the Company and Louis P.
                        Scheps

                23.1    Consent of Independent Accountants

                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 Registrant's Registration Statement, dated
April 15, 1985, filed with the Securities and Exchange Commission.

(2) Incorporated by reference to the Company's Form 10-KSB for the fiscal year
ended December 31, 2002.

        (B) Reports on Form 8-K

            No reports on Form 8-K were filed during the three months ended
            December 31, 2003.

Item 14. Principal Auditors Fees and Services
---------------------------------------------

Reference is made to the proposal entitled "Ratification of Selection of
Independent Auditors" in the Registrant's definitive proxy statement to be
mailed to shareholders on or about April 22, 2004, and to be filed with the
Securities and Exchange Commission.
<PAGE>

                                                                         Page 17

SIGNATURES
----------

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
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:  March 26, 2004
-------------------------------------------
By:  Louis P. Scheps
     Chairman of the Board, President and
     Chief Executive Officer


In accordance with 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/ Lawrence Burstein                                Date:  March 26, 2004
-------------------------------------------
Lawrence Burstein, Director



/s/ Jerome Baron                                     Date:  March 26, 2004
-------------------------------------------
Jerome Baron, Director



/s/ Saul Milles                                      Date:  March 26, 2004
-------------------------------------------
Saul Milles, Director



/s/ Louis P. Scheps                                  Date:  March 26, 2004
-------------------------------------------
Louis P. Scheps, Chairman of the Board,
President, Chief Executive Officer and Director



/s/ Jeffery A. Baird                                 Date:  March 26, 2004
-------------------------------------------
Jeffery A. Baird,  Chief Financial Officer