**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





FORM
      10-QSB








Quarterly
      Report Under Section 13 or 15 (d)


of
      the
      Securities Exchange Act of 1934








For
      the
      Quarterly Period Ended June 30, 2005







Commission
      File Number 0-13839











CAS
      MEDICAL SYSTEMS, INC.  (Exact
      name of small business issuer as specified in its charter)











Delaware
            06-1123096(State
                or other jurisdiction of
            (I.R.S.
                employerincorporation
                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)








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 o











State
      the
      number of shares outstanding of each of the issuers classes of common stock,
      as
      of the latest practicable date: Common Stock, $.004 par value 9,937,119
      shares as of August 1, 2005.





Transitional
      Small Business Disclosure Format (check one): Yes o No x












Form
            10-QSB
 June
            30,
            2005
 Page 
            2







INDEX





PART
                1
            Financial
                Information
            Page
                No.Item
                1
            Financial
                StatementsCondensed
                Consolidated Balance Sheets as of June 30, 2005and
                December 31, 2004
            3Condensed
                Consolidated Statements of Income for the Three and SixMonths
                Ended June 30, 2005 and 2004 (Restated)
            5Condensed
                Consolidated Statements of Cash Flow for the SixMonths
                Ended June 30, 2005 and 2004 (Restated)
            6Notes
                to Condensed Consolidated Financial Statements
            7Item
                2
            Management’s
                Discussion and Analysis of Financial Conditionand
                Results of Operations
            13Item
                3
            Controls
                and Procedures
            16PART
                II
            Other
                InformationItem
                4
            Submission
                of Matters to a Vote of Security Holders
            16Item
                6
            Exhibits
            17Signatures
            
            18








Form
            10-QSB
 June
            30,
            2005
 Page 
            3





PART
      I
      - FINANCIAL INFORMATION





ITEM
              1.
            FINANCIAL
                STATEMENTS





CAS
      Medical Systems, Inc.





Condensed
      Consolidated Balance Sheets





(Unaudited)





Assets
            
            June
                30,
            
            December
                31,2005
            
            2004Current
                Assets:Cash
                and cash equivalents
            
            $
            1,506,026
            
            $
            1,973,452Accounts
                receivable, net of allowancefor
                doubtful accounts
            
            
            3,656,492
            
            
            2,929,167Inventories
            
            
            4,871,938
            
            
            2,662,686Deferred
                income taxes
            
            
            210,972
            
            
            250,342Other
                current assets
            
            
            231,876
            
            
            355,367Total
                current assets
            
            
            10,477,304
            
            
            8,171,014Property
                and Equipment:Land
                and improvements
            
            
            535,000
            
            
            535,000Building
                and improvements
            
            
            1,477,398
            
            
            1,473,698Leasehold
                improvements
            
            
            106,761
            
            
            —Machinery
                and equipment
            
            
            3,480,122
            
            
            2,908,3765,599,281
            
            
            4,917,074Accumulated
                depreciation and amortization
            
            
            (2,840,074
            )
            
            (2,649,031
            )Property
                and equipment, net
            
            
            2,759,207
            
            
            2,268,043Intangible
                and other assets, net
            
            
            207,513
            
            
            167,990Deferred
                income taxes
            
            
            384,954
            
            
            385,935Goodwill
            
            
            3,093,586
            
            
            —Total
                assets
            
            $
            16,922,564
            
            $
            10,992,982

















Form
            10-QSB
 June
            30,
            2005
 Page 
            4











CAS
      Medical Systems, Inc.





Condensed
      Consolidated Balance Sheets





(Unaudited)








June
                30,
            
            December
                31,Liabilities
                and Stockholders’ Equity
            
            2005
            
            2004Current
                Liabilities:Accounts
                payable
            
            $
            1,543,873
            
            $
            734,939Income
                taxes
            
            
            178,288
            
            
            417,130Accrual
                for business acquisition
            
            
            427,093
            
            
            —Accrued
                expenses
            
            
            789,020
            
            
            854,410Current
                portion of long-term debt
            
            
            557,107
            
            
            58,929Total
                current liabilities
            
            
            3,495,381
            
            
            2,065,408Long-term
                debt, less current portion
            
            
            4,707,253
            
            
            1,034,495Retirement
                benefit obligation
            
            
            777,559
            
            
            736,988Stockholders
                Equity:Common
                stock, $.004 par value per share,19,000,000
                shares authorized, 10,017,494 and9,959,173
                shares issued at June 30, 2005 andDecember
                31, 2004, respectively, includingshares
                held in treasury
            
            
            40,070
            
            
            39,837Additional
                paid-in capital
            
            
            3,083,994
            
            
            3,031,387Common
                stock held in treasury, at cost - 86,000 shares
            
            
            (101,480
            )
            
            (101,480
            )Retained
                earnings
            
            
            4,919,787
            
            
            4,186,347Total
                stockholders equity
            
            
            7,942,371
            
            
            7,156,091Total
                liabilities and stockholders equity
            
            $
            16,922,564
            
            $
            10,992,982











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








Form
            10-QSB
 June
            30,
            2005
 Page 
            5








CAS
      Medical Systems, Inc.





Condensed
      Consolidated Statements of Income





(Unaudited)











Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2004
            
            
            
            20042005
            
            Restated
            
            2005
            
            RestatedREVENUES:
            
            $
            5,882,755
            
            $
            4,882,875
            
            $
            10,831,266
            
            $
            9,439,317OPERATING
                EXPENSES:Cost
                of product sales
            
            
            3,262,918
            
            
            2,723,502
            
            
            5,966,108
            
            
            5,233,413Research
                and development
            
            
            282,574
            
            
            246,866
            
            
            535,304
            
            
            520,515Selling,
                general and administrative
            
            
            1,726,754
            
            
            1,490,801
            
            
            3,198,993
            
            
            3,026,805Operating
                income
            
            
            610,509
            
            
            421,706
            
            
            1,130,861
            
            
            658,584Interest
                expense
            
            
            33,796
            
            
            21,410
            
            
            36,741
            
            
            49,190Income
                before income taxes
            
            
            576,713
            
            
            400,296
            
            
            1,094,120
            
            
            609,394Income
                taxes
            
            
            195,180
            
            
            138,757
            
            
            360,680
            
            
            131,430NET
                INCOME
            
            $
            381,533
            
            $
            261,539
            
            $
            733,440
            
            $
            477,964Weighted
                average number ofcommon
                shares outstanding:Basic
            
            
            9,908,087
            
            
            9,786,568
            
            
            9,898,875
            
            
            9,755,285Diluted
            
            
            11,567,912
            
            
            11,065,039
            
            
            11,512,587
            
            
            11,048,745Earnings
                per common share:Basic
            
            $
            0.04
            
            $
            0.03
            
            $
            0.07
            
            $
            0.05Diluted
            
            $
            0.03
            
            $
            0.02
            
            $
            0.06
            
            $
            0.04








The
      accompanying notes are an integral part of these financial
      statements








Form
            10-QSB
 June
            30,
            2005
 Page 
            6





CAS
      Medical Systems, Inc.





Condensed
      Consolidated Statements of Cash Flow





(Unaudited)


Six
                Months EndedJune
                30,June
                30,
            
            20042005
            
            RestatedOPERATING
                ACTIVITIES:Net
                income
            
            $
            733,440
            
            $
            477,964Adjustments
                to reconcile net income tonet
                cash (used in) provided by operating activities:Depreciation
                and amortization
            
            
            239,919
            
            
            242,531Deferred
                income taxes
            
            
            16,107
            
            
            (4,355
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (306,971
            )
            
            784,041Inventories
            
            
            (788,856
            )
            
            (606,574
            )Other
                current assets
            
            
            139,844
            
            
            335,344Retirement
                benefit obligation
            
            
            40,571
            
            
            101,044Accrual
                for business acquisition
            
            
            427,093
            
            
            —Accounts
                payable and accrued expenses
            
            
            (555,840
            )
            
            345,557Net
                cash (used) provided by operating activities
            
            
            (54,693
            )
            
            1,675,552INVESTING
                ACTIVITIES:Purchase
                of property and equipment
            
            
            (438,561
            )
            
            (268,663
            )Business
                acquisition, net of cash acquired of $250,060
            
            
            (4,111,721
            )
            
            —Purchase
                of intangible assets
            
            
            (84,473
            )
            
            (59,477
            )Net
                cash used by investing activities
            
            
            (4,634,755
            )
            
            (328,140
            )FINANCING
                ACTIVITIES:Repayments
                under notes payable
            
            
            —
            
            
            (207,398
            )Repayments
                under long-term debt
            
            
            (30,821
            )
            
            (634,129
            )Proceeds
                from long-term debt agreement
            
            
            4,200,000
            
            
            —Purchase
                of stock held for treasury
            
            
            —
            
            
            (101,480
            )Proceeds
                from issuance of common stock
            
            
            52,843
            
            
            123,730Net
                cash provided by (used in) financing activities
            
            
            4,222,022
            
            
            (819,277
            )Change
                in cash and cash equivalents
            
            
            (467,426
            )
            
            528,135CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            1,973,452
            
            
            881,087CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            1,506,026
            
            $
            1,409,222SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                paid for interest
            
            $
            31,255
            
            $
            55,840Cash
                paid for income taxes
            
            $
            678,191
            
            $
            173,506





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





Form
            10-QSB
 June
            30,
            2005
 Page 
            7





CAS
      Medical Systems, Inc.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)


June
      30,
      2005


(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 has several other products
      in various stages of development that it believes will add to and complement
      its
      current product lines.





As
      described in Note 4, on May 15, 2005 the Company acquired all of the outstanding
      capital stock of Statcorp, Inc. (“Statcorp”). Statcorp develops, assembles and
      sells blood pressure cuffs, liquid infusion devices, and blood transfusion
      filters used in the healthcare and medical industry. The results of operations
      of Statcorp are included in the accompanying financial statements from the
      acquisition date. All significant inter-company balances and transactions have
      been eliminated in consolidation.





(2)
            Basis
                of Presentation





The
      financial statements included herein have been prepared, without audit, pursuant
      to the rules and regulations of the Securities and Exchange Commission. Certain
      information and disclosures included in financial statements prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America have been condensed or omitted pursuant to such rules and regulations.
      These condensed financial statements should be read in conjunction with the
      financial statements and notes thereto included in the Companys Annual Report
      filed on Form 10-KSB for the year ended December 31, 2004. The condensed balance
      sheet as of December 31, 2004 was derived from the audited financial statements
      for the year then ended.





In
      the
      opinion of the Company, all adjustments necessary to present fairly the
      financial position of the Company as of June 30, 2005, and the results of its
      operations for the three and six months ended June 30, 2005 and 2004 (restated)
      and its cash flows for the six months ended June 30, 2005 and 2004 (restated)
      have been included in the accompanying unaudited financial statements. The
      results of operations for interim periods are not necessarily indicative of
      the
      expected results for the full year 2005.





Certain
      2004 balances have been reclassified to conform to the current year’s
      presentation.





(3)
            Restatement





During
      the 2004 year-end audit, management, together with the Audit Committee of the
      Board of Directors, determined that its accounting with respect to a
      postretirement benefit plan (the “Plan”) was not in accordance with Financial
      Accounting Standards Board Statement No. 106, “Accounting for Post-Retirement
      Benefits Other than Pensions”. Under Statement No. 106, companies are required
      to estimate the total future costs of providing postretirement benefits and
      recognize that cost over the employees service period. During January 2002,
      the
      Company established the Plan for its qualifying employees who reach age
      sixty-five and have provided ten years of service to the Company. The Plan
      provides certain prescription drug and supplemental health benefits for Medicare
      qualified retirees of the Company. The Company’s obligation under the Plan is to
      provide benefits under an insurance contract paid on behalf of the participants.
      As described in Note 9, the Company modified the Plan during February 2005
      to
      reduce its costs to the Company.





Statement
      No. 106 requires the Company to estimate the total cost of providing
      post-retirement benefits and recognize that cost over the employees’ service
      period. Prior to retroactively applying Statement No. 106, the Company
      recognized the benefit cost using the cash basis of accounting. The benefits
      are
      funded through the purchase of medical insurance for each retiree each year.
      The
      Company continues to fund the Plan on a “pay-as-you-go” basis.




Form
            10-QSB
 June
            30,
            2005
 Page 
            8




The
      accompanying statement of income for the three month period ended June 30,
      2004
      has been restated to include additional benefit expense related to the Plan
      of
      $50,522 and for the related deferred income tax benefit of $17,677. The
      accompanying statements of income and cash flows for the six month period ended
      June 30, 2004 have been restated to include additional benefit expense related
      to the Plan of $101,044 and for the related deferred income tax benefit of
      $35,355.





The
      Company has evaluated its post-retirement benefit arrangements in accordance
      with FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare
      Prescription Drug, Improvement and Modernization Act of 2003”. The Act
      introduces a prescription drug benefit under Medicare (“Medicare Part D”) as
      well as a federal subsidy to sponsors of retirement benefit plans that provide
      a
      benefit that is at least actuarially equivalent to Medicare Part D. The
      Company’s post-retirement benefit costs do not reflect amounts associated with
      the subsidy because it is unable to conclude whether the benefits provided
      by
      the Plan are actuarially equivalent to Medicare Part D.




(4)
            Acquisition





On
      May
      15, 2005, the Company entered into a Stock Purchase Agreement (the “Agreement”)
      with respect to the purchase of 100% of the outstanding capital stock of
      Statcorp, Inc. (“Statcorp”) from its stockholders. Statcorp, based in
      Jacksonville, Florida, develops, assembles and sell blood pressure cuffs, liquid
      infusion devices, and blood transfusion filters for worldwide use in the medical
      industry. The acquisition enhances the Company’s position in the non-invasive
      blood pressure monitoring market by offering a complete, low cost, high
      performance accessories solution to its customers to complement its proprietary
      monitoring products and OEM technology. Statcorp also enjoys certain key OEM,
      private label, and distributor relationships which the Company may seek to
      expand to its other product lines.





The
      initial purchase price was $4,200,000 in cash **,** subject
      to a post-closing working capital adjustment. The purchase price is also subject
      to adjustment based upon certain post-closing revenues over the twelve-month
      period effective with the consummation of the Agreement. Under the Agreement,
      the purchase price may be increased in increments up to a maximum of $1,000,000
      depending upon the level of such sales recorded during the twelve months ending
      May 15, 2006. If, however, Statcorp’s applicable revenues for this period fall
      below a certain base amount, the purchase price will be reduced in increments
      ranging from $175,000 to $700,000.





As
      of
      June 30, 2005, the Company had accrued a $404,583 contingent payment with
      respect to the working capital adjustment provided for under the Agreement.
      Such
      consideration was paid on July 6, 2005.





The
      preliminary allocation of the initial purchase price to the assets acquired
      and
      the liabilities assumed was based upon internal valuations and other
      information. Certain transaction costs of $184,281 were incurred to effect
      the
      transaction, of which $161,771 were paid in the three month period ended June
      30, 2005.





The
      following table sets forth the components of the purchase price as of June
      30,
      2005:





Cash
                paid
            
            $
            4,200,000Working
                capital adjustment payable
            
            
            404,593Transaction
                costs
            
            
            184,281Total
                purchase price
            
            $
            4,788,874





The
      following table provides the preliminary allocation of the purchase price to
      the
      estimated fair values of the acquired assets and assumed liabilities:





Cash
              
              $
              250,060Accounts
                  receivable
              
              
              420,354Inventory
              
              
              1,521,059Other
                  current assets
              
              
              16,353
  Form
            10-QSB June
              30,
              2005
 Page 
              9
  Property
                  and equipment
              
              
              243,646Goodwill
              
              
              3,093,586Other
                  intangibles
              
              
              3,926Accounts
                  payable
              
              
              (579,067
              )Accrued
                  expenses
              
              
              (108,616
              )Deferred
                  income taxes
              
              
              (56,455
              )Capital
                  lease obligations
              
              
              (15,972
              )$
              4,788,874




The
      results of operations of Statcorp are included in the Company’s consolidated
      income statement beginning on the acquisition date of May 15, 2005.




(5)
            Pro
                Forma Disclosures Related to
                Acquisition





The
      following unaudited pro forma summary financial information presents the
      consolidated results of operations of the Company as if the acquisition of
      Statcorp, consummated on May 15, 2005, had occurred as of the beginning of
      the
      periods presented. The pro forma results are shown for illustrative purposes
      only and do not purport to be indicative of the results of the Company that
      would have been reported had the acquisition actually occurred on the first
      day
      of the periods presented or indicative of results that may occur in the
      future.








Three
                Months Ended
            
            Six
                Months EndedJune
                30, 2005
            
            June
                30, 2004
            
            June
                30, 2005
            
            June
                30, 2004Net
                Revenues ($000’s)
            
            $
            6,841.3
            
            $
            6,233.8
            
            $
            13,623.8
            
            $
            12,071.3Net
                Income ($000’s)
            
            $
            478.4
            
            $
            331.5
            
            $
            901.9
            
            $
            577.0Net
                Income perCommon
                share-
                Basic
            
            $
            0.05
            
            $
            0.03
            
            $
            0.09
            
            $
            0.06-
                Diluted
            
            $
            0.04
            
            $
            0.03
            
            $
            0.08
            
            $
            0.05








(6)
      Inventories





Inventories
      consisted of the following:





June
                30,
            
            December
                31,2005
            
            2004Raw
                material
            
            $
            3,595,252
            
            $
            1,727,578Work-in-process
            
            
            41,185
            
            
            144,628Finished
                inventory
            
            
            1,235,501
            
            
            790,480$
            4,871,938
            
            $
            2,662,686





(7)
            Goodwill





Goodwill
      is the cost in excess of the fair value of net assets acquired. Under Statement
      of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
      Assets”, goodwill and intangible assets deemed to have indefinite lives are not
      amortized but are subject to annual impairment tests. In connection with the
      acquisition of Statcorp the Company recorded goodwill of $3,093,586. The Company
      will evaluate the carrying value of goodwill for potential impairment at least
      annually.




Form
          10-QSB June
            30,
            2005
 Page 
            10


(8)
              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.


A
      summary
      of the changes in the Company’s warranty accrual follows:




Six
                Months Ended June 30,2005
            
            2004Beginning
                balance
            
            $
            122,000
            
            $
            122,000Provisions
            
            
            38,000
            
            
            59,000Warranty
                costs incurred
            
            
            (38,000
            )
            
            (59,000
            )Ending
                balance
            
            $
            122,000
            
            $
            122,000





(9)
            Post-Retirement
                Health Benefit Plan





Components
      of the net periodic benefit cost of the Company’s post-retirement health benefit
      plans were as follows:





Three
                Months Ended June 30
            
            Six
                Months Ended June 30,2005
            
            2004
            
            2005
            
            2004Service
                cost
            
            $
            9,980
            
            $
            22,216
            
            $
            26,616
            
            $
            44,432Interest
                cost
            
            
            7,444
            
            
            11,729
            
            
            19,706
            
            
            23,459Prior
                service cost recognition
            
            
            (8,258
            )
            
            28,265
            
            
            7,832
            
            
            56,530Gain
                recognition
            
            
            (31
            )
            
            (5,002
            )
            
            (420
            )
            
            (10,005
            )Net
                periodic benefit cost
            
            $
            8,852
            
            $
            57,208
            
            $
            53,734
            
            $
            114,416





In
      February 2005, the Company amended the plan to require participants to
      contribute fifty percent of health insurance premiums under the plan beginning
      September 1, 2005. The plan amendment reduced the accumulated postretirement
      benefit obligation by approximately $524,500 resulting in an unrecognized prior
      service gain of approximately $185,000. This gain is being recognized over
      the
      average remaining service life of the plan participants which is approximately
      5.6 years.




Plan
      health insurance premiums paid by the Company were approximately $16,000 and
      $12,500 for the six months ended June 30, 2005 and 2004, respectively. The
      Company expects that premium payments will approximate $26,000 in
      2005.




(10)
            Earnings
                per Common Share





The
      Company computes basic earnings per share by dividing net income by the weighted
      average number of shares of common stock outstanding during the period. No
      potentially dilutive securities are included in the denominator. Diluted
      earnings per share assumes the exercise or conversion of dilutive securities.
      Warrants to purchase 22,500 shares of the Company’s common stock outstanding at
      June 30, 2004 were not included in the computation of diluted earnings per
      share
      because their exercise price was greater than the average market price of the
      common shares and, therefore, their inclusion would have been anti-dilutive.
      Stock options to purchase 147,500




Form
          10-QSB June
            30,
            2005
 Page 
            11




shares
      of
      the Company’s common stock were similarly not included for the periods ended
      June 30, 2005.




The
      following summarizes the Companys calculation of basic and diluted earnings
      per
      share:





Three
                Months Ended
            
            Six
                Months EndedJune
                30
            
            June
                302004
            
            
            
            20042005
            
            Restated
            
            2005
            
            RestatedNet
                income
            
            $
            381,533
            
            $
            261,539
            
            $
            733,440
            
            $
            477,964Weighted
                average shares outstanding
            
            
            9,908,087
            
            
            9,786,568
            
            
            9,898,875
            
            
            9,755,285Dilutive
                effect of warrants and options
            
            
            1,659,825
            
            
            1,278,471
            
            
            1,613,712
            
            
            1,293,460Total
                weighted average shares ofdilutive
                securities outstanding
            
            
            11,567,912
            
            
            11,065,039
            
            
            11,512,587
            
            
            11,048,745Earnings
                per share:Basic
            
            $
            0.04
            
            $
            0.03
            
            $
            0.07
            
            $
            0.05Diluted
            
            $
            0.03
            
            $
            0.02
            
            $
            0.06
            
            $
            0.04





(11)
            Stock-Based
                Compensation





The
      Company primarily grants qualified stock options for a fixed number of shares
      to
      employees with an exercise price equal to the fair market value of the shares
      at
      the date of the grant. The Company has adopted the disclosure only provisions
      of
      SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No.
      148, “Accounting for Stock-Based Compensation Transition and Disclosure.” SFAS
      No. 123 encourages, but does not require, companies to record compensation
      cost
      for stock-based employee compensation plans at fair value. The Company has
      chosen to continue to account for stock-based compensation using the intrinsic
      value method prescribed in Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations where,
      generally, when the exercise price of stock options equals the market price
      of
      the underlying stock on the date of grant, no compensation expense is recorded.
      Had compensation cost for the stock option awards been determined to be
      consistent with SFAS No. 123, the Company’s net income and earnings per share
      would have been changed to the following pro forma amounts:





Three
                  Months Ended
              
              Six
                  Months EndedJune
                  30
              
              June
                  302004
              
              
              
              20042005
              
              Restated
              
              2005
              
              RestatedNet
                  income:As
                  reported
              
              $
              381,533
              
              $
              261,539
              
              $
              733,440
              
              $
              477,964Compensation
                  expense for stockoptions
                  based on fair value
              
              
              146,639
              
              
              25,541
              
              
              215,343
              
              
              26,642Pro
                  forma
              
              $
              234,894
              
              $
              235,998
              
              $
              518,097
              
              $
              451,322
   Form
            10-QSB June
              30,
              2005
 Page 
              12
  Earnings
                  per share:As
                  reported - Basic
              
              $
              0.04
              
              $
              0.03
              
              $
              0.07
              
              $
              0.05Pro
                  forma - Basic
              
              $
              0.02
              
              $
              0.02
              
              $
              0.05
              
              $
              0.05As
                  reported - Diluted
              
              $
              0.03
              
              $
              0.02
              
              $
              0.06
              
              $
              0.04Pro
                  forma - Diluted
              
              $
              0.02
              
              $
              0.02
              
              $
              0.05
              
              $
              0.04




SFAS
      No.
      123R, “Share-Based Payment” requires that a public entity measure the cost of
      equity based service awards based on the grant-date fair value of the award.
      That cost will be recognized over the period during which an employee is
      required to provide service in exchange for the award or the vesting period.
      No
      compensation cost is recognized for equity instruments for which employees
      do
      not render the requisite service. The Company is required to adopt SFAS No.
      123R
      on January 1, 2006. The Company has not yet evaluated the likely effects on
      its
      financial statements.




(12)
            Financing
                Arrangements





On
      May
      16, 2005, the Company consummated a $4,200,000 fixed rate loan agreement at 6% with
      its primary lender to finance the acquisition of Statcorp. The loan is payable
      beginning July 1, 2005 in eighty-four monthly installments of approximately
      $61,000. Under the terms of the loan
      agreement, the Company is required to meet certain financial covenants
      including, but not limited to, debt service coverage and debt to net worth
      ratios.





The
      Company has a $3,000,000 line-of-credit with its bank which expires in September
      2005. Borrowings under the line-of-credit are payable on demand and bear
      interest at the banks base rate which may change from time to time (6.0% at
      June 30, 2005). At June 30, 2005 there were no borrowings under the line of
      credit. Under the terms of the loan agreement, the Company is permitted to
      borrow against accounts receivable and inventories according to pre-established
      criteria. The Company expects to extend the maturity date of the line-of-credit
      agreement in the third quarter of 2005.





Substantially
      all assets of the Company are pledged as collateral under its financing
      arrangements.








(13)
            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”) which can
      non-invasively measure the brain oxygenation level of a neonatal patient. In
      accordance with the terms of these grants, the Company is reimbursed for certain
      qualifying expenditures.





Grants
      under the NIH program include a phase II award received during May 2004
      approximating $1,000,000 for continued development in the adult population.
      During March 2004, the Company was awarded a $100,000 grant for developing
      a new
      generation of automated non-invasive blood pressure (“NIBP”) monitors, which
      have incorporated advanced NIBP algorithms that compensate for arterial
      stiffness.





During
      the three months ended June 30, 2005 and 2004, approximately $141,000 and
      $115,000, respectively, of such research and development costs were reimbursed
      under the grants. During the six months ended June 30, 2005 and 2004,
      approximately $251,000 and $144,000, respectively, of such costs were
      reimbursed. 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.




The
      Company is pursuing additional NIH grants to support its NIRS
      research.




Form
          10-QSB June
            30,
            2005
 Page 
            13




ITEM
              2
            MANAGEMENTS
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS





Certain
      statements included in this report, including without limitation statements
      in
      the Management’s Discussion and Analysis of Financial Condition and Results of
      Operations, which are not historical facts, are “forward-looking statements”
      within the meaning of Section 27A of the Securities Act of 1933, as amended,
      and
      Section 21E of the Securities Exchange Act of 1934, as amended. These
      forward-looking statements represent the Company’s current expectations
      regarding future events. The Company cautions that such statements are qualified
      by important factors that could cause actual results to differ materially from
      expected results which may be contained in the forward-looking statements.
      All
      forward-looking statements involve risks and uncertainties, including, but
      not
      limited to, the following: foreign currency fluctuations, regulations and other
      economic and political factors which affect the Company’s ability to market its
      products internationally, new product introductions by the Company’s
      competitors, increased price competition, dependence upon significant customers,
      availability and cost of components for the Company’s products, marketplace
      acceptance for the Company’s new products, FDA and other governmental regulatory
      and enforcement actions, and changes to federal research and development grant
      programs presently utilized by the Company.





Restatement





During
      the 2004 year-end audit, management, together with the Audit Committee of the
      Board of Directors, determined that its accounting with respect to a
      postretirement benefit plan (the “Plan”) was not in accordance with Financial
      Accounting Standards Board Statement No. 106, “Accounting for Post-Retirement
      Benefits Other than Pensions”. Under Statement No. 106, companies are required
      to estimate the total future costs of providing postretirement benefits and
      recognize that cost over the employees service period. During January 2002,
      the
      Company established the Plan for its qualifying employees who reach age
      sixty-five and have provided ten years of service to the Company. The Plan
      provides certain prescription drug and supplemental health benefits for Medicare
      qualified retirees of the Company. The Company’s obligation under the Plan is to
      provide benefits under an insurance contract paid on behalf of the participants.
      In February 2005, the Company amended the plan to require participants to
      contribute fifty percent of health insurance premiums under the plan beginning
      September 1, 2005.





Statement
      No. 106 requires the Company to estimate the total cost of providing
      post-retirement benefits and recognize that cost over the employees’ service
      period. Prior to retroactively applying Statement No. 106, the Company
      recognized the benefit cost using the cash basis of accounting. The benefits
      are
      funded through the purchase of medical insurance for each retiree each year.
      The
      Company continues to fund the Plan on a “pay-as-you-go” basis.





The
      Company has evaluated its post-retirement benefit arrangements in accordance
      with FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare
      Prescription Drug, Improvement and Modernization Act of 2003”. The Act
      introduces a prescription drug benefit under Medicare (“Medicare Part D”) as
      well as a federal subsidy to sponsors of retirement benefit plans that provide
      a
      benefit that is at least actuarially equivalent to Medicare Part D. The
      Company’s post-retirement benefit costs do not reflect amounts associated with
      the subsidy because it is unable to conclude whether the benefits provided
      by
      the Plan are actuarially equivalent to Medicare Part D.





The
      accompanying statement of income for the three month period ended June 30,
      2004
      have been restated to include additional benefit expense related to the Plan
      of
      $50,522 and for the related deferred income tax benefit of $17,678. The
      accompanying statements of income and cash flows for the six month period ended
      June 30, 2004 have been restated to include additional benefit expense related
      to the Plan of $101,044 and for the related deferred income tax benefit of
      $35,355.




The
      discussion which follows reflects, as applicable, restated amounts for the
      three
      months and six months ended June 30, 2004.




Results
      of Operations





For
      the
      three months ended June 30, 2005, the Company reported net income of
      approximately $382,000, or




Form
          10-QSB June
            30,
            2005
 Page 
            14




$0.03
      per
      common share on a diluted basis compared to net income of $262,000 or $0.02
      per
      diluted share reported for the same period of 2004. For the six months ended
      June 30, 2005, the Company reported net income of approximately $733,000, or
      $0.06 per diluted share compared to net income of $478,000, or $0.04 per diluted
      share for the six months ended June 30, 2004.





The
      Company generated revenues of $5,883,000 for the three months ended June 30,
      2005, an increase of $1,000,000, or 20%, over revenues of $4,883,000 for the
      three months ended June 30, 2004. Included in the results for the second quarter
      of 2005 are approximately forty five days of sales from Statcorp, acquired
      on
      May 15, 2005, which accounted for $822,000 of the increase in overall sales.
      Revenues were also led by a 16% increase in blood pressure product sales
      generated primarily by increases in sales to original equipment manufacturers
      (“OEM”) and vital signs monitor sales. Partially offsetting these increases were
      reductions in sales of apnea products. Apnea results continue to reflect
      soft market conditions.





The
      Company recorded revenues of $10,831,000 for the six months ended June 30,
      2005,
      an increase of $1,392,000, or 15%, over the $9,439,000 recorded for the six
      months ended June 30, 2004. Sales of Statcorp products accounted for $822,000
      of
      the increase in overall sales. Blood pressure product sales accounted for the
      balance of the increase and were led by increases in OEM sales and sales of
      vital signs monitors and accessories. Partially offsetting these increases
      was a
      decline in Apnea product sales.





The
      cost
      of product sold as a percentage of revenues was 55.4% for the three month period
      ended June 30, 2005, compared to 55.8% for the same period of 2004. Cost of
      product sold for the first six months of 2005 was 55.1% compared to 55.4% for
      the same period of the prior year. The reduction in the cost of product sold
      as
      a percentage of revenues for both periods is generally product mix related.





Research
      and Development (“R&D”) expenses increased $36,000 or 14%, to $283,000 for
      the three months ended June 30, 2005 compared to $247,000 for the three months
      ended June 30, 2004. The increase in R&D spending resulted primarily from
      salaries and related benefits, engineering project costs, facilities related
      costs resulting from the Company’s lease commitment to separately house certain
      of its R&D efforts, and a reduction in reimbursements from the National
      Institutes of Health (“NIH”) under established grant programs. R&D expenses
      increased $14,000, or 3%, to $535,000 for the six months ended June 30, 2005
      compared to $521,000 for the six months ended June 30, 2004. Increases in
      salaries and related benefits, facilities costs, travel and entertainment and
      engineering project material costs were partially offset by an increase in
      NIH
      reimbursements. R&D expenses before reimbursements increased 18% to
      $787,000, or 7% of revenues for the six months ended compared to $665,000,
      or 7%
      of revenues for the first six months of the prior year. The Company has ongoing
      grant programs with the NIH and anticipates continued reimbursements under
      these
      programs during the remainder of 2005.





Selling,
      general and administrative expenses (“S,G&A”) increased $236,000, or
      approximately 16%, to $1,727,000 or 29.4% of revenues for the three months
      ended
      June 30, 2005, compared to $1,491,000 or 30.5% of revenues for the second
      quarter of 2004. S,G&A expenses of Statcorp accounted for $152,000 of the
      increase. S,G&A spending, excluding Statcorp expenses, increased $84,000, or
      6%. Increased marketing expenses including meetings and convention costs were
      primarily responsible for the remainder of the increase in S,G&A expenses.
      S,G&A expenses increased $172,000, or approximately 5.7%, to $3,199,000 or
      29.5% of revenues for the six months ended June 30, 2005 compared to $3,027,000
      or 32.1% for the same period of the prior year. Statcorp expenses of $152,000
      were primarily responsible for the increase in S,G&A expenses. Increases in
      domestic selling expenses including salaries, commissions and related fringe
      benefits and travel and entertainment expenses were primarily responsible for
      the balance of the increase in S,G&A expenses.




Interest
      expense increased to $34,000 for the second quarter of 2005 compared to $21,000
      for the second quarter of 2004. $32,000 of the interest expense pertained to
      the
      Statcorp acquisition loan consummated on May 16, 2005. Interest expense
      decreased to $37,000 for the six months ended June 30, 2005 compared to $49,000
      for the first six months of the prior year. Interest expense of $32,000
      pertaining to the acquisition loan was primarily responsible for the overall
      interest expense recorded. Interest expense of $49,000 for the prior year was
      primarily related to certain outstanding bank term debt that the Company
      subsequently paid off in advance during the second and third quarters of 2004,
      and the Company’s mortgage on its main facility.




Form
          10-QSB June
            30,
            2005
 Page 
            15




The
      provision for  income
      taxes of $195,000 and $361,000, respectively, for the three and six months
      ended
      June 30, 2005 reflects an expected effective rate of approximately 33% for
      2005.
      The combined estimated federal and state effective tax rate is lower than the
      statutory rate as a result of anticipated R&D tax credits. The provision for
      income taxes for the first six months of 2004 reflects a provision for income
      taxes at an effective tax rate of 35% offset by an $80,000 income tax benefit
      resulting primarily from a refund pertaining to state R&D tax credits.




Financial
      Condition, Liquidity and Capital Resources





At
      June
      30 2005, the Companys cash and cash equivalents totaled $1,506,000 compared
      to
      $1,973,000 at December 31, 2004. Working capital increased by $876,000 to
      $6,982,000 at June 30, 2005, from $6,106,000 on December 31, 2004. The Company’s
      current ratio declined to 3.0 to 1 from 4.0 to 1.





Cash
      used
      in operations for the six months ended June 30, 2005 was $55,000 compared to
      cash provided by operations of $1,676,000 for the first six months of the prior
      year. Payments of federal income taxes and employee bonuses and increases in
      accounts receivable and inventories were primarily responsible for the decrease
      in cash provided by operations compared to the six months ended June 30, 2004.





Cash
      used
      by investing activities was $4,635,000 for the six months ended June 30, 2005
      compared to $328,000 for the first six months of the prior year reflecting
      $197,000 of increased expenditures for equipment and intangible assets and
      $4,112,000 for the purchase of Statcorp. Equipment purchases of $439,000 were
      primarily related to the acquisition and installation of the Company’s new
      enterprise resource planning system and related hardware upgrades, leasehold
      improvements related to a three year facilities lease agreement effective
      December 2004 and manufacturing inspection equipment.





Cash
      provided by financing activities for the six months ended June 30, 2005 was
      $4,222,000 compared to cash used of $819,000 for the first six months of the
      prior year. During May 2005, the Company entered into a fixed rate multi-year
      obligation for $4,200,000 with its bank to fund the Statcorp acquisition. During
      the second quarter of 2004, the Company repaid $634,000 of outstanding debt
      obligations.





The
      Company has a $3,000,000 line-of-credit with its bank which expires in September
      2005. Borrowings under the line-of-credit are payable on demand and bear
      interest at the banks base rate which may change from time to time (6.0% at
      June 30, 2005). At June 30, 2005, there were no borrowings under the line of
      credit. Under the terms of the loan agreement, the Company is permitted to
      borrow against accounts receivable and inventories according to pre-established
      criteria. Substantially all assets of the Company are required to be pledged
      as
      collateral for borrowings under the line-of-credit. The Company expects to
      extend the maturity date of the line-of-credit agreement in the third quarter
      of
      2005.





The
      Company believes that its source of funds consisting of cash and cash
      equivalents and funds available from the revolving credit facility will be
      sufficient to meet its current and expected requirements over the next twelve
      months. Although there can be no assurance that the Company’s revolving credit
      facility will be renewed, management believes that, if needed, it would be
      able
      to find alternative sources of funds on commercially acceptable terms.





Critical
      Accounting Judgments and Estimates





The
      Company’s discussion and analysis of financial condition and results of
      operations are based upon the unaudited condensed consolidated financial
      statements, which have been prepared in accordance with accounting principles
      generally accepted in the United States of America. The preparation of these
      financial statements requires the Company to make estimates and judgments that
      affect the reported amounts of assets, liabilities, revenue and expenses, and
      disclosure of contingent assets and liabilities. The Company’s estimates include
      those related to revenue recognition, the valuation of inventory, and valuation
      of deferred tax assets and liabilities, useful lives of intangible assets,
      warranty obligations and accruals. The Company bases its estimates on historical
      experience and on




Form
          10-QSB June
            30,
            2005
 Page 
            16




various
      other assumptions that management believes to be reasonable under the
      circumstances. Actual results may differ from these estimates under different
      assumptions or conditions. For a complete description of accounting policies,
      see Note 3 to our financial statements included in the Company’s Form 10-KSB for
      the year ended December 31, 2004. There were no significant changes in critical
      accounting estimates during the six months ended June 30, 2005.




ITEM3
            CONTROLS
                AND PROCEDURES





The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in the Company’s Exchange Act reports
      is recorded, processed, summarized and reported within the time periods
      specified in the SEC’s rules and forms, and that such information is accumulated
      and communicated to the Companys management, including its Chief Executive
      Officer and Chief Financial Officer, as appropriate, to allow timely decisions
      regarding required disclosure based on the definition of “disclosure
      controls and procedures” in Rule
      13a-15(e). In designing and evaluating the disclosure controls and procedures,
      management recognizes that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving the
      desired control objectives, and management necessarily is required to apply
      its
      judgment in evaluating the cost-benefit relationship of possible controls and
      procedures.





The
      Company carried out an evaluation, under the supervision and with the
      participation of the Companys management, including the Company’s Chief
      Executive Officer and the Company’s Chief Financial Officer, of the
      effectiveness of the design and operation of the Company’s disclosure controls
      and procedures as of June 30, 2005. Based upon the foregoing evaluation, the
      Chief Executive Officer and Chief Financial Officer concluded that the Company’s
      disclosure controls and procedures were effective as of that date.





There
      have been no changes in the Company’s internal
      control
      over financial reporting during the quarter ended June 30, 2005 that have
      materially affected, or are reasonably likely to materially affect the Company’s
      internal control over financial reporting.





Reference
      is made to the Certifications of the Chief Executive Officer and the Chief
      Financial Officer about these and other matters attached as Exhibits 31.1,
      31.2
      and 32.1 to this report.








PART
        II-
        OTHER
        INFORMATION





ITEM
      4
      - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





At
      the
      Company’s annual meeting of stockholders held on June 15, 2005, two proposals
      were voted upon by the Company’s stockholders. A brief description of each
      proposal voted upon at the annual meeting and the number of votes cast for,
      against and withheld, as well as the number of abstentions and broker non-votes
      to each proposal are set forth below.





1)
      Election of members of the Board of Directors, each for a term of one
      year





Nominee
            For
            AgainstLouis
                P. Scheps
            8,567,490
            25,928Lawrence
                S. Burstein
            8,572,270
            21,148Jerome
                S. Baron
            8,567,440
            25,978Saul
                S. Milles
            8,567,586
            25,832








Form
          10-QSB June
            30,
            2005
 Page 
            17





2)
      Ratification of the appointment of UHY LLP as auditor for the Company for the
      fiscal year ending December 31, 2005





For
            Against
            Abstain8,561,275
            16,915
            15,228





There
      were no broker non-votes with respect to Proposals 1 and 2.








ITEM
      6  EXHIBITS




31.1
            Certification
                pursuant to Rule 13a-14(a) of Louis P. Scheps, President and Chief
                Executive Officer


31.2
              Certification
                  pursuant to Rule 13a-14(a) of Jeffery A. Baird, Chief Financial
                  Officer
 32.1
              Certification of Periodic Financial Report of Louis P. Scheps, President and Chief Executive Officer
                and Jeffery A. Baird, Chief Financial Officer














Form
            10-QSB
 June
            30,
            2005
 Page 
            18








SIGNATURES








In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





CAS
                  MEDICAL SYSTEMS, INC.
                (Registrant)Date: August
                11, 2005
              By:
              /s/ Louis
                P. SchepsLouis
                P. SchepsChairman
                  of the Board, President and
                Chief
                  Executive Officer
  Date: August
                  11, 2005
                By:
                /s/ Jeffery
                  A. BairdJeffery
                  A. BairdChief
                    Financial
                    Officer